Gestamp Automocion (Madrid:GEST) Q3 2026 Earnings Call

0:00 Good evening. We welcome you to the Gestamp 9 Months 2026 Result presentation. During the presentation, all participants will be on a listen-only mode. There will be an opportunity to ask questions after the presentation. If you wish to ask a question during the Q&A session, you may do so by pressing the star followed by 5 on your telephone keypad. I'll now hand the conference over to the Gestamp team. Please go ahead.

0:26 Hi, good evening, and thank you all for joining our nine-month result presentation. This call will be led, as usual, by our executive chairman, Mr. Francisco Riberas, and myself, a group CFO. Together with us, Gonzalo de Borja, our new financial planning and investor relations director. As usual, please let me refer you to the disclaimer on slide two of this presentation. And as the introduction has said, reminding you that at the end of the call, we will open up the floor for our Q&A session. Now, let me hand over the call to our Executive Chairman.

0:59 Good morning, and thanks all for attending our nine-month results call. First of all, I say that our third quarter results year-to-date remain solid, despite a challenging scenario, with our revenues up to September reaching $8.4 billion, which represents a flat organic growth and a slight outperformance This was the market in the period. In the first nine months of the year, our EBITDA has reached 954 million euros, which means an 11.3% EBITDA margin, which is 27 basic points better year on year. And also with a good performance in terms of free cash flow, which has helped us to control our debt and to achieve a leverage of 1.4 times debt to EBITDA already in the third quarter.

1:53 During the first nine months of the year, light vehicle production has reduced by 0.7% in Hestan footprint, reaching 62.2 million units in the period. Even if the global manufacturing has been rather flat, there are mixed regional dynamics, with a severe drop in China of 5.5%, some slight decrease in Western Europe and North America, and a good performance in countries such as India or Brazil. Moving to slide 6, up to September, staff revenues have outperformed the market by 0.8% in our footprint, with a clear outperformance in Europe, both in our West and East operations, and also in Mercosur, and an underperformance in North America, mainly in Mexico. and in Asia, mainly driven by the drop in China, and even in the rest of Asia, we have outperformed the market by 16%.

2:56 Our nine-month reported revenues have decreased by 0.6% in the period, reaching 4.8 billion euros, with flat organic gold supported by an increase of our scrap revenues and partially offset by negative forex evolution and many more. Moving to slide 8, even if there is some decrease in reported revenues, we have been able to increase our profitability in our auto business. In fact, our year-to-date auto revenues have decreased by 1.5% or €119 million, but our year-to-date automotive EBITDA has increased by 1.1% or or 10 million euros which means 30 basic points improvement of our EBITDA margin from 11.2% to 11.5% after September.

3:57 We have been able to achieve this thanks to the correct right sizing of our operations and working in adapting our capacities and a continuous effort in different cost reduction programs efficiency and productivity measures Some constructive customer negotiations and also delivering, of course, in our Phoenix turnaround in North America. So following September results, we are on track for the execution of the full year guidance of 11.9% for our auto test. In terms of FENIX, even if production volumes in North America are far away from the expected volumes when we announced the FENIX plan, 1.5 million units less, STAM is fully committed to reach our target of 10% EBITDA margin for this year. Up to September, we have included already 80% of the extraordinary impact expected for 2026.

5:03 And in the third quarter 26, we have already achieved a 10.5% EBITDA margin and increased from the 8.8% margin in Q2. And with the traditional seasonal strength of the fourth quarter, we are on track to reach 10% full year EBITDA margin this year. For the scrap, the scrap prices have increased substantially compared to 2025 level everywhere in the world. Due to the improving market conditions, HESCRAP has been able to increase revenues after September by 17%, reaching 416 million euros. In terms of profitability, EBIT margin has increased from 5.8% to 6.2% in the year, reaching already 28.5 million euros.

5:53 So positive results year to date, supporting our full year guidance for HESCRAP of more than 7.4% extra margin in the year. And now I hand it over to Ana.

6:06 Well, thank you, Paco. On slide number 12, we show the reported nine-month figures on the left and the figures adjusted by Phoenix on the right. As our executive chairman explained in the first part of this presentation, our nine-month performance continues to be negatively impacted by adverse forex movements. We have achieved revenues of 8 billion 432 million euros and the combination of flattish organic growth in the auto business together with the positive results from the efficiency and flexibility measures implemented since the beginning of the year plus the higher performance in our scrap business have resulted in an EBITDA of 936 million euros or 954 million euros when adjusted by Phoenix Cost. This entitles an EBITDA margin of 11.3, a 30 basis point improvement compared to the same period of last year. And this provides a strong visibility for the achievement of the full year 2026 guidance.

