Iochpe-Maxion S.A. (MYPK3) Earnings Call Transcript & Summary

[Audio gap] [Interpreted] to our town hall about the results of first term -- second Q 2026. I'm Rodrigo Caraca, Senior Management for Investors, and I will lead the video conference today. In our call today for the Q&A, we have Mr. Pieter Klinkers, CEO; and Mr. Renato Salum, CFO. We would like to inform that this video conference is being recorded and is going to be made available in our relations with investors website with the company along with the presentation. I would like to highlight that Mr. Pieter is going to make this presentation in English, and we have a simultaneous translation for Portuguese and English. [Operator Instructions] We would like to make sure that apart from the declaration that can be made during the conferences regarding the perspectives of business in the company, projects and operational goals they are assumptions and premises as well as information that are available for the company. Future considerations are not guarantees for performance. They involve risks, performance and assumptions because they were talking about different cultures and circumstances that may come to happen or not. I would like to call Mr. Pieter Klinkers. Mr. Pieter, if you will, go ahead, sir.

Hello. Good morning to everybody, good afternoon to everybody here in Belgium, where we're meeting with the global team to talk about the future, but we're taking a break here to do this conference and talk a little bit about the recent past, the second quarter, for Iochpe-Maxion. But also at the end of the presentation, as you will see in a few moments, we will try to take you with us a little bit into the future. Let's talk about what has been happening in the second quarter. We go to the next slide. First of all, the executive overview. I think from what you could see maybe already from our numbers, again, we believe that we have been able to show a pretty resilient performance. We were disciplined on some of the cost savings that we were targeting. We realized them. And I think it will come back more often in this presentation and maybe in other presentations as well. But North America clearly is recovering. That is supporting our CV demand or CV performance there. And at the same time, we are seeing some strong aluminum wheel performance in North America that has been helping our performance that was, as we call, resilient. Financial discipline, shareholder focus. I think you will see from the numbers, we believe we have a solid liquidity. And on top of that, we are showing a lower net debt, which should reinforce our financial flexibility and the outlook for the mid and the long term for our shareholders. And last but not least, we do have not only resilience, we also see some growth drivers, and we will talk about it a little bit more at the end of this presentation. But for us, clearly, Asia is outperforming. We've talked about that a little bit also in prior presentations, but we start to see it more and more now. And within Asia, of course, for us, India is a growth engine in all the segments that we are present in there. And so I'm happy to talk about that a little bit more at the end of the presentation. It's not only Asia or India, also Brazil LV is strong and very strong for Maxion. And as I said, North American truck trending upwards is very helpful as well. We go to the next slide. Look a little bit more in detail on the market. It's really different between LV and CV, not only right now, but also if we look at the immediate future, let's say, the rest of this year or next year or even the year after that. It's very little growth on the LV side. And on top of that, remember, the exports from China still continue to grow. And so everything that you don't produce in China and put on vehicles in China that are being produced in China and then exported, you will miss as it grows. And so for many, many, many suppliers, I think there will be a slow growth, no growth scenario in LV in the next 1, 2, 3 years. Same time, commercial vehicles is a positive market. We see North America coming back. We believe Europe will be stronger in the next 2 years than what we've seen this year or the last 2 years. India will be growing, and we believe Brazil is not so favorable right now, but should be stabilizing second half of this year, next year. And so overall, the truck market for us, we believe, is showing a very positive outlook. We go to the next slide. Talk a little bit -- coming back to the second quarter, talk a little bit about the highlights from a financial KPIs point of view, how are we doing in that market. And so our net revenue around BRL 4 billion in the second quarter. And that's a little bit lower than what we saw last year, but we all know FX, the real has been appreciating to many other currencies. And so if we exclude that, actually we would have been showing 5%, 6% growth year-over-year, which is not bad in a market that is showing negative growth on the pass car side and still recovering in North America on the truck side. So overall, we are happy with the performance that we show on the net revenue side. Gross profit, not a bad number, 12.1%, but still having some impact from lower fixed cost absorption in markets that are recovering like North America, also suffering a little bit still from the temporary raw material pass-through