F. Riberas: “Gestamp will grow 5 points more per year than the world automotive market”

It shows courage to sit at the table with journalists in the midst of the outbreak of the Ukraine war for a global company like Gestamp, with four factories in Russia. They also did so the week of March 10, 2020, two days after the first state of alarm was declared and with a factory in the Chinese city of Wuhan. But Francisco Riberas, president of Gestamp, is confident about the strength shown by the company in recent years, in which it has not only had to face an unprecedented drop in vehicle sales, but also a recent crisis in the supply chain last year. They have come out of it with the highest margins since its IPO and an EBITDA of only two million of the 1,000 million euros.

How does the invasion of Ukraine affect them?

It is a motivational theme. We’ve had a bad few years now, with a drop in world production in 2018-2019. 2020 has arrived [con la pandemia]; in 2021 we already thought we were going to leave and the semiconductor crisis occurred; and now we believed that it was going to be a not brilliant year but a reasonable one and the war broke out in the Ukraine. We have to keep up the type, but it is true that the hardness that we have generated these two or three years is very high. The stock market has punished us from all sides, but we have to focus on business and it’s time to tighten up again.

The company has exceeded the forecast EBITDA margin target this year, with 12.3%. Looking ahead to 2022, the target is 13%, which would be the highest since the company was listed on the stock market. Do you see it possible in these circumstances?

We have a system for transferring increases and decreases in the price of steel [representa el 88% de las compras de materias primas para Gestamp]. Logically, the increase this year has been monstrous, 500 euros per ton. We are going to fight for that 13% margin, but when you add 1,000 million more billing [por el impacto del coste del acero, que implicaría una facturación de 10.000 millones frente a los 9.000 previstos] it is going to go to something more than 11%, although in absolute terms we are going to achieve 13%-15% more EBITDA than in 2021. Now, with respect to the forecast we made last year (out of a total of 89 million vehicles manufactured in the world) we are still going to lack five million production, and we are trying to absorb inflation in labor, energy, etc, but steel is a mathematical effect. It does not take or put a euro of EBITDA from me, but what it causes is a lower percentage. We have to see what is happening because if it is a conflict that lasts a long time, it will complicate things more.

Are you worried about high inflation and runaway energy costs?

Much of the energy we have covered. Last year, in Spain, we signed a PPA with Naturgy [por el cual todos los centros de producción funcionan desde este año con el 100% de energía renovable] with quite good prices at the time and now they are excellent. Not only do we have almost all the price of energy closed for the next few years (50%), but our base is of renewable origin, within our commitment to the market.

What impact is the average increase in salary costs having?

There have been environments of high inflation, such as Turkey, Brazil or Argentina; all of Eastern Europe has been growing at around 6-7% for many years; USA, especially the southern areas, with increases of 5 to 7% where the grand resignation; but we hope that the impact this year reaches Europe. Pending inflation, we expect a medium rise to be tackled.

The ebitda closed 2021 just two million from exceeding the 1,000 barrier, with an average committed growth of 5% above the market. In fact, last year they improved the behavior of the market by more than 8 points. Will it be possible to keep it in 2022?

That is the objective that we really have and it is quite ambitious, taking into account that the current forecast is for a recovery in vehicle production of 8-9%, if you add the expected 500 basis points we are going to grow 14% not counting the artificial rise produced by the price of steel.

You have always defended that the outsourcing of car manufacturers, which is close to 50%, affects suppliers such as Gestamp. Given the drop in vehicle sales seen for four years and with the explosion of the electric car, is this something that will continue to happen?

The new manufacturers, the electric cigars, are people who are very obsessed with the world of batteries and the customer, but they are not interested in irons at all. The level of outsourcing they have is very high. They intend to build a car, but they want us to build as much as possible for them because they don’t want to invest in large warehouses or presses… In our case, the body-in-white (the body in white) and the chassis, which is one of the largest segments.

With almost 250 million euros of cash flow in 2021 and a debt of 2 times (not counting IFRS), would you say that the financial situation is more comfortable than the first years since its IPO?

We have lowered the debt to 2,000 million euros (190 million euros less, without IFRS). But you have to keep in mind that my business model does not require investment and it is something that the financial community often does not understand. We are not investing because we have to, but rather because we have decided to grow. Others can take that money and lower debt or distribute it among their shareholders, but if we are growing by 10%, both things cannot be done at the same time. Average net debt should be lower this year.

They have also lowered their investment commitment to a target of 7% of income, a level that is still lower than that of their first years listed, around 9%.

It is true, but we exceeded this level due to the many opportunities for growth that we found. Simply maintenance investments [fábricas, etc.] would require a 3%-4% investment. A reversal of 7% levels is very high. The world right now has been torn between the electric vehicle and the combustion vehicle where few new models are already being released. 40% of what we have invested this year has been in the electric vehicle, and another 30% has been in battery boxes, with which this year we will begin to bill a lot of money.

