Gentlemen, welcome to the conference call for the results for the First Quarter of CIE. With us today, and at the end of the session, there'll be a round of questions. The questions can only be asked in writing via this tool provided in the webcast. I'll now hand over the floor to our lawyer. Go ahead, please.
Good afternoon, everyone, and welcome to the Conference Call on the results for the first quarter for CIE. As you know, this morning we held a shareholders meeting. During the meeting, our CEO reviewed, among other things, the follow-up of the degree of compliance of the goals in our 2025 Strategic Plan after the first two years of implementation. Let's begin there chronologically, and then later on we'll be talking about the results for the first quarter in 2023.
We spoke about a goal for growth in turnover. We spoke about increasing turnover approximately 20 percentage points more than the market growth during the period. At the closing of 2022, we complied with 70% of this goal, with an outperformance of 14 points obtained comparing the 10% market growth these two years versus a growth in our sales adjusted without forex or pass-through of 24%. A context in which our structural outperformance has been enhanced by the stress situation of many suppliers and which has helped us to consolidate market share more quickly. The second goal was the EBITDA margin.
We spoke about exceeding the EBITDA margin over sales of 19% in 2025, and we could confirm that we have obtained more than 50% of our margin expansion goal with a starting point in 2020 of 15% and an EBITDA margin in 2022, which adjusted without pass-through, is at more than 17%. Operating cash flow generation goal. We spoke about generating an operating cash flow of 65% of the EBITDA on a sustained basis, about EUR 500 million as of 2025. The starting point was an operating cash flow in 2020 of slightly over EUR 200 million versus more than EUR 400 million generated in 2022. This implies having complied with over 6% of our path towards the goal of a generation of EUR 500 million in 2025. The fourth goal, CapEx.
We spoke about investing around EUR 1 billion EBITDA in CapEx in the five-year period, which represents approximately 5% of the annual turnover. This 5% is in fact, the average investment in these first two years. The fifth goal was corporate tax. We spoke about paying out annually 2% of turnover for corporate tax, and 2% has been the average payment made in these first two years. With these operating and financial goals, to which we additionally add the goals in the area of ESG. Commitments acquired that go beyond the operating and financial goals in areas such as compliance, supply chain, commercial issues, M&A, finance, human resources, investor relations. Commitments that are based not only on the 2025 goals.
We have wanted to make this specific through intermediate goals throughout the five-year plan. We have reconfirmed that we have met all the intermediate goals laid down for the years 2021 and 2022. This is the review of the five-year strategic plan so far and the degree of progress and compliance after the first two. This brings us to the third year of the strategic plan, and we will review the results of this first quarter. We're going to review market- by-m arket. We'll start with China. During this first quarter of 2023, we've seen the negative impact on sales of the end of the vehicle purchasing incentives at the end of 2022, and the negative impact on production because of the exponential increase in COVID positives as a result of the elimination of the restrictions.
A year that started slowly and which has had a significant rebound in the months of March and April, driven, on the one hand, by incentives implemented by regional governments and also because of the gradual reduction in the spreading of COVID. From here on, a little bit of uncertainty about the evolution of the Chinese market in the coming months. We are pending the potential implementation of additional incentives for vehicle purchasing, but above all, the central issue, we're pending the possible delay by the government in the coming into effect on July 1st of the China VI-b regulations, since its implementation would mean additional discounts to sell off the existing inventory of vehicles manufactured under the previous standard. This would further promote the current price war in Chinese market.
With all this context, a CIE business in China that's very resilient with a high degree of flexibility. That has allowed the EBITDA margin to expand practically 17% in a quarter where our sales have dropped by approximately 20% versus the 8% drop in the market. We move on to talking about India. A first quarter where India has had some news. It has officially become the most populated country in the world, surpassing China. If we combine this factor with its low motorization rate and its growing middle class with purchasing power, we have a very favorable combination. A first quarter where production has grown by 9%.
