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

Yes, perfect.

USA. For now, we have been very lucky. Remember, most of our footprint is in Canada and Mexico. And we are delivering also customers in Mexico and Canada. So for this part, we have not been impacted. We have a factory in West Virginia which is half OES, half OEM. For the OES part, no impact. OEM is, year-to-date September, no impact. Basically, we start to feel the impact on the USA factory. So the assumption I had on the guidance that I gave is that the strike would stop by the end of October. If the strike do not end by the end of October, then we may be impacted, depending on which facility of our customers will stop. So it's almost impossible to predict if it will continue and if the -- which factory they will stop. But right now, I consider zero impact until the end of October because our inventory is -- because the fact that we are delivering more engine factories than final assembly plant. So if the strike finished before the end of October, we will have no impact. After, we need to see it case by case. Nevertheless, I would say that we may have some buffer of safety on the other side of -- in Europe and China in our guidance to may be able to absorb a part of it. So we have to wait to see for no zero impact. Let's hope that it will finish by the end of October. If not, we are ready, as you know, to take all measures in order to reduce our cost waiting for this strike to be finished. And for '24, yes, we've got the improvement of Romania. The market, for now, it's a bit too early to know where it will go. But we will also have the full year impact of the closure of U.K. that we closed this year, end of summer. So next year, we will have the full year benefit of this action.

Am I right in remembering EUR 2 million from the U.K. closure?

Yes, absolutely. Yes, absolutely.

This is that for '24 full year basis?

Yes. And basically, we will have roughly this 9-month impact next year. So close to EUR 2 million. Yes.

Okay. And Romania, from minus EUR 4 million to 0, more or less?

No, I never said it will be 0. I said we are going -- good track for the improvement. This year, we have already done strong improvement. For sure, we need to shoot for the breakeven. So it may be the target that I will decide for '24. We had some very good news about the energy prices. We are continuing to work also with our customer and industrial action. So to shoot for 0 may be my ambition when I will build the budget. A bit too early to give an accurate number as the budget is not build and validated by my Board. But we can discuss that in the next meeting. But I think we will go on the right way.

The next question is from Gabriele Gambarova with Banca Akros.

The first is on the contribution margin, 30% in the quarter. I was wondering if you could detail, let's say, the moving parts of this improvement. And if we can, let's say, assume something similar even for the next year for what you see? The second one is on the free cash flow, EUR 53 million in the first 9 months. Was wondering if you can, here, comment the outlook for the whole year. Considering that the previous, let's say, indication was around EUR 45 million if I remember well. And then last one on the tax rate, 25% in the first -- sorry, I think it was in the -- in Q3 maybe, even here -- no, sorry, in the first 9 months, 25%. So I was wondering if you could give an indication for the whole year and possibly for the following years.

So for the PBFE yes, we had the quarter at 30%, for last year at 27%, so a 3% jump. And year-to-date is at 29%. Of course, we will fight to, I would say, in a recurring way. But now this quarter, we have also been able to have good discussion with our customers, where there has been some one-off impact. So I would say that we thought this one-off impact with 30% would be rather 29%. So there are -- there is 1% that I would qualify nonrecurring for next quarter, which doesn't mean that we may -- maybe we will be able to find another 1% to compensate that. So just from a mathematical point of view, the quarter has been helped by retroactive discussion and negotiations with our customer that represents roughly 1% of improvement. Even without that, our PBFE would be at 29% versus 27%, which is still a good improvement. For next year, it's a bit too early. We need to check what's going to happen with the energy prices, and then from an indirect point of view, the material prices and what I will decide about the pricing with our customers. But for sure, we will need to keep our strong discipline on the pricing in order to continue in the improvement of financial results. So for sure, it will be one of the main target of '24, to be able to stabilize our PBFE at a high normalized level, which is close to 29%. For the free cash flow, if I had to give a recommendation by today, I would say that it will be at last -- at least, sorry, last year level. At least. We're both taking in consideration the positive one-off potential impact of Mexico, at least last year. Concerning tax rate, I will let the expert, Beatrice de Minicis, answer to your question.

