Magna International Inc. (MG) Earnings Call Transcript & Summary

Welcome to the Magna Press Conference. My name is John, and I'll be your operator for today's call. [Operator Instructions] Please note the conference is being recorded. And I will now turn the call over to Tracy Fuerst.

Thank you, John, and hello, everyone. I -- as mentioned, I'm Tracy Fuerst. I'm the Vice President of Corporate Communications and PR for Magna, and I'm kicking off the call today. Thank you so much for joining us. As you have seen, we issued a press release earlier this morning regarding an upcoming change in our leadership. On today's call, we are pleased to have with us Mr. Bill Young, who's the Chairman of Magna's Board. Swamy Kotagiri is with us as well, Magna President and Incoming CEO. We've got Vince Galifi, our CFO, with us as well. And then, of course, we have Don Walker, our Magna CEO. Each will be making some remarks, and then we'll open it up to some questions. I just want to be clear that we are doing this as a media press conference call today, so we'd like to tee up questions just from journalists. So if you have any other questions and you're not a journalist, I know you know who to contact within the Magna team to get those questions asked, but we'd like to tee up the questions just from the media for this call today. We've got about 50 minutes that we will be on the call. And with that, Bill, I'll hand it over to you.

Thank you, Tracy, and thank you to members of the media for joining us on today's call. This has been an eventful day for the company as we announced Don Walker's intention to retire at the end of this year and the Board's selection of Swamy Kotagiri to succeed him effective January 1. Don has served as Magna's CEO for 15 years and 33 years in total. During his 33 years with the company, he has been an exceptional company leader, and he is highly regarded throughout the automotive industry. Under his leadership, Magna has grown to be the third largest global automotive supplier and a Fortune World's Most Admired Company and a perennial winner of customer, industry and technology awards. Over the years, he and the Magna team have delivered tremendous value to shareholders. Fortunately, the choice to succeed Don was clear. After a very comprehensive process that started 5 years ago, we knew Swamy Kotagiri is the right leader to take Magna forward. Swamy has more than 25 years in the auto industry, with 21 of those in various roles within Magna on both the product and the process side. He has served in many company leadership positions, knows Magna's DNA, lives its culture and understands stakeholders. Swamy has a strong command of the business, sound judgment and is a strategic thinker with a proven ability to drive disciplined execution. Given the pivotal role Swamy has played in aligning the company's strategy with the mega trends impacting new mobility and the car of the future, the Board is also confident that he will continue to advance Magna's position in the changing mobility landscape. Over the next 2 months, Swamy will work closely with Don to transition into his new role. He has a great mentor in Don, whom I would like to thank again for his many years of service to Magna. Don, on behalf of the Board, I want to wish you all the best as you get ready to retire. Let me turn the call over to you now for your remarks. Don?

