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

Thanks, everyone. We're going to get started with the next session. Once again, Joe Spak, autos analyst here at UBS. Super pleased to have Magna with us, Pat McCann, CFO; and Louis Tonelli from Investor Relations.

I guess just to start, since it's the end of the year and we're past Thanksgiving and feeling -- past Canadian Thanksgiving too...

Well past. Well past.

Yes. From a Canadian perspective, for sure. Feeling just a little bit reflective. I mean it's obviously been a very challenging year in the automotive industry. Magna has also sort of had some ups and downs, but I think more -- definitely some positives here in terms of executing in a very difficult year. Looking back, I guess, what would you say are some of the things that you think Magna has excelled at and maybe even exceeded your own sort of expectations and where are there still areas of improvement that, again, away from the industry you think you can better the business?

Yes. I'll start. So if we go back to February, we would have guided a 5.4% to 6% margin. Our latest guidance is we're going to come in at the low end of it. With all the turmoil we talked this year, with the changes, and our volume projections, we're pretty close, but when you put that all together, I think that's, to your point, a good success story. I think we executed well on, I would say, across the board, whether it was on our operational excellence, we're tracking where we expected to be. On the commercial side, I think we're tracking ahead of where we expected to be, whether it's with inflation recoveries, new program awards, in that space. So I think we really -- we're controlling what we can control. So that makes me feel -- I can't control how many cars are going to sell in the U.S. or anywhere in the globe. So we get into a situation where we're able to pivot. I would say the biggest struggle from our point of view this year was probably the fiscal situation. And to be able to come out of that -- we pivoted very, very well, very, very quickly. And I think we're -- if you think about that margin guidance, with a $100 million-plus headwind, we're still able to offset that. So I think that's a point of pride from my sense as far as the execution, not at the corporate level but all the way through the organization.

I would add, just like the way we flexed the operations, whether it be taking down our engineering, taking down our capital, restructuring -- incremental restructuring activities that we've put in place to offset the lower volumes, I think that's also a real accomplishment for us.

Yes. Sorry. And I think that's the Magna model, right? It's not like Louis and I are sitting up in an ivory tower pulling strings. We see a direct of -- we go out to the operations, say, "Hey, listen, we have 7 product groups," and they force that reaction to cascade it down through 300-plus locations. And it's reflected in that -- everyone calls it entrepreneurial, but it's really accountability and ownership.

Yes. Magna is obviously a very diversified supplier, one of the largest in the world and maybe one of the most diverse as well. That being said, you have obviously some large exposures to some certain automakers that have had some troubles this year, well documented. Despite that, you have been able to sort of show that growth over market. And I know it might be difficult, or I think it is difficult from the outside to sort of maybe pinpoint to sort of 1 or 2 things, but can you sort of highlight what has really been driving that outperformance to overcome even the customer mix headwind? Because we've definitely seen other suppliers that maybe don't even have as high exposure to some of these customers as you do sort of falter in that light.

I think it's -- we take a step back, and if you think about how we want to run our business, or I said we have 7 product groups. Below it, there's probably 60 product areas we're in. So we always take a sense of, where is that market? Is it going to be growing? So we see growth over -- industry is growing basically flattish. That's what we're expecting. But within that component, there's parts of the car that are growing faster than the others. So that's number one. We want to be in a market that's growing. Number two is that, is there money to be made in that market? So a lot of parts are growing, but if it's just a race to the bottom, we don't want to be there. Three is, do we have a position of power, whether it's regionally or globally, that we can command some type of strength back into the customer? So that's basically the way we approach where we want to play. So that's number one. Once you do that, then it's about operational excellence. And how do you make sure you go to the customer, that we -- through COVID, through everything, we've never shut a customer down, chip shortages. That's a valuable selling point from Magna. So we have the balance sheet to support it and operational excellence so we can launch flawlessly.

Yes. We have a pretty diversified business. Even though we do have significant business with certain customers, we are pretty diversified. You look at China, for instance, that's a market that we've been -- this year being able to grow much faster than the market, and kind of offset other markets where maybe it's a little more challenging.

