Good afternoon, this is the Chorus Call conference operator. Welcome, and thank you for joining the Sogefi first half 2024 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Frédéric Sipahi, CEO of Sogefi. Please go ahead, sir.
Hello. Thank you, madam. Hello, ladies and gentlemen, and thank you for joining this call. As you know, we are here to discuss about the results of the first semester. I guess you have all read the press release, so as you may have seen, I have decided to leave Sogefi. It's a personal decision. I'd like to thank Sogefi. I'd like to thank the shareholders of Sogefi. I'd like to thank the president of Sogefi. It has been a great journey. The results that we have achieved with my team are great, and you will see it again in the first semester results.
I am blessed to have very good teams around me, and these teams will continue to perform very well, as they have always done in the next month, in the next quarters, and in the next years. And I'd like to thank them for these results and their commitment. So if you all agree, I would propose that I go very quickly through the results of the semester, and then we will be available for any question you may have. So if you go to page 3 of the presentation, you have seen that our sales are slightly down at constant exchange, -2.6%, reflecting the market decline in Europe. Basically, our sales price are stable. Despite this environment, we have been able to improve the contribution margin.
The contribution margin is at 29%, when it was 26% last year. The EBITDA, excluding non-recurring, is improving by more than EUR 10 million compared to last year, at 68 versus 57, and our fixed costs are basically in line with last year, despite the inflationary pressures on labor cost in certain geographical areas. So to make it short, our EBIT is at EUR 28 million versus EUR 14 million last year. Excluding the non-recurring, we would have been at 29 versus EUR 18 million, mainly thanks to the turnaround of suspension, as you may have seen in the presentation. Our net income of operating activities are at EUR 11 million versus 4 last year, and the net income, including the future disposal effect, is at EUR 146 million.
We have been able to generate a positive free cash flow at EUR 22 million, up versus last year by almost EUR 20 million, mainly thanks to the turnaround and the improvements of the Suspension business line. At the end, our net financial position, end of June 2024, is at EUR 95 million versus a net debt last year of EUR 185 million and EUR 200 million in December of last year. The extraordinary dividends will be paid tomorrow for EUR 110 million, as we have already anticipated to you a few weeks ago. So in a nutshell, these are the results of the first semester. Of course, we are here to answer to all of your questions, and I will also take the occasion today to introduce you to one of the key member of the team.
He will introduce himself. It's Michael Sebag. He was the boss of North America for Sogefi, and he has been appointed CEO of Air and Cooling business unit. So I will let Michael introduce himself.
Hey, good afternoon, everyone. So my name is, like Frédéric said, Michael Sebag. I have been with, I have been COO of Sogefi North America for the past five years. I think we've been very successful in North America, where when I joined the company, the sales were about $50 million, and we took, myself and the team over there, from $50 million to roughly $220 million-$230 million US this year. Prior to that, I was responsible for global sales for Sogefi, where we've been quite successful as well. So the goal for the coming year is to keep growing the North American and Europe and China business on the air and cooling side, of course.
Thank you, Michael. I propose we move on to the questions you may have.
Thank you. This is the Chorus Call conference operator. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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, Intesa Sanpaolo. Please go ahead.
Good afternoon, everyone, and thanks for taking my questions. First of all, thank you, Frédéric, and I wish you all the best. I have three questions. The first is if you can give us any flavor on the expected free cash flow by year-end, and if you can split between the two divisions. The second is on the factoring by year-end, and the very last is on the suspensions business that had a very strong, had a strong recovery in margins, 260 basis points, in the second quarter. What could we figure out by year-end for the business unit? Thank you very much.
Thank you, Monica, and thank you for your question and your wishes. I will let Olivier answer to the two first questions and then come back to you on the third one.
Hello, Monica.
Hello.
So with regard to the cash flow, we are expecting on the business a generation of roughly EUR 30 million with EUR 54 million of factoring for the year-end. So, no, no big year, no big change.
