Nemak SAB de CV Q1 2024 Earnings Call Transcript

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

Question: Andres Cardona - Citi - Analyst : Hi. Good morning, Armando, Alberto. Thanks for the presentation. I have three questions. The first one, you were saying you are confident about recovering your target margins. Could you please share with us what are those targets? Not sure if you look at it on a per equivalent unit or however you think about these target margins. The second one is you were saying on the electric vehicle volumes that have been coming below expectations, you're negotiating some compensations. Are those compensations enough to guarantee the adequate return over the invested capital, or they are just like a partial compensation that you are able to get but still keep you below those return over invested capital targets? And the last one is on European margins. Are they sustainable from the levels we saw in the first quarter, or are they reflecting a non-recurring commercial negotiation adjustment from perhaps 2023 that are benefiting the metric for the quarter? Thank you.

Question: Andres Cardona - Citi - Analyst : Thank you, Armando and Alberto. Congratulations for the first-quarter results.

Question: Alfonso Salazar - Scotiabank GBM - Analyst : Yes, thank you, and good day, everyone. The first question I have is regarding free cash flow generation. I just want to confirm that you still expect to generate positive free cash flow for '24 and '25. And also, if you can provide -- remind us what is the net debt to EBITDA target for Nemak and whether you think it would be by 2024 year-end. The second question -- well, it's more a request than a question, but it has to do with the long-term guidance that you provided back in 2021, which was very helpful to understand how Nemak expects this EV adoption curve to materialize in time. However, the situation has been very different and has been -- is moving way more slowly than we anticipated back then. So just wondering if you can provide new guidance or prepare something that -- an update of that guidance that you provided back in 2021 and maybe some comments on what has changed relative to the guidance that you provided back then today. Thank you. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. APRIL 25, 2024 / 4:00PM, NEMAKA.MX - Q1 2024 Nemak SAB de CV Earnings Call

Question: Alfonso Salazar - Scotiabank GBM - Analyst : Thank you. That is very useful.

Question: Alejandro Azar - GBM Casa de Bolsa - Analyst : Hi. Good morning, Armando, Alberto. Thank you for taking my questions. I have several ones. So if I can -- if I may, can I take them one by one? The first one is on your margins. If I hear correctly, you're targeting $15.5 per equivalent unit. Can you give us some color on the ramp-up to those margins -- I don't know, like building blocks? How much are you expecting from operating leverage? It's the bigger chunk to reach that on account to pricing. That would be my first one.

Question: Alejandro Azar - GBM Casa de Bolsa - Analyst : Okay. Alberto, on your capacity utilization, is there any way that you can share how does it look on the powertrain side and on the EV side right now?

Question: Alejandro Azar - GBM Casa de Bolsa - Analyst : Okay. And my last two questions would be on CapEx and on your strategy on EVs. On CapEx is, if I understand correctly, around $100 million out of your $400 million for this year should be allocated to EVs. With the slowdown on the EVs, is that number going to change for this year? And how -- is it fair to account in 2025 this number becomes zero and you probably only do maintenance on the EV side and the rest is powertrain? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. APRIL 25, 2024 / 4:00PM, NEMAKA.MX - Q1 2024 Nemak SAB de CV Earnings Call And the other one is on the strategy regarding how you -- is it changing how you approach the biddings for programs across EV platforms?

Question: Alejandro Azar - GBM Casa de Bolsa - Analyst : Okay. And regarding the approach on the bidding of programs, with the slowdown that you're seeing, is that changing?

Question: Alejandro Azar - GBM Casa de Bolsa - Analyst : Okay. Thank you. Thank you both.

Question: Alejandro Azar - GBM Casa de Bolsa - Analyst : Thank you, Denise, for bringing me back. Just one more question on Alberto and Armando taking advantage of your time. We've seen in the past five years, a little bit more than that, your clients losing market share. What is Nemak doing internally to capture new clients, let's say, some coming Chinese OEMs or Toyota, Honda? Are you seeing, let's say, these new OEMs interested -- or especially Toyota, I mean -- on your chassis applications? Because I understand they do their own internal combustion engines, but what color can you share on that front?