Good morning. This is the Chorus Call conference operator. Welcome and t hank you for joining the Sogefi First Half 2021 Results Conference Call. As a reminder [all participants] are in listen-only mode. After the presentation, there will be the opportunity to ask question. 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. Good morning. Thank you for joining this call. As anticipated with you last time, the market has been very challenging during this semester, with high volatility on volumes and supply chain raw materials prices under pressure. As you will see in the presentation, I considered we have done a good job to face this unique situation with quite good results. I propose we go to page four with the highlights of the first semester 2021. Most of the time, I will compare versus 2019 because it makes more sense for the first semester. First, the revenues. Our revenues versus 2019 are -9% for the first semester, but at constant exchange rate, this will be 4.5%. You will see the split by geographical area and by business unit.
We have been able to over-perform the market in all geographical areas and on two business units among the three. The EBITDA is at 16.1% versus 12% in 2019. We have also calculated an EBITDA adjusted without non-recurring and non-operating items. This will be at 14.5% versus 12.3% in 2019. An improvement by 2%. You will have the breakdown of the EBITDA items in the next slide, but one of the big efforts that we have done that has paid are the features down by more than EUR 20 million versus first semester of 2019. Our EBIT is at 7.2% versus 4% in 2019 semester one, and the EBIT adjusted will be 5.5% versus 4.3% in first semester 2019. An improvement by more than 1%.
Our net income is at EUR 21 million+ , versus +EUR 7 million in 2019, and a loss of EUR 30 million in the first semester of 2020. The free cash flow is following the positive trend. We have been able to have a free cash flow without the IFRS 16 by EUR 32 million+ , versus a consumption of EUR 71 million last year and a consumption of EUR 2 million in first semester 2019. This is mainly thanks to the improvement of the EBITDA, but also a good job that we have done on the working capital and all balance sheet items. Even with very difficult situation on inventory due to the situation, we have been able to push the working capital, to improve this free cash flow for the first semester.
The net debt without the IFRS 16 is following this trend with an improvement of almost EUR 30 million versus last year, 2020, with a net debt of €261 million. I propose we go to page five with the main takeaway of the first semester 2021. As I said before, our sales at constant exchange rate would have been -4.5%, with the market going down at -13%. We have over-performed the market in all geographical areas. The two main markets for us are Europe and NAFTA. In Europe, our decrease is by 11% in a market going down by 23%. NAFTA, the market is going down by 20%, and we are decreasing by 3.5%.
Two business units have performed much better than the market, with sales very close basically to 2019, Air & Cooling and Filtration, mainly thanks to new businesses that we have started last year and beginning of this year and for Filtration, the resilience of aftermarket and U.S. Unfortunately, Suspension is not following the same trend, basically going same direction as the market with -14%, mainly due to the customer portfolio and very high exposure to Europe. Raw material market prices. As I anticipated before, it was quite a challenging semester. As you know, the steel prices are booming, it's true also for the plastic and most of the commodities. Thanks to a strong defensive action that we launched very early, we have been able in the first semester, you will see that in the P&L, to contain these increases, keeping our prices for now lower than in 2019 and 2020.
If we go to page six, the split of sales by geographical area, if we compare versus 2019 and the market. As I said before, we have over-performed in all geographical areas. For example, Europe, the market is down by 23%. We have been at -11%. North America, -3% versus -20%. South America and China, in fact, we are even growing versus 2019, thanks to new products that we launched, especially in China, where the growth is by 42% versus 2019 versus a flat market. The performance in all geographical areas for our sales have been quite good compared to the market situation. If we look by customer, page seven, Stellantis is now our biggest customer, with almost 22% of the sales, followed by Ford and Nissan. These two customers have performed better in 2021 than 2019, mainly thanks to new products that we started in production.
