Iochpe-Maxion S.A. (IOCJY) Earnings Call Transcript & Summary

[Interpreted] Good morning, everyone. Welcome to Iochpe-Maxion's First Quarter 2025 Results Video Conference. I am Rodrigo Caraça, Senior Investor Relations Manager for the company, and I will be conducting today's video conference. Today, in this video conference, we have Mr. Pieter Klinkers, CEO, and Mr. Renato Salum, our CFO. Please be advised that this conference is being recorded and will be made available on the company's Investor Relations website along with the respective presentation. Please note that Mr. Pieter Klinkers will conduct the presentation in English. For your convenience, simultaneous interpreting in Portuguese and English are available. [Operator Instructions] Before proceeding, we would like to clarify that any statements that may be made during this video conference regarding the company's business prospects, projections and operational and financial goals constitute beliefs and assumptions of Iochpe-Maxion's Board of Directors as well as information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions as they refer to future events, and therefore, depend on circumstances that may not or may not occur. I would now like to turn the floor to Mr. Pieter Klinkers. Sir, you may now proceed.

Thank you, everybody. Good morning to most of you, and good afternoon, I believe to some of you. So -- welcome to our second quarter conference call. If you can go to the next slide, what are you Okay. Let's have a look at the market first. On the left side of this slide, you see pass car I would say that's not a very exciting picture. If you look, including China, excluding China, it's basically a stable market in the year 2024, 2025 and 6. Now there is more movement if you look in certain regions, of course, but overall, we would say this is a pretty flat market, at least in the beginning of this of this cycle of 5 years. On the right side, you see a little bit of a different picture. That's the truck market as we see it as IHS is and basically, we see a reduction in this year, 2025 compared to 2024. And of course, that's largely focused on what's happening in North America, but also to a lesser extent, what's happening in Europe. On the other hand, when we talk about truck when we see the CAGR over the years. It's -- that is a lot more exciting, and we look forward to achieving -- reaching these numbers. So pretty flat on the light vehicle side on the short term, even on the long-term less growth, but on the truck, a different picture on the short term with some declines, especially in North America, Europe and then a more favored favorable picture on the midterm and the long term. If you go to the next slide, you see on the left side of this slide, you see an executive summary, I would call it. So our net revenue, as you may have read it, is up about 6.8% versus the same period last year, the second quarter of 2024 and have amounted to approximately BRL 4.1 billion. Our gross profit also up versus last year. It's an increase of 12.2% over last year, which means the gross margin in the second quarter of 2025 of approximately 13%, which is an increase also of 0.6 percentage points over last year, a good number, we believe. Same for EBITDA, we were able to achieve a margin of 11.0%, which is a growth of about 15%, 16% compared to the same quarter last year and an increase of 0.9 percentage points versus the second quarter of last year. Net income was up meaningfully. We had some negative effects there last non-mandatory last year. also these effects were there this year, but to a lesser extent, but we believe, a much better number this year from a net income point of view in the second quarter than what we were able to show -- last year, our leverage is at 2.38x in the second quarter of 2025, and that compares to just under 3% in the second quarter of 2024. Now when you see the left side here, I think it doesn't look so bad. If you look at the right side, I think it looks pretty good. That's a very nice wheel, I hope to be able to talk about that a little bit more when we see hopefully, several of you during our Investor Day that we are planning to organize. So you can go to the next slide. Let's have a look at our operating revenue, how compared to last year. So I said 6.8% plus versus 2024. We're also up in the first half of 2025 surplus of about 8% that we were able to realize versus last year. And this is, of course, in that market that is both down in pass car as well as in truck, if you exclude China, which is what we do because China is so big and in general, and we are so small in China still. And so we believe even if you exclude FX, this is a number that is better than what the market is showing at this moment. If we look a little bit more in detail on where that revenue is coming from and how it compares to what we were looking at 1 year ago, you clearly see that from a structural components point of view, the percentage of revenue of our total revenue is down. And that has all to do with the North American truck market that we will come back to a little bit more in detail when we talk about our operating revenue in North America. But components just because of that reason, is down on the total, but it's being made up by wheels particularly by aluminum wheels, particularly there in Brazil and in Europe. So overall, a good number, I would say, that is being supported more design by wheels, then by components. So that's a little bit what we see back also when we look at the complete first half of 2025 when we compare it to the first half of 2024 and as a matter of fact, we believe this kind of picture will continue to be there for the remainder of the year. That's a strives to make up in certain parts of the world, what we may be losing because of market tendencies in other parts of the world. If we look at the revenue by customers, of course, that's logical. You're going to see the same thing. So if you look, for instance, on the left of this slide, you see Daimler, and that