Sogefi: results for first nine months of 2020

THIRD QUARTER 2020 SHOWS PROFIT

Higher revenues, greater margin and lower fixed costs

RESULTS FOR FIRST NINE MONTHS NEGATIVELY IMPACTED BY FIRST HALF

Revenues at € 860.6 million, -21.9% at constant exchange rates (car market -23.2%)

EBITDA margin in line with 2019: € 94.7million, 11% of revenues

 (11.4% in first nine months of 2019)

EBIT: -€ 3.2 million as effect of lower volumes

EBIT for the whole year 2020 expected to be positive (excluding restructuring costs)

Milan, October 23 2020 – The Board of Directors of Sogefi S.p.A., which met today under the chairmanship of Monica Mondardini, has approved the Interim Financial Report of the group as of September 30 2020. Sogefi, a company of the CIR group, is one of the main producers worldwide of components for motor vehicles in three sectors: Air and Cooling, Filtration and Suspensions.

After the first half of 2020 in which world car production suffered an unprecedented decline (-33.2%) due to the effects of the spread of the Covid-19 pandemic, in the third quarter the market reported a strong recovery compared to the previous quarter (+60.7%), with volumes just 3.5% below those of the same period of 2019 (after a second quarter at -42.9%). The recovery affected all markets: China, where production was greater than that of the third quarter of the previous year (+10.7%), NAFTA with volumes equivalent to those of third quarter 2019 (+0.5%), the EU with volumes gradually rising, although lower in the third quarter than in 2019 (-10.7%). In South America the situation was still decidedly critical (-20.9%).

Despite the recovery in the third quarter, the first nine months of 2020 as a whole again posted very significant declines: -23.2% for world car production compared to the first nine months of 2019, -31.3% in the EU, -26.5% in North America, -8.9 % in China and -40.4% in South America. 

During the first half of the year the Group’s priority was the safety of its workforce. From the moment when news of the Covid-19 phenomenon in China was received, action was taken immediately to reduce the risk of contagion. In the second quarter almost all activity in the factories and other workplaces was suspended in compliance with the instructions issued by the various local authorities or at the decision of the company, which had recourse everywhere to working from home whenever possible. All measures recommended for health and safety in the workplace were adopted and production processes were reviewed in all geographical areas with the formulation and implementation of new safety protocols including social distancing and the use of systems for individual protection. In the current phase, the new wave of contagion is leading to the adoption of further restrictive measures to limit the number of people present in the workplace with the adoption of flexible working.

At the same time, incisive measures were put in place to mitigate the impact of the crisis and the consequent contraction in sales and these made it possible to achieve a positive result in the third quarter. In particular, this result was due to the following:

  • The increase in the contribution margin to 31%, up from 30.3% in the third quarter of 2019 and 29.5% in the second quarter;
  • The 20.2% reduction in fixed costs with their ratio to revenues falling from 17% in third quarter 2019 to 14.8% in 2020.

Despite the situation of the first nine months, since the beginning of the year Sogefi has obtained new contracts for a total amount estimated to be in line with previous years and with the objectives of maintaining/growing its market share.

More specifically, Air and Cooling obtained an important contract (€ 100 million) to supply air intake manifolds in aluminium to a prime German OEM. This material to all extents and purposes introduces a new product line in a date 25% of the value of orders received in the first nine months of the year were for components for cooling hybrid or full-electric vehicles, which forms a basis for the division to achieve an excellent positioning in the markets in future.  

The Suspensions division received an order from a prime North American producer of full-electric vehicles and thus, at global level, orders for hybrid and full-electric applications reached 35% of the total orders for the 9-month period. This growth was obtained partly thanks to the new product developed specifically to meet the demand for lightweight parts and rapid time-to-market for electric vehicles. The division has in fact engineered a conical progressive rate spring suspension for this type of application.

KEY RESULTS FOR THE THIRD QUARTER OF 2020

Third quarter revenues showed a significant recovery compared to the previous period and were more or less in line with the third quarter of 2019 at constant exchange rates (-8.1% at current exchange rates).

The results were positive thanks to the recovery of revenues and to the measures adopted, which led to a slight increase in the contribution margin and a significant reduction of fixed costs. 

EBITDA was 14% compared to 12% in the same period of 2019.

EBIT was positive for € 15.6 million, which was higher than the figure for 2019 of € 13.1 million; the ratio of EBIT to sales rose from 3.5% to 4.6%.

In the period the Group reported net income of € 5.6 million versus € 1.4 million in 2019.

Free Cash Flow before IFRS 16 was positive for € 28.0 million versus € 2.8 million in 2019.

KEY RESULTS FOR THE FIRST NINE MONTHS OF 2020

REVENUES

In the first nine months of 2020, Sogefi’s revenues came in at € 860.6 million, posting a decline compared with the same period of 2019 of 25.1% at historical exchange rates and of 21.9% at constant exchange rates.

Looking back at the trend of revenues during the year, after the first two months of the year when sales were in line with 2019, in March the first effects of the pandemic were recorded (-29.5% on 2019), which then became seriously worse in the months of April (-79.5%) and May (-64.5%); in June the recovery began (with a more limited fall in revenues compared to 2019, -24.9 %), continuing then in July (-18%), August (-7.5%) and September, when revenues showed slight growth compared to 2019 (+0.8%). 

