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Edited Transcript of SO.MI earnings conference call or presentation 22-Jul-19 2:00pm GMT

Half Year 2019 Sogefi SpA Earnings Call

MANTOVA Jul 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Sogefi SpA earnings conference call or presentation Monday, July 22, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Laurent Hebenstreit

Sogefi S.p.A. - MD, GM, CEO & Director

* Yann Albrand

Sogefi S.p.A. - Group CFO & Investors Relation

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Conference Call Participants

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* Alexandre Raverdy

Kepler Cheuvreux, Research Division - Equity Research Analyst

* François Robillard

Intermonte SIM S.p.A., Research Division - Research Analyst

* Martino De Ambroggi

Equita SIM S.p.A., Research Division - Analyst

* Monica Bosio

Banca IMI SpA, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Sogefi First Half 2019 Results Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Mr. Laurent Hebenstreit, CEO of Sogefi. Please go ahead, sir.

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [2]

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Thank you very much. Hello, everybody. Laurent Hebenstreit, CEO from Sogefi. I'm here with Yann Albrand, our Chief Financial Officer; and Stefano Canu, Investor Relations. I am happy to report our first half 2019 results and especially the new news on the second quarter.

Starting on the document on Page 2. Revenues were down 4.3% at current exchange rates and 3% at constant exchange rate, whereas the production market was down 6.7%. So we outperformed the market, especially in Europe. The EBITDA came out at 11.1%, which, of course, is down from 2018, but -- and that's a very important message in the second quarter. EBITDA came out at 11.6% versus 10.6% in Q1 with comparable sales, which means that we are delivering what we promised to achieve in the second quarter in improvement versus the second quarter. EBIT follows the same trend, 3.1%, with the second quarter at 3.4% versus 2.9% in first quarter. Net result at EUR 6.9 million. Free cash flow came out at EUR 8.8 million negative, including EUR 5.4 million due to the application of IFRS 16. The good news is free cash flow in Q2 was positive. The net debt stands at EUR 332 million, including EUR 64.8 million related to the application of IFRS 16. Excluding this amount, net debt comes out at EUR 267.3 million compared with EUR 260.5 million. Yann will also brief you on the fact that we have less factoring, which needs to be taken into account.

If we move to Page 3, we see that while Sogefi delivered better numbers in the second quarter, the market actually was worse in the second quarter. You see that after a drop of the world production market at 5.4% in the fourth quarter, the market has dropped 5.9% in first quarter and 7.5% in the second quarter. We've been worsening in Europe. Europe is very important. This is large majority of Sogefi sales. North America did a little bit better than first quarter, South America as well. It is of course in Asia where we have those drop in China, as well as in India, coming out for Asia in total at minus 15.6% on the second quarter.

Now if we look at Sogefi revenues in comparison with what we just said, I will now concentrate on the second quarter. As indicated, at constant exchange rates, we came out at minus 3.1%, which is representative of our activity because the same number as Europe. We see that the market in Europe was down 7.4% in Europe, whereas a reported minus 3.1%. The case of China is, of course, very significant because while the market was down 16.3%, Sogefi sales at constant were down 35.4%. This is mainly linked with our customer mix. We have 3 customers which were impacted more than the reduction of the market, which are mainly Ford, PSA and GM-SAIC, which during the second quarter had a significant drop while it has been holding before. So this is the main factor. We have, in the second half of the year, many launches, both in Air & Cooling, Filtration and Suspension, and therefore, we expect a stronger quarter -- a stronger second half here in China due to the launch of many new products in the 3 business units.

Moving to the Page 5 on the revenues by business unit, again focusing on the second quarter on what is changed. You see the different behavior between the 3 business units. Suspensions was hit the worst at minus 8.1%. Air & Cooling came out at minus 4.8%, and Filtration came out at 0 versus the prior year with a better resistance, particularly with aftermarket activities.

Moving to the Page 6 in terms of sales by client. You see significant growth of sales at PSA, which is a continuation of our success in capitalizing on the PSA/Opel synergies. You see a drop with Ford. With Ford, we have a drop in China, which I've mentioned before. We have a drop in Europe, which is consistent with the decline of Ford in Europe; and a drop in South America, especially in Suspensions where we had the end of life of 2 important contracts with Ford. The decrease at Fiat Chrysler is linked with the end of life of one important product, and the rest is in line with the evolution of the market. Just a quick comment on the Daimler, you need to take into account the fact that Sogefi supplies air intake manifolds for the engine, which is common to Daimler and Renault. And this is 100% reported in Renault because it is -- Renault is supplier of coal. And therefore, our growth with Renault/Nissan is a bit overstated, and our decline with Daimler is also overstated. So you would need to correct this element in order to have a vision of what's going on with Daimler, and we confirmed the growth trend with BMW which we have always done our growth targets.

