Dowlais Group plc

Good day, ladies and gentlemen, and welcome to the DoLE full year 2024 results. The presentation will commence shortly. After the presentation, we will conduct a Q&A session. If you wish to ask a question, you'll be able to ask a question either through the Zoom webinar link provided separately or by submitting written questions using the ask a question button on the Spark Live webcast page. Please note this call is being live streamed to webcast for a wider audience and will be recorded. I would now like to hand over to Liam Butterworth, Chief Executive Officer, to open the presentation. Please go ahead.

Good morning and thank you for joining us today for our full year 2024 results. Firstly, I will set the context for the decisive actions we took over the last 12 months and the ongoing structural shifts shaping our industry. Roberto is then going to cover the 24 results in detail. And to finish, I will look at our divisional performance and how we're continuing to position ourselves for the future. 2024 was a year of industry challenges, but also one of significant strategic progress for Dowlace. Despite ongoing market volatility, we delivered on our updated guidance that was communicated in mid-24. we remained laser focused on execution, taking decisive strategic actions to strengthen our business. Each of these actions is critical to driving long term value for our shareholders. Let me give you some examples. As guided in August, we successfully offset the impact of lower volumes on margin through a comprehensive program of commercial recoveries, performance initiatives and ongoing restructuring. Despite the lower volumes, margin increased 10 basis points in 2024. We right-sized the engineering investment in eDrive systems with a £10 million net benefit expected in 2025. We disposed of our hydrogen business to eliminate related cash losses, and we initiated a strategic review of powder metallurgy, including a potential sale. Then, on the 29th of January 2025, we announced the recommended combination of Dowlace with American Axel. All of these actions are focused on unlocking shareholder value whilst transitioning to a powertrain agnostic business model that navigates market shifts and drives sustainable, profitable growth. Let me first provide you with some context of the structural shifts we're seeing in the industry before summarising the benefits of our most recent strategic announcement, the combination with American Axle. The automotive environment is undergoing a profound structural shift across four main themes, geopolitics, regionalisation, customer landscape and technological landscape. In geopolitics, we are seeing a significant increase in protectionist policies, tariffs and trade tensions that are all reshaping supply chains for goods and raw materials globally. Having a scaled global platform is key to help navigate this and ensure ongoing business and financial resilience. Regionisation is creating fluctuating production rates and powertrain demands across geographies. For example, China's share of GLVP continues to rise, while Europe, North America and Japan and Korea have seen declining production since 2019. Each region has varying rates of EV adoption. This is driving the necessity to have a more geographically diverse and flexible business. At the same time, the customer landscape is evolving. The number of OEMs producing over 500,000 light vehicles annually has grown by over 30%, driven by the rise of pure Beth players and Chinese OEMs. And today we serve three distinct customer groups, traditional OEMs, pure Beth players, and Chinese OEMs. Each group has unique strategies, product requirements, and ways of working, adding complexity to our industry. We need scale to adapt, innovate, and maintain long-term relevance to each type of customer as this landscape continues to evolve. And finally, technology is also changing significantly. Powertrain complexity is driving the need to have an increase in the agnostic portfolio for ICE, hybrids and BEVs. The growing number of OEMs has led to a proliferation of platforms, with new programme launches expected to increase by 75% between 2017 and 2026, even as overall vehicle production is expected to decline by 4% over the same period. Navigating these complexities requires strategic foresight and ability to react and adapt, which we have done and continue to do. For example, regionalising our supply chain and right-sizing capacity since 2019, especially in Europe. Maintaining a disciplined approach to investing in BEV and prioritising a power trade agnostic portfolio. And leveraging our engineering expertise and global scale including our successful JV in China with its China for China strategy. The auto industry is going through a structural change and it's critical for suppliers to continuously adapt and transform. This brings us to our most recent strategic announcement, the combination with American Axle, which will create a more resilient global business positioned for long-term success against the structural shifts I've highlighted. Let me remind you of the rational and key benefits of the proposed transaction. First, scale and focus. This combination brings enhanced resilience and relevance to customers through scale and focus. It brings together two highly complementary businesses, creating a scaled powertrain agnostic portfolio, offering a significant content per vehicle growth opportunity for ICE, hybrid and BEV platforms. For example, in driveline from CV joints to prop shafts and side shafts. In axle systems, combines both businesses expertise in e-powertrain components and axle systems for ICE, hybrid and BEV. And in metal forming, encompassing forging, machining, casting and sintering, providing deep vertical integration and access to adjacent industrial markets. Furthermore, this combination grants Dowlace access to the highly profitable and cash-generative North American full-size pickup truck and SUV market, which remains at the tail end of the BEV transition, offering greater stability and earnings visibility. Secondly, vertical integration. The combined business will benefit from deeper vertical integration, enhancing capacity utilization and operational efficiencies in areas such as forging, casting and machining to support deeper integration for driveline, e-powertrain components and axle systems. And capacity in powder to strengthen American Axle's metal forming business, improving utilization rates in powder metallurgy. And finally, synergies and free cash flow generation. Beyond the strategic and operational fit, this combination brings substantial financial benefits. The combined group will generate free cash flow and set to leading margins supported by $300 million in identified synergies, which through our combined teams, we are highly confident of delivering the majority within the first two years. Both teams have spent a significant amount of time together pre-announcement, working through the synergy potential, and $300 million was the announceable figure signed off under UK takeover requirements. We believe this is a compelling opportunity for our shareholders, who will receive approximately 45 pence in cash, whilst also retaining a 49% ownership in the enlarged group. The regulatory filings and process are progressing well and we expect the transaction to close by the year end. This combination is fully aligned with our operational strategy as well as our focus on creating significant shareholder value in a dynamic automotive market. I'm now going to hand over to Roberto to present the financial results in detail before coming back to you and discussing the divisional performance and actions we are taking.

