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 Full Year 2024 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Olivier Proust, Chief Financial Officer of Sogefi. Please go ahead, sir.

Hi, everybody, and thanks a lot for attending this call. I guess that you already had our presentation and our press release, so I will just make a quick introduction with regards to 2024 and our guidance for '25. And then we will jump immediately to the Q&A. So regarding 2024, I would like to highlight 3 main events that you already know, but -- which are quite important for us. So first of all, as you all know, in '24, we had the disposal of the Filtration business unit. In May 31, '24, Sogefi sold its Filtration business unit for an enterprise value of EUR 374 million and a cash consideration of EUR 327 million. The operation generates substantial value compared to the market value. It reduce the powertrain component in the group's portfolio, making Sogefi less exposed to risks related to a transition to e-mobility and allowed for a reduction in the group's complexity and diversification. The group now has a financial position that allows for greater investments in the EV market already identified, we can talk about later. And underway, considering that part of the financial resources from the sales were not distributed, and the group's net debt at the end of '24 is only EUR 55 million, including IFRS 16 impact. The 2 -- the second main event is clearly the Air and Cooling EV transition. The Air and Cooling business unit confirmed in '24 its ability to serve the EV market, being awarded for a new EV platform recently for the C1 as an example. In the recent years, the Air and Cooling has developed product with innovative technologies for purely electric vehicles. Today, the main challenge is to support the growth through the development of a business portfolio for electric vehicles, specifically in Europe. And we will become a significant player in that segment. Third, and very important also in our '24 figures, the Suspension business unit recovery. The Suspension business unit has been impacted in recent years by the reduction in car production in Europe and the sharp increase in steel and energy cost. This business unit record negative results in the 2022 period. And since '23, operational results have improved, thanks to measures in -- at recurring product margin and reducing fixed costs, including concentration in production capacity. In 2024, despite the decline in volume, profitability improved, confirming the turnaround trajectory that must continue in '25, '26 to achieve sustainable profitability. That's the 3 main points for '24. If we now talk about '24 key figures. You've seen them in our press release and in our presentation. Sogefi sales growth -- sorry, Sogefi sales show a decline of 1.7% in revenue compared to '24. It's 4.2% decline, including -- excluding exchange rates and inflation effects in Argentina. Sogefi did slightly worse than the market due to its exposure in Europe -- to Europe and, more specifically, its exposure to one major European car maker. You will all read between the lines. Nevertheless, the operational results improved. EBITDA amounting to EUR 125 million increased by 16% compared to '23 with an EBITDA margin of 12.3%. EBIT amounting to EUR 46 million roughly grew compared to '24, and the EBIT margin rose to 4.5% of revenue compared to 2.5% in '23. We doubled our ratio. Net profit from continuing operations was EUR 18 million compared to EUR 6.4 million in '23. So we tripled. And the free cash flow was positive at EUR 30.4 million compared to a cash absorption of EUR 7.2 million in '23. I have to precise there that we benefit in '24 from nonrecurring positive flows for roughly EUR 13 million in '24, and the -- let's say that the normalized cash flow generation is more around EUR 15 million than EUR 30 million. The divested activity recorded a net result of EUR 126 million and a free cash flow of EUR 318 million. Overall, in '24, the group reported a net profit of EUR 141 million and a free cash flow of EUR 348 million. Net debt at the end of December '24 is -- was EUR 55 million, EUR 9.5 million if we exclude the IFRS 16 impact, compared to a net debt of EUR 266 million at the end of December '23 and after paying a dividend of EUR 133 million. 2025, it will not be a surprise. The visibility on the performance of the automotive market in the coming months is greatly penalized by the persistence of military conflicts, possible trade wars, tariffs coming from the U.S. and uncertainties about the evolution and impact of green deal rules in Europe. In this environment, I would say that Sogefi has been able in the past to demonstrate its ability to face a crisis and challenges. Sogefi team will focus on confirming the turnaround trajectory of Suspensions and confirming the transition from ICE to EV for Air and Cooling with new products, which will start in production in '25, but mainly in '26 and after. Overall, managing trade-off between growth, cash generation and investment for restructuring will be our main focus. Considering the weight of Europe in our business portfolio, Sogefi expects a decline in its revenue in '25 slightly higher than the market, more pronounced in the first month. And despite this forecast, we are always prudent compared to our peers and compared to IHS. We do not forecast a significant-- an EBIT significantly different than '24, excluding nonrecurring charges and, of course, new event, circumstance that can negatively impact the automotive market. That's our main message. We also propose a dividend of EUR 0.15 share per action to be -- per action to be -- per share, sorry, to be paid in '25. That's it on my side. Now, unless you want me to go through the detailed presentation, we can immediately jump to the Q&A.

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

I have a few. The first is on the Suspension division. If I'm not wrong, in the fourth quarter of 2024, the Suspension business declined, both sequentially and year-on-year. Can you give us more color on this side? Maybe it's because of Mexico, I don't know. And what kind of improvement do you expect in Suspension margin for this year? This is my first question. The second one is on the revenues from China. Can you give us an indication of the weight of client Chinese on the revenues generated in China? And the third one is then -- still on the Suspension for the EV duty. The segment was penalized by the termination of contracts. What should you -- what should we expect from now on in the segment? And what is the weight of the EV duty segment within the Suspension business?

