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 as of December 31, 2024, approved Results Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Mr. Pietro Iotti, CEO of Sabaf. Please go ahead, sir.

Thank you to everybody to attend this meeting. This morning, the Board of Directors of Sabaf approved the result at the December '24. Those are the numbers approved. Consolidated results for 2024 full year revenue EUR 277 million compared with EUR 239.1 million previous year, with increasing of the sales of 15.8%. That means for our company, the highest turnover ever, an all time high for Sabaf. EBITDA margin delivered EUR 40.4 million compared with EUR 33 million in '23 with an increase in percentage of 22.2%. The percentage EBITDA on revenue, 14.6% compared with 13.8% in '23, EBIT EUR 21.2 million compared with EUR 17.5 million '23 with an increase of 21.2%. Group net result, EUR 16 million versus EUR 14.2 million '23, plus 12.7%. The company generated an operating free cash flow positive to tune of EUR 12.3 million. Q4 '24 consolidated result, the revenue is EUR 64.7 million compared with EUR 62.8 million, growth 2.9%, EUR 8.3 million EBITDA margin compared with EUR 8.7 million Q4 '23, minus 4.9%, EBITDA on revenue, 12.8% compared with 13.8% in Q4 '23. EBIT at EUR 3.3 million compared with EUR 4.4 million in Q4 '23. Group net result in the quarter, EUR 3.4 million compared with EUR 5.8 million in Q4 '23. The outlook that we see for our company, the market for household appliances is showing in signs for a gradual recovery in volumes. The risks related to the geopolitical situation remain -- you can translate rate tariffs, which are mitigated by Sabaf direct presence in all major markets, including the company -- productive company in U.S. in Ohio, back that we acquired in July '23. Our group expects a sustained growth in '25, driven by sales for all the 4 divisions and the new plant in Mexico. The Board of Directors will propose to our General Shareholder Meeting that will attend in first day of May -- end of February, sorry. A proposal -- dividend for EUR 0.58 per share, EUR 0.58. As a general comment, we can say that after a difficult 3-year time period, the current year looks set to see a recovery in the market as we confirmed by the order they received in this first quarter. The other comment on the fourth quarter, I can tell that impacted on margins to factor mainly. One is with lower turnover due to the destocking that the main customer decided to do in December and also increase of labor costs in the second half for '24 in Turkey that was not offset by the depreciation of the Turkish lira against euro as usually happened in the previous years. The last event in Turkey in the last week, the Turkish lira got a depreciation of TRY 3, TRY 4 per euro while 15 days ago it was TRY 37, TRY 38 per euro. Now it's TRY 41, TRY 41.5. If we go ahead on the working capital at 31 of December '24, amounted to EUR 78.2 million, compared with EUR 72 million at 31 December '23. At 31 December '24, the impact of the net working capital and revenue was 27.4% compared with 30.2% at 31 December '23. Of course, the increase of revenue improved this number. In '24, the company net investment by the group amounted to EUR 14.7 million was EUR 16.9 million in 2023. In the '24, the positive cash flow, as I told before generated by the [Sabaf], was EUR 12.3 million -- was paid in '24, EUR 8.7 million as dividend. At 31 December, the net financial debt was EUR 73.9 million compared with EUR 73.2 million at end of December '23. Dividend proposal, I just told you, the Board of directors will propose to shareholders a distribution of a gross ordinary dividend at EUR 0.58 per share for share outstanding on 27th of May '25. Gross dividend of the '23 was EUR 0.54 per share. And back on the outlook as I told you in advance. After 3 years of widespread record weakness in demand, the household appliance market appears to be adding for a gradually recovering volumes, partly due to the stimulus in consumption of residential investment, resulting from lower interest rates. There are, however, some reason for uncertainty -- certainty. The first economic policy measure taken by the new U.S. administration have created international tension, the effect of which are difficult to predict. The Sabaf global production structure with the direct manufacturing president in the U.S. mitigate the risk associated with the introduction of tariffs. The group expects sustained growth in '25 as the benefit of the strategy outlined in the business plan, that means diversification of the offering, strengthening of the industrial footprint, the development of the group synergy and grow through acquisition is further materializing. In particular, an important contribution is expected from sales in North America, even thanks to the Mexican production plant that is constantly increasing volumes and expanding its product range. Including the first incoming order of MEC, M-E-C, our company in Ohio, very good for the first quarter of this year as usual happenned after U.S. election. For all the divisions, sales of new products, which will be partly customized for some customer will begin and should have the strengthen market share. The orders received in the first part of the year confirmed this trend. The group is strengthening its effort to improve margins through further efficiency measures, innovative projects and adjustment of price list. I can add also increase of volume, of course, will help to improve margins. So we are quite positive also on the recovery of the margin in the first quarter of '25 as we see a growth in percentage compared with the first quarter of last year that I remember was a very good quarter. So the first quarter of '25 will do better than first quarter '24. I'll stop to talk. I am available to answer questions. Any questions if you have, please I'm here.

[Operator Instructions] The first question is from Giuseppe Grimaldi of BNP Paribas.