The performance of revenues at constant exchange rates in the first nine months was better than  the market in all the main geographical areas: -24.6% in Europe versus the market’s -31.3%, -17.9% in NAFTA versus -26.5%, +12.6% in China versus -8.9%.

By business sector, Filtration (with a fall in revenues of 16.2% at constant exchange rates) and Air and Cooling (-17.8% at constant exchange rates) reported a distinctly less unfavourable performance than the market thanks, for Filtration, to the greater resilience of the OES and Aftermarket channels and, for Air and Cooling, to the development of the contract portfolio particularly in North America. The impact of the crisis was greater for Suspensions, where revenues fell by 30.6% at constant exchange rates, reflecting the greater concentration of the business in Europe and South America and the particularly unfavourable performance of the sector in these areas.

OPERATING RESULT AND NET RESULT

In the nine month period the fall in revenues had significant effects on the economic results of the group, despite the positive impact of the mitigation measures adopted.

EBITDA for the first nine months came in at € 94.7 million, down from € 130.7 million in the same period of 2019; it should be noted that profitability (EBITDA / Revenues %) came to 11%, which was substantially in line with the same period of 2019 (11.4%).

The contribution margin of the first nine months of the year was slightly better than that of 2019, rising from 29.7% to 30.3%; the impact of the cost of raw materials was lower thanks partly to market phenomena and partly to the plans put in place as from last year to optimize the purchase prices of steel for the production of suspension systems and this offset the impact of the inevitable production inefficiencies caused by the shutdown and subsequent return to production and the low volumes. The ratio of fixed costs to sales in the first nine months was substantially unchanged from the same period of 2019, thanks to the reductions obtained, part of which were temporary while part were destined to become structural.

EBIT was a negative € 3.2 million, which compared to a positive result of € 37.4 million in the first nine months of 2019. The lower EBIT reflects the fall in revenues and the non-recurring charges incurred as a result of the situation: restructuring charges of € 14.2 million (€ 5.7 million in the first nine months of 2019) and the write-down of fixed assets for € 8.2 million (€ 2.2 million in the same period of the previous year).

The group’s net result was a loss of € 23.2 million compared to net income of € 8.3 million in 2019, after financial expense that was substantially in line with that of the previous year and tax expense of € 2.8 million versus € 12.6 million last year. 

DEBT AND EQUITY

Regarding Free Cash Flow, in the first nine months of 2020, before IFRS 16, absorption of € 42.8 million was reported (versus -€ 0.5 million in the first nine months of 2019), most of which was due to the evolution of working capital caused by the particular circumstances that arose during the year. As is generally the case in the sector, amounts due from customers are received more promptly compared to the payment terms of suppliers, thanks partly to the use of factoring. The decline in sales resulted in lower cash receipts, while payments to suppliers continued to be made. This imbalance is gradually being re-absorbed as business recovers. Free Cash Flow including IFRS 16 payables amounted to -€ 55.6 million compared to -€ 4.3 million in the first nine months of 2019.

Net debt before IFRS 16 stood at € 299.0 million at September 30 2020, higher than at the end of 2019 (€ 256.2 million), but significantly lower than the figure at June 30 2020 (when the net debt amounted to € 327 million).

Including the financial payables for rights of use, as per IFRS 16, net debt at September 30 2020 totalled € 374.5 million, up from € 318.9 million at December 31 2019 and € 330.0 million at September 30 2019. It should be noted that in 2020 the group has been developing a new site for the production of suspensions in Romania, which will increase the group’s competitiveness in the sector. In the third quarter the signing of the lease contract for the new facility led to the recognition of an IFRS 16 payable of approximately € 19.0 million.

As is known, as of June 30 the covenants of the loan agreements in force were being complied with and to the best of our knowledge at present and based on our forecasts, no breaches of contract are expected to emerge by December 31 2020.

At September 30 2020 the group had committed credit lines € 220.0 million in excess of its requirements.

At September 30 2020 shareholders’ equity, excluding minority interests, amounted to € 146.6 million (€ 188.7 million at December 31 2019).

THE IMPACT OF COVID-19 ON THE BUSINESS

Following the spread of the Covid-19 pandemic, Sogefi first suspended production in China and then in the second half of March production at almost all of its sites. Business started to resume everywhere, first in China and then from May onwards in all the other countries in which the group operates, albeit with production volumes that were until August significantly lower than those of the previous year and those forecast.

As for the evaluation of the impact that the pandemic is having on the group, the pre Covid-19 forecasts had envisaged that sales revenues for 2020 would be substantially in line with 2019 and in the first two months of the year the Company did in fact report volumes equivalent to or higher than those expected. However, during subsequent months there was an extremely significant decline with a recovery only from June onwards. Consequently Sogefi reported revenues of € 860.6 million, down by 25.1% compared to the same period of last year. This reduction was almost entirely attributable to the effects of the circumstances generated by the pandemic. The contraction in volumes, even though partly offset by the reduction in fixed costs, nonetheless had a negative impact that can be estimated at € 42.0 million on EBIT and of € 27.0 million on the net result. It also led to a significant rise in debt.  

The Company has been taking action to reduce the impact of the crisis since March but in addition to this it is now working to adapt itself structurally to the changed market circumstances and to rapidly regain economic and financial stability, albeit in a context of lower volumes which are today forecast even for the fourth quarter of 2020 and for 2021.  

