Sogefi (CIR group): results higher in first half 2017

Laurent Hebenstreit, Chief Executive of Sogefi, said:

'Sogefi obtained an improvement in its results for the first half despite the car market slowdown in some key countries, which confirms that the turnaround actions aimed at increasing profitability and cash generation have been effective'.

Revenues up by 8.4%

In the first half of 2017, the global automotive market reported an increase in production of 2.8%. After strong growth in the first quarter of the year, the second quarter was in line with the same period of 2016. In Europe production declined by 1.2%, with different trends in the first quarter (+3.6%) and the second quarter (-5.8%), which was affected significantly by the calendar which had a greater number of working days in the first quarter and a lower number in the second quarter compared to 2016. North America experienced a clear market slowdown (-0.7% for the half year), with a negative second quarter (-3%) due to weak performance in the United States. In South America production grew by 18.2% and in Asia by 3.8%.

In this environment, in the first half Sogefi reported revenues of € 866 million, up 8.4% compared to € 798.6 million in the same period of 2016 (+7.7% at constant exchange rates). After the rise of 12.6% in the first quarter, in the second quarter the company posted lower but nonetheless significant growth (+4.5%), outperforming the market in all geographical areas.

Revenues grow in all geographical areas

All geographical areas contributed to the increase in sales in the first half. In Europe revenues increased 2.6%, despite a contraction in the second quarter (-2.7%) mainly because of the decline in car production due to negative calendar factors. Business continued to develop in North America (+11.6% in the first half, despite the market slowdown in the second quarter) and above all in Asia (+32.1% in the first half, with a further acceleration in the second quarter): the two regions now account for 27.5% of the group's sales. In South America revenues increased by 26.1% (+16.3% at constant exchange rates), reflecting the recovery of the market.

Positive performance for the three Business Units

In the first half, all three Business Units reported growth: +10.1% (+9.3% at constant exchange rates) for Air & Cooling, +9.4% (+8.6% at constant exchange rates) for Filtration and +6.1% (+5.6% at constant exchange rates) for Suspensions.

Operating results and net income

EBITDA, at € 93.9 million, increased by 25.8% compared to € 74.7 million for the same period of 2016. The increase was due to the revenue growth and the improvement in profitability, which rose from 9.3% to 10.8%.

The increase in profitability was the result of a further improvement in the contribution margin and the reduced impact of indirect costs. The ratio of total labour costs to revenues declined from 21.7% in first half 2016 to 20.8% in the same period of 2017.

EBIT, at € 49.8 million, increased 36.1% compared to the first half of 2016 (€ 36.6 million) and represents 5.8% of total sales. The first half result includes € 6 million of write-downs of the fixed assets of the Brazilian operations.

Net income before taxes and non-controlling interests was € 37 million (€ 19.4 million in the first half of 2016), after financial expense of € 12.8 million, down from € 16.8 million in the same period of 2016 thanks to lower interest expense and fair value gains of € 1.2 million.

Net income was € 20 million (€ 8.3 million in the first half of 2016).

Regarding the risks resulting from the claims made against Sogefi Air & Cooling S.A.S. (formerly Systèmes Moteurs S.A.S.), in the first half of 2017 there were no significant developments.

Net debt

Free Cash Flow in the first half of 2017 amounted to a positive€ 19 million compared to a cash flow at breakeven in the same period of 2016 (€ -0.2 million). The improvement is attributable to a better operating performance of the group.

Net financial debt at June 30 2017 stood at € 280.4 million, showing an improvement of € 18.6 million compared to December 31 2016 (€ 299 million) and of € 45.8 million compared to June 30 2016 (€ 326.2 million).

Shareholders' equity

At June 30 2017 shareholders' equity excluding minority interests amounted to € 187.4 million (€ 172.9 million at December 31 2016).

Employees

The Sogefi group had 6,799 employees at June 30 2017 compared to 6,801 at December 31 2016.

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

In the first half of the year the parent company Sogefi S.p.A. reported net income of € 21.5 million, up from € 13.8 million in the same period of 2016. The increase was due mainly to the higher dividends distributed by the subsidiaries (€ 8.7 million) together with lower net financial expense (€ 0.9 million) partly offset by higher non-operating charges relating to the cancellation of intercompany receivables with a Brazilian subsidiary (of € 1.8 million).

Net debt stood at € 249.3 million at June 30 2017 (€ 280.1 million at December 31 2016).

The company's equity totalled € 222.4 million at June 30 2017 (€ 197.9 million at December 31 2016).

Outlook for the year

For the global automotive market, the outlook for 2017 shows a positive trend, albeit at a slower pace than in the first half of the year. Europe is expected to grow in the second half of the year while North America is expected to show a further decline.

In this environment, Sogefi is forecasting mid-single digit revenue growth in percentage terms in the second half of the year. The company also expects to improve its profitability on a full year basis despite an increase in the cost of raw materials.