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

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Sogefi in-depth of the 2 business units 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 afternoon, everybody. Thank you for joining this call. As promised, we said on Monday, we would organize this one to give the opportunity to everybody to talk to head of the BUs, the CEOs of the 2 BUs. We have today Mr. Luigi Lubrano, CEO of the Suspension BU; and Mr. Michael Sebagh, CEO of the Air & Cooling BU. I propose we start with the Suspension, and we go straight to Q&A as we have already presented results on Monday. So please go ahead with any questions you have on Suspensions. When we finish with that, we will turn over to Air & Cooling. Thank you.

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

I have a few. Let's start with the Suspension business. I was wondering if you can indicate us the size of the stabilizer bars within the Suspension business? And what are the main projects both within the car industry and potentially outside this arena? That's the first question, and then I will do later the next one.

So on average, we are speaking about 70% of total turnover related to stabilizer bar. The rest is related to Coil Spring. We are targeting new project -- new project is with German OEM that is changing completely the platform. In this case, the volume will be -- we will experience the volume around end of '27, beginning of '28. Some part, as I said, is replacement, but there is -- they have to define the strategy, a continuation also of the old business. We consider in our numbers that it would be a full replacement even though we know that they are thinking about a continuation on one side and a new platform launch in the market.

Okay. And as for the new platforms, if I can ask, what is the pricing environment? Are you experiencing higher pricing pressure than in the past? Or is it...

No. But in reality, we are experiencing a high pressure on the cost because the only European OEM are afraid of the impact coming from the Chinese that are coming in, in Europe. And so due to the fact the market is not growing, the risk is that they will be attacked by the Chinese newcomer. And so they are working in order to reduce dramatically their cost. So we perceive also this pressure.

And coming to the Chinese players. In the presentation, the total group exposure to Chinese players is something in the region of 12%. So this is a mixed question. Can we split the exposure between Suspension and Air & Cooling? And maybe if you can tell us who are the main -- the top 3 Chinese customers in both of the 2 divisions?

So I start from the end, the last part of the question. So in China, we are a Suspension, we are designing, developing and producing China for China. We are -- our strategy is not to work mainly with the very well-known OEM. I mean BYD, Geely and Chery where -- because in their environment, for sure, the main target is to have a very, very low price. And so this kind of fight can impact our marginality. So we are strategically looking for the new BYD, the new Geely in the market. And so we have -- I can mention a couple of them, Xiaomi and Xiaopeng that are promising OEM on the market, and they are performing very well in this space. They are launching the new car line in the market, giving us a very good performance. About the share in China, we can say that 54% is Air & Cooling and 44% is Suspension.

Looking at the 12%. So this 12% overall exposure is 54%...

Yes, and 44% which does -- 100% only because inside there is a part of the business that is not pure Suspension, but is related to the Precision Spring.

Okay. And if I can ask another mixed question regarding Stellantis. The group's exposure grew a lot in 2025, but we have seen that the car maker had a lot of cancellation. So I was wondering if you can split the group exposures towards Stellantis in the 2 different divisions and maybe explain us how does Sogefi deal with the compensation in the 2 different divisions?

So for Suspension, okay, we have experienced ongoing project that we have SOP 2 years ago. So mainly is the Cinquecento elettrica, and then there is another part of the business that is related to the LCV Ducato elettrica. And so for this, we have negotiated the compensation through an extension of other business. In the specific case, we have been nominated for the hybrid version of new Cinquecento and so in this case, we have been compensated with a new project. On Ducato, okay, the volume for the electrical version were not so astonishing. So the compensation is -- was not necessarily be managed year-over-year, not releasing [ LTA ] or with other form of compensation. And for other customers, for sure, an SOP that was supposed to deliver a certain interest in volume have been substantially canceled. And with this, we are discussing a cash compensation for the cancellation of the volume.

But is it a cash compensation related to the cost that Sogefi had to sustain for the new projects that...

Yes, absolutely, yes, this is the basis. Then there are additional -- so we cover 100% of our cost plus there is a compensation related to the loss of profit on this platform...

Okay. And how does it work with Stellantis and other players in the Air & Cooling business?

So for -- I can step in. For Air & Cooling, we have not experienced any cancellation with Stellantis. We are on battery vehicle production. This was low production from pretty much start of production last year. So we've renegotiated the price with Stellantis based on this lower volume, but there's been no cancellation. The only cancellation we've had is actually not with Stellantis, was with Ford Motor Company. They canceled a platform called [ BEVQ and BEVK, ] and we've received $1 million compensation for the cancellation. So besides that, there's been no other cancellation on the Air & Cooling side.