SIGNIFICANT EVENTS THAT HAVE TAKEN PLACE SINCE SEPTEMBER 30 3020

In October the group obtained new medium-term loan agreements for a total amount of € 134.5 million granted by prime Italian and French banks.

OUTLOOK FOR THE YEAR

Visibility as to the evolution of the market in the coming months remains limited despite the improvement in volumes seen in the third quarter.

With regard to the pandemic, in Europe the risk of a second wave of Covid-19 appears to be materializing with recent figures showing that it is spreading at higher levels than during the lockdown phase. In North and South America the evolution of the pandemic remains most concerning and it is difficult, therefore, to predict what measures will be taken by the authorities. The adoption in coming months of new measures limiting production and private business cannot be ruled out. It is also extremely uncertain as to what impact the current circumstances will have on demand in the automotive sector.

After a third quarter 2020 that was better than expected, for the fourth quarter of 2020 IHS expects that world production could come in at -2.7% compared to the fourth quarter of 2019. The year 2020 could therefore close with a market downturn of 17.9% on the whole year.

In this uncertain scenario Sogefi has factored into its projections for the fourth quarter the assumption that the market will be around -10%, in which it expects that it will be able to achieve a positive EBIT for the whole year, excluding restructuring charges.  

STOCK GRANT PLAN

On the strength of the authorization given to it by the Annual General Meeting of the Shareholders on April 20 2020, the Board of Directors implemented Stock Grant Plan 2020 by assigning 790,000 rights.

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Sogefi: results of first half 2020

Revenues: € 519.5 million, -31.2% at constant exchange rates (car market -33.2%)

Performance of revenues much better than that of the market in the main geographical areas in which the group is present

EBITDA: € 47.0 million, 9.1% of revenues (11.1% in first half 2019)

Fixed costs down by 27%

EBIT: -€ 18.8 million due to lower volumes and to non-recurring charges

EBIT and free cash flow expected to be positive in second half of 2020 provided there is no second lockdown

Milan, July 27 2020 – The Board of Directors of Sogefi S.p.A., which met today under the chairmanship of Monica Mondardini, has approved the Semi-Annual Financial Report of the group as of June 30 2020. Sogefi, a company of the CIR group, is one of the main global producers of automotive components in three sectors: Air and Cooling, Filtration and Suspensions.

KEY RESULTS FOR THE FIRST HALF OF THE YEAR

In the first half of 2020 the world car market suffered an unprecedented decline following the spread of the Covid-19 pandemic throughout the world and the resulting necessary restrictive measures adopted by local governments or applied independently by businesses with a view to protecting their workers and the population at large. These measures led to an almost total suspension of non-essential production activities and in particular of automotive production. This shutdown took place first of all in China and then in March and April in the remaining geographical areas. The current situation is that business has resumed everywhere, in China with volumes even greater than those of last year and in Europe and NAFTA with significantly reduced volumes. The most critical areas in terms of production are currently South America and India.

In the first half of the year world car production reported a decline of 33.2% compared to the same period of 2019: -41.7% in Europe, -39.9% in North America, -24.9% in Asia and -50.6% in South America. In June 2020 the market partly recovered (but with a shortfall vis-à-vis global volumes for 2019 reduced to -21.2%), driven mainly by the Chinese market (+14.1%); the performance of Europe and NAFTA also improved but still with very weak volumes (-31.2% and -24.3%, respectively). The situation in Mercosur still remains critical (-56%).

During the first half of the year the company’s top priority was the safety of its workforce. From the moment when news of the Covid-19 phenomenon in China was received, action was taken immediately to reduce the risk of contagion, starting with an increase in working from home. Subsequently all the health and safety precautions defined and required by the various local authorities or by the company were put in place in the factories and workplaces. In this context the company has revised its production procedures in all geographical areas to implement the safety protocols with regard to social distancing and the use of personal protection equipment.

Secondly, Sogefi has done all it can to mitigate the impact of the crisis and the resulting contraction in sales on results and on the company’s financial solidity; a plan was rapidly adopted to variabilize costs and limit cash consumption, and more specifically:

Lastly, the group has reformulated its medium-long term plan (2020-2024), with the aim of preserving profitability and cash generation despite the uncertain prospects regarding the recovery of the market. 

REVENUES

In the first half of 2020, Sogefi’s revenues came in at € 519.5 million and were down by 33.2% on the first half of 2019 at historical exchange rates and by 31.2% at constant exchange rates.

After the first two months of the year when revenues at constant exchange rates were up by 1%, as from March the effects of the Covid-19 pandemic were evident and became particularly serious in April (-79.5%) and May (-64.5%), while June saw a significant recovery with a considerably lower decline than in the same period of 2019 (-24.9%).

The performance of revenues at constant exchange rates was distinctly better than that of the market in the main geographical areas in which the group is present: -32.2% in Europe versus -41.7% for the market, -30.5% in North America versus -39.9% for the market, +4% in China versus -19.7% for the market. The overall decline in revenues was, however, in line with that reported by the world market because of the concentration of the group’s businesses in markets that have reported the greatest contractions (Europe and NAFTA), whereas it has a less significant presence in China, where the market decline was far more limited. 

