Good afternoon. This is the Chorus Call Conference Operator. Welcome, thank you for joining the Sogefi nine- month 2020 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. Mauro Fenzi, CEO of Sogefi. Please go ahead, Sir.
Thank you very much. Good afternoon. Today, we are going to present the nine-month result of Sogefi. You should have the presentation with you, I kindly ask you to go to slide number four. We go directly to the main highlight of the third quarter 2020. On the revenue side, so we are talking about sales. Sogefi reached EUR 341 million revenues versus EUR 371 million same period, 2019. We are down 8%, 8.1% on a reported basis, and -1.3% at constant exchange rate. You will see later in the next slide that we've been able to outperform in all the regions with a very strong, positive gap in growing markets like China and India. Last but not least, also North America. Later on, you will see how we reached this level of revenues. Now we go to the EBITDA.
EBITDA has been third quarter EUR +47.6 million versus EUR 44.4 million the same period, 2019. We reached a better EBITDA not only in absolute number, but also in percentage, because we reached 14% on sales this year against 12% last year. We had a contribution, of course, coming from the higher expected volumes, but also thanks to the actions done in lowering the fixed costs. You will see later on that the fixed costs this quarter were at 15.5%. That compared to 2019, is much lower because in 2019, we had 18%. At EBIT level, we are at EUR 15.6 million against EUR 13.1 million same period, 2019. Also here, we are confirming a positive trend compared to last year, despite the lower volumes. In percentage, we are this year at 4.6% against 3.5% last year. In the same period, we had write-downs to consider.
In quarter three, in this period is EUR 1.8 million versus EUR 0.2 million of the same period, 2019. If we go to net income level, we are positive at EUR 5.6 million against EUR 1.4 million same period, 2019. Also here, we confirm the same positive trend. We have just to remind that we are after tax charges, which this year are EUR -3.8 million versus EUR -4.4 million the same quarter, last year. On the free cash flow, we are back to positive numbers. We are at EUR +28 million. Last year, we were at EUR 2.8 million. On the net debt, we are at EUR 299 million, which last year was EUR 256 million. If we go to the next slide, we can see the trend in sales, geographical area by geographical area.
The first comment I want to highlight, that Sogefi has been able to be on the positive side almost everywhere, I would say everywhere. I need to start talking about Europe, because as you know, the weight of our revenues is in the range of 60%, for us, Europe is very key. In Europe, we had the better performance with respect to the market, the relevant market, for a couple of main reasons. One, is covering the aftermarket business we have in Filtration, which is focused on Europe. The second is the trend of the customer portfolio we have in a couple of business units, which are today very oriented to German premium brands, much more than some years ago.
We are performing, I would say, very well on all the areas with the best growing trends in emerging countries, like I said at the beginning, where Sogefi, for example, like China, is not doing a high amount of money. The trend is positive because we are growing faster than the relevant market. In South America, where we have more presence, we are also doing the same in this current period of time. Going to the next slide, which is slide number six, we see the sales by business units. Again, we are talking about third quarter. The business units were quite different in trend. For example, Suspension, if you see the comparison between the two quarters, 2019 and 2020, is down 13%, while we have Air & Cooling, which is really + 6%, and Filtration is + 4%. Why this?
For Filtration, I already did a comment on aftermarket. On Air & Cooling, we have German OEMs, which are playing in this period very well in volumes. For Suspension, as you know, is more focused on Europe and South America with respect to the other two business units, so they suffered a little bit more on the sales because of the geographical area they are covering. Now I leave to Yann the task to comment slide seven and eight.
Thank you, Mauro. As Mauro mentioned, sales down by 8%. You can see on this slide that we managed to mitigate this volume reduction by cutting a lot more in terms of fixed cost. Fixed cost on the quarter were down 20%, to be compared with the - 8% on the top line. In addition, we managed quite well the gross margin, the contribution margin, which is very much similar, even slightly better than it was in Q3 of 2019. D&A, roughly at the same level. Write-downs, we have kept on doing some cleanup, as a result of which, as Mauro mentioned before, not only does EBIT percentage, so profitability level, not only is it higher than last year, but in absolute terms, despite less volumes, we reached a higher EBIT, EUR 15.6 million versus EUR 13.1 million in Q3 of 2019.
