Sabaf S.p.A. (SAB) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Sabaf Results as of the 31st December 2023 Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Pietro Iotti, CEO of Sabaf. Please go ahead, sir.

Good afternoon, everybody. Thanks to attend this meeting. This morning, the Board of Directors of Sabaf approved the results at 31 of December '23 results for the fourth quarter and results for consolidated entire year 2023. Result for fourth Q '23, revenue EUR 62.8 million versus EUR 53.1 million in Q4 '22, plus 18.3%. EBITDA margin -- I'm talking about adjusted value. Probably due to hyperinflation in Turkey and so on, it's more realistic to talk about adjusted numbers. The EBITDA margin on the Q4 has been EUR 8.7 million versus EUR 6.1 million in Q4 '22, plus 42.1%. The EBITDA adjusted on the revenue is 13.8% compared with 11.5% in Q4 '22. Adjusted EBIT, EUR 4.4 million against EUR 1.7 million in Q4 '22, plus 157%. Adjusted group net results of EUR 5.8 million compared with EUR 4.6 million in Q4 '22, plus 25%. The consolidated results for '23. Revenue, EUR 239.1 million, compared with EUR 252 million in 2022, minus 5.1%. Adjusted EBITDA, EUR 33 million versus EUR 36.3 million in '22, minus 9%. Adjusted EBITDA revenue on the revenue, 13.8% compared with 14.4% in '22. Adjusted EBIT, EUR 17.5 million compared with EUR 19.9 million in '22, minus 11.9%. The adjusted group net result, EUR 14.2 million against EUR 22.1 million in '22, minus 35%. The company has been able to generated an operating free cash flow of EUR 22.9 million, very brilliant number, compared with EUR 3.4 million in 2022. The net financial debt at 31 of December 2023 is EUR 73.2 million, compared with EUR 84.8 million at 31 December '22. Looking at the future outlook, we see a very positive start to 2024. We can talk about double-digit sales growth in the first quarter compared to the same period '23 and improved profitability expected. The product diversification, the internationalization, the integration of PGA and the MEC, the 2 most recent acquisition continue as planned. I can also confirm that with the first quarter '24, we are reaching the third quarter because Q3 '23, Q4 '23 and Q1 '24 are all quarter with double-digit growth in terms of sales compared with the same quarter of the previous year. The Board of Directors delivered a dividend of EUR 0.54 per share was proposed, of course, has to be delivered from the shareholder meeting. Just to comment on the year, '23 has been a year characterized by first half very weak. The complete sector of domestic appliances see very heavy drop down in all the most important customers, the bigger player in Europe allover. The second part of the year '23, we saw a sort of stabilization on the number. And now finally, we see a recovery that we can call very good recovery or strong recovery for the first half of '24. So we expect a double-digit growth in the first quarter and the orders already booked for the second quarter confirm a similar trend of the company. That's more or less all. I'm available for questions. Any questions you would like to ask to me. More details are, of course, available in the communication that we did, the press release. So I'm available for making follow-up questions. Please.

[Operator Instructions] The first question is from Andrea Balloni, Mediobanca.

My first one is about the first quarter growth. If you can give us some color on the different geographical trend and if you can distinguish between organic growth and larger perimeter? My second question is on the order backlog. I was wondering what visibility is provided in terms of monthly production coverage? And my last question is on margin. What are you experiencing in terms of cost inflation? And if we should -- how we should model the margin trend in 2024?

Okay. Thank you for the question. So we see that the growth is coming from South America -- Central and South America that is recovering strong. Middle East, Egypt and the Middle East area. The Europe is more or less stable. North America looks like to be positive. So that is more or less the color in terms of geographical growth. The organic growth is close to -- is one single digit, but not far from [indiscernible], just to let you know. Of course, we do say double-digit adding the contribution of MEC, but we are not far to do a very good growth with double digit in the high-end part of the range. The cover of our orders incoming booked is very good until May, and we see very positive some weeks incoming day by day, week by week, increasing every day. So -- but let me say that probably we will do also the second quarter very positive. And of course, when we are a company volume driven in terms of marginality. When we do volume, usually, we expect to also increase of the margins. The margins in January, I can confirm, was very positive. The headwind in the margin should be something linked to cost of labor, generally speaking, more in Turkey than now in Italy due to the inflation, of course, that everybody is facing. But generally speaking, raw material energy costs are under control, they are in recovering. A lot of new projects, let me hope and say that we can do a very good year this year 2024, because also due to the last year crisis, some competitor failed. And we are not far to gain market share also due to that. I'm sorry for that, but it's something that is happening in electronics and other components. Let me say, when the storm arrived the weaker are not more there. When we do -- when we lose 3, 4 point margin in 2023, that one that has 8% -- 7%, 8% EBITDA, they are very close to lose money. That is what happened. Generally speaking, all the business of [indiscernible] is probably no better than the margins in the last year were week [ 490 ]. I'm very confident that this year will be a very good recovery in terms of sales and margins. I hope [indiscernible] answer your question.