So the tax rate, I can say that for the fourth quarter, we expect a tax rate around 25% [ to 50% ]. So more or less in line over the first 9 months and maybe in that area. For the '24, it is too early to make a prediction. So we will see after the preparation of the budget for this tax.

Okay. So just, if possible, follow up on this. I mean, clearly, you are going to close 2023 with a 25%, which is much lower than my assumptions, 10 percentage points. If I assume a 30% tax rate, I'm totally wrong? I mean, with more realistic than 35% as I have.

Yes, 45% for the full year is a bit high considering that, in 9 months, we have a tax rate of 55%. So I would say for the fourth quarter, from 25% to 50%. So around full year, it could be 35%, 27%, around...

Yes, it's 27%. It will be rather -- between 25% and 27%.

Okay, for 2023. And 2024, is it possible to make an assessment, I mean...

We cannot assess the tax you would pay without knowing how much money you will do. So first, I need to see where we go from a profitability point of view, and then we will assess the tax. I don't see any potential big reasons that our tax rate structure will change dramatically. Nevertheless, to be able to answer you in a proper way, we will need first to build up our budget. But my first answer would be I don't see any reason to increase it a lot or to decrease it a lot from a business point of view. Of course, not taking into consideration any change of rules. But without that, I don't see any reasons to change it a lot.

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

First of all, congrats team for your very strong figures. One additional question on the 2024 guidance question. If you look at the IHS figures for next year, and having in mind your strong order intake in the last years which might be materialized in the next year, do you see any chance to outperform the market, also having in mind the development of the raw materials? Maybe you could comment on that figure. Where do you see some tailwinds or where do you see some headwinds? And the second question would be on the factoring. As I saw from the presentation, Page 10, you decreased your factoring volume by EUR 10 million. What is the reason behind that? Is it the interest environment? And what will your policy going forward with the factoring volume?

Thank you for your questions. Yes. So for '24, it's a bit too early to answer in a very accurate manner. But I'm quite confident that, at least, out of Europe, yes, we will beat the market. For Europe, it's difficult because the prediction of futures needs to be a bit more warped and to see the next forecast. But I would say that Europe, at least, we will deliver the market. And out of Europe, especially in China and North America, we should beat the market, and we will beat the market. So optimistic about our business case for Sogefi, then let's see what's going to happen to the automotive world in '24, especially in Europe, where we can have some challenge on the volumes from a market point of view. As you remember, I'm always very cautious on the volumes when I did my budget, so in order to have some good news from a cost point of view and then a profitability point of view. Material. Material, the same. I would say we need to wait to see if there will be any impact on the material cost. The current energy, let's say, increases are a bit too early to say if it's recurring or just some reaction of the market to geopolitical tensions in the world. I don't see irrational or a big increase of material costs next year for steel, I don't see, except if there is a big boom on energy. For plastic, I would say the same. I don't see a big increase in the plastic. The question will be more -- will be -- if there will be a big decrease, I'm not sure either. So my feeling looks like a kind of stability on the prices with the exit point of the current prices of '23. I may be wrong, but it looks like there will be a kind of natural balance on the prices, which will stabilize the prices. I hope I'm wrong. Whatever happens, as you remember, I always manage material prices, first with internal actions and in the same time also with discussions with our customers. So we are building up a few potential scenarios for next year, and we will decide within the next 2 months with which assumption we will be [ targeting ]. For factoring, it was more a business decision. Our free cash flow generation has been as expected for the first 9 months. And in regards to the cost, current cost of factoring, I prefer to limit the cost of factoring -- the usage of factoring currency, which means that if one day, we decide to redo it, I can do it. And then the factor, it will re-improve the free cash flow, one-off. But I prefer to focus on the operational improvement of free cash flow, especially the working capital and the CapEx management and the profitability improvement and use a bit less factoring due to the current cost of the market. But of course, these lines are still here. And if we want to use them by the end of this year or next year, we could do it. I'd like to think it's a way to generate the same cash in a more structural way. It has been my decision this year.

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

Thank you very much for your attendance and your questions. See you very soon, and thank you again. Bye-bye. Have a nice end of the day. Thank you. Bye.

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