Not much to say in terms of financial results income tax. As a result of all this, net income at EUR 5.6 million versus EUR 1.4 million last year. Moving on to cash flow generation. As you can see, cash flow generation, here we are talking before IFRS 16, EUR 28 million versus EUR 2.8 million in the same period of 2019. Most of the difference comes from volumes. You can see that on the first line. It's roughly EUR 9.5 million. It comes from more profitability, and in the profits, we have booked in Q3 some restructuring charges, which have no cash impact, and therefore, we generated a lot of cash in Q3 due to more volumes than expected initially. The rest comes from managing the working cap.
It's slightly confusing here because you should take into consideration the total of working cap and others, because part of the improvement in others is a reclassification from medium-term to short-term debts. It's mainly an action that we took to cash overdues from clients, reduce inventories, and since we picked up the sales, we also could increase the level of factoring. All- in- all, a good quarter on the cash side, ending up with a net debt at EUR 299 million versus EUR 265 million in Q3 2019. An important point to mention is that this slide is on net debt before IFRS 16. In Q3, we booked the lease of our new Romanian plant for an amount of EUR 19 million. You will see that in the NFP comprising the lease debts. Mauro?
Thank you very much, Yann. Before closing quarter three, I would like just to highlight one point. I think that quarter three is showing how the company is implementing faster the actions that I was talking about during the last call. We are implementing a set of actions which are relevant to fixed cost, which are giving now the first results, and you see the results in the quarter three numbers. Now I would like to go to the nine months. We go to slide 10. Going to slide 10, we start with the volumes, as usual. We are nine-month period at EUR 860 million, with a reduction of 25% with respect to last year and 21.9% at constant exchange rate.
Also in this case, and you will see this in the coming slides, we are outperforming all the regions. Including global level, despite the mix, which is not, at the moment, very favorable, because again, I remember you that for us, China is growing pretty fast, but is a small baby. On EBITDA, we have been able to keep the EBITDA at EUR 94.7 million against EUR 130 million last year, which in percentage is in line with the previous year. This year is 11%, last year was 11.4%. This is coming by a double effect. We are there because of volumes, which are slightly improving the last quarter, also because the mitigation and reduction of gross fixed cost, as highlighted before, is giving the first results.
I have to remember you that we have EUR 14.2 million of restructuring cost this year, which can be compared to the EUR 5.7 million same period last year. We have more or less 3x the restructuring cost we had last year. These numbers are including EUR 5.2 million of adverse exchange impacts in South America. Last year was EUR 3.2 million. At EBIT level, we are very close to break-even, because we are at EUR -3.2 million in the period, against EUR 37.4 million of last year. The EBIT has been heavily affected by the volumes. We have to remember again, and to highlight, that in the nine months 2020, we have a write-down of EUR 8.2 million against EUR 2.2 million in the previous year.
At net income level, the nine months are bringing the net income at EUR -23.2 million , against a positive number, EUR 8.3 million last year. This after tax charges for around EUR 3 million versus the EUR 12.6 million last year. Cash at free cash flow level, the nine months are showing a EUR -42.3 million free cash flow, against EUR -0.5 million last year, same period. The net debt is at EUR 299 million level against EUR 256 million last year, same period of time. We go to slide 11. I can talk a little bit about the geo areas. First of all, if you remember the trend of the last quarter, so quarter three. You compare with the trend of nine months, you see that we have more or less the same trend we have seen already. All the areas are outperforming Sogefi.
The weight of Europe of the nine months is slightly higher than the quarter, which is a good indication, because we are growing step by step in the other regions. The reasons for this outperformance are the ones I told you before for the third quarter. On top of it, we have to highlight a very good performance in North America, with one of the three bigs we have in the customer portfolio, which is asking to increase the volumes of Air & Cooling and Filtration products. Going to slide 12. We see the usual top customer slide. You see that Ford, Daimler, and BMW are step by step growing, all the three. Renault is slightly below, I'm comparing to the last year, FCA, too. GM, even if it's lower, is recovering pretty fast, as I told you. You will see GM grow in the future, in the coming months.