Of the various business sectors, Filtration (where revenues declined by 25.7% at constant exchange rates) and Air and Cooling (-29.1% at constant exchange rates) reported a performance that was much less negative than that of the market thanks, for Filtration, to the fact that the OES and Aftermarket channels held up better and for Air and Cooling to the development of the portfolio of contracts particularly in North America. For Suspensions the crisis had a greater impact, with a fall in revenues of 38.2% at constant exchange rates, which reflects the greater concentration of business in Europe and Mercosur and the performance of the sector in these areas.

The dramatic reduction in volumes caused by the evolution of the market following the Covid-19 pandemic has had a very significant effect on the economic results of the group, despite the incisive mitigation measures adopted.

Indeed, EBITDA came to € 47.0 million versus € 86.4 million in the same period of 2019, mainly due to the collapse in volumes; profitability (EBITDA / Revenues %) was 9.1% and was only 2 percentage points lower than the figure for the same period of 2019 (11.1%), thanks to the cost variabilization measures put in place.

More specifically, the contribution margin improved slightly compared to the first half of 2019, from 29.4% to 29.8%, because of the favourable evolution of the relative cost of raw materials, which was due partly to market phenomena and partly to the plans implemented last year to reduce the relative impact of the purchase prices of steel needed for the production of suspension parts, which offset the impact of the inevitable production inefficiencies caused by the suspension and the resumption of production and by the low volumes.  

The relative impact of fixed costs rose by approximately 2 percentage points, an increase that was relatively limited considering the size of the collapse in revenues. This was thanks to the limitation measures adopted, some of which were temporary while others are destined to be become structural.

EBIT was a negative € 18.8 million versus a positive result of € 24.4 million in the first half of 2019. The reduction in EBIT reflects the reduction in EBITDA resulting from plummeting revenues but also includes the negative effect of the evolution of exchange rates for € 4 million (€ 1.8 million in the first half of 2019) reported by the group’s businesses in North and South America, restructuring charges for a total of € 7.3 million (€ 4.3 million in the first half of 2019) and the write-down of assets for € 6.4 million (€ 1.9 million in the previous year).

In terms of net result, the group reported a loss of € 28.8 million compared to earnings of € 6.9 million in the first half of 2019, after financial expense substantially in line with that of the previous year and tax gains of € 1 million versus tax charges of € 8.3 million in the previous year.

DEBT AND EQUITY

Regarding Free Cash Flow, in the first half of 2020 € 64.0 million were consumed compared to € 8.8 million in the first half of 2019. The reduction in business activity and thus in EBITDA led to a contraction of operating cash flow that was only partly offset by the lower outflow for investments. It should also be noted that around 80% of the amount consumed was due to the increase in working capital caused by the particular circumstances that occurred in the second quarter of the year. Indeed, as is generally the case in the sector, customer receivables are received more quickly than the timing of payment to suppliers, partly because of factoring. As sales plummeted in the second quarter, sums received from customers were lower, while disbursements to suppliers continued. This imbalance should gradually be absorbed as business recovers.

Net debt at June 30 2020 before IFRS 16 rose to € 327.0 million from € 256.2 million at the end of 2019 and € 267.3 million at the end of June 2019. Including the financial payables for rights of use, in accordance with IFRS 16, net financial debt stood at € 382.9 million at June 30 2020 compared to € 318.9 million at December 31 2019.

At June 30 2020 the group had committed credit facilities of € 194.2 million in excess of its debt and the covenants contained in the loan agreements were all being complied with.

At June 30 2020 shareholders’ equity, excluding minority interests, amounted to € 144.9 million (€ 188.7 million at December 31 2019).

RESULTS OF THE PARENT COMPANY SOGEFI S.P.A.

In the first half of 2020 the parent company Sogefi S.p.A. reported a net loss of € 5.8 million compared to net income of € 32.7 million in the same period of last year. In a particularly uncertain scenario in all of the countries in which the group operates, the distribution of dividends by the subsidiaries to Sogefi S.p.A. has been suspended.

IMPACT OF COVID-19 ON BUSINESS

Following the spread of the Covid-19 pandemic, Sogefi first suspended production in China and then in the second half of March suspended production in almost all of its facilities. At the present time, production in China has returned to monthly levels in line with the Company’s estimates made before the crisis. In the other factories production has gradually resumed since May, after their main customers started up again. However volumes are still significantly lower than forecast at the start of the year.

As regards the impact of the pandemic on the group, the pre Covid-19 forecasts had envisaged a performance of revenues in 2020 substantially in line with 2019. In the first two months of the year the Company achieved volumes higher than expected, followed by an extremely significant fall with a gradual recovery in June. Because of this, Sogefi reported revenues of € 519.5 million, down by 33.2% on the same period of the previous year; this reduction was almost entirely attributable to the effects of the crisis. The contraction in volumes, even though partly offset by the reduction in fixed costs, had a negative impact of around € 50 million on EBIT and € 39 million on the Net Result, and also led to a significant increase in debt.  

As well as reacting to reduce the impact of the crisis between March and today, the company also strove to adapt to the changed circumstances in the market and to quickly find a new economic and financial equilibrium, despite the scenario of reduced volumes such as today and which is also likely to be the case in the second half of the year and in 2021. 

OUTLOOK FOR THE YEAR

Visibility as to the evolution of the market in the coming months remains limited. With regard to the pandemic, if its containment in Europe would appear to be consolidated, its spread in North and South America has not yet reached the containment phase. There is also the risk of a second outbreak of Covid-19 and, lastly, at present it remains difficult to predict the impact of the macroeconomic conditions caused by the pandemic on demand in the automotive sector.

