Sogefi S.p.A. (SGF) Earnings Call Transcript & Summary

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Sogefi First Half 2021 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Frédéric Sipahi, CEO of Sogefi. Please go ahead, sir.

Thank you. Good morning. Thank you for joining this call. As anticipated with you last time, the market has been very challenging during this semester with high volatility on volumes and supply chain raw materials prices under pressure. As you will see in the presentation, I considered we have been -- we have done a good job to face this unique situation with quite good results. I propose we go to Page 4 with the highlights of the first semester 2021. So most of the time, I will compare versus '19 because it makes more sense for the first semester. First, the revenues. So our revenues versus '19 are minus 9% for the first semester. But at constant exchange rates, this would be 4.5%. So you will see the split by geographical area and by business units. But we have been able to over-perform the market in all geographical areas and on 2 business units among the 3. The EBITDA. The EBITDA is at 16.1% versus 12% in '19. We have also calculated an EBITDA adjusted without the nonrecurring and nonoperating items. This would be at 14.5% versus 12.3% in '19, so an improvement by 2%. You will have the breakdown of the EBITDA items in the next slides. But one of the big effort that we have done that has paid are the fixed costs, down by more than EUR 20 million versus first semester of '19. Our EBIT. Our EBIT is at 7.2% versus 4% in '19 semester 1. And the EBIT adjusted will be 5.5% versus 4.3% in first semester '19, so an improvement by more than 1%. Our net income is at EUR 21 million positive versus positive EUR 7 million in '19 and a loss of EUR 30 million in the first semester of 2020. The free cash flow is following a positive trend. We have been able to have a free cash flow without the IFRS 16 by EUR 32 million positive versus a consumption of EUR 71 million last year and the consumption of EUR 3 million in first semester '19. So this is mainly thanks to the improvement of the EBITDA, but also a good job that we have done on the working capital and all balance sheet items. Even with very difficult situation on inventories due to the situation, we have been able to push the working capital to improve this free cash flow for the first semester. The net debt without the IFRS 16 is following this trend with an improvement of almost EUR 30 million versus last year 2020 with a net debt of EUR 261 million. I propose we go to Page 5 with the main takeaway of the first semester 2021. So as I said before, our sales at constant exchange rate would have been minus 4.5% with a market going down at minus 13%. So we have over-performed the market in all geographical areas. The 2 main markets for us are Europe and NAFTA. In Europe, our decrease is by 11% in a market going down by 23%. And NAFTA, the market is going down by 20%, and we are decreasing by 3.5%. Two business units have performed much better than the market, which sits very close basically to 2019, Air & Cooling and Filtration, mainly thanks to new businesses that we have started last year and beginning of this year; and for Filtration, the resilience of aftermarket and OES. Unfortunately, Suspension is not following the same trend, basically going same direction as the market with minus 14%, mainly due to the customer portfolio and very high exposure to Europe. Raw material market prices, so as I anticipated before, it was quite a challenging semester. As you know, the steel prices are booming, but it's true also for the plastic and most of the commodities. Thanks to strong defensive actions that we launched very early, we have been able, in the first semester, you will see that in the P&L, to contain these increases, keeping our prices for now lower than in '19 and 2020. If we go to Page 6, the split of sales by geographical area. And if we compare versus 2019 and the market, so as I said before, we have over-performed in all geographical areas. For example, Europe, the market is down by 23%, we have been at minus 11%; North America, minus 3% versus minus 20%; and South America and China, in fact, we are even growing versus '19, thanks to new products that we launched, especially in China where the growth is by 42% versus '19 versus a flat market. So the performance in all geographical areas, our sales have been quite good compared to the market situation. If we look by customer, Page 7, Stellantis is now our biggest customer with almost 22% of the sales. Followed by Ford and Nissan, these 2 customers have performed better in 2021 than '19, mainly thanks to new products that we started in production. For Ford, it's in North America; and for Renault and Nissan, mainly in Asia and Europe. Then we had a quite well-balanced portfolio of consumers with Daimler, GM and Group VAG, BMW, Volvo and also Toyota. The sales by business unit, Page 8. So here, we can see that Air & Cooling and Filtration are performing quite well versus the market because for Air & Cooling, the reported decrease is minus 3%, but at constant exchange rate, would have been flat versus '19. So it means that we have been able to compensate the market drop. And Filtration, in fact, we would have had a growth by 3%, mainly thanks to the good performance of ERM and OES. Suspension, I mentioned it before, following the trend of the market with minus 14%. So overall, Sogefi is at minus 4.5% constant exchange rate. If we look now at Page 9, the breakdown of our performance for the EBIT. So the first thing you can see that the big effort and actions that we have launched last year in a very anticipated way helped us to compensate the volume because volumes decreased from minus EUR 21 million and fixed costs plus EUR 22 million. So it's balancing the negative effect of volume. We have done the job on efficiency on variable costs with a positive impact versus '19 of EUR 8 million. Then we have a minus EUR 4.3 million in Romania, which is due to the start of production of our new plant for Suspension in Oradea. Then we will have EUR 16 million -- we had EUR 16 million of nonrecurring operating items. At the end of the call, if you have any question on these items, we will detail them with Yann. So at the end, the good point is that thanks to the fixed cost actions we launched last year, in a very strong way, we have been able to absorb the volume effect, but we will have some challenges for the second part of the year that I will detail later on the variable costs and especially on the material price. So we will need to continue to be very, very careful on the fixed cost and variability of volumes. Now I will let Yann explain the Page 10 and 11. Thank you, Yann.

