Sogefi S.p.A. ($SGF)

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Sogefi Q1 2026 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. Thank you for joining. I will quickly go through the presentation we have posted on the website and then I will open for questions. We are on Page 3, a quick overview, and then I'll comment in more depth on the individual items. Q1 was overall positive for Sogefi. We had sales growing slightly at constant exchange rate, plus 0.7%, down minus 2.3% with the effect of currencies as expected. EBITDA and EBIT were slightly growing in absolute terms and therefore, also in percentage, thanks to the containment of fixed costs, thanks to the growing contribution margin and thanks to the adjusted level to lower nonrecurring items. EBITDA was EUR 36 million; EBIT adjusted, EUR 17.4 million. Net income was also growing, EUR 11.7 million versus EUR 9.8 million. Free cash flow without IFRS 16, positive. We'll comment a bit more in detail here about the difference versus 2025 and also the difference with IFRS 16 free cash flow, which is different due to IFRS 16 items that I will explain later. Net financial position without IFRS 16, EUR 4.8 million debt, so almost 0 debt and EUR 48.6 million including IFRS 16. The other remarkable piece of news in Q1 was the sale of the Precision Springs business unit, which happened as of the approval of the Q1 result last Friday. Precision Springs is a small unit within the Suspension division. It produces small springs for automotive, but also for other industries such as aerospace, construction. We are Tier 2 here. So we don't sell to OEMs, but we rather sell to Tier 1 producers components. This unit has no synergies with the rest of the Suspension business unit as the customers are completely different, suppliers are different and the production processes are also very separated from the rest of the Suspension unit. It's -- despite the small size, we're talking about EUR 28 million revenues in '25. It's a rather complex organization split across 3 plants and with a lot of different production processes for different reference of products, which require a certain amount of management attention while providing a little impact on the overall view numbers. As such, it was always considered noncore. And since we recently received an offer by a company called Associated Springs owned by [indiscernible] Group, a competitor of our Precision Springs business unit. We decided to accept such offer, and we have signed a Put Option agreement as we did for Filtration. In France, you first need to go through the consultation of unions, and you cannot sell a binding agreement until then. So that's why we set a Put Option that we can exercise after the consultation process is over. We expect to close this transaction in June or July, probably this year. And so the -- if you would like to have an idea of the run rate of suspension without Precision Springs, you would have to subtract [indiscernible] -- EUR 28 million revenues and almost EUR 4 million EBITDA. I would rather now switch to Page 4 and comment on the sales. As I said, sales were [ down ] 0.7% at constant exchange rate. If we look at the different geographies, we see that in fourth column, Europe is plus 3.5% with a market production, which has been shrinking by 1.2%. In North America, we were positive, plus 1% and markets minus 2%. South America, the other way around, we were minus 1.9%. market was up almost 4%. In China, in line with market, at minus almost 10% as expected for China in Q1. India, very positive and even above market with a very, very buoyant market at plus 10%. If we switch to Page 5, we have the performance by business unit. So here again, in the last column, we had constant exchange rate performance, plus 0.7%. Air & Cooling contributed with plus 3% and Suspension was minus 0.8%. Suspension was stable in Europe, declining in South America, in China, and India, as we said, very positive. Air & Cooling was better than market, thanks mainly to Europe, where new projects were finally implemented and ramping up. So we have [indiscernible] plus 10% in a shrinking market, in line with market in China and a bit better than market in North America. On Page 6, our customers. No major change, just to note the positive performance of Stellantis, which is our main customer and slightly decreasing Germans, GM and the others. On Page 7, we have the usual bridge of EBIT performance. If we start from EBIT adjusted 2025, EUR 17.1 million, 7.6% (sic) [ 6.7% ] of sales in '25. We have positive contribution from volume and contribution margin in percent. We have slightly negative contributions from net fixed cost, from restructuring, from D&A and from exchange rate. So we get to higher EBIT in absolute value and in percent, EUR 17 million and 6.9%. As I said before, the nonrecurring items were negligible this quarter, whereas we had [ EUR 2 million ] last year. On Page 8, you see the full P&L. So contribution margin up from 29.6% to 30.4%. We were implementing our budget actions in managing pricing and purchasing, and that was done effectively. Fixed costs stable, slightly down in absolute value. And therefore, EBITDA adjusted growing in percent and value. Nonrecurring items we commented, nothing to highlight in '26. EBITDA, therefore, including nonrecurring is EUR 36 million versus EUR 33.8 million. D&A is slightly growing due to the new projects, especially in Air & Cooling. And then you see EBIT and EBIT adjusted. EBIT adjusted, as mentioned in the page before, it's growing. Nothing to -- nothing major changing in financial results and income tax. And therefore, we had net income of operating activities EUR 11.7 million, 4.7%. I can now comment Page 9, free cash flow. We have a better free cash flow this year. This is without IFRS 16. We have EUR 14.3 million versus EUR 8.7 million. So we have a higher contribution by operations. We have a slightly worse working capital also because we use less factoring than last year and lower CapEx compared to Q1, although this is just a temporary effect, and we will catch up with our CapEx plan in Q2 and Q3. As I said, if you look at the cash flow with IFRS 16, there is a substantial -- quite relevant item, negative item related to the renewal of a contract -- of a leasing contract in Canada. So that free cash flow to the IFRS 16 is positive for only EUR 7.7 million instead of EUR 14.3 million here. If we go to Page 10, Suspensions. Suspensions, we already commented on the sales. With regard to EBITDA adjusted, we have growing in absolute number and in margin, thanks to the contribution margin, which is up [indiscernible] thanks, as I said, to effective management of pricing actions and purchasing. Fixed cost decreased by 1% and this all allows to have a positive performance at Suspensions [indiscernible]. Air & Cooling, next page, Page 11. We have EBITDA here slightly down in percent and absolute value, mainly due to a different product mix in NAFTA compared to last year. And contribution margin was, on the other hand, a bit better, but those new projects have also a higher incidence in terms of fixed costs and amortization ratio. So that's why you see the decline in EBITDA. Page 12 is just a reminder of our financial situation, which is very sound and with long-dated maturities issue here. In terms of guidance, we can skip to Page 17. We confirm that visibility, as you might imagine, has, if anything, decreased after the start of the war. Nevertheless, Q1 was solid, as you've seen. And Q2, we don't expect major changes to happen for the time being. We still see orders keeping up for the time being. And the impact of raw materials will probably be limited in Q2. Because of the structure of our contracts, we have fixed prices at most raw material contracts until Q2. We have seen energy increases in some locations, especially in Italy, a little bit in Germany. But in other countries, there has been so far very limited impact in terms of electricity costs due to the structure of [indiscernible] supply in those countries such as France and Spain. So yes, there will be a lot of volatility. But probably if there will be more remarkable effect on the sector, on the margins, that will probably be -- probably shifted to Q3 and beyond. It's very, of course, difficult [indiscernible] of the time being to assess what the impact would be because the situation is changing rapidly. We don't know where the petrol prices will be at the end of Q2 and Q3. So very little visibility. So far, we can only confirm the guidance that we have given for the whole 2026 with a low mid-single-digit revenue decline and adjusted EBIT margin substantially in line. I would stop here and open for questions.