timing effects. And so we believe whatever is a negative for us there in the first half of the year, which it clearly is, that should be a positive in the second half of the year for our company. We look at EBITDA, you can see negative. It's not as good as it was last year, the second quarter. But keep in mind, North America was a lot better at that time, and it's coming back. You can see positive, it's 1% better than in the first quarter. Overall, we believe this is a very decent number and a good base for us to build on for the next coming quarters and years. You look at the leverage, we have been able to reduce net debt, and that's a very positive one for our company in the second quarter of 2026. Our long-term multiple on the EBITDA side is still not there where we need it to be, where we think it will be. We will get there. That's our belief. But overall, our leverage was pretty stable compared to the first quarter of 2026, and our target will remain to get that leverage further down from the 2.52 where we were at the end of June. We go to the next slide. We look at our revenue by product. It's a little bit still the same number as what you guys saw in prior presentations where still our components unit is lagging behind the past performance that they had from a percentage revenue within the company. We believe this will come back to prior numbers pretty quickly now, but you can still see in the first half, even in the second quarter, lagging a little bit behind the normal 22%, 23%, maybe even getting up to 24%, 25% that components has in the total of Iochpe-Maxion. That lagging behind has then been made up by wheels, especially aluminum wheels was strong again and has been offsetting the revenue drop that we saw year-over-year in components. We go to the next slide. We look at that a little bit more detail by customer. And even though the numbers are getting closer than what we saw in prior presentations where we saw truck going down and pass car going up, still some truck being down quarter -- this year quarter versus last year quarter. But I would say not so much anymore. We still see pass car revenues, some of the big customers that we have there are still increasing revenue this year, quarter 2 versus last year quarter 2. You look at a company like Stellantis or you look at Toyota, it's clear that we're gaining some momentum there. And so if you combine that with the truck coming back, which is what we see happening and what we also foresee for the next coming 2 years, that would be a good -- that could be a good story. If we go to the next slide. We look a little bit more on the regions in the next 4 slides. So if we look at South America, I would say it's a very different picture between LV and CV. In CV, the market clearly is down and so our numbers -- it's not huge numbers for us if we compare to the rest of the world. But still, this is not helpful. And so when the Brazilian market comes back and stabilizes, which is what we hope, what we believe will happen, that would be helpful for us. But on the -- we really have some momentum on the light vehicle market where the market is strong, and we see momentum with customers, both traditional customers as well as new customers that are coming into the market. We go to North America on the next slide. Our revenue is still slightly down, but it's coming back. That's what we say. And so this is a combination of our aluminum wheels doing very well in North America. We have some new business wins. We're doing good with margin there as well. But also, we see this truck market clearly coming back more in June than we had in April. But during the quarter, we saw improvements there, and that is also our expectation for the rest of this year. We go to the next region, EMEA. We see a contraction of our revenue. And so Europe, I think, is a more complicated story, especially from an LV point of view. Now the good thing is for Maxion, we are strong in Europe. We are a very competitive company. We have had some market share gains in the past, and we're still profiting from that, but we cannot have market shares every quarter. But we are okay in our plants, but Europe is a little bit tougher environment from an LV point of view. Truck also was not great, but here, we continue to profit from our more recent market share gains, and we also believe that will be the case during the rest of the year. And then in the out years, 2027, 2028, let's see how the market develops, but there is a more positive tone that we hear in the market than what we have been hearing during the last 2 years. And so if that happens, when that happens, Maxion will be ready to fully profit from that increasing trend in the market. We go to Asia on the next slide. Really, this is a growth area for Maxion. And of course, as you know, the major region where we are within Asia for us is India, where we are making passenger cars, steel wheels, passenger car, aluminum wheels and truck wheels. And so what we see is the market is doing well and Maxion is actually doing a little bit better than the market. And again, I've been talking about it. We've been talking about it in the prior calls. And I look forward to talk about this in -- not only on the next slides, but also on some of the next calls because we believe this can really be a very good story for our operations in India and for our company