Thank you, Fréd. So a few points of attention. As Fréd pointed out, despite the pickup of revenues in the first half of the year, we still are 9% below 2019. So the market has not fully recovered from COVID-19. Contribution margin, Fréd insisted, it is a very significant point on the evolution of raw materials. This will hit in the second half of the year. But as you can see, over the first half of the year, we haven't been hit at contribution margin level. We even have improved the percentage of contribution versus 2019 and 2020. We've done our homework on gross fixed costs, you can see that, with the more than EUR 22 million reduction of gross fixed costs, minus 16% below 2019. And this strongly helps us deliver solid results. Restructuring, not significant, I would say. As you can see, when things go in the right direction, everything goes in the right direction because, usually, we have negative exchange differences. And in the first half of 2021, we even have favorable exchange differences. All in all, an EBITDA -- solid EBITDA at 16%. Write-downs are not very, very significant. We already have done a lot of cleanup in 2020. EBIT. EBIT includes some favorable one-offs. We have pointed out 2 significant one-offs that account for EUR 5.3 million. These are the booking of the tax credit in Brazil that will be recovered over the next 5 years, so noncash events for the time being. It will turn into cash savings as years come. And the second one, which is roughly half of it, is the settlement of a litigation on pension issues in the U.K. So obviously, it will not happen again. All in all, we have roughly EUR 10 million of favorable positive one-offs. So this -- these will not happen again in the second half of the year. And we prudently are integrating some negative one-offs. Also for the time being, nothing is showing up. Income tax, as you can see, roughly at 33%, 34% of pretax. All in all, net income of operating activities at close to EUR 25 million, that's to say 3.6% of total sales against 1.1% in 2019. Next line is interesting. We've been approached very recently by an entity which is interested in acquiring from us Filtration Argentina. The deal is not concluded. We are in discussion. But we have decided to show Filtration Argentina as an IFRS 5 asset held for sale. And in H1, we have booked the possible loss on the disposal of this entity. And maybe we'll say more down the road. All in all, that gives a EUR 21 million full net income versus a loss of EUR 29 million last year, that was mainly due to COVID, and a profit of close to EUR 7 million in the first half of 2019. Moving on to Page 11. As Fréd pointed out, cash flow is mainly driven by the activity. You can see a sharp improvement versus the first half of 2020, even more funds provided by operations than in 2019. And on top of that, you can see that, usually, when we have an activity which is increasing, we have a negative working cap. Here, we have a negative working cap of only EUR 5 million versus EUR 23 million in 2019. So this makes the bulk of the improvement of free cash flow between 2019 and 2021. We deliver free cash flow -- remember, everyone, this is before IFRS 16, so real free cash flow, not accounting free cash flow, positive of EUR 32.5 million, whilst we had a cash burn of EUR 3.3 million in the first half of 2019. All in all, net debt, again, before IFRS 16, of EUR 261 million. And what's significant is that it's very comparable to the net debt before the COVID-19 because you can see, we had EUR 267 million at the end of the first half of 2019. Factoring, we have not pushed that much. Factoring is very similar to what we had at year-end and even below what we had at the end of the first half of 2019. When you move on to Page 12, we told you in the previous conference that we had a big cash out in Q2. In Q2, we have repaid a bond of EUR 100 million without any issues. So this has been fully repaid at the end of May. And during Q2, we also have signed EUR 30 million of new loans on Romania, so linked to the activity on Romania. And what we are going to do in the second half of the year, we are going to start discussing with the banks to extend the current maturity of our loans, which, as you can see, already is at an average of 3 years. But some loans have maturities expiring in '22 and '23, and we'll start discussing with the banks in order to extend these lines for a further 2 or 3 years. So all in all, a solid liquidity situation for Sogefi. Fréd?