7:06 EBIT adjusted by Phoenix has reached 400 million with an EBIT margin of 4.7 or 4.9% when we exclude the 15 million impairment cost accounting in Q1 this year. This implies that 10bps improvement compared to last year reflected measures to become a less capital-intensive business model. Net income during the year from January to September has reached 141 million euros. And lastly, despite the typical business seasonality in Q3, free cash flow generation has been positive at 17 million euros when adjusted by FenixCost. As a result, net debt remains below 2 billion, standing slightly above 1,900,000,000 euros. Overall, a very strong performance during the first nine-month period.

7:57 Turning to the slide number 15, and I will not stop matching these slides as this is just a quick remember of the two extraordinary impacts at accounting level we've been having reported since the beginning of the year. The remaining 50 millions of write-downs that I just mentioned related to the EV realignment strategy started in Q4 2025 and the 20 millions coming from IFRS 19 accounting related to the extension of the 1.7 billion syndicated facility agreed in January. This has a net impact of 4 million at net profit levels and excluding it, it is a net profit of 137 million, implying more than a 30% increase year-on-year and similar to the net profit reported in 2024, which despite the falling of the auto market as we have explained at the beginning of this presentation.

8:50 Going into slide 14 that reflects our performance on a regional basis, it is clear that a balanced geographic revenue stream, a strong positioning and a clear strategy by regions are the key levers to support Gestamp business performance. Like the train scene during half one, the key contributors to the revenue performance has been for the auto business in Eastern Europe and Mercosur and also GESCAP. EBITDA has been also supported by North America as well, reflecting the efforts from the Phoenix Plan. In Western Europe, despite the auto market continues to drop and there is a slight negative impact from the evolution of the British pound, Revenue have remained flat year on year, but positive on a quarterly basis during Q3, and basically since Q2 this year. EBITDA has also remained flat in the same period, with profitability standing broadly flat at 9.9%, thanks to the cost-cutting, right-sizing, and efficiency measures implemented in this region.

9:51 Eastern Europe, at constant currencies, remains a solid region for Crestan, with a growth above 8%, and as our chairman has commented in previous slides, while preserving best-in-class profitability with an EBITDA margin of 15%, which is the best-in-class in the group. Not much to add in North America to what has been previously explained by our chairman a few slides ago. As you know, the delivery results on our Phoenix plan is one of the key levers to achieve our full-year guidance. The 10% EBITDA margin target has already been achieved this Q3. and will be reached by year-end, meeting with a good commitment made back in 2024. As for Mercosur, revenues have grown by 8% with Brazil growing but Argentina dropping a bit on local currency. And thanks to the restructuring done in the region last year and the improved operating leverage in Brazil, which last year was also affected by the floodings in the first half, profitability is back to a more normalized level in the region of 12.8%.

10:53 And lastly, in the business in Asia, revenue performance was affected by a negative forex impact in the region and a weak China market. Markets like India are conversely growing above double digits, delivering on Gestam's strategy to be a leading supplier in the market, thanks to new products and technological aid. New projects in India are supporting a changing mix, which is helping the performance of the overall region. Despite the lack of revenue growth in this area and similar to what we are doing in other regions we remain focused on being cost competitive and to this end we have implemented efficiency and right sizing measures to preserve profitability in Asia which should be above those levels of 14% which are second best in class in the group as we have said in previous calls.

11:43 Based on 9 months performance, we have high visibility in the auto business to achieve the target of about 11.9% EBITDA margin by the end of the year. And it is clear that by the end of this year, we will have all of our divisions with an EBITDA margin of about 10%, which improves significantly the EBITDA balance of the group. And lastly, on GESCRAP, as we have previously seen, the integration of Industria Lopez-Oriano plus sustained price increases across the year have led to double-digit growth at revenue and EBITDA. So overall, nine months have been very strong results, demonstrating the company's ability to remain cost-competitive and preserve a strong financial position despite a challenging market environment.

12:32 Moving on to slide number 15, and let's review the free cash flow generation during the first nine months. It is worth recalling that due to gestant business seasonality, Q1 and Q3 are generally negative from a cash flow generation perspective. Excluding finished costs of almost 32 million euros, more or less 50% CAPEX and 50% OPEX, free cash flow stood at 17 million euros. Given the limited top line growth we are seeing, we are working on levers to improve cash flow conversion and hence improve our balance sheet. And this includes working capital management, CapEx Discipline, and Control of False Cash Outflows. As a result of the above, the group cash flow conversion stood at 34% during the nine-month period, and this provides us with very good visibility to achieve the target by year-end.

13:21 This free cash flow has led, as shown in slide number 16, to a net debt standing at €1,908,000,000, the lowest net debt for a nine-month period. And this reduction in terms of net debt and the slide a bit that grow has driven us to report a leverage of 1.4, a healthy balance sheet, which give us flexibility and optionality within a tough market context. And this is all on my side. I will hand over the call to our chairman.