So about the margin of Suspension, so the margin of Q3 in Suspension -- sorry, the margin of Q4 '23 for Suspension was highly impacted by a positive one-off, especially a lump-sum in sales. So the comparison Q4 '23, Q4 '24 is a bit misleading. The -- let's say that the margin of Q4 '24 is more consistent than the previous one. And we are still working on this margin to improve it via several industrial operation. Let's say that you should take the margin of Suspension for the full year and -- as a basis of our forecasted improved -- as a basis for the improvement that we will implement. With regards to EV duty, we had, for sure, some contract ending. But the main impact for '24 is a drastic slowdown of the market.

Okay. Just a follow-up on the margins for the Suspension business. So 2024 margins EBITDA ex nonrecurring were 9.8%. You're targeting an improvement, but is it more or less 1% or much lower than this indication? Because I remember that you've guided in the past for a 1% improvement year-on-year. And maybe if you can give us some color on the Chinese clients within the revenues in China.

Yes, please.

Excuse me. We reconnected Mr. Proust.

Hello? Yes, sorry. I have been disconnected. So yes, so let's go back to Suspension. We -- I don't know where I was interrupted, so I will go back a little bit that -- in my previous explanation. So in terms of EBITDA for Suspension, we can expect an improve by 1 to 2 points for '25. I don't know if you heard me about the EV duty segment, so I was saying that the -- we had a huge slowdown of the market in Europe, and we expect something going back to normal in '25. So stabilization or a little growth. We have a huge industrial plan in EV duty for restoring the margin in such environment. And I think that we can say that we demonstrate in the past our ability to -- for this kind of turnaround. So we are expecting an improvement in this. With regards to the Chinese customer, Chinese Suspension customer are around 30%. It will grow, that's for sure. And let's say that in terms of size of the Chinese customer, I would say is 100 -- yes, I will confirm 30%, 30% of total sales. Sorry for the disconnection. It breaks my...

No, Olivier. It's fine. Thank you.

The next question, sir, is from Martino De Ambroggi of Equita.

The first question is on the duties. If you can summarize what is your direct exposure, if any, significant and eventually if you have an idea what could be the indirect exposure based on the assumption that we can do today because it's still unclear what will be the final outcome. The second is on the free cash flow, EUR 15 million adjusted in '24. What should we expect in '25 and based on what assumption in terms of CapEx and net working capital?

So I will first answer to the cash flow because it's the easy question. Our exposure, let's say, that we are purchasing roughly EUR 80 million from the U.S. So that's for what we purchase from the U.S. What we sell to the U.S., that's the business we have in Mexico and Canada. It's for the U.S. We don't know what will happen. It's extremely difficult to forecast the consequences of all the message we are receiving. I would say that, anyhow, our customer need our products. They cannot change in such products. They cannot change supplier from one day to another. It's 1 to 2 years development if you want to move one of our production to someone else. So everybody is a little bit stuck with this -- in this context. And what I can say is that for our new products, our new portfolio, we will need to invest in NAFTA. We have a bit of time in front of us to decide where to invest, on which side of the border. Free cash flow, it's the easy question. We will consider EUR 15 million as a target for '25. As I said, despite a slight reduction in sales, we are expecting to maintain our profitability and, therefore, our cash flow.

Okay. Under which CapEx and net working capital assumption, very roughly?

We do not expect a huge variation in our working cap. We already had at the end of '24 the impact of the decrease of the sales. And in terms of CapEx, the trend will be similar to '24. It's a matter of reallocation from one geographical area to the other. So let's say roughly stable.

Yes. And very last question on the Suspension side, just to double check. You mentioned that profitability will improve by 1 or 2 percentage points in '25. Is it correct?

Yes, yes. Correct.

Okay. And on the other division, so the Air and Cooling should be stable or probably slightly lower, I don't know.

Roughly stable, roughly stable. We have to manage higher costs for development. So let's say that, yes, roughly stable or a little bit lower, yes.

Okay. So the overall slight improvement in adjusted EBIT for the full year could be [ nearly ] 50 or more basis points on a full year basis.

Our target is to maintain our EBIT with a slight decrease in sales.

Okay. But if you increase the Suspension and you maintain Air and Cooling, probably there is an upgrade in terms of...

Yes. But by definition, if we -- if you -- if we reduce the sales but we are able to maintain the EBIT, we have, at the end of the day, a slight improvement of our global margin, yes.

[Operator Instructions] Mr. Proust, at this time, sir, there are no questions registered -- excuse me, we do have a follow-up question from Monica Bosio of Intesa Sanpaolo.

Yes. Sorry, Olivier, just a quick follow -- a quick questions on the saturation rate and more -- in particular on the saturation rate of the plants. And as for the Romanian plants, what are your expectations for the current year and the results the Romanian plants achieved in 2024, if you can give an indication.

So in terms of situation, we still have room for new products and new developments, so no real capacity CapEx foreseen. Suspension in Romania is part of the improvement plan of Suspension. I will not enter into details, but we have room to improve there. So that's -- we made a big improvement in the recent months, in recent years, and we will continue.

Mr. Proust, at this time, there are no questions registered, sir.

Thank you very much. Thanks to all of you, and talk to you soon.

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