For Ford, it's in North America, for Renault and Nissan, mainly in Asia and Europe. We have a quite well-balanced portfolio of customers with Daimler, GM and Group VAG, BMW, Volvo, and also Toyota. The sales by business unit, page eight. Here we can see that Air & Cooling and Filtration are performing quite well versus the market, because for Air & Cooling, we reported a decrease with -3%, but at constant exchange rate, we would have been flat versus 2019. It means that we have been able to compensate the market drop. Filtration, in fact, we would have had a growth by 3%, mainly thanks to the good performance of IAM and OES. Suspension, I mentioned it before, following the trend of the market with -14%. Overall, Sogefi is at -4.5% constant exchange rates.
Looking now at page nine, the breakdown of our performance for the EBIT. The first thing you can see that the big effort and actions that we have launched last year in a very anticipated way helped us to compensate the volume, because volumes decrease are from EUR -21 million and fixed cost plus EUR 22 million. It's balancing the negative effect of volume. We have done the job on efficiency on variable cost with a positive impact versus 2019 of EUR 8 million. We have EUR -4.3 million in Romania, which is due to the start of production of a new plant for Suspension in Oradea. We will have EUR 16 million. We had EUR 16 million of non-recurring operating items. At the end of the call, if you have any question on these items, we will detail them with Yann.
At the end, the good point is that thanks to the fixed cost actions we launched last year in a very strong way, we have been able to absorb the volume effect. We will have some challenges for the second part of the year that I will detail later on variable cost and especially on the material price. We will need to continue to be very careful on the fixed cost and variability of volumes. Now I will let Yann explain the page 10.
Thank you.
the other in details. Thank you, Yann.
Thank you, Fréd. A few points of attention. As Fréd pointed out, despite the pickup of revenues in the first half of the year, we still are 9% below 2019. The market has not fully recovered from COVID-19. Contribution margin, Fréd insisted it is a very significant point on the evolution of raw materials. This will hit it in the second half of the year, but as you can see, over the first half of the year, we haven't been hit at contribution margin level. We even have improved the percentage contribution versus 2019 and 2020. We've done our homework on gross fixed cost. You can see that with a more than EUR 22 million reduction of cost fixed cost, minus 16% below 2019. This strongly helps us deliver solid results. Re structuring, non-significant, I would say.
As you can see, when things go in the right direction, everything goes in the right direction, because usually we have negative exchange differences, and in the first half of 2021, we even have favorable exchange differences. All in all, an EBITDA, solid EBITDA at 16%. Write-downs are not very significant. We already have done a lot of clean up in 2020. EBIT includes some favorable one-offs. We have pointed out two significant one-offs that account for EUR 5.3 million. These are the booking of the tax credit in Brazil that will be recorded over the next five years. Non-cash event for the time being. It will turn into cash savings as years come. The second one, which is roughly half of it, is the settlement of the litigation on pension issues in the U.K. Obviously it will not happen again.
All in all, we have roughly EUR 10 million of favorable positive one-offs. These will not happen again in the second half of the year. We prudently are integrating some negative one-offs, although, for the time being, nothing is showing up. Income tax, as you can see, roughly at 33%-34% of pre-tax. All in all, net income of operating activities at close to EUR 25 million. That's to say 3.6% of total sales against 1.1% in 2019. Next line is interesting. We've been approached very recently by an entity which is interested in acquiring from us Filtration Argentina. The deal is not concluded. We are in discussion, but we have decided to show Filtration Argentina as an IFRS five asset, held for sale. In H1, we have booked a possible loss on the disposal of this entity, and maybe we'll say more down the road.
All in all, that gives a EUR 21 million full net income versus a loss of EUR 29 last year, but that was mainly due to COVID, and a profit of close to EUR 7 million in the first half of 2019. Moving on to page 11. As Fréd pointed out, cash flow is mainly driven by the activity. You can see a sharp improvement versus the first half of 2020, even more funds provided by operations than in 2019. On top of that, you can see that usually when we have an activity which is increasing, we have a negative working cap. Here we have a negative working cap of only EUR 5 million versus EUR 23 million in 2019. This makes the bulk of the improvement of free cash flow between 2019 and 2021. We deliver free cash flow.