Thank you, Yann. If we go to Page 13, we will have the split of the EBITDA and the sales by business unit. So Page 13, Suspension. Unfortunately, as you can see, the sales are going down sharply versus '19 with minus 19%. The EBITDA in percentage is 12.6% for the first semester. But if we offset the special events, in fact, it would be 9% versus 9% in the first semester '19. So we have been able to keep the EBITDA in percentage even with sharp decrease of the sales, mainly thanks to a good job done on the fixed costs and keeping the raw material flat for the first semester of '19. So Suspension has been able to offset the decrease of the sales with strong actions anticipated last year and first half of this year. Filtration, Page 14. The sales are very close to '19, EUR 240 million versus EUR 246 million, mainly thanks to aftermarket OES resilience and good increase of sales in South America and in India. The EBITDA is improving quite well with 16% versus 11.5% in '19. And with fixed costs sharply decreased versus '19 and the profit before fixed under control, Filtration business unit is going quite well in this first semester, thanks to all the efforts that we launched last year, especially a big headcount reduction in France. Air & Cooling, Page 15. The trend is quite similar to the Filtration one. Sales quite close to '19, thanks to a good performance of China. And the EBITDA is now at 19.2%. Here, we don't have much exceptional events in Air & Cooling compared to 16% in '19. So the same thing, we have been very good in defending the profit before fixed expense and the raw materials, plus we have done the job on the fixed cost from last year, which is paying off in the first semester of 2021. I propose now we go to the transformation that we started about the sustainable transformation and our strategy that we explained to you last time. Even in this difficult phase where we have a lot of operational challenge, we have continued to do what we need to do from a strategical point of view and business development point of view, and we have continued to acquire new businesses. So if we go to Page 18, the activity -- the commercial activity and nomination was quite positive during this first 6 months. Air & Cooling business unit has been able to conclude many important contracts in the 3 big geographical areas, Europe, NAFTA and China. We have been awarded in Europe for a new module of Thermal Management for a premium German customer, fully electric mobility. And also in North America, we are continuing to have strong renewals about our current position for the ICE application. Just one thing about the current RFQ that we are -- on which we are working. 50%, from a number of RFQ point of view, are about the e-mobility for E-Thermal Management for the new applications. So the RFQ activity is very intense in Air & Cooling for e-mobility. And on Filtration, we have continued our strategy to face the decline of diesel engines, pushing air purification and transmission filters. We have been awarded on a significant number of contracts during the first 6 months for Air Purification Filters and for Transmission Filters mainly in NAFTA. So these 2 product families are growing in the portfolio of Filtration. And of course, we have, as I said before, we have continued to focus on development. So we have actually -- we have currently a lot of R&D activities on these 2 activities: electric mobility and air purification. So it's a challenge to do it in a decreasing market from a turnover point of view. It's a challenge to do it in the current operational situation. But we have been able to be very aggressive. We have been very aggressive on this side. And I'm quite happy because it will help us to be among the suppliers, the key suppliers for thermal management and air purification with our OEMs and new customers. If we go to Page 20, so some examples of the currently awarded businesses on e-mobility for Air & Cooling. As I have anticipated, in yellow, we have been awarded this semester with a German ultra-premium brand for all the