Earnings Call: Q3 2020

Oct 23, 2020

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. At this time, I would like to turn the conference over to Mr. Mauro Fenci, CEO of Sogefi. Please go ahead, sir. Thank you very much. Good afternoon. Today, we are going to present the 9 months result of Sogeti. You should have the presentation with you. So I kindly ask you to go to Slide number 4. So we go directly to the main highlights of the Q3 2020. On the revenue side, so we are talking about sales. Sojetti reached €341,000,000 revenues versus 371,000,000 same period 2019. So we are down 8%, 8.1% on a reported basis and 1.3% negative at constant exchange rate. You will see later in the next slide that we have been able to outperform in all the regions with a very strong positive gap in growing markets like China and India and 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 3rd quarter EUR 47,600,000 positive versus $44,400,000 the same period 2019. So 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 cost. You will see later on that the fixed cost this quarter were at 15.5%. That compared to 2019 is much lower because in 2018, we had 18%. At EBIT level, we are at €15,600,000 against €13,100,000 same period 2019. So also here we are confirming a positive trend compared to last year despite the lower volumes. And in percentage, we are this year at 4.6% against 3.5% last year. In the same period, we had buy downs to consider. So in quarter 3 in this period was is €1,800,000 versus €200,000 of the same period 2019. If we go to net income level, we are positive at EUR 5,600,000 against EUR 1,400,000,000 same period 2019. So also here we confirm the same positive trend. We have just to remind that we are after tax charges, which this year are minus €3,800,000 versus €4,400,000 negative last quarter the same quarter last year. On the free cash flow, we are back to positive numbers. We are at plus 28,000,000. Last year, we were at €2,800,000 And on the net debt, we are at €299,000,000 which last year was EUR 256,000,000 Now 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 is that SOGF has been able to be on the positive side almost everywhere, I would say everywhere. But I need to start talking about Europe because as you know, the weight of our revenues is in the range of 60%. So for us, Europe is very key. In Europe, we had a better performance with respect to the market, the relevant market for a couple of main reasons. 1 is covering the aftermarket business we have in filtration, which is focused on Europe. And 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 you know, so JF, for example, like China is not doing a high amount of money, but the trend is positive because we are growing faster than the relevant market. South America, where we have more presence, we are also doing the same in this current period of time. So going to the next slide, which is slide number 6, we see the sales by business units. Again, we are talking about Q3. The business units were quite different in trend. For example, suspension, if you see the comparison between the 2 quarters, 2019 2020, is down 13%, while we have air and cooling, which is really plus 6% and filtration is plus 4%. Why this? For filtration, I already did the comment on aftermarket. On air and cooling, we have German OEMs, which are playing in this period very well in volumes. For suspensions, suspension, as you know, is more focused on Europe and South America with respect to the other 2 business units. So they suffered a little bit more on the sales because of the geographical area they are covering. Now I leave to Jan the task to comment Slide 7 and 8. Thank you, Mauro. So as Mauro mentioned, sales down by 8%. And 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 in the quarter were down 20% to be compared with the minus 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 and A, roughly at the same level. Write downs, we have kept on doing some cleanup as a result of which, as Mario 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, €15,600,000 versus €13,100,000 in Q3 of 2019. Not much to say in terms of financial results income tax. So as a result of all this, net income at EUR 5,600,000 versus EUR 1,400,000 last year. Moving on to cash flow generation. As you can see, cash flow generation here, we are talking before IFRS 16, €28,000,000 versus €2,800,000 in the same period of 2019. Most of the difference comes from volumes, You can see that on the first line. So it's roughly €9,500,000 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 in consideration the total of working cap and others because part of it part of the improvement in numbers is a reclassification from medium term to short term debt. So it's mainly an action that we took to cash over dues from clients, reduce inventories. And since we picked up the sales, we also could increase the level of factoring. So all in all, a good quarter on the cash side, ending up with a net debt at €299,000,000 versus €265,000,000 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 €19,000,000 So you will see that in the NSP comprising the lease debts. Mauro? Thank you very much, Jan. Before closing quarter 3, I would like just to highlight one point. I think that quarter 3 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. So now I would like to go to the 9 months. So we go to Slide 10. So going to Slide 10, we start with the volumes as usual. We are 9 month period at €860,000,000 with a reduction of 25% 25% with respect to last year and 21.9 percent at constant exchange rate. But also in this case, and you will see this in the coming slides, we are outperforming in 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 it's a small baby. On EBITDA, we have been able to keep the EBITDA at €94,700,000 against €130,000,000 last year, which in percentage is in line with previous year. So this year is €11,000,000 last year was €11,400,000,000 percent. This is coming