Having said that, I would like to hand over to Yann Albrand, our CFO, to comment on the evolution of the margin.

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [3]

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Thank you, Laurent. So moving on to Page 7. The reduction in EBITDA versus prior year is mainly volume-driven, and this explains why EBITDA decreases from 11.7% in 2018 to 11.1%. 2019 includes EUR 4.3 million of restructuring costs versus EUR 2.7 million in the previous year, so no plant closing at this stage. It's ongoing restructuring.

Moving on to Page 8. By business unit, Suspensions EBITDA went down from 9.7% in 2018 to 8.6%, and the reduction in the profitability is mainly due by South America and by China where there was a significant drop in volume. In Filtration, EBITDA went down from 12.2% in 2018 to 9.6%, and this reduction is mainly linked to the sales drop in Europe. In Europe, we are talking about OE business mainly and start-up costs in Morocco. The good news is Air & Cooling. Air & Cooling is up. Profitability went up from 14.5% to 15.4%. And despite lower sales in China, there was a general margin improvement, especially in Europe.

Moving on to Page 9. EBIT and EBITDA is mainly volume-driven, and this largely explains why EBIT went down from 4.7% to 3.1%. And as Laurent mentioned earlier, the good news is that despite an adverse market in Q2, EBIT on sales went up from 2.9% in Q1 2019 to 3.4% in Q2 2019.

Financial results, improving, negative from EUR 13.9 million in H1 of last year to only EUR 11 million this year. Cash interests went down by EUR 2.1 million versus the previous year.

Net income went down from EUR 14.8 million in 2018 to EUR 6.9 million after EUR 8.3 million of tax expense, so we still have a high tax rate. And this tax rate is still high because we have taken a prudent stance on emerging countries. So Morocco is still considered as a start-up operation and in countries where we have still little visibility. I'm referring mainly to Latin America where we have taken the decision not to activate deferred tax effects, which I believe is a prudent decision. It is important to say that the first half results include EUR 4 million net result, which is the positive impact of the disposal of the Fraize plant in the first half. These results are reported on a separate line, which is assets held for sale, and I'll comment the disposal a little while later.

Moving to Slide 10. The good news is that faced with a difficult market situation which reflects in our top line, we had anticipated and we've started to cut on fixed costs. And fixed costs have gone down by roughly EUR 2 million year-on-year first half 2019 versus first half 2018. And as you can see in the comment on the right-hand side of this slide, with an acceleration in the second quarter of 2019 in which this quarter alone, we had EUR 3.3 million saving versus the previous year, which is minus 4.4%, which is roughly same trend as the top line.

If we move to Slide 11. Slide 11 is important as Laurent mentioned. It's a comparison of Q1 and Q2 performance. Level of sales is roughly comparable. When you look at material, we are no longer impacted by adverse raw material impacts. It's even picking up. The markets are more favorable, and there were actions in order to regain part of what had been lost in the previous years. And this already shows in the material percentage quarter-over-quarter. Direct labor is not a huge improvement at 9.7% to 9.5%. The trend is there, and we have a lot of actions ongoing in order to improve the operational performance of the plants in the coming months. Fixed costs, I already mentioned. So already a EUR 3.3 million saving quarter-over-quarter, and we are going to pursue this effort in the coming months. Others, it's -- basically it's one-offs. It's slightly more restructuring, slightly more nonoperating costs. And so as we commented before, an EBITDA which increases from 10.6% in Q1 2019 to 11.6% in Q2 with, as I said before, quite the same level of sales and an EBIT from 2.9% to 3.4%.

Cash flow, so first half 2019 versus first half 2016. We commented a lot on the decreased profitability. This shows in the funds provided by operations, first half 2019 benefited from the disposal of the Fraize plant, which landed as a net cash -- net favorable cash of EUR 7.2 million. Working cap, as you can see, is unfavorable versus the previous year, but this was offset by less CapEx in 2019, so EUR 8 million less CapEx in 2019 versus the previous year. The following line, it's the impact of the new leases according to IFRS 16 and intangible and IFRS 15, that's to say mainly the tooling. It's roughly in line with the previous periods. So all in all, the first half negative cash flow of EUR 8.8 million, first, is a positive EUR 3.9 million last year. But as Laurent mentioned in his opening statement, the key point was that in Q2, we had a positive cash flow. All in all, net debt without IFRS 16, which I remind you is a booking of our new lease commitments, will land end of H1 at EUR 267 million versus EUR 260 million last year. And this includes the factoring, which was EUR 103 million at the end of H1 versus EUR 108.6 million a year ago, so roughly EUR 5.5 million less factoring than a year ago. We might have pushed the tax effects for the second half.

