Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Sogefi Nine Month 2026 Results Conference Call. As a reminder, all participants are in a 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. Michele Cavigioli, Head of Finance. Please go ahead, sir.
Good morning, everybody, and welcome. I am going to comment the nine-month results, which you might have seen on the press release, were a set of quite solid results for Q3 and the nine months of 2026. I am going to start on page three with an overview, and then I will spend more time on each item in the following of the presentation. We had revenues +0.7%, +0.1% at current exchange rates. We had EBITDA adjusted EUR 112 almost million, and this is a big improvement towards the EUR 103 million in the nine months of last year. We had non-recurring items slightly above last year, and a contribution margin which is growing both in absolute value and in percentage. Fixed costs were contained in absolute value and down in percentage. EBIT adjusted was also growing both in absolute value and percent.
As I will comment later, the improvement in EBIT is a bit lower than the improvement in EBITDA due to some non-recurring effects in D&A and write downs. Net income of operating activities is therefore in line with last year. Then we have a positive impact from the disposal of Precision Springs, which happened in July. Free cash flow was EUR 18.5 million, better than last year, which was EUR 15 million. This is before IFRS 16. As a result of the positive free cash flow and the extraordinary cash in from the sale of Precision Springs, we now have net cash on the balance sheet and not net debt as we used to have before that.
As a reminder, as announced already at the end of July, we completed the sale of Precision Springs, which, as you remember, is a non-core unit with three plants and EUR 28 million approximately revenues last year. We sold it for an EV of EUR 21 million. We cashed in EUR 23.5 million, and we are going to have a probably minor price adjustment in the next few months. I am now on page four, and I will comment in more detail on the sales. I will comment on the sales at constant exchange rate versus the reference market production each area. At the global level, we had +0.7% at constant FX versus a production of +1.4%. This average is, however, reflecting very different trends in different geographic areas. In fact, in Europe, we are +4.8% in a flat market, and this is mainly thanks to Aramco.
In North America, we are much better than the market, +5.2% versus -1.8%. In South America, sales at constant FX is -9.1%, but this year in particular is not really significant number. Because of hyperinflation in Argentina, we normally try to isolate the effect of FX and local inflation. However, this year, the two figures, inflation and currency devaluation, were not in sync. Plus, not all our costs in Argentina are really tied to the local inflation. For example, labor costs are local inflation linked, but many of the raw materials we buy are in dollars. So this number, -9.1%, is not really meaningful this year. Neither is +4.6% at current FX. The most significant number is volumes. So we measure the tons of steel sold, which in the case of Suspensions is a quite good indicator. Is -1%. So I'm forming the market, which is +6%.
This is the best indication of what's happening in South America for us. China, very negative number, not only for us, but also for the market. We're -16.8%. The market is -5.5% in production, but sales are much worse than that. Local sales in China are almost -20%, which means that the local market is very weak. But the local players, especially the Chinese players, were able to increase export substantially, which means that the -5.5% is a mix of a very weak local market and a buoyant export market. Sogefi is working both for Chinese and for European and North American manufacturers in China. Of course, the non-Chinese were not exporting, so they were more affected by the local market, which is -20%, more or less.
Also they are progressively losing market share versus the local Chinese, which means that this explains the underperformance of Sogefi in China versus local production. India, a very positive market, both the market and for us. We are +18%, and the market is +15%. When we look at, on page five, at sales by business unit, Air & Cooling is +6% at constant FX, and this reflects a very strong performance in North America and an even better performance in Europe, +16%, which is linked to the good performance of Stellantis and to the start of new projects. Decline in China is, as explained before, -16%. If we look at Suspensions, we have a similar decline in China.