It is quite important, again, to highlight that our strategy is to grow as much as possible with all the customers, but with a special attention on the German side, which are covering Daimler and BMW, among others. If you go to slide 13, you see the sales by business unit. Here you see that Suspension is, for the same reasons before we highlighted, is at 30% lower, 2020 on 2019, while Air & Cooling & Filtration are in the range of 16%- 17% lower. Also here, the reason of this has been covered in my slide, relevant to the sales of the third quarter discussion.
Now we talk about the new business. It is very key to say that we started the year, we are after nine months, with contract signed in the range of the same period of the previous years, despite of the crisis, which is a very good sign. Among them, I would like to highlight a couple of them. One, quite important, with a premium German OEM, on Air & Cooling side for manifolds in aluminum. The contract value is around EUR 100 million. It is very key because it's strengthening our position, which is already a leadership position, in this specific sector. I'm talking about the aluminum manifolds. Thanks to the pushing action we did in the last period, I am also pleased to say that 25% of the Air & Cooling contracts acquired in nine months are covering hybrid and full electric applications all over the world.
Suspension got a very key order from a North American EV OEM on the U.S. market. Thanks to the development of specific products, I have to say that also the Suspensions are affected by the electrification, in the sense that the behavior of the Suspension system is today changing because of the weight of the batteries and the different layout of the body. Also here, we have to say that 35% of the contracts acquired in the period are coming from hybrid and full electric applications. The trend is very good and is going in the right direction. Now, I think we have to go to slide 15. Yann, if you can maybe comment it.
Slide 15, no big surprise. A sharp volume impact, which mainly comes from Q2. Just to remind you that in Q2, we had sales down 56% versus 2019, a huge impact in terms of volume. As you have seen in Q3, and you will see immediately after in year-to-date, our contribution margin has slightly increased versus 2019, hence the slight recovery of EUR 5 million on variable costs. As mentioned by Mauro, lots of efforts to reduce very quickly our gross fixed costs, a saving of EUR 49 million over the first nine months of the year. A EUR - 6 million charge, especially write-downs. We cleaned up some projects, which clients canceled and which were no longer running. What is very significant is restructuring.
Restructuring in the first nine months, we have booked slightly more than EUR 14 million of restructuring charges versus EUR 5.7 million in 2019, an EUR 8.5 million adverse difference versus the prior year. It's something we heavily commented in our last call. We are still eager to reduce our fixed costs. We want to adapt the company to structurally lower volumes, hence the restructuring charges, and we'll keep on restructuring in the last quarter of the year. Also, it's various elements, and so this is how we end up with a EUR -3.2 million EBIT at the end of the first nine months. Now, if you move to slide 16.
Sorry, Yann, to interrupt you one second. Sorry. I want to make a comment on slide 15 before you go to 16. We had a very difficult period because you can imagine that the lockdown period affected really the production flows. When we restarted, we had to restart at stop-and-go for some period of time. We implemented before the COVID safety rules in the plant, we had to modify the production flows and processes for it. The EUR +5.2 million number you see under the efficiency on variable costs are showing how the team, I would say, did a great job to keep the production efficiencies even better than last year with the current challenging situation. Thank you, Yann.
Thank you, Mauro. If we move to slide 16. As you can see, sales down by 25% over nine months, costs almost down by 25%. You have seen that in Q3, we've done far better because we've done roughly the same cost reduction against a sales drop of only 8%. We keep on pushing, and we are going to keep on pushing in 2020 and 2021. We want to be able to face lower volumes. Variable cost reductions, no need to add anything to what Mauro said. What I would like to insist on is that the negative EBIT we end up with at EUR 3.2 million is after EUR 14.2 million of restructuring charges. Sorry to insist on this, but it's an important fact. We want to reduce the running cost of this group. The rest, I think we already commented.
If you don't mind, I'll move to the cash generation. Slide 17. Cash generation, no big surprise. Big impact of less profitability. That is what the first line says. Working cap impact. Of course, we've not been able to sell as much as usually to the factor. You can see that on the last line, roughly EUR 10 million less . We've had to pay our suppliers because at some point you need to pay them. Big negative impact of working cap, but we are catching up. The following line, you can see that, in terms of investments, we have cut on investments. This was especially with our budget. Our budget was far higher. I just want to remind you that in the budget for 2020, we have a new plant in Romania, which is going to be our largest plant in the group.