E-Thermal Management of the e-car that will be -- will start in 2023. Now it's time to look at the next -- the last part of the year, the second semester. If we go to Page 22, we have a market outlook of what IHS is forecasting for the second part of the year. IHS right now is predicting a 10% increase for the full year 2021 versus full year 2022, but still minus 8% versus full year '19. In the forecast that we built, we have been very prudent compared to IHS. Why? Because, as I said last time, we prefer to be prudent and anticipate some issues with the market and be ready in our cost structure and in our way of working to have lower sales and then over-perform than the opposite. The market is still very, very difficult to predict and to forecast. For example, in 2 months, the expectation of IHS decreased by something like 2% or 3% for the worldwide volumes. So I think we will have to be very careful on the second part of the year. It will still be very volatile. Page 23. Here, we have a slide showing the steel prices evolution in euro per ton of the index, in one hand, in yellow and our index's internal prices. So it's a bit difficult to have a perfect comparison. Why? Because in Suspension Sogefi, we don't purchase steel -- [ gross ] steel, sorry. We purchase manufactured steel. That's why the indexation is not exactly happening the same time as the market and with the same impact as the market. So if we look, for example, in 2020, it looks like we were buying higher than the market. And then the prices boomed for the market in the first semester of 2021. And our prices remained, I will not say flat, but under control compared to the strong increase of the market. So this is something that we are following in a very detailed way, of course, steel by steel, plant by plant, geographical area by geographical area. The good point is that we have been able, with our defensive strategy, to keep our purchasing prices under control for the 3 business units, including Suspension for the steel. But we expect, and this is in the next slide, 24, second part of the year for 2021, that will remain challenging. NAFTA and Chinese demand are growing, and we expect an increase of the prices that at one point will affect us and also our purchasing prices. So that's why we have already started strong resourcing activities and tactical actions in order to mitigate the impact of the market on our accounts. Of course, we are discussing with our customers to apply the indexation when it's included in the contracts or we have already started negotiations when needed. But we, nevertheless, expect that the raw material increase will affect our profitability H2 versus H1 of 2021. Page 25, so a financial outlook for the full year. So as I said before, the visibility of the market is still very, very low. We have to be very agile and flexible. Sometimes the volumes are updated in a weekly basis. So I'm quite happy that we have been able to be very flexible in the first semester, and we'll have to continue in this direction. There is also a bigger challenge on the raw material prices. As I said before, steel, plastic, media, all the commodities are increasing strongly. So we will combine defensive actions with the supplier and offensive action with the customers to mitigate as much as possible the impact in our P&L. On the volume, we have been much more careful than the IHS expectations. And then if the volumes are in line with IHS, we will have a good news compared to our forecast. The group, as I said, we have started resourcing activities and commercial actions to reduce the negative effect on the contribution margin of materials. And also, on the operational actions, we have launched many actions to have the direct labor and the plant under control. As mentioned before by Yann, we have started negotiation about Filtration Argentina. And currently, we still confirm what we said before is to achieve a full year EBIT margin at least equal to what we have done in '19. So our presentation is now complete. I think we can go to the question and answers.

