Good afternoon. This is the Chorus Call Conference Operator. Welcome, and thank you for joining the Sogefi Nine Months 2023 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Frédéric Sipahi, CEO of Sogefi. Please go ahead, sir.
Thank you, madam. Hello, and thank you for joining this call. I'd like to start with a quick summary of the third quarter and the year-to-date results. It has clearly been a quite good quarter from activity and volume point of view. The automotive part market performed quite well, even it's still below levels of 2019 in Europe. As you have seen in our presentation, we had a strong growth in all regions and business lines to reach roughly 10% growth in year-to-date. We also have been able to improve our margins despite energy prices and inflationary tensions on some commodity. We have scaled on our fixed cost again, and at the end, EBIT is improving both in absolute value and percentage in all business lines. During this quarter, we also worked on the strategical parts of the business.
As you may have seen in our presentation, we are working on Mexico Suspension, on a deal in order to sell the assets and exit from this geographical area for Suspension, as we were losing money and consuming cash for the last six years in this part of the world. So I propose we move to question and answers, so we can answer to all your questions. Thank you.
This is the Chorus Call Conference Operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Monica Bosio with Intesa Sanpaolo. Please go ahead.
Hi, good afternoon, everyone, and thanks for taking my question. The first one is on the guidance. If I read well, the company has improved the top line guidance, and this is fine, but I can't understand very well the guidance at the margin or at the EBIT in absolute term level. When do you refer to the guidance at the EBIT level, are you expecting any improvements in absolute term, in line with the one that the company delivered over the nine months? Or are you expecting an improvement in percentage term in operating profitability in line with the one that we have seen in the nine-month results? This is for the first question. The second one is on the restructuring cost.
Can you just give us a rough indication of the restructuring cost that you are planning for 2023? The third question is on the suspensions business. After Mexico, are you planning further restructuring, or do you think that the manufacturing footprint is now fine? And the very last is on Romania. What should we expect for the plant in Romania going forward in terms of margins, and EBIT? Thank you very much.
Thank you, Monica. Hello, Monica. I think you have asked a lot of complete questions, so thank you very much. So the first one is very important, it's a guidance on the EBIT. To make it clear, our guidance is to say that we improved the current EBIT year to date, nine months, by 1.6% versus last year, and that we will do the same in the last three months. Or to say it in a more easy way, last year we were full year at 4.9% or 5% EBIT adjusted, and this year, we should finish between 6.5% and 7%, let's say EBIT adjusted for full year 2022.
Okay.
Of an improved turnover, as you mentioned. So de facto, it means that the EBIT adjusted will be three figures, compared to EUR 76 million last year. There will be three digits, basically. So which is a good news and good symbol. I don't know if I've been clear. If not, Monica-
Yes.
Do not hesitate. This is for the first question on the guidance. For the restructuring full year, we will be close to EUR 8 million, if I remember well. Yeah, EUR 8 million.
Okay.
Mexico, I think you had a question on Mexico. Right, Mexico Suspension has been, let's say, a cash consumer for the last, at least 5 years, as I remember. It was a small, it is a small facility, between EUR 12 million or 15 million, depending the projections for next year, EUR 10 million for this year. So in order to focus to our, to our European, Indian, and Chinese, and Mercosur activity, and exit a loss-making activity, we are working, as I wrote, on a deal, which I have to admit is very close to be done, in order to exit from this market, market.
But in case we will need with our customers to be able to still propose manufacturing when it's about business with Europe, North America, and China, sometimes it happens to be able to propose that to our customers, thanks to a manufacturing agreement we will have with the buyer of the assets. So
Okay.
But in theory, we should be able to sign by this year. We will be able to sign by this year. And for us, of course, it will be a good news for cash consumption for next year, and de facto for this year, IFRS 5 rules have been applied, so it explains the restatement of our figures for 2022.
Okay, but do you plan in future further restructuring in the suspension business, or do you think that now?
This was the fourth question? So I would, yeah, Monica, it's a fair question. I would say that out of Europe, it's okay now. We have a facility-
Okay
... in India, in Pune, which is doing very well. In China, I'm also very happy because the turnaround has been done, and we are back to the black in China, and we are generating cash. In Europe, it's still the part of the world where we do have many facilities. The volumes for next year may be challenging. It's a bit early to say about that.