Coming to the disposal of Fraize. So Fraize, it's an Air & Cooling plant located in the east of France. In 2018, we decided to let go of that plant which manufactures air ducts. This was -- we started our business review, and Fraize was early on considered as non-core business. And so we decided to find, if possible, an acquirer of this plant, and we have finalized the sale in the month of April. All payments were paid during April and June, and we are happy with the sale which will avoid us to close the plant and which will also benefit the new owner who needed a plant for new activities in the east of France to service German clients mainly. So on the right-hand side, you have the main numbers in 2018 of this plant. Please bear in mind that although we only have landed a net EUR 7.2 million in cash, the very good thing of that disposal is to avoid the disruption, which is that of restructuring the plant, and all our workers have found continuity through this operation. So all in all, we consider this a good move.

Page 14. This disposal has not drastically changed what Sogefi is. You all know it by now, so we are mainly with a European footprint. Let's say Sogefi, 63%, while production is only 25%. So both are represented in Europe versus world production. [The news] underrepresented in Asia, which helps in the current market. Significant presence also in South America, which sometimes can be good news, sometimes more difficult; and a good presence in North America, which is probably the most profitable market right now.

Maybe I hand over to Laurent to comment on the new recent business awards. Laurent?

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [4]

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Thank you, Yann. As indicated by Yann, among the actions, which explain the progress between first quarter and second quarter was, of course, very hard negotiations with our customers in terms of material costs recovery. And in this context, we thought it was important to share with you the fact that in the 3 business units, we've got new awards during this period. In Filtration, we've been awarded to supply oil filter modules on various vehicle for start of production in 2022. In the Air & Cooling, we've been awarded by a German premium OEM to supply air intake manifolds. We start the production in 2020. And in Suspensions, we've been awarded front stabilizer bars for battery electric vehicle. We will start production in 2022 in our new plant in Romania. So despite strong negotiations with the customers, we keep having new awards as the effort we've been making on R&D, competitivity of our activities are starting to flow, and we'll show more as this business ramps up in the future.

I'd like now to come to Page 16 on the outlook. You know that the main source about the automotive market is seeing for the second half year a small decrease of 0.4%, knowing that the fourth quarter of last year was weaker. We shared the information in our presentation. Based on these, as well as on a number of factors, which I've mentioned, in China, Sogefi expects sales in the second half year to be substantially in line with the same period of last year. And we are now communicating that the EBIT margin in the second half is expected to improve slightly compared to the first half of the year, which means we are continuing the trend of our improvement which we saw in the second quarter versus the first quarter.

Thank you very much for your attention, and we will be happy now to take questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Monica Bosio with Banca IMI Intesa Sanpaolo.

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Monica Bosio, Banca IMI SpA, Research Division - Research Analyst [2]

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The first one is on the expected evolution of the market, of the reference market in the second half of the year. So you are expecting basically a slight decrease of the market, minus 0.4%. Is it correct? And I was just wondering what kind of a function do you have behind this minus 0.4%? What is the expected growth do you have for China, Europe and U.S.?

And the second question is on the savings on the fixed costs. You did a very good job in cutting the fixed costs in the second quarter. Do you have an indication for the full year? What kind of savings can we project by year-end?

And the third question is on the ramp-up cost on Morocco plant. Can you quantify the ramp-up cost in the quarter and maybe any rough indication for year-end?

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [3]

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So, Yann, you want to share the numbers on the H2?

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [4]

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So, Monica, on the market, Laurent mentioned that production markets went down in H1, 6.7% versus previous year. Consensus, and when we say consensus, it's IHS, which is reference data collector, now say it's minus 0.4% in the second half versus the previous year. If -- you ask by main market, main market today, they say plus 1.1% on Europe 28. And it's...

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Monica Bosio, Banca IMI SpA, Research Division - Research Analyst [5]

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Sorry. [Plus 1...]