Coming back to your first question, so the exposure on Stellantis is more or less 50-50 for both BU. So 50 is related to Suspension and the rest on -- and the same amount is for Air & Cooling.

So just to finish it up, we are very -- we have, at this moment, the business is going to grow on pure battery vehicle, but Air & Cooling is not very much exposed to battery electric vehicle right now. We are ramping up new programs this year and next year. But past years, we have low exposure.

[Operator Instructions] The next question comes from Martino De Ambroggi of Equita.

Can you hear me?

Yes, clearly.

Okay. Sorry. So specifically on suspensions, so this is a question what we used to ask during the calls, but I take advantage of your presence. What is the maximum profitability that you have in mind for this business when fully on stream? And when do you believe to be -- this could be achieved? And apart from the cost cutting shutdown of plants and so on, is there any other specific driver facilitating this achievement? This is for suspensions. And one general question on the raw mat because the current environment suggest me that we will have probably spikes not lasting a few days, but there is a risk of longer negative effect. So just if you could remind what is your ability to pass through this price increase? What is the percentage of automatic adjustment for both divisions separating the 2 divisions? And in terms of working capital, I suppose the suspension is worse because of raw mat and this will suffer more. And I don't know if there is -- for sure, it's too early to talk about potential impact of the current shocks, but what could be the ability to manage net working capital also in particular?

I start from your last topic. So the fluctuation of the raw material and the energy. Our business, I mean, Suspension is based on material, direct labor and energy. We have in place contractual compensation for most of our customers. So according to the fluctuation of the -- in the reference index, so we normally use [ MATS ] for steel. If we utilize steel with extra alloy, typically for heavy duty, also in this case, there is an automatic compensation. And this is a rule that we apply with most of our suppliers. So the pass-through is in place, and it is working. Only a limited part of this is managed through a negotiation with the customer on one side and supplier on the other. For the energy, we have a certain number of customers that have included the compensation also for this. So according to the fluctuation of the energy cost, we are able to recover. For sure, there is a delay in the compensation because it's based on the observation of the past quarter versus the actual. And so at the end of the day, it's only a matter of timing. And related to the performance that I expect, so we have in mind to grow in the region of 2%, landing point is 2029 in EBITDA adjusted from the actual one. So we foresee an increase linked to the optimization of our industrial performance, so pushing more on the automation and improving the fluctuation on our plant.

Okay. And raw mat for Air & Cooling?

Raw material for Air & Cooling. So we mostly use the plastic. And most of -- not all, but most of our contracts, especially in North America and Europe, we are indexed. So what happens is every quarter, the raw material cost is -- the plastic is adjusted up and down based on the index and the negotiation with the key plastic suppliers that supply our customers. So there's no -- there is some exposure, but very low because we're indexed.

Okay. And if we had to split the CapEx plan going ahead for the 2 divisions, how should we split it?

Wait a second. Air & Cooling is taking probably 60% of the CapEx going forward roughly. As obviously, the investments for new products are much more important there.

Yes. I can explain. It's -- we have -- so the reason -- it's because of the necessity to invest in additional capacity in North America because North America is going back to producing more ICE vehicle, but also to invest in battery vehicle cooling plates also for North America because of a customer of ours relaunching their -- basically, they've changed completely strategy. Their strategy before was to go into the EV space with big, very expensive truck. It didn't work. They canceled all of their platform, and they're relaunching with low-cost vehicle, and we happen to be on this specific vehicle that they will be relaunching next year, and that's why we need to invest to support this launch for this specific customer. I mean if you look in the news, you will find -- you should be able to find out who that customer is.

Okay. And for net working capital, am I right in assuming that the suspensions because of the raw mat weight and so on is higher than net working capital in that division compared to the Air & Cooling?

Yes, the working capital in Suspension actually is higher than Air & Cooling is [indiscernible].

The next question is a follow-up from Monica Bosio of Intesa Sanpaolo.

If I can ask, what is the saturation rate of Sogefi plants in the 2 divisions? And as for suspension, what is the current saturation rate of the Romanian plant? I know that after the closure in France, the company will move part of the production there. But I was also wondering if in the next 2, 3 years, maybe it could be the case for further footprint optimization. So if you can share your thoughts with us. And also, if you can say us what is the saturation rate for Air & Cooling plants?