overall. Let's go to next slide. Gross profit, gross margin, we talked about it. It's down. But if you look at the first half of the year here now, we're very close to where we were last year. Keep in mind, last year we had that North American truck market that was very significantly better overall in the first half than what it was this year. So keeping this margin close to where we were last year in the first half for us is a good outcome. And again, good basis for the rest of the year. You look at the next slide, we talk about EBITDA. It's pretty much the same story. As I said in the beginning, we are lower in the second quarter than where we were last year, but we believe that 10.4% is a good outcome for us in this quarter. If you look at the first half of the year, similar story than what I said on the gross profit. We're very close to last year with the expectation and the hope that the second half of the year for us will be better. Go to the next slide. Net income, not a bad story at all. I think the number still too low, but we're happy with the outcome of BRL 87 million in the second quarter and the BRL 90 million as a base for the first half going into the second half of the year. And so this is a good base for us to have a decent year from a net income point of view. Go to the next slide, [ Anna ]. Looking at our investments. Now these are meaningfully lower than what we were doing in the first half of last year, but this is mainly timing. We have been trying to manage timing for investments over the whole year since we believe our earnings will be a little bit better in the second half of the year than the first half of the year. We've also been trying to move our capital expenditures in line with that timing. And so we believe, overall, we will be in line with our yearly targets from a capital expenditure point of view, but with a managed timing between the first half of the year and the second half of the year. Okay. Next slide, Anna. Leverage, pretty stable, I would say, quarter-over-quarter. And again, we are decreasing our net debt, and we are looking for the long-term multiple on the EBITDA side to pick up in the coming months -- in the coming years, of course. And that combination should drive our leverage then to be meaningfully lower than what we're looking at right now step by step. We go to the next slide. We look at our gross debt. There is new news here. And so on the top right side, you see how our maturity looked before we refinance some of our liabilities or a good part of our liabilities. We had some maturities in 2028, and the team was able to refinance those and to extend the maturity mainly until 2030. And therefore, our average debt maturity instead of being 3 years now is about 4 years. And so that's a good thing for our company. Never easy, sometimes more difficult because of external factors. But overall, we're happy to be able to have realized these new maturities from a financing point of view. And so I would say if you combine that with our liquidity, I would say this company certainly is in a stable position from a financial point of view. We go to the next slide. Talk a little bit more, as I said in the beginning, besides all the financials about some of the projects that we are doing. And we've been talking quite a bit over time about our investments in Mexico for structural components, the rails and the frames that we supply to our North American truck customers. On the top right there, you see our new facility, we call it Plant 3. It's a new facility. Bottom right, you see some pictures of that facility. But the most important point is that, and the good news is that we are starting to produce product in this plant. And so of course, that's still testing right now, but we're getting ready to serve that North American market that is coming back from the very low numbers that we saw in the beginning of this -- end of last year and the beginning of this year. We are getting ready to serve our customers in the second half of 2026 with volume from this plant. And so I think that's a major good news for our operation, for our company. And so also, if you look on the 2027 projections there, you look at the 2028 -- the '28 projections there, that's -- it's a very good thing to have the plant. We will need it as we thought when we made the investment, and we're looking forward to make the best use of it from supporting our customers' volume point of view, but also from a productivity point of view because, of course, the equipment that we put in here is the state-of-the-art. It is the latest of the latest. And so we look forward to a good situation for this operation that we have established in Mexico Castanos. You go to the next slide, Anna. Staying with components, but moving to Brazil. This is a beautiful Cruzeiro location that you see in the middle. And you see some of our products on the left, then on the right. But I think the main news here that we wanted to share is that we did win meaningful new business, very significant new business, and we're codeveloping a product with a very big pickup customer that we serve -- have been serving or will be serving from Cruzeiro. And so this, again, it's a combination of sustaining the very profitable operation that we have in Cruzeiro and combining that with further automation. And so all of this will be executed. We're actually