Gestamp chairman expects boom in outsourcing work

August 16, 2018 06:15 CET

Spanish supplier Gestamp has posted impressive growth in the last decade, multiplying sales to 8.2 billion euros last year from 2 billion euros in 2009. The group, controlled by the Riberas family, has developed a leading position in supplying metal components. It has grown both organically and through high-profile acquisitions, such as its takeover of ThyssenKrupp Metal Forming in 2011. Francisco Riberas, founder and executive chairman of the company, talked with Automotive News Europe Correspondent Andrea Malan about Gestamp’s strategy and the challenges it faces.

What rate of growth do you forecast for your market?

According to a study we conducted a couple of years ago, the global market for our body-in-white and chassis business is worth 103 billion euros. At that time, 58 percent of this volume was done in-house, and 42 percent was outsourced, resulting in a total value of 43 billion euros. By 2025, outsourcing is going to rise to 50 percent of a growing market. That means the potential market will grow from 43 billion euros to 63 billion euros, so a nearly 50 percent increase despite a relatively limited expansion of total production volumes. This is a big opportunity for us.

Will Gestamp make any acquisitions?

We are not focusing on acquisitions. We will mainly grow in developing markets, where acquisition opportunities are not as frequent as in mature markets. We have reached an agreement this year to buy a plant in Brazil to support Toyota’s local production, but our focus remains on organic growth. Of course, if chances arise to generate value for our customers, we will have a look.

Could Gestamp consider operating as a contract manufacturer to compete against Magna Steyr and Valmet?

We don’t see it as a natural evolution for us. To succeed in a very competitive market, you cannot be the best at everything, so we try and remain very focused. If, in the future, a moment comes when possibilities to grow are limited, we will consider that.

What effects are megatrends such as connectivity, autonomous driving, electrification – having on Gestamp?

Few of these are related to our business. Probably the only one that is going to affect us to some extent is the move to electrified vehicles, which must be as light as possible to improve the driving range. Our strategy of offering lightweight steel, hot stamping and new aluminum technologies for products such as battery boxes goes in that direction. The main point is that our customers need to focus their financial and engineering resources on these new trends, so they want to increase outsourcing.

Do you have proprietary technologies?

We do a lot of research ourselves on lightweighting and safety. We are leaders in hot-stamping technology, which enables us to produce stronger and lighter parts. We are the only ones to use this technology in an integrated way. We also produce our own tools, presses and all the dies. That gives us an advantage in the largest part of the market. While premium cars can afford a bit more aluminum or carbon fiber, mass-market carmakers need affordable solutions. Hot stamping gives them just that, as the increase in price is much lower than with aluminum.

Gestamp recently signed an agreement with Jaguar Land Rover for its new plant in Nitra, Slovakia. How do these contracts work?

We have signed a long-term agreement whereby we will press the outer parts of the Jaguar model produced in Nitra for this life cycle and the next. That amounts to 12 to 15 years. We have a sort of risk-sharing contract: If volumes are bigger than expected, we will reduce our prices, and vice versa if they are lower. Our 120-million-euro investment in the press plant will free resources for Jaguar to invest in its own growth.

Is Gestamp working on other contracts of this kind in the premium sector?

German carmakers seldom do stamping work in their plants outside Europe. For instance, BMW, Mercedes and VW don’t have press shops at their U.S. plants. We do part of that work, and in some cases from the same plant we can also serve other customers, depending on the kind of agreement we have.

Gestamp has been investing at a significant pace. Will this increase or decrease? Do you have a target?

From 2016 to 2018, our capex-to-sales ratio has been above 9.5 percent. In 2017, more than 60 percent of total capex was dedicated to growth, and only 40 percent was replacement capex. To keep our existing turnover, we have to invest about 3.5 percent of our sales. When we end this period of growth, we will tend toward a more sustainable level of capex – let’s say 7 percent to 7.5 percent of sales. We expect this to happen by the end of 2019 or in 2020.

How about profitability?

Last year we generated an EBIT of about 6 percent of sales, which is a bit under the average of our customers. Our kind of business should generate EBIT margins of 8 percent of sales rather than 6 percent. That should be our long-term target.

Your latest quarterly report quotes “weaker auto markets.” What’s your forecast for 2018?

In the first quarter, there was a 0.7 to 0.8 percent decrease in activity in the markets where we operate, especially North America and partially Western Europe, due to Brexit. Based on more recent surveys, however, we expect a growth of 2.4 percent for the whole year.

Will currency changes hit Gestamp??

In the first quarter, we had a negative effect on revenues of 5.9 percent. The second part of the year will be different, as the euro was already stronger in the second half of 2017. Over the whole of 2018, I don’t expect a negative impact.

Meet the boss

NAME: Francisco Jose Riberas
TITLE: Gestamp Executive Chairman
AGE: 54
MAIN CHALLENGE: To ensure Gestamp captures a growing share of press and stamping operations outsourced by automakers.

Is Gestamp’s business affected by the current political tensions in Spain?

Not really. Sales from our Spanish plants last year represented 15 percent of our revenues, but you must consider that 80 percent of cars produced in Spain are then exported to other markets. All in all, the evolution of the Spanish car market is not so relevant for us. By the way, last year’s sales of new cars in Spain grew [7.7 percent]. Production was also positive and is expected this year to be back at the pre-crisis level of approximately 2.9 million vehicles produced.

Will the oil prices affect Gestamp?

There is no significant impact on our costs, unless the increase in oil prices affects car demand in the long run. The evolution of steel and aluminum prices is much more relevant for us. But again, as a rule established long ago, the prices of the components we sell are insulated from the evolution of raw materials prices. The price is broken down between cost of material and added value, and the price of the commodity is redefined every year according to market prices. We didn’t profit from the low steel prices in the first half of the decade, but we did not suffer from the price increase started in 2016. And in any case, we do not need to hedge against commodity price fluctuations.

How would the risk of increasing tariffs affect Gestamp?

Tariffs on steel would not impact us thanks to the markup system I mentioned. I don’t see much need for these kinds of policies now, as prices of steel and aluminum are higher in the U.S. than in Europe, and there is not too much spare capacity to increase production there.

Gestamp recently announced the opening of a plant in Morocco. How important will Africa be in your growth plans?

Our decision to open in Morocco is backed by an order from PSA Group, which makes our investment safe. It would make no sense for us to invest ahead of the evolution of a market. We will stick to this policy, investing every time a carmaker invests there. It would not make sense to export parts from Africa to Europe, as the cost of logistics would outweigh the cost advantages.

How integrated is Gestamp?

We buy the steel, and we basically do all the rest.

Is this a requirement to meet quality specifications or does this help you improve your margins?

There is, of course, a margin objective, but the main reason is that this technology is very new and still evolving. Being able to control the entire process, we can differentiate ourselves from the competition. Given that none of our customers has this technology in-house, they need a partner to co-develop new vehicles. That is where it helps to control all of the technology.

How important is it to be very close to the customers’ plants?

It’s very important because for big parts like the ones we manufacture, logistics costs are relevant. That’s why we have 105 plants all over the world, plus seven others under construction. Of course, for small stamped parts it’s different. They can be transported more easily. [Of Gestamp’s 105 plants, 62 are based in Europe – 45 in Western Europe and 17 in Eastern Europe, including Russia and Turkey.)

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You can reach Andrea Malan at amalan@autonews.com.

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