[Operator Instructions] The first question is from Monica Bosio with Intesa Sanpaolo.

The first one is on the contracts you signed during the first part of the year. Would it be possible to have a quantification of the contracts and maybe some flavor on when the contracts will start to contribute at the revenue level? And the second question is more general on the guidance. I understand that the first part of the year has been favored by nonrecurring items. But even excluding these, the results were above my estimates. The guidance are including a raw material impact in the second part of the year. Is it possible to have a quantification in terms of this impact? Because it seems to me that you are positioning on a very safe side and maybe you are too conservative. Maybe I'm wrong. Just a flavor on this. And the third is on the Suspensions business. I've seen that there are more than EUR 7 million of nonrecurring. Can I have a detail on this?

Thank you, Madam Bosio. Thank you for your questions. So the first one about the nominations, in Page 20, so there a few examples of this business on which we have been awarded with the date of start of production. So to answer your question, when it will start to contribute, in fact, usually, it's 1 year after with a peak turnover generation. We have not indicated right now the turnover per program. Why? Because, in fact, when we say Swedish OEM, in fact, it's not difficult to understand for who we are talking about. And right now, our customers are very, very, very protective and reluctant to give us the right to communicate in a too-detailed way. So that's why we have not indicated the turnover after these programs. What I can say to try to answer to your question is that we are currently looking at the future, of course, what's going to happen from 2022 to '25. For Air & Cooling, I'm quite confident that, in fact, each year, we will be able to generate the same turnover in electrical application or e-mobility application than the percentage of the market. So for example, if in 2022, they are 10% of hybrid electrical and fuel cell cars, we would be at least at 10% of turnover generation, thanks to the business on which we have been awarded the last 3 and 4 years. So this is the first indication. Of course, the more it will go, the more we will be able to be more accurate on these figures because it will start in production, and we will be able to communicate in a more clear way. Second question about the raw material increase for the second part of the year, it's a strong increase with, let's say, 1-digit impact. Yann, is it correct the way I say it?

I'd say mid- to high-single-digit impact, negative impact in the second half of the year.

Mid- to high-single digit then?

Yes.

Okay.

So it is significant, Monica.

Yes...

In million euro, not in percentage.

In million euros? What does it mean? Sorry. Mid- to high-single digit in million euros, okay.

Yes, absolutely. It means it's below EUR 10 million.

And as for Suspension, the nonrecurring in the first part of the year?

Okay. So Monica, I mentioned that we booked a EUR 2.9 million tax credit. It was in Latin America, and it was for Suspension Brazil. So this is a one-off. Then we had some fires in the previous years, and we collected money from the insurance. That's close to EUR 2 million. The rest are bits and pieces. But all in all, it's close to EUR 7 million positive one-offs on Suspension.

The next question is from François Robillard with Intermonte.

Just mine is on Filtration. You talked often about the new -- your new business line in cabin air filters. Just to have an idea of how much of these sales are gaining ground or covering losses in new contracts made on thermal engine filtrations with OEMs?

So yes, thank you for your question. For now, in fact, it's very difficult to estimate because we have acquired these businesses this year, and they will start in production in 2 or 3 years and with volumes that are still very difficult to predict. Right now, the strategy that we had on Filtration is to renew everything possible that we had on diesel application, what we have done. And for now, these products are on top of the renewal we have done on diesel. If we follow the trend of IHS for 2022 to '25, this new application, plus the Transmission Filters, should be able to compensate at least 60% to 70% of the decrease of the gas line as it is forecasted now. This is the current trend from a turnover point of view because from a profitability point of view, the cost structure is quite different. But from a turnover point of view, we are covering between 60% to 70%.

60%? 60%, okay. 6-0?

Yes. Yes. But the new product line that is going very quicker than anticipated, and it's a very good news, it's Transmission Filters for automatic gears. The advantage of this product line is that you will have only these kind of filters on the e-mobility product. So we had already good market share in China. And now we have started to get market share -- strong market shares in Europe and NAFTA. And the turnover is big in each contract. So in the second part of the year, we will continue also to push this family, the Transmission Filters.

Okay. And then another question, on your fixed cost reduction, how much of it is still due to temporary actions like furlough or Cassa Integrazione?

Very low. In 2021, in fact, most of our reduction is our structural reductions and not thanks to CIGO or Cassa Integrazione or [ Oshamas Technic ]. The amount is very low in the saving of first semester 2021.

Okay. And can you give us a number?

Yann, correct me if I'm wrong, but it's minus -- below EUR 2 million are for -- is it below EUR 2 million?