CIE Automotive India with sales that have grown in- line with the market and which continues to prove its potential to improve margins with an EBITDA that has grown by 17% versus the first quarter of the previous year, and has expanded its margin by 200 basis points to nearly reach a margin of 70%. If we think about the future, we have to add that India also has a special expansion potential. The five new plants that we have opened in the last two years in the country, these plants still have very low utilization levels, which for the future means growth with the investment already made and a significant operating leverage for additional margin expansion.
We also have to consider that in this first quarter, we have had a very favorable passenger vehicle market context, but not so favorable in other segments, such as motorbikes, trucks or tractors. Estimates point to a recovery in these other segments, which would represent an even greater potential for the expansion of CIE India in sales and margins. Talking about Brazil, we could perhaps highlight that in this first quarter, there have been up to eight factories from different OEMs that have shut down their activities and assigned collective vacations during the month of March to try to adjust production and inventories due mainly to harsher financing terms in the country that are limiting the growth in vehicle sales. Even so, due in part to the low comparable base last year, production has grown at double-digit figures.
This means that the Brazil market, although is still far away from pre-COVID levels, is making a steady recovery. Our Brazil division is the one that has grown the most this first quarter with an organic growth of 30%. CIE has beaten the market by close to 20 points, even more remarkable is the extremely strong growth in EBITDA, a growth of 40% compared to last year, with another quarter over 20% in EBITDA margin. Europe. Europe has been the Production Market that has grown the most in the first quarter, 17%. In this first quarter, practically all European OEMs have reported sales growth at a high single digit or double digit. We see on the market that OEM discounts for vehicle purchases remained at low levels. We see that the prices of second-hand vehicles have remained high.
Indicators of the pricing power of the OEMs, a consequence on the one hand of the strong order intake, there is a demand, and on the other hand, the inventory level, which is below historical levels. This is the European context, a context that's improving, but which remains uncertain with volumes at absolute volumes that are still low and where CIE has been able to grow more than 16% organically, practically in line with the market. Our two Europes, Europe, MCIE and XCIE, have grown significantly in this first quarter by 20% and 37% respectively, a growth that has also implied a margin expansion in both segments up to close to 17%.
We move on to North America, the United States, with OEM discounts for vehicle purchases that have risen slightly in recent months. They are still at absolute levels that are very much below the levels forecasted during the pandemic, with discounts of approximately $1,700 versus the $4,500 of before the pandemic. This indicates that demand is still very strong. Without a doubt, the famous IRA, Inflation Reduction Act, is having and will continue to have a positive impact on our industry in this market. Mexico has had its best quarterly production since 2020. A production driven both by the internal demand and by the export demand. A market which is one of the clear beneficiaries of the supply chain location trend after the pandemic.
During this first quarter, we've seen a major investment announcement, highlighting perhaps, the announcement by Tesla to build a mega factory in this country in the state of Nuevo León. In this context, the United States, Mexico, the organic growth of our North America division has been 8%, slightly lower than the market, with an EBITDA that had grown more than 5% and which implies preserving high margins, close to 20%. The global picture of the market, a growth of 6% in the quarter. Although, as we have seen with, a shrinking Chinese market and other markets very significantly.
Leaving aside the particulars of each geography, there are certain elements in general, such as the still relatively low inventory level, the demand in the pipeline that is maintaining high OEM order levels, with world production that is still 4% below pre-COVID levels. If we take the IHS estimate for 2023. A supply that has improved during the first quarter, we see a somewhat relaxed tensions in the supply chain. The semiconductors have affected over 400,000 vehicles in the quarter, much better than the 2 previous years. With prices of many raw materials such as steel, aluminum, plastic that are going down compared to previous quarters.
In the consolidated CIE, a very good quarter with a real outperformance of 4% over the market and with a growth in EBITDA and EBIT of 14%, with practically all geographies are contributing to this growth in consolidated operating results for the group. This is extremely important with all geographies with a double-digit EBIT. If we review the financial statement in non-operating items, we can highlight perhaps two aspects of the financial side. Although a strong growth in financial growth in an environment with increased rates is inevitable, we believe that financing management with initiatives such as increasing the fixed rate in the financial debt is contributing to net profit. A financial strategy that we have been implemented since a number of quarters ago.