Mm-hmm.
So we have not done yet the budget and the strategy plan, but for sure, we will have some efforts to do next year and the years after in Europe in order to continue to improve the efficiency of our footprint and to have a better load of our factories, because Suspension, it's all about loading of your factory. We know it. When a factory is well managed and with a load above 70%, you do money. Below, even very, very well managed, it's very difficult to earn our life. So it will depend the volume of 2024, but for sure, we will need to continue our effort of improving the fixed costs and the footprint of Suspension.
Okay. And the result on Romania?
Yes. So Romania, it’s always to say it’s difficult to say it’s totally finished, it’s done, and we have done the turnaround. Nevertheless, in the first nine months, we are able to see some positive signs in the profitability, but also from an operational point of view, we have been able to work with our teams and our customers in order to improve the quality level. We have also improved a lot the turnover of our teams. And now we are working on the costs, cost structure of the factory and also with our customers to improve the margin. So it has been as forecasted in the plan, and the profitability this year will improve compared to last year.
I'm quite optimistic that for next year, with our industrial plan of improving both efficiency and complexity of the facility, we will be able to stabilize the situation in Romania.
Okay. Thank you very much. Thank you.
The next question is from Martino De Ambrogi with Equita. Please go ahead. Martino De Ambrogi, your line is open.
Hello, can you hear me?
Yes. It's okay.
Okay. Sorry, sorry, I had a problem with the micro. So, good afternoon, everybody. And, my, my first question is on, still on Mexico. Just to understand the pro forma figure, including Mexico for third quarter alone, or, in terms of EBIT, EBITDA, because I saw suspensions were up, in terms of profitability at 10.6%, in terms of EBITDA margins. So just to understand, what was the negative contribution, if negative, of Mexico. And I suppose, still Mexico, the cash-in is small, but maybe not. I understand the negotiation is not, closed, so you cannot disclose the precise figure, but just to have an idea. And, on Q4, what is the assumption, for the strike in the U.S.?
So what is the impact as of today? And what should happen in order not to match the guidance you provided for the full year? And last on 2024, I know you have not prepared the budget yet, but considering IHS guidance for +1% or in that region, considering Romania, that if I remember correctly, should have lost EUR 4 million in 2023. And if I understand correctly, your previous answer is breakeven in 2024. So just to understand, apart from Romania, is there any other significant improvement to be expected in profitability in 2024, if IHS is right?
Thank you. So for Mexico, the first question was about the impact on slide 11, on the global impact?
No. What, what, what could have been the profitability of Suspension in Q3, which, based on my calculation, is a double digit in Mexico, so I suppose Mexico was probably loss-making. I don't know.
Suspension Mexico was minus 5, so we should delete EUR 5 million from the figures of suspension total.
Okay, in Q3 alone?
No, full year.
Ah, full year, but in Q3, if possible.
the EUR 2.2 million.
2 million. Okay, thank you.
So this answer to your question about Mexico, the cash, yeah, I cannot disclose the amount. I would say that, the, if we are able to close the deal, the, the big impact will be more on the non-cash consumption next year, rather than the cash in, even if I consider the cash in, non-negligible. But yes, you are right, it's not a big amount that will change totally the cash generation for the year. So it's more about the stoppage of the cash burn in Mexico, which was quite big. The cash consumption this year was close to double digits, and last year, too. Because the working capital and the fact that we had to import the steel from Europe. Is it okay about Mexico?
Yeah, perfect. Thank you.
USA, for now, we have been very lucky. Remember, most of our footprint is in Canada and Mexico. And we are delivering also customers in Mexico and Canada. So for this part, we have not been impacted. We have a factory in West Virginia, which is half OES, half OEM. For the OES part, no impact. OEM, in year-to-date September, no impact, basically. We start to feel the impact on the USA factory, so the assumption I had on the guidance that I gave is that the strike would stop by the end of October. If the strike do not end by the end of October, then we may be impacted, depending on which facility of our customers will stop.