It's EUR 1 million to EUR 2 million in the first half, so very much below the favorable impact we had last year.

Why? Because I preferred to push the structural actions rather than to rely forever on the support of the government or these kind of actions. So of course, when needed, we have used it. But we prefer to have structural actions that will have a carryover in the next years.

Okay. And just one last question, if I may, on restructuring. Last year, you booked quite a significant amount. Is it already included in your cash figures for the first half of the year? Or will it still drag on onto the second half? Are the payments on restructuring actions booked last year on your P&L?

Sorry, good question about the social plan mainly of France. No, one part will be paid this year, so second part of the year. Half of it will be paid second part of the year. And the other half will be, in fact, next year.

And then, Fréd, we had the second action for the closing of a Suspension plant in Europe, for which we already have cashed out close to EUR 2 million in the first half.

Yes.

When you mean action on Suspension, it's the German plant, right?

It was -- we have booked a reserve for restructuring on the German plant, for which we already have cashed out close to EUR 2 million.

[Operator Instructions] The next question is from Roland Könen with Value-Holdings.

My first question would be on your very nice outperformance in the first half of 5 percentage points or, if you look at like-for-like, it is 9%. If we take the IHS forecast for the second half of minus 3.4%, do you have any guess for your outperformance in the second half? That would be my first part of the question. And the second one is on your good development, especially in Air & Cooling and Filtration versus the 2019 figures. I guess it is helped by the aftermarket. Just looking at the OEM business in these 2 segments, what would be the other picture of the development of outperformance? And the second question is on the potential EUR 21 million loss if you sell the Filtration Argentina business. What would be the tax quote on this amount? And the last question would be on the bigger picture. We saw in the last weeks a lot of OEMs accelerating the evolution of the EV-only world of their electrification picture for the next years, for example, last week, Daimler in Germany. What does this mean really to your planning for the next 3, 5 to 7 years?

Thank you. So first question was about the sales of semester 2 versus the IHS. Basically, the assumption that I used in order to build the forecast is to consider that our trend will be the same as first semester. So if in first semester, we lost 9% versus '19, I consider that this trend may continue in the second part of the year when, you are right, IHS is much more positive, if I can say. So this is the way we built. I hope that we will over-perform like we have done in the first semester. But again, there are so much volatility about the [ sheets ] or the raw material shortage that OEM can face or even the COVID situation because we don't know if from September on, there may be new restrictions or new issues with the variant. That's why in my approach on sales, I preferred to be conservative in this kind of environment. The second question was about Air & Cooling, if I remember well. Could you repeat, please, your question on the Air & Cooling product development, please?

Yes, of course. You had roughly flat development in Air & Cooling and also in Filtration versus the 2019 figures. Especially in Filtration, you had some kind of aftermarket business. When we adjust about the aftermarket business and just compare OEM business with the market figures, what would be the picture there?