We keep on investing in it. We already have invested EUR 10 million for Romania, and I think we still have another EUR 7 million or EUR 8 million to come in the last part of the year. Despite this new investment, we have reduced CapEx in order not to impact cash. Net debt, you have seen free cash flow. As you can see, the result of all this, it's a negative free cash flow by EUR 33 million, but we are pushing to improve it. Moving on to financing. Financing, we've not been idle in Q3. We have signed in Q3 and October, medium-term loans for a total amount of EUR 134.5 million, of which EUR 80 million of SACE loans. For everyone, these are loans backed by the SACE organization, by the Italian state, basically. It's a six-year loan, amortizable from September 2023.
You have on the slide the cost, which is going to be 190 basis points plus the cost of SACE, which, as you probably know, is increasing year- by- year. Covenants are the same. The one we have with our banks, that's to say, the main covenant is a leverage ratio at four. It's the same with the SACE loans. Second operation, which we concluded at the beginning of this week. We had a revolving line with a French bank, which was expiring in February 2021. We have succeeded in converting this line, which we had to pay back in February, into a six-year loan, with final maturity in October 2026. Amortization starting in January 2022. As you can see, progressive costs from 2.5%- 5% year- after- year. No state guarantee on this line, it is slightly different from the first one we saw.
Yesterday, we signed EUR 34.5 million of loans guaranteed by Bpifrance, so basically by the French state. On paper, it is a one-year loan, but actually, at the end of the first year, the borrower has the option to extend the loan for a period up to five additional years. This is what we are going to do. Same maturity as the RCF we just mentioned. Same amortization. Bank cost, nil for the first year, and then we'll have to discuss with the banks, what the cost is going to be. It's meant to be at cost, which is something ambiguous. We believe it's going to be between 100 basis points and 200 basis points. Plus, of course, the guarantee of BPI, which is exactly the same as the SACE guarantee. Another point, same covenants as with the banks.
That's to say, with a leverage ratio that needs to remain below four. Coming back to the covenants, we've just redone a projection and at year-end, we don't expect any problems with our covenants. There will be no breaches of covenants end 2020.
Okay. Thank you very much, Yann. We go to the section relevant to the business unit's profitability trend. Here we are talking again about the nine-month period. Let's go to slide 20, where we see the Suspension profile. On sales Suspension, we already discussed it. On EBITDA, the division, the business unit, went from 8.3% EBITDA in 2019 to 7%. There has been a very good action in containing the impacts of the period, because we have to keep in mind that this is including the new Romanian plant development, as mentioned by Yann. Again, I repeat, it is very key for us to protect this investment to gain competitiveness in the future, and we are doing this. That's why you see also a difference, a gap between the EBITDA in the two different years.
The cost has been reduced within the division of a EUR 20 million amount, which is a very relevant amount. I have also to mention that the EBITDA in the third quarter has achieved roughly 9% on the quarter three, as I said. Now we go to Filtration, which is the next slide, 21. Filtration EBITDA, because on the sales, we already discussed this point. If you want, I can cover this a little bit better. There is a reduction of 20%, roughly, at current exchange rate, and this is coming by a major decline, unfortunately, in South America and in India, where Filtration is quite important. A little bit balanced by the aftermarket trend, as I mentioned before.
On the EBITDA level, this division went from 10% to 8.5%, and this is mainly driven by volumes, which has been, I would say, counterbalanced by a EUR 20 million, also in this case, gross fixed cost reduction. We have to highlight that in these numbers, we have a EUR 2.3 million negative effect on the exchange rate in Brazil. On the last quarter, so on quarter three, also this division, despite the volumes, has been able to improve EBITDA with respect to the previous year. Now, we go to Air & Cooling, which is slide 22. On the volume side, this has been the less affected division with the -19.2%. Of course, as the others, Europe and North America, have affected the trend on volumes, while we have to highlight a very good trend of the Chinese plants, which are today at +22.6%.
This is not, of course, only a market effect, because the market is not performing like this, but is an effect of the new programs we are launching, the new start of production we are launching this period in China, which is a very good sign for the future of the company. On the EBITDA level, I would say that this division did an excellent work, because improved in percentage, EBITDA from 16.4%- 18.3% in the nine months. With this percentage, the division achieved really an EBIT margin at 4.1%, despite of volume drops. This just give you an idea of the three divisions. As usual, we go to the last step, which is the outlook and the market evolution.
