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 9 Months 2024 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Olivier Proust, CFO of Sogefi. Please go ahead, sir.

Hi, everybody, and thanks a lot for attending this meeting. We shared already a presentation for Sogefi at the end of September 2024. My suggestion is not to go through this presentation. I will make a quick introduction. I will take the advantage of this meeting for introducing Luigi Lubrano, who's the new CEO of the Suspension business unit. And then we will immediately jump to the Q&A session. So with regards to our performance for the 9 -- in the first 9 months of '24, we would like to emphasize on the good performance of Sogefi. The revenue for Sogefi in the first 9 months is at EUR 766 million, decreasing from EUR 803.9 million compared to the same period of the previous year, but this represents a decline of 4.3% at constant exchange rates. Sogefi's performance is slightly lagged behind the market due to its customer portfolio and some major European car manufacturer have accumulated the large inventory and subsequently reduced their production level. But despite this lowest revenue, we have a very, let's say, a strong EBITDA performance which we -- our EBITDA is now at EUR 101 million, coming from EUR 89 million last year. And this real improvement can be attributed to the improvement of the suspension business units, where we are taking advantage of the restructuring launch over the last 2 years. Maybe Luigi later can little bit talk about it. And the resilience of the Air & Cooling business where we have a consistent performance despite strong market challenges. The main consequence of this performance is a net income of the operating activity, which is increasing compared to last year. We reached EUR 15 million compared to EUR 8.3 million for the first 9 months of the year. And if we include the impact of the future disposal, the net income amounted to EUR 149 million. The free cash flow of Sogefi achieved a positive roughly EUR 20 million, significant improvement compared to a negative cash flow of roughly EUR 9 million in the same period last year. And these improvements includes a lower use of factoring. So the net cash generation is highly better than last year. What can we say now with regards to '24? We are expecting for -- sorry, yes, '24. We are expecting Q4 in line with the first 9 months with a further decline compared to last year in the same range than the first 9 months, i.e. low single digits. We were at minus 4.6%. We expect that the raw material will remain stable, still high compared to 2019, that's in line with the first 9 months and the same for the energy cost. Then we still expect -- we are expecting to maintain our performance in terms of production and a strong increase of our results compared to 2023, in line with our guidance. That's what I can say quickly with regards to the first 9 months. Maybe I can now let Luigi introduce himself, and then we can move to the Q&A. Luigi?

Yes. Good morning, everybody. I joined Sogefi at the beginning of September, after a long experience in Magneti Marelli, where I played different role inside the organization. For the first part of the year inside the R&D departments in different divisions, Powertrain first and later on in Exhaust. Then in the last 10 years of my career inside Magneti Marelli, I have the opportunity to the full P&L of the company for Powertrain BU in China, restructuring China organization and also revamping the power portfolio and the customer portfolio with the strategy oriented on the local customer. Later on, I have been assigning to Exhaust division as a CEO, managing the transformation of the company and especially of the BU inside Magneti Marelli, after the spin-off from FCA and joining [indiscernible] managed by KKR. So a huge experience in automotive, in different sectors. And so after this experience, I joined Sogefi that I find a very robust company with great opportunities for the future, especially for suspension.

Thank you, Luigi. So let's move to Q&A. Who wants to be the first?

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

My first question is on the Suspension division. Can you give us more color on the Suspension division in the third quarter? If I'm not wrong in the third quarter, the operating margins for the suspension was at roughly 11%. What should we expect by year-end? And could we still expect an improvement of 100 basis point per year? Within this context, can you quantify the potential restructuring charges for Sogefi in 2025? And maybe it's too early to discuss 2025, but I think that is quite important. And the last question is on the current load factor of the suspension plants and what do you expect to achieve, let's say, in 2 years' time by the end of 2024 and in 2025?

Can you rephrase please -- hello Monica. Can you please refresh your last question regarding suspension? I didn't get it you are talking about...

Yes. The last question was on the load factor of the suspension plants. So if I remember well, it was in the second quarter I don't remember, but I remember that 67%, 70% was the threshold for being profitable. So if you can give us some color also on this side?

You're welcome. So regarding the margin, yes, we have still room to improve the margin in suspension. To make the story short, the margin today is around 11%. When we are talking about margin, we are talking about EBITDA on sales, just to clarify. Yes, we have room to improve the margin. The margin of Suspension will never reach the level of Air & Cooling. That's for sure. That's not the same kind of business. But in the past, we succeed to achieve 13%, 14% that could be a target for the coming years. Talking about restructuring, it's a bit too early to discuss the amount for '25. You all know around the table that the market won't be -- will slightly decrease, especially in Europe in '25. So we are currently doing our homework to -- for optimizing our footprint based on the market projection. So it's a bit too early. But we will have, for sure, restructuring charge in '25. That part of our road map we already had. We haven't finished yet to restructure suspension. Regarding the load factor, Luigi, maybe you can give some flavor about it. Maybe if you think that it's a little bit too early for you, please feel free to say.

No. About the load factor, I suppose, you are just speaking about the percentage of the usage of the plant, we are in the region the 60%. So there is not any problem in terms of -- it is our portfolio. So we are very well staffed. We are investigating some new markets that can improve and accelerate the separation of our premises. I suppose it's too early to discuss about this point, but for sure for suspension, there are good opportunities to improve.

The next question is from Gabriele Gambarova of Banca Akros.

The first one is on pricing. If it is possible to have a few more details on the price environment, the trend you saw in the Q3 and possibly what do you expect for the coming months? The second one is on fixed costs. I saw that there was nice fixed cost, let's say, reduction in 9 months. So if you could give me flavor of what's going on even in Q4 and possibly if there is room for cutting fixed costs even next -- in the coming year? The last one is very trivial, if you want, on the tax rate. I saw 42%, something more in the 9 months. So what could we expect for the 2024 and possibly the coming years?

Okay. Thanks, Gabriele. So with regards to the price, the full -- well, the price are mainly stable. And that's something that we also expect for the coming 3 months, stable both on sales price and raw material price. On the energy, there is a kind of volatility, as you can imagine. But for the time being, we do not expect big wins. The first expectation we have for '25 is also the price to be roughly stable. [ With regards ] unless a big change in the market, of course. With regards to fixed costs, we have room to improve. The trend is on the reduction and it will continue, both for the end of the year and in '25. With regards to tax rates, we had some specific tax cost, part of them due to the disposal of filtration without tax due to this operation. We expect a tax rate at the end of the year, around 35%.

35%. 3-5?

3-5. Yes.

And the same applies to the coming years, I guess?

Yes.