We have a strong growth in India, and in Europe, we have an almost flat performance in line with the market, with passenger cars down 2% and heavy duty up 1.8%. South America, just talked about before, so we can move to page six, and we see the evolution of the customer portfolio. As I said, Stellantis has had a good year, so it's improving versus the previous year. The German premium manufacturer, mainly Daimler, BMW, for us, slight contraction. A stable GM. A little bit less with Ford. Heavy duty is improving a little bit. The Chinese OEMs, we said they had a setback this year. We can now move to page seven, and I'm going to comment on the different items of the P&L. Sales, we just talked about.
Contribution margin is growing, both in percentage and absolute value. This is related to the good performance we had in managing pricing and purchasing. The effect of raw materials has not fed through the P&L yet. There is normally a delay. Also energy prices. The effect of energy increase has been contained so far, thanks to, first of all, a diverse mix of energy sourcing. We are, of course, in many countries, and not all of them have experienced a big energy increase. For example, in Europe, France is much better than maybe Italy and Germany. Plus, we had a few contracts with long-term fixed price. The combination of all this meant that the squeeze was marginally positive in the nine months, and this helped to maintain a very good or improving contribution margin.
Fixed costs were stable in absolute value and down in percent, even if we take into account a slightly adverse FX effect on the costs. The closure of Douai has not really positively affected the fixed cost yet. We have now almost finished closing the plant, but the full impact of the cost saving will start Q4, and then it will be a regime next year. As a combination of fixed cost containment and increase in contribution margin, EBITDA adjusted improved substantially from 14.3% to 15.3%.
Then we had slightly higher non-recurring items than last year. This year, they are related mainly to warranties in Air & Cooling and some restructuring. Restructuring of Douai, as you know, is not included here because it was provisioned in P&L at the end of last year. EBITDA, after non-recurring items, still growing from EUR 100 million to EUR 107 million and 14.6%. Then we have D&A.
As I anticipated, you might see an increase versus last year in D&A. We have +5.3%. This was not there in the six-month results, so it happened in this quarter. It is related for an amount close to 3 million to CapEx that we have spent in the past, but we have not started amortizing yet until Q2 because when we spend CapEx, then we start the P&L amortization as soon as the project for which those CapEx were spent goes into production. So we had a few start of production in Q3, and this means that we had 3 million new D&A, which kicked in this quarter. For the rest, it is a really non-recurring one-off, so the remaining approximately 2 million of higher D&A is a non-recurring effect related to higher sales of tooling in Q3.
Tooling are usually amortized over the life of each project for which this tooling has been produced and sold. Both revenues and amortization happened over the life of the project. In some cases, when the projects are early terminated or terminate earlier than expected, then the remaining portion of the tooling is reversed to P&L, both in terms of sales and in terms of D&A. So this explains the increasing D&A. The 2 million of tooling sales, as I said, is a pure one-off. The 3 million which I was referring to before, which is CapEx of the past, which went into production, it's going to, of course, continue in the rest of the year and the next years.
However, we do not expect a further step up of D&A in Q4 versus last year, which means that this difference, EUR 5 million difference, is probably going to be reflected also in the full year. Because even in 2025, of course, there are seasonalities and step-ups in D&A, which means that a plus in Q3 2026 is a bit compensated by a loss that we had last year in Q4. So at the end of the year, we should have a similar difference in D&A than we have today, so around EUR +5 million in D&A.
We have now also in write-downs, an increase. We have EUR 1 million, and this is mainly related to write-downs in China. Write-downs of projects that did not start in China. Financial results improving. We have decreased our debt and, consequently, we are paying less interest despite the increase of the interest rates.
We have slightly higher taxes, but the tax rate is not really changed. We have a one-off of almost EUR 1 million in 2026. As a result of all of this, net income is in line with last year. We had a much higher EBITDA, but then we had a bit higher D&A. So the net effect is that we have stable net income of operating activities at EUR 28 million in the nine months. Then we have a net income of EUR 33 million, which benefits from a positive effect of the sale of Precision Springs. So we have almost EUR 8 million in net income there, which includes the net result of the Precision Springs until July when we sold it and the capital gain of disposal. We can now move to page eight, and I will comment the EBIT performance. EBIT adjusted.