Here again, we are in a period of time where the volumes, in the last quarter, showed a very positive effect, which are, from this standpoint, supporting really the, I would say, the future. On the other side, we have to keep in mind that the current COVID, the second wave, which is unfortunately happening almost everywhere, risk really to affect the year-end on the car sales standpoint. Let's start, as usual, with the IHS forecast, with a few comments from my side, also to justify our outlook. Let's look at the quarter number four, which is the quarter we are now in. IHS is forecasting Europe slightly better with 1.2%, so with an improvement. In North America, almost flat. South America with a strong recovery, +6%. And Asia with the -3%, of which China is -4%.
The overall average number, total number, is - 3%. Let's make a couple of comments. From what we see with our locations and with our plans, I would like to highlight that North America probably will keep this trend for the last quarter. We see all the customers going well on the sales, despite the COVID situation. We are also growing the area because of new programs. From this standpoint, we are quite sure that we can follow the numbers. On South America, on the opposite side, we see a good recovery. The last couple of weeks are showing that the recovery is happening, but we see a speed which is a little bit less exciting than the one reported in the table at page 24. We have been a little bit more conservative on South America.
On China, as you have seen before, we are over-performing the market. We are keeping this in mind. Last but not least, we have to talk about Europe, which is our most relevant market. In Europe, the situation is quite difficult to predict, because as you see, most of the governments are step by step, but very fast, protecting the people with different actions. Today, we don't have major lockdowns running in Europe, but the trend, unfortunately, is going in the trend of protecting people more and more. We expect that this will not probably finish in a couple of weeks. On Europe, we have been a little bit more conservative. Unfortunately, Europe for us is, as I said, a larger contribution in revenues and sales.
The reason for it is because we expect December a little bit difficult from this standpoint on the volume side. Full year, IHS is forecasting now an year global at 18% reduction with Europe at -24%, 23.6%. Again, we are very confident on North America. On South America, we see a slower speed in recovery, but we see the recovery. China, we are, I would say, going even better. In Europe, we have been a little bit conservative. If we go to the last slide, which is page 25. With this lack of visibility again, even if the quarter three showed a very strong improvement, we have been quite conservative on Europe. We have really incorporated in our Q4 projections, volumes that are down roughly 10% with respect to previous year.
With this trend, we are forecasting anyhow a positive EBIT for the entire year, so for the full year, excluding restructuring charges. This is the end of my talk about the nine months. I would like, as usual, to leave now the time for you to make questions.
Excuse me. 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 of Intesa Sanpaolo. Please go ahead.
Good afternoon, everyone, thanks for taking my questions. I have three questions. The first one, given the new guidance highlighted, can you please quantify once again the amount of restructuring and write downs expected for the full year? Just to be sure that my math is fine, would it be reasonable to assume an EBITDA margin in the region of 10 or something a little bit better, 10% for 2020? The second question is on the EBIT bridge. If I'm not wrong, you gave the EBIT bridge for the nine months. Can you give us some highlights on the third quarter? How much would the improvement coming from volumes and how much from the cost cutting?
The very last question, if you can give us some more color about the EUR 100 million contract in Air & Cooling, just for the origin time, just some more details about it? Thank you very much.
Monica, Mauro speaking.
Hi, Mauro.
I would like to start with the last question, if I can, and then I give Yann the task to reply to the other two. The last question, which is relevant to the EUR 100 million job, is a very key order we got from one of the best premium OEMs in Germany for manifolds. The specific positive point of it is not only the volume and the market share we are going to get in this OEM. Is the development of a new series of products, which are going from plastic to aluminum. For non-technical people, the trend now in engines is to increase the performances of the engines, of course, and this is requiring a change of material. To be very simple, we are covering the high performance applications with this new customer portfolio products.
This will be for sure the future of manifolds, for the next five, six years. Yann, if you can reply to the restructuring amount, I think.