13:49 Thanks, Ana. So going to slide 18. And even if the latest forecast shows some improvement, Full year light vehicle manufacturing in 2026 is expected to reach 91.6 million units, representing a 1.5 million vehicle less than full year 2025. This year, the main impact is coming from China, with an expected 6.4 decrease in production, despite the increase of export. We will see North America and Western Europe are also expected to slightly decrease manufacturing volumes. While in Mercosur, rest of Asia, and East Europe, the production will grow substantially.

14:36 So for this year, in a kind of challenging market scenario, the stamp is doing well. This challenging scenario means limited market growth, as we have seen. We have seen already starting to see inflationary pressures, still remaining regulatory uncertainties, and a lot of geopolitical uncertainties. So staff in this scenario is improving our positioning thanks to an improvement in our profitability due to different efficiency programs, due to delivering on the Phoenix plan and also thanks to the good evolution of our scrap business. Apart of that, we keep on strengthening our balance sheet with a very important focus in positive cash flow generation. and reaching a low leverage rate of providing us financial flexibility and optionality and also with a good and diversified portfolio of assets which is offering to give us the possibility to have a flexible strategy across low and high growth regions and with new plans driving a more diversified footprint like the ones we have opened this year in India and in Brazil. So we are well positioned to navigate uncertainty and also to capture potential opportunities that could come from some regulatory development, which could create opportunities for us, also to take benefit out of a structural industry trend,

16:09 and also with a financial flexibility which could help us to take some kind of strategic opportunities. So in terms of guidance, With solid results up to September, we confirmed our guidance for full year 2026, meaning an EBITDA margin of more than 11.7%, with increasing profitability in our auto business and also improving the profitability in scrap, and with a group operating cash flow conversion in the range of 35%, preserving our net financial debt and also our financial health. So just to conclude, we have been able to deliver a good set of results in a challenging environment, good set of results for the nine months of the year, which allow us to confirm the guidance for full year 2026, delivering as promised three years ago in the Phoenix plan, and also focusing in strengthening more our balance sheet to have a strong balance sheet and a flexible balance sheet.

17:19 So we are well positioned now to navigate all market scenarios and to capture all potential opportunities. And with this now, we are open to your questions. Ladies and gentlemen, we will now begin the Q&A session. If you'd like to ask a question, please press star five on your telephone keypad. If you change your mind, please press star five again. Please ensure that your device is unmuted locally before proceeding with your question. Our first question comes from Enrique Yaguez from Best Inverse Securities. Your line is now open. Please go ahead.

18:01 Good afternoon. I have three questions. The first one is on the EU regulation. And the question is, what is your view on how could a Fed withstand the potential delays on the made-in-Europe EV battery rules and also on the recent imports agreement between China and the EU? The second one is regarding the European industrial footprint. Other peers have recently announced some capacity closures in Europe. So the question is, are you still happy with your industrial footprint in this region? Or do you foresee the need to further accelerate the process of moving some capacity to other countries? And finally, the third question is about the customer negotiations.

18:53 This year, the inflationary pressure has intensified. So should we expect a higher than usual impact from this in Q4? Thank you very much.

19:06 Okay, thank you for your questions. In terms of regulation, especially in Europe, it is difficult to say what is going to happen. In fact, we are right now expecting the Europe regulation to really come across. As you know, there are different topics all around. There is a kind of discussion around In this sense it has been some changes already, so that kind of changes is giving some flexibility to the most of the OEMs. And regarding the imports and the industrial acceleration act, everything is moving in the direction to have some kind of restrictions in order to limit the kind of vehicles which are imported into Europe.

19:56 and also to be able to increase the rate of localization of the different components of the vehicle which are manufactured in Europe. So altogether, both things are positive for Gestam because we do have still a very extensive footprint in Europe. So anything which comes in the direction of increasing the production in Europe is going to be positive for us. But in any case, and coming back to your second question, we have already done our homework. Little by little we have been doing and adapting our capacities and adapting our flexibility in different markets and of course now that's why we are able to offer a very good profitability position in our European operations.

20:43 Of course we remain flexible and we remain ready to be able to take all kind of different actions but I need to tell you that we have already done A very important part of our homework throughout in the last two, three years. And regarding those questions around customer negotiations, there's nothing going to be in any substantial change in the fourth quarter. And of course, we have already been having quite constructive customer negotiations in the last two years. For next year are going to be, like always, negotiations with our customers. We still don't know what is going to be the impact of inflation. We have some rules in our negotiation for many years around the prices of steel and scrap. So these kind of things will remain in place.

21:30 So we don't think it's going to be any kind of big change in our traditional, normal and constructive negotiation with our customers.