If we start from last year, we had EUR 49.8 million EBIT adjusted. Then we have all these variances are calculated excluding the FX effect, so volume contributed positively. The increase of the contribution margin brought EUR 3.5 million. Next, fixed cost, a slight improvement. We have a D&A and write-down contribution of EUR -4.4 million. Here, we have excluded the effect of the non-recurring tooling amortization that I was talking about before. So you see only EUR 4.4 million here. That effect is going to the next box, other, together with the FX impact. This brings us to a EUR 51.6 million EBIT adjusted, which is improvement over last year, both in absolute terms and even slightly on percentage terms. Page nine, free cash flow. We had a solid operational performance. You can see that funds provided by operations are in line.
We had a slightly higher working capital absorption, but this is in part due to a lower use of factoring of EUR 3 million compared to last year. We have slightly lower CapEx so far. It is a different phasing than last year. So the operational free cash flow is improving, EUR 18.5 million versus EUR 15 million. If we then factor in the extraordinary cashing of Precision Springs of EUR 25.1 million in terms of cash, we land with a net cash position of EUR 18.3 million. This compares to a debt of EUR 13.9 million last year. I move to page 10 to comment performance of Suspensions. Sales, we already talked about. EBITDA, despite the decrease in sales, constant FX, we have EBITDA adjusted growing. This is thanks to an improvement in the contribution margin, which reflects the better business mix evolution.
It is happening despite some negative effect that we have felt, especially in Suspensions, not big, but some effect in terms of energy and raw material cost inflation. Fixed cost decreasing. As I said, we have the initial effect of Douai, but not really the full run rate effect of the Douai fixed cost savings. We can now move to page 11 to comment Air & Cooling. Air & Cooling, as I said before, has had a very positive sales performance, +6% constant FX. This has helped to increase EBITDA adjusted, which is also benefiting from a contribution margin, which is much better than last year. This also reflects business mix evolution and in the case of Air & Cooling, also quite good effect from purchasing prices and raw material cost management despite the inflationary cost environment.
I can now comment the Q3 P&L on page 12. Sales are up 1.2% at constant FX, 4.8% in terms of actual current exchange rates. Contribution margin is much better than last year. This reflects the good squeeze management in Air & Cooling especially, as I said, and also some temporary mix effect related in particular to the tooling effect that we talked about before. Fixed cost down in percentage. EBITDA adjusted substantially higher in percentage and value. Then we have the D&A effect, which we commented at length before. You see here in Q3, because as I said, happened in Q3. Same for the write-downs in China.
As a result of this, we have after a substantial improvement in EBITDA adjusted because of all the effects on D&A and the non-recurring effect, we have a stability of results in EBIT adjusted, EBIT, and net income from operating activities compared to last year. Then we have the gain on disposal of Precision Springs, which raises the Q3 net income to EUR 14.9 million. We can move to the outlook on page 14. As you might know, S&P Global (IHS) is forecasting a weak Q4 for the market. The October projections pointed to -4% global, with -3% in Europe, -2% in North America, and -8% in China. So soft Q4, according to the analyst forecast. We therefore also are cautious on Q4, but this doesn't mean that the full year 2026 will be positive for Sogefi.
We now have improved our guidance a little bit. We started the year with a low to mid-single-digit revenue decline. We now see for the full year, just a low single-digit revenue decline in the range of 1%-2% compared to last year. We have improved a little bit, marginally, also the guidance on adjusted EBIT. We formerly had a stability in adjusted EBIT margin percent. We now see at least a stability in the absolute value of adjusted EBIT, despite the slight revenue decline. So slight improvement in the guidance for the end of the year. I would now stop here, and I would open for questions from the audience.
Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Martino De Ambroggi, Equita.
