Magna International Inc at UBS Global Industrials & Transportation Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Joe Spak - UBS - Analyst : I guess, just to start since it's the end of the year and we're past Thanksgiving and feeling past Canadian Thanksgiving from the Canadian perspective for sure, feeling just a little bit reflective, I mean, it has obviously been a very challenging year in the automotive industry. Magna also 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 may even exceeded your own expectations and where are there still areas of improvement that -- and, again, away from the industry, you think you can better the business?

Question: Joe Spak - UBS - Analyst : 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 who have had some troubles this year well documented. Despite that, you have been able to show that growth over market. And I know it might be difficult or I think it is difficult from the outside to maybe pinpoint it one or two things, but can you highlight what has really been driving that outperformance to overcome even the customer's headwind? Because we've definitely seen other suppliers that maybe don't even have that high exposure to some of these customers as you do, sort of falter in that light.

Question: Joe Spak - UBS - Analyst : Yeah. 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 overtime. Does that rethink at all how you think about being aligned with some of those customers from that perspective or an increased desire to diversify your revenue base?

Question: Joe Spak - UBS - Analyst : So how much -- and I don't know if it's possible just to break down this way, but it seems like there's a couple means to 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 elephant in the room though is it doesn't seem like Europe structurally is going to return to prior volumes, right? There's just overcapacity, they move from a net export market to a net import market. And obviously, a number of the customers in there have challenges with overcapacity as it is. So do you think your footprint in Europe is rightsized for a new lower sustainable level of production?

Question: Joe Spak - UBS - Analyst : 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. We've -- 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. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 6:50PM, MG.TO - Magna International Inc at UBS Global Industrials & Transportation Conference I mean is there anything that is sort of -- 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?

Question: Joe Spak - UBS - Analyst : 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?

Question: Joe Spak - UBS - Analyst : Yes. Is that something you're monitoring into '25, some of the labor issues there?

Question: Joe Spak - UBS - Analyst : 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 a lot of production. As you begin to -- 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? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 6:50PM, MG.TO - Magna International Inc at UBS Global Industrials & Transportation Conference

Question: Joe Spak - UBS - Analyst : Across the three major regions?

Question: Joe Spak - UBS - Analyst : 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; 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 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.

Question: Joe Spak - UBS - Analyst : That's for this year?

Question: Joe Spak - UBS - Analyst : But prospectively, what else can be done, I guess? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 6:50PM, MG.TO - Magna International Inc at UBS Global Industrials & Transportation Conference

Question: Joe Spak - UBS - Analyst : 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?

Question: Joe Spak - UBS - Analyst : Right.

Question: Joe Spak - UBS - Analyst : 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 -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 6:50PM, MG.TO - Magna International Inc at UBS Global Industrials & Transportation Conference

Question: Joe Spak - UBS - Analyst : 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 and saying, hey, we need to rethink this one, or do you get the benefit of that?

Question: Joe Spak - UBS - Analyst : So basically you're able to price for labor and energy to some extent?

Question: Joe Spak - UBS - Analyst : Maybe we can sort of dive into some of the changes we've seen in, I guess, just sort of three major (inaudible) in the world and there's a lot going out. Obviously, in the world there sort of always is. But how you're 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? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 6:50PM, MG.TO - Magna International Inc at UBS Global Industrials & Transportation Conference So let's start in the US. 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 US, that just emissions regulations could get pushed out. So does that -- 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?

Question: Joe Spak - UBS - Analyst : And I guess the change really would be in the US, if there was sort of a further push out, there might be a little bit more (inaudible) you think you sort of mostly have captured that at this point?

Question: Joe Spak - UBS - Analyst : 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?

Question: Joe Spak - UBS - Analyst : Yes, yes, by region.

Question: Joe Spak - UBS - Analyst : Okay. Turning to another investor sort of hot topic coming out of the election is tariffs. And I remember very distinctly having these conversations with Magna in 2017 with border (inaudible) and I can't get -- seared out of my mind, I think you -- I don't remember the exact number times, but I think you gave you an example of one 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 -- REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 6:50PM, MG.TO - Magna International Inc at UBS Global Industrials & Transportation Conference

Question: Joe Spak - UBS - Analyst : Okay. And understanding that this has many things --

Question: Joe Spak - UBS - Analyst : 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.

Question: Joe Spak - UBS - Analyst : 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 across border for assembly in the US, 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?

Question: Joe Spak - UBS - Analyst : Right. Well, that was the other question. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 04, 2024 / 6:50PM, MG.TO - Magna International Inc at UBS Global Industrials & Transportation Conference

Question: Joe Spak - UBS - Analyst : 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 US shipped into Mexico, is then what goes back into the US only tariffed on the value-added portion or the entire?

Question: Joe Spak - UBS - Analyst : 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 US or China or?

Question: Joe Spak - UBS - Analyst : In region for a region, yes.

Question: Joe Spak - UBS - Analyst : 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?

Question: Joe Spak - UBS - Analyst : And the business mostly run by locals.

Question: Joe Spak - UBS - Analyst : What about -- one of the things that we're starting to hear some rumblings about, and we get that -- 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?

Question: Joe Spak - UBS - Analyst : Yes. On the seating side.

Question: Joe Spak - UBS - Analyst : Right. And sort of exacerbates the global overcapacity issue.

Question: Joe Spak - UBS - Analyst : Yes.

Question: Joe Spak - UBS - Analyst : 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 --

Question: Joe Spak - UBS - Analyst : Currently, where it was five years ago, even though you're a much larger company now.

Question: Joe Spak - UBS - Analyst : Okay.

Question: Joe Spak - UBS - Analyst : I don't like to talk about them. That is just a reality.

Question: Joe Spak - UBS - Analyst : 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?

Question: Joe Spak - UBS - Analyst : 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?

Question: Joe Spak - UBS - Analyst : 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.