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [6]

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1.1%, so increase in the second half when it was a 6.1% decrease in the first half. That's the U.S., Mexico and Canada. It's 1% reduction versus the 2.7% reduction in the first half. And China, which is very significant, is roughly even. It's minus 0.3% versus minus 13.4% in the first half. Something which is -- we said also is that India, which is a key emerging market, had a tough spot because the market went down by 7.2% in the first half, and it's projected to go down by only 1.8% in the second half. So these are market assumptions. Of course, translation into the impact from Sogefi of the interim because it depends where we are and what nominations we've been awarded. So what we have done is a sanity check with the data which we collect from the carmakers. And roughly, the data is quite reliable for the next 3 months, and it supports our assumptions for the second half of the year.

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [7]

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So on the fixed costs, Yann will give you the number. Remember that during the first half, we had an adverse effect on the fixed costs. So if you want to see the impact of what we are doing, basically what you need to do is to take the full year impact, minus a negative of the Q1. Yann?

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [8]

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So, Monica, roughly speaking, for the time being, we are going from full year reduction of EUR 6 million of cost, fixed costs.

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [9]

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Including the increase in the first quarter because, of course, this is not the speed of reduction in the second quarter.

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Monica Bosio, Banca IMI SpA, Research Division - Research Analyst [10]

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Yes. Okay. And do you expect to keep internally these savings? Or do you expect a better part of them might be transferred to the final clients?

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [11]

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It's fully internal. These are internal decisions that will remain within Sogefi.

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Monica Bosio, Banca IMI SpA, Research Division - Research Analyst [12]

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Okay, okay. And the very last on the ramp-up costs from Morocco.

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [13]

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So Morocco, we had a tough first half. And roughly speaking, Morocco caused us an EBIT in the region of a negative EUR 4 million.

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Operator [14]

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The next question is from François Robillard with Intermonte.

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François Robillard, Intermonte SIM S.p.A., Research Division - Research Analyst [15]

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My main question is concerning EBITDA on the number you reported for last year in 1H. So last year, you reported EUR 104 million of EBITDA. And this year in today's report, you had EUR 95 million for the same period. Can you give us a breakdown of how the adjustment was made? So what is the part for -- there was obviously a part for Fraize, but was there another part for IFRS 16? And hence my second question, which EBITDA will be comparable to the one that you used for first half of 2018 will be the one pre of post IFRS 16?

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [16]

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So, François, to give you comparables, EBITDA without Fraize and with IFRS 16 was EUR 100 million last year going down to EUR 86.4 million in 2019.

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François Robillard, Intermonte SIM S.p.A., Research Division - Research Analyst [17]

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Okay. So -- okay. So basically, the EUR 95.3 million you used was before IFRS 16?

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [18]

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Of course because we are not authorized to adjust opening figures so that's why I gave you the numbers as we would take them with IFRS 16. So as a comparable basis, it's EUR 100 million down to EUR 86.4 million. And the EUR 100 million, they do not take into account Fraize which has been set apart.

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François Robillard, Intermonte SIM S.p.A., Research Division - Research Analyst [19]

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Okay. So it makes -- if you take -- so pre-IFRS 16 for both, it makes a drop of 16% of EBITDA in the first half of this year compared to last year. Am I correct?

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [20]

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It's 13.8% reduction of EBITDA, which is mainly volume-driven.

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François Robillard, Intermonte SIM S.p.A., Research Division - Research Analyst [21]

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Okay. All right. And just to follow up, so Monica asked about the Moroccan plant before. And in your presentation, you talked about new products coming from your Romanian plant. Can we have an update on the rollout of the plant and some kind of visibility on when it will start to produce a profitability impact for this year?

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [22]

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Laurent Hebenstreit speaking. So concerning Romania, we are right now building the plant. And the first production will be done in the first half of next year. Of course, a trial run before that. We started [selling] the machines practically in September, October. The sales will start in the first half year. And as usual, when we start a new plant, especially in Suspension, ramp-up is rather low, so it will be more of a negative impact than a positive impact in the beginning in terms of results.

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [23]

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And François, just regarding on your previous question, EBITDA went down year-on-year. But as I mentioned before, EBITDA on a comparable basis went up between Q1 and Q2.

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François Robillard, Intermonte SIM S.p.A., Research Division - Research Analyst [24]

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Yes. I was talking about when I...

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [25]

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It was -- so it's a 1 point improvement, Q1, Q2 in tough market conditions.

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [26]

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Believe me, we had a very tough first quarter. Everything added up negatively. And as we didn't have -- as we did not have -- made progress with the car manufacturers and the negotiations, basically we have to consider that the negotiations were not successful. And of course, in the second quarter, as we start with our results, we can book it in the P&L. The positive news, more to come going forward as we continue negotiating.