Good afternoon, Monica. Always the first to shoot. In terms of restructuring, end of September, you've seen we had booked EUR 14 million. We plan to book for the full year an amount which should be in the region of EUR 21 million-EUR 22 million of restructuring. Still another EUR 7 million-EUR 8 million to come in Q4. In terms of write-downs, you saw we had EUR 8.2 million at the end of September. We've done our homework. We think we have mostly cleaned up our balance sheet, so there should be fairly little in Q4, and we expect to close around EUR 9 million of write-downs.
Okay, perfect.
In terms of Q3 profitability, I believe the answer to your question is in slide seven. In slide seven, you can see that we have slightly improved the contribution margin, because the contribution margin has been improved by 0.7%, which is significant, and the rest come from cost reduction. I let you do the math. The quasi EUR 3 million improvement versus 2019 comes from the combined effects of mastering the variable cost and reducing fixed costs.
Okay. Thank you very much. Thank you, Yann.
The next question is from Martino De Ambroggi of Equita. Please go ahead.
Thank you. Good evening, everybody. The first question is just clarification on Q3 performance. Is there anything worth to be mentioned referring to raw materials impact, which are mentioned in the press release, and R&D capitalization in Q3 specifically?
R&D capitalization was EUR 1 million lower than in Q3 of last year. We have not pushed R&D capitalization. As I mentioned before, the Q3 result was delivered despite heavy restructuring costs. The underlying profitability is even better than the number by itself.
Raw mat?
On this, I can give you an indication. I can tell you that on the efficiency side, due to the COVID rules, unfortunately, we are losing 1% of efficiency. This has been fully recovered, even a little bit better, by the raw material cost improvement average in the company. Of course, the different divisions dealing with different materials have different profiles.
To specifically answer your question, yes, we have a slight improvement coming from raw materials.
Yeah.
Okay. The 1% is on sales?
The 1% is on sales.
Okay. The second is on the cost cutting, which was really heavy. The slides we see when you present a reduction in fixed cost should be considered structural, so next year they will never reappear, or is something that has to be considered in a different way?
I can reply again. If you see the quarter three, just to have a reference point, savings on fixed cost, we can say that more or less 1/3 of it is coming from already structural actions, and 2/3 are coming from the use of social tools like cassa integrazione or chômage technique and other actions, too, on top of it.
Okay, which is, if I remember correctly, but I don't know, is the same split of the first half, roughly?
I don't have this number with me.
It's slightly more.
Slightly more.
Slightly more. 1/3 , 2/3 is better than it was in Q2.
Yeah.
Okay. In terms of net debt, can you provide an indication? I remember in a previous meeting, we talked about something in the region of EUR 400 million was a reasonable estimate for the full year. Okay, we don't know what will happen with the pandemic, but, looking at Q3 and the expected trend of volumes in Q4 should be better at the end of the year, the net financial position?
I prefer to comment on net debt before IFRS 16, because IFRS 16 is accounting debt. It was EUR 299 million at the end of Q3, and it roughly should be in that same region at the end of the year.
Okay. Very last, just a curiosity regarding the hybrid electric vehicle orders. Are they able to generate higher than the average margins compared to the non-hybrid and non-electric cars, or more or less is the same?
This is the typical question. Most of the people are, of course, interested to know the reply. There are components and components, to be honest. First of all, I give you my view. The view I have with the information I have. It depends component by component. There are some components that are pretty new, because were not present in the traditional, let me say, application technologies, which are showing a better trend in profitability. I give you a couple of examples. For example, components to cool the battery pack and the battery pack itself, the container, are components that were not present in the traditional car, and are very critical to keep the level of performance of the battery pack.
If we talk about these components that are new and are challenging because they are critical for the performance of the car, we see a slightly better profitability. When we go to other components, of course, the gap is much lower, and I expect this gap to be very soon zero, because it's a change of volumes and application, but it's not a really important turnaround there. I don't know if I replied.
Maybe just to clarification on the last portion of the answer. You are telling that, let's say, normal components has the same profitability of the today's components for the fuel engines?
Yeah. I give you an example to be more clear. If I talk about Suspension, it is true that we developed a new Suspension concept for electric vehicles, which is very, I would say, useful because you need to change the performance of the handling of the car because of the weight you have in the body. We modified our concept, and now we have a good concept for it. On the other side, it's not a really game changer for the future. It is needed to get the market share. On the profitability side, I would say that very soon we'll be very close to the normal component for a traditional car.