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

I have 4. The first is on the increase of raw material cost. Can you please tell us the percentage of the cost of plastics on your revenues and the percentage of the energy costs? The second question is still related to the raw materials. I was wondering how much of the cost increase is the company able to pass through customers -- through negotiations with customers? And how long does this takes? I know that the first half maybe will not be impacted. But going forward, I think that the company has the rest of the supplier, so we'll have to renegotiate the cost increase with the final customers. And another question is, if in the light of the cost -- of the increase in the cost of plastics, what are your expectations in terms of EBITDA margin by year-end for the Air and Cooling? And conversely, for Suspension, I have seen that the group marked a significant improvement in profitability in the first quarter. And so I'm wondering what are your expectations for Suspensions by year-end? Let's taking apart the disposal of the Springs?

Okay. On raw material pass-through, as you know, we have a very scattered situation across many customers. We have some customers with the indexation on raw materials. Indexation in those cases is not a perfect indexation in the sense that we are linked to the base raw materials. So metal scrap or metal wire, metal rod flat products. So this is the basic steel products that come out of the steel plant. But in fact, we don't buy those products. We buy already semi fine product. We buy tubes, we buy bars, we buy wire to make the coils. So in between those indexes and us, there is a sub-supplier, which works for us and provide us what we need. Those suppliers, we also have, in some cases, index contracts on raw material, but then they usually start asking for other inflation components such as energy, typically so that we maybe -- if scrap goes up by 5%, then they might have 7%, 8% due to electricity cost increase. So we -- the raw material component, we can transfer easily to those customers where we have an index contract. So it's a one-to-one transfer. The electricity component is normally subject to negotiation on both ends, on the supplier end and on the customer end. The adjustment process takes a few months, but we have made some experience now in '22, especially. So we know that we need to move early and we also need how to negotiate in the individual cases based on the contract so that we have gained some experience, and we hope to be quicker and more effective than in '22 when it took quite some time to readjust the profitability. In the end, I mean, usually, we go back to a similar level of profitability. That's the history we have. It's -- for part of the orders, for part of the contract is a hard fight, so it's not even. But we know how to do it and we'll move accordingly. Cost of plastic...