Remember, everyone, this is before IFRS 16, real free cash flow, not accounting free cash flow, positive of EUR 32.5 million. Once we had a cash burn of EUR 3.3 million in the first half of 2019. All in all, a net debt, again, before IFRS 16, of EUR 261 million. What's significant is that it's very comparable to the net debt before the COVID-19. As you can see, we had EUR 267 at the end of the first half of 2019. Factoring, we have not pushed that much. Factoring is very similar to what we had at year-end, even below what we had at the end of the first half of 2019. When you move on to page 12, we told you in the previous conference that we had a big cash out in Q2. In Q2, we have repaid a bond of EUR 100 million without any issue.
This has been fully repaid at the end of May. During Q2, we also have signed EUR 30 million of new loans on Romania, so linked to the activity in Romania. What we are going to do in the second half of the year, we are going to start discussing with the banks to extend the current maturity of our loans, which, as you can see, already is at an average of three years, but some loans have maturities expiring in 2022 and 2023, and we'll start discussing with the banks in order to extend these lines for a further two or three years. All in all, a solid liquidity situation for Sogefi. Fréd ?
Thank you, Yann. If we go to page 14, we will have the split of the EBITDA and the sales by business unit. Page 14, Suspension. Unfortunately, as you can see, the sales are going down sharply versus 2019 with -19%. The EBITDA in percentage is 12.6% for the first semester. If we offset the special events, in fact, it would be 9% versus 9% in the first semester 2019. We have been able to keep the EBITDA in percentage, even with sharp decrease of the sales, mainly thanks to a good job done on the fixed cost and keeping the raw material flat for the first semester of 2019. Suspension has been able to offset the decrease of the sales with strong action anticipated last year and first half of this year. Filtration, page 14.
The sales are very close to 2019, EUR 240 million versus EUR 246 million, mainly thanks to aftermarket OEM sales and good increase of sales in South America and in India. The EBITDA is improving quite well with 16% versus 11.5% in 2019. With fixed costs sharply decreased versus 2019 and the profit before fixed under control, Filtration Business Unit is going quite well in this first semester, thanks to all the efforts that we launched last year, especially a bigger contribution in France. Air & Cooling, page 15. The trend is quite similar to the Filtration one. Sales quite close to 2019, thanks to a good performance of China. The EBITDA is now at 19.2%. Here, we don't have much exceptional events in Air & Cooling compared to 16% in 2019.
The same thing, we have been very good in defending the profit before fixed expense and the raw materials. We have done the job on the fixed cost from last year, which is paying off in the first semester of 2021. I propose now we go to the transformation that we started about the sustainable transformation and our strategy that we explained to you last time. Even in these difficult days where we have a lot of operational challenge, we have continued to do what we need to do from a strategical point of view and business development point of view, and we have continued to acquire new businesses. If we go to page 18, the commercial activity and the nomination was quite positive during these first six months.
Air & Cooling Business Unit has been able to conclude many important contracts in the three big geographical areas, Europe, North America and China. We have been awarded in Europe for a new module of thermal management for a premium German customer, fully electric mobility. Also in North America, we are continuing to have strong renewals about our current position for the ICE application. Just one thing about the current RFQ that on which we are working, 50% from a number RFQ point of view are about the e-mobility, and e-thermal management for the new applications. The RFQ activity is very intense in Air & Cooling for the mobility. On filtration, we have continued our strategy to [inaudible] engines, pushing air purification and transmission filters.
We have been awarded on a significant number of contracts during the first six months for air purification filters and for transmission filters, mainly in North America. These two product families are growing in the portfolio of Filtration. Of course, as I said before, we have continued to focus on development. We have currently a lot of R&D activities on these two activities, electric mobility, and air purification. It's a challenge to do it in a decreasing market from a turnover point of view. It's a challenge to do it in the current operational situation, but we have been able to be very aggressive. We have been very aggressive on this side, and I'm quite happy because it will help us to be among the suppliers, the key suppliers for thermal management and air purification with our OEMs and new customers.