Gestamp trades at a PER of 7 times this year and 5 times next year. How do you explain that the market is not able to understand a model that seems like the stock market is giving away?

I think they should begin to value it, but at a time when no one is committed to the automotive sector, you are not able to raise your head. Also, we have a free float small [del 27%] and any erratic movement throws us off balance.

Throughout the pandemic, the Riberas family was the largest buyer of a company’s own securities. Did you consider continuing to trade and delisting?

Yes, of course you are. But in the end, you look back and remember that the reasons why Gestamp jumped onto the market had to do with the fact that it was part of the project. The only thing is that now we have encountered the problem, after buying and reducing the free floathow to increase it again.

But the possibility of entering the Ibex is getting further and further away.

In the end, our company will have its place wherever it is. We are a top-level player, so in the future there will be strategic operations and times when we can increase the level of free floatbut we are not going to sell at a very low price because we do not want to.

Electric car

The emergence of the electric vehicle continues to go slowly, despite the commitment of dozens of governments worldwide to accelerate the goal of zero emissions, which runs from 2030 to 2050, in general terms. But the sector agrees that it is the future. Proof of this is that Gestamp allocates 70% of its investments to electric cars, and that has not yet reached a relevant weight for the company’s income individually.

“Three or four years from now I don’t think it can be less than 20%-25% considering only specific parts of electric vehicles. We have a lot of opportunities linked to the electric car and now we have to see how we handle them. Also, after the pandemic has left a very good competitive position”, recognizes Francisco Riberas. “Last year around 6.5 million cars were sold between electric and hybrid vehicles out of 77 million [de producción total]. Two or three years ago that percentage was 2%-3%”.

With car sales at their lowest levels in recent years, where is the industry headed? “It is very difficult in this environment to answer that, but I think there is some data. One of those data is that in 2017 95 million vehicles were produced, that last year 77 were made and 75 the previous year. Another data. Where are we going to go? First we have to consider the point of electrification, which poses many challenges, but at some point we have to replace the entire world car park, which is 1.1 billion vehicles. And we have to produce all those cars, and last year it was only 6.5 million [vehículos eléctricos al 100%]. Meanwhile, our clients [grandes automovilísticas] they have managed to make money by betting on higher margin vehicles and raising prices. But when the energy transition really comes, we are going to have to start producing many electric cars. The transition model is sensible, but it obviously has to increase production a lot. The consultants estimate that we will reach 90 million cars in 2023, which is to return to 2019 levels and with an age of the global vehicle fleet that will have increased in two or three years, emitting much more. That will happen at some point. The great race for manufacturers right now is to generate cash with the vehicles that are in transition and dedicate all the investment to the electric car”, analyzes the president of Gestamp. The forecast for 2024 is that 13% of the total number of vehicles will be 100% electric.

Asia, 30% of the business

Asia is on track to overtake Eastern Europe in its contribution to the group’s income, after closing 2021 with 1,149 million euros, 13.1% more than the previous year and being the fastest growing market of the big four -not including Mercosur-. Francisco Riberas believes that it will be already in 2022 when Asia is placed as its third region by income, with 16.5%. “China alone accounted for 12% of turnover last year,” emphasizes the president of Gestamp during the interview.

However, the pace of growth is slower than expected taking into account the characteristics of the ASEAN countries. There Gestamp grew 5.8 points above the market, but it is the region where it is most difficult for them to take advantage of their business and the only one below the 8.1 points with which, on average, they have surpassed the reference market in 2021.

“There is a part of the Asian market that is difficult to fit in. The part of Japan and Korea that are already mature markets, that export and I don’t think they are going to increase production. Entering there is not of much interest. Then there is an area of ​​China, Southeast Asia with Thailand and part of India with very low production costs and where it is very difficult to enter with European technologies [no resulta rentable]. When you try to take over the entire Asian market, you cannot think that it is 55% of world production, you have to take a piece away from it. For me, an adequate balance should be to have 30% of sales in Asia, 30% or more in Europe and another 30% between the US and Mercosur. May vary? Sure, but trying to get more than 50% of your sales in Asia is not realistic,” says Riberas.

What are European car manufacturers doing there? [y principales clientes de Gestamp]? “Stellantis (the union of Fiat Chrysler and PSA) is rethinking what to do with Asia, especially in China. Obviously, the German manufacturers have a very strong position in Asia, the premium ones (such as BMW) and also Volkswagen, but for me the important is not just that, but also knowing how we are able to enter [en el mercado] with Chinese competitors, who are gradually reaching a market share of 50% in China, which is outrageous (considering that it is the largest vehicle sales market in the world). That is where we intend to enter high technologies”, concludes the president of Gestamp.