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 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Michele Cavigioli, Head of Finance. Please go ahead, sir.

Good morning, everybody. Michele Cavigioli, quick introduction since it's the first call for me. I joined here the holding company of Sogefi in 2005 and have been there as CFO for more than 20 years. This year, in January, I was also appointed as Head of Finance and Investor Relations at Sogefi as we had to replace Mr. Olivier Proust, who left the company. So first of all, I would like to thank Olivier for the work he has done for so many years in Sogefi and all the achievements we had in these years. I will quickly go through the presentation that we have published on Friday, and then we will leave time for Q&A. So as you can see on Page 3 of the presentation, we had a good set of solid results in 2025. We had stable volumes and declining sales due mainly to foreign exchange. We had margins improving both at the contribution margin and EBITDA adjusted, EBIT adjusted level, which I will comment later in more detail. And free cash flow was also positive for almost EUR 13 million. If we move to Page 4, comment sales. As I said, global sales were flat in volumes. However, there was a different performance across the regions. We had almost minus 5% in Europe at constant exchange rates, of course, due to market and mainly due to poor performance in heavy duty. You remember that we had a decline already in 2024, which, however, occurred during the course of the year. So in full year in '25, we are down versus '24 in heavy duty. The situation has more or less stabilized in terms of volumes by now, but still, we have a negative impact on the full year. We had a very positive performance and above market in North and South America. We were also very positive in China, thanks to a very brilliant market and slightly down in India, which is, however, a very small production for us due mainly to the mix of products that we have there. On Page 5, you see the performance of the business unit. If we always refer to constant FX performance, we are slightly down in Suspensions. And as I said, this is mainly due to heavy duty, whereas passenger cars was in line with the market, and we have growth in China and South America. Air and Cooling was slightly up, thanks mainly to North America, which was very positive and negative in Europe and also positive in China. We can now skip to Page 7, where I comment the EBIT performance. As you can see, we have EBIT adjusted, which was better than in '24. We are we're moving from 5.4% on sales to 6.6% on sales. And this is due mainly to a little bit of positive volume effect because when we say flat at constant effect, there is a slightly positive volume effect and a slightly negative price effect, which we normally have every year as prices are -- of our programs are decreasing according to contractual arrangements and they -- absent, of course, any special negotiations or any new product introduction. We have positive effect of gross margin, PBFE, 3%, neutral from fixed cost MD&A. And then, of course, we have a negative impact of exchange difference on the P&L. Then you see a large amount of nonrecurring nonoperating items in '25, EUR 24.6 million. This includes restructuring and other effects such as warranties, foreign exchange recorded in P&L and other minor items. As you know, we have announced in Q4 the closure of the plant. And of course, this is the main part of these nonrecurring items. In '24, the two-way restructuring figure is a provision and the cash out will be in '25. And therefore, the final amount is not known as the negotiations are still ongoing. On Page 8, you see the P&L, which we have already commented to a large extent. You can now see that we have improving margins at all levels, contribution margins, EBIT adjusted EBIT. We have a reduction of interest cost, of course, thanks to reduction in net debt after the disposal of filtration. And then income tax also slightly down. We have a tax rate, which is constant at about 25%. This is the average corporate tax rate. However, when you calculate the P&L tax rate, this is much higher because we have a few regions where we don't recognize deferred tax assets due to the existence of losses in the last few years. So that's why you get a much higher P&L tax rate compared to the average corporate tax rate. We can now move to the free cash flow on Page 9. Free cash flow was EUR 13 million, which is lower than '24. But in '24, we had substantial one-off components, mainly related to the disposal of filtration, which contributed by at least EUR 13 million, plus some positive -- other positive effects on working capital in '24. So I would say that the free cash flow in '25 is more representative of a steady-state situation at Sogefi. Net debt is up by EUR 10 million. However, we have distributed EUR 80 million in dividend to Sogefi shareholders, plus of course, something else to minorities. And in '25, we have used less factoring by EUR 4.4 million, which is also explaining why we are increasing net debt a little bit. Q4 on Page 10 was about the same pattern of performance as the full year. So sales almost flat at constant exchange rate, high FX impact. This was particularly concentrated in Q4. We have higher contribution margin. We have not a good performance as in the full year on fixed costs, mainly due to the fact that in Q4, we had some extraordinary costs in heavy duty related to maintenance and some fixing of operational issues there, which we think will be by now over to a large extent, so it should not be a recurring situation. So therefore, in Q4, we have a constant EBITDA margin compared -- EBIT adjusted margin compared to Q4. As you know, this number is lower than the full year due to seasonality because we have lower sales in Q4 and therefore, fixed costs have a higher incidence. We can now quickly comment on with the 2 BUs. Sales we have already to a large extent commented. EBITDA of suspension on Page 11 is growing. So we are seeing the results of the efforts we've made in the past years in terms of continuously improving the operations. So we're going up in contribution margin. This is also providing more or less the impact on the EBITDA margin. Fixed cost down also helped a little bit by the exchange rate, but also at constant FX. If we move to Page 12, Air and Cooling. Air and Cooling is slightly up in sales at constant FX, thanks to North America, mainly, which was very positive and then a negative contribution of Europe due to the market, but also due to a customer mix, which was evolving unfavorably. Very positive EBITDA. EBIT adjusted is down by 1 point, and this reflects mainly the decline in contribution margin, which was due mainly to production mix in NAFTA and Mexico in particular. We can now skip to the outlook on Page 18. You have seen on the press release, we have given the new expectations for car production which is flattish and with a negative Q1, we have -- based on the evolution of our portfolio of contracts, we are now projecting a revenue decline, which could be low to mid-single digits, including a 1% or 2% effect of foreign exchange in there. And an adjusted EBIT margin, which we expect to be substantially in line with 2025. I would then stop here and open for Q&A. So please go ahead.