Okay. Thanks, Bill, and good morning, everybody. Thanks for dialing in. I'm sitting here socially distanced with Louis Tonelli. So from any of the analysts or investors, if you want to send a question to Louis, you can pass it over to me and we'll try and get to them as well. My decision to retire is never an easy decision in life, but running the company to me is kind of like playing a chess game with all the pieces moving around. And I could have worked -- I'm very healthy. I could have worked for another 5 years, I guess. I could have retired 5 years ago. But as Bill said, we've been working on succession planning across the company for a long time. We've got an exceptionally strong management team. I had a discussion with all of them last night. We made a lot of changes over the last several years. And I think the time is right. I wouldn't say it doesn't matter what the time is right for me, not really. I think the time is right for the company. We've got a lot going on where we are a very broad company when it comes to product manufacturing processes. We're global. We work with all the car companies around the world. There's a lot of changes going on in new mobility. We just had an announcement about what we're going to be doing with the new entrants, Fisker. We've got a lot of other things going on. But if you look at what's happening in the software, electrification of the vehicles, moving to electrified powertrain, this is a complicated business. We're looking at what's going to happen with some new materials and new technologies in AI, advanced robotics. And Swamy has been with the company, as Bill said, for a long time. I'll turn it over to Swamy for remarks in a minute, but he's got a very strong operational and technical background. But he's been taking the lead on the strategic decisions we're making, and I -- myself and the Board felt it was the right time. I'm not going off any other position. In fact, I talked to Swamy and offered to continue to help in any way he wants any time, but I'm very comfortable that the management team being led by Swamy is in really good shape. We've gone through some pretty difficult times in my 33 years. I took over Executive Vice President of Operations back in 1989 when the company was just slightly over USD 1 billion, and I've seen a lot of changes through the near bankruptcy back from the '89, '90, and Vince will remember those, and Tom Skudutis as well, all the way through to the massive downturn we had in '08, '09. This challenge with COVID-19 and getting all the plants back up safely around the world has been a challenge, but it's been done extremely well. We are very well regarded, I believe, by all our key customers. And General Motors this year, when they give out their awards, they gave Magna 6 supplier awards, which is -- that's never happened before, I'm sure, in their history. But I think we've got a good working relationship with a lot of companies because they understand the -- our operational excellence, but more so our technical excellence, and that's what they're looking for so they can be competitive and sell vehicles around the world. So Swamy, I think, has not only got the right qualifications and the technical and personal attributes we need, he's also of the right age to lead this company for well over another decade. So I'm not retiring until the end of the year, but we wanted to make the announcement so we can continue to make the right steps -- for a smooth transition. I've got a lot of equity built up in Magna over the years, and if I didn't believe this was the right move, I wouldn't be doing it because I've got a lot of stake for the company to be successful going forward. So maybe with that, I'll turn it over to Swamy and be happy to answer any questions. But Swamy, do you want to make a couple of comments?

Yes. Thank you, Don, and thank you, Bill. And good morning, everyone around the world for joining us on the call today. It's just over the last 15 years under Don's leadership, we grew sales from about USD 23 billion to about $40 billion and became one of the top suppliers in the world. If I start kind of listing the accolades of Don as an industry leader, I'll take up all the 50 minutes, but at least, I want to take the opportunity to thank Don for being a phenomenal leader and a standing example to all of us, but more importantly, for being a friend and a mentor and helping me prepare, spending all the time you did not just in the last couple of years, but over the last 7 years, teaching me about the culture, the company and everything else, Don, to get ready for the day-to-day. As I prepare to take the reins of leadership from him, I do so with complete confidence, and only because of the position of strength that Magna is in today and we are pursuing a strategy to take an even larger role as the industry continues to evolve. I've been in Magna for 21 years. So I think I can say I'm starting my journey with a bit of familiarity. I say a bit because 21 years in the Magna leadership is not a long time. There are many people with 30, 35 years of experience, which is the strength that we have. I've had various roles that have given me exposure to help connect the dots on what's possible for Magna. I'm fortunate to have participated in some of the company's growth, had the opportunity to learn from the best and experiencing firsthand how our unique entrepreneurial culture makes anything and everything possible. It's the same decentralized entrepreneurial culture that has been foundational for our success to date. I believe we'll continue to facilitate Magna's growth and development in the transforming industry. And as the industry continues to change, the way we define, design and use transportation will be dramatically different. And how we look at and address the future of mobility I'm sure will have far-reaching consequences not just for people, but for society as a whole. Magna is well positioned to adapt to ongoing changes with employees, who I really believe are the most talented in the business. And the uniqueness is they're empowered to act like an owner, think like a startup, all the while knowing that there is a large enterprise behind them. We also have a strong portfolio that allows us to scale with the future of the industry. Magna, through its unique structure, has promoted hard work, persistence and a sense of urgency that are really near and dear to my heart, and that is the key reason why I wanted to join the company 21 years ago. Just a little bit to digress. It's a little bit ironic that while I grew up in India, and maybe that is the reason, and my family never owned a car. And it gives me more the reason why I believe the freedom of mobility for everyone is so important. I truly think mobility and transportation have a significant influence on the economic growth, where you travel, how much you travel for shopping, going to school, going to work is all impacted by the freedom of mobility. And that is why I get so excited to advance the development of innovative, sustainable products and processes. And with the strong team that we have, we will lead with purpose and do just that. I'm anxious and eager and excited to get started to lead an entrepreneurial and dynamic team that will continue to drive innovation and value for our customers and shareholders. Again, thank you for joining us today and we look forward to taking your questions. And by the way, make sure the other ones go to Don. Don, back to you.