by a double effect. We are there because of volumes, which are slightly improving the last quarter, but also because the mitigation and the reduction of gross fixed cost, as highlighted before, is giving the first results. I have to remember that you that we have $14,200,000 of restructuring cost this year, which can be compared to the $5,700,000 same period last year. So we have more or less 3x the restructuring cost we had last year. And these numbers are including $5,200,000 of adverse exchange impacts in Ardour and South America. Last year was 3.2 percent. At EBIT level, we are very close to breakeven because we are at minus €3,200,000 in the period against €37,400,000 of last year. So the EBIT has been heavily affected by the volumes. We have to remember again and highlight that in the 9 months 2020, we have a write down of €8,200,000 against €2,200,000 in the previous year. At net income level, the 9 months are bringing the net income at 23.2 percent negative against a positive number, 8.3 percent last year and this after tough charges for around $3,000,000 versus the $12,600,000 last year. Cash at free cash flow level, the 9 months are showing a minus €42,800,000 free cash flow against €500,000 negative last year same period. And the net debt is at $299,000,000 level against $256,000,000 last year same period of time. We go to Slide 11, and I can talk a little bit about the geo areas. First of all, if you see the trend if you remember the trend of the last quarter, so quarter 3, and you compare with the trend of 9 months, you see that we have more or less the same trend we have seen already. So all the areas are outperforming, as suggested. The weight of Europe of the 9 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 Q3. On top of it, we have to highlight a very good performance in North America with one of the 3 bps we have in the customer portfolio, which is asking to increase the volumes of air and cooling and filtration products. Now 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 3. Renault is slightly below, I'm comparing to the last year, FCA 2. GM, even if it's lower, is recovering pretty fast, as I told you. So we'll 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 with 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 on 2019, while air and cooling filtration are in the range of 16%, 17% lower. Also here, the reason of this is has been covered in my slide relevant to the sales of the Q3 discussion. Now we talk about the new business. And it is very key to say that we started the year, we are after 9 months with contracts signed in the value in the range of the same period of the previous years despite of the crisis, which is a very good sign. And among them, I would like to highlight a couple of them. One, quite important, with the premium German OEM on air and cooling side for manifolds in aluminum, The contract value is around $100,000,000 And 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 50% 25% of the air and cooling contracts acquired in 9 months are covering hybrid and full electric applications all over the world. Suspension got a very key order from North American EV OEM on the U. S. Market. And 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 the batteries and the different layout of the body. And also here, we have to say that 35% of the contracts acquired in the period are coming from hybrid and full electric applications. So the trend is very good and is going in the right direction. Now I think we have to go to Slide 15. So Jan, if you can maybe comment it. So Slide 16, 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, so 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 and the slight recovery of €5,000,000 on variable costs. As mentioned by Mauro, lots of efforts to reduce very quickly our gross fixed costs. So a savings of €49,000,000 over the 1st 9 months of the year. Then a negative €6,000,000 charge, especially write downs, we cleaned up some projects, which clients cancelled and which were the longer running. What is very significant is restructuring. Restructuring in the 1st 9 months, we have booked slightly more than €14,000,000 of restructuring charges versus €5,700,000 in 2019, so an €8,500,000 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 3.2 negative EBIT at the end of the 1st 9 months. Now if you move to Slide 16. Sorry, I'm to interrupt you a second. I'm 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. And when we restarted, we had to restart at stop and go for some period of time. And then we implemented before the COVID safety rules in the plant. We had to modify the production flows and processes for it. And the 5.2% positive number you see under the efficiency on variable cost 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, Jan. So thank you, Mauro. If we move to Slide 16. As you can see, sales down by 15 25% over 9 months. Costs almost down by 25%. And you have seen that in Q3, we've done some better because we've done roughly the same cost reduction against a sales drop of only 8%. So we keep on pushing, and we are going to keep on pushing in 202020 21. We want to be able to face lower volumes. Variable cost reductions, no need add anything to what Mauro said. What I would like to insist on is that the negative EBIT we end up with at €3,200,000 is after €14,200,000 of restructuring charges. Sorry to insist on this, but it's an important fact. We won't reduce the running cost of this group. The rest, I think, we already commented. So if you don't mind, I'll move to the cash generation. So Slide 17. Cash generation, no big surprise, big impact of less profitability. That is what the first line says. Then working cap impacts, of course, we've not been able to sell as much as usually it's a factor. You can see that on the last line, roughly €10,000,000 less. We've had to pay our suppliers because at some point, we need to pay them. So 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 it was 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 €10,000,000 for Romania, and I think we still have another €7,000,000 or €8,000,000 to come in the last part of the year. So 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 €43,000,000 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 €134,500,000 of which €80,000,000 of Sache loans. So for everyone, these are loans backed by the Sacce organization, so by the Italian space state basically. It's a 6 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 FETCHE, which as you probably know is increasing year by year. Covenants are the same and the one we have with our banks. That's to say, the main covenant is the leverage ratio at 4%. It's the same with the such loans. 