Q4 2024 Stellantis NV Earnings Call
Hello and welcome to Stellantis full year 2024 results. I will now hand over to our host Ed Dietmeier, Head of Investor Relations, to begin today's conference. Thank you.
Hello everyone and thank you for joining us today as we review Stellantis' full year 2024 results. Earlier today the presentation for this call along with the related press release were posted under the investor section of the Stellantis Group website.
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Speaker Change: So the reason we wanted to share with you the sand is because it does reflect the momentum the mood at the company today and how we're very focused in making sure that we win customers.
Speaker Change: So in these last 90 days, we've prioritized on product launches just as a reminder, <unk> 2020 410, and 25 in December in the U S. We're back with muscle cars with our Dodge Daytona.
Speaker Change: And D. G D Vega near as we also had launches in January in Europe, the granite Panda, which you just saw but the Sichuan see free and the Opel front Tara.
Speaker Change: We've also been in.
Speaker Change: Extremely focused in building trust with our stakeholders with you our shareholders and we want to thank you for your trust and Doug and myself have been reaching out and making sure that you know what's happening with our company, but we also have been very deliberate in working out with our suppliers with our <unk>.
Speaker Change: Unions with our dealers as we believe that we need this trust we need this unity in order for us to grow together.
Speaker Change: And lastly, we have been very focused and empowering our regions, making sure that decisions are made where our customers are and making sure that problems of salt where they happen now.
Speaker Change: Now if we look forward, what we really want to focus on is growth profitable growth, we need our company to go back to profitable growth.
Speaker Change: Execution, we need to be rigorous and making sure as we develop as we build as we sell our cars, we are rigorous and we execute.
Speaker Change: And lastly, profitability topline doesn't necessarily equate with profits and we want to make sure that Atlantis. It does and we also want to make sure that those profits convert into cash one of the things that we've been prioritizing to that end is really making sure that we.
Speaker Change: Capital, where our customers are and in order to do this we have been very deliberate in making sure that our customers are free to choose.
Speaker Change: Our offering both in products and powertrains has been extending in order for us to have a much bigger reach in terms of coverage of the market going from what we do and I breads in Europe going to combustion engines in the U S or doubling down where we're very strong in South America in Brazil.
Speaker Change: With Bayou hybrid now I have many other good news, but I'd like to stop now and pass it over to Doug to talk to you about 'twenty 'twenty four which is a year we are not proud of.
Doug: I certainly agree with your sentiment John trailing 24 was a very rough year, so let's walk through the numbers.
Doug: I'll start with a summary of the key performance metrics I'd like to focus first in particular on the Oi margin and industrial free cash flow and how these landed within the context of the full year guidance that was updated in September of last year.
Speaker Change: In the second half of the year to address excess U S dealer inventories the company dialed up incentives and cut back on production, which of course negatively impacted the AOE, which ended up at the bottom of the range that we had provided a 5.5% to 7% a wide margin.
Speaker Change: At the same time success correcting inventories allowed us to begin normalizing production, which limited negative industrial free cash flow to 6 billion for 2024 closer to the better end of the negative five to negative 10 billion Euro guidance range.
Speaker Change: Consolidated shipments of 5.4 million vehicles were down 750000 units or 12%.
Speaker Change: Due to the following factors about <unk>.
Speaker Change: One third of that 750000 units.
Speaker Change: As a result of our inventory reduction actions. The other two thirds were related to lower sales in 2024 compared to the prior year of which about half was due to the temporary hiatus in certain nameplates.
Speaker Change: As our European ice powered Fiat 500, the Dodge <unk>, two and Ford or muscle cars in the U S and of course.
Speaker Change: The lack of the Jeep Cherokee.
Speaker Change: And the other half was due frankly to lower commercial performance and loss of market share.
Speaker Change: Net revenues of 157 billion declined 17% as two factors exacerbated the lower shipment volumes first was mix, particularly due to a lower contribution from North America and the second was FX headwinds that we experienced in the third engine regions.
Speaker Change: Adjusted diluted earnings per share of two euros, and 48 cents declined 61% with AOE down 64%, but the average share count 5% lower as a result of buyback activities.
Speaker Change: Now, let's get into how we've been working on fixing the root causes of the operational issues, we faced in 2024.
Speaker Change: We're set up to be in a much better position on three critical factors as we've progressed into 2000 and twenty-five first inventory discipline.
Speaker Change: Market coverage and third our competitiveness.
Speaker Change: So on inventories, we first normalized European inventories in the first half of the year and then in the second half we reduced U S dealer stock from 430000 units in the mid year.
Speaker Change: To 304000 units at the end of the year well below our stated target of 330000 units.
Speaker Change: Second we're launching a number of exciting new products not only late 2024 launches of the initial smart car and stellar large products, namely nameplates like the Citroen C. Three Dodge charger and the Jeep.
Speaker Change: S. But also in Q1 of 2025 introductions of the Citroen C. Three aircrafts the.
Speaker Change: The Opel Frontera and the Fiat Granddad Panda.
Speaker Change: Last but not least.
Speaker Change: There was progress on making our cars more affordable as we exited 2024 for example in the U S. We reposition msrp's for four of our 2000 and twenty-five model your jeeps and in Europe, our new generation of appealing these segment cars bring.
Speaker Change: Bev and mild hybrid powertrains to new price points.
Speaker Change: Let's look quickly at where we ended the year on inventories were in a very healthy place.
Speaker Change: At the group level as well as in each of the four major regions. We operate in total inventories were reduced around 140000 units over the last three months of the year with all of that decline coming in company inventories, while dealer inventories rose a very nominal 11000 units has planned increases.