Yes. And a very quick follow-up for myself. If you can give us some update on the induction component trend for this year?

We finally start to say in March with a bigger customer and other are coming the second quarter and second half of the year, we have in pipeline 4, 5 customers. So [ April ] would be time to go in induction growing expectation for this year, I can say, from EUR 3.5 million to EUR 4 million turnover from EUR 2 million to EUR 4 million more or less. But we use with coming from Mexico, we expect from March and that could save with important customers in Central America that is working very good. And also in India, we expect some turnover increasing. Probably Mexico will be faster than India, but both are growing.

The next question is from Domenico Ghilotti, Equita.

A few questions. The first is on the recoveries you are seeing. So I'm trying to understand how much do you think is restocking? So is a matter of, let's say, you're rebuilding some inventories at your customers? And how much is the final customers? And how the discussion with your clients and trying to understand the final demand? Second question is on Mansfield or the MEC. So if you can -- so if you see that integration is progressing and the sales that are generated by MEC are keeping with your expectations? And last...

Sorry, I don't get the question, please. Can you say again, please?

Yes. How is going in the integration of MEC?

Okay.

And last on prices at this point, I think that we are, let's say, renegotiated -- or negotiated the prices for this year. So if you can confirm what was your comment in the last call that we are expecting like flat, broadly flattish price contribution this year?

Okay. For third question, restocking of our final sales for our customer. I can say probably both. But what is happening is that the order planning gain sometimes with a request to be faster than normal. So the impression is that the customer doesn't have stock, because on the end of the year, they reduced the minimum level of their stock. And now we have [indiscernible] and they asked for immediately delivering. Of course, it is not the best way to roll for the factory, but we try to answer with our flexibility. What I can say is, again, that in Europe, the Turkish and Chinese players are stronger than the, let me say, the old western companies, just to say some names, [indiscernible] are going fast and good, [indiscernible] and we project sold as with the European operations, they are weaker. They are losing market share. The [indiscernible] market looks like to be always more commodities. So the average medium price due to the inflation there and over franchising power of population is bringing this sector to lower price and [indiscernible]. Second question was integration with MEC is working good. It's very easy to work with American managers. They had not a good month in November and December. This is the reason why we expect a better result in the fourth quarter last year on the margins, but it was weaker due to the retail of MEC and also the weaker of PGA due to one of the main customer producing [indiscernible] to end very bad. So the last 2 months, November, December, for these 2 company was not good for us. The good news is that both in January and February are selling good number, coming back to the normal sales. So I'm not worried about that, because they are going in a good direction. In MEC, this year, we plan that the investment to recover productivity. So we expect to improve our marginality in MEC. On the price negotiation, yes, we have already done. I'm quite satisfied because we didn't believe to not discount. In some cases, we give -- we bring it home some increased price on valves for instance, from 5% to 10%. And large for us were not very, let me say, cash count. [indiscernible] with this increase, I'm a little bit more confident that we can recover. That's all. The negotiation we ended, of course, some of the customers that are in a weaker position are continues to make pressure but negotiation our cost. So for this year, the all [indiscernible] that we see in the margins to be as it can be for the cost of label in Turkey and in January, but we are doing a increase of selling price with Turkish customers trying to face this because -- and of course, this is linked to how much the Turkish lira will be depreciated on the market.

The next question is from Laurent Stöckli with Quaero.

In fact, my questions have been covered.

The next question is from Giuseppe Grimaldi, BNP Paribas.

The first one relates to the first quarter. You mentioned before, double-digit growth. We are getting closer to the end of March. So it will be helpful if you can share with us a preliminary idea of what could be the revenue range that you expect for the first quarter. And on top of that, the organic development that you are facing right now in Q1. The second one is on the competitive landscape. We saw some competitors both in North America and in South America getting into trouble or exiting from the market. Are you already gaining volume from these guys? Or it is something that you would expect to benefit from an operational perspective in the next quarters? And the last question is on margin. This year, it seems to be a much better shape in terms of volumes. So shall we expect margins to regain your somewhat the normal level that you have experienced in the past, something like 17% or 18% EBITDA margin? Or is it still too early to say?

Okay. You will pay me a coffee, if I tell you the number of first quarter in advance, but my forecast to be close to EUR 68 million, EUR 69 million turnover, would be better. And what is positive is that also up in May are full of order. So that what makes me confidence to do the first half a good or very good. Regarding competitors, yes, we are offering products as public [indiscernible] company went in Chapter 11. That's a company, our competitor USD 500 million USD 600 million turnover. Main customers are running to ask us some products on electronics or other. And of course, we take the time to develop, but I expect in the second part of the year, probably more in the fourth quarter, turnover -- adding turnover in our sales due to this. I'm talking about probably plus EUR 2 million, EUR 4 million globally on a yearly base and additional with good margins. And we are giving a lot of offer for, I hope, gaining market share due to this. Regarding margins, yes, of course, our goal is to come back to our normal marginality, 16%, 17%, 18% of EBITDA margin. I think we should be on the good track. I would be more of, let me say, confident when I will see the margin trend in the first quarter. But I can say we do better, of course, of the last quarter. Last quarter for me was not satisfying, because we expected to stay at more than 15% of EBITDA margin. I expect this first half would be better or much better also in the market. I cannot say now the number, but to be realistic as to be better.