If we go to page 20, some examples of the currently awarded businesses on e-mobility for Air & Cooling. As I have anticipated, in yellow, we have been awarded this semester with a German ultra-premium brand, for all the e-thermal management of the e-car that will start in 2023. Now it's time to look at the last part of the year, the second semester. If we go to page 22, we have a market outlook of what IHS Markit is forecasting for the second part of the year. IHS Markit right now is predicting a 10% increase for the full year 2021 versus full year 2022, but still - 8% versus full year 2019. In the forecast that we built, we have been very prudent compared to IHS. Why?
As I said last time, we prefer to be prudent and anticipate some issues with the market and be ready in our cost structure and in our way of working to have lower sales and then over-perform than the opposite. The market is still very difficult to predict and to forecast. For example, in two months, the expectation of IHS decreased by something like 2% or 3% for the worldwide volumes. I think we will have to be very careful on the second part of the year. It will still be very volatile. Page 23. Here we have a slide showing the steel prices evolution in euro per ton of the index in one hand, in yellow, and our indices internal prices. It's a bit difficult to have a perfect comparison. Why? Because in Suspension, Sogefi, we don't purchase gross steel, sorry.
We purchase manufactured steel. That's why the indexation is not exactly happening in the same time as the market and with the same impact as the market. If we look, for example, in 2020, it looks like we were buying higher than the market. The prices boomed for the market in the first semester of 2021, and our prices remained, I will not say flat, but under control compared to the strong increase of the market. This is something that we are following in a very detailed way, of course, steel by steel, plant by plant, geographical area by geographical area. The good point is that we have been able, with our defensive strategy, to keep our purchasing prices under control for the three business units, including Suspension for the steel.
We expect, and this is in the next slide 24, a second part of year for 2021 that will remain challenging. North America and Chinese demands are growing, and we expect an increase of pricing that at one point will affect us and also our purchasing prices. That's why we have already started strong resourcing activity and tactical actions in order to mitigate the impact of the market on our accounts. Of course, we are discussing with our customers to apply the indexation when it's included in the contracts, or we have already started negotiations when needed. We nevertheless expect that the raw material increase will affect our profitability H2 versus H1 of 2021. Page 25. A financial outlook for the full year. As I said before, the visibility of the market is still very low. We have to be very agile and flexible. Sometimes the volumes are [inaudible].
I'm quite happy that we have been able to be very flexible in the first semester, and we'll have to continue in this direction. There is also a big challenge on the raw material prices, as I said before, steel, plastic, media, all the commodities are increasing strongly. We will combine defensive actions with the supplier and offensive action with the customers to mitigate as much as possible the impact on our P&Ls. On the volume, we have been much more careful than the IHS expectations, and then if the volumes are in line with IHS, we will have a good news compared to our forecasts. The group, as I said, we have started the resourcing activities and commercial actions to reduce the negative effect on the contribution margin of materials.
Also, on the operational actions, we have launched many actions to have the direct labor and the plant under control. As mentioned before by Yann, we have started negotiation about Filtration Argentina, and currently we still confirm what we said before, is to achieve a full year EBIT margin, at least equal to what we have done in 2019. Our presentation is now complete. I think we can go to the question and answers.
Excuse me, this is the closer conference operator. We will now begin the question and answer session.
Thank you, ma'am.
Anyone who wishes to ask a question may press the 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, madam.
Good morning, everyone, thanks for taking my questions. The first one is on the contracts you signed during the first part of the year. Would it be possible to have a quantification of the contracts and maybe some flavor on when the contract will start to contribute at the revenue level? The second question is more general on the guidance. I understand that the first part of the year has been favored by non-recurring items, but even excluding these, the results were above my estimates. The guidance is including raw material impacts in the second part of the year. Is it possible to have a quantification in terms of this impact? It seems to me that you are positioning on a very safe side, and maybe you are too conservative. Maybe I'm wrong. Just a flavor on this. The third is on the Suspension business.
I've seen that there are more than EUR 7 million of a non-recurring. Can I have a details on this? Thank you very much.