Thanks for your presentation. I have actually 3 questions. The first 1 relates to the first quarter. So you touched upon this topic later. The order book is very good. So what should we expect in terms of growth or in terms of absolute value of revenues for the first quarter. The second one is on the new business. New product that you launched on top of the Mexican plant, what we should expect in terms of additional revenue contribution from these initiatives? And the third question is on the FX considering that the Turkish lira has depreciated a lot, should we expect a sort of tailwind on the profitability for this year?

Okay. Your question, forecast for first quarter, of course, I cannot disclose [some] forecast, but I can tell you that the order incoming as positive double digit but we don't know if we are able to do the turnover because even if we are working on Saturday, sometimes Sunday in some factories all over in Italy in order to deliver most if possible. But there are also meta-mechanical contracts. So we have a strike for extraordinary hours. So it's not easy to produce all the orders that we have, but it's a nice problem to have. If we don't deliver in the first quarter, we will deliver in the second quarter, more the positive growth, I think, I can say between 6% to 10% minimum as range of growing. Regarding Mexico, also, I can say, April and May are also quite consistent in coming quarters, so very good in April, also May that is not completed the coming order, but it looks like positive, very positive, I can say. Mexico or we can -- last year, we delivered roughly EUR 2.83 million. This year, we hope to deliver more than EUR 7.58 million. So a strong increase, thanks to positive. We also won awarded for quality from [Weir] North America from the plant of Mexico and from MABE, thanks to those customers, MABE, we have [indiscernible] Electrolux [walls], we are full of customer asking production from that plant. So we are very excited about that. Turkey, the question was regarding the depreciation of Turkish lira, of course, any depreciation of Turkish lira goes to compensated increase of salary, but every year, the Turkish government, let me say, cash to the company to make the increase of salary roughly 34% more or less in line with inflections, all the in the previous year, I was compensated with a similar depreciation of Turkish lira. After the election in May, Erdogan, we don't know how, but was able to maintain the lira more or less stable with Euro. And this is the reason why in the second half, we suffered a drop of margin due to the increase of cost of labor in Turkey. We are talking about more or less EUR 1.5 million, EUR 2 million more than expected. What we did increase of selling price, of course, in Turkey was easier with Turkish customer because they are sensitive on that. It's not so easy to increase prices with all the other customers due to the fact that all our customers are coming out from 3 years very tough in the market, but what did our company was able to gain market share. Also thanks. I'm sorry to say that, but thanks to the failure of our -- of some competitors, Robert Shaw declared cash after even last year, the weakness of other competitors in Italy. so we got an increase in market share for that because we look like to be a solid company, so the big customer prefer to buy from solid suppliers -- but prefer to buy from suppliers that are consistent and solid in the growth, innovation and delivery service and quality and so on. I don't know if I answered correctly to your question, if not, I am here.

Yes. Yes. Maybe just a very quick follow-up on the tariff that is at the point that you touched before. Considering there is clearly a lot of uncertainty these days, but do you think your clients will be keen to accept any price hike if you have, say, a sudden increase in the tariffs.

Consider that is not exactly a matter of increase our selling price because most of our components are FCO [Franco Fabric] delivered to the door of our factories. So for instance, [infiscernible] U.S., buy some components from Turkey, it is their business to come to collect our component out of our factory. So it's a problem of their government to explain why if they have to export from Turkey to U.S., they are, I don't know how much it would be, 20%, 25%, 10% of tariffs additional. The same things happen at, for instance, in Mexico, 90% of our components are delivered to American companies that have plants in Mexico. So same companies, we have [indiscernible], General Electric, others. they have a plant in Mexico, we deliver to the plant. The problem is a problem of our customer to import in the U.S. market. What should happen, we don't believe that should be that the end consumer -- the final demand could have an impact, but we don't see too much done on that. We practically -- we do not supply in the U.S. they don't have a supply in the U.S. So they have not too much choice, I have to say. Last but not least, we have a plant in the U.S. to produce engines, our competitors produce out of the U.S. market in engines. So it should be for us an advantage because if from the 2 of April, tariffs will be that 20% of the engines coming from Europe. We are advantaged with a 20% less cost for our customers. So this should be also a reason why we see the intake in order in MEC in Ohio, very strong in the first month this year, also increasing the marginality.

The next question is from Domenico Ghilotti of Equita.

My first question is on the ongoing end market recoveries you are mentioning. I'm wondering if you see this recovery quite broad-based in terms of geographies or if you see some differences from a geographical standpoint? Second, you are mentioning the price negotiations. So if you can give us an update on where are you today in terms of price negotiation for 2025 and what is to say, a reasonable final outcome? And third is on the -- just on the margin improvement you are mentioning some actions to recover profitability. Because on one side, clearly, the Turkish Lira is not under your control. So what are the -- and apart from volumes or the operating leverage, what are the other actions that you are implementing in order to recover the profitability and the very last is on the EBITDA bridge, if you can -- for 2024, so if you can help us in understanding the different moving pieces to get to the 2024 EBITDA?