Okay.
On suspension, Monica, yeah, we have continued our improvements that we started the last two, three years. We have been able on this semester to improve by almost three points the EBITDA, and the target of the teams, it's to continue the operational improvements in the last part of the year, especially on the Romanian factory, where there has been very good improvements, but where we still have leverage to continue the operational and financial improvements. So I think this will be one of the key topics for the last part of the year, and also some discussions are ongoing with customers.
So I would say that the improvement should continue in the last part of the year, but in a difficult environment, because volumes are continuing to be low, I would say, in Europe. There is no reason that in the second semester, volumes will increase. So basically, the gain in Suspension will be able to increase the efforts in order to compensate the volume decrease and continue the improvements.
Okay, thank you very much. If I may follow up on the current scenario. The group has revised downward the top line guidance, and it is now expecting a low single-digit decline. Are you still expecting to outperform the market, even if on a negative ground, maybe thanks to the support from China, India, and NAFTA?
Yeah, we had a good performance in China and India in the first part of the year. Unfortunately, these geographical areas are still small compared to Europe in our portfolio. So my vision of the second semester, and it's also what IHS, S&P is foreseeing, is that second semester will be tough in Europe. Will continue to be tough, basically keeping the same trend of decrease that we had in the first six months in Europe. So it's basically minus 5% the first part of the year, minus 5% for the second part of the year versus last year. China should continue to have a growth. India continue to increase.
North America, as you may all know, is a kind of question mark, not because of Sogefi's performance, but because the market can be a bit unstable in the second part of the year. So on my side, I would not bet on news from a volume point of view on the second part of the year, even if I keep some optimistic vision on India and China, I would say.
Okay.
The two bigger geographical areas for Sogefi are Europe first and then North America.
Mm-hmm.
Where we expect some challenge, of course, from the volume point of view. I think it's the vision shared by S&P, but also by our colleagues of other companies, automotive companies.
Perfect. Thank you very much. Very clear. Thank you.
You're welcome, Monica, and thank you for these two years. It's been a pleasure.
Thank you.
The next question is from Martino De Ambrogi, EQUITA. Please go ahead.
Thank you. Good afternoon, everybody. So, Frédéric, all the best for your new challenge. Sorry to leave you, but okay, good luck.
Thank you.
The first question is on the guidance. It's always qualitative in terms of profitability. I was wondering if the 5% return on sales you achieved in the first half is achievable also in the second half, despite the tougher environment, particularly in Europe? First question.
I would say based on the current assumption and our current vision, we should be able to, to keep this level for the second part of the year.... excluding, of course, a big catastrophic scenario due to volume drops in North America or whatever. But I would say that clearly it's our ambition and target to continue and to keep this, this profitability, pro-profitability level in the second part of the year. And if volumes are decreasing, we will have to increase the speed of, of actions. So yeah, to answer to your question, I would say yes.
Okay, thank you. And, the second is on the operating leverage under the new perimeter. So just to understand, every, let's say, one percentage point, two percentage point of declining volumes, would mean, operating level?
Can you rephrase your question?
Yeah.
Sure.
Yeah, basically, yeah, basically it's the operating leverage under the new perimeter. So what is the impact in terms of, what percentage of sales is reflected in, plus or minus, obviously, change in, in EBIT?
Well, the first semester is reflecting the new, the new business. So, we do not intend a big change compared to our figures for the first half of the year.
So we take the same leverage as a rule of thumb going ahead. So that's the-
Yes. Yes, yes.
Okay. And, the follow-up on-
Sorry, the mix will not drastically change between the first semester and the second one. So, the new structure of the business is already reflected in our first half of the year.
Okay. And when you, Frédéric, mentioned okay on your successor, we mentioned new actions in case of need. What is the level of market volumes requiring additional actions, in your view?