If at the end of 2021, our fixed rate debt represented 35%, at the closing of 22%, it represented 50%, and currently it represents almost 60%. The other non-operating item we wanted to highlight are the activities that have been shut down, where there are EUR 7 million in profits that correspond to our German forge business that is being sold. A business that has benefited from non-recurrent elements that lead to the EUR 7 million in net result. Basically, the subsidy received from the German government related to energy costs in recent years, as well as a positive one-off because of a quality issue with a supplier.
These positive impacts that in the net result of CIE because of the minority stakes represent little over EUR 4 million and have also been offset by the negative non-recurrent impact of the settlement and renewal of the managers' participation plan. A net profit of EUR 90 million, the highest in our history, which without a doubt represents being on the podium in the sector with 9% over sales and 50% of EBITDA turned into a net profit. This first quarter again shows that we are capable of deleveraging quickly.
We have deleveraged th e balance sheet by more than 0.1 x Net financial debt EBITDA in the first quarter, which takes us to a Net financial EBITDA ratio of 1.86, levels below our comfort zone of 2 x. A deleveraging rate which in annual terms would imply deleveraging the balance sheet by around 0.4x-0.5x Net financial debt EBITDA in the absence of corporate operations or inorganic growth. A flow in the first quarter where there's nothing specifically relevant to discuss with a CapEx that has been at a level of 5% over sales, in line with the guidance of our strategic plan.
A working capital that has been neutral in the quarter, and a dividend paid out in January, an interim dividend paid in January of EUR 50 million, which will imply exceeding EUR 100 million in dividends during 2023 for the first time in our history. A dividend that has been steadily growing at double-digit figures for years, including this year. Looking to the future, there is still a certain spread in the estimates of the various analysts. Although some are coming closer to a consensus, and perhaps we can highlight the very cautious forecast of some suppliers.
Having said this, the IHS estimates point to a growth in the global market of 4% up to 85 million vehicles for this year, 2023, with markets like India that grow by 8% or the other extreme, China that would stay flat. We confirm our expectation for 2023, a growth in sales, growth in results, expanding margins, as already mentioned at the previous conference call.
A special highlight is that we also expect growth in net profit in spite of such a high interest rate environment, which gives a lot of merit to the intense work we're doing on the operating side and the financial statement in order to counteract the negative financial impact. Considering what we said at the beginning of the call regarding the degree of compliance and progress of the strategic plan in the first two years, if we add to that what we said about the first quarter and the prospects for 2023, all this together means that we again reconfirm our commitment up to 2025. This brings us to the end of the presentation.
I don't want to take up any more of your time. If you agree, we can now move on to the Q&A.
Well, we have a multitude of questions. We have a lot of questions. We're going to group them together by themes to be able to answer them all efficiently. We would start with sales. We've seen an outperformance by geographies that shows different trends compared to previous quarters. Has something changed at CIE with special focus on China?
Well, let's see. What do we see in the evolution of sales and outperformance this quarter? What I see is an extremely strong Brazil. A China with an underperformance, as also occurred in previous quarters. The rest of the geographies are practically in line with the market. It's a quarter.
I don't think we can draw conclusions from a quarter. If we go to longer periods, we'll see how the year goes. What we have is a sample. We have two years, 2021 and 2022, where the outperformance against the market was 14 points in two years in those quarters. You can check it, those 14 points that seem great. There have been quarters with more or less. I wouldn't draw any major conclusions from a single quarter. Apart from that, a quarter where let's look at the important thing. There are four points in outperformance over the market and four points in a real outperformance, an increase in market share. This is practically the same outperformance as we had in the first quarter of 2022.
Well, let's see. What do we see in the evolution of sales and outperformance this quarter? What I see is an extremely strong Brazil. A China with an underperformance, as also occurred in previous quarters. The rest of the geographies are practically in line with the market. It's a quarter.
There is a fact, that is that the Chinese OEMs are increasing their market share, CIE has less exposure to Chinese OEMs than to Western OEMs. This somehow this is taking us to this underperformance. Are we worried? No. CIE strategy in China, there is one headline. Always in China or wherever, in whatever market, strategy is the same. We prioritize profitability over volume. In any case, what we've always said in the recent quarters, I think that this quarter, let me give a little bit more of qualitative information about China, because there are lots of things happening in China. The other day, when the Chinese OEMs published their results, the only Chinese OEM that stated that they made money was BYD, the only one.