Speaker Change: <unk> in South America, and Europe were mostly offset by reductions in U S dealer stock.
Speaker Change: You can also see the decline in stock year over year.
Speaker Change: Reflecting the more dialed in inventory management as was the impact of some of the product lines, where we were temporarily between generations.
Speaker Change: As we launched several significant models in 2025, we expect some build in stock levels, but we'll be looking to keep the day supply very carefully managed.
Speaker Change: Okay. On this next slide let's look at the net revenue bridge.
Speaker Change: Net revenue for the group declined 17% in 2024 as I said at the beginning of the financial view volume and mix were the biggest revenue headwinds driving 15 points of that revenue decline.
Speaker Change: Moving to pricing there was a negative 1.3 billion group impact or a little under 1%, which was the net of a roughly 2% headwind each of North America, and Europe, partially offset by positive pricing in the third regions third engine regions, but that was mainly to offset FX.
Speaker Change: FX headwinds were negative $3 6 billion or negative, 2% driven by declines in the Turkish lira, Brazilian real and Argentinian peso.
Speaker Change: Now, let's shift our attention to adjusted operating income Haywire came in at $68 6 billion Euro.
Speaker Change: Of course, that's a steep pullback from the 2000 and twenty-three record $24 3 billion in large part due to marginal profitability in the second half of 2024, when inventory clearing in North America and transition gaps in Europe brought temper.
Speaker Change: Temporary revenue and profitability impacts, we've detailed the headwinds and volume mix and pricing already but industrial costs were also higher by $1 5 billion with most of this coming from North America, mainly driven by incremental warranty expense and the side effects of volume reduction.
Speaker Change: And lastly, we had a 2.5 billion euro negative impact from FX.
Speaker Change: Let's turn to industrial free cash flow now.
Speaker Change: Obviously, a very difficult result for.
Speaker Change: For the full year of 2024 with 6 billion euros in cash outflow.
Speaker Change: There's a couple of things I want to point out that are important.
Speaker Change: First although the main reason for the lower cash flow was lower a O Y. We were also impacted by growth in working capital of nearly 5 billion euros and we had around 1.6.
Speaker Change: Billion euros in higher capital expenditures now moving forward into 2025, we expect more normalized production schedules to stabilized working capital in fact, we saw a fairly stabilized working capital even in the second half of last year.
Speaker Change: And of course flattish capital expenditures as new product launch cadence normalizes a bit.
Speaker Change: Now, let's review a few specifics on each of our regional segments in North America of course, I want to recognize that the inventory reduction actions and the progress repositioning our pricing relative to peers pressured results in 2024, particularly in the second half.
Speaker Change: But this also sets the region up in a much improved position to start 2025 in.
Speaker Change: In Europe, we had an unusual gap in product in production of our a and B segment products, which reduced second half volumes by well over 100000 units. The beef segment successors are now in production setting up improve market coverage moving forward.
Speaker Change: The third engine regions collectible they saw a 7% revenue decline, but would've been up single digits, excluding the impact of FX translation headwinds combined L. A O.
Speaker Change: Why margins.
Speaker Change: We're down by only one percentage point still at a healthy 14%.
Speaker Change: So now that we've reviewed the 'twenty 'twenty four performance, let's take a look forward at 2025.
Speaker Change: Looking now at the cap at a return of capital to shareholders. The company's strong balance sheet allowed it to execute the 2020 for return capital return plan without interruption.
Speaker Change: This continued a track record of annual material returns to shareholders that we began back in 2022.
Speaker Change: For the 68 cent per share proposed dividend the company calibrated the payout at 1.7 billion euros, the top of the 25% to 30% policy and then supplemented this with the 300 million Euro enterprise value recognized by the come out transaction.
Speaker Change: This delivers on the commitment the company made to separate come out for the benefit of our shareholders.
Speaker Change: Our balance sheet remains in a very strong position with a 32% ratio of liquidity slightly above the top of our 25% to 30% target given the early stage, though of our commercial recovery, we don't expect to be doing stock buybacks in the first half of 2025 and will return to evaluating them is.
Speaker Change: Income and cash flow improve throughout the year.
Speaker Change: Now, let's look at our initiation of 2000 and twenty-five financial guidance.
Speaker Change: Steady improvement from a difficult second half of 2024 through the first and second half of 'twenty five as expected as we expand our product portfolio and progress our commercial recovery.
Speaker Change: On the revenue side in 2025, we expect the second half of 2025 to be stronger than the first half of 'twenty twenty-five.
Speaker Change: Both in the absolute and more so in terms of year over year comparisons.
Speaker Change: And full year net revenues are expected to show improvement compared to 2024.
Speaker Change: Let me address our expectation for strengthening second half revenues, which of course is in contrast to the typical seasonality that we run.
Speaker Change: Europe, a benefit in the second half from the full ramp of recent launches of the smart car platform products and later introductions of additional C segment products off of our stellar mid.
Speaker Change: While North America will benefit in the second half from the return of the ice variance of the charger the Ram charge a range extender truck and the return of the mid sized Jeep SUV with our first ever.
Speaker Change: H EV powertrain.
Speaker Change: In terms of adjusted operating income margin, we're driving to deliver mid single digits for the full year of 2025, but with significant variation between the first half and second half in the first half we expect our margin to see solid sequential improvement from the second half of 2024, where we ran rough.
Speaker Change: The breakeven.
Speaker Change: But remain still in low single digits in the second half of the year, we expect a larger sequential margin improvement.
Speaker Change: As the growing product portfolio, not only raises our volume potential but also helps us run our manufacturing at a more efficient utilization level.
Speaker Change: On the cash side, we expect to return to positive industrial free cash flow in 2025.