Thank you. Good morning, everybody. Number one, you are guiding for a Q4, which is, I would say, dramatically lower than the first nine months, because if I do the math correctly, you are guiding for something in the region of -10% in sales in Q4. In any case, down more than what you had in the first nine months and just few millions, because if I understand correctly, the adjusted EBIT is in absolute value. Last year was EUR 55 million, so it means a few millions in Q4. Number one, trying to understand if you are excessively cautious or there is something that is particularly negative in Q4. Number two, the Air & Cooling in Q3 had a very high profitability. Just to understand if it's sustainable going ahead or is unrepeatable. Number three, CapEx appears to be quite low in the nine months.
If I remember correctly, you had a guidance for EUR 75 million-EUR 80 million for the full year, which is probably tough to be confirmed. You will spend probably less. Thank you.
Okay, so let's start with the CapEx. We are a little bit behind last year, and we don't expect to do the full EUR 80 million CapEx this year. We're probably going to be EUR 5 million-EUR 10 million lower than that. In terms of Air & Cooling profitability, yes, it was very good in Q3. As I said before, there are some inflationary pressures ongoing, which have not fed through the P&L completely. This is actually mainly for Suspensions rather than Air & Cooling. Suspensions is exposed to steel and energy, and steel is very also dependent on energy. So in Europe, Suspensions could be more affected by cost inflation. Even in Air & Cooling, there is some cost inflation. We have managed to have a positive squeeze so far, but that's probably a challenge going forward for the rest of the year.
Last, in Q3, we had some non-recurring effects in terms of contribution margin, which are linked to the tooling effect. As I said before, the tooling, when you early terminate a project, you reverse the remaining portion of sales and D&A into the P&L all at once, which means that the sales component is not matched by costs in the contribution margin because the costs are amortized, and they go below the EBITDA. This is also why Air & Cooling had an exceptionally good Q3 in terms of profitability.
Michele, if I may, could you quantify the impact of this, call it one-off for tooling at EBITDA level?
Yeah. We are talking about 2 million-3 million sales and a couple of millions D&A. This is the main non-recurring effect.
Okay. In terms of EBITDA, is +2 million- 3 million?
Yes.
I understand. Okay.
Yeah.
This is really a one-off. Okay.
Q4, yes, if you do the difference between the full year and Q3, you get a very bad Q4. However, I wouldn't do the math just in a pure mathematical way. Yes, we are cautious. We are cautious, then I hope we will have been too cautious, but we are planning for a cautious, for a weaker Q4, not 10% sales, a bit better than - 10%, closer to - 5% than - 10%. And EBIT, a few millions, yes. In terms of EBIT, unadjusted. A bit better in terms of EBIT adjusted, so not just a few millions. That could be a bit more. This is our forecast. Visibility is lower than usual, which is usually low because of the, as I said, ongoing price inflation on the raw materials and energy, which we normally transfer to the customers.
But as you well know, the timing of the transfer is not immediate. When there is a shock on prices, you might have volatility in the P&L, especially if you look at a single quarter. Then, of course, what's important is that we are able to then recover the increase of costs for the future. As you very well know, we have customers where we have indexation. We have other customers where we don't have indexations, and then we need to fight to transfer the cost into the prices. We normally are able to do that. However, some customers tend to delay the adjustment, and that is typically happening when it's the end of the year because all the customers are under pressure to show good full year results.
This is adding to the unpredictability of Q4, which is contribution margin, as I just said, but also sales because so far we had a good performance in sales, and now S&P Global is forecasting a quite weaker Q4. Let's see what will happen.
If I may, just on the adjusted EBIT, can we say it could be high single digit in absolute value for Q4?
Let's say around mid single digit.
I clearly understand your prudence, but it seems to be extremely conservative. That is my opinion.
I hope it will be conservative.
Okay. Thank you, Michele.
The next question is from Monica Bosio, Intesa Sanpaolo.