Basically, our vision for the second part for now is that volumes will be close to what we had in the first semester, so. But as usual, we are prepared to add, if needed, extra actions. And the actions in our business, well, are always the same. First, if there is a big drop from a customer, we are used now, and our customers are used to, and it will continue after me, that we have, we have strong discussion or discussion with our customers, in order to see how we can compensate that. Then, we have shown over the years, our capacity, each time that there is a volume decrease, to adapt our cost structure. So this is currently what is done by everybody in the automotive.
Hopefully, we have already done a lot of homework in the last years, so it helps us to be able, if needed, to flex it right, not doing the massive restructuring, but doing permanent improvement in, over the month. So it would be if we have to do something, if there is a drop, we will optimize the costs of the company, as we have always done in the last years at Sogefi. So first, customer discussions, and second, cost optimization.
Very last on the discussions ongoing with clients. Is there any additional pressure coming, or maybe discussions you are-
Mm
... confident will produce some positive effect?
No, basically, we have been able, in the first six months, to keep our selling price, prices almost flat in the market where prices are dropping, especially the raw material. So I would say that our target for the second semester is at least to keep this performance of keeping our prices flat. Of course, if we can have something extra, we will. But right now it's not integrated in our, let's say, in our mindset. We prefer to discuss with our customers a price stabilization, do more if needed on the fixed cost and on the cost, and deliver the results despite a difficult market. And then I'm very confident also about the two businesses, air and cooling and suspension.
On air and cooling, where Michael, appointed CFO, CEO, sorry, he has a huge experience of dealing with customers about selling price increases, especially in North America, but also in Europe. In suspension, where Mr. Muller will continue the coordination of the business line. He is a former sales director too, and used to discuss with customers. So I'm sure we will be able to keep this level of performance with our customers on the pricing.
Okay, thank you.
The next question is from Alexandre Raverdy, Kepler Cheuvreux. Please go ahead.
Yes, good afternoon. Thanks for taking the questions. And, Frédéric, my turn to wish you all the best as well for the future. The first question is on specifically the raw materials assumptions that you have for the second half of the year. We have seen some of the raw materials turning into a headwind, at least that's what some suppliers are mentioning. So, have you included any change in the raw material assumption in your guidance? That's the first question. And then on the second question, just to be clear, because my line was not so clear, do your guidance, or at least your expectation to keep the 5% margin in the second half, includes or not any customer compensation? Thank you.
So on raw material, we have been able to benefit from the market decrease in the first six months. We have not integrated a further price, strong price decrease on the materials for the second part of the year. And in our guidance, in the other end, I don't see a big increase either, so our attention is to continue to duplicate the market's evolution, what we have been able to do in the first six months. So no big decrease, but no big increase. Concerning a big compensation in our business, no, we are not talking anymore about the big amounts we had in the previous years. So there are some, but already identified and very marginal.
Thank you very much.
You're welcome. Thank you, and thank you.
The next question is from, Gabriele Gambarova, Banca Akros. Please go ahead.
Yes, good afternoon to everybody, and, Frédéric, it has been a pleasure to listen to your calls over these three years. Very good job, and congratulations for your next adventure, let's say.
Thank you.
My first question is just Monica, I think, asked if you have in mind a target of free cash flow for 2024. So this was the first question. I think it was not answered. And then another question on the broader market. Do you see any... I mean, it's slowing down, but in certain areas, do you see any particular, any specific, let's say, issue concerning inventory levels in one of these regions? I don't know, Europe, the U.S., I mean, what's your view on that? And the last one is on the suspension. I was wondering, you mentioned Romania, I mean, there is still room for improving the efficiency.
What could be, let's say, a reasonable, EBITDA margin for this, this business, at run rate when, when the turnover is over? Thank you.
Thank you, Gabriele, and thank you. It has been a pleasure, too, for these last years. I will let Olivier maybe explain on the free cash flow vision we have for the end of the year.
I thought I answered to Monica already. We are expecting on the business a generation around EUR 30 million. So if you have an additional question, I can answer, but I don't see any other specific view. We answered already with regards to the factoring. Please ask Amy if needed. Frédéric, you want to move to?