revenue, of course, is down versus last year because we sell a lot of product to Daimler trucks in North America. And so when that market is meaningfully down it's hard to have the same revenue. But as being made up, you see here at customers like Toyota, customers like Renault Nissan, customers like Hyundai, Kiai. So that's mainly LV, that's mainly aluminum wheels. And so overall, a good picture where we are mitigating offsetting, more than offsetting in LV around the world, what we lose in primarily truck North America. You therefore also see that top 10 number or top 5 number percentage. It's going down a little bit compared to what we showed last year. So instead of 77%, top 1 making up of our total turnover now it's only 73%. So we're making up elsewhere what we lose in -- for instance, in Daimler in North America. Looking more at the regions. Here you see America South America, as you know very well, is a good market to be in right now, especially when you talk about the first half. And so I would say Maxion is outperforming a relatively strong year-to-date market. And we do that, especially in light vehicle wheels both steel and aluminum and CV components. And so our operating revenue is up about 23%, 24% on light vehicles, which is really outpacing the market. You see the market on the bottom right up about 8%. And so in commercial vehicles, the market is about flat, and we're up 3%, 4% in Maxim. So That's, I would say, a clear evidence of us outpacing the market from a revenue point of view. That has to do with units. We're selling more units than last year clearly, but also -- it has to do with an appropriate passing on of metal and other inflationary costs into the market. If we look at North America, of course, here, the numbers are down, as we said already, and I believe everybody knows the markets -- the truck market in North America is meaningfully down versus last year but also versus prior projections. And so when you look at our numbers, the market being down about 28%, 29%, 30% right now, our numbers are down as well, 25.7% down in commercial vehicles. In light vehicles, we are more or less stable, so a little bit better than the market, but of course, that's not good enough to make up what is being lost on the truck side. And so this is a difficult market for everybody right now. We are trying to mitigate it locally, but we are able to mitigate it globally. But locally, this is a very difficult market at this moment. We also believe on the very short term this market will not come back. But we do believe, and that's the positive in all the demands, all the production or sales that we're missing right now that demand does not go away. The demand is there. And ultimately, it will be replaced. When exactly is that ultimate moment. We believe next year, the market will be better than what we're seeing right now and we believe in the future, the cycle will be up again. So whatever we lose now, we believe it will come back to us just not right now. And then when you look at Europe, that's another market. It's not as drastic in North America truck. Of course, that is a market that's slightly contracting. You read it everywhere, you see it everywhere -- light vehicles a few percent down, commercial vehicles, about 1% down. And we see that as well, but we are able to more than offset that. And so our operating revenue is up more than 20% on light vehicles and more than 25% in commercial vehicles. Now there is FX in there, of course. But even if you subtract the FX, the foreign exchange impact then our revenue would still be up. And also, our unions are up, both on the LV side and the CV wheel side. Of course, we only have wheels [indiscernible] components that region in Europe. And so it's again, a combination of the units being up and the recovery of increased metal and other inflationary cost. And so the combination of that leads us to outperform this market. That is, I would call, a sluggish, but we are able to do a good job within that market. And then if you look at Asia, our revenue is up, both on light vehicles, commercial vehicles, as we would expect it. I would say Maxion is growing with the market. There are some different tenancies going on within Asia, I would say, Thailand, of course, a very small market, but a relatively small market. But coming back to a certain extent, we see that in our numbers. And then India on the short term, a little bit less growth than what we were expecting that we're doing a good job also in India, both LV and CV, and we believe that going forward, this is definitely the growth market that everybody is expecting it to be and we will be performing well in that market. If we have a closer look on what it all means what we do in these regions from a gross profit and gross margin point of view, you can see that both absolute and in percentage on gross profit is up. And so we were able to achieve a 13% gross profit in the second quarter of 2025, which is about a 12% increase versus the same period last year of BRL 535 million versus BRL 477 million, and that's in line with the whole first half of the year where we are now looking at about a 12%, 12.2% margin, gross margin that we achieved in the company. If we look at EBITDA, it's a similar picture. So we were able to achieve the 11% as we said before, which is a 16% increase over last year. And then when you look at it from a first half versus last year, also here a reasonable increase in the first half now turned out to be double digits for the company. That means increase in margin in the second quarter and a 0.5% increase in the first half of 2021 compared to last year. Net income, as I said before, last year, we had some more meaningful impacts from -- due to FX reasons. We still see those impacts, but it's less in the second quarter of this year as it was in the second quarter of last year. And so our net income was very reasonable, believe, at BRL 87 trillion which is a big improvement versus what we were able to show last year. And was that number also the first