Okay, very clear. So yes, it's a good question. You are totally right. So on Filtration on OEM side, only OEM side, our decrease is roughly minus 6%. So we are still over-performing the market. But in fact, both in Filtration and Air & Cooling, we have to be very careful with these figures. Why? Because, in fact, we are suffering of decrease in our current programs because the market is decreasing, and we are starting new programs in order to compensate. So in fact, the minus -- or the flat figures for Filtration and Air & Cooling are a minus of the market and development of new programs that we have started this year or last year, which requires more effort than just doing the current application. So on Filtration, we are beating up the market, thanks to start of production that we started last year. And in Air & Cooling, it's the same. We launched in Air & Cooling beginning of this year and second part of last year roughly 13 new programs, most of them in water pump and thermostat housing activities in cooling side, so which require a lot of effort, but it helped us to go through the market decrease. So in the OEM side, it's going well also on the Filtration side. Then you had a question about the 3, 5 years outlook for the e-mobility. The good point, we have not waited for the current pressure to start. Air & Cooling, we started 5 years ago, being nominated with Renault on the electrical application for the battery. And then we acquired knowledge each time we worked on a new program and a new business. In the beginning, my strategy was to quote as much possible RFQs in order to learn, to improve, to be close to the customers. Now more and more, we are able to have a selective approach based on know-how and also, let's say, the feasibility of the program and the volumes of the program. And we are doing that with our legacy customers, in one hand; and in another hand, we have integrated new customers, most of the time, 100% electrical cars customers in order to continue to learn with them and to be ready to get market share from them once it will boom. So the difficult part about e-mobility currently is that we have a lot of quotation, lots of RFQs, so it means a lot of investment from an R&D point of view for the last 3 years in Air & Cooling and now in Filtration. But that if you look at the turnover program compared to ICE application, for now, it's much lower. So what does it mean? Based on our calculation, we have to be awarded on 3 e-mobility business to have the same turnover as the ICE application business currently. But the more we go, the more this trend will reduce because I guess the volume will continue to increase on hybrid electrical cars. So the good thing is that we started early, and we acquired a good customer in [ Team AC ]. And I think on e-mobility, it will be very important because the game has changed. In the past, the customers were coming on us knowing exactly what kind of product they want, and then it was just about the price. Now the situation is different. They have, of course, the ideas. They know where they want to go, but they are more open to discussion and technical proposals from our side. So that's why I push a lot to be present from the beginning on this kind of application. And the last question you had was about Argentina?

And Roland, you had a question on the impact of the reversal of the translation reserve. So we are triple checking because it's a very material amount. But for the time being, we assume no tax impact.

The next question is from Gabriele Gambarova with Banca Akros.

The first one in regards to your effort to cut the fixed costs, around EUR 22 million in the first half of 2021 versus the same period in 2019. I was wondering if you could assume a similar benefit in the coming next 2 quarters, in the second half of the year?

Yes. The trend is roughly the same, not exactly as big as it was in the first semester because, in fact, second part of '19, there were already savings. But at the same time, I have done actions in the first semester of 2021 in order to have the full benefit in semester 2. So yes, there will still be a big positive impact of the fixed cost in the second part of the year.

Okay. And regarding the free cash flow generation, could you provide some indication for the whole year, even directionally on the various components of it? I mean is it possible to know what do you expect on this front more or less?

We prudently expect the free cash flow for the full year in line with the numbers at the end of H1.

Okay. So the 15 -- the 2020 -- the full year free cash flow may resemble the EUR 33 million you recorded in the first half?

Absolutely.

I got it. Okay, okay. And then I had one last question on Romania. I saw that there was an impact in terms of EBIT of around EUR 4.3 million in the first half. I'm looking at Slide 9. And I was wondering, I mean, how this item will evolve in the latter part of the year?

Yes, it's a good question. You are totally right. So as you know, Oradea plant will be the biggest plant of Suspensions. So it's a big plant, 30,000 square meter. We started the activities roughly 2 years ago. And last year, we have purchased most of the machines that we needed to produce. Unfortunately, last year, it was a very special year, as you all know. And we had a lot of difficulties to have the suppliers coming to our plant, assembling the machines as they should have been. So when we started the year in 2021, we were in delay about these machines. So we had to pay a lot of extra cost to push the suppliers to come. Ourself, we had a lot of extra costs in the first part of the year because we had to work in overtime because the capacity was not installed yet. So it was difficult 6 months for Romania. The good news is that most of our machines are in place. We have reached about 92% of the capacity required by our customers. There has been a big catch-up down this last 3 months on this project. So of course, we are still running after the emergencies for the deliveries with the customers, but we don't spend any more so much inefficiency cost on special freight, direct labor, extra work or special costs for the suppliers. So I would say that the worst has been booked in the first 6 months. We still have many operational challenge in the second part of the year in order to have the full capacity installed for the new programs that -- which will start. We will have a new program starting in September, another one in the end of the year. And then slowly but surely, we will do what it needs to be done from an operational point of view to stop the loss and then slowly but surely to make it profitable. So the next 6 months will be focused on the operational improvement. And then in 2022, '23, we will continue the purchasing and the commercial improvements in order to make this plant profitable. But I would say that the worst has been booked in the first 6 months, the first months because it was a hell. To have the Chinese supplier coming in Europe assembling our machines was a real fight due to the constraint that you all know. So I would consider that the worst is behind us and the best in front of us.