Yes. I mean I guess just bigger picture strategically, it seems like the ethos of Magna in the past was to be large, right? To have more sway or influence with these customers. As we sort of look forward in the industry, there's certainly an argument to be made that maybe some of those customers are structural share losers over time. Does that rethink at all how you think about being aligned with some of those customers, either from a footprint perspective or an increased desire to diversify your revenue mix?

Yes. I think it's yes and yes. So when you think about our customer base, we -- I've been at Magna 25 years, Louis, a little bit longer, we've seen it, where the Japanese have been taking share from the D3 originally, and the G3 as well. So we -- traditionally, that's been our base. That's still 75% of our sales. So we do have 25%. So we have been growing with the Japanese and with some of the new entrants. The flip side of that is you've got to pick the winners too, right? And it's winners by OEM, but it's also winners on the platform, right? So it's picking the right platform and the right customer. And it's about having the right product that they want to come to you, that they want to work in that space. As far as the footprint, we've been restructuring for a long time. We're not looking -- we're not going to put a press release out, say, "We're letting 10,000 people go in Europe." We don't have that -- those monster engineering centers or corporate offices. So we've been restructuring for a decade, and it's -- 90% plus has been in Europe. And it's moving that footprint, whether it's from east to west, or sometimes it's just closing because it's not a product area. It comes back to, originally, is there money to be made in that market? If there's not, we exit. So we've sold businesses, whether it was in high-cost regions or if it was in a product we couldn't excel. So we've, in the last 5 years, we've exited 6 large facilities via sale.

Yes. So how much -- I don't know if it's possible just to break down this way, but it seems like there's a couple of means to sort of restructure. Part of it is, from a cost perspective, like you said, the rotation to lower-cost countries. Part of it is exiting portfolio. I guess the other sort of elephant in the room though is, right, is it doesn't seem like Europe structurally is going to return to prior volumes, right? There's just overcapacity. They moved from a net export market to a net import market. And obviously, a number of the customers in there have challenges, overcapacity, as it is. So do you think your footprint in Europe is rightsized for a new lower sustainable level of production?

We're always going to prune, like that's the reality. Part of it is lost programs, how you do it, how you exit. So there's a transition of ICE to EV, that's part of the transition. There's just mega-trends you're talking about from -- actively. We deal with the G3, we're not really big with the French. So there's a transition there. But if you look over the past, we've exited Russia. That was about $400 million of sales. That's done. It's down to 0, we're not going to grow again. We would have peaked at about 21 million units in Europe; this year we were projecting just over 17 million. We're seeing flattish volumes. So we didn't come up with a big bang, but we've taken those steps to be where we are. Are we going to have more restructuring at a facility here or there? Yes. And we're going to continue to do that as we go through. But it's not -- we're flexi and I think we're competitive loose, I would say. And we're in the right spots. But it's just -- it's an evolving process.

Yes. But I agree that the volumes that we're assuming is basically flattish environment in Europe, and our operations and our plans reflect that.

Yes. So let's sort of dive in a little bit, and we sort of danced around some of these topics. But I guess just as it relates to your guidance for this year, and I know we only have sort of a couple of weeks left. As we do every quarter, we see some different ebbs and flows on sort of production. It seemed like you sort of maybe baked in or put in sort of some cushion for some uncertainty, I guess, is the best way to sort of frame it. I mean is there anything that has sort -- understanding there might be variation from customer or programs or even sort of region, but is there anything that sort of has majorly surprised you in the quarter?

I haven't seen a major surprise. Knock on wood, right, because there's still 3 weeks. But if you take a step back, this is probably the most accurate we're going to get on volumes. You don't have a crystal ball, but we look at -- we went right back into our divisions, looked at releases, took an experience factor. Because it's a little bit different than it was 5 years ago. We used to get a release, it was pretty set. Now we're seeing wings from it still. It's more predictable, but they're pulling at 80% instead of 100%. So we're reflecting that, we're looking at inventory days. So it's a little bit more of a more solid projection, I would say. I wouldn't say it's conservative. But it's probably a best case estimate. So we were trying to predict in some of the downtime that was announced in September, October before we released. There's been some small changes since, but nothing material.