starting that already at the end of 2026, and we will run this throughout 2027, 2028, and it will be a very good thing to secure the short and midterm future of Cruzeiro. We go to the next slide. Looking at the other side of the world, and we will have 2 slides on India truck. It could have more slides on India, but we have one for truck and one for pass aluminum wheels. This is our part of our truck wheel plant that you see in the middle, and we have decided to expand our capacity in this plant to be serving already sold additional volume. And so we are doing that right now. Complete -- we will complete this somewhere in the middle of 2027. It's part of the CapEx that we all have in our budgets, in our forecast. And so it's a very good thing. The business is -- the volume is already sold, and we're preparing to get ready to do that. These are projects that I talked about in prior calls where I said instead of doing one big one, let's do 10 small ones. We're not going to do all the 10 small ones in 1 quarter or not even in 1 year, but we are opening up the drawer and picking out the best projects, the projects that have the highest priority, and we are starting to execute on those. And so this one in India truck is a very good example of that. If we go to the next slide, we look again at India, we look at our light vehicle aluminum wheel facility in Khed City, Pune, Maharashtra. We are expanding the new plant. I still call it a new plant, but the new plant in the meantime is 10 years old. But this is the first expansion after filling up the existing capacity in the new plant that is 10 years old. And so it's a modest expansion. Again, this is in the range of the $3 million, $4 million, $5 million projects that I talked about before, not $50 million or $100 million. And it's to serve our customers. It's to produce wheels that have already been sold and that we will launch in the next 1, 1.5 years. So we will execute this in the remainder of 2026 and in the first half of 2027. And it's a very good project at the existing location in Pune, India. We go to the last one in this row in South Africa. We have a beautiful plant over there, but there's a new -- a couple of things happening over there. We have won meaningful new business. And so we're launching, I think that's a total number of about 27 new wheels. Some have very low volume, some have a little bit higher volume, but 27 new wheels over the next 18 months in South Africa, which is fantastic. And at the same time, we are putting in place some new equipment. The capacity, the base capacity is in place. So we're just filling up what we already have, but we're working a little bit on energy and more efficient energy. And so new heat room facility is being put in place. That is already almost completed. So no additional CapEx that was in our 2026 numbers. And on top of that, we're putting solar energy in place everywhere where we can in and around the location. And so about 25% of our energy will then come from solar energy, which is not only cheaper, better for the environment, but also makes us less dependable on other sources that sometimes have been a problem for us in South Africa. And with the additional volumes, we didn't want to have that anymore. And so taking care of this plant and -- even though it's a small facility, it's a very good story that I wanted to share with you guys as one of those projects where we say these are more digestible, and we're making use of our existing facilities instead of building new facilities. We go to the next slide, trying to wrap it up. If I look at the 2026 second quarter, I think we talked enough about the global resilience and discipline. That was the case. It is the case. I think we've delivered another quarter. We've shown another quarter where we can say we were resilient. Now at the same time, resilience is nice, but we do want to have some growth. Even if the LV market is showing no growth overall and truck is showing some growth, but of course, it's not exploding. We think we're looking at a more favorable scenario maybe going forward than what we have been looking at in the last 1 or 2 years. And so keep in mind, North America is coming back, and we are very well positioned. I showed you the pictures on our new facility in Castanos there, but also wheels is well positioned there. In South America, LV is strong. Truck should be stabilizing, right? And so I think in the LV in truck, we take what we get. But in LV in that strong market, we are having momentum with customers, good momentum with customers. In Europe, the market is more challenging, but the good thing for us is we are a very competitive company in Europe. And so we will manage our way through that even in LV, which is more challenging than CV. And then Asia, Asia is growing. India is growing more than average in Asia and Maxion Asia is growing more than average in India. And so all of that, I would say, in the most important regions where we operate, I would say the glass is more than half full. Overall, of course, we do that in order to deliver value. And I think by keeping our strong liquidity keeping the cost discipline, which is definitely our target, generating cash and lowering our debt, I think we have a plan to make sure that our company can thrive. And with that, I would like to open it up for questions and answers through Rodrigo.

