Thomas Ito

Thomas Ito asked for a rough breakdown of the expected contributions from the growth, efficiency, and execution pillars on slide 17 towards achieving the 14%-15% EBITDA margins by 2030. He also inquired about the sustainability of the significant commercial vehicle (CV) margin expansion observed in Q4, despite a year-over-year sales decline, and if any one-off factors contributed.

Answer

Chairman and CEO Bruce McDonald and Senior Vice President and CFO Timothy Kraus deferred a detailed breakdown to the Capital Markets Day, but Bruce mentioned structural cost reduction (e.g., shared service expansion, ERP standardization) as a key driver for margin enhancement. Timothy emphasized confidence in delivering targets based on past performance. Timothy Kraus stated there were no significant one-offs in Q4 CV margins, attributing the improvement to operational efficiency, the new state-of-the-art plant in Mexico, and its ramp-up. Bruce McDonald added that CV volumes are expected to become a tailwind in 2026, reversing previous declines.

Thomas Ito inquired about a rough breakdown of the expected contributions from growth pillars versus efficiency and execution pillars to achieve the 14%-15% EBITDA margins by 2030. He also asked if the significant commercial vehicle margin expansion in Q4 2025, despite lower sales, was sustainable into 2026 or if it included any one-off benefits.

Answer

Chairman and CEO Bruce McDonald highlighted structural cost reduction, including $100 million from systems investments, shared service expansion, and ERP standardization, as a key driver. Senior Vice President and CFO Timothy Kraus encouraged attending the upcoming Capital Markets Day for a detailed breakdown of the margin enhancement roadmap. Timothy Kraus confirmed there were not many one-offs, attributing the improvement to enhanced operating efficiency and the ramp-up of a new state-of-the-art plant. Bruce McDonald added that the CV team had been overcoming falling volumes, anticipating volume to become a tailwind in the current year.

Thomas Ito, calling for Tom Narayan from RBC, asked about potential upside to the identified $300 million in synergies from the Dowlais combination, particularly in operating efficiencies, now that Dauch Corporation has gained access to Dowlais's plants. He also questioned why the 2026 Adjusted EBITDA estimate remained consistent with June 2025 guidance despite Dowlais's preliminary 2025 results exceeding its third-quarter guidance, and requested quantification of the impact of IFRS adjustments.

Answer

David Dauch, Chairman and CEO, confirmed confidence in delivering the $300 million in synergies and indicated potential for enhancement, especially in operational efficiencies, as they gain more familiarity with Dowlais's plants. He noted that SG&A and initial purchasing synergies are front-loaded, with operational synergies expected later. Dauch also explained that the 2026 Adjusted EBITDA guidance is consistent with prior expectations, highlighting meaningful differences due to IFRS adjustments, such as Dowlais's inclusion of unconsolidated joint venture equity share in revenue (a $750 million difference) and various EBITDA adjustments related to joint ventures, pensions, leases, and R&D, which can result in a delta of up to $100 million.

Thomas Ito inquired about potential upside to the identified $300 million in synergies from the Dowlais combination, particularly in operating efficiencies, now that Dauch Corporation has gained access to Dowlais's plants. He also questioned why the 2026 Adjusted EBITDA estimate remained consistent with June 2025 guidance, despite Dowlais's preliminary 2025 results exceeding its third-quarter guidance, and asked for quantification of the IFRS accounting adjustments' impact.

Answer

David Dauch, Chairman and CEO, affirmed the commitment to the $300 million synergy target, noting that while the initial estimate was third-party audited, there might be opportunities to enhance this number after a full review of all plants. He explained that synergies are front-loaded towards SG&A and initial purchasing, with operational efficiencies realized later. Chris May, EVP and CFO, clarified that the 2026 EBITDA guidance is consistent with prior planning, emphasizing that significant differences exist between Dowlais's IFRS reporting and Dauch's U.S. GAAP, including how joint ventures, pensions, leases, and R&D are treated, which can result in a delta of up to $100 million in EBITDA.