I know it's been limited thus far, maybe in some cases only in hours, the strikes at Volkswagen, but was there some sort of contingency either explicit or implicit for some uncertainty there?

On VW? No.

Yes. Is that something you're monitoring into '25, some of the labor issues there?

Definitely. I think it's almost start/stop though, it's not macro. We were asked this morning, it almost turns into a situation of, are they closing the facility? If they close the facility. Are they canceling the program or are they moving the program into another facility to become more efficient? If it's the latter, that's a good news situation for Magna and the rest of the supply base because you become more efficient. At the end of the day, you were alluding to it earlier, we want our customers to succeed. And when they succeed, we succeed. So if they're able to be more efficient by combining facilities to run a 3-shift pattern instead of a 1/2 shift or 1.5 shift, that's good for the whole industry.

I understand we're going to have to wait until early next year to sort of get the '25 guidance. But Louis, you already alluded to a couple of times sort of planning for production. As you begin the budget planning process, is that the world you're sort of envisioning and sort of trying to plan things around sort of a pretty flattish outlook?

Yes. At this point. I mean I think we're going to -- we'll look at it again before we get to an outlook -- a formal outlook. But yes, it's a pretty flat environment. Now, that doesn't mean...

Across the 3 major regions?

Pretty much, yes. That doesn't mean that there isn't upside at some point. You think about maybe affordability or rates are coming down. Just the replacement cycle that could be positive. But from our perspective, we're better off being cautious on the volume. So it is a pretty flat environment.

Fair enough. And then as we sort of think about your guidance for this year, you alluded to the margins coming at the lower end, and some of the factors that sort of have led to that. There is sort of a big step-up in the fourth quarter, and even in the third quarter where I think you got some recoveries. It sounds like there's some more maybe anticipated in the fourth quarter. In talking to Swamy in the past, he sort of made the allusion to there's a lot of, to put brackets around it, this might not have been the term that he used, but it's the term I'll use, sort of self-help that's sort of helping to drive the margins in a tougher top line industry outlook. Can we just double-click on that a little bit? Like recoveries, we understand, that's money that's rightfully yours and it's difficult to understand when it's going to come in or sort of order of magnitude. But what else is there besides sort of the restructuring? I know, well, you mentioned some of the pullback on engineering and stuff. But what are some of the changes that have happened at Magna that could hopefully lead margins higher even in a pretty flattish environment?

I think you hit on a couple of big ones. So we talked about engineering. So we had guided in the $1.2 billion gross spend. We're going to pull out $100 million, right? So that goes to March, that's 20, 25 basis points. So that's number one.

That's for this year.

For this year.

But prospectively, what else can be done, I guess?

So when we gave our guidance in August, we talked about $500 million of pulling engineering out over the 3-year period. We achieved just under $100 million this year, leaves about $400 million. It implies another $100 million per year, step-up, right? So that's another 25 basis points. You go to -- you think about some of the restructuring we did this year, the full benefit, it annualizes, comes into 2025. That's another piece of it. And we do have a little bit more restructuring in the fourth quarter that's going to benefit on the go-forward basis. I think just within the facilities themselves, we talk about operational excellence, it's more broad than it used to be. The industry worked in a situation where it was -- LTAs were 2%, we had to have 2% CIs to just be margin dollar neutral. With inflation headwinds of 600 in our numbers, the push on our CI space is incredible. So it's -- your business cases tend to be a little bit better because of the higher labor costs, higher utilities and whatnot. So your business case becomes a little bit better, that drives margin improvement. Some of the automation we're seeing, whether it's in digitalization space by sharing data across 350 facilities, that's a powerful tool. I worked in the metal space, it could be -- how do you know your -- if 1 press has a failure in Mexico and you noticed these data points, how do you take that information and share it to the same press in Germany or Austria or China? So it's all those little pieces of automation. I'm not an engineer, so I can't speak to the -- like the machinery and the camera systems are so much smarter. AMRs, pick-in-place, all those types are starting to drive the margin improvement. So back to the operational excellence, we would have guided 75 basis points between '24 and '25 split evenly roughly. So we're on track for '24. So we're expecting the other half in '25.