For the second half of 2020, IHS expects that, without a second outbreak of Covid-19 and resulting measures to restrict production and adverse effects of the latter on the market, world production could be at -10% compared to the second half of 2019, while market analyst forecasts tend to be more cautious, expecting a world market reduction in a range between -15% and -30%, the latter being the case in the event of a second wave of Covid-19.

In this uncertain scenario, Sogefi has incorporated into its expectations for the second half of the year a world market scenario of around -20%, against which it expects to achieve an EBIT, excluding restructuring costs, slightly positive, a significant reduction in the net loss compared to the first half and a slightly positive free cash flow.

Furthermore, in the light of the market outlook which is uncertain and is likely to remain so in the next few years, Sogefi has launched a plan for a significant reduction of fixed costs, which will be completed by the end of the first half of 2021, as well as actions to rationalize footprint and manage suppliers.

Even if today the Company has financial resources in excess of its current needs and although it does not foresee an increase in its debt compared to the end of June 2020.  In view of the uncertainty as to the evolution of the market and anticipating the natural expiry of existing loans, it has started negotiations with its financial partners, with whom consolidated relationships are in place, to renew existing loans and enter into new medium-term loans for a total value in the region of € 100 million.

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Sogefi: AGM approves Financial Statements for 2019

Mauro Fenzi confirmed as Chief Executive Officer of the Company

Milan, April 20 2020 – The Annual General Meeting of the Shareholders of Sogefi S.p.A. was held today under the chairmanship of Monica Mondardini.

Pursuant to the terms of Art. 106, paragraph 4, of Decree Law no. 18 of March 17 2020, Shareholder attendance at the Annual General Meeting is exclusively through the designated representative, appointed as per the terms of Art. 135-undecies of D.Lgs. no. 58 of February 24 1998 (TUF) and identified as Studio Segre S.r.l., to whom proxies and sub-proxies were also assigned in accordance with Art. 135-novies of the TUF, in waiver of Art. 135-undecies, paragraph 4, of the TUF. 

Approval of the Financial Statements for 2019

The Shareholders approved the Financial Statements for 2019. Sogefi closed the year with consolidated revenues of € 1,519.2 million (versus € 1,570.7 million in 2018), EBITDA of € 174.3 million (€ 176.1 million in 2018) and consolidated net income of € 3.2 million (€ 14.0 million in 2018). The parent company Sogefi S.p.A. reported net income of € 7.7 million (compared to a loss of € 13.7 million in 2018).

The Shareholders adopted the proposal put forward by the Board of Directors that no dividends be distributed.

Stock Grant Plan, Compensation Policy and own shares

The Shareholders approved the first section of the report on compensation policy and emoluments paid out and expressed a vote in favour of the second section of the same report. They also approved the Stock Grant Plan for 2020 for employees of the Company and its subsidiaries for a maximum of 1,000,000 conditional rights, each of which will give the beneficiaries the right to be assigned 1 Sogefi share free of charge. The shares assigned will be made available by drawing upon the own shares held by the Company as treasury stock. The Plan has the aim of rewarding the beneficiaries’ loyalty to the companies of the Group, giving them an incentive to increase their commitment to improving performance.

Regarding the buyback of own shares, following the renewal by the Shareholders of the authorization of the Board of Directors to buy back a maximum of 10 million own shares (including 2,212,478 own shares held today as treasury stock, corresponding to 1.8419% of the share capital), given that Decree Law no. 23 of April 8 2020 (the so-called “Liquidity Decree” enacting urgent measures on the subject of access to credit and tax obligations for businesses) stipulates that SACE S.p.A. can until December 31 2020 give guarantees in favour of banks and domestic and international financial institutions to businesses with their headquarters in Italy affected by the Covid-19 epidemic, provided that the latter do not approve the buyback of own shares during 2020, the Board of Directors has adopted a resolution that it will not start any buyback programmes for the whole of 2020.   

Mauro Fenzi confirmed as Chief Executive Officer

The Shareholders confirmed Mauro Fenzi – who was co-opted by the Board, as per the terms of Art. 2386 of the Civil Code, on December 9 2019 – as a Director of the Company. After the AGM, the Board of Directors confirmed him as Chief Executive Officer of the Company. Mauro Fenzi has also held the position of General Manager since January 1 2020. His curriculum vitae is available on the website www.sogefigroup.com.

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Sogefi: results for first quarter 2020

Revenues at € 350.2 million, -8.8% (market -24.4%)

Revenues +1% in first 2 months and -30% in March, due to Covid-19

EBITDA at € 34.9 million, 10% of sales (10.6% in first quarter 2019)

Net debt at € 256.7 million (€ 262.1 million at 31/03/2019)

Milan, April 20 2020 – The Board of Directors of Sogefi S.p.A., which met today under the chairmanship of Monica Mondardini, approved the Interim Financial Report of the group as of March 31 2020 as presented by Chief Executive Officer Mauro Fenzi.   

Sogefi, a company of the CIR Group, is one of the main world producers of automotive components in three sectors: Air and Cooling, Filtration and Suspensions.

SUMMARY OF RESULTS OF FIRST QUARTER

In the first quarter of 2020, the world car market has reported rates of decline previously seen only during the crisis of 2009. World production fell by 24.4% compared to the first quarter of 2019: -21.3% in Europe, -10.8% in North America, -44.7% in Asia and -16.3% in South America. In March the decline was -38.2%, with Europe posting -48.3%.