Thank you Leo and good morning everyone. Today, I will take you through our financial results for the full year 2024, covering revenue performance, profitability, cash flow, and our capital structure. But let's start with the key financial highlights. We delivered results in line with August guidance, despite the challenging environment. This was accomplished by mitigating the impact of lower volumes with rigorous cost management and commercial recoveries. Full year adjusted revenue came in just over 4.9 billion pounds, representing a 6.4% decline at constant currency, primarily due to lower volumes in our ePowerTrain product line. Adjusted operating profit was £324 million, down 4.2%, while margins improved by 10 basis points. Adjusted basic earnings per share was 11.4 pence, reflecting a 17% decline, largely due to lower earnings and higher finance costs. Free cash flows stood at £15 million, down from £93 million in 2023, mainly due to lower earnings, higher interest and restructuring outflows. The net debt increased to £968 million, resulting in a leverage ratio of 1.7 times EBITDA, compared to 1.4 times at year-end 2023. Shifting to revenue, the year-on-year decline was primarily driven by automotive, which was down 7.2%, as e-powertrain revenue declined 18% due to ongoing volatility in BEV production schedules. Driveline remained resilient, with revenue down 3.2%, slightly outperforming the market outside China. Powder metallurgy saw a 2.7% decline with softer demand in North America, although this was partially offset by growth in China. Foreign exchange was a notable headwind, impacting reported revenue by 199 million pounds as the pound strengthened against the US dollar, the euro, and the Chinese yuan. Notwithstanding revenue pressures, we took proactive steps to protect profitability. Adjusted operating profit declined 4.2% to £324 million, while margins improved by 10 basis points to 6.6%, reflecting our focus on rigorous cost control and commercial recoveries. The decrease in adjusted operating profit was primarily driven by lower revenue and partially offset by approximately £70 million of commercial recoveries, which were mostly one-off in nature. and therefore most of them are not expected to reoccur in 2025. We also delivered 27 million pounds of efficiencies related to our footprint restructuring initiatives, as per our guidance. In line with our financial model, approximately 31 million pounds of price reductions were offset by other ongoing performance initiatives. As a result, we contained the decremental margin to 6%, well below our financial model assumption of approximately 30%. Foreign exchange headwinds were £16 million. Moving on to GKN Automotive, revenue declined 7.2% for the year, with the e-powertrain product line down 18%, primarily due to ongoing volatility in BEV production schedules. Driveline revenue was more resilient, declining 3.2%. ePowertrain accounted for over 70% of the revenue decline in automotive, largely due to lower volumes and unfavorable product mix. Given its significantly higher content per vehicle compared to driveline, the impact was more pronounced. This decline was primarily driven by four key platforms, underscoring the heightened sensitivity of this product line to shifts in BEV production schedules. Adjusted operating profit for the segment was £268 million, down 8.5%, with an operating margin of 6.8%, a decline of 10 basis points year on year, but a sequential improvement of 80 basis points from the first half. While lower volumes weighed on profitability, pricing recoveries, ongoing commercial initiatives and restructuring benefits helped offset some of the pressure. As a result, we limited the drop-through margin impact to 7%, significantly better than typical volume decline scenarios. As I mentioned earlier, the commercial recoveries achieved this year were for the most part one-off in nature. However, I do expect self-help initiatives related to our restructuring program and reduced engineering spend in eDrive systems to provide a more sustainable margin improvement going forward. These actions will help enhance the long-term profitability of the business, as we continue transitioning towards an e-powertrain agnostic portfolio. In powder metallurgy, revenue declined 2.7%, with North America experiencing lower volumes, while China saw moderate growth. Adjusted operating profit was 89 million pounds, down 3.1%, with a 9.1% margin. broadly in line with the last year as the impact of volume weakness was offset by pricing initiatives and operational efficiencies. Moving on to earnings per share, adjusted basic EPS for the year was 11.4 pence, down 17% compared to last year. This decline was primarily driven by lower earnings and higher finance costs. Adjusted net finance charges increased to £109 million, up from £91 million in 2023, mainly due to higher interest rates and the four-year impact of debt financing put in place post-emerger. Tax charges for the year were £54 million, resulting in an effective tax rate of 25%, in line with our medium-term average. Statutory basic EPS was a loss of 12.6 pence per share versus the loss