half of the year now looks more reasonable than what we were able to show in the first quarter of this year. From an investment point of view, I mean, we have been talking a few times already about disciplined CapEx management. And I believe also in the second quarter, we were able to stick with that [indiscernible] and if you would exclude it for FX, we would actually be a little bit below in the second quarter and in the first half of 2025 versus what we were doing last year. But overall, I would say we stick with the premise of having a disciplined CapEx management in place. If you look at our leverage, you see the leverage have been coming down over time. And of course, we all know about the seasonality of of numbers, we believe that 2.38 needs to be compared with the second quarter of last year, where we were at 2.97%, and it's definitely our strive to continue that trend down versus prior quarters, versus prior year, half of the year, and versus the complete year of last year. So we would say we are on track with what we were focusing on and targeting to have as a leverage in the second quarter of 2025 or the first half of 2025. Our gross debt met a lot of new news here. We believe that the composition of our gross debt is still very much in line with where we do business. And so of course, the majority is in [ reals, ] a little bit more than the revenue that we generate in Brazil, but very much in line. And then the second biggest part is in Europe, 34%, which is very much in line with our revenue and the remaining part is mostly in dollars. If you look at the terms, actually, we were able to reduce the percentage of short-term up significantly versus what we are looking at last year, which wasn't too bad in the first place, I believe. But right now, we're looking at only 6%, 7% of our debt being short term, meaning less than 1-year maturity. You see that on the top right as well, our only big maturity, as many of you know, will be in 2028, and we believe we have ample time to have the right strategy in place, the right timing in place to manage that bar that you see there in 2028. From a cost point of view, if we compare the second quarter of 2025 versus the second quarter of 2024, you can see here that in all major currencies in reals, in U.S. dollars we've been able to decrease the cost of our debt, which is another good achievement, I believe, year-over-year. Last but not least, a couple of slides on new programs. And so you see on the top, a nice vehicle. Our message here is that we see Maxion securing a growing number of business wins with premium brands. And of course, those are not only, but especially in Europe, and that's a good thing for the company, not only is the right thing from a revenue and from a margin point of view, but it also proves that our technology is well accepted even by the customers with the highest specs. In India, we are growing both from a steel wheel point of view, but also from an aluminum wheel point of view. And of course, our global wheel expertise, we are the only global real manufacturer being pressed in India gives us some advantage. And as I said before, when we talk about the regions, we believe in the future of India, and we are doing a good job with new business wins, both in steel oils and also in aluminum wheels in that market mark to come in Brazil. Of course, the Brazilian market is strong. We see that back in aluminum, we see it also back in steel oils, especially with new incentives being put in place. In Brazil, maybe that has even more effect for lower segments and therefore, for steel wheels, also for aluminum, but maybe especially for sellers. So we are very proud that we are able to address that whole market, and you've seen it in our numbers, we are outperforming a market that is already relatively strong, and we also see that back in the new business wins that we are having in this market that is very important for us. And then last but not least, also in China, we continue to win new business there with aluminum wheels. We don't have Pascal steel wheels, but we are continuing to win new business. And we believe we do have some unique real expertise in place that the customers value and we see some momentum there in gaining new business as well as especially with new energy vehicles, which are the electrified vehicles. Next slide shows you some recognition. I don't want to dwell out in it, but it's important to show the slide because I believe our customers see us as a very reliable part of the see us as a stable partner, and we see that back in some of the recognitions not only the new business wins that they get from customers, but also in the recognition that we keep getting from our -- perceiving from our customers. So if we go to the last slide as a summary, I hope you can agree with me that from a value creation point of view, that despite the global volatility that we all know that is there and tariffs and changing volumes, we believe that Maxim is able to maintain -- has been able to maintain robust financial results in the second quarter. We are, we believe, a resilient company. We'll talk a little bit more about during our Investor Day at the end of the month. But we are able to continue to have very appropriate productivity. We are agile operations when volumes go up and down or we need to move volumes between one region and another region. We are used to do that, and we -- that helps us a lot now and being a resilient company, in these volatile times. And also, we have a disciplined cost and pricing management in place growth. I believe overall, we are able to show that we are growing a little bit above the market. And so we are doing that. And from a customer point of view, as I just said, we believe our customers generally see us as a very reliable, stable and a high-performing partner, and we are able to show that to more and more customers in our global customer base. So with that, I would say, Rodrigo, turn it back to you, and we switch to questions and hopefully also answers.