The exceptional performance described reflects the impact of the spread, first in China and then in the rest of the world, of the Covid-19 pandemic and the consequent and necessary restrictive measures adopted by local governments or independently by businesses with the aim of protecting their workers and the population at large. These measures led to an almost total suspension of non-essential production activities and in particular of automotive production. This shutdown took place first of all in China and subsequently in the remaining geographical areas during the month of March. Currently, business resumed in China in the middle of March, with reduced volumes, while shutdown continues in the remaining areas with the timing and methods of reopening remaining totally uncertain. It should also be noted that the automotive market, even before the spread of the pandemic, had already proved to be in a period of weakness after the inversion of the trend that took place in mid-2018, with world production decreasing by 5.8% in 2019 and still declining at the beginning of 2020.

In this context Sogefi suspended production first in China and then, in the second half of March, in all of its facilities except for those in the USA, which remained partially active. At the present time production in China has started up again, after almost all of its main customers had also opened up for business.

During the first quarter, the priority of the company was the safety of its workforce. From the moment in which news of the Covid-19 phenomenon in China was received, action was taken immediately to reduce the risk of contagion from relations with China, and to encourage smart-working. Subsequently all the health and safety precautions defined and required by the various local authorities were implemented. 

Moreover, the company is doing all it can to manage the crisis and protect the company, focusing on continuing operations, through an assessment of liquidity, disbursement-reducing plans, cost cutting and reducing investments that are not strictly necessary.

REVENUES

In the first quarter of 2020 Sogefi reported revenues of € 350.2 million, which were down by 10.2% at historical exchange rates and by 8.8% at constant exchange rates compared to the first quarter of 2019. In the first two months of the year revenues at constant exchange rates had shown growth of 1% thanks to the good performance of all geographical areas except for China. In March, given the situation caused by the Covid-19 pandemic, sales contracted by 30% and the decline affected all geographical areas and all divisions.

The decline in the quarter (-8.8% at constant exchange rates) was overall much less than that reported by the market (-24.4%).

Performance of revenues by geographical area

By geographical area, revenues at constant exchange rates were down by 9% in Europe, versus the market’s 21.3%, thanks partly to the resilience of After Market sales, and by 4% in North America, compared to the market’s -10.8%, thanks to the new production sites started up in the first two months of the year.

Performance of revenues by Business Unit

By business sector, Filtration reported growth of 1.8% at constant exchange rates, bucking the market trend thanks to the contribution of the new production site in Morocco and the fact that Aftermarket and OES sales held up until March. Air and Cooling reported a more modest decline than the market (-8.2% at current exchange rates and -8.7% at constant rates), with revenues underpinned by the new contracts acquired in North America, while the revenues of Suspensions reported a decline of 18.5% (-20.9% at constant exchange rates), affected mainly by the market difficulties in China and the suspension of production in Europe a few days earlier than suspension of the production of engine components.

OPERATING RESULTS AND NET RESULT

EBITDA for the first quarter of 2020 came in at € 34.9 million, versus € 41.3 million in the corresponding period of 2019; profitability (EBITDA/Revenues %) was 10% and was lower than the 10.6% reported in the same period of the previous year. The performance of the first two months showed an improvement in profitability but the dramatic fall in volumes in March, following suspension of production activities, had a significant impact partly due to the time required to implement the cost-cutting measures. The evolution of EBITDA in the first quarter included an overall result that held up well in Europe thanks to the first two months of the year whereas evolution was negative in China due to the collapse of business, in South America due to the economic situation particularly in Argentina and the impact of exchange rates against the local currencies, and in North America mainly because of exchange rates.

EBIT came to € 3.7 million, down from € 11.3 million in the first quarter of 2019. The reduction in EBIT came in March with the collapse of volumes, and included the negative effect of exchange rates for € 5.3 million reported by the group’s businesses in North and South America.

The net result was a negative € 5.6 million versus net income of € 1.6 million in the first quarter of 2019, after tax expense of € 2.5 million, compared to € 3.6 million in the previous year.

DEBT AND EQUITY

Free Cash Flow was positive for € 5.4 million in the first quarter of 2020 compared to -€ 9.1 million in the first quarter of 2019, thanks to a decidedly more favourable performance of working capital.

Net financial debt before IFRS 16 stood at € 256.7 million at March 31 2020 and was substantially unchanged from € 256.2 million at the end of 2019 and lower than the € 262.1 million reported at March 31 2019. Including the amount of € 56.7 million resulting from the application of IFRS 16, the net debt figure at March 31 2020 amounted to € 313.4 million, down from € 318.9 million at December 31 2019.

At March 31 2020 the Group had committed credit lines of € 298.0 million in excess of its net debt figure.

Equity, excluding minority shareholder interests, amounted to € 181.1 million at March 31 2020 (€ 188.7 million at December 31 2019).

RESULTS OF THE PARENT COMPANY SOGEFI S.P.A.

The parent company Sogefi S.p.A. reported a net loss of € 2.8 million in the first quarter of 2020 (-€ 3.2 million in the same period of the previous year).

OUTLOOK FOR THE YEAR

In an environment with extremely limited visibility, the most recent sector sources are estimating that world car production may fall by between 20% and 25% in 2020 according to different scenarios as to the effects of Covid-19.