So for suspension, we are looking at the number of 2025 and 2026. According to the market situation, we are close to 60%, 63% of saturation. This is the reason why we have decided to optimize our footprint. We will move the product produced in the plant in north of France, not 100% in the Romanian plant, but according to the validation of our plants coming from our OEM, some products will be moved even in Italy, in Spain, in other French plants and a part of will be moved in Romania. The Romanian plant have improved dramatically versus 2024. So we have completed, let's say, the turnaround of the plant that is working now at a good level. We have space for another 30%. So we can move volume there or better to be awarded for further volume in order to optimize the results of the plant. And for sure, we are reviewing continuously our footprint because according to the stagnation of the market, we are, on one side, optimize the footprint and on the other improve the output of other machine through automation and further activity of improvement of the equipment itself.

Okay. So for Air & Cooling, I can answer if you want. So it's very simple. For China, we are saturated. As a matter of fact, this year, we've planned for a -- to add a new facility in China, depending on how quick the market grows over there, but we are planning for an expansion because of saturation. In North America, as you may know, we have 2 plants, one in Montreal and one in Mexico. The one in Montreal is completely saturated. As a matter of fact, the cooling plate that I talked to you about earlier was scheduled to be manufactured in Montreal. We were planning a new plant, but because of cost concern, we've canceled that new plant and are moving in agreement with our customer, we are moving that new business in Mexico because we had spare room in Mexico, and in Mexico, so we will be having this. And at the end of this year in Mexico, we'll be launching 2 new key programs and Mexico will be completely saturated. Now we are also expanding in India. I'm relaunching India. So that will happen -- well, it's happening now, but you'll start seeing turnover in 2027. And for Europe, we have 3 plants, one in Romania that is completely saturated as well. They are so saturated that we are moving this year some of their production into one of our French plant. So to conclude, we are full capacity pretty much everywhere, but in France, which we are about -- all the plant is maybe 60%, 65%. But all the other plants are full booked.

Okay. That's quite interesting because -- so at the end, in Air & Cooling, the company is at full capacity barring France, but the margins of the divisions were a bit down. And if I have understood well, they are expected maybe to progress, but not so much in 2026. I was just wondering why? Maybe it's because we will see the improvements later from 2027 onwards. Am I right? Or am I missing anything?

Are you talking about Air & Cooling?

Yes.

On Air & Cooling, yes, it's -- sometimes you have to not only focus on the turnover, but what's behind it. Sometimes you generate more volume, but not necessarily more turnover because the replacing turnover is lower than the ongoing turnover. I'm going to explain. If I take North America, for instance, we have businesses with a lot of what we call directed buy. So directed buy, it's, for instance, the -- your customer telling you, you're going to buy the throttle body from X company for $30. So it generates a lot of turnover, but no profitability because it's a fixed price.

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

Specifically on Stellantis. This year, it remains your most important client. And this year will likely increase volumes, let's say, mid-single or more percent. What else is offsetting your guidance? So what -- which are the clients which are going worse this year, offsetting the growth expected for Stellantis? Frankly, I don't know if you can confirm if Stellantis is growing mid-single digit or more or not, I don't know.

I start to give an answer related to what I'm observing on suspension. For sure, Stellantis is considering this growth, including the globe. So looking at the operation and the market they are able to attack in, especially in North America, where they are making money. We are not on a suspension on the North American market. We are working mainly with them in Europe and in South America. South America, the progression is good, but in Europe, not. There are some problems on some car lines. We are forecasting a good performance in 2026 on the light commercial vehicle, not only Ducato, so the so-called platform X250 but also the other one produced in Spain and in France. So the midsized LCV and the small LCV. So this is not enough to counterbalance all the low performance that they will have on the European car line. And you know that they are under attack by the Chinese. You have experience, especially in Italy, that the campaign put in place by BYD in order to try to erode their [ take rate ] in Europe, especially in Italy. So we are quite conservative looking at the growth of Stellantis for 2026 just because we are not present on the United States market.