Okay. Tracy, we'll open up for questions.

[Operator Instructions] I have no questions in the queue.

Well, this is going to be easy. Well, let me -- just want to follow-up for a couple of questions that I was asked earlier today, early this morning, when I was talking to one of the people who's covered Magna for a long time. One question was, was there any particular catalyst which is causing, at this point in time -- I covered it earlier -- but not really. If you look at the -- some of the things that are going on in the industry, I think we always look at, in Magna, how do we preserve our culture. And this is a culture that I'm going to give a lot of credit to Frank Stronach for setting it up on how we compensate people, how we motivate people, very decentralized, very entrepreneurial, but also taking advantage of scale. So I think the culture protection and just keep on pushing it globally is a really key item for Magna to be focused on. And I think Swamy has -- understands it. We would never have considered bringing an outside person because I think it would be a disaster. We've also got a lot of the leaders like Tom Skudutis, who's been here a long time, Chief Operating Officer; our Presidents, who all really understand the culture. So having somebody lead it that understands, will promote that culture was critical in my mind and I think the Board's mind as well. Also, when we look at -- it's sort of the employee side of it. But if you look at the customer side and the investor side, which is the 3 areas we look at, I think Swamy will be very well received by our customers because of the knowledge he's got of the industry. He's well-known already. And I think many of the investors, some them are on -- know -- Swamy has been involved in our quarterly calls, our technology reviews and individual calls. So I think he's very well understood, his capability, by the investment community. And one of the things that Bill and I have talked about, Bill Young, and the Board is Magna is a big company in Canada. We have -- or big globally. We have just under 20,000 people in Canada of our 150,000-plus people. But because they're head officed here, I think it's important to have somebody that understands where our roots are and be supportive of what we do in Canada. We do a lot with the community here. We do a lot in various areas. So I think that's also something we will continue to do. If there's no -- Tracy, if there's no questions from the media, then we've got time. We -- do you want to open it up for questions from the -- if there's any questions from our analysts or investors?

Yes, we can do that for sure, Don.

Okay. And we do have a question from Clinton Wright from Automotive Industry News.

And I just want to express my gratitude to Don Walker for his service, and I wish you well in your moving on to pastures new, where that may take you. So thank you for your service, Don. And this is for Swamy. So again, congratulations. I wish you well in your new role. And certainly, excited from the time I met you. So Swamy, I just wanted to just really say how the -- your concept and your approach to developing the modular approach to -- certainly for Magna? And particularly in light of what's happened in regards to this pandemic and the changes in mobility, which has kind of accelerated a lot of the changes that we kind of foresaw happening, how is the modular approach and -- really prepared you for this moment? And is that something that is the -- to formulate the vision moving forward for Magna and what is going to be your main vision for Magna, taking up the reins from Don Walker?

Good morning, and thank you for the wishes. I think as we talked about, the industry is really complex and Magna has a phenomenal portfolio, not just have a portfolio, but a leading position in many of the products. And as you said, one of the key things that we have always focused is on having the modularity and the platform and the scalability that is needed so we can address and evolve and change quickly as the industry changes, and that continues to be our strategy going forward. As we talk about the modularity and the scalability and the platforms, we look at the secular trends that you mentioned, whether it's electrification or ADAS or light-weighting, just addressing some of the regulatory stuff. We continue to do that. One of the good examples of what we're doing with Fisker now is just being able to bring all the platforms and the modularity together. Not just that, but our unique ability to engineer full vehicles and manufacture them gives us the advantage and brings unique opportunities that others might not have. You talked a little bit about the pandemic and this thing. Yes, some of the trends have kind of hastened a little bit in terms of electrification and so on, but over the long run, I think they'll kind of all level out. Our industry has long design cycles. We need to be agile to react. And I think we're in a good position to address the changes as and when they come.