of 36 pence per share in 2023. Free cash flow in 2024 was 15 million pounds down from 93 million pounds in 2023. This decline was mainly driven by lower earnings, higher interest payments, increased working capital and restructuring outflows, though it was partially offset by reduced capital expenditure. Interest paid was 26 million higher, reflecting the full-year impact of our post-emergent capital structure, with an effective interest rate of 6.3%. We expect this to remain stable in 2025, assuming no major changes in market conditions or leverage levels. Restructuring-related cash flows were £106 million, in line with our expectations, as we continued optimising our footprint and driving operational efficiencies, In 2025, restructuring is expected to increase to 120 to 130 million pounds. The increase versus 2024 is largely due to costs related to the right sizing of the engineering spend in eDrive systems. Capital expenditure was £191 million, a reduction of £104 million year over year, as we took a disciplined approach to spending and benefited from not having any major new production facility expansions. In 2025, we expect CAPEX to remain at the lower end of our revised medium term guidance of 0.9 to 1.1 times depreciation and broadly similar to this year. Working capital improved in the second half as we took proactive steps to reduce inventory and align receivables with production volumes, ensuring more efficient cash usage. However, these improvements were not enough to offset the high working capital from the first half. While we do not anticipate a significant working capital benefit in 2025, we remain focused on cash conversion and efficiency. Tax outflows for the year were 56 million pounds, broadly similar to the prior year. Tax outflows in 2025 are expected to be slightly higher due to a legislative withdrawal of a patent box tax relief previously claimed in Italy and the settlement of a tax audit in Germany. Pension payments remain steady at 44 million pounds, consistent with our guidance. We maintained a strong liquidity position throughout the year while executing strategic refinancing actions to strengthen our balance sheet. Net debt at the year stood at £968 million, up from £847 million in 2023. This increase was driven by lower free cash flow generation due to reduced earnings, higher restructuring outflows, and share buybacks completed prior to the American Axel combination announcement. During the year, we successfully refinanced $500 million in the US private placement market, spreading the debt maturities between 2028 and 2036. As a result, we diversified our investor base, improved our debt maturity profile, and reduced refinancing risks in the medium term. Looking ahead, industry forecasts GLVP to remain flat year on year. with a 0.9% decline when excluding China. Based on these external forecasts and our current order book, we anticipate group revenue to range from flat to a mid-single-digit decline in 2025, with an adjusted operating margin between 6.5% and 7% in constant currency. Restructuring savings and ongoing performance initiatives are expected to offset the impact of lower volumes and the commercial recoveries achieved in 2024. In line with industry trends, revenue growth in constant currency is expected to be stronger in the first half, while adjusted operating margin will improve in second half, reflecting the phasing of restructuring benefits. Free cash flow for 2025 is expected to be slightly higher than prior year, with working capital seasonality and restructuring outflows more weighted towards H1. By 2026, we expect a significant increase in adjusted free cash flow as our global footprint restructuring is set to conclude by the end of 2025. As a reminder, our outlook does not consider the impact of recent tariffs. which seem to be changing on a daily basis. However, let me briefly outline our approach and how we plan to minimize the potential impact on the business. Since 2019, we have taken proactive steps to localize our supply chain, significantly reducing reliance on global imports. Our intercompany flows across regions are minimal, but we have some raw materials and components shipped into our U.S. operations that will be exposed to these new tariffs. In regards to finished goods, there are no shipments from China and Canada to the US. And as for Mexico, the vast majority of products are picked up directly by the OEMs at our factory gates, making them responsible for onward shipment costs, including freight and duties. This is industry practice for suppliers like us. Additionally, we have a strong track record of recovering a significant part of any direct tariff impact. on the business, as demonstrated under the last Trump administration, when steel tariffs were imposed. In summary, while we're not entirely immune to some potential tariffs, we are well positioned to remain resilient and effectively mitigate their impact. Finally, on slide 18, you can find an unusual guidance slide to help you with the modeling. If you have any questions on this or other modeling matters, please speak to Pierre or me. Thank you. I will now hand back to Liam.