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

Basically, our vision for the second half for now is that volumes will be close to what we had in the first semester. So -- but as usual, we are prepared to have, if we need, extra actions and the actions in our business, it was always the same. First, if there is a big drop from a customer, we are used now and our customers are used to, and it will continue after me that we have strong discussion or discussion with our customers in order to see how we can compensate that. Then we have shown over the years our capacity each time that there is a volume decrease to adapt our cost structure. So this is currently what is done by everybody in the automotive. Hopefully, we have already done a lot of homework in the last years. So it helps us to be able, if needed, to [indiscernible], not doing the massive restructuring, but doing permanent improvements over the months. So it will be this, if we have to do something, if there is a drop, we will optimize the costs of the company as we have always done in the last years at Sogefi. So first, customer discussions and [ sudden ] cost optimization.

And very last on the discussions ongoing with clients. Is there any additional pressure coming or maybe discussions you are confident will produce some positive effects?

Basically, we have been able in the first 6 months to keep our selling prices almost flat in the markets where prices are dropping, especially the raw material. So I would say that our target for the second semester is at least to keep this performance of keeping our prices flat. Of course, if we can have something extra, we will. But right now, it's not integrated in -- let's say, in our mindset. We prefer to defend with our customers price stabilization [indiscernible] on the fixed cost and on the cost and deliver the results despite the difficult market. And then I'm very confident also about the two business, Air & Cooling and Suspension. On Air & Cooling, Michael, appointed CFO -- CEO, sorry, he has a huge experience of dealing with customers about selling price increases, especially in North America, but also in Europe. And in Suspension, where Mr. Muller will continue the coordination of the business line. He is the former sales director too and used to discuss with customers. So I'm sure he will be able to keep this level of performance with our customers on the pricing.

The next question is from Alexandre Raverdy, Kepler Cheuvreux.

Frédéric, my turn to wish you all the best as well for the future. First question is on specifically the raw material assumptions that you have for the second half of the year. We have seen some of the raw materials turning into a headwind, at least that's what some suppliers are mentioning. So have you included any change in the raw mat assumption in your guidance? That's the first question. And then the second question, just to be clear because my line was not so clear, do -- your guidance or at least your expectation to keep the 5% margin in the second half includes or not any customer compensation?

So on raw material, we have been able to benefit from the market decrease in the first 6 months. We have not integrated a further price -- strong price decrease on the materials for the second part of the year. And in our guidance, in the overhead I don't see a big increase either. So our assumption is to continue to be -- to continue to duplicate the market evolution, what we have been able to do in the first 6 months. So no big decrease, but no big increase. Concerning a big compensation or compensation in our guidance, no. We are not talking anymore about the big amount we had in the previous years. So there are some but already identified and very marginal.

The next question is from Gabriele Gambarova, Banca Akros.

Frédéric, it has been a pleasure to listen to your calls over these 3 years. Very good job, and congratulations for your next adventure, let's say. My first question is just -- Monica, I think asked, if you have in mind a target of free cash flow for 2024. So this was the first question. I think it was not answered. And then another question on the broader market. Do you see any -- I mean it's slowing down, but in certain areas, do you see any particular, any specific, let's say, issue concerning inventory levels in one of these regions, I don't know, Europe, the U.S. I mean what's your view on that? And the last one is on the Suspension. I was wondering -- you mentioned Romania. I mean there is still room for improving the efficiency. What could be, let's say, a reasonable -- the margin for this business at run rate when the turnover is over?

Thank you, Gabriele, and thank you, it has been a pleasure too for these past years. I will let Olivier maybe explain on the free cash flow vision we have for the end of the year.

I thought I answered to Monica already, we are expecting on the business a generation around EUR 30 million. So if you have an additional question, I can answer. But I don't see any other specific view. We answered already with regards to the factoring, if at -- any if needed. Frédéric, do you want to move to...

Yes. On the markets, well, right now, I don't see any big reasons to have a big drop or due to the inventories at customers' end. The only big unknown, and I really don't know if it can affect -- if it will affect and how it will affect, are the American elections. I don't know if the maybe -- there may have been an impact due to that. But right now, we have not integrated anything special about that considering that whatever happens and whoever wins the election in '24, there won't be any impact. Now, based on one candidate or another, there may be some impact on the long term for EV cars in North America, but I don't see a big impact this year. Considering the inventory demand at our customers' level. In Europe, I would say, we have already done a big job to decrease it. I don't see a big [ trouble ] in U.S.A., China or India. So right now, I would remain neutral on that one, Gabriele. Considering Suspension, I would say we have done very good improvements compared to the last year. We now with a stable team there, a plant manager who is stable, a very strong management team also doing the operational improvement day-over-day, customers are happy about our deliveries, which was not the case one year ago. So we are about to stabilize this plant from an operational point of view. And now we can focus maybe on the strategic approach with our customers to decide which program we can award there in the coming years. But my optimism level is increased about Romania and is confirmed also, is that we have been able to really improve the operational situation. The rest of Europe -- of Suspension Europe, is around between 4% and 5% of EBIT adjusted. I would say that for this plant, it's a minimum level at one point, we should target.

[Operator Instructions] The next question is a follow-up from Martino de Ambroggi, Equita.

Just on the Romanian plant, could you provide a precise indication of what was the contribution in the first half and what you expect for the full year in terms of improvement at EBIT level from Romania? And actually, I have a question for Michael. Probably it's too early, but just to understand the capital allocation was discussed in the previous call. But what is your best scenario for the available cash that you have in hand today?

First semester, we are still [ EUR 3 million ] in Romania compared to more than the double last year -- sorry. So yes, unfortunately, it's still a loss of EUR 3 million in the first semester. Our target and ambition is to build this loss of EUR 3 million to 0 for the second part of the year. So basically, which will mean finishing the year at minus EUR 3 million and to be positive for next year. And as a reminder, last year, it was a loss of EUR 7 million for the first 6 months. So we are divided by [indiscernible] in Romania with a turnover now of EUR 22 million. The second question, can you just repeat it please, I was not sure to...

Yes. It was for Michael, I don't know if he can answer about the capital allocation for the available cash of Sogefi going ahead. So in terms of M&A, I don't know what else...

Sorry, maybe I was not accurate enough just to be sure everybody understood properly, Michael Sebagh is becoming the boss of one -- of Air & Cooling business unit. So Michael is not replacing me as CEO of Sogefi. Nevertheless, we can answer it to your questions through Olivier, if you have it.

Okay. Okay.

So if I understand well, your question is regarding the capital allocation coming from the sales of the Filtration business unit, correct?

Yes. Apart from the dividend already paid, obviously.

So we already paid a dividend of EUR 110 million, and we repaid EUR 150 million of our drawn debt. So we repaid the [indiscernible]. We repaid all the debt linked to the COVID crisis in Italy and France for roughly EUR 75 million, and we also repaid part of BNL loan totalizing today EUR 150 million. So as of today, all our FCF are [indiscernible]. We have no -- we have a very residual drawn debt. And we have a significant amount of cash on hand that we will -- on which we will make some arbitration by the end of the year. No M&A projects to be announced so far.

[Operator Instructions] Mr. Sipahi, there are no more questions registered at this time. I'll turn the conference back to you for any closing remarks.

Thank you, madame. And thank you to everybody. It has been a pleasure. Have a nice day. Thank you very much.

Thank you. Bye-bye.

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