So it's almost impossible to predict if it will continue and if which factory they will stop. But right now I consider zero impact until the end of October, because our inventories, because the fact that we are delivering more engine factories than final assembly plants. So if the strike finish before the end of October, we will have no impact. After, we need to see a case-by-case. Nevertheless, I would say that we may have some buffer of safety on the other side of our in Europe and China, in our guidance, to may be able to absorb a part of it. So we have to wait to see for now, zero impact. Let's hope that it will finish by the end of October.
If not, we are ready, as usual, to take all measures in order to reduce our, our costs, waiting for the strike to, to be finished. And for 2024, yeah, we've got the improvement of Romania. The markets, for now, it's a bit too early to know where it will go, but we will also have the full year impact of the closure of, of UK that we closed this year in end of summer. So next year we will have the full year benefit of, of this action.
Am I right in remembering EUR 2 million from the UK closure?
Yes, absolutely. Seeing yes, absolutely.
This is it for 2024, full year basis?
Yes, and basically, we will have roughly this nine-month impact next year. So close to EUR 2 million, yes.
Okay, and Romania from -4 to 0, more or less?
No, I never said it will be zero. I said we are going in the good track for the improvement. This year we have already done strong improvement. For sure, we need to shoot for the breakeven, so it may be the target that I will decide for 2024. We had some very good news about the energy prices. We are continuing to work also with our customer and industrial action, so to shoot for zero may be my ambition when I will build the budget. A bit too early to give an accurate number, as the budget is not built and validated by my board, but we can discuss that in the next meeting, but I think we will go on the right way.
Okay. Thank you very much, Frédéric.
You're welcome. Always a pleasure.
The next question is from Gabriele Gambarova with Banca Akros. Please go ahead.
Yes, good afternoon, and thanks for taking my questions. The first is on the contribution margin, 40% in the quarter. I was wondering if you could detail, let's say, the moving parts of this improvement, and if we can, let's say, assume something similar even for the next year, from what you see. The second one is on the free cash flow. EUR 53 million in the first nine months. I was wondering if you can, even here, comment, the outlook for the whole year, considering that the previous, let's say, indication was around EUR 45 million, if I remember well. Last one on the tax rate, 25% in the first, sorry, in, I think it was in 2023, maybe, so even here, ...
No, sorry, in the first nine months, 2025. I was wondering if you could give an indication for the whole year and possibly for the following years. Thank you.
Thank you. So for the PBFA, yeah, we had the quarter at 30%, for last year at 27%, so a 3% jump, and yet today is at 29%. Of course, we will fight to have it in a recurring way, but now, this quarter, we have also been able to have good discussion with our customers, where there has been some one-off impact. So I would say that we thought this one-off impact, the 30%, would be rather 29%. So there is 1%, that I would qualify non-recurring for next quarter, which doesn't mean that maybe we will be able to find another 1% to compensate that.
But just from a mathematical point of view, the quarter has been helped by retroactive discussion and negotiations with our customer that represent roughly 1% of improvement. Even without that, our PBFA would be at 29 versus 27, which is still a good improvement. For next year, it's a bit too early. We need to check what's gonna happen with the energy prices, and then from an indirect point of view, the material prices, and what I will decide about the pricing with our customers. But for sure, we will need to keep our strong discipline on the pricing in order to continue in the improvement of financial results.
For sure, it will be one of the main target of 2024, to be able to stabilize our Contribution Margin at a high, normalized level, which is close to 29%. For the free cash flow, if I had to give a recommendation that we do today, I would say that it would be at least last year level, at least. Without taking in consideration the positive one-off potential impact of Mexico, at least last year. Concerning tax rates, I will let the expert, Maria Beatrice De Minicis, answer to your question.
For the tax rate, I can say that for the fourth quarter, we expect a tax rate around 25%-50%. So more or less in line with the first nine months, maybe a bit more. For 2024, it is too early to make a prediction, so we will see after the preparation and the target for next time.
Oh. Okay, sorry, just, if possible, follow up on this. I mean, clearly you are going to close 2023 with a 25%, which is much lower than my, my assumptions, 10 and 10 percentage points. If you, if I assume a 30% tax rate, I'm, I'm totally wrong? I mean, it's more realistic than a 45%, as I have.