[Interpreted] Thank you, Peter. We will now start our questions-and-answer session. I'd like to ask you to ask your questions at one time and wait for our -- and sir, we would kindly ask you to send your questions through the Q&A session. And for standard, we are going to say your name and ask you to open your microphone. And the first question comes from Fernanda Recchia from BTG. Fernanda, you can proceed.

[Interpreted] Good morning, everyone. We have 2 questions in our side. First, I'd like to ask you from a perspective. Peter has shown an updated performance globally. And when you look at commercial vehicles, the number you showed this last 5% when you should -- when you look at the perspective for the first semester for 2025, we do see a decrease of volume of 2% in commercial vehicles. I would like to understand if considering this scenario, we should. The second semester better for commercial vehicle. And if you could talk a little bit about rarity of the different regions and tell us if you see any possible improvement in North America for the second semester for commercial vehicles. The second question regards profitability. We see you going back to a 2-digit level, and we would like to understand for the second semester, if you could see we could expect profitability to remain in 2 digits, especially considering that Q4 has a seasonality that is not so good. This would be my 2 questions.

Yes. Thank you very much, Fernanda. These are going to a bit very relevant questions. And so I mean answer the first question first. The North American market, as I said, it's a weaker market than people were expecting, let's say, 6 months ago. And right now, I would say it's a weaker market even than what people were expecting and people and especially speaking about our customers. we're expecting just recently. And so unfortunately, I do not believe -- we do not believe that this market will turn around suddenly. We do believe that the market will be up, but it is very difficult right now to predict when that market will be will already happen in the second half of this year? Or will that only happen somewhere in the course of next year? Of course, we'll hope rather sooner than later. But given today's volatility in geopolitics, et cetera, it's very hard to predict exactly when that market will turn around. We all do believe the market will turn around. Of course, if the market does not turn around, we will continue our strive as we've done it in the second quarter, we've done it in the first half of this year, we will continue our strive to, first of all, offset any impacts locally. And as you know, we produce product for the North American truck market, primarily in Mexico. And we've been able to do a good job there, and I'm sure we will do another good job in the second half of this year. And then, of course, we'll try to make up most of that, if not more than that in the rest of the world. But very hard to predict exactly when that market will come back. From a profitability point of view, I think our second quarter was decent. And of course, we want to continue on that trend. Of course, as you say, there will be seasonality, I would say, we are looking at the second half of the year that should be stronger than the first half of the year. in our company. Exactly how strong it will be will depend on how the second half of the year will develop. And what other measures will be taken and how trade will develop in the world. But basically, I feel confident -- we feel confident that our second half of the year will still be stronger than the first half of the year. Again, saying now exactly how strong it will be. It depends on, of course, how certain things develop over the next months.