Speaker Change: And for those positive flows to come in the second half of the year in essence, we expect gradual but solid improvement as 2000 and twenty-five progresses.
Speaker Change: And finally, I want to talk about something beyond 'twenty 'twenty five as.
Speaker Change: As I took the CFO job late in 2024 and began engaging with investors and analysts of course, many of which are on the call. Today I received very clear feedback I would say that that giving more frequent and sometimes more detailed information as needed and so I'm very excited to announce that we've begun the process of transitioning to quarterly reporting.
Speaker Change: Which we expect to begin in the first quarter of 2026 and the benefits for our stakeholders are clear in particular facilitating better comparisons.
Speaker Change: Two our most relevant peers the vast majority of whom are already reporting earnings on a quarterly basis.
John: So let me now turn things back to John to finish.
John: Thank you, Doug and the future.
John: Is brighter as Doug mentioned from where we were in 'twenty 'twenty four I like to share with you a couple of reflections on direction of travel.
John: Our industry is.
John: Very much.
John: Addressing the forces that were the reasons why we created the Lantus in 'twenty 'twenty. One electrification is growing China is the largest market in the world.
John: And we see progress in terms of market share overall and.
John: And we believe that we have made significant inroads both in terms of our offering of electric vehicles I believe vehicles.
John: We believe that software is becoming a major feature and we see this with AI and autonomous features last year Tesla launched its robo taxis more recently BYD launch dates.
John: I I.
John: D eye of God features.
John: This is the reason why we have decided that software and engineering should be tighter together in order for us to make sure that we are fast in terms of the applications. We work on software and finally scale. We are today with the 24 figures deferred largest carmaker in terms of units and we see scale both in the income.
John: The world and the insurgent world as extremely important.
John: We see this with alliances for example, like Jim and Hyundai announced recently or consolidation happening in China. We have been beneficiary of this scale and we also see our scale is the opportunity of doing more for example, like the G fee that we announced with the Ato.
John: We've had rising challenges since we've come together and created the Lantus regulations have become tougher and divergent we have now deep discussions with the European Commission in understanding what's the direction of travel in Europe.
John: Pertaining to twenty-five but beyond what happens in 'twenty 35, we have been encouraged to see what Senator Moreno has introduced with the transportation Freedom Act, which we support in the U S.
John: In terms of Paris.
John: We have been very supportive with president trumps policy of boosting American manufacturing and we announced large U S investments in the first 100 hours of his new administrations, we believed that the conversations that we're having with the other.
John: Members of the D free has been constructive and we fundamentally believe that the first Trump administration as it negotiated the U S. M. C. A was very cognizant of making sure that U S content was in the products, we build in Canada, and Mexico, which we believe should remain tariff free will.
John: Also think that the real opportunity set for the administration in order to really boost jobs in America and manufacturing opportunities and investments is by closing the loophole that currently allows approximately $4 million of vehicles into the country with any U S content.
John: We also think that competition has increased since we came together, particularly competition coming from China.
John: I just came back from a trip of the week, where it had the opportunity of spending time with our partners leap military first of all we're very happy about their results in Q4. They have they have reached profitability in 'twenty four Dave doubled their sales now to 300000 and our leap military into.
John: Nashville venture is up to a very good start so overall the challenges against those three forces remain the same but we have full confidence that the lantus that what is ahead is probably among the most exciting periods for our industries very much like the one the pioneers of our industry.
John: We lived through and the reason why we believe and still Lantus that the opportunities ahead are there to be captured is because we have.
John: People that are incredible I've had the opportunity of the in the last 90 days to spend a lot of time inside our organization.
John: A lot of time in our different regions and our people are just wonderful and I really want to take the opportunity to thank them for what they do and how they do it.
John: I also would like to take the opportunity to recognize the many contributions of Carlos Novartis Tuesday Lantus. These contributions have helped create our company, which is a company that has not only strong foundations, but real competitive strengths of which our people.
John: I also want to take the opportunity of mentioning that the seal selection is on track we have excellent candidates, both internally and externally and the conversations that we're having are very encouraging for us to have the best possible seal for a company.
John: And stay on track with the announcement of our next CEO by the first half of 2025 now before answering your questions and we hope there are many we'd like to share with you.
John: This very special advertisement that's number one spot on Youtube and Blitz in 2025, which has already had 110 million views, which is the Jeep advertisement. The reason why we want to show. This to you not only is to convey is D. As I did at the beginning how organization.
John: Israeli dare to try and win customers and for us to get back to growing and gaining market share, but it is also because we have been very intentional very deliberate in making sure that we can provide freedom to choose for our customers and this is exactly what you'll see in this.
John: Advertising, but they also will see the strength of our brands and particularly cheap, which again has been nominated and 24, the most patriotic brand in the United States. Thank you.
John: Long as soon we ever do is live our lives.
John: But life doesn't come with an owner's manual.
John: Might've advice.
John: That means we get to raise their own stories.
John: Freedom is yes.
John: Yes.
John: Or no.
John: Or.
John: Maybe.
John: Freedom is for everybody.
John: But it isn't true.
John: Earn back.
John: There are real heroes in the world, but not the ones in the movies.
John: Yes.
John: Yes.
John: Real heroes are humbled.
John: That's driven by price.
John: Try it as a material driver.
John: The freedom to war, one man's insured.
John: And the silence and others.
John: Freedom has the ability to inspire.
John: The most sacred thing in life isn't a path.
John: Okay.
John: It's the freedom to choose it.
John: You don't have to be friends or someone to wave at them.
John: We don't always agree on which way to go.
John: But our differences can be our strict.
John: So choose but choose wisely.