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Operator [27]

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The next question is from Martino Ambroggi with Equita.

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Martino De Ambroggi, Equita SIM S.p.A., Research Division - Analyst [28]

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I've got follow-up on the raw materials because 1 percentage point of improvement can be summarized as an impact of material costs, which were down. You mentioned negotiations are going on, but what is the total impact you expect for the full year? And is it mainly coming from steel or plastic because these were the 2 responsible for -- mainly responsible for the negative impact of last year and supposed to be also for the current year?

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [29]

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Yes. So to be clear, what is happening in this industry as you well know, is that there are also called productivity of price-down agreements with a customer, which range between 1% and 2%. This year, due to the increase, the vast increase and the current increase in raw materials and plastic and steel, we improved the negotiations with the car manufacturers. And if we resolve [OMAS], we have given very little productivity, and we have recovered some of the materials, which is what you see.

In terms of price of the materials themselves, this is another matter. The increases of the material during the period, during the first half, have been less than we anticipated. We still had during the first half, on average, an increase in the cost of raw materials, which means the gain is really the effect of the negotiations with the customers. Without the negotiations with customers, we would have a deterioration.

It is true that some steel products are starting to show signs of decrease. If this is confirmed, the pressure of the customer will increase to again reduce the prices. But on steel, as we have a backlog of EUR 25 million of steel price we have not recovered, I think we are well prepared to weather these negotiations.

To answer your question on the percentage of material, we expect a further improvement in the second half of the material content as we've had in Q2 versus Q1.

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Martino De Ambroggi, Equita SIM S.p.A., Research Division - Analyst [30]

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Okay, okay. For CapEx, in your last call, you mentioned that they should have been up for the full year while they were down EUR 8 million in the first half. So should we change our assumption for the full year and why?

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [31]

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It's a good question. We still are factoring the EUR 10 million increase of CapEx year-on-year. It mainly stems from Romania investments. And depending on the evolution of the top line in the second half, we'll see whether to defer or cancel part of the investments. But for the time being, we see no reason why not to keep this guidance.

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Martino De Ambroggi, Equita SIM S.p.A., Research Division - Analyst [32]

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Okay. And the tax rate was indicated at roughly 50%. But looking at the comments you put in your press release, it seems to be higher for the full year. And restructuring costs are still at around EUR 10 million.

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [33]

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Tax rate, in every call, I say, no, it's going to be better. And I just say that every quarter, it's just the same. It's what happens when you have in your pretax income the mix of earning operation and losing operations. So Morocco is an obvious one. We've been prudent and keen that the operation is up and running and generating profits. We are not going to book deferred tax assets, but we also have other regions. Let's say Mercosur where we are not making money and in which we have decided for the time being not to book deferred tax assets, which means that the tax rate on a full year basis probably will be slightly higher than 60% this year. So I know it's disappointing, but we need to kill the losses in order to improve it.

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Martino De Ambroggi, Equita SIM S.p.A., Research Division - Analyst [34]

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Sorry. Yann, it's more than 60%, 6-0?

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [35]

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Unfortunately, more than 60%, 6-0. In terms of restructuring, for the time being, there is no plant closings. So we are talking about restructuring in the region of EUR 10 million on the full year basis.

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Martino De Ambroggi, Equita SIM S.p.A., Research Division - Analyst [36]

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Okay. And very last on the guidance because you mentioned flattish sales, which means, if I'm not wrong, is last year adjusted for the divestiture. The total was EUR 760 million. And when you talk about small improvement in regional sales, should we expect 3.5% or closer to 4%?

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [37]

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We are looking for something in the region of 3.5% in the second half.

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Operator [38]

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The next question is from Alexandre Raverdy with Kepler Cheuvreux.

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Alexandre Raverdy, Kepler Cheuvreux, Research Division - Equity Research Analyst [39]

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I just had a follow-up question on the market outlook. So you basically guide for probably flat, say, for H2. What does it mean in terms of market outperformance? You performed -- you outperformed the market by around 4% in H1. Should we expect the same degree of outperformance for H2? And in terms of regions, so should we also expect the same regions to grab the outperformance? That's the first question.

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [40]

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Okay. Thank you, Alexandre, for your question. We are always very careful in terms of guidance on the top -- guidance in general and in guidance of the top line. And each time, so far, we've outperformed our own guidance. What will be different in the second half will be the start of production of many new products in China. Therefore, the outperformance we expect is more oriented toward China versus Sogefi position because remember that in the first half, our decline was much more than the market. So we are therefore coming more aligned with the evolution. Yann, do you want to comment some more?

