Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Grupo Industrial Saltillo SAB de CV (MEX:GISSAA, Financial) reported a significant annual growth in EBITDA, doubling the figure from the same period last year.
- The company successfully closed refinancing endeavors through syndicated loans in Mexico and Europe, enhancing financial flexibility and improving the maturity profile.
- Draxton's facilities have been instrumental in improving profitability metrics, with strategic capacity expansions and operational enhancements.
- The company is advancing its transition strategy to focus on electrification agnostic parts and components with higher value added.
- Grupo Industrial Saltillo SAB de CV (MEX:GISSAA) has implemented a solar energy cell generation capacity expansion program across its Draxton plants in Europe and China, reducing environmental footprint and optimizing energy costs.
Negative Points
- Grupo Industrial Saltillo SAB de CV (MEX:GISSAA) reported a 4% year-over-year decline in consolidated revenues, mainly due to decreased casting volumes and lower base prices for raw materials and energy.
- Casting volume decreased by 4% compared to the same period last year, reflecting broader industry trends and a slowdown in vehicle production.
- In Europe, vehicle production declined by 5% annually, contributing to the deceleration in the European automotive sector.
- The company faces challenges from increased competition, particularly from Chinese companies considering entering the North American and European markets.
- Labor cost inflation remains a concern, with increases of 7% to 8% in North America, impacting the cost structure despite efforts to improve productivity and automation.
Q & A Highlights
Q: What is your estimate for the EBITDA margin by the end of the year, and can you provide more details on the additional casting capacity in North America?
A: We do not provide specific guidance, but we are confident in maintaining low double-digit EBITDA margins. Our CapEx expansions in Foundry, particularly Lines six and seven, will boost revenue and margins. Regarding additional casting capacity, we are evaluating the need due to customer demand for relocating production to Mexico. We are focusing on high-margin products before adding capacity.
Q: Have you completed commercial negotiations with clients for this year?
A: Yes, we have completed negotiations for this year. However, due to persistent inflation and high interest rates, future price adjustments may be necessary. We are currently aligned with market prices and have updated prices to recover inflation effects.
Q: What are the labor cost increases you are experiencing, and how are you managing them?
A: In North America, labor costs have increased by 7% to 8%, with additional pressures from labor reforms. We are implementing productivity improvements and automation to offset these costs. In Europe and China, labor cost increases are around 3% to 4%. We do not foresee double-digit increases in the near future.
Q: How should we think about EBITDA per unit margin in Draxton after accounting changes?
A: We expect EBITDA margins to remain stable, similar to the first half of the year. The target of $300 per unit remains, despite central expenses now being allocated to Draxton. We are implementing cost-saving strategies to maintain this target.
Q: How do you view your competitive position against Chinese investments in Mexico and Europe?
A: While Chinese companies may consider entering Mexico, our established presence and experience provide an advantage. In Europe, similar cost structures mean competition will be on equal footing. We are prepared to add capacity if needed to maintain our leadership.
Q: What are you seeing in terms of Chinese competition and the impact of electric vehicles on your business?
A: In North America, we have strong relationships with major automakers, and we are prepared to supply Chinese companies if they enter the market. Electrification does not significantly impact our core products like brake and chassis components, which remain relevant across vehicle types.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