Indeed at present all the elements that contribute to the formulation of forecasts for the year remain totally uncertain: the evolution of the pandemic, the decisions to be made by the authorities on the subject of resuming production activity, today in lockdown, and lastly, following the possible startup of activity, the reaction of parts of the world. At present the circumstances described above make any forecast that the company could make highly uncertain.

The group is focused on doing all it can to manage the crisis: it has put in place actions to reduce costs and limit as far as possible current costs and investments that are not strictly necessary, it regularly assesses liquidity positions, keeping the Board of Directors informed, liaising with its financial partners, and is preparing to start operating again, introducing higher safety standards for personnel and cost flexibility in relation to volumes that will be affected by circumstances for a certain period of time.

However, both for the period of closure and the first months after business starts up again there will be significant economic losses that will also be reflected in an increase in net debt.

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Sogefi (CIR Group): measures in response to COVID-19 emergency in Europe

Milan, March 22, 2020 – Sogefi, the automotive components company of the CIR Group, announces that, due to the COVID-19 outbreak in Europe, it will temporarily suspend its three Business Units production activities across the plants located in Italy, France and Spain. Limited production will continue in certain sites in order to fulfill aftermarket needs.

The decision is primarily aimed at ensuring health and safety of the Group employees and the population, following the spread of the virus, and is aligned with governmental measures currently adopted in the countries where production sites are located. It also takes into account supply chain disruption and significant market decline.

Measures will be implemented at local level in coordination with social partners.

The Group is continuously and closely working with its business partners and is ready to promptly restart production when circumstances will permit.

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Sogefi: 2019 revenues € 1,519.2m, -2.2% at constant exchange rates (market -5.8%)

SOGEFI (CIR GROUP): 2019 REVENUES € 1,519.2M, -2.2% AT CONSTANT EXCHANGE RATES (MARKET -5.8%)

EBITDA at € 174.3 million, 11.5% of revenues

Profitability in line with 2018 but improved during 2019 

EBIT at € 39.6 million after significant start-up costs for new production sites and write-down of assets

Milan, February 24 2020 – The Board of Directors of Sogefi S.p.A., which met today under the chairmanship of Monica Mondardini, has approved the proposed financial statements for the year 2019. Sogefi, a company of the CIR Group, is one of the main global producers of automotive components in three sectors: Air and Cooling, Filtration and Suspensions. 

Mauro Fenzi, Chief Executive of Sogefi, made the following statement:

“Sogefi in a difficult year succeeded in outperforming the market and keeping its margins substantially stable. Indeed margins improved in the fourth quarter and in Europe they improved over the whole year. The management team and the employees of a company with a great tradition like Sogefi, which has a consolidated relationship with its customers, will continue in their effort to meet the challenges of a market that is profoundly evolving”.

Revenues

In 2019, the world car market reported a decline in production of 5.8% compared to 2018: -4.7% in Europe, -3.9% in North America, -8.9% in Asia and -4% in South America. In the fourth quarter the decline was 5.4%, with Europe and NAFTA very weak (-6.3% and -8.9% respectively).

Sogefi reported revenues of € 1,519.2 million, down by 3.3% from 2018 at historical exchange rates and down by 2.2% at constant exchange rates.

Revenues at constant exchange rates were down by 1.7% in Europe, by 6.3% in North America and by 8.2% in Asia, while in South America they were up by 8.1%. The overall decline was more limited than that reported by the market (-5.8%) thanks to the performance of revenues in Europe which held up compared to the market (-1.7%, versus -4.7% for the market).

Even in the last quarter of the year Sogefi confirmed a sales performance that was better than the market (-3.5% at current exchange rates and 2.2% at constant exchange rates compared to the market’s -5.4%), with Europe at -1.8% and growth in China and India.  

By business sector, Filtration with growth of 2.7% (+1.7% at current exchange rates) bucked the market trend, Air and Cooling reported a more limited decline that the market (-3.5% at constant exchange rates and -1.7% at current exchange rates) while the revenues of Suspensions reported a decline of 5.6% (-8.8% at current exchange rates).

Operating results and net income

EBITDA for 2019 came in at € 174.3 million (of which € 12.4 million from the application of IFRS 16), and profitability (EBITDA / Revenues %), despite the lower volumes, came to 11.5%, a value in line with that of the previous year on a like-for-like basis and excluding in 2018 the non-recurring income of € 6.6 million from the settlement of the quality claims in Systèmes Moteurs S.A.S..

In the fourth quarter, profitability (11.8%) was in line with the number for the third quarter of the year and confirms the recovery that took place in the year (10.6% and 11.6% in the first and second quarters respectively). Moreover, profitability in the fourth quarter was higher than the figure reported in fourth quarter 2018 and was 9.7% with the same accounting standards.

EBIT was € 39.6 million versus € 60.1 million in 2018 (€ 53.5 million without considering the above-mentioned item of non-recurring income of € 6.6 million); profitability (EBIT / Revenues %) came to 2.6%, compared to 3.4% in 2018. The decline in EBIT was due partly to the lower EBITDA in absolute terms, linked to the fall in revenues, and partly to the start-up costs of the plants in Morocco and Romania and lastly to a write-off of business activities for € 10.7 million.

Operating results showed healthy growth in Europe, thanks to the action taken in the period, while a negative impact came from various circumstances affecting the North American businesses of the group and from the unfavourable performance of the Chinese and South American markets.