It's an OEM where it's complicated to draw conclusions about making money because it's an OEM with a vertical integration along the entire supply chain from the batteries to tier two going through OEM. Therefore, although we don't know the transfer prices between the various levels in the supply chain, it's difficult to draw conclusions as to whether BYD is making money producing cars or where they make money in their supply chain. The rest of the Chinese OEMs declare that they are not making any money. We have the latest statements from NIO, for example, that says that with a strategy of focusing on the Chinese electric vehicle, and they're not making money, and they need to have new strategies. They said it yesterday.
They've opened a new factory in China for exports to the European market. We have statements from other OEMs talking about starting to study manufacturing capabilities in the rest of the world. What do I mean by this? Well, I mean that there are many variables in China. It's a changing situation, and I think that we need to put the focus on what's going to happen in China and in the Chinese OEMs in the coming quarters, in the coming years. Regarding the CIE strategy in China, it's always going to be the same, profitability versus volume. In a market with the OEMs with very widely changing strategies that we'll have to monitor very closely to see what the Chinese market is going to be like.
We have to stay calm and see what happens.
A couple of questions about margins. Although we've measured the impact of the pass-through on margins and sales this quarter. The issue of energy, what impact has it had on us this quarter?
If any of you had the opportunity of listening to the conference call for MCIE, we spoke about how the MCIE Europe division, which contains, you have to remember, most of our forges, and forges are one of our highest intensity industries in energy consumption, and this is one of the areas where our margins have benefited. An energy trend, let's cross our fingers that will be sustained. Let's give figures.
If we talk about Europe, where last year peaks were reached in Germany in the price of energy of EUR 700- EUR 800 per MWh . This third and fourth quarter last year, it had gone down to EUR 300 and some . This first quarter, we've been at a level of 100-100 and something EUR. In gas, we see levels of 50 EUR with futures implicating that they're going to remain along those lines. With regard to energy, I would say that we had a first quarter where there's been control over energy prices once again, and we expect a certain stability. Let's see if it happens.
Okay. Now, a question on working capital. Traditionally in the quarter, it usually consumes cash, and it's been basically neutral.
Can you add some color to what's behind this?
The reality behind the actual figure is that we have a working capital in the first quarter with a small operating investment offset by a small increase in the absolute value. EUR 20 million increase in factoring, EUR 20 million invested in operating investments. In a balance sheet of EUR 5 billion is practically nothing. That's why I said it's neutral. A factoring that has grown that little bit in absolute value, but it grew because CIE has grown, but it's still at a level of 8%, 9% over sales. We've had this figure for many quarters in a row. It's true that it's been a quarter with that small investment, a second quarter that is usually a bigger generator.
Like the comment on outperformance, I think that drawing conclusions from one single quarter is not really rigorous. I would look at the CIE policy, and it's always fulfilled. During the year, we want to have a year with no significant investment in working capital. This is what we see for the rest of the year, with a quarter like this, with a little bit more investment, and the other quarters will generate more cash. Throughout the year, we'll see a working capital that is practically neutral or with no significant investment.
Thinking about 2023 and prospects, can we give some color on what outperformance we expect, developments in margins, and especially personnel costs in Europe?
I'm going to refer to the words of our CEO in the conference call for the fourth quarter and our comments of our CEO at the shareholders meeting this morning, and what I said while I was giving my presentation.
We confirm 2023 growing in sales, growing in results in absolute values, including net income, in spite of the merit behind that, and with an expansion in margins. This is what we expect for the year 2023. All in line and done gradually to reach those objectives to 2025.
Can you update the semiconductor situation? What do you think for 2023? Will it be sorted out or not?
Well, an impact of EUR 11 million in 2021, an impact of EUR 3 million in 2022, and EUR 400,000 in this first quarter.