And we do have a question from Michael Strong from thedetroitbureau.com.

Yes. Congrats to both of you, one for receiving less responsibility and one for a bunch more. I actually have 2 questions. The first is for Don, which is to say, what's next? What do you do from here? And then for Swamy, can you talk a little bit about what the future of Magna looks like? Don, in his comments, have mentioned the partnership with Fisker. And I'm wondering, with companies like Foxconn talking about trying to get in the business of assembling vehicles for others, specifically electric vehicles, how does that shape Magna's future?

Yes. I'll just give you a quick answer. What's next for me? I've got -- I've actually got a lot of different things I want to be looking at and doing. An idea, which I have actually run by Swamy, but some of the automotive industry globally could be doing for sustainability and CO2 reduction. But I think I need to pursue that not as the CEO of Magna, but that's just an idea I've got. We're working on ideas for future prosperity of Canada. I want to have -- follow-up on some of those. Also very interested in looking -- we continue to look at some new technologies that some may be of interest to Magna as well, but nothing in particular. But we've -- there's a lot going on there, but I've got some other personal interests. So I've got lots of plans, but there are more pet projects I want to be working on. So I'll turn it back to you, Swamy.

Thank you, Don, and good morning, Michael. We talked a little bit about the automotive industry being high-tech, complex and always changing. And our 60-year history, Magna has continued to evolve with it. And I'm confident we'll continue to do so as we move forward. Some of the key principles that have brought us here. We'll continue to focus and reinforce our decentralized entrepreneurial culture is going to be fundamentally going forward. We'll kind of look at the position of strength that we have in the product portfolio and continue to work through our world-class manufacturing, through our innovation, people development to further strengthen it. We look at some of the accelerated growth areas in Power & Vision and see how we can grow in a disciplined way to take the next step in the car of the future. Generally, I think we'll still take the principle of a disciplined profitable growth going forward. And some -- leverage some of the unique attributes we have, like I mentioned before, being able to bring different systems and platforms to the OEMs to be able to scale quickly. And also for some of the new entrants, there is one good example. There is many more that we continue to have discussions on that we can bring the -- not just the system platforms, but the overall integration of the platform into a vehicle and help engineer and bring mobility to [ the people ].

There's a lot of background noise. Whoever is not talking, if you could put their phone on mute, would be good.

And we have another question from Craig Wong from Canadian Press.

I guess the question is for Swamy. One of the things that we've seen in latest Unifor contracts with the Detroit automakers sort of promises of electric car manufacturing coming. I was just wondering if you can talk a little bit about the challenges and opportunities for Magna as in -- as that transition is made to electric cars?

Good morning. Great question. I think when we talk about our portfolio in terms of the body and chassis systems in seats and ADAS and all of these things kind of remain, the product might evolve, but it will continue to be very relevant in the next decade or decades to come. More specifically in the powertrain, we have been always focused on bringing power to the wheels, as we say. So agnostic to the power source, whether it be ICE or battery or hydrogen, we should be able to do that with our product portfolio, and we continue to do that by developing a very comprehensive and flexible scale platforms. I think we are continuing to add even in the value stream -- value chain of the powertrain going forward. We continue to look at it, and we have talked about it. And hopefully, like I said, again, if the OEMs are looking at variants and talking of niche platforms or larger platforms, whether it's systems or whether it's being able to bring the whole thing together for our customers, then that, I believe, is an expanded opportunity for Magna.

We have no further questions at this time

Okay. Thank you, John. And on behalf of Magna, I'm going to turn it over to you, Don, to say a few things, but I want to, again, thank you for joining us on the call this morning. I'm sure we have quite a few follow-up with many of you and more on the call today. So Don, would you like to say a few things to end the call?

So we'll -- we have a lot of calls with specific people. If anybody has any other questions, feel free to contact Tracy or -- from the analysts or investors, Louis can call him so -- and would be happy to answer any questions, but I appreciate you taking the time to dial in this morning.

Thank you, everyone.

Ladies and gentlemen, that concludes today's conference. Thank you for participating, and you may now disconnect.