Thank you, Monica Bosio. Hello. Thank you for your question. The first one about the nominations. In page 20, there are two example of the business on which we have been awarded with the date of start of production. To answer your question, when it will start to contribute, in fact, usually it's one year after with a peak turnover generation. We have not indicated right now the turnover per program. Why? Because, in fact, when we say Swedish OEM, in fact it's not difficult to understand for me we are talking about. Right now our customers are very protective and reluctant to give us the right to communicate in a too detailed way. That's why we have not indicated the turnover after these programs.
What I can say to try to answer to your question is that we are currently looking at the future, of course, what's going to happen from 2022-2025. For Air & Cooling, I'm quite confident that, in fact, each year we will be able to generate the same turnover in electrical application or e-mobility application than the percentage of the market. For example, if in 2022, there are 10% of hybrid electrical and fuel cell cars, we will be at least at 10% of turnover generation, thanks to the business on which we have been awarded the last three and four years. This is the first indication. Of course, the more it will go, the more we'll be able to be more accurate on these figures, because it will start in production, and we will be able to communicate in a clearer way.
Okay.
Second question about the raw material increase for the second part of the year. It's a strong increase with, let's say, one-digit impact. Yann, is it correct, the way I say it?
I'd say mid to high single-digit impact, negative impact in the second half of the year.
Mid to high single digits?
Yes.
Okay.
It is significant, Monica.
Yes.
In million EUR, not in percentage.
In EUR million? What does it mean? Sorry. Mid to high single digit in EUR million. Okay.
Yes, absolutely. It means it's below 10.
As for Suspension, the net recovery in the first part of the year?
Okay. Monica, I mentioned that we booked a EUR 2.9 million tax credit. It was in Latin America, and it was on Suspension Brazil. This is one-off. We had some fires in the previous years, and we collected money from the insurance that's close to EUR 2 million. The rest are bits and pieces. All in all, it's close to EUR 7 million positive one-offs on Suspension.
Okay. Thank you.
The next question is from François Robillard with Intermonte. Please go ahead.
Hi. Thank you for taking my question. Just mine is on Filtration. You talk often about your new business line in cabin air filters. Just to have an idea of how much of these sales are gaining ground or covering losses, in new contracts made on thermal engine filtrations with OEMs?
Yeah. Thank you for your question. For now, in fact, it's very difficult to estimate because we have acquired these businesses this year, and they will start in production in two or three years. With volumes that are still very difficult to predict. Right now, the strategy that we have on Filtration is to renew everything possible that we have on diesel application. What we have done, for now, these projects are on top of the renewal we have done on diesel. If we follow the trend of IHS for 2022-2025, this new application plus the transmission filters should be able to compensate at least 60%-70% of the decrease of the gasoline as it is forecasting now. This is the current trend from a turnover point of view, because from a profitability point of view, the cost structure is quite different.
From a turnover point of view, we are covering between 60%-70%.
60. Okay. six, zero.
Yeah. The new product line that is going very quicker than anticipated, and it's a very good news. It's transmission filters for automatic gears. The advantage of this product line it's that you will have only these kind of filters on the e-mobility product. We had already good market share in China, and now we have started to get strong market shares in Europe and NAFTA, and the turnover is big in each contract. In the second part of the year, we will continue also to push this family, the transmission filters.
Okay, thank you. Another question on your fixed cost reduction. How much of it is still due to temporary action like CIGO or Cassa Integrazione?
Very low. In 2021, in fact, most of our reductions are structural reductions and not thanks to CIGO or Cassa Integrazione or Chômage Technique. The amount is very low in the second or first semester 2021.
Okay. Can you give us a number?
Yann, correct me if I'm wrong, but it's below EUR 2 million.
It's EUR 1 million-EUR 2 million in the first half, so very much below the favorable impact we had last year.
Why? Because I prefer to push structural actions rather than to rely forever on the support of the governments or this kind of action. Of course, when needed, we have used it, but we prefer to have structural action that will have a carryover in the next years.
