Magna International CIBC Eastern Institutional Investor Conference

Yeah, great. Well, thanks, Kevin, and it's great to be with all of you. Before I hit the question, maybe I just want to maybe frame up sort of the overarching messages we have today, and it's really probably three themes, if you will. First would be Magna continues, and I think we saw it in Q2 and seeing it in the full year, expanding margins and growing earnings despite a flattish industry production environment. I think that would be point 1. It's more of an execution story, more of a self-help story for Magna, with operational excellence and some of the things we can control. The second point I would make is we've seen a step up in our free cash flow both in 2025 and 2026.

We believe that's durable and that provides the powder, if you will, to do things like share buybacks, which we've stepped up as well. The last point is around the capital return. I think the buybacks have been a really good story this year, and we believe capital return will remain a key differentiator for Magna well beyond 2026. So getting to the question around the outlook and kind of what's changed since then. We typically don't comment too much on how the quarter's progressing so late in, but I would say two things on it. One, industry production. So far, we've not seen any major surprises relative to industry production as compared to expectations. Then back to the things we can control around operational excellence and execution, I would say continuing to trend well.

Overall, I think we'll provide another update at the end of the quarter, and I look forward to providing a more fulsome update at that time.

Yeah. We started the year saying we expected about 35 to 40 basis points from operational excellence in 2026, and that's on top of about call it 150 basis points that we had through the 2023 to 2025 timeframe. And it's really a combination of the thousands of continuous improvement activities that we have going on across the company, all over the world, as well as our Factory of the Future initiatives that we have going on as well, that we're starting to scale. It's really all of that that's driving, if you will. We're going to talk a little bit about the specifics when we get to our investor day, which is in November, and hopefully many of you will be there for that.

Okay. But we certainly feel as though we're in the early to mid-innings, and that there's room for us to continue to grow in operational excellence.

Okay. And maybe just to add if I could.

It's really been impactful. So when Louis talks about 150 basis points over the past three years through 2025 and then more this year, so we'll be at sort of 200 basis points cumulative over the last four years, by the end of this year. That's after contractual price concessions that we give to our customer in normal course, if you will. That's after direct labor inflation. So it's net margin expansion and over and above those two items. And I think if we can continue to do that, even if we find ourselves in a relatively muted production environment like we are today, I think the combination of the operational excellence driving margin expansion, good incrementals on growth over market, will provide nice margin tailwind for the company.

Take the free cash flow, enabling us to reduce the share count a little bit. It puts together a really nice pretty compelling value creation story for Magna, we think.

Yeah, I would say really the theme for us around AI, obviously it's still pretty early days in the whole AI race. But for us, we see it as a real accelerator. What we're doing with Factory of the Future is we've created a lot of data connectivity in our plants, and that's continuing as we speak. We really see AI coming in with it, working with it to really accelerate the impact, and that would be faster results, more impactful outcomes, and maybe the ability to scale it a little bit more quickly. Still early days, but based on what we see so far, we think AI can be a real enabler for us across multiple areas of the business, not just Factory of the Future.