[Interpreted] So we are going to start with Q&A right now, okay? [Operator Instructions] Our first question is from Luiza Mussi from Safra.

I have 2 questions. First, I want to better understand the revenue decline in Europe. Revenue was down a little bit more than volumes during this quarter. So could you walk us through the main factors behind that performance? Was this gap entirely explained by FX? Or there was also some impact from Volkswagen plant closing? And also, if you could elaborate a little bit more on the quarter and more importantly on how we should think about cash generation, working capital and the liability management going forward. It would be very, very helpful for our modeling here.

Okay, Luiza, I will answer the first question and then Renato Salum will take the second question. So on the revenue in Europe, this can vary quarter-by-quarter depending on the mix. I would not be too hung up on one quarter. This has nothing to do with Volkswagen closing plants. And so one quarter, you can be a little bit more lucky than another quarter with your wheels being more demanded on a certain vehicle or for a certain customer than others. But overall, I think, as I said, we are in a strong position in Europe. Of course, we can't change the market, but I think our position in that market, whatever it will be, is pretty strong. So I would look at that over a longer period of time instead of just 1 quarter. And as I said, on the commercial vehicle side, we're actually outperforming the market. And my expectation is that we will be able to continue to do that for some more time. Is that okay for the first question?

Yes. That's clear.

Thank you. Renato?

[Interpreted] Thank you for your question. Well, by starting with the working capital, one of your questions, it's important to mention that since 2023, the company has been working the working capital ratio below 3%. Once again, we closed this quarter with a ratio around 2.4% in March. If compared to June -- I apologize his word -- but if you think about the average of the second quarter, we have 12.7% in the cash flow that's been accumulated from the first quarter. We also see easily in our financial reports, especially in the cash flow, in direct cash flow that our CapEx has consumed around BRL 90 million, which is a significant and relevant improvement when we compare to previous quarters that we had a consumption of BRL 343 million in our cash consumption, we keep 45 days. So again, we are still focusing on managing inventory as well as maintaining sustainable positions for our suppliers to preserve the CapEx and the cash flow. I think that when we talk about cash flow and when we look back over how much has been generated in the operational activities in the company, we can truly see in the first semester, BRL 454 million compared to a consumption of BRL 3 million in the same period last year. And also, this improvement was supported by the capital flow and the consumption at the end of the day, I mean, it's about the inventory, having the lower purchase of inventory and good quality of our suppliers. So we can see that helps the company regarding and keeping our leverage. Our leverage closes 2.52%, just like Pieter mentioned. But of course, if we can add the Polimetal that ends up being consolidated from this moment within our financial reports. And if it weren't for this event, we would have the same leverage that we've had in the previous quarter. Regarding liability and management, that's an important point. In July, we've had a very important activity in the assets, in the liabilities of the company actually in that we have like a loan in 2 currencies, the first in euros, EUR 123 million to the cost of Euribor and, two, 55%. So in other words, in this moment, if we had like a simple conversion, we would have around 5.04% every year. And we closed $180 million, SOFR more than 275%. That is equivalent to 6.51%. So and also, we had a debenture -- we used to have a debenture, the 17th debenture of the company, BRL 400 million. In CDI, we had BRL 160 million. And at the end of the day, we end up using part of our own cash apart from these lines that we have to reinforce our cash flow. And we have the total resting of our bond on July 24. So to help you out with the projection, at the end of the day, we are going to have, I would say, BRL 73 million impact on financial expenses. And BRL 41 million would be additional interest because we are coming out from a bond of 3.5. And having these 2 instruments, if we had -- if we went to the market in the moment that we've done research, we saw something about like high 8. So we understand that the process that we decided to follow brings benefits to the company. And as we close these bonds in these last years, we can accelerate indexation of the debt of the cost for capturing that bond. And specially when we talk about like this, there was a price, a claim that was 0.62% that was paid on the [indiscernible]. So we have this whole liability management that has been finished. Regarding cash flow, we don't have a significant impact this year because even though we can allow for the BRL 6 million in our interest payment, we have the on-wide the financial results that we have BRL 40 million in the cash flow. So it had an impact of BRL 6 million, but negative in our cash flow. And for 2027, apart from what we used to have in the body that the maturity would be '28, we have an adding of BRL 71 million if we consider the rates that we have up to now on a year basis. So even though we have more cost of the previous debt, the structure was more efficient, different from like a new emissions that we had available at that moment. And at the same time, we reduced refinancing risk from the company. We enhanced predictability on the maturity. And we see that the financial flexibility of the company will be kept. So thank you for your question.

[Interpreted] Our next question is from Andre Mazini from Citi.

So my question is on the Chinese OEMs presence in Brazil. So for the Chinese branded cars sold in Brazil today, which percentage do you think use Brazil produced wheels versus wheels produced elsewhere, likely China? I know there's a lot of imports. And if our understanding that the CKDs and SKDs of Chinese vehicles, which are going to be assembled here, the force are going to be using more Brazil produced wheels, right? So I mean this penetration, if you will, of Brazil produced wheels in the Chinese cars would increase with greater CKDs and SKDs.