Okay. Just one last question, if I may, on restructuring. Last year, you booked quite a significant amount. Is it already included in your cash figures for the first half of the year? Will it still drag on into the second half? All the payments on the restructuring actions booked last year on your P&L.
Sorry. Good question. About the social plan mainly of France. No. One part will be paid this year, so second part of the year. Half of it will be paid second part of the year. The other half will be in fact next year.
Okay. Fréd, we had a second action
For the closing of a Suspension plant in Europe, for which we already have cashed out close to EUR 2 million in the first half.
Yeah.
When you mean action on Suspension, it's a German plant, right?
We had put a reserve for restructuring on the German plant, for which we already have cashed out close to EUR 2 million.
Okay. Thank you.
You're welcome.
As a reminder, if you wish to register for questions, please press star and one on your telephone. The next question is from Roland Könen with Value-Holdings . Please go ahead.
Yes, good morning from my side. Thanks for taking my questions. My first question would be on your very nice outperformance in the first half of 5 percentage points. If you look at like for like, it is 9%. If you take the IHS forecast for the second half of -3.4%, do you have any guess for your outperformance in the second half? That would be my first part of the question. The second one is on your good development, especially in Air & Cooling and Filtration versus 2019 figures. I guess it is helped by the aftermarket. Just looking at the OEM business in these two segments, what would be the other picture of the development of outperformance? The second question is on the potential EUR 21 million loss if you sell the Filtration Argentina business, what would be the tax quote on this amount?
Last question would be on the bigger picture. We saw in the last weeks, a lot of OEMs accelerating their evolution of the EV-only world or of their electrification picture for the next years. For example, last week, the Daimler in Germany. What does this mean really to your planning for the next three, five to seven years? Thanks a lot.
Thank you. first question was about the sales of semester two versus IHS. Basically, the assumption that I used in order to build the forecast is to consider that our trend will be the same as first semester. If in first semester we lost 9% versus 2019, I consider that this trend may continue in the second part of the year. When you are right, IHS is much more positive, if I can say. This is the way we built. I hope that we will over-perform like we have done in first semester. Again, there are so much volatility about the chips or the raw material shortage that OEM can face or even the COVID situation, because we don't know if from September on, there may be new restrictions or new issues with the variant.
That's why in my approach on sales, I prefer to be conservative in this kind of environment. The second question was about Air & Cooling, if I remember well. Could you repeat, please, your question on Air & Cooling product development, please?
Yes, of course. Thanks a lot. You had roughly flat development in Air & Cooling and also in Filtration versus 2019 figures.
Yes.
Especially in Filtration, you had some kind of aftermarket business. When we adjust about the aftermarket business and just compare OEM business with the market figures, what would be the picture there?
Okay. Very good. Yeah, it's a good question. You are totally right. On Filtration on OEM side, only OEM side, our decrease is roughly -6%. We are still overperforming in the market. In fact, both in Filtration and Air & Cooling, we have to be very careful with these figures. Why? Because in fact, we are suffering a decrease in our current programs because the market is decreasing, and we are starting new programs in order to compensate. In fact, the minus or the flat figures for Filtration and Air & Cooling are a minus of the market and development of new programs that we have started this year or last year, which requires more effort than just doing the current application. On Filtration, we are beating up the market, thanks to start of production that we started last year. In Air & Cooling, it is same.
We launched in Air & Cooling beginning of this year and second part of last year, roughly 30 new programs, most of them in water pump and thermostat housing activities in cooling side. Which require a lot of effort. It helps us to go through the market decrease. In OEM side, it's going well also in Filtration side. You have the question about the three, five years outlook for the e-mobility. The good point, we have not waited for the current pressure to start Air & Cooling. We started five years ago, being nominated with Renault on the electrical application for the battery, and then we acquired knowledge each time we worked on a new program and a new business. In the beginning, my strategy was to quote as much possible RFQs in order to learn, to improve, to be close to the customers.
