Dowlais Group plc

Good day ladies and gentlemen and welcome to Dialys H1 F24 results. At this time all participants are in listen only mode. Later we will conduct a question and answer session. If you wish to ask a question we ask that you please use the raise hand function at the bottom of your zoom screen. If you've dialed in please select star 9 to raise your hand and star 6 to unmute. Instructions will also follow at the time of Q&A. I would like to remind all participants that this call is being recorded. Questions will follow after the presentation. I will now hand over to Liam Butterworth, Chief Executive Officer, to start the presentation.

Thank you and good morning, everybody. Thank you for joining us today for our 2024 interim results. In the first half, our market-leading driveline business, ChinaJV, and powder metallurgy, which account for more than 75% of the group's revenues, all outperform their markets, while volatility in bed production significantly impacted four high-content platforms in our e-powertrain business. The past six months have been challenging for both our industry and Dowlay as we've navigated a volatile market environment, but my management team and I are absolutely laser-focused on everything that we can control, We've navigated volatility before, most recently during COVID and the supply chain and semiconductor crisis, and we'll do it again. We've taken decisive actions to limit the impact of the volume headwinds on profits and unlock value from our portfolio. And here are the actions that I want to highlight. Firstly, we've been absolutely relentless in controlling our cost base to limit the impact of volume decline on operating profit. Secondly, we've initiated a comprehensive programme of commercial recoveries with our customers. Along with ongoing restructuring programmes and performance initiatives, these actions will positively impact the drop-through margin in the second half of the year. And finally, today's announcement of a strategic review of powder metallurgy and the disposal of our hydrogen operations underscores our commitment to unlocking value from our portfolio and delivering shareholder returns. We completed the disposal of GKN hydrogen earlier this month, eliminating the expected cash losses associated with the business, which amounted to £23 million in 2023. And we've commenced a comprehensive review of the GKN powder metallurgy business, considering a range of options, including a potential sale. Over the last 18 months, Roberta and I have worked closely with the teams to understand the business, establish a new leadership team, and develop a clear strategic and commercial plan to accelerate the portfolio transition. I believe now the time is right to move forward with our strategic review. I remain highly confident in the medium at Outlook, and as we continue to accelerate the transition of our portfolio to powertrain agnostic products, which I firmly position will better position us to navigate the market volatility and deliver sustainable, profitable growth and cash generation in the medium term. I'm now going to hand over to Roberto to present the financial results in detail. Thank you, Leo, and good morning, everyone.