Okay. Thank you very much.
The next question is from Katharina Raatz of Berenberg. Please go ahead.
Hello, good afternoon. Thank you very much for taking my question, gentlemen. I would be interested in a bit more color on the current situation regarding covenants and liquidity. Could you please remind us, as of now, what is the repayment schedule of your financial debt that you will have in 2021, next year? I'd be particularly interested in an update on the discussion that you also have with your private bond holders. Then, on the covenant side, it would be helpful for me to better understand which financing will actually undergo the covenant checks as of June next year and also December next year? Thank you.
Good afternoon, Katharina. Next year is a key one for Sogefi, because in May 2021, we have to repay entirely the EUR 100 million bond. I can tell you that with the additional financing which we just secured, we'll have no liquidity issue in 2021, nor do we expect in current conditions any in 2022.
Okay. Thank you. Regarding the covenant, could you please give me a remind me of the schedule of the covenant checks?
Covenants are checked every six months. The main covenants are the leverage ratio. The leverage ratio with the banks needs to be below four, with the U.S. private placements below 3.5. On this covenant, which was difficult after Q2, because less EBITDA, more cash burn, we project ourselves at the end of 2020 with a fair margin, there won't be a breach. The other ratio is on EBITDA towards interest. On this one, we had no fear even in the worst of times. With the improvement of conditions, it should be an easy feat to meet it at year-end. For the time being, we do not see any similar problems in 2021.
Okay. The net debt calculation is the one excluding IFRS 16, right?
NFP is with IFRS 16. When I said that we did not expect any issue, net debt with IFRS 16 is roughly at EUR 375 million in September. It should fly end 2020, and for the moment, we also expect it to fly in 2021.
Okay. Yeah. Thank you very much.
You're welcome.
The next question is from Gabriele Gambarova of Banca Akros. Please go ahead.
Yes, good afternoon, thanks for taking my questions. The first one regards the contribution margin. 41% in Q3 was an outstanding result. I guess, if we can consider this target, let's say independently from the COVID evolution, we can consider this level of contribution margin something sustainable for the future. It can be a reasonable target. Just a reminder on Romania, can you remind me when the new plant is going to start, and if that production would be incremental or in substitution, vis-à-vis the current production in more mature countries? Thank you.
I take the questions. The first one is a key question, of course. The company showed that this is feasible in very difficult period of time, because, as I said, we were restarting after a shutdown, and it's not easy at all because the supply chain is not maybe delivering according to expectations, because the volumes are asked by the customers in a stop-and-go manner. It's been really an outstanding result. Our plans have been able really to deliver a very good efficiency in this period of time. The question is, can we keep it on the last quarter?
I think that it is feasible, but of course, we have to see how the COVID situation will evolve in mainly Europe, because if this will push us to, again, go down in volumes or even worse, stopping the plan for some period of time will be difficult, because to get this efficiency, you need to run really the plant as much as possible at a reasonable speed. Otherwise, it's almost impossible. About Romania, of course, I can be more precise. Romania is going to start incremental, delivering products to customers from beginning of next year, through the full next year, because it will be step by step, with incremental products starting along the year. The most important period for ramping up will be from January next year to December next year. We started already producing, because of course, we are in the development phase of the product.
The plant is, of course, suffering the period as well, because Romania, as you know, has been affected by COVID pretty heavily. Up to now, we've been able really to minimize the impacts on the development of the plant pretty well.
To be maybe more precise, Romania should be an increment in sales by EUR 20 million every year for the next four years.
Okay, thanks. It is just Suspensions? Sorry, I don't remind well.
No, of course, it's a good question. It is a Suspension.
Just Suspension. Okay. Yeah. Many thanks.
You're welcome.
The next question is a follow-up from Monica Bosio of Intesa Sanpaolo. Please go ahead.
Yes, good afternoon once again. Just two questions. One for Mauro, is on the aluminum manifold. Do you believe that this kind of product could be a game changer? What kind of margins does this product carry? Can we imagine something better than the previous product portfolio? The second is a follow-up on the first questions. Taking into account the expected performance in the last quarter of the year, assuming that you should continue to outperform, and assuming your guidance on the EBIT restructuring, would it be fair to assume an EBITDA margin in the range of 10%-10.5%, or maybe even a little bit better? Thank you very much.