More and more, we are able to have a selective approach based on our know-how, and also, let's say, the feasibility of the program and the volumes of the program. We are doing that with our legacy customers in one hand, and in another hand, we have integrated new customers, most of the time 100% electrical cars customers in order to continue to learn with them and to be ready to get market share from them once it will boom. The difficult part about e-mobility currently is that we have a lot of quotation, lots of RFQs, so it means lot of investment from an R&D point of view for the last three years in R&D and in Filtration. That if you look at the turnover per program compared to ICE application, for now it's much lower. What does it mean?
Based on our calculation, we have to be awarded on three e-mobility business to have the same turnover as the ICE application business currently. The more we grow, the more this trend will reduce because I guess the volume will continue to increase on hybrid electric cars. The good thing is that we started early, and we acquired a good customer intimacy. I think on e-mobility, it will be very important because the game has changed. In the past, the customers were coming on us knowing exactly what kind of product they want, and then it was just about the price. Now, the situation is different. They have, of course, the ideas. They know where they want to go, but they are more open to discussion and technical proposals from our side.
That's why I push a lot to be present from the beginning on this kind of application. The last question you had was about Argentina.
Hold on. You had a question on the impact of the reversal of the translation reserve. We are triple-checking because it's a very material amount, but for the time being, we assume no tax impact.
Okay, great. Thanks a lot for the answers.
You're welcome.
The next question is from Gabriele Gambarova with Banca Akros. Please go ahead.
Yes, thanks for taking my questions. The first one regards your effort to cut the fixed costs, around EUR 22 million in the first half of 2021 versus the same period in 2019. I was wondering if you could assume a similar benefit in the coming next two quarters, in the second half of the year?
Yeah. The trend is roughly the same, not exactly as big as it was in the first semester because, in fact, second part of 2019, there were already savings. At the same time, I have done action in the first semester of 2021 in order to have the full benefit in semester two. Yes, there will still be a big positive impact of the fixed cost in the second part of the year.
Okay, great. Many thanks.
Yes.
Regarding the free cash flow generation, could you provide me some indication for the whole year, even directionally on the various components of it? I mean, is it possible to know what do you expect on this front, more or less?
We currently expect a free cash flow for the full year in line with the numbers at the end of H1.
Okay. The full year free cash flow may resemble the EUR 33 million you recorded in the first half.
Absolutely.
I got it. Okay, thanks. I had one last question on Romania. I saw that there was an impact in terms of EBIT of around EUR 4.3 million in the first half. I'm looking at slide nine. I was wondering how this item will evolve in the latter part of the year?
Well, yeah. It's a good question. You are totally right. As you know, Oradea plant will be the biggest plant of Suspension. It's a big plant, 30,000 sq m. We started the activity roughly two years ago, and last year we had purchased most of the machines that we needed to produce. Unfortunately, last year was a very special year, as you all know, and we had a lot of difficulties to have the suppliers coming to our plant, assembling the machines as they should have been. When we started the year in 2021, we were in delay about these machines. We had to pay a lot of extra costs to push the suppliers to come. Ourself, we had a lot of extra costs in the first part of the year because we had to work in overtime, because the capacity was not installed yet.
It was difficult six months for Romania. The good news is that now, most of our machines are in place. We have reached about 92% of the capacity required by our customers. There has been a big catch-up done these last three months on this project. Of course, we are still running after the emergencies for the deliveries with the customers, but we don't spend any more so much inefficiency cost on special trucks, direct labor, extra work, or special cost for the suppliers. I would say that the worst has been booked in the first six months. We still have many operational challenge in the second part of the year in order to have the full capacity installed for the new programs which will start. We will have a new program starting in September, another one in the end of the year.
Slowly but surely, we will do what it needs to be done from an operational point of view to stop the loss, and then slowly but surely to make it profitable. The next six months will be focused on the operational improvement, and then in 2022-2023, we will continue the purchasing and the commercial improvements in order to make this plant profitable. I would say that the worst has been booked in the first six months, the first month, because it was hell. To have the Chinese supplier coming in Europe assembling our machines was a real fight due to the constraints that you all know. I would consider that the worst is behind us and the best in front of us.