We'll go into detail on each of these P&L lines, but in summary, our adjusted revenue declined by 5.1% in the first half, with adjusted operating profit down 9%, driven by lower volume. The adjusted operating margin of 5.9% was 30 basis points lower than prior period, as the impact from lower volume was partially offset by rigorous and proactive cost management and pricing recoveries. We generated 10 million pounds of adjusted free cash flow, down from 33 million pounds in H1 2023. mainly due to lower earnings, higher interest, and restructuring outflows. Adjusted basic earnings per share were 4.9 pence, down 30% year-over-year, and the Board has declared an interim dividend of 1.4 pence per share, in line with the group's dividend policy, reflecting the confidence of the Board in the medium-term outlook. Let's delve further into group revenues. The decline in revenue in the first half was primarily driven by lower revenues in automotive and foreign exchange headwinds, with powder methodology revenues remaining broadly flat. A foreign exchange headwind of £114 million was largely driven by the British pound strengthening against the US dollar, the euro, and this Chinese yuan. At current spot rates, we expect the foreign exchange impact on revenue for the full year to be approximately £200 million. Moving on to operating profit. Adjusting operating profit for the period was £151 million, including a £7 million loss for the hydrogen business. Operating margin declined by 30 basis points year-over-year at constant currency to 5.9%. As you can see in the chart, this decline was mainly driven by lower volumes. Despite the volume weakness, we took actions to proactively manage our cost base, effectively mitigating the impact on margins and limiting the drop-through from 30% in our financial model to 11%. Inflation was more than offset by procurement efficiencies and recovery from customers. The column labeled performance represents the benefits delivered by continued operational efficiencies, which had a positive contribution of $24 million. net of labor inflation. Foreign exchange headwinds were 10 million pounds, and at current spot rates, we expect the foreign exchange impact for the full year to be approximately 17 million pounds. We remain focused on long-term profitability by rigorously managing pricing, proactively controlling costs, and executing our self-help initiatives to deliver improved margins. Let me now deep dive into the performance of our individual businesses, starting with GKN Automotive. Adjusted revenue declined 6.3% to approximately 2 billion pounds. Driveline, with an adjusted revenue decline of 1.4%, outperformed a declining global light vehicle production rate, excluding China of 2.4% in the half, demonstrating resilience through customer and geographical diversification. Our China business continued to perform well, gaining share with local OEMs as revenues grew 6.6% ahead of the market. ePowertrain accounted for over 60% of revenue decline in automotive due to volume decline and product mix, given it has significantly higher content per vehicle than the driveline product group. Adjusted operating profit of £122 million declined 13%, leading to adjusted operating margins of 6%, a decline of 50 basis points at constant currency. The continued execution of the team around commercial recoveries and performance initiatives only partially offset the impact of lower volumes on profit, as we contained the drop-through margin to an impressive 14%. Moving to powder metallurgy. Powder Metallurgy had a good start to the year and generated adjusted revenue of £527 million, a slight increase of 0.2% year-on-year in constant currency, growing ahead of the market. The slight drop in revenue in the core portfolio due to the ice decline was offset by growth in EV products and metal additive manufacturing. Adjusted operating profit for the period was £50 million, resulting in an adjusted operating margin of 9.5%, a 50 basis points improvement from the prior period. This improvement was mainly driven by the successful resolution of one-time operational challenges from the prior period and a favourable regional mix. The business also offset inflationary increases through operational efficiencies, generating a net £2 million benefit versus first half of 2023. Moving to earnings per share, we delivered adjusted basic EPS of 4.9p. Compared to prior period, adjusted EPS was down 30%, largely due to lower earnings and higher finance costs. Adjusted net finance charges of 56 million pounds were higher than prior year as it reflects a full first half impact of the post-emergent capital structure. and our effective interest rate on bank borrowing remained stable at 6.5%. Tax charges were £24 million, with an effective tax rate of 25% in line with our medium-term outlook. Statutory basic EPS was a loss of 7.3%. Moving to cash, as a group we generated £10 million of adjusted free cash flow in the first half, This is £23 million lower than H1 2023, largely due to lower adjusted EBITDA, higher interest payments and higher restructuring payments, partially offset by lower capital expenditure and higher dividends from equity-accounted investments due to the timing of payments from our China joint venture. Working capital will reduce in the second half of the year due to seasonality, and as we take proactive measures to align our working capital requirements with lower volumes. Interest payments totaling £49 million were £28 million higher than the previous period due to the annualization of the post-emerger capital structure. Therefore, interest payments for the full year are expected to be in the range of 80 million to 90 million pounds, in line with previous guidance. Capital expenditure of 103 million pounds was 19 million pounds lower than prior year, as it was adjusted to align with lower volume and did not include any material capital expenditure on new production facilities associated with our footprint restructuring initiatives. Restructuring cash flows of 51 million pounds related to continued performance improvements were higher than previous period, and in 2024 are now expected to be in the range of 105 million to 115 million pounds, higher than the previously communicated range of 90 to 100 million pounds, largely due to further restructuring initiatives resulting from lower volumes. We entered the half with a leverage ratio of 1.6 times, higher than in December 2023 and outside our target range of one to one and a half times due to lower EBITDA and higher net debt. However, we expect this to be temporary and to be back within our target range in the medium term. In our last trading update in May, we indicated that we expected sequential improvement in the second half of the year. However, at the group level, we're now seeing slower than expected growth and we no longer anticipate that H2 revenue will be better than H1, primarily due to weakening market conditions. As a business, we are facing three key headwinds. Firstly, weaker volumes. In May, when we issued our guidance, industry forecasts expected a flat global live vehicle production. Since then, S&P has downgraded its forecasts twice. Secondly, bad volatility. Volatility in certain battery electric vehicles platforms is expected to continue impacting our e-powertrain product line in the second half. And lastly, adverse customer mix. We anticipate that an adverse customer mix will impact performance for the remainder of the year, especially in North America and across our BEV platforms. At the group level, this means that we now expect full-year revenues to decline mid to high single digits. As we continue to execute actions to limit the impact of lower revenues to operating profit, such as commercial recoveries, restructuring savings, and ongoing performance initiatives, we expect constant currency operating margin to be between 6% and 7%. Adjusted free cash flow will be lower than prior year due to reduced volume and higher restructuring costs. We have also included our usual guidance slide to help you with the modeling. If you have any questions on this or other monthly matters, please speak to me or Pierre. Thank you, and I will now hand it back to Liam.