Thanks a lot for your clarification. And maybe if you can touch upon the, let's say, the industry consolidation that we are seeing in Europe, if you have, let's say, a comment on that? Do you think there will be more opportunity for you guys based on what you are seeing from Whirlpool and [indiscernible]?

Yes. Of course, now the picture is always more muted. The Eastern player, Turkish and Chinese are win on the European market against the Western [indiscernible] guys. Sabaf is well positioned, because we have -- remember, we have 3 factors in Turkey. The Turkey is the country where both higher with a new plant in cooking unveiled last week in [indiscernible], a very huge big plant to invest with a lot of million euros. It was an old plant of candy, they renovate all and they start there to produce our induction, just to let the first big customers. So we are confident on that and our investment will be positive in terms of volumes. And also, of course, Turkish they are taking over EUR 5 billion business in the most [indiscernible] Europe. We saw the factory in Italy and in rest of Europe, old factory of [indiscernible] but all of the factory are buying from Sabaf for [indiscernible] years or some component in gas or [indiscernible] or electrons. So I could say, Sabaf is just providing all those guys in Europe and in Turkey, [indiscernible] can be higher in Turkey, and [indiscernible] Europe [indiscernible] in our sales directly. So I can say Sabaf is well positioned to defend all this change that is in Europe, because we are serving both all customers, both winners and losers in Europe. So if a the winner is already our customer. So as I think I don't see danger, probably more the opportunity than not facts on that.

The next question is from Emanuele Negri, Mediobanca.

I have just a quick follow-up. Can you give us an idea of the contribution in terms of revenues do you expect from the new plants in India and Mexico?

A growth from Mexico is EUR 3 million, EUR 4 million now, that in the next 3 years I expect to reach more than EUR 10 million. And India similar, we expect EUR 3.5 million this year, and the growth will be a little bit lower than Mexico, but already will be EUR 5 million, EUR 6 million in next 2 year in '25, of course, [indiscernible] a good number because the customer are coming customer now with [indiscernible]. What I can say is that we have very huge pipelines of new products in all the 4 divisions of our company. You know that we have 4 divisions, gas division, hinges division, electronics division and induction and division has one R&D with many engineers developing new products. And our growth in the future is based on new projects that they are developing. Usually, our product takes from 6 to 2 years' time to land, to became sales. What makes me confident is that we have more than, I can say, totally 45 projects ongoing. That is for me, let me say, something that make me be confident for a brilliant future for this company for life future. Of course, it depends on what happened out in the market, if the market is going down or like last year, 10% in volume and there was a price, you cannot do plus 10%. We do a minus 5% and try to recover in terms of not customize margin, but are very confident this will be -- we come back. We are confident to grow a good year.

Next question is a follow-up from Domenico Ghilotti, Equita.

Yes, I had a follow-up on profitability in Q4. So you were saying that you were a bit disappointed. So what has been missing? What has been the main reason for the difference compared to your expectation? And if you can give us the usual bridge on EBITDA, which is helping us in understanding the different dynamics.

So I was a little bit disappointed, because I expect 1 point plus or close to 15%. We did to 13.8%. The contribution in a negative way was from MEC because the last 2 months, the turnover was down. So it was weaker than expected for 1.1% in the total EBITDA of the group. I can give you your preferred EBITDA bridge. And like you say, in the fourth quarter '23 compared with fourth quarter '22, EBITDA has been from 11.5% in Q4 '22 to 13.8% in Q4 '23. Positive contribution came from sales volumes for close to EUR 1 million, EUR 2 million positive contribution from raw material costs and EUR 1.5 million from energy source costs better than previous quarters a year. What wasn't negatively impacted has been sales price for EUR 400,000 and the foreign exchange rate for EUR 650,000. And then cost [indiscernible] in Turkey negative for EUR 700,000. This is the EBITDA bridge, of course, a negative impact on the EBITDA as reported before, came from MEC and a little bit from PGA, because the main customer of cooking range in Fabriano was very weak and is the first customer of PGA linked to be to that customer. I think you understand which is the customer. But [indiscernible] the second January and February to over both MEC and PGA have come back good and positive for the expected margin in first [indiscernible] is better for that time quite sure. So the [indiscernible] January [indiscernible].

[Operator Instructions] There are no more questions registered at this time. I turn the conference back to you for any closing remarks.

So no more question. I thank everybody for attending the meeting. Bye-bye.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.