John: What makes you happy.
John: My friends and my family.
John: By work make me happy this too it makes me happy.
John: My name is.
John: [music], that's violenter smack.
John: Get out there.
John: Jerome.
John: [music].
Speaker Change: If you wish to ask a question you have to press star one on your telephone keypad could you. Please limit yourself to one question and if necessary one related follow up.
George: Our first question comes from the line of George <unk> from Goldman Sachs. Please go ahead.
George: Good afternoon, and thank you for taking my questions.
Speaker Change: John you did allude to this in your closing comments, but I really wanted to just ask a question about the group. Obviously Atlantis was formed during a different period, when we seemed to be headed towards global converge and some powertrains with high levels of electrification.
John: And the risk presented by Chinese Oems to global Carmakers was also substantially lower.
John: Obviously, the industry dynamics have changed and therefore the question I really had was operationally does it still make sense to have a global auto company in the world, which is seemingly increasingly geopolitically decoupled.
John: Where perhaps it doesn't make sense to be one of the largest car players, but in fact that may work against you and what is an increasingly dynamic industry.
Speaker Change: And perhaps related to this is there was a clear case to create shareholder value three breaking up the organization is that something you would consider or explore thank you.
Speaker Change: George that's a great question and I do believe that what is actually happening is playing to our strengths and the reason why we have been empowering the regions is exactly to make sure that we're able to create regional scale and we built.
Speaker Change: <unk> that are regional scale in the largest markets in which we operate is is actually a big strength and a big strength in allowing us to be differentiated in terms of what our customers want but also in terms of what the different regulations are.
Speaker Change: Equally if we look at different aspects of having global reach.
Speaker Change: And without touching upon electrification, which has different velocities among the regions, but just on software or.
Speaker Change: Or on some of the features that we've been working on our products those actually benefit from us being global.
Speaker Change: And if we look at the incumbent world audience surge at World, a Toyota or a Tesla theyre actually gaining market share and they are a global size and global reach.
I believe that in our case, where we have regional scale and global scale, we were actually very well equipped for the world to come.
Speaker Change: Great. Thank you.
Speaker Change: Our next question comes from the line of Thomas Besson from kept at Shreveport, Chris Go ahead.
Thomas Besson: Thank you very much.
Speaker Change: I have a question to start please on the the dynamic of the year.
Thomas Besson: Clearly gross husk because of again the key priority for the group.
Thomas Besson: But it seems that for the time being it's more an edge to a.
Thomas Besson: Storage could you confirm that and could you confirm but the.
Thomas Besson: Absolute inventory levels, maybe going up which I think is worth a little understood by.
Thomas Besson: By year end, while maintaining data so I had the impression that they went through the year.
Thomas Besson: Inventories were at an appropriate level.
Thomas Besson: I have a follow up question.
Thomas Besson: Which is linked.
Thomas Besson: To Oh timely.
Thomas Besson: We used the tariffs.
Thomas Besson: In the U S I'm sure region that you've mentioned in your comments.
Thomas Besson: Could you try to help us understanding what the impact would be.
Thomas Besson: On your financial book for you.
Thomas Besson: Just for the industry.
Forbes who has to be implemented thank you.
Thomas Besson: Those are two great question and on the terrorists deed discussions are ongoing it's really.
Thomas Besson: Premature to be able to express any view, we strongly believe that the real opportunity is is really to try and close the loophole four 4 million cars that are sold in America.
Thomas Besson: That don't have any U S content.
Thomas Besson: And as as conversations progress and we're very aligned with the D free and those conversations and making sure that what was negotiation what was negotiated by the first Trump administration to create U S. M. C is actually respected and valued in and eventually improved.
Thomas Besson: We are of course working are in.
Thomas Besson: In a very deliberate way and trying to understand what consequences. This would have for us. So what I can reassure you is we're doing the work we are prepared and have different scenarios in place which of these scenarios will play out is premature for us to to to discuss today with without having.
Thomas Besson: The knowledge I also think that.
Thomas Besson: 25.
Thomas Besson: Is the year, where we need to get to our potential.
Thomas Besson: We have had.
Thomas Besson: The first chapter of our history, which was very much linked to creating the synergies and to making our company and to making our company deficient, but we have no growth and so 25 is the year on the back of product launches 2020 410, and 25 as Doug was expressing.
That we are in the trajectory of making sure that we get back to growth and profitable growth in terms of the dynamic H one H two.
Speaker Change: Why don't you take that Doug Yeah. So I think your question on inventory is a good one.
Speaker Change: When we think about the inventory dynamics of course, we're always thinking about inventory relative to sales pace right because it's all kind of about managing two days' supply.
Speaker Change: Now as we're launching a number of products. This year that are going to fill in these kind of blank spaces in our product portfolio.
Speaker Change: If we look at first half of course, we know in Europe. The smart cars are just a number of the sister cars are just entering production right now and will be in the market in March we talked a little bit about a few of those in terms of C. Three aircrafts the frontier the Fiat Granddad Panda.
Speaker Change: But we also have some stellar mid Ah Ah vehicles are often new stellar mid platform as you know we've launched a 3008 5008.
Speaker Change: And the Grand land, just very recently Opel a launch that vehicle, but we also have the C. Five aircrafts coming later in the year. So I would expect to see absolute inventories ramp a little bit towards the end of the year as these vehicles come into to the European market and the sales pace picks up but I don't think we'll see significant.
Speaker Change: Net increase even on an absolute level, but really we'll be managing to a day's supply perspective at North America kind of a similar story in many respects, we're gonna be getting the new HD pickups here in the first.