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

First of all, thank you for clarifying the impact of the ForEx change in the guidance. Net of the ForEx, can you just give us a flavor on the regions where do you expect the company is expected to outperform the market, maybe China, North America, what about Europe? And my second question is on the heavy duty segment. Can you remind me the size of this business in 2025. And you mentioned that the situation is stabilizing. I'm just wondering if this area will grow in 2025 or if the company will offset a poor trend of the heavy duty segment with other businesses, maybe in the railways or others. And my third question is on the divisions. Suspensions performed very well in terms of margins. Should we expect a similar progress also in 2026 in terms of EBITDA margins? And what about the Air and Cooling, should we expect a stabilization of the margins.

Okay. So let's start with heavy duty. Heavy duty was in '24, about EUR 110 million, '25 is a bit below EUR 100 million, so EUR 98 million almost. This is due to a decline which started in '24. So that's what -- that's why we have a full year in '25 lower than '24. In '26, we expect a stabilization of volumes, not a recovery yet, fortunately. However, we have relaunched our turnaround efforts in heavy-duty. We have new management in place. We have a plan which is focused mainly on restoring a good level of operational efficiency and reliability. We had a few issues in '25 there. So we are expecting to recover starting on gross margins and then all the way down. So '25 performance was, in fact, quite disappointing. So we have upside there. We have a lot of work, and we hope to be able to stop having this drag on the Suspension business unit performance in '26. So it will not be over in '26, but we are planning to have a substantial improvement. In terms of the performance of the different business units in '26, we will probably -- as I said, we will have less performance in terms of volumes. In terms of the business unit, we are planning to grow in Air and Cooling at a stable price and stable FX by a couple of percentage points and have a slight decline in suspension.

That's for the top line, sorry. Okay. And in terms of margins.

In terms of margins, we're going to improve EBITDA adjusted and EBIT adjusted suspensions by 0.5% to 1%. And we are going to have EBITDA adjusted at Air and Cooling level flat. This is our expectation, but a slightly declining EBIT adjusted figure in Air and Cooling due to increased D&A. As you know, we have invested substantially at a growing pace in Air and Cooling for product development, new EV products. So we will have higher D&A due to that.

Okay. And if I may, a follow-up on the group's expected performance versus the markets in 2026. So should I imagine that the company will keep going in outperforming the North American market. What about -- please tell me if it is correct? And what about Europe and China.

As of '26, in Europe, we are expecting to be a bit below market, mainly due to, again, Air and Cooling. We expect to be flat in South America, whereas the market would be probably growing a little bit. We expect to outperform in North America, outperform the market and grow there instead of having a contraction. In China, we are planning to have a positive development of our business portfolio, so better than market. And then India. India will also be positive in our assumptions and a bit better than market, but the operation is very small there.

[Operator Instructions] The next question is from Milo Silvestre, Equita.

Two questions from my side. The first one concerning the Romania plant. If you could elaborate a little bit in terms of profitability in 2025 and 2026. And on, let's say, the project related to EV, main OEMs are cutting the project related to EV. So here, if you could elaborate regarding reduction of or elimination of this project and whether you will get some kind of compensation?

Okay. So Romania, it is now on a good trajectory. We have worked on this plant for a long time. We have now reached a good level of operating performance, a good level of margins. We have the plant loaded probably 70% to 80%. So we still have room to increase production there and move production from the plants that we are going to close. Profitability is, of course, better there than in Western Europe. In '26, we plan to go ahead on that performance path. And we expect to grow the margins a little bit more, maybe 1 point more in terms of adjusted EBITDA, which is now at a satisfactory level in '25 and will be almost up to standard, so in line with the budget performance in '26, in line with the BU performance in '26 and still on a good trajectory to further improve. Then I understood you were asking about the project cancellation, any project cancellation that we had from customers, in particular, Stellantis. Is that your question?

Yes.

Okay. So in general, we -- I mean, project cancellations is something that happens on a regular basis. I mean it's part of the business. Our customers from time to time delay or cancel projects. Then depending on the situation, we have to sit down with them and discuss whether an appropriate compensation is required or not. I mean it very much depends on whether the new platform that's canceled or delayed is a substitute platform for another program that we already have with the OEM. So if that's the case, maybe there's not a big impact for us because we continue producing on the old platform. If we have a new project with a new customer and that's canceled or delayed, then normally we sit down, we have a fair compensation with them. So we have not so far had any communication on a major cancellation that would alter the outlook for us. We'll see. In any case, I would like to take the chance to invite you to a further conference call where we will have a follow-up with the 2 CEOs, Mr. Lubrano for Suspensions and Mr. Sebagh for Air and Cooling. We plan to have this conference call on Wednesday after 3:00 p.m. And then I would encourage you to ask those kind of questions based on product innovation programs and specific BU performance on that occasion.

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

Thank you very much. As I just said, I would also invite you to the next conference call on Wednesday at 3:00 p.m., where we will have the opportunity to interact with the CEOs of the 2 BUs and deep dive on any business trend and the performance of quarter 4 '25. So thank you very much for attending this conference call, and see you all on Wednesday.

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