And like how far along the process of automation, operation efficiency? Because it still seems like -- and not to say you haven't done a lot, but it still seems, in the grand scheme of things, the industry is maybe still in the early innings of this. Is that still sort of an area of investment and focus for the company?

100%. Absolutely 100%. And it's evolving, and I think it's good -- given our size, what we're able to do is do pilot projects, and you scale them, so you don't -- you succeed and then you can scale it. If you fail, it's not catastrophic.

Right.

It's early innings, 100% agree with that. It's like leveraging what we learned in the pilot plants to scale across the 300 plants, that's the trick really.

Sorry, I mean you mentioned another -- I think you said 25 bps or whatever sort of next year, but there's no real reason it should sort of end at '25. There's just further initiatives that sort of continue.

Right. And then the last 2 other pieces just on improvements is we're pulling back capital, right? So we started the year at -- we're down about 300. So you're getting a D&A benefit of that. And then we're going to pull more out in '25 and '26 relative to previous expectations. So you have that benefit. And then lastly, all the quotes that we would have been putting in post all the inflation, say, June '22 when it was probably at its worst, now we're starting to see the benefit of those programs beginning to launch. So I think it's not one thing; it's just a combination of people executing on 8 to 12...

The only thing I would add to that is we still see growth of our market. We still have, even in a tough environment, we have sales growth, and it's a pull-through on those higher sales coming in.

Those reprice or those contracts quoted during that time of sort of peak inflation, I guess inflation has slowed, and it might depend a little bit on some of those sort of the commodities and which sort of product you're talking about. But if there is a case where commodities are lower than when you're quoting at the point, are customers coming back to you and saying, "Hey, we need to rethink this one," or you do get the benefit of that?

We never felt as much pain on the commodities on the -- our pain was more in the utilities and labor. So in Magna's world, our biggest buy is steel and aluminum, and 80% of that is hedged. So we didn't feel the pain on the way up. Next one would be resin. We're about 25%, 30% hedged. So we're getting a little bit the other way. But it's really a labor and energy -- energy costs are still really -- they're way off, but they're still...

So basically you're able to price for labor and energy to some extent.

Right.

Maybe we can sort of dive into some of the changes we've seen in, I guess, there's sort of 3 major [ theaters in the world ] and there's a lot going on. Obviously, in the world there sort of always is. But how are you sort of thinking about that as you begin to sort of think about playing the -- not just for '25, but sort of obviously for -- into perpetuity here, or at least for multiyear planning? So let's start in the U.S. Even before the election, right, we saw the clear sort of slowdown in electrification penetration. Again, nothing official, right, but it does seem like there's indication that consumer credits might get pulled in the U.S., that just emissions regulations could get pushed out. So does that -- and you already talked about pulling back capital. Is there an opportunity to pull back even more? I mean I know you need to be guided by your customers, but I guess the question is really, recognizing it's early days, what is the tone and tenor of those conversations with your customers?

I think like in our large -- our increase in capital is primarily related to large architecture type products, like battery trays and whatnot. So we've gone through a cycle of higher spend, and that's getting behind us. So when the EV -- and EVs are coming. We're still seeing growth year-over-year. It's not doom and gloom, right? It's coming. There's a dip. It's more of a North American dip than it is the rest of the world, but we're seeing a slowing, but it's still growth. So our capital is behind us. When that growth comes, we're not really going to have to reinvest the way we have already. But when we make those decisions on, are we going to invest in a program, we're not going to recover that investment over a one program life cycle. These are 2 programs minimum. It's no different than a frame on a truck. And they are long-term investments, and that's how we price them. We don't look at -- margin's a factor, but we look at what's the program returns. We're going to put x amount of money in, how much are we going to pull out? And our assumption is, on these highly engineered or highly capacitized, we're going to have generation after generation, which is what we've seen on frames or cradles or transmissions. So that's what we think is going to continue. But if you step back to where we were, I think we came out in August and took a pretty sizable cut of EVs from where we expected them to be out in '26, and continue it out in 2030. So for perspective, we reduced our sales -- it was $5 billion. $2.2 billion was related to our Steyr business, Fisker being a large portion of it. We took the $600 million out on ADAS, some Chinese in-sourcing and other factors. And then EV, we were down $3 billion, right? So it's a sizable number. But the flip side was we're seeing $1 billion of recovery in ICE. So we -- Louis was talking about the macro level of volumes, our plan is a lot more detailed. And we took a cut of EVs already to bring it into that space. Has there been changes since then? There's been some. We talked about Blue Oval City running 1 shift instead of 2. G2 was canceled effectively or publicly, and whatnot. So there's tweaks here and there, but I think we're -- it's turning into picking the right platforms. We talked earlier about picking the right customers and it's picking the right platforms. But the majority of that decrease was actually in all of our regular products: seats, mirrors, latches. I think our eDrive impact was minimal, if any, right? So these longer lead times, it's being a player, being a partner to your customers. But I know investors don't like it that much, but we're looking 5 years or 10 years. It becomes circular. If I don't quote on that work, now my restructuring goes up. And I'm not going to quote a low margin just to avoid a restructuring. That's the worst thing you can ever do. But it's about: we have a skill set, whether it's engineering or launches or tribal knowledge on stamping that we know and we go to the customer and they value us for it.