Thank you very much for the question. I will take that one. So unfortunately, on Chinese cars being imported in Brazil, we believe there's a very stable round number of percentage of wheels being produced in Brazil on those cars. It's close to 0. And so right now, we believe all these cars are being assembled with wheels coming from China. Now that picture, we believe, and to a certain extent, we know, will change very significantly when localization comes in. And that localization will come in. It may not come in this month or next month, but we believe this will happen next year. And so we are actually working on producing wheels for Chinese OEMs. So we -- that's why I say we know it's happening. I can't give you more details there. I wish I could give you names and brands and numbers, but I'm not allowed to do that. So I won't do that. But I can tell you that our belief is that there's a big opportunity there to supply these wheels for the vehicles being produced in Brazil from one of our facilities -- from our facilities. Is that okay?

[Interpreted] Our next question is from Andressa Varotto from UBS.

I'd like to talk a little bit about the North American commercial vehicles market. So we already saw an improvement this quarter that should continue in the upcoming quarters. And just wondering how are you seeing this impacting profitability for the second half of the year. And also, I noted that when you presented some estimates, you are seeing -- expecting growth for 2027. So I just wanted you to talk a little bit about your expectations for the market since we are seeing an important surge in the orders. And we see some discussion of whether this is purely prebuy driven or what are the other underlying drivers that could sustain this demand beyond a prebuy. So if you could also talk a little bit about that? And a second question would be if you have any updates on the antitrust dispute in Germany that you released to be an ongoing thing in some results ago? And if there are any updates on this front?

Yes. No problem, Andressa. So I will take all 3 of those questions. So the North American truck rebound, we clearly see it happening. Now to what extent this will continue at what rate, that's difficult to say at this stage, but we clearly see a very positive trend now, which wasn't too difficult after the disaster at the end of 2024 and the beginning of 2025. But it comes back as strong as we were targeting, as strong as we were hoping. And so for our profitability, I would say that's a very positive thing. Now of course, when you start a new plant, right, like the one that I've been showing 15 minutes ago in one of my slides, you cannot run that plant immediately super efficient because you're starting it up with 1 shift 1 day and then 1 shift, 1 week. And so there is a gradual ramp-up of that plant. But -- and so you will not see immediately the full extent of that good news in your profitability. But for sure, profitability will be supported by this -- is already being supported during the course of the second quarter, and we expect that to continue in the second half of this year as well, even though we need to keep in mind, we have that new operation that we're starting up from 0 to 10 to 20 and not from 0 to 80 or 90 immediately. Now that's starting up, to come to your second question on 2027, we expect and we count on that continuing and not to be only a prebuy in 2026 and early 2027. We think there is more underlying reasons like the need for freight picking up and also the replacement cost of trucks becoming less than maybe the increasing maintenance cost of older trucks that were bought during COVID when people got a lot of incentives. And so there's more reasons for the North American truck market coming back, and that's what we are counting on. That's what we are prepared for, and that's what we also expect to be able to see back in our -- not only in our revenue, but also in our profitability. So I hope that answers those 2 questions. From an antitrust proceedings point of view, I have no update for you guys. There's no new news after what we talked about in the last earnings call. Is that okay?

Very clear, Pieter.

[Interpreted] Our next question is from Fernanda Urbano from XP.

First, just a follow-up on the domestic light vehicle market. You've discussed a bit about the domestic market outlook, especially in light of new OEMs gaining share here. But looking at industry data, we see better points for light vehicles, both sales and production, but we also see this performance as supported by incentives such as [ movel aplicativos ] and other subsidies here in the industry. So I just wanted to see how do you see the sustainability of domestic demand, especially once the support mechanisms normalize. Do you see the current growth as mostly subsidy driven? Or do you see a better underlying demand, especially given that financing rates are still high and may be higher for longer? So this would be our first question. And just the second question, about profitability drivers. You have flagged a temporary lag between raw material costs and price adjustments, which may have been a margin headwind this quarter. So just to understand, can we think about this reversing as a margin tailwind already in 3Q? And besides from this pass-through and better operating leverage, are there any other drivers that you see as positives for profitability going forward, especially looking in the second half?