[Interpreted] Thank you very much, Pieter. Our next question comes from Gabriel Tinem from Santander. Gabriel, you can proceed.

[Interpreted] Good morning, everyone. I have 2 questions. The first is more focused in leverage and cash management. If you could talk a little bit about the progress and how you're going to reach lower levels of EBITDA. And also talk about the pillars of cash generation for this year? And the second question is more focused on CapEx. We are getting to that level of BRL 50 million to BRL 60 million this year. And I would what would be what you would consider normalized CapEx and see if you could talk a little bit more about that.

[Interpreted] Thank you for the question. Talking a little bit more about leverage here. With regards to what we see here, we are -- we have a stable maintenance in the periods of the fourth quarter of '24 in the first 2 quarters of '25 with 2 to 3x, which is very good compared to where we were last year. Here, we can see the increase in our net debt of about BRL 200 million here. We know that when compared to the first -- when we compare the first half of the year to the second one, we have an increase in working capital. We had a loss of dividends of BRL 100 million, and we didn't have a large volume of payments for less the previous year. Now when we compare the second quarter of 2025 to the second quarter of '24, we see an increase of net debt of about BRL 230 million. And considering our balance, we see that -- we have 230, 260 increase to the increase of working capital in that period. Additionally, we have an increase of the exchange rates so when we compare the Brazilian reals in dollars, we have a decrease to go from 6.9% at the end of the year to the second quarter of [ 25.46 ] and then we have a narrow that -- we have a kind of a -- we maintain the level. So when we analyze the working capital for the last few months, we see that the working capital ratio has increased 1.2% the points reflecting in the first semester a preparation for the demand of the segment Semesters, and we see a margin increase of 0.1 percentage points reaching 12% in the working capital ratio. So what we expect is that during maybe the third quarter we should go back to our historical working capital levels of about 13% and then have a return of this working capital observing that at the end of the year, we already do work on the deductions regarding seasonality. So with considering all that we see a balance in the leverage compared to cash generation. Regarding cash generation, we have gross generation of BRL 4 million, and I look at my cash flow directly. We also see a consumption of cash in this period of about BRL 120 million. But what we see moving forward is still a quarter that is still aligned with what we expect in what have been seen in our last quarters. And we do believe that we have a good cash generation for the remaining of the year.

[Interpreted] The second question regarding CapEx. If you could give us a little bit more about that.

[Interpreted] Regarding CapEx, we -- I do believe we had disbursement of an important disbursement in the second semester regarding our expansion in Mexico, mostly in the almost completion of our plant in Turkey. And I believe we should be halfway through our CapEx for the entire year. So at this time that is what we have. That's the perception we have regarding what has been realized in the last few years. It's a bit cloud but that all.

[Interpreted] Our next question comes from Gabriel Rezende from Itau BBA Gabriel, you can proceed.

[Interpreted] Thank you, Rodrigo. Peter at, have a couple of questions here from Itau. In the press release for the earnings, you say that regardless, all the uncertainty we had in the second semester, you explained part of the growth in revenues due to the growth of volumes. Was that it despite everything, the net in terms of volume has been positive? And how can we think of this positive volume when we have some markets that are still negative. And the second item regarding volumes we get the impression that Yashi has kind of manage the dynamics of exchange rates due to your geographical presence. I would like to understand that in -- if in North America, considering you supply from Mexico. If you have had -- have achieved to export more to the America, considering the restrictions for other regions.

Hello, Gabriel. This is Pieter. So let me answer the first question. when we look at volumes and you speak about positive volumes for the second half of the year, I'm positive that our volumes will be positive for the second half of the year. Now out of that then, of course, we have this particular situation in North America where we are basically only impacted only between brightness and components. In Wheels, we are serving different segments in North America. And these segments are either not contracting or we are offsetting any small contraction. And so Besides that, let's not forget that this company is having a large presence in Brazil. This company is having a very good presence in places like India or Thailand, that are actually growing. And as we said in Europe, there is a contraction, but it's slight and we are able to more than offset that. And you talk, of course, about market share growth. Now when you talk about market share growth in wheels, that's not something that changes from 1 quarter to the other. You either lose market share over time or you gain market share over time. So once again, it's I think normally, it's going to be there for a little bit longer. So whatever we gained last year or the beginning of this year, it will also support us in the second half of the year. That for me is a given. And then on top of that, I think we have shown that we have the capability to have appropriate capability of price recovery. And also that we believe we will be continuing to do our capitalize on the work that we already have been doing. That's also not something that changes too much from 1 quarter to the other quarter. So if you take all these 3 things into account, our presence in other regions that are growing on market share gains in certain places and the recovery of inflation. I think all of that leads me to say that also in the second half of the year, in spite of some of the volatility we should have a robust situation.