Yeah, on the markets, well, right now, I don't see any big reasons to have a big drop or due to the, to the inventories at, at customers' hand. Well, the only big unknown, and I really don't know if it can affect, if it will affect, and how it will affect, are the American elections. I don't know at all if there may be an, there may have been an impact due to that, but right now we have not integrated anything special about that, considering that whatever happens, and whoever wins the election, in 2024, there won't be any impact. No, based on one candidate or another, there may be some impact on the long term for EV cars, in North America, but I don't see a big impact this year.
Considering the inventories in hand at a customers level, in Europe, I would say they have already done a big job to decrease it, and I don't see a big bubble in USA, China or India. So right now, I would remain neutral on that one, Gabriele. Considering suspension, I would say we have done very good improvements compared to last year. We now have a stable team there, a plant manager with people, a very strong management team also doing the operational improvements day over day. Customers are happy now about our deliveries, which was not the case one year ago.
So we are about to stabilize this plant from an operational point of view, and now we can focus maybe on the strategic approach with our customers, to decide which program we can award them in the coming years. But my optimism level is has increased about Romania, and is concerned also is that we have been able to really improve the operational situation. The rest of Europe of suspension Europe is around between 4% and 5% of EBIT adjusted. I would say that for this plant, it's a minimum level, at one point we should target.
Okay. Thank you very much.
You're welcome.
As a reminder, if you wish to register for a question, please press star and one on your telephone. Once again, if you wish to ask a question, please press star and one on your telephone. The next question is a follow-up from Martino De Ambrogi, Equita. Please go ahead.
Yeah, thank you. Just on the Romanian plant, could you provide a precise indication on what was the contribution in the first half and what you expect for the full year in terms of improvement at EBIT level from Romania? And, actually, I have a question for Michael, probably it's too early, but, just to understand, the capital allocation was discussed in the previous call, but, what is your best scenario for, the available cash, that you have, in hand today?
First semester, we are still losing EUR 3 million in Romania, compared to more than double last year.
To lap the fourth.
Sorry? So yeah, unfortunately, it's still a loss of EUR 3 million in the first semester. Our target and ambition is to bring this loss of EUR 3 million to zero for the second part of the year. So basically, which will mean finishing the year at minus EUR 3 million, and to be positive for next year. And as a reminder, last year, it was a loss of EUR 7 million for the first six months, so we have divided by 2 the loss in Romania with a turnover now of EUR 22 million. The second question, can you just repeat it, please? I was not sure to understand.
Oh, yeah, it was for Michael. I don't know if he can answer about the capital allocation for the available cash of Sogefi going ahead. So in terms of M&A, I don't know, what else?
Sorry, maybe I was not accurate enough. Just to be sure I really understood properly, Michael Sebag is becoming the boss of one of the Air and Cooling business units. So, Michael is not replacing me as CEO of Sogefi. Nevertheless, we can answer to your question through Olivier, if you agree.
Okay. Okay.
So, if I understand well, your question is regarding the capital allocation coming from the sales of the Filtration business unit, correct?
Yeah. Apart from the dividend already paid, obviously.
So we already paid a dividend of EUR 110, and we repaid EUR 150 million of our drawn debt. So we repaid the PGE, we repaid all the debt linked to the COVID crisis in Italy and in France, for roughly EUR 75 million, and we also repaid part of a BNL loan, so totaling today EUR 150 million. So as of today, all our debt is gone, we have no. We have a very residual drawn debt. And we have a significant amount of cash on hand that on which we will make some arbitration by the end of the year. No M&A projects to be announced so far.
Okay, thank you.
Once again, if you would like to ask a question, please press star and one on your telephone. Mr. Sebag, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.
Thank you, madame. Thank you to everybody, it has been a pleasure. Have a nice day. Thank you very much. Bye.
Thank you. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.