I think that the figures speak for themselves, when we talk about how the semiconductor impact is being reduced with regard to the number of vehicles that are not produced because of the chip shortage. As you know, we don't directly handle semiconductors. We only have indirect information, and that information tells us that things are improving, that the second half of the year will be better than the first half, and we hope that in 2024, at last, we'll be able to stop talking every day about semiconductors. We think that the extra capability for the production of semiconductors that is gradually being brought in is going to provide results and that we'll see that in the coming quarters.
After talking about 2023, I'll link two questions on the guidance of 2025. One would be a more detailed explanation on the compliance with the operating cash flow issue and a view of the progress made. Will there be an update in the short or medium term?
No, there's no update of the guidance in the short term. We're very pleased, and we feel that the guidance we have is tremendously ambitious. Regarding the guidance for cash flow generation, which I would say is the most important one, the most important of them all.
In the end, cash flow, at the end of the day, what we care is the value generated, and that's cash flow. You all know, we have a five-year strategic plan on the table, and the starting point was 2020 going up to 2025. The starting point was an annual cash flow generation of over EUR 200 million, EUR 200 million and a little bit. There are EUR 300 million to go in cash flow generation to reach the EUR 500 million in the goal for 2025. In 2022, we've made EUR 400 million in cash flow generation, more than EUR 400 million in annual Operating Cash Flow generation. This means that we're moving forward very quickly towards that goal of EUR 500 million.
As an additional fact, the first quarter of 2023, we've made EUR 113 million in Operating Cash Flow generation. We maintain the guidance for 2025. These are very ambitious goals and the cash flow objective you're asking about and the rest are very much in line with the compliance.
Move on to M&A type questions and corporate development in general. What is the size of the M&A opportunities you see in India in this case?
India. In India, I would say that we're looking at M&A issues to reinforce existing technologies that have a high demand from our customers, such as aluminum stamping and technologies that we don't yet have in India, such as the plastic injection molding. The size, all kinds.
We're looking at small family companies, with three, four or five plants with a turnover of around EUR 100 million. We've seen some groups, with a turnover of EUR 200 million or EUR 300 million. We like it. We feel comfortable. In its geography, we have a sufficient structure. 25 plants currently give us a sufficient structure to feel comfortable. If we find a target, with a significant turnover, we'll be delighted to integrate it. Delighted.
Related to India, they ask why don't we buy more than MCIE up to the limit of 75% that would be allowed by law.
Well, because we don't have an additional need beyond what we've already consolidated.
We've been buying minority stakes in that company when the opportunity has come up, when there have been opportunities, where at some points our partner Mahindra or at times some investors or stakeholders have wanted to offer us a block of shares and we've made use of the opportunity we've been given. We've already consolidated, which is the ultimate goal, and the only thing we would do would be to reduce liquidity. Right now, we feel comfortable with the position we have. If there were future opportunities, we would consider them on a case-by-case basis. I think we have the two goals, a certain liquidity and at the same time a majority stake that allows us to consolidate and manage the company. We're comfortable right now.
In general, for CIE Automotive, are we missing any product segment or even getting involved in areas outside the automotive sector?
No. I'll start at the end. No, we're not considering going from the automotive sector to other sectors. As to whether we miss anything, well, we want to promote things we already have and reinforce them. When I refer to promoting, this could be geographies such as India, Brazil, Mexico, growing markets, as well as technologies. Promoting technologies like aluminum, plastic, stamping, composite materials, future technologies. Not just reinforcing what we have, we also have to think about something new, as the question asked. Not so much in products, because we have all the technologies to make components today.
From the point of view of the geographies, I think that we still have geographies to explore. Markets that, perhaps, are a little bit borderline in size to make them interesting, but they have very significant growth for us that would make them big markets. We can refer to markets like Indonesia with 1 million vehicles or Thailand or Malaysia or all these markets, many of which are concentrated in Southeast Asia, but could be of interest. M&As that promote the good things we already have in technology and geography, and that will contribute perhaps to including additional markets.
We have a question. Now that Mahindra has practically left M, CIE, does Mahindra have specific plans to leave CIE as such with its current 8%?
Well, that's a good question that we would need to ask our partner Mahindra directly. I'm afraid I can't answer that.