Okay. Well, for Air & Cooling, we are not exposed to Stellantis in North America. Our turnover in Air & Cooling with Stellantis is roughly more or less $15 million out of almost $250 million. So it's very low exposure. And in Europe, I don't know if we are lucky or not, but we are on the -- not platform, but the engine that actually sees growth at Stellantis. It's the EV engine. And this is why we are moving production from Romania to France because we can't keep up with their demand. So it's kind of odd, but that engine actually at Stellantis is doing very well in Europe.

And one more question on Leapmotor. I assume you are not exposed to Leapmotor today. In the future, this could be an opportunity for you or you see the risk of cannibalization Leapmotor eroding the sale of other Stellantis models, meaning a risk for you if you are not on Leapmotor platform?

For suspension, it's not true. We are on Leapmotor platform, China for China. So it's a potential opportunity for us just in case they improve volume in Europe to jump in the localized platform. But for sure, we are working with them in China for Chinese production. So I foresee an opportunity in the future because they know us, we have developed and -- design developed products for them for the Chinese application.

Now for Leapmotor for Air & Cooling, we have no exposure with them right now, neither in China nor in Europe.

Is it going to be an opportunity for you or...

It could be an opportunity. But to be honest with you, on Air & Cooling, right now, we are mostly targeting -- well, of course, we have BYD as a customer, but we are targeting the battery supplier, which are CALB, which we are starting production now and CATL. Those are mostly the people we want to work with for BEV application rather than the OEM directly. And by the way, they are the biggest suppliers in the world.

Yes. If I may, on the Romanian plant, could you quantify what was the amount of sales and profitability last year in absolute value?

I have to look. Last year, you said?

Yes.

I can give you a percentage, but I don't have the -- Luigi Lubrano, do you have the number? I don't have it with me.

I think he was asking about the suspension...

Oh, suspension, okay.

Yes, give me one moment.

No problem. We can have a follow-up through Stefano. No problem. And very last, on the ongoing negotiations for compensation. If I understood correctly, should be, in any case, small figures, not a big number.

So I've selected the figures. So after a period of -- for the past year that were negative, we forecast to be positive in 2026. We were close to be positive in terms of EBITDA adjusted this year, 2025, but fully positive next year, 2026.

Okay. And on cash negotiations that you are currently negotiating with customers sponsoring new platforms and so on. A few million euro is a reasonable expectation, if any?

I'm sorry, I did not catch your question.

For the ongoing negotiations to offset the cancellation of platforms of Stellantis, but also...

So for suspension, we have already closed the deal with them. So for Stellantis, we were exposed most on the Cinquecento BEV, and we have been automatically nominated for the hybrid. And we have managed some cash compensation in order to cover the tooling cost that was forecasted, specific one for BEV forecasted in amortization by cash.

Okay. So there is no big cash inflow expected from compensation. So...

From Stellantis, I can confirm we have to negotiate with Tesla for the cancellation of the volume of the Cybertruck. We were supposed to produce in Europe an interesting number of goods for them. But unfortunately, the model has been not successful on the market. And so we are discussing about the cash compensation with them.

The next question is a follow-up from Monica Bosio of Intesa Sanpaolo.

Yes, here I am again. So just 2 questions, sorry. As for Leapmotor, so basically, the company is working with Leapmotor in China for China. But now Leapmotor will start production in Poland, is already manufacturing, and also in Zaragoza. Do you see this as an opportunity or no? And in general, when dealing with the Chinese players, how they manage their payment terms? So I'm just wondering, maybe they have different payment terms, a different way of doing business. Maybe are the Chinese customers dilutive on the margins?

So Leapmotor, for sure, in Europe, we have -- it is an opportunity for the future. In the meantime, we are discussing with Stellantis but in the moment -- at the moment, we have no any RFQ for the application they are currently managing. About payment term, Chinese for Chinese, it's very different customer by customer. I have in mind because I lived in China for 4 years. Typically, payment term of BYD were 270 days bank draft. And this can have an impact. So most likely, we are not dealing with them in the moment. We are on the newcomer, as I said, for Xiaomi, Xiaopeng, managing a payment that are more close to the European one. And so in this moment, we have no big impact on this on the cash collection. And for sure, the way they are managing the business is the usual way. So like in the past, there are -- after the nomination and after the SOP, normally in 6 months, they put -- gaining on the market, the volume already awarded to one supplier in order to obtain the better price. So this is not the way that normally the European customers are managing the business. But typically, BYD, Geely for their local production, they are -- they were and they are working in this way. Every 6 months, all the supply around the table and move the volume or part of it to the one that offer the best price.