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [41]

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So you are right. We are beating the market by roughly 4 points in the first half. We are quite clear with the second half. Second half, we expect to perform roughly in line with the market. That's to say roughly even, and this is something we've checked recently. Roughly, we believe we shall be in line with the market in Europe, slightly better in NAFTA, probably in India and China as well. But in China, we need to be very careful because the market is moving up and down. And we are very cautious on Mercosur, which is a difficult market.

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Alexandre Raverdy, Kepler Cheuvreux, Research Division - Equity Research Analyst [42]

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Okay. Maybe a follow-up. You still use IHS. So I think if I remember correctly, they are now at minus 3.7% for the full year. Some of the suppliers adopted a much more cautious scenario between minus 4% and minus 6%. I mean why do you still use IHS because we all know that they cut every single month their figures? And if the market is down, let's say, 5% this year, how comfortable are you with your guidance?

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [43]

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So let me be more precise. We are communicating in reference to IHS because we believe that IHS, even if we've been getting every quarter or every month is still a common accepted reference. Now when we did our forecast, we start with the programs we have from the car manufacturers, not from IHS. So our forecast is presented in reference to IHS. But in reality, it's based on the Sogefi internal information and the information we are getting from customers for start of production, end of production. So they are relatively reliable. In that case, for the third quarter, it coincides, but it doesn't always coincide. So for instance, your question, we are not building our forecast on IHS, but we are presenting our forecast in comparison with IHS, and it is, I would say, a commonly accepted scenario. But it's important precisely that we are working on customer-specific scenarios plant by plant.

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [44]

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Our forecasts are bottom-up, so it's not top-down extrapolated by region. And as Laurent mentioned, we run sanity checks with all the information which is updated on a constant basis by the carmakers themselves. So the data we use is not global market data. It's purchase orders, by part number, by clients. And on Q3, for the time being, it holds.

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [45]

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What we have seen -- to give you a bit more insight, what we have seen in -- some customers reducing October. Prudently, this is taken into account in our scenarios. Depending, as usual, on the sales of drive, which nobody knows still, they might adjust, but it's unlikely that they will adjust September. What is more likely that they will adjust October, November, which is always better than addressing December because the worst thing which happened is what happened last year. That's why this forecast from IHS, as well as ours, has some substance because remember, Q4 of last year was very poor. If we look on -- and this happened really in December. If we look on the sales...

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [46]

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Page 3.

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [47]

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Yes. If you look on the Page 3 of our presentation, in Q4 of last year, we had minus 6.8% in Europe, and we had minus 7.3% in Q3. So we are not seeing this right now in Q3, the minus 7.3%, talking about Europe now. And of course, Q4, we began as a wave of the phase of July and August. In Europe, we don't see a lot of overstock right now from -- there could be on some others here or there. There is a general overstock situation. Because what is the worst case is when the customers keep on pulling more parts, building more cars, building up inventory, and then they cut all of a sudden, and they do that when inventory is piling up. Today, in Europe, we don't see customer, the end customer, car manufacturer inventory piling up, so we believe Q3 could be around these numbers. We have no information of a significant drop in Q3 coming up from one of our customers.

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Operator [48]

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(Operator Instructions) Gentlemen, there are no more questions registered at this time.

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [49]

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So I would like to thank you very much...

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Operator [50]

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Excuse me. Martino Ambroggi has just registered for a question.

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Martino De Ambroggi, Equita SIM S.p.A., Research Division - Analyst [51]

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Yes. Sorry. Just a follow-up on the financial cost because in Q2, there were EUR 5 million. Probably I missed if there was something nonrecurring or should we multiply by the next 2 quarters, roughly EUR 5 million for each quarter?

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Yann Albrand, Sogefi S.p.A. - Group CFO & Investors Relation [52]

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Martino, we are guiding for roughly EUR 2.5 million saving year-on-year on a full year basis. This is a prudent stance, and we think we are safe on that assumption.

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Operator [53]

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Gentlemen, there are no questions registered at this time.

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Laurent Hebenstreit, Sogefi S.p.A. - MD, GM, CEO & Director [54]

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Okay. So thank you very much for attending the Sogefi first half year results conference call. Thank you very much for your questions. We look forward to talk again with you for the results of the third quarter and wish you all a very good summer. Thank you very much.

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Operator [55]

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Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.