[Interpreted] Thank you, Heath. Our next question comes from Fernando Urbano from XP. Fernando, you can proceed.

[Interpreted] Good morning, everyone. Thank you for listening. The first question in this new operation, you have this relevant capacities for delivering the Mexico and Turkey. I would like you to comment a little bit more about the ramp up and expectations for these operations even facing this scenario of volumes pre in North America? And the second question, especially about Europe, even considering the contraction of the industry, we see a good performance of your revenue, especially if you look at products for light vehicles. I would like to understand better the drivers behind the performance. And if you could comment regarding share prices and mix of products to understand what you see as the main factor behind this stronger performance that you show compared to the rest of the industry, considering what we can expect for the rest of the year in Europe.

Yes. Thank you very much for these questions. I will take -- so first of all, talking about our operations -- new operations in Mexico and in Turkey, 34 aluminum wheels Mexico for components. Of course, the market now is a little bit lower or meaningfully lower than what everybody was expecting in North America. But let's not forget various cycles in truck production, and we need to be ready for when the cycle goes up again. That may happen in the second half. It may happen somewhere during 2026, but it will come. Everybody is convinced about that, including us. And so we better be ready for when that capacity comes because we can't supply our customers, of course, our customers will not produce less vehicles they will just choose other suppliers or introduce other suppliers, and that's not what we what we want. We want to be able to serve our customers. And so I believe building that capacity is absolutely the right thing to do, and we will be ready at the right moment. We will be ready at the end of this year and then summer next year, and in the next years, the market will turn back in North America, and we are absolutely ready. On top of that, let's not forget, we do not only build that new capacity to be able to supply the market with the adequate volumes. But also from a productivity point of view, we expect large gains from this new operation, and that will also be very helpful no matter where the market is at what point in time. In Turkey, this is an operation that is almost ready to go. And so as we said recently, we hope to be able to produce. We will produce our first wheels still this year in 2025. And then of course, the first year, you will not sell out the complete factory at once, but we believe we will have a quick ramp-up over the next 2, 3 years to be at a very good utilization rate at a short period in time. So we feel comfortable. We feel good about those 2 new projects. If I look at our revenue in LV in Europe. It's a combination of the fact of some of them I have already talked about, but it's clear that we are doing meaningfully better than the market. Now I believe Maxion is a stable company. I believe Maxion is a very reliable company. I believe Maxim is a high-performance supplier to the customer base. And so when maybe some other suppliers struggle our customers value these competencies are that stability even more. And of course, as I said then, we gained some market share a market that is down. It's very helpful to offset some of the negative impacts that you would have otherwise had and we don't. So that's one piece, but also the fact that we are introducing new products and we are entering new customer segments. I talked a little bit about the premium segment for aluminum wheels in Europe. We were a relatively small player in that segment, let's say, 5 to 10 years ago, and we've worked our way up to also be able to supply this segment with decent volumes. You don't do that from one day to the other. And if you do it, if you get it done, you don't lose it from 1 day to the other either. But we are now seeing the fruits of that hard work. And so when you supply that segment with larger wheels, and more specs, more value add. Of course, you gain more revenue than when you only supply the standard wheel. So that's -- that's another factor. And then, of course, I'll come back to it again. If we pass on inflationary costs, of course, that also helps in the revenue. But it's not only the revenue that growth, as I said before, it's also as you may also have seen it's also the units that go up. So it's not only the revenue, but the units are part of the revenue going up. I hope that clarifies a little bit more of that situation.