21:39 Thank you very much. Ladies and gentlemen, please be reminded that if you'd like to ask a question, you should press star five on your telephone keypad. Our next question comes from Anthony Dick from Oddo BHF. Your line is now open, please go ahead.

22:02 Yes, good evening. Thanks for taking the questions. There's two on my side. The first one is on a more kind of strategic aspect. During the Stellantis call, the CEO mentioned a couple of times that they were going to insource hot stamping at Stellantis. So I was just wondering if, well, firstly, this actually has an impact on your business, do you think, in North America? and more broadly you know could you update us on the insourcing versus outsourcing trend which has been more of a driver I guess over over the last couple of years and my second question is more financial one it's on you know the below the EBIT items which have fluctuated a bit this year quarter on quarter so I was just wondering if you could provide some some guidance on tax rates Thank you.

22:59 First question, and then you take the second one. So regarding the comment that you mentioned from Stellantis, it's true that it was some reference to hot stamping in North America. We do have some work with Stellantis and other customers of hot stamping in North America, but we have not seen any direct request from Stellantis About insourcing of our current work with them. In fact, if we go to this kind of discussion always around insourcing and outsourcing, I think today I think all the OEMs everywhere in the world, I think they have a challenge in order to be able to preserve their financing.

23:46 I think as far as their suppliers with capacities in place and with competitive prices, it's difficult right now for investing capacities in-house. So I think we are always facing these kind of discussions, whether in-house or outsourcing. The reality is that the trend of outsourcing is clearly in place. And in case of our hot stamping, our growth in hot stamping everywhere in the world, we are really growing, not only in North America, but in the rest of the countries. Because it's a technology that is growing, because it's very, very supportive in order to be able to increase light weighting with a quite affordable cost. And maybe, Ana, for the second question.

24:26 Yeah, for the question related below to what is the EBIT line, on financial expenses as you know, the impact from those 20 million accounted related to IFRS 9 was in first quarter, second quarter, and third quarter. I already show in rather stable financial expense and probably you should take those reference for the fourth quarter. Tax rate, as you know, our typical tax rate is normally in the range of 23% to 25%. It has already been reported around 23% this year and should be in that range for the end of the year. And regarding minorities, as you know, the biggest impact we have this year was the case of the Santander Real Estate Asset Deal with this last year.

25:15 That impact was already accounted in the last quarter last year. So pretty much you already have around 75 million for the full year. Sorry, for the first nine months of the year. I'm probably assuming another 25 million for the last part of the year should be a reasonable assumption. So that should bring you to the net profit line or your own estimate on the net profit line for the year end. Okay.

25:37 That's very clear. Thank you to you both. There are no further questions on the conference call. I will now hand the line back to the Gestam team. Please go ahead.

25:53 So, thank you. Actually, we do have new questions on the conference call. Would you like me to put it through?

26:05 Yes, yes, please. Our next question comes from Alexandre Raverdi from Kepler Chevro. Please go ahead.

26:14 Yes, good evening. Thanks for squeezing me in. I have two quick questions, please. The first one, could you please come back to the large top line decline we saw in NAFTA? I guess you were hit by production stoppages, but more color would be appreciated there. And secondly, could you please provide a quick Q4 update regarding the current trading? Because we know that the S&P is expecting a larger decline. So any update on the current trading in terms of production stoppages that you might have faced in October would be helpful as well. Thank you.

26:51 Regarding to your first question around North America, we have had some underperformance of disease mainly related to some comparable basis from third quarter last year. Overall, the region remains negatively impacted by the trading situation between Mexico and the US. So we have seen some slowdown in terms of market demand in that region. And as you know also, there was also some optionality coming from growth in different EV projects, which obviously are not coming in. Most of them were canceled. So this is a bit of a regulatory uncertainty in North America. It's a little bit of what we are facing for this specific Star Quartet with that specific comparison basis versus last year in Q3.

27:37 And on your second questions related to the trading environment so far, we have seen no changes in Q4 to the trends over the first nine months of the year. Actually, we have been pretty much in 90 most of the trends with the market that we have seen over the first nine months. Western Europe, we are obviously having some pick up in certain markets more related to the mix that Gestam has rather than on the market side, but this is something that we have already anticipated. We have already also the new plans in Brazil and India, which should be also contributing during the last part of the year, and we are not forecasting to see any significant changes in the region of ASEAN, particularly in China. So overall, we are pretty much in line with what we have on the first part of the year. and pretty much in line to what was included in our guidance on budget for the year.

28:32 Thank you, Anna. We are now done with the questions on the conference call. I will now hand the line back to the Gestamt team. Please go ahead.

28:44 Well, thank you for joining us today. As you know, the IR team remains at your disposal for any further questions and we hope to see you soon after Christmas.