I was going to say, to Pat's point about the sale -- he talked about the sales adjustment. Along with that came about $600 million of capital reduction. So you're asking him if any -- pulling back capital. Part of that August outlook was actually taking capital down pretty significantly.

And I guess the change really would be in the U.S., if there was sort of a further push out, there might be a little bit more of it in there, or you think you sort of mostly have captured that at this point?

I think so. Just for perspective, we're quoting something in June '22. It's probably launching in '25. So that's the lead time you're looking. But then it becomes -- it falls in on itself to a certain extent of, if volumes are off 50%, we talked earlier about commercial being in the backend of the year, that's what's driving those commercial discussions because you're capacitizing a line. And the line is aligned. So if it's going to make 100 parts or 50, so we literally have customers saying, "You're going to build 150, you buy off stuff, and then it's [ a whole lot of 50 ]." So we go back in with claims. Our preference would be selling the 150, but we have to be commercially responsible at the same time.

And maybe if you think about your sort of bookings for sort of EV, my guess is it would be sort of more geared towards Europe and Asia versus North America, is that -- or how would you sort of split that up?

I mean, all markets really. Fairly in line. Like by region, right?

Yes, yes, by region.

By take rates, our sales are relatively in line with the EV space.

Okay. Turning to another investor sort of hot topic coming out of the elections is tariffs. And I remember very distinctly having these conversations with Magna in 2017 with border adjusted tax, and I can't get -- seared out of my mind, I think you -- I don't remember the exact number of times, but I think you gave you an example of 1 part that might cross the 3 borders 7 or 8 times. So it's time to sort of refresh, I guess, all that. But like just again, if we could sort of, A, go over your sort of North American footprint, how much is done in Mexico for Mexico and Canada for Canada? How much is sort of crossing...

So I would say our North American sales, about -- last year, about $5 billion of our sales were in Mexico and about $5 billion were in Canada. The remainder, which is $10 billion plus, would be in the U.S. I would say in Canada, there's a higher proportion that goes from Canada to the U.S. In Mexico, I would say, it's relatively balanced between what stays in Mexico and what actually gets shipped to the U.S.

Okay. And understanding that this has many things...

Sorry, I should say that is historically the -- I mean that's what we talked about the last go-round, from 1.0. I don't think it would have changed significantly.

Okay. Fair enough. And understanding like that this -- we'll need to see whether this is real or sort of a negotiating tactic, because, obviously, it would be quite damaging, not necessarily for Magna or -- specifically, but really the entire industry.

And the consumer.

And for sure, the consumer. And just to -- and also if it were put in place, understanding this would be just another area of negotiation or conversation with your customer. But if we were just, for argument's sake, say, tomorrow there is a tariff on something in Mexico that you're shipping cross-border for assembly in the U.S. The way the contracts are, where does that responsibility lie? Is it for you? Is it for your customer? Does it depend on -- is it not sort of uniform?

It depends. Right? So if it's FOBR doc, presumably -- it's the importer of record. At the end of the day, it's the importer of record, is what we learned last time. So if it's FOBR doc, they're importing it across the border, it would be their charge. If we're shipping across the FOB, their doc would be our responsibility. Then it turns into a commercial discretion, right, and recoveries. Then you look at all the inputs.