Income before taxes came to € 15.9 million (€ 36.2 million in 2018) after financial expenses of € 23.7 million (€ 19.5 million before application of IFRS 16), versus € 23.9 million in 2018. 

Net income came in at € 3.2 million compared to € 14.0 million in 2018, after tax charges of € 13.7 million, down from € 20.0 million in the previous year. The greater impact of taxes reflects the composition of the result, with some geographical area posting significant earnings and others where the decision was made not to recognize deferred tax assets offsetting losses linked to the start-up of business activities or continuing critical market conditions. The net result includes income of € 4.0 million from the sale of the Fraize plant (included in the item “Discontinued operations”), which compares with net income of € 1.1 million from the same business in 2018.

Net debt

Free Cash Flow for 2019 was a positive € 8.4 million, up from € 2.9 million in 2018, which included the disbursement for the acquisition of minority interests in the Indian subsidiary (€ 16.7 million). 

Net debt before IFRS 16 stood at € 256.2 million at December 31 2019, which was slightly lower than the figure of € 260.5 million at the close 2018. Including the sum of € 62.7 million from the application of IFRS 16, the net debt figure at December 31 2019 would have been € 318.9 million.

Equity

At December 31 2019 Shareholders’ equity, excluding minority interests, stood at € 188.7 million (€ 192.9 million at December 31 2018).

Employees

The Sogefi Group had 6,818 employees at December 31 2019 versus 6,967 at December 31 2018. The reduction was due both to the decline in business activity and to the sale in 2019 of the Fraize plant (127 employees at December 31 2018).

Results of the parent company Sogefi S.p.A.

The parent company Sogefi S.p.A. reported net income of € 7.7 million in 2019 compared to a net loss of € 13.7 million in the same period of the previous year. The increase was due mainly to the greater flow of dividends distributed by the subsidiaries and to lower financial expense.

Outlook for the year 2020

Sector sources expect 2020 global car production to decline slightly, with Europe at -1.4%; for the first quarter of 2020, the trend should be a major decline, mainly in China, with a recovery in the following quarters.  It should be highlighted that the market outlook remains highly uncertain and the visibility low.

Taking into account its contracts portfolio, Sogefi expects sales substantially in line with 2019 and slightly better than the market.

A stable profitability in Europe is expected, thanks to the actions taken particularly in the Suspensions business, and a margin recovery is expected in North America, thanks to the new Air & Cooling contracts acquired. 

The current year will be key for the development of the new Suspensions plant in Romania which will contribute to strengthen the EMEA business from 2022 onwards.

These perspectives do not incorporate the effects of Coronavirus; considering the relatively limited exposure of Sogefi to the Chinese market, the main risk is represented by the impact on the world economy and on the car production worldwide.

Proposed dividend

The Board of Directors will propose to the Annual General Meeting of the Shareholders that no dividend be distributed.

Annual General Meeting of the Shareholders

The Annual General Meeting of the Shareholders of Sogefi has been called for April 20 2020 at the first call and for April 21 2020 at the second call.

  • The Board of Directors has voted to put the following proposals before the ordinary session of the AGM: The cancellation and renewal of the power assigned to the same Board of Directors, taking into account current legislation and regulations in force, Consob Resolution no. 20876 of April 3 2019 and Consob Guidelines of July 2019, for a period of 18 months to buy back a maximum of 10 million own shares (including 2,212,478 own shares held today, corresponding to 1.8419% of the share capital) at a unit price that must not be more than 10% higher or lower than the benchmark price recorded by the shares in the stock exchange trading session preceding each single buyback transaction or the date on which the price is fixed and in any case, when the purchases are made on a regulated market, at a price that is no higher than the higher of the price of the last independent transaction and the current independent bid price in the same market, in accordance with what is stipulated in EU Delegated Regulation no. 2016/1052. The main reasons for renewing this authorization are the following: to fulfil obligations resulting from any stock option plans or other forms of assignation of the Company’s shares to employees or members of the Board of Directors of Sogefi or its affiliated companies; to fulfil obligations that may derive from debt instruments that can be converted into or exchanged for shares;  to have a portfolio of own shares to use as consideration in any extraordinary transactions, possibly involving an exchange of shareholding interests, with other parties within the scope of transactions of interest to the Company (a so-called “stock of shares”); to be able to increase the liquidity of the shares in the market; to be able to take any opportunities for creating value as well as investing liquidity efficiently in relation to the trend of the market; for any other purpose that the competent Authorities should qualify as permitted market practice as per the terms of the European and domestic rules applicable, and following the procedures established therein;
  • The approval of a stock grant plan for 2020 aimed at employees of the Company and its subsidiaries for a maximum of 1,000,000 conditional rights, each of which will give the beneficiaries the right to be assigned 1 Sogefi share free of charge. The shares thus assigned will be made available from the stock of own shares held by the company. The plan has the aim of rewarding loyalty in the relationship between the beneficiaries and the companies of the Group, giving them an incentive to increase their commitment to improving the performance of the companies.

The Annual General Meeting will also be called upon to pass a resolution for the appointment of a Director and the proposal is that Mr Mauro Fenzi (Chief Executive Officer and General Manager of the Company) should be confirmed after being co-opted by the Board as per the terms of Art. 2386 of the Civil Code on December 9 2019.

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