The first question was regarding the recovery by geography. We see good recovery in the U.S. market -- quite good, let me say, slow growth but good in Europe Central America good. South America, after a strong growth last year, we expect to be flat. Brazil quite good in coming orders from Middle East, Egypt, that kind of country. Also China looks like not so bad for us, India more or less as China, so Turkey compared with last year, is going better. Last year, Turkish offered lower in the second half in terms of volumes. But generally speaking, the recovery is quite general. But it was, I think, expected in some way after 3 years under water reposition [Foreign Language] price negotiation. So what we did, of course, as soon we have awareness of our weakness in terms of labor cost in this last second half, we start to ask increase of prices to customers. I cannot hide that was quite a tough job because customer was not available to recognize increases on the price to do their weakness of their balance sheet. After we start in September, October, I can say today, we have closed almost 95% of negotiation, someone better someone less better. But with everybody, we got an increase some one just 1%, some other also 7%, 8% all over a Turkish customer because they understand better because they have the same problem in cost of labor. That should be an important issue for the producing turkey if they will not be able to increase fair selling price on the end market. So generally speaking, I think 2%, 3% increase in average will have a benefit increasing price. Of course, we also did all more action possible to improve efficiency in production in the factory, but not only in direct labor, but also on the undirect labor. So we try to work on the fixed cost in order to try to reduce them. Another point that should help, but it takes more time is that in Turkey, for instance, we -- for many years, we got our good margin tax today, lower cost of labor. So we avoid to do investment in automation. Now we are evaluating some investment in automation also in the Turkish factories, of course, starting our plan of investment more or less that would be similar to last year in '25. Margin improvement, I just told you the action more or less -- don't forget that we have a very important pipeline of new projects, thanks to innovation, we are able to get more margin. For instance, we are doing a new important project for Bosch, more important project for Whirlpool North America, for Waltz, for MABE et cetera. Moving on to the EBITDA bridge. In the 12 months that we delivered EUR 40.4 million compared with EUR 33 million last year. The main reason of this improvement came from EUR 6.5 million from increases of sales volumes, more or less from sales price minus flat to EUR 30,000, nothing negative effect from foreign exchange for EUR 800,000 positive effect, EUR 2.7 million from raw material cost, lower raw material costs. Low negative effect from energy source cost, we paid energy EUR 320,000 more on '24 compared to '23. Thanks to the higher volumes, our fixed cost absorption give us a positive effect for EUR 1.9 million, we got a negative effect from the startup in the Mexico induction for EUR 1.4 million. But the best -- the worst fact as I told in the beginning of this conference was the cost of personnel that had a negative effect for EUR 2.8 million, mainly of this are coming from Turkey more than EUR 2 million. MEC, MEC the company acquired in the U.S. gave a positive effect in EBITDA margin for EUR 1.6 million. Therefore, I think if I have been clear in the answer, if not, I'm here.

The next question is from Emanuele Negri of Mediobanca.

I have a couple of questions. The first 1 is on induction, we generated around EUR 0.5 million revenue in 2024, which kind of contribution do you expect from 2025 and maybe for the '26? And the second one is which kind of impact do you see on margins in the first part of the year from increasing energy prices?

On increasing, sorry?

Energy prices.

Energy, okay, so the induction business last year started to give us some good hope linked to the fact that we are providing to Haier, our project -- the contract with them is made that we -- they are producing on our projects. So the EUR 0.5 million, not all part of 70% of that is coming from royalties that they are paying out. So our net result, net margin they delivered and sold to the market more or less 15,000 induction hobs made with our projects. So what I can say is that the design is working well. They are quite happy of that. And that also is a positive thing because Haier is 1 of the major player. We are continuing to innovate with the new feature on the hobs with assisted cooking with control of the panel and so on and several features that we are improving. We did some patent on that. Other customers order the hobs that we start to deliver or start to deliver in November, October, November, December, we will continue on this quarter. It's not easy to give you a forecast for '25 up to now because some customer ordered, but they are testing again. They are going to slow, it's quite difficult. I can't tell you a number, but I don't know how much reliable is, so I would prefer don't give you, but I hope some millions, but we'll see. Regarding of -- but the projects we are happy because we have 5, 6 customers that started to order. The cost of energy, of course, will have an increased impact on the Q4 regarding negative impact of million, EUR 4,000 million, EUR 5,000 million. But also here, it's difficult to forecast because I would think depend from what will happen in Ukraine and in Middle East. Today, the cost of gas for megawatt per hour is EUR 41, EUR 42. 1 year ago, this time was EUR 25 in first weeks of January was EUR 54. So in January, it was 54. Now it's 42. Last year was '26 in this time. What will happen is not easy to forecast. I can also say that in Turkey, we paid the gas less than anybody that could help a little bit because they buy gas directly from Russia and so the cost is lower than in Europe. But in 1 quarter, we consider EUR 400,000 negative first quarter due all over from the impact of January months for the March and April should look [indiscernible] better. I can tell you that we are putting on our roof of the car factory solar panel that will start to produce energy first of September. And we are planning to save roughly EUR 500,000 per year with an investment of EUR 3 million as 2.5 megawatt power installed. Just talking about energy.

[Operator Instructions] Mr. Iotti, there are no more questions registered at this time.

Okay. Thank you to everybody for attending this meeting. Have a good day.

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