Right. Well, that was the other question.

Mexico puts 25% -- or Canada, because there's going to be reciprocals. If it goes over the board and you keep charging 25%, and then you get...

Well, that, I guess, was the next question. And maybe again, and I don't know if you sort of remember from last time, but let's say for argument's sake, say there's something being made in Mexico, but there's first some components from the U.S. shipped into Mexico, is then what goes back into the U.S. only tariffed on the value-added portion or the entire?

Yes. Exactly. So the last time we went through, I was in the metals group. And what was happening was we were the importer of record on a coil of steel, for example. We would pay a tariff because Canada put a tariff back into the U.S. We manufacture the part in Canada, ship it to an OEM in Canada. They took those vehicles, shipped them, and sold them into the U.S., and it goes through a duty drawback program, so that you're able to get your duties for what went back into the system. Now crystal ball, how are they going to impose them this time? At the end of the day, it's going to drive inflation to consumers. And then at the OEM, they're going to sit and say, "I have these inventory days, I have production. Is it going to be passed to the consumer, it's going to be margin declines at the dealer, OEM level and at the supplier level?" But I think it's just so early. From where we started in 2016 to where it ended up being, I was only in the metals piece of it, Cosma itself, it wasn't -- the duties weren't a big impact at all.

And at the end of the day, there wasn't a lot of change there. There's a lot of rhetoric, but not a lot of change, so, time will know.

Just new letters.

Yes. And for -- I guess just for completion's sake, is there a lot of -- are there transmissions or sort of other products that sort of come from -- that are manufactured in Europe that come into the U.S. or China or?

Not a lot. Not a lot.

We're generally so close to our...

In region for a region. Yes.

Yes.

Okay. I guess the other area of focus is in China. And you've got -- you've actually sort of, as you mentioned, sort of shown some good growth there. It seems like you're actually fairly well positioned with some of the domestic players that are growing. How do we -- is it possible to sort of mention in which product areas or sort of segments, I guess, sort of product areas that you're sort of been performing better that have been -- really helped driving that? Like where has the Magna product resonated? And what -- and I guess when we think about China more broadly, right, there does seem to be a push for Chinese manufacturers to use a Chinese supply base. So when Magna wins, how do they win? Why do they win? What is the competitive dynamic?

Maybe I'll start. In terms of our China business, about $5 billion last year, another couple of billion dollars of unconsolidated sales, which is pretty substantial. Really across many of our product areas, we have pretty strong market positions. Metal forming is quite strong. Our mirrors and our mechatronic businesses are strong. Seating is pretty strong there. Powertrains are very strong there. Exteriors is less strong there. So let's say in our BES segment, it's more metal forming than it is exteriors. But our Power & Vision segment, powertrain, mirrors, latches, ADAS, that's pretty strong. Seating is very strong. And all of those have contributed to our growth. And our footprint there and the product -- the customers that we have there used to be very much internationally dominated, and now we're more than 50% with the local there. So it's really changed over time. And how do we -- I mean you get into how we compete there, but really it comes down to doing things that are tough to do. It's not trying to compete on a me-too product. It's really doing things that are really challenging to do.

And with the shift from -- or to domestics from foreign, again going back to we talked a little bit about the footprint in Europe, the footprint in China, is there flexibility within the plant as well, or because China is still growing, are you still sort of net increasing capacity in China?

Yes. We're adding some square footage, but not that much, I would say. But China tends to be a much more scattered than you would see like in production in Michigan, for example. So it's more province based. So we're growing. So it's probably a little bit more shipping parts around China by default. But I think Louis was bang-on, it's about doing the hard parts. Don't be -- and it's also doing -- you mentioned Chinese OEMs want to use Chinese suppliers. They want a good price, but they also want technology. So sometimes we're pivoting to meet that. So what's the China-for-China solution? So we would have China-for-China solutions in the driveline space, like what are they looking for from an eDrive, compared to just imposing "This is what we do in Germany, this is what we should do in China." So what does the consumer want? You go to the customer. And that's part of growing in China. In the metal forming, how do you show them lightweighting and safer products? I think in the fascias, it was different. So I think we've been in China for 25 years. It's not like we're new to the area.