Speaker Change: Quarter, which is very exciting because pretty much now all of our of our light duty and heavy duty lineup will be renewed after we get the new H D is out when.
Speaker Change: When we look at second half of course, we're very excited about having the the Cherokee a replacement come into the market with our first HEV powertrain.
Speaker Change: And again I would suspect that we would see a little bit of pick up in absolute numbers of inventory, but again keeping days supply on a very reasonable level.
Speaker Change: Thank you very much.
Speaker Change: Our next question comes from the line of Dana on a raw score from Bernstein Research. Please go ahead.
Speaker Change: Hi, good afternoon into Europe, Thanks for taking my questions.
Speaker Change: Focusing on the U S a bit more you've lost about 5% of market share in the U S. Since 2019, and if I look at your production plans for 25, it looks like you wont attempt to recapture about 3% to 4% of market share.
Speaker Change: Spread between H, one and H two now that's higher than any OEM has ever managed in the U S. I think the best was kind of 2% to nokia's somewhere in the 19 nineties and two thousands. So my question other than the new model Youre, putting on which additional measures are on the table that youre executive team can take.
Speaker Change: To kind of achieve that really aggressive market share gain in a market, that's probably essentially flat in the U S. This year, that's not what we're trying to achieve.
Speaker Change: So I I don't know how you got to that but that's definitely not what we're expecting to achieve a we believe that the combination of great product. We believe that the combination of great Trust with our dealers who are our partners. We believe the combination of great spending in marketing.
Speaker Change: And we believe the strength of our organization is what really is giving us traction and if we look January it's positive on the client side, we still need to do work on fleets, but we're definitely not in the realm of what you or.
Speaker Change: Talking about and by the way if that would ever happen.
Speaker Change: 25 would be extraordinary as the year. So as Doug mentioned to you we're definitely very reasonable in our achievements for 2025.
Speaker Change: Okay.
Speaker Change: That's very good to hear so.
Speaker Change: If the IHS analysts are listening maybe they can take them out.
Speaker Change: But if you think about the production ramp up you're planning throughout the year.
Speaker Change: Oh, how set in stone is that for you in the second half depending on the market dynamics.
Speaker Change: How would you characterize your willingness to.
Speaker Change: Let's say do more discounts or be a little bit more caution on ramping up production in the second half.
Speaker Change: Yeah, maybe I can address that.
Speaker Change: You know of course, you know our production planning and really our car what we refer to as our car flow is something that we look at on a very regular basis.
Speaker Change: You know to see how the sales pace is going and we oftentimes adjust production levels up or down depending on on how market dynamics develop over time now.
Speaker Change: That being said.
Speaker Change: You know when we look at the price repositioning that we've done in the U S market.
Speaker Change: In the second half you know we have a much more competitive.
Speaker Change: Our pricing position right now and then we did in the first half as well as you know of course, the new products that are coming into the market. So we are looking to of course grow share. We also are getting more active in terms of defending our share of voice and so I think the ads you saw today, particularly.
Speaker Change: Great G. Bad you know are just a sign of some.
Speaker Change: Some of the work that we're going to be doing on the marketing side.
Speaker Change: So it's a combination of efforts that we believe will grow back some market share, but not as aggressively as some of the numbers that you recorded.
Speaker Change: But thank you welcome your comments and thanks, very much with those numbers by the way.
Speaker Change: [laughter] all the best Thanks, Yeah. Thanks Daniel.
Speaker Change: Our next question come from the line of Patrick Hummel from UBS. Please go ahead.
Speaker Change: Yeah. Thanks, Hi, everybody. My first question goes to Doug Please.
Speaker Change: We talked about your volume expectations for 2025, and the impact of the new model launches can you just elaborate a little bit on the other key building blocks in the OE bridge, what about pricing what about costs can you share your expectations. Please and my second question goes.
Speaker Change: It goes to John please.
Speaker Change: You you said this year has to be the year of growth, but how long can you give the company how long do you give the company to get fully back on track show that full potential again.
Speaker Change: And what is that full potential in terms of Oi margin and free cash flow is that still double digit Oi margin is it still 10 billion free cash flow. What is it that you think this company should be capable of delivering.
Speaker Change: And in that context do you think the company has to invest more has the company underinvested in the terrorists leadership or do you think that that's not an issue. Thank you.
Speaker Change: Doug will start out yeah. Okay. So a couple of comments on the AOE and AI development look I think when we look at North America for example, I think.
Speaker Change: We'll be looking to run at kind of low single digit during the first half it's very much will be more back half, where we can I think achieve margins in kind of the mid to high single digit.
Speaker Change: Range on our enlarged Europe.
Speaker Change: Of course, I think we have significant opportunities to improve over the kind of four 1%. We ran for the full year of 'twenty 'twenty four and now I know you specifically asked about pricing.
Pricing.
Speaker Change: And costs, So let me try and adjust kind of address those two topics a little bit.
Speaker Change: I think you know it seems to be that the market expectations for North America are generally in the kind of 1% to 2% headwind on pricing when I think about Stillwater specifically.
Speaker Change: We have done a significant recalibration in North America during the second half of 'twenty 'twenty four we're in a much more competitive place right now and so while I don't think we're going to see a significant adjustments during that first half from that point of course of the year over year comparison, when we look at the really really strong.
Speaker Change: Pricing, we had it in the market and in early Ah.
Speaker Change: 'twenty 'twenty.
Speaker Change: Four is going to make for a year over year comparison, it probably will reflect that change right.
Speaker Change: But I see really the second half maybe.
Speaker Change: Where we can abate some of those those pricing headwinds as we bring in some very exciting new products and really kind of I think when we look at Europe Europe of course stacks up as a very very competitive environment as you know.