Yes, 45 for the full year, it's a bit high, considering that in nine months we have a tax rate of 55%. So I would say for the fourth quarter, from 25%-50%. So around, full year, it could be 20%-25%, 27%, around maximum-
Yes, 27. It would be rather between 25 and 27.
Okay, for 2023. For 2024, is it possible to make an assessment, I mean?
Yes. You cannot assess the tax you will pay without knowing how much money you will do. So first I need to see where we go from a profitability point of view, and then we will assess the tax. I don't see any potential big reasons that our tax rates structure will change dramatically. Nevertheless, to be able to answer you in a proper way, we will need first to build up our budgets. But my first answer would be, I don't see any reasons to increase it a lot or to decrease it a lot from a business point of view. Of course, not taking into consideration any change of rules, but without that, I don't see any reasons to change it a lot.
Okay. Very, very clear. Very helpful. Thank you very much.
You're welcome.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is from Roland Konen from Value-Holdings. Please go ahead.
Yes, good afternoon, from my side. Thanks for taking my questions. First of all, congrats again for your very strong figures. One additional question on the 2024 guidance question. If you look at the IHS figures for next year, and having in mind your strong order intake in, in the last years, which might be materialized in the next year, do you see any chance to outperform the market? Also having in mind the development of the raw materials, maybe you comment on that figure, where, where do you see some tailwind, where do you see some headwinds? And second question would be on the factoring. As I saw from the presentation, page 10, you decreased your factoring volume by EUR 10 million. What is the area-- what is the reason behind that?
Is it the interest environment? And what will your policy going forward with the factoring volume? Thanks a lot.
Thank you, Roland, for your questions. Yeah, so for 2024, it's a bit too early to answer in a very accurate manner, but I'm quite confident that at least out of Europe, yeah, we will beat the market. For Europe, it's difficult because the prediction of IHS needs to do a bit more work and to see the next pre forecast. But I would say that Europe, at least we will deliver the market, and out of Europe, especially in China and North America, we should beat the market, and we will beat the market.
So, optimistic about our business case for this year, then let's see what's gonna happen to the automotive world in 2024, especially in Europe, where we can have some challenge on the volumes from a market point of view. As you remember, I'm always very cautious on the volumes when I build my budget, so in order to have some good news from a cost point of view, and then a profitability point of view. Material. Material, the same. I would say we need to wait to see if there will be any impact on the material cost of the current energy, let's say, increases are a bit too early to say if it's recurring or just some reaction of the market to geopolitical tensions in the world.
I don't see a rational or big increase of material cost next year. For steel, I don't see, except if there is a big boom on energy. For plastic, I would say the same. I don't see a big increase on the plastic. The question will be more, will be, if there will be a big decrease, I'm not sure either. So my feeling, looks like a kind of stability on the prices, with the exit point or the current prices of 2023. I may be wrong, but it looks like there will be a kind of natural balance on the prices, which will stabilize the prices. I hope I'm wrong. Whatever happens, as you remember, I always manage material prices first with internal actions, and in the same time, also, with discussions with our customers.
We are building up a few potential scenarios for next year, and we will decide within the next 2 months, which assumption will be better with this. For factoring, it was more a business decision. Our free cash flow generation has been as expected for the first 9 months. In regards to the cost, current cost of factoring, I preferred to limit the cost of factoring, the usage of factoring currently. Which means that if one day we decide to redo it, I can do it, and then de facto it will re-improve the free cash flow one-off.
But I prefer to focus on the operational improvement of free cash flow, especially the working capital and the CapEx management and the profitability improvement, and use a bit less factoring, due to the current cost of the market. But, of course, these lines are still here, and if we want to use them by the end of this year or next year, we could do it. I'd like to think it's a way to generate the same cash in a more structural way. It has been my decision this year.
Okay. Many, many thanks for the answers. Great. Thanks a lot, and yeah, good luck for the last quarter.
Thank you. Always a pleasure. Thank you very much.
For any further questions, please press star and one on your telephone. Mr. Sipahi, gentlemen, there are no more questions registered at this time.
Thank you very much for your attendance and your questions. See you very soon, and thank you again. Bye-bye. Have a nice end of the day. Thank you. Bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.