And the business mostly run by locals.

Correct. I don't think we have any expats, right?

What about -- one of the things that we're starting to hear some rumblings about, and we get -- we're starting to get a lot more investor calls on, is Chinese suppliers looking more towards Western markets, probably Europe first, maybe eventually sort of North America. Are you seeing any of that in areas where you compete, sort of the expansion of Chinese suppliers?

Yanfeng has been around for a while, right?

Yes. On the seating side.

On the seating side. They're a good company. They've been around forever. I think on the supplier side, we haven't seen much of it in the other regions. That being said, BYD is just finishing up their facilities, going to be launching '26. So I think it's -- we'll see what happens in the future. But it's a funny conversation. You just started with Europe being over capacity, and we're going to add capacity.

Right. And sort of exacerbates the global overcapacity issue.

Correct. And then as a supplier, why would you want to chase that work? That ends up being a race to the bottom.

Yes.

Or does it make more sense for them to look at where there's already capacity in the ground in these new regions, utilize that capacity?

Yes. So those are conversations you're having -- right. Why don't we just pause and see if there's anything in the audience? Let's talk a little bit about the cash flow of the balance sheet and the restart of the NCIB or the share repurchase. So we talked a little bit about the market, who knows what it's going to do. You're going to try to sort of perform better. It sounds like there's some drivers to get the profitability higher even in a pretty tepid environment. The capital requirements seem to be coming down. You're past this sort of period of higher investment and there might even be some potential for pushout, my words, not yours. And I think my guess is when you sort of put that all together, that's what sort of got you to the confidence to sort of start the NCIB again. But I just want to hear, I guess, how you think about cash flow going forward. Because even though it is getting better, it is still well below where it was, let's say...

Currently.

Currently, where it was 5 years ago, even though you're a much larger company now.

I don't think we're that much larger.

No, I don't -- yes.

Okay.

Okay. But yes, if I look at our -- so from 5 years, big, big picture, you have $600 million of inflationary headwinds. Take it after tax, that's $450 million. Capital is up about this year, even at 2.2, 2.3, it's up about [ 450 ]. 900, 900 plus, say, midpoint of 7, you're at 1.6, 1.7, kind of in the range where we were on free cash flow 5 years ago. So if you fast forward to '26 and where we guided, was we have EBITDA growing by, I think, roughly $600 million, capital coming down roughly $400 million, $500 million. So that's the confidence we see, right, subject to, like we say, it's volumes, right? We have volumes and customers and all those great things and tariffs and all the bad things you like to talk about. But...

I don't like to talk about them. That is just a reality.

But I think that's the control what you can control. So subject to volumes, that's our expectation. Grow EBIT, it's within our control. And then we cut back on the engineering, cut back on the CapEx, that's where the growth comes from.

Okay. And then, so you started -- restarted the NCIB. And correct me if I'm wrong, but you're sort of in the market even now, right?

Correct.

Okay. And I guess beyond that, I mean, is sort of the plan to sort of -- like how do you sort of think about spending that free cash flow in terms of returning cash, dividend, buybacks or leaving some opportunities for some tuck-in M&A?

Yes. I think like our strategy hasn't changed. I think it's been paused, I would prefer to say, with everything that's going on, and whether it was COVID and then the acquisition and mega-trends. But big picture, we want to have a high investment-grade rating, which is 1% to 1.5%. We finished the quarter at 1.9%. Our expectation is to get back into that in '25. I would say we accelerated our, you keep saying NCIB, but share repurchase program. And so it's going to be a combination next year of deleveraging back into that 1% to 1.5%. And part of that deleveraging is that use of cash, it's growing EBITDA, right? So you grow the EBITDA, that automatically gives you more leverage. And then you have -- we have an ability to purchase up to 10% of our shares, which would be, at current share price, $1.1 billion, $1.2 billion.

Yes. Okay. All right. Well, I think we're out of time with that. So gentlemen, thanks so much for joining us today. We really appreciate it.

Thank you.