It's true that it is a reality. We've seen a gradual divestment of MCIE as a financial investment they've always spoken about. Why not think that there could be a second step, a divestment in CIE. A question for Mahindra, I'm afraid, in any case.
What's the status of the process to sell the German forges?
Well, it's moving forward. It's moving forward very well. We've had a lot of interested parties since at Christmas we announced that the assets were for sale, and I would say with very different profiles. We have industrial companies with a strategic interest, going through financial investments, private equity.
This means that we have very interesting different points of view and different offers on the table, and we're moving forward. We're moving forward with the negotiations, trying to, of course, maximize the resources we obtain from this divestment. Let's see if by the next quarter we have additional news to give you. I think I have to stop here at this point. A more long-term and conceptual question, because we briefly mentioned some structural drivers, motorization rate, the level of inventories in various countries, and this will set the future for these markets. They ask us for a little bit more color on them if we have it. A little bit more color on those future drivers. Well...
A driver issue that I think we've mentioned is the age of the vehicle stock. I think we all have very recent news in our heads where Spain, as an example, how its vehicles are aging. We're talking about Europe, where in 2022, the average vehicle stock was 12 million vehicles. We're getting closer to 40 million in Spain right now. In the US, where vehicles are also aging, they used to be at 12 years, now they're at over 13 years average vehicle age. India, different world, 25 years, the average age of the vehicles. China with 7, 8 years average age for their vehicles. This may sound like little, but China before the pandemic in 2018, the average of vehicle age was four years.
Different markets with different vehicle ages, but they all have something in common, and that is that there has been an aging of the vehicles in the last four or five years, and this is a very important renewal driver. Another driver I mentioned was the vehicle rate, the number of vehicles per country. If we look at vehicle rates, we have North America, the United States, specifically with over 70% of vehicle owners, Europe around 60, then we have the rest of the world, Mexico with 30% approximately, China and Brazil with 20, and India with three, four.
Without a doubt, those markets that I defined during the call when we spoke about M&A and other things, what I defined as growth markets, Mexico, China, Brazil, India, with these vehicle rate all below 30%, I think this is another major driver to grow the market. The third one I think you mentioned, correct me if I'm wrong, was the inventories, stock issues, inventories. If we use as an approach the difference between sales and world production to talk about inventories, it's estimated that in recently during the pandemic, 2019-2021, over 7 million was destroyed in stock during that period. This is being recovered. It's expected, the big numbers say that approximately four have been recovered. We still have a couple of millions to go, 3 millions to recover.
What are the different markets like?
Well, Brazil is at approximately 30 days, so this means 25% below their historical averages. China in March was at 50 days. This is approximately 15 below its normal rate. North America, approximately 33 days versus 60, is still more than 40% below its historical levels. India, it seems that for passenger vehicles, it's been normalized, but we still have to rebuild the motorbike inventory and truck and tractors. Europe. Which is where we have fewer market figures from the markets, but we hear the various OEMs, and we believe that they are still below the market.
Since I mentioned the OEMs, the other day, we read about the closing of the inventories in the United States of each of the OEMs. I gave a figure. I said that the industry in the United States is a 33 days inventory versus the 60 normalized days. The fact is that the story is completely different by OEMs. Stellantis. The headline of the result of first quarter has been the normalization of inventories. In the United States, Stellantis is already at 60 days. They've completely normalized. At the other end, we have Toyota, Nissan, Hyundai, Kia, with 20 days and below the inventory. That 33% is just an average approximation to the market. In fact, the situation of the OEMs is completely different.
We've reviewed age, we've reviewed inventory, we've reviewed vehicle property rates. I think that these are three of the main drivers for the future automotive market with their own particulars and specificities in each market.
Well, that was the final cherry on the cake. There are no more questions.
Well, good. I think we've had a little bit of everything. We've reviewed the short term, the first quarter. We've reviewed the year 2023. We've reviewed the future. We reviewed industry drivers. I think it's been very thorough. I'd just like to thank you all for your time. Thank you for joining us today, you know where we are if there are any questions unanswered. Thank you very much.