Monica, coming to the first question, which is profitability of the manifolds. I would reply yes, because up to now, there are very few suppliers able to do aluminum casting for manifolds of this high performance range. That's why this premium German OEM decided to, let me say, to involve Sogefi as a supplier. The other company is a German company. I cannot tell the name, but you can imagine.
Yes.
Yes. Can be, let me say, a game changer, the aluminum change of material we are talking about.
Thank you, Mauro.
To answer your question, we do expect an EBITDA margin in the region of 10% in Q4.
In Q4?
Yeah.
Okay. Thank you very much.
You're welcome.
The next question is a follow-up from Katharina Raatz of Berenberg. Please go ahead.
Thank you very much. Coming back to the strategy to adapt your company to overall lower volume in the mid to long term. I would just be interested in, to the extent this lower volume level might have been also adapted in line with the lower speed of recovery. You mentioned in your opening remarks that the overall recovery now of the market is a bit slower than we might have expected some months ago. Did this actually change your overall strategy to also adapt the volumes, for the midterm?
Mauro speaking. To be honest, when three months ago, as you remember, probably, we worked around the plan for the coming years. We have been quite safe in predicting the 2021 volumes and actions. To be honest, today, I don't see the reason why I should put in place more actions than the one we are pushing, which are not completed, Katharina, because we are along the way. On the other side, we are also preparing, of course, the new version of 2021 forecast with the last information. You have seen that we are projecting 10% in our [reduction] on the last quarter. We are just checking if this will bring us to the same value more or less next year, or slightly better. Again, I tell you that the plan we did three months ago is pretty well covering this gap. We are on the safe side.
Okay, understood. Yeah. To better understand the priority of the different financial KPIs, could you please help me understand the KPIs that actually underlie the stock grant plan?
The stock grant plan? Mauro, it's a question for the CEO, I'm sorry. I think that Katharina wants to know. Yeah. What are the KPI we take in consideration for the grants to the main managers of the group?
Let's say, Katharina, are the usual KPIs that most of the groups are using. We are measuring the performance of the shares, so the value of the shares on the market compared to the best peers. This is the key indicator for us, like for the others.
Okay. Thank you.
The next question is from Roland Könen of Value-Holdings. Please go ahead.
Yes, good afternoon from my side. Almost every question is already be answered. Just one left. Could you please elaborate a bit on the profitability of your South American business, especially with regard to the negative FX development this year and also the years before. Is it the case that most likely your cost is also in local currency, so that you have a natural hedge in South America? Do you suffer, not only on the sales level, but also on the earnings side from the negative FX development there? Thanks a lot.
Roland, it's an excellent question. I wanted Mauro to answer it. He's pushing back to his CFO.
No, I can reply on the first part of the question, then I leave to Yann the hedging part. You know that in South America we have two different businesses. We have Filtration, and we have Suspension. The Suspension business, which is both in Argentina and in Brazil, is performing pretty well, and the performance is, I would say, even considering the COVID, lower volumes are quite satisfactory. On the Filtration side, the situation is, of course, not as good as Suspension. We started the recovery plan when I came to the role, so a couple of months before COVID was starting. The plan, despite COVID, has been already implemented in some areas, because I can tell you that in the restructuring cost, there is a portion already spent in LatAm Filtration to reshape and to restructure the plants we have down.
We expect, really, an improvement coming from January on this side, and the first signs are showing that improvement is there. I have to be transparent and honest, the COVID impact, unfortunately, I would say that changed a little bit the priority of the local team on this side. The actions we have defined to improve, part of them have been implemented already, so I expect an improvement there.
Maybe I can elaborate a little bit on it. LatAm is an issue in Filtration. It was an issue before COVID. The COVID situation, despite the very sharp drop in sales, has not worsened the situation because of the actions which are underway. Therefore, I dare say, it has not vastly improved, but it has not worsened despite the situation, which in terms of sales, is really difficult. All- in- all, we see the first signs of the improvements due to the reduction in costs, and that should help forward the running of this operation.
Okay, great. Many thanks for the details. Have a nice weekend and stay healthy. Thanks a lot.
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I thank you for your time, and have a good weekend then.
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