Plastic is around -- considering 50% of average raw material on sales, the plastic is around 25% on sales.

Only for Air and Cooling.

Only for Air and Cooling.

Sorry, 60% of the cost on sales and plastic, 25% cost on sales. Is it correct? .

Yes, just for Air and Cooling.

And with regard to the margins, so far, we don't have reasons to assume that we don't reach the budget. So the guidance we gave at the end of '25 of maintaining EBIT adjusted figures for both business units should be maintained with Suspensions a bit better and then Cooling temporarily down because due to mix effect that we expect to recover later on. Of course, this is based on a situation which is, for the time being, still stable. But that could be unstable or most probably would be unstable over the next few quarters. So we don't have any indication of how big shocks could be and how long it will take to recover.

The next question is from Martino de Ambroggi from Equita.

On Precision Springs, could you share with us what was the performance in Q1? And well, I suppose it's a small portion of your business, but we assume stability for this year, maybe growth just to have an idea of what could be your assumption in the full year guidance contribution? And in terms of volume, so strictly referring to volumes, in Europe and North America, do you expect to outperform overall this year based on the new Standard & Poor's indication for volumes? And third is on the usual update on the Romanian plant, just to understand how the profitability is progressing in this big plant?

Okay. On Precision Springs. Precision Springs, we published the figures for '25, EUR 3.8 million EBITDA reported. If we go to adjusted, it is a bit better. So it's slightly above EUR 4 million EBITDA, and that's also something that we expect to be stable. This business is not volatile as automotive, it has been performing quite stable with a few percentage points growth, not major swings in the annual revenues. So that's the number that I would take for adjusting the group figures. So a bit more EUR 4 million EBITDA and EBIT about EUR 3 million. In North America and Europe, we outperformed in Q1 in the mix of sales for 2026, we still think that we can do a bit better than market here, but not probably for the whole year, the same pace that we have seen here. So probably NAFTA is better than market due to some new products that should kick in later. Europe was a bit of a surprise how much we overperformed. So maybe not at this level over the course of the next quarters. And your last question was?

On the Romania plant.

Romanian plant. Romanian plant is -- we gave an update after the full year call with the CEO of the Suspension business unit. The plant is now progressively being loaded, is now working with setup processes that are now working. So it's going to be the main plant for taking European programs going forward. We are now transferring part of the [indiscernible] production. It's still not at full regime. So we still have spare capacity and the economic performance is not yet where we want it to be, and that will happen maybe in a couple of years more when it will be fully loaded and working at full efficiency.

[Operator Instructions] we have a follow-up question from Monica Bosio of Intesa Sanpaolo.

Yes. Sorry to bother. Just a final question on the suspension for the heavy duty. I know that the company could be willing to dispose it as it is noncore. I was just wondering what kind of margins should we figure out by year-end? And what could be a sustainable margin for these operations, if you can help us.

Well, the company heavy duty is separated from passenger cars. It's -- I wouldn't call it noncore. I mean it's not as noncore as Precision Springs. Precision Springs is a completely different set of products. Heavy duty is much more in line from production processes with the passenger cars. It's just a bigger product, but same production processes, similar suppliers. So it's not as detached from the rest. Having said that, yes, it's a separate business, separate customers. So the two businesses could be separated without any loss of synergies. We are not planning or we are not anything -- we don't have anything ongoing for the sale of this business right now. The company was a top performer some time ago with EBITDA margins close to 20%. Now it's at the bottom of the performance scale within the business unit. It has gone through some very relevant market changes over the years. We had some very profitable products where Chinese competition entered and compressed the margin substantially. We had operational issues for the last few years in some of the plants, which weighed substantially on the performance. We have now a new management turnaround program, which is underway. So we hope to be able to, maybe not get very quickly back to the numbers we once had, but certainly to restore a decent level of profitability. So for 2026, we hope to have it back in positive EBIT territory, although there is quite some work to do to get there. And also, it much depends on the market as you know, the cycles in the heavy-duty market are very, very -- very, very short. There are cancellations of orders very quickly and then start of production as quickly. And in this situation where we have -- due to the conflict and other disruptions, we have impact on the supply chain. There might be temporary drops in demand for trucks, which, of course, we cannot foresee for the time being. So high volatility, turnaround ongoing, we should be back in positive territory end of the year, hopefully or beginning of next year.

[Operator Instructions] Mr. Cavigioli, there are no questions registered at this time, sir.

So thank you very much, everybody, and see you at the next conference call. Goodbye.

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