[Operator Instructions] Gentlemen, there are no more questions registered at this time. Excuse me, Mr. Martino De Ambroggi from Equita just register for a question.

Yes, very last follow-up on product innovation. So I remember some years ago, we talked about a new spring which is much lighter and so on. Is there any innovation you are working on, which could be -- which could have a significant contribution in the future or let's say, it's a minor -- there are minor improvements for the product?

So related to the spring, you remind -- you remember well. So we have launched on the market for a niche application, the Coil Spring in composite. Now there is a trend to reintroduce the composites on the Leaf spring, especially in heavy duty, we are working on hybrid leaf spring, so in order to reduce the weight. But in this moment, again, it's scouting some -- some OEMs are introducing [ to ] volume of this innovative leaf spring. Scania has in production, one of this. But today, there are no -- let's say, as I said, scouting in order to understand the advantages and the benefits. For sure, the weight reduction is in relative an interesting reduction, but in absolute considering the weight of the tractor in an heavy-duty is not so big. We are working on new material in order to reduce the cost. And we are trying to propose to the car maker in order to reduce the cost of the product and not reduce our margin to reintroduce the solid bar instead of the tube bar. The performance are -- with this new material, we are codeveloping with one of our supplier at the same level of the tube in -- I mean with the stab bars, but the cost saving for the customer is non-negligible. And then we are working on, for example, in R&D, the application of artificial intelligence in order to manage some activity taking into account other experience in the past, so we are starting the learning phase for the artificial intelligence agent. So we are able -- we expect to have some results in the third quarter of this year in managing, for example, very quickly the RFQ, so to obtain the preliminary design for the offer in a short instead to a couple of weeks, we can reduce -- our forecast is reduced in 2 days. So to be able -- to be more aggressive on the market and compete on several tables with several customers, not increasing the R&D staff. And we are evaluating also the automation through humanoid in our plant.

And very last on competition for the 2 businesses. What are the most aggressive competitors that you have? I remember Thyssen was loss-making in Europe. I don't know if the environment is improving also for Thyssen, frankly. But just to understand what -- if there is more aggressive competition in the 2 different businesses.

For suspension, yes, but it's more coming from the newcomer from China. They are offering very competitive price because their cost structure in some way is supported by the government in some case. They are paying less the energy, and they have some advantages on the raw material. For sure, the tariff and all the protection -- the protective actions that have been put in place in Europe are in some way mitigating this effect. Thyssen is dealing less on the market. They have announced the closure of the plant in Germany. And so on the other hand, this could be an opportunity for us because there is a volume on the market to be awarded.

Well, for Air & Cooling, it's more or less the same story. As you know, we -- half of our turnover from North America. So in North America, we have a dominant position, and there's a lot less players with no competition from China. So that really helps us. In China, while we have competition from the local Chinese. But so far, we've been able to maintain our margin. The highest competition that we see is in Europe, and it's not with our usual competitor from Europe, but it's also like suspension competition mostly from Chinese suppliers where our traditional customer, especially the French one, ask quotes from Chinese players, including our own plant in China. And as a matter of fact, recently, we took a business away from one of our competitors in Europe that was manufacturing in Spain and will be manufacturing for that OEM out of China. So yes, competition from China is a big deal right now in Europe only.

Okay. May I ask you what is the amount of volumes that you mentioned for Thyssen after shutting down the German plant, very, very roughly, just to have an idea.

Sorry, I didn't catch the first part of the question, sorry.

I was wondering what is the amount of volumes that you mentioned Thyssen is shutting down a plant in Germany and these volumes are available. I don't know if Thyssen is able to move them to other plants or if this become a potential business for you. And I was wondering what is the size of this business.

Okay. The size, honestly, I cannot give to you the precise figure. We know that we have been inquired by German customers that are exposed with them on important platform for the Coil Springs specifically. We have been awarded for application in BMW. It's not a very big volume. It's for the M Motorsport application. So today, we are speaking about 120,000 springs for the M5 that had been moved by Thyssen. And then several other have been requested by other German customers that entered the business with them. So with a start of production forecasted in no more than 18 months.

Gentlemen, this was the last question. Back to you for any closing remarks you may have.

Thank you very much, everybody, and we'll be at the STAR Conference for those of you who are there. Otherwise, we will talk again for the Q1 results. Thank you. Bye.

Thank you. Bye.

Thank you. Bye-bye.

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