Yes. Good morning, everyone, and thanks for taking my questions. First of all, thank you for clarifying the implied fourth quarter, which seems to me too extremely conservative. Now, coming to the question, the first one is on China, Michele, because the company mentioned the mix, but as a matter of fact, the deterioration in the third quarter was accelerated. I was wondering if the company lost business with the Western car players operating in China, and if you are not exposed at all to the exports from Chinese towards Europe. Any elaboration on this could be useful. The second is on the purchasing contracts. I do not know if you can answer, but how much of your purchasing contracts have indexations? I am referring both to raw materials and energy. The third question is on the heavy duty business.
Can you please just give us a rough indication of what do you expect in terms of revenues and margins for the heavy duty business? I think it is all from my side. Thank you very much.
Okay. In terms of performance in China, we have not lost substantial OEM relationship in China, Western OEM, nor even Chinese OEM relationships. We had one project cancellation from a Western OEM, which is reflected in the D&A, sorry, in the write-downs in the P&L. This was in China. However, this is a specific project that customer decided to cancel and not that we lost it. We did not really lose customer relationship. As I said, the fact of being quite exposed to the Western OEM, because when we entered China, we were working only for the Western OEMs initially. We went there with that. Then we developed Chinese OEM relationships over time. Now we have both. But the Western OEMs in China are not exporting. They just—
Yeah.
—they just work for the local market, and the local market is not -5%, which is the production. There, it is -20%. The Western OEMs are losing 20% or more in China. Chinese OEM are compensating local market weakness with export, and we, of course, benefit from their export activity. However, it is not the 100% of our volumes in China. That is why we have a -16% with a production market -5%, which benefits from export in the local market, which is -20% or more. We are exposed to both trends, the locals, which are doing better, and the Western, which are doing worse.
Yeah. Correct.
In terms of purchasing indexation, we have about half of the contracts, which are indexed for raw materials. Although the indexation is not perfect because oftentimes it is indexed to the base material price, which might be steel rods, steel wire, flat bars of steel. These are the indexes. We tend to buy some products that are already manufactured, starting from the basic materials. So we buy tubes, or other types of coated wires. There is a spread between the index of the basic material and what we normally buy from our sub-suppliers, which means that the indexation on raw material is not perfect. For the remaining of the 50%, then we have to negotiate. As you very well know, there are customers where negotiation is normally smooth, and others which you might imagine who they are, where it is all very complicated.
In terms of energy, indexation is not 50%, it is much lower. Therefore, we need to sit down with almost all customers to discuss energy price increase. This means that more than half of the cost inflation needs to be negotiated, and then there is a delay in the process of doing that. Heavy duty is going to improve substantially versus last year. Not much in terms of volumes, although we had, as you have seen, as I commented before, within Europe, heavy duty is doing better than passenger cars. We had some volume pickup with especially railway and defense. These are two sectors where we are going to try to develop much more business. It is, of course, smaller market than trucks, but much higher margins. So it is very interesting. We have done more business this year.
We have acquired further business in the course of this year, which will be then in production over the next years. For 2026, we project a few percentage point improvement in the revenues of heavy duty. So we probably finish around EUR 100 million of turnover. We are going to have a substantial improvement in contribution margin, and this is linked to some savings, but also some shifts in the mix. We are now targeting a business which is more profitable. There is a wide dispersion of contribution margins in the heavy duty production. As I said before, defense and railway is very good margins. Even within trucks, we have products which are fairly profitable, and some other commodities, like the leaf springs, which are used for heavy trucks.
They are very commoditized and low margin, so we are trying to shift the production to the high margin products to improve the contribution margin. We are trying to improve the fixed cost versus last year, and we think we are going to have some success even this year. As a result, EBITDA, adjusted, is probably going to be much better. It was almost zero last year. We are going to have a high single digit this year according to our projections. So on the way to recovery, even if the work to be done is still a lot.
Okay, perfect. Thank you very much. Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question is a follow-up from Martino De Ambroggi, Equita.