Okay. Gabriele, we expect there will be a loss in the second half for the Romanian plant. It's not unusual for a plant in ramp-up, but the loss should be lower than in the first half.
Last question, for me is on the slide with the clients, slide number seven. I saw this important share for Stellantis, very important one, but shrinking. Is there any reason for that?
The reason basically is that Air & Cooling and Filtration were very strong with PSA, Suspension strong with PSA and FCA. When Stellantis they merged, basically it became our biggest customer. Sorry, we are also very strong in North America with Chrysler. Now Stellantis is 22% of our product portfolio. It's a good point in one end, it can create opportunity. In the other end, of course, it may create some challenges to have a customer so big in our product portfolio. For now, I would say that the discussions with Stellantis are quite positive, both from a business development point of view or pricing point of view when there are some issues.
We have a good customer intimacy, both thanks to the fact that we were strong with FCA, because we know FCA very well, and also that we had a good intimacy with PSA on the other end.
Okay. Frédéric and Yann, many thanks.
Thank you.
The next question is a follow-up from Monica Bosio with Intesa Sanpaolo. Please go ahead.
Yes. Continue just some housekeeping questions. Can you give us an update on the full-year tax rate and a rough indication of the CapEx spending, including intangibles by year-end? Thank you very much.
Monica , you have seen that the tax rate, I think, is at 34% on pre-tax on the first half. Since we have taken a prudent reception on a full-year basis, we have assumed a 40% tax rate for the full year.
Okay. In terms of CapEx and intangibles overall for the full year, just to figure out the.
Tangible CapEx should be quite similar to what we had last year.
Okay.
You know, intangibles, it's accounting.
Okay
The real milestone is tangible CapEx. Before IFRS 16, it should be slightly below what we booked last year.
Okay. Thank you very much. Thank you.
Thank you.
The next question is a follow-up from François Robillard with Intermonte. Please go ahead.
Yeah. Monica just took my question on CapEx. Just quickly, if you can come back on your expectations for volumes for the second half. IHS is -3.4%. You say you're more cautious. Are we talking mid-single digit, high single digit decline? Can you just give us a view on that?
My assumption was to consider the same trend as first semester. First semester, we were 9% below 2019. I consider that this trend may continue in the second part of the year. It creates a big spread versus IHS, but I consider that the delta that we had in first semester versus 2019 will continue in the second part of the year.
Okay. Thank you very much.
You're welcome. Due to all the, yeah, unexpected things that can happen in the coming months between material shortage, COVID, and so on.
The next question is from Giulio Scanferlato with EQUITA. Please go ahead.
Good morning. Thank you for taking my question. I just have one quick question on Argentina. I was wondering if you could give us some more details in terms of turnover and operating margins of the subsidiary that will be sold, and assuming that it is loss-making, how much has it lost in recent years? Thank you very much.
Fréd, do you want me to take it?
Yeah, please, Yann.
It is a small entity. We are talking about roughly EUR 15 million of annual turnover. It is loss-making. I think it's also the positive impact of the deal, which we are considering, because this positive impact will be cash-wise in the years to come. That will be if the deal goes through, which is not a certainty at this stage. This will improve the cash generation of the group by a few million every year. I think We want to refocus the businesses on where we are strong. Fréd said that in the last conference call, Europe, NAFTA, China. If it also helps our cash flow, I think it's the right decision if we can conclude this deal, which, as I mentioned, is not yet done.
Absolutely, Yann is right, both from a financial point of view and strategic point of view, because currently in Argentina, our plant is a 100% aftermarket plant, and Argentina is importing most of the filters now from China. There is a crazy competition on the local market with the Chinese filters. That's why our strategy to refocus where we are strong and generating cash, I think is the right approach, and we are continuing with support.
In terms of EBIT on the full year, because many things happen below EBIT in Argentina, because of the accounting rules. It is a plant with a EUR 2 million positive EBITDA. It's not going to change the metrics for Sogefi.
Okay. Thank you very much.
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