Speaker Change: But again, because we have so much new product in our core segments. So in the beef segment and in the C segment, I think a lot of that new product will be a mitigating factor against some of those competitive headwinds. So hopefully that gives you a little bit of color now let me just try to address costs again quickly.
Speaker Change: I think we have significant opportunities on costs in a couple of different areas.
Speaker Change: When we look at our direct material costs of course, we do see a.
Speaker Change: Some increases in steel and aluminum prices, we have I think very good contracts in terms of how how those prices step up I don't think we have a huge amount of exposure there on the components and raw materials for Bev as you know this year, we've seen prices come down and help us quite a bit on the raw materials side there when.
Speaker Change: I think about the big opportunities for us on the cost side frankly, it's in looking at the TPC of our vehicles, we really have the opportunity for some some good technical improvements on T. B C. But I think can really help us on the cost side.
Speaker Change: And we are hard at work at that so I think that's the big opportunity for us in this coming year.
Thomas Besson: Just to add to Doug's comments.
Thomas Besson: 25 is the year, where we need to get back to profitable growth, we need to get back to more profits, we need to get back to generating free cash flow and that's really what we're focusing on as we deliver that this is an incredible launch pad for our next CEO to really.
Thomas Besson: Make sure that the company with the great people that are in the company reached the full potential of cylinders.
Thomas Besson: Okay. Thank you very much.
Speaker Change: Our next question comes from the line of Joseph <unk> from J P. Morgan. Please go ahead.
Speaker Change: Thank you very much I'll say from Jpmorgan a couple of questions. Please Joe maybe the first one.
Speaker Change: You've been very clearly very involved with the management team in the U S. Delivering the turnaround plan and the plan we are going to see in 'twenty three five so as you look strategically at the company.
Speaker Change: Any LMS do you have decided to change their self.
Speaker Change: How the company operates how the company thinks this petitions or even on the financial planning and on volume and on the inventory side and let me also take the chance to to Oh.
Speaker Change: Thank you for that step to improve the disclosure.
Speaker Change: We go into 'twenty the day six quarterly.
Speaker Change: Reporting.
Speaker Change: Second question, please would be for <unk>.
Doug: Doug if you could just give us a bit more.
Doug: Details with regards to the financial planning for Europe, one of the key drivers in terms of volume pricing and how should we just look at the margin first half second half. Thank you.
Jose: Thank you Jose.
Jose: Building Trust is very much listening and.
Speaker Change: We have listened to you and that's very much what Doug.
Speaker Change: And that has been doing in in trying to make sure that as we progress in 'twenty six we do have a quarterly cadence.
Speaker Change: The organization is now really more regional Lee empowered and and that's the biggest shift that we've had and I strongly believe is as the board believes that.
Speaker Change: Once we've really put the company together and we've achieved the synergies.
Speaker Change: Now in order for us to grow we need to be closer to the customer and we need to be closer weather problems happen and so having more empowerment within our regions is really reflective of how the company is now operating and will operate in the future when our next CEO.
Speaker Change: We also are.
Speaker Change: Very impressed by our partnership with the Motors and are very confident about what we can do in China with them and what we can do outside of China with them. So probably that would be in terms of what we have more certainty.
Speaker Change: From when we started as the Atlantis in 'twenty, one where we had no China as you might recall presence.
Speaker Change: Two one that is Israel and.
Speaker Change: Which we really are looking for it to build a to build on.
Speaker Change: Maybe I can address the second half of your or your second question Jose and by the way nice to hear from you.
Speaker Change: On on your second question I think you were specifically asking about kind of the financial planning and dynamics for the European market.
Speaker Change: And again I would say.
Speaker Change: We likely will see a much stronger.
Speaker Change: Stronger second half in Europe than first half.
Speaker Change: And specifically some of the vehicles that we were just talking about.
Speaker Change: In terms of the sister cars on the Smart car platform now that we've launched.
Speaker Change: The first European Smart car and the and the C. Three when we now are looking to launch the C. Three aircrafts and all the other vehicles coming off of Smart car really those are just going into production right now so when they go into sales in March we won't have a full half.
Speaker Change: Most of those vehicles and many of the stellar mid sister cars, the sister cars to the 3000.
Speaker Change: And the 5008, those also will not come into the market until kind of second half. So again, we'll really have kind of the full benefit of all those new vehicles much more in the second half than we will in the first half and that's why that dynamic. This year I think is going to be a stronger and much more weighted.
Speaker Change: Words are second half both in E O y and probably even more extreme from a cash perspective.
Speaker Change: Thank you very much.
Our next question comes from the line of Phillip Bushwa from Jefferies. Please go ahead.
Phillip Bushwa: Yes, thank you very much and good afternoon.
Phillip Bushwa: My question is going back on market share and introduce capacity.
Phillip Bushwa: I mean on the public numbers still aren't as soon as creation has lost five points of share in Europe. That's five points of share in North America and Europe. These are worse, because the market has fallen.
Phillip Bushwa: And then I'm trying to the thing is as you rebuild share to what extent.
Phillip Bushwa: Do you balance the cost of rebuilding share, which I. Appreciate these products, but it's also positioning and therefore pricing.
And how much do you take into account the cost of reducing the excess capacity.
Phillip Bushwa: No.
Phillip Bushwa: In some extent in Europe and created in the U S. Because of the loss of market share because it has to be because if you start you meet here two or three years down the road to two to resize the capacity.
Phillip Bushwa: And so I'm trying to get a sense how do you. How you how you think about those those issues of balancing those those two parts of the cost base.
Phillip Bushwa: <unk> that's.
Phillip Bushwa: Oh really.