Thank you. On the capital allocation, because it was already strong, but now the financial structure is strong enough to think about what do you want to do with the financial flexibility. So in terms of, I don't know, dividend, buyback, M&A, CapEx. Just to have an idea if there is an update on the capital allocation strategy. And a follow-up on the guidance. If I understand correctly, in your EBITDA for the full year, you have 2 million-3 million non-recurring benefit because of the tooling that you explained before. Is there any other non-recurring item affecting EBITDA for the full year we should be aware of? I stop here.
Okay. In terms of capital allocation, we have now quite strong balance sheets, so we have flexibility. How are we going to allocate that? It is going to be a board decision to do dividends, and this is normally taken once the full year accounts are approved. As you know, we don't have a fixed dividend policy. We have done dividends in the last few years after the sale of Filtration. We have distributed the net profit of the year. We didn't do it in 2026 with the 2025 results, mainly because of reasons that we explained related to the closure of Douai. So, there is, of course, the possibility to distribute dividends going forward, but we don't have a policy, and we don't have a decision taken yet, so I cannot promise. Buybacks, normally used very seldom in the past.
We have done just a little bit, but this was mainly to service the stock grant plans. At least in the past, this has not been a major way of allocating capital. CapEx, we of course are not constrained under any way to do CapEx. We will not exaggerate in the CapEx either. We will just do the CapEx that we deem necessary to grow the business and that we think that are going to produce, in our opinion, a good long-term result. As you have seen, we have done a CapEx step up in Air & Cooling to support the transition to EV. We do not have any financial constraint about that, so we will do as much as we think it is necessary and profitable for the growth of the business unit.
In terms of M&A, there are for sure no plans to diversify Sogefi into another business of components, so I would not expect any major M&A. We have done in the past a few minor M&A when it makes sense to buy units that were really synergic with the businesses that we operate. You can assume that this is the strategy even going forward. In terms of non-recurring, no, we have just a little bit of negative non-recurring compared to last year. Other than the tooling, we do not have substantial positive one-offs, apart of course, the sale of Precision Springs. But there are no other major items that are affecting the P&L in the nine months.
Thank you, Michele.
Once again, if you wish to register for a question, please press star and one on your telephone. For any further questions, please press star and one on your telephone. The next question is another follow-up from Martino De Ambroggi, Equita.
Just two general questions. One is on the price negotiations. Are they tougher than the usual situations or is it normal life for this, considering the environment? Visibility going into Q1 next year in terms of order flows and so on, can you share with us your view?
Okay. Price negotiations are business as usual. I wouldn't say they are tougher than in the past. They are tougher with certain clients than others, but these are the usual names. We know that. Of course, it's easier to negotiate with customers when things are going well for them. This year, they might not all be doing so well. Actually, they're not, you know very well. This might add a little bit to the difficulty in obtaining the prices. But we have done it in the past, even in downturns of the market. We've done it after COVID. Difficult to predict whether it's going to be tougher or easier. It's never easy. It's never easy, but we know what we should do. We know where we have to get. It's probably more a matter of time than the final result.
In terms of order flows, we had a very good pick up of orders this year. We have almost fulfilled the budget for the two business units this year in terms of order intake, or we are very well on track to fulfill the budget. This doesn't mean that these orders will go into production 2027. It's actually two, three years that we have as a delay between order intake and the start of production. That means that we are now going to deploy next year the orders that we have taken two years ago, basically. We see a very good trend in Air & Cooling because we have been effective in adding projects. A bit softer in Suspensions. But I am not now in a position to give a specific guidance for 2027 yet.
Okay. Thank you, Michele.
Once again, if you wish to register for a question, please press star and one on your telephone. Mr. Cavigioli, there are no more questions registered at this time. I turn the conference back to you for any closing remarks.
I would like just to thank everybody for participating. The next meeting would be for the full-year results, and we will see whether we have been too conservative or not. I am not giving any anticipation, but we will see at that point in time. Thank you very much, everybody.