2nd operation, which we concluded at the beginning of this week, We had a revolving line with the French bank, which was expiring in February 2021. And we have succeeded in converting this line, which we had to pay back in February, into a 6 year loan with maturity final maturity in October 26, amortization starting in January 20 2. And as you can see, progressive costs from 2.5% to 5% year after year. No state guarantee on this line. So it is slightly different from the first one we saw. Then yesterday, we signed €34,500,000 of loans guaranteed by BP France, so basically by the French state. On paper, it is 1 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 5 additional years. So this is what we are going to do. So same maturity as the RCF we just mentioned, same amortization, bank cost, nil for the 1st 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. So we believe it's going to be between 100 basis points and 200 basis points, plus, of course, the guarantee of BPE, which is exactly the same as the Sachet guarantee. So another point, same performance as with the banks, that's to say, with a leverage ratio that needs to remain below 4. 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, Jan. Now we go to the section relevant to the business unit's profitability trend. So here we are talking about again about the 9 month period. So let's go then 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 percent EBITDA in 2019 to 20 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 Iann. Again, I repeat, it is very key for us to protect this investment to gain competitiveness in the future, and we are doing this. And that's why you see also a difference a gap between the EBITDA and the 2 different tiers. The cost has been reduced within the division of a €20,000,000 amount, which is a very relevant amount. And I have also to mention that the EBITDA in the 3rd quarter has achieved roughly 9% on the quarter 3, as I said. So now we go to filtration, which is slide 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 PDTA 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 $20,000,000 also in this case, gross fixed cost reduction. And we have to highlight that in these numbers, we have a EUR 2,300,000 negative effect on the exchange rate in Brazil. On the last quarter, so on quarter 3 also this division, volumes, has been able to improve EBITDA with respect to the previous year. Now we go to Air and Cooling, which is Slide 22. On the volume side, this has been the less affected division with the minus 19.2%. Of course, as per the others, Europe and North America has affected the trend on volumes, while we have to highlight a very good trend of the Chinese plants, which are today at plus 22.6%. This is not, of course, only a market effect because the market is not performing like this, but it's 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% to 18.3% percent in the 9 months. And with this percentage, the division achieved really an EBIT margin at 4.1% despite of volume drops. This just to give you an idea of the 3 divisions. Now as usual, we go to the last step, which is the outlook and the market evolution. So 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. But on the other side, we have to keep in mind that the current COVID second wave, which is unfortunately happening almost everywhere, risk really to affect the year end on the car sales standpoint. But let's start with, as usual, with IHS forecast with a few comments from my side, also to justify our outlook. So let's look at the quarter number 4, which is the quarter we are now in. IHS is forecasting Europe slightly better with 1.2%, so with an improvement. North America almost flat. South America with a strong recovery, plus 6% and Asia with minus 3%, of which China is minus 4%. So the overall average number, total number is minus 3%. Now 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. And we are also growing the area because of new programs. So from this time point, we are quite sure that we can follow the numbers. On South America, on the opposite side, we see a good recovery. So 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. So we have been a little bit more conservative on South America. On China, we as you have seen before, we are over performing the market. We are keeping this in mind. Now last but not least, we have to talk about Europe, which is our most relevant market. And 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. And 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. So we expect that this will not probably finish in a couple of weeks. So on Europe, we have been a little bit more conservative. And unfortunately, Europe for us is, as I said, a larger contribution in revenues and sales. And the reason for it is because we expect December a little bit difficult from this standpoint on the volume side. Full year, AHS is forecasting now EMEA Global at 18% reduction with Europe at minus 24%, 23.6%. Again, we are very confident on North America. On South America, we see a slowing 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. So if we go to the last slide, which is Page 25, with this lack of visibility again, even if the