Phillip Bushwa: The person in question and what we really want to address in 'twenty five is is our ability.
Phillip Bushwa: Of really gaining market share, which is a function of products. We have between 'twenty four 'twenty 530, new products that we're launching and it's a function of being more focused on that part which is why we're being more in we're empowering more the regions.
Phillip Bushwa: We're being closer to the customers and we are investing more in marketing.
Phillip Bushwa: That that's really today the focus as we sell more we use more of our plants.
Phillip Bushwa: And so the way you should think about this is is really not that.
Speaker Change: Selling more is going to cost us more in terms of pricing because as Doug mentioned, we have aligned ourselves in terms of pricing, it's not really going to cost us more because we we have invested in the products. So it's really a question of making sure that our great products are going to reach the customers and that's what we're focused on.
Phillip Bushwa: So if you want a car Philip you know who to rank.
Phillip Bushwa: [laughter], but at some point you will have to address the capacity or do you think you can grow back into using that capacity on your own or maybe through using working for leap motor or I tried to think for how do we resolve the issue of that excess capacity well, we start selling more cars. That's a that's a good starting.
Point.
Phillip Bushwa: Alright, now on that topic, if I can follow up.
Speaker Change: We all the investors that we speak to we look at the data on market share and as we've done you've done a great job in reducing inventory that's fantastic in the U S.
Phillip Bushwa: The retail market.
Phillip Bushwa: Or at least still in Europe, Yeah, we don't see it as much but I appreciate it it's the case, but the retail market share that we see in Europe and in the U S still pretty ugly and I'm just trying to think is how long does it take I assure you as an organization and working with the dealers to reposition the product to reprice the incentives et cetera. When do you think we start to see.
Phillip Bushwa: Some good news on the retail share so that because that is critical to build the confidence of the market that fine you've resized, but now from years ago Philips two months three months.
Where we're seeing good signs, we're seeing that as I mentioned in the U S January on the retail side was good we're seeing in Europe in key markets like Italy, or France progress. We you know as as market shares losers you had market share gainers. So in some ways. This is lee.
Phillip Bushwa: Quick how the rebalancing happens, we're very confident by our products, we're very confident by the ability of organization to be close to the customer and we're very confident in our dealers and I think that's really what we need to say we need to see it work.
Speaker Change: Yeah, maybe I can just add a couple of comments you know when you when you look at as John mentioned.
Speaker Change: It is very early in the year of course, we really just have the results for January.
Speaker Change: We certainly have made more progress in January in Europe than we have in the U S. A and and of course, you know our plan says we roll out more product.
Speaker Change: And filling these gaps in our product lineup certainly is to utilize those new exciting models to gain an on market share, but we have returned to the market in a bigger way with our share of voice.
Speaker Change: And are some of our marketing support and advertising are.
Speaker Change: We are building back the relationship I would say with our dealers in the United States, which is very important I spent some time with our dealers down at the recent N. A D. A conference and I think we're very much on the right track and we're starting to see.
Speaker Change: In terms of our order banks, we're starting to see more orders coming in the dealers expressing more confidence. So so these are all I would say positive signs, but I'd want to be cautious about the fact that you know we are still very very early in the year and and frankly, we need to execute.
Speaker Change: That that is clearly the focus I think the opportunity is there for us this year, but we've got to do a great job of execution.
Speaker Change: And I think doug's right in and making sure that we have the right.
Speaker Change: Prudence and humility and this but we feel confident about the products and our people, having said that we need to see how the year develops.
Speaker Change: Great. Thank you both.
Speaker Change: Our next question comes from early enough, Tim or closer from Deutsche Bank. Please go ahead.
Speaker Change: Thank you very much Tim from Deutsche Bank, I would have two questions as well the first one that probably to you on adjustments, it's a pretty big number again that we've seen in H. Two can we get some details on the specific 1.2 billion impairment that you have there for Materazzi and then also when we think about this obviously adjustments of a purpose to the capital market that is to give us a better.
Speaker Change: Feeling for the underlying profitability, but if those adjustments continue to be as big as they went out for a while for very long kind of kind of gets absorbed because of the underlying profitability of some of the extra profitability and the cash and the earnings to be distributed how should we think about that number going forward.
Speaker Change: And then secondly, I'm not sure if to you genre stuck as well John.
Speaker Change: John You said, obviously Carlos has done a lot of really good stuff for this company. He has also been extremely efficient on the cost side, especially when we think about things like R&D now we're seeing some other OEM stretching out their investment targets because they have to reinvest into ice do you feel the R&D levels of this business are sufficient do you think you need to catch up on certain elements of any change in trend.
Speaker Change: Thank you very much.
Speaker Change: Okay, maybe I can start out.
Speaker Change: So you'd you'd asked about the unusuals in and and Youre certainly right Tim I mean this year.
Speaker Change: We had a fairly high level of of one time.
Speaker Change: Unusual items and maybe I can just.
Speaker Change: Walked through those and give you some color one we had 1.6 billion euros of restructuring charges related to workforce reductions primarily in in Europe, and North America, a lot of those decisions frankly, you know were made last year and are playing out.
Speaker Change: From a cash perspective, as we move forward much of the cash related to that.
Speaker Change: You know, we had a fairly large cash outflow related to that restructuring in the second half of 2024.
Speaker Change: But I don't see these are you know large workforce reductions continuing going forward, we will of course continue to be.
Speaker Change: Frugal and efficient, but I think the size of the reductions will come down when we look at.
Speaker Change: The second large adjustment there we had 800 million euros related to the expansion of the Jakarta Airbag recall campaign I believe this is the the the last piece of that and so that 800 should finish off so again not not something I would expect you to recur going forward.
