Magna International, Inc.

Greetings and welcome to the Q1 2023 results call to the presentation on participants have been a listen only mode afterwards we'll conduct a question and answer session. At that time, if you have a question, please pass the one by the four on your telephone for any time the conference you to reach an operator, you may press the star four by the zero. As a reminder, today's call is being recorded Friday, May 5th, 2023. Now, I would like to turn the call over now to Louis Tonelli, VP, Investor Relations. Please go right ahead.

Thanks, Tommy. Hello, everyone, and welcome to our conference call covering our first quarter of 2023. Joining me today are Swami Kodagiri and Pat McCann. Yesterday, our board of directors met and approved our financial results for the first quarter of 2023. We issued a press release this morning outlining our results. You'll find the press release, today's conference call webcast, the slide presentation to go along with the call, and our updated quarterly financial review, all in the investor relations section of our website at magna.com. Before we get started, just as a reminder, the discussion today may contain forward-looking information or forward-looking statements within the meaning of applicable securities legislation. Such statements involve certain risks, assumptions, and uncertainties, which may cause the company's actual or future results and performance to be materially different from those expressed or implied in these statements. Please refer to today's press release for a complete description of our safe harbor disclaimer. Please also refer to the reminder slide included in our presentation that relates to our commentary today. And with that, I'll pass the call over to Swami.

Thank you, Louis, and good morning, everyone. I appreciate you joining our call today, and let me jump right in. There are some notable takeaways to highlight before getting into some of the details. Organic sales grew by 15%, outperforming weighted production by 8%, driven by growth across our portfolio. Our strong Q1 operating performance reflects strong earnings on higher organic sales. We are raising the lower end of our adjusted EBIT outlook by 60 basis points based on the strength of these results and targeted actions to reduce expenses and optimize our cost structure. We are highly focused on executing our strategy and remain confident in our ability to meet our long-term growth and margin outlook. Given our sales growth of about $8 billion in the next three years, particularly on new program launches, we are investing in the business and expect CapEx to sales ratio to normalize by 2025. Our CapEx outlook is unchanged for 2023. In the quarter, we issued $1.6 billion of debt to finance our pending acquisition of V&R Active Safety, and we plan to be back in our target leverage range by the end of 2024. And our successful debt offering was done while maintaining our investment grade rating and strong investor interest despite a challenging market environment for debt issuance in Q1. As you all know, our global economy continues to experience some interlocking challenges, including higher inflation, rising interest rates, geopolitical risks, and slowing economic growth, which continue to have an impact on our industry. We have remained focused on driving operational improvements, working with our customers to recover inflationary costs, and executing on a strategy to deliver long-term value. Let me share some of these specific operational improvements and where we have intensified our actions, giving us confidence in achieving not only this year's outlook, but our plans beyond 2023. We have undertaken a number of actions to mitigate the short and midterm macroeconomic pressure we are facing, including the consolidation and restructuring of some corporate functions, manufacturing footprint optimization and repricing of some programs that are underperforming our expectations. At the same time, we have and continue to intensify actions that are core to our daily business, including automation activities. In fact, about 15% additional productivity has been identified, including a possible 120 automation installations over and above the planned 70, all to be completed within the year. Additionally, our corporate enterprise-wide global purchasing initiative that started last year is helping reduce direct component pricing, freight optimization, and overall supplier management, among other things. We are starting to see traction here. And finally, smart factory initiatives with a digital ecosystem implementation, which include leading indicators analytics, and higher levels of automation, all aimed at achieving higher productivity levels, are all well underway. We expect these initiatives to help us achieve our 2023 outlook and will be key to expanding long-term margins. Now, looking at our sales in megatrend areas that are increasing per hour plan. Sales for these product areas were just under $1 billion combined last year and are expected to roughly double to just under $2 billion this year, double again by 2025, and be up to $7 billion by 2027. These products have a sales kicker of around 50% in the period from 2022 to 2027. The pending acquisition of V&R is expected to add meaningful growth on top of that. As the sales growth continues, our roughly $900 million of engineering spending in these areas is expected to be relatively flat over our outlook period. Given that these product areas are reaching an inflection point and we are beginning to leverage our engineering spend, to the point where we expect these businesses to be profitable by 2025. We recently announced a few key product wins contributing to our growth in these areas, including Clearview Vision Systems on the RAM 2500 and 3500 heavy-duty models, Battery Enclosures business on General Motors EV pickups and SUVs, and eDrive systems for a Europe-based global premium OEM, just to name a few. We are expecting overall growth for Magna of around $8 billion from 2022 to 2025. This is partially driven by the record business awards we achieved in 22, which were 30% above our five-year average. This high growth cycle is driving the near-term capital investment. Our capex to sales ratio is expected to decline to historical levels of low to mid-force by 2025. Just as a reference point, we exceeded a 5% threshold during other periods of growth in 2016 and 17. More than a billion dollars of our expected capital investment over the next three years, including about $500 million this year alone, is to build on a strong position in battery enclosures, a market position that we believe we can maintain over the long term and generate strong returns from investments across multiple program life cycles. And it's important to point out that we continue to win business across our core product areas as well, including seat complete assemblies on GM's EV pickup trucks at Orion Assembly, engineering and complete vehicle assembly for Ineos Automotive's off-road EV, and smart access power door systems on a Ferrari program. Lastly, before I pass the call over to Pat, Reflected in our ongoing commitment to operational excellence is the recognition we receive from our customers. Typically, Magna receives more than 100 launch and quality awards from various global automakers around the world each year. Most recently, General Motors recognized Magna with a total of eight awards, seven Supplier of the Year awards, and one Overdrive award. We were one of only two suppliers to win both awards. and the only supplier to win six or more in a given year, and we have done it for three consecutive years. With that, I'll pass the call over to Pat.