quarter 3 showed a very strong improvement, we have been quite conservative on Europe. And 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 my the end of my talk about the 9 months. So I would like, as usual, to leave now the time for you to make questions. Excuse me. This is the Corusco Conference operator. We will now begin the question and answer session. The first question is from Monica Bosio of Intesa Sanpaolo. Please go ahead. Good afternoon, everyone, and 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? And 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? And the second question is on the EBIT bridge. Bridge. If I'm not wrong, you gave the EBIT bridge for the 9 months. Can you give us some highlights on the Q3? How much was the improvement coming from volumes and how much from the cost cutting? And the very last question, if you can give us some more color about the EUR 100,000,000 contract in air and cooling just for the horizon time, just some more details about it. Thank you very much. So Monica Mauro speaking. I would like to start with the last question, if I can. And then I give you Jan the task to reply to the other 2. So the last question, which is relevant to the €100,000,000 job is a very key order we got from one of the best premium OEMs in Germany for manifolds. But the specific positive point of it is not only the volume and the market share we are going to get in this OEM, But it's 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 the with this new portfolio customer portfolio products. And this will be for sure the future of Manifold for the next 5, 6 years. Jan, if you can reply to the restructuring amount, I think. So good afternoon, Monica. Always the first to boot. So in terms of restructuring, end of September, you've seen we had booked EUR 14,000,000. We plan to book for the full year an amount which should be in the region of EUR 21,000,000 EUR 22,000,000 of restructuring. So still another EUR 7,000,000 to EUR 8,000,000 to EUR 8,000,000 to come in Q4. In terms of write downs, write downs, you saw we had 8.2 at the end of September. And so 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 €9,000,000 of write downs. Okay. Perfect. In terms of Q3 profitability, I believe the answer to your question is in Slide 7. In Slide 7, 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, but the CHF3 million improvement versus 2019 comes from the combined effects of mustering the arrival cost and reducing fixed costs. The next question is from Martino De Ambroggio 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 and D capitalization in Q3 specifically? R and D capitalization was €1,000,000,000 lower than in Q3 of last year. So we have not pushed R and D capitalization. And as I mentioned before, the results the Q3 result was delivered despite heavy restructuring costs. So the underlying profitability is even better than the number by itself. And, Romain? 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. Then 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. Yes. 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 reduction in fixed cost should be considered more structural, so next year, they will never reappear? Or it's something that has to be considered in a different way? I can reply again. If you see the quarter 3, just to have a reference point. Savings on fixed cost, we can say that more or less 1 third of it is coming from already structural actions and 2 third are coming from the use of social tools like Casi Tekle Rezzion or Schumacher 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. It's slightly more. Onethree, twothree is better than it was in Q2. Yes. Okay. And in terms of net debt, can you provide an indication? I remember in a previous meeting, we talked about something in the region of €400,000,000 was a reasonable estimate for the full year. But 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. So it was €299,000,000 at the end of Q3, and it roughly should be in that same region at the end of the year. Okay. And very last, just a curiosity regarding the hybrid electric vehicle orders. Are they able to generate higher than the average margins compared to the nonhybrid and non electric cars or more or less is the same? This is the typical question. Most of the people are, of course, interested in to not reply. There are components and components, to be honest. So first of all, I give you my view, which is the view I have with the information I have, but it depends component by component. There are some components that are pretty new because we're 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. So if we talk about these components 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 0 because it's a change of volumes and application, but it's not really important turnaround there. I don't know if I replied. Maybe just a clarification on the last portion of the answer. You are telling that the, let's say, normal components has the same profitability of the today's components for the fuel engines. Yes. I'll 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. So we modified our concept and now we have a good concept for it. But on the other side, it's not really game changer for the future. So it is needed to get the market share. But on the profitability side, I would say that very soon we'll be very close to the normal component for a traditional car. Okay, okay. Thank you very much. The next question is from Katarina Rasse of Berenberg. Please go ahead. Hello, good afternoon. Thank you very much for taking the question, gentlemen. So 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, so next year? And I'd be particularly interested in an update on the discussion that you also have with your private bondholders. And 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, Catharina. Next year is a key one for Sogeti because in May 20 21, we have to repay entirely the €100,000,000 bond. And so 