Speaker Change: In terms of the.
Speaker Change: The other two noncash items that we had our first there was a $1 8 billion euros in write downs of capitalized.
Speaker Change: Platforms and goodwill intangibles for Mas Roddie I believe you were talking about the 1.2 billion piece of that which is the non goodwill piece of it but certainly as.
Speaker Change: As we look at that.
Speaker Change: The pace of our activity.
Speaker Change: In Mozza Roddie.
Speaker Change: We have now and have to recognize.
Speaker Change: That are the dynamics in that business, particularly in the Chinese market.
Speaker Change: As a kind of our expectations in terms of how quickly that luxury market would transition to electrification those things have been adjusted and along with that we have adjusted the financials to reflect that that outlook and then of course, we have a $600 million.
Speaker Change: Zero provision related to a onetime service contracts those are service contracts that actually were entered into even before the merger. So we.
Speaker Change: We had to take a look at those service contracts as they roll forward and and the expectation is that they will be less profitable than we originally anticipated, but again. These are all things that I would not expect to continue going.
Speaker Change: Going forward. In addition, I will mention that was also in our below the line adjustment.
Speaker Change: Where we had $2 3 billion euro a tax benefit.
Speaker Change: Due to the recognition recognition of a deferred tax asset in Brazil.
Speaker Change: So that was actually a positive one timer, but hopefully that gives you the detail you need but happy to follow up offline with you Tim.
Speaker Change: Tim we have invested in the last four years and the result of those investments are the products that we've launched in 'twenty four and the ones we'll be launching this year I think what is very clear it going back to what we we said about the freedom to choose.
Speaker Change: Jews for our customers and also a regulatory.
Speaker Change: Context, which is changing is really for us to be flexible and we have invested in and flexibility with our multi energy platforms. So one of the things that we have actually been doing is investing in different powertrain.
Powertrains abilities for Ibreath, and combustion, which actually is the way in which we can cover a larger part of the market and again by covering a larger part of the market, we will be able to give customers more choice and that's where we have been fault full in in directing cat.
Speaker Change: Thanks in in in 'twenty five.
Speaker Change: We strongly believe that the level of investments that we're doing are sufficient for the company that's still anticipate.
Speaker Change: Thank you very much for those to come together.
Jim: Thanks, Jim.
Speaker Change: The last question where will be taking on this call comes from the line of Stuart Pearson from BNP Paribas.
Speaker Change: Stuart Please refrain yourself to one question only.
Speaker Change: Please go ahead.
Speaker Change: I'll try maybe one and a half so quickly just for Doug on the cash flow side, just to understand if you're committing to being free cash flow positive.
Speaker Change: Excluding working capital kind of again, just trying to think how we should think about that when you get to a true level of.
Speaker Change: Cash generation.
Speaker Change: Linked to that as well, it's just on the the Tesla pooling deal.
Speaker Change: You have to understand the cash impact of that topic is that is that an option.
Speaker Change: Or is that something that you are committed to paying them. Despite what happens or doesn't happen on March 5th then my half. A question. Just finished was maybe for John the finished just let's see as such as.
Speaker Change: Just guessing.
Speaker Change: Yes.
Speaker Change: Could you talk about experience gave a software engineering.
Speaker Change: So what kind of policies and experience are you looking forward in the next C would it be fair to assume youre hunting around Silicon valley as much as Michigan, maybe is it or my thinking in their own way. So just wondering what kind of experience you're looking for but let's see it. Thank you.
Speaker Change: Alright, So Ah Stewart are all great questions and of course questions about my favorite topic cash.
Speaker Change: So look.
Speaker Change: Look when we look at the cash dynamic.
Speaker Change: Just to answer your question directly.
Speaker Change: Yes, we're expecting significant positive free cash flow excluding change in working capital.
Speaker Change: Now that being said I don't think we're going to see a huge change.
Speaker Change: In working capital we saw working capital.
Speaker Change: Primarily stabilized in the second half.
Speaker Change: Of of last year of 'twenty, 'twenty, four and I think we'll see relative stability in working capital. This year, but yes, we were committed to positive free cash flow, excluding working capital on a credit pooling.
Speaker Change: As you as you picked up on we have entered a pool that is public.
Speaker Change: Knowledge in Europe.
Speaker Change: And as you noted teslas in that ball also please note that our or our partner like motors isn't that pool, which will allow us via the pooling.
Speaker Change: To take advantage of the credits that we're helping to generate.
Speaker Change: In Europe, there are through the significant sales effort and we're expecting a pretty big ramp in leap motor sales. This coming year of course, the details of of.
Speaker Change: Of those pooling arrangements.
Speaker Change: Our relationships and the contracts are all private but in terms of the the cash flow just to give you. Some feeling the cash flow typically is after the pools. After the credits are created and confirmed which typically is in the year after.
Speaker Change: The activity. So just to give you I think your question was specific on our cash flow.
Speaker Change: And I think the second question is all yours I mean, that's a great way to two undisclosed first of all thank you all for being here and for your questions. We had a very good board and the search committee reported on excellent candidates that we have both internally and externally and the conversations that we're having are very much in.
Trying to understand leadership abilities, and cultural dexterity, because the Atlantis as we've discussed is strong because it's present in the different regions.
Speaker Change: We also need a leader dads that understands capital.
Speaker Change: A leader that understands technology.
Speaker Change: And our leader that understands how to work in a unified way with our organization on our different stakeholders and as I mentioned earlier, we're very.
Speaker Change: Confident that we'll be able to appoint the best possible seal for Lantus in the first half of 'twenty five. Thank you all for your support.
Speaker Change: Thank you.