Gabriele, so we expect there will be a loss in the second half from the Romanian plant. It's not unusual for a plant in ramp-up, but the loss should be lower than in the first half.

And last question for me is on the slide with the clients, Slide #7. I saw this, I mean, important share for Stellantis, very important one, but shrinking. Is there any reason for that?

Yes. The reason basically is that Air & Cooling and Filtration were very, very strong with PSA and Suspensions strong with PSA and FCA. So when Stellantis, they merged, basically, it became our biggest customer. And we are -- sorry, we are also very strong in North America with Chrysler. So yes, Stellantis is 22% of our product portfolio. It's a good point in one hand, so it can create opportunity. In the other hand, of course, it may create some challenges to other customers so big in our product portfolio. But for now, I would say that the discussions with Stellantis are quite positive, both from a business development point of view or pricing point of view when there are some issues. We have a good customer intimacy, both thanks to the fact that we were strong with FCA because we know FCA very well and also that we had a good intimacy with PSA on the other hand.

The next question is a follow-up from Monica Bosio with Intesa Sanpaolo.

Just some housekeeping questions. Can you give us an update on the full year tax rate and a rough indication of the CapEx spending, including intangibles by year-end?

So Monica, you have seen that the tax rate, I think, is at 34% on pretax on the first half. Since we have taken a prudent assumption on a full year basis, we have assumed a 40% tax rate for the full year.

Okay. And in terms of CapEx and intangibles overall for the full year just to figure out the...

The tangible CapEx should be quite similar to what we had last year. And intangibles, it's accounting, so I think the real milestone is tangible CapEx. And before IFRS 16, it should be slightly below what we booked last year.

The next question is a follow-up from François Robillard with Intermonte.

Monica just took my question on CapEx. So just quickly, if you can come back on your expectations for volumes for the second half. So IHS is minus 3.4%. You say you're more cautious. Are we talking mid-single-digit, high single-digit decline? Can you just give us quickly some thoughts around that?

My assumption was to consider the same trend as first semester. So first semester, we were 9% below the mark -- below '19, sorry. I consider that this trend may continue in the second part of the year. So it creates a big spread versus IHS. But I consider that the delta that we had in first semester versus '19 will continue in the second part of the year due to all the, yes, unexpected things that can happen in the coming months between material shortage, COVID and so on.

The next question is from [ Julius Camferlatto ] with Equita.

I just have one quick question on the Argentina. I was wondering if you could give us some more details in terms of turnover and operating margins of this subsidiary that will be sold. And assuming that it is loss-making, how much has it lost in recent years?

Fréd, do you want me to take it?

Yes, please, Yann.

It is a small entity. We are talking about roughly EUR 15 million of annual turnover. It is loss-making. And I think it's also the positive impact of the deal which we are considering because this positive impact will be, cash-wise, in the years to come, that will be -- if the deal goes through, which is not a certainty at this stage, this will improve the cash generation of the group by a few million every year. So I think this is -- we want to refocus the businesses on where we are strong. Fréd said that in the last conference call, Europe, NAFTA, China. If it also helps our cash flow, I think it's the right decision if we can conclude this deal, which, as I mentioned, is not yet done.

Absolutely. Yann is right both from a financial point of view and strategical point of view because currently in Argentina, our plant is 100% aftermarket plant. And Argentina is importing most of the filters from China. So there is a crazy competition on the local market with the Chinese filters. So that's why our strategy to refocus where we are strong and generating cash, I think, is the right approach. And we are continuing this approach.

But in terms of EBIT on the full year, because many things happened below EBIT in Argentina because of the accounting rules, it is a plant with a EUR 2 million positive EBIT. So it's not going to change the matrix of Sogefi.

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

Many thanks for this call and your questions and your attention.

Thank you.

I wish you a good day. Thank you very much. Bye-bye.

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