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. And regarding the government, could you please give me or remind me of the schedule of the covenant checks? Covenants are checked every 6 months. So the main covenants are the leverage ratio, the leverage ratio with the banks needs to be below 4, with the U. S. Price placements below 3.5. And 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, so there won't be a bridge. The other ratio is on EBITDA towards interest. On this one, we had no fear even in the worst of times. So with the improvement of conditions, it should be an easy feat to meet it at year end. And for the time being, we do not see any similar problems in 2021. Okay. And so the net debt calculation is the one excluding IFRS 16, right? NFP is with IFRS 16. So when I said that we did not expect any issue, Net debt with IFRS 16 is roughly at €375,000,000 in September. And so it should fly in 2020. And for the moment, we also expect it to fly in 2021. Okay. Yes. Thank you very much. You're welcome. The next question is from Gabriela Gamboa of Banca Cross. Please go ahead. Yes. Good afternoon and 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. And then just a reminder on Romania. Can you remind me when the new plant is going to start and if the production would be incremental or in substitution vis a vis the current production in more mature countries? Thank you. So I take the questions. The first one is a key question, of course. But let's say, 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. So it's been really an outstanding result. So our plans have been able really to deliver a very good efficiency in this period of time. Now 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 plant 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 we'll be step by step with incremental products starting along the year. But 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. But up to now, we have 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 €20,000,000 every year for the next 4 years. Okay, thanks. And it is just suspensions for you, I don't mind well. No, of course, it's a good question. It is suspension. Just suspension. Okay. Yes. Many thanks. You're welcome. The next question is a follow-up from Monica Baudio of Intesa Sanpaolo. Please go ahead. Yes, good afternoon once again. Just two questions. One for Mauro is on the aluminum main folder. 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? And the second is a follow-up on the first question. 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. So Monica, coming to the first question, which is profitability of the many folds, I would reply yes, because up to now there are very few suppliers able to do aluminum casting for many folds of this high performance range. And that's why this premium German OEM decided to, let me say, to involve SOGEPI as a supplier. The other company is a German company. I cannot tell the name, but you can imagine. Yes. Yes. It 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? Yes. Okay. Thank you very much. You're welcome. The next question is a follow-up from Katarina Rasse of Berenberg. Please go ahead. Thank you very much. So coming back to the strategy to adapt a company to overall lower volume in the mid to long term. So 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. So I mean 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. So did this actually change your overall strategy to also adapt the volumes for the midterm? Mauro speaking. To be honest, when 3 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. So to be honest, today, I don't see the reason why we I should put in place more actions than the one we are pushing, which are not completed, Catarina, because we are along the way. On the other side, we are also preparing, of course, the new version of 2021 for a cast 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 most likely better. But again, I tell you that the plan we did 3 months ago is pretty well covering this gap. So we are on the safe side. Okay, understood. And 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? So Mauro, it's a question for the CEO. I'm sorry. So I think that Catarina wants to know what are the KPIs we take into consideration for the grants to the main managers of the group? Let's say, Catherine, are the usual KPIs that most of the groups are using. So we are measuring the performance of the shares, the value of the shares on the market compared to the best peers. And this is the key indicator for us like for the others. Okay. Thank you. The next question is from Roland Kuehnen of Value Holding. 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 or so that you have a natural hedge in South America? Or do you suffer not only on the sales level, but also on the earnings side from the negative FX development there? Thanks a lot. Alain, it's an excellent question. I've answered Marotta, I'm sorry. So she's pushing back to his CFO. No, I can reply on the first part of the question, then I'll leave to Jan the hedging part. You know that in South America, we have 2 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. So we expect really an improvement coming from January on this side. And the first signs are showing that the improvement is there. Then I have to be transparent and honest to the COVID impact. Unfortunately, let me say, I would say that changed a little bit priority of the local team on this side. But the actions we have defined to improve, part of them have been implemented already. So I expect an improvement there. So 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. And 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. So 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. Thanks for the details. Have a nice weekend and stay healthy. Thanks a lot. Gentlemen, there are no more questions registered at this time. So then I thank you for your time and have a good weekend then.