Brembo S p A : Trascrizione della conf. call sui risultati del FY 2023 (in lingua inglese)

Brembo S.p.A.

"Full Year 2023 Financial Results Conference Call"

Tuesday, March 05, 2024, 14:30 ITA Time

MODERATORS: MATTEO TIRABOSCHI, CHAIRMAN

DANIELE SCHILLACI, CHIEF EXECUTIVE OFFICER

ANDREA PAZZI, CHIEF FINANCIAL OFFICER

LAURA PANSERI, HEAD OF INVESTOR RELATIONS

OPERATOR:Good afternoon. This is the Chorus Call Conference operator. Welcome and thank you for joining the Brembo Full Year 2023 Financial Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing "*" and "0" on their telephone.

At this time, I would like to turn the conference over to Ms. Laura Panseri, Head of Investor Relations. Please go ahead, Madam.

LAURA PANSERI: Yes, thank you. Good afternoon everybody and welcome to Brembo Group's full Year 2023 earnings call. Today Brembo's Executive Chairman, Matteo Tiraboschi, will open the call with his introductory remarks. After that, he will be available together with Brembo's CEO, Daniele Schillaci, and the CFO, Andrea Pazzi to answer questions from analysts.

During this call, we will discuss our business outlook and we'll make forward-looking statements which are based on our predictions and expectations as of today. These comments are subject to risks and uncertainties that can cause the actual results to be materially different. I also remind you that this call is being recorded.

I'd like now to turn the call over to Matteo Tiraboschi, please.

MATTEO TIRABOSCHI: Thank you, Laura. Good afternoon everyone and welcome back. 2023 was an excellent year for Brembo, a record-breaking year that saw the company continue its growth trajectory, surpassing the already extraordinary results of 2022 and 2021.

Let's dive straight into the numbers. In 2023, Brembo's revenues exceeded €3.8 billion, representing a growth of 6.1% compared to the previous year. Margin and net profit also increased, reaching the highest absolute value in Brembo's history. We take pride in this achievement, especially considering the challenging global market condition that continue to pose complex challenges to businesses.

As further confirmation of Brembo's performance in 2023, I want to highlight additional positive indicators. We recorded an operating cash flow of nearly 310 million. Additionally, we further reduced the debt by over 47 million, despite an acceleration in investments that nearly reached 433 million euros. Investing remains a strategic priority for us to fuel Brembo's future growth. We will go into this aspect in more detail shortly

Staying on the numerical side for a moment, I'd like to add another significant data: all the countries where we operate experienced growth, also China excluding currency effects. Brembo's extensive presence in all the key markets globally for our industry is crucial as we aim to balance Brembo's business more evenly among the three key regions: Europe, Asia, and America.

Turning to more strategic considerations, I want to emphasize the importance of the investments mentioned earlier. In 2023, we announced an investment plan of over half a billion euros to expand the Group's global industrial presence with projects in Mexico, China, and Poland. This was complemented by the expansion of production capacity for the Brembo SGL Carbon Ceramic Brakes joint venture in Germany and Italy.

These investments support the Group's global growth strategy, crucial to effectively meet the increasing demand for our solutions in the market. Following this path, 2024 started with another significant industrial

investment announcement: we are entering Thailand with a new production site dedicated to the motorcycle market, opening up new business opportunities in the Southeast Asian region..

Our goal is to ensure that Brembo continues to grow and maintains its leadership role in the global automotive market. To support this goal, in 2023, as you know, we initiated the process to relocate the company's registered office to the Netherlands. The operation, effective from April 24th, allows us to adopt a more flexible share capital structure, that is more consistent with the company's future development strategy. I want to reiterate that this operation does not impact personnel, business, identity, culture, or Brembo's presence in Italy and the areas where we operate. Brembo will retain its fiscal headquarters in Italy, and we will remain listed on the Italian Stock Exchange.

Moving to the heart of our strategy, we are particularly focused on seizing the opportunities offered by Artificial Intelligence. While the world is becoming increasingly familiar with the practical applications of AI in everyday life, Brembo has long been engaged in guiding its developments within the broader ongoing digitization in the automotive sector. Central to this strategy is Sensify, the first intelligent braking system, which continues to receive positive feedback globally.

Furthermore, with our new unit, Brembo Solutions, we are offering solutions derived from our direct experience in Artificial Intelligence applied to the industrial world, not only in the automotive sector.

We are committed to leading Brembo's evolution and focused on guiding our customers through the transformation of the automotive sector. In this journey, the strength of our Group enables us to seize the growth and innovation opportunities that the most ambitious challenges present.

To conclude and provide you with our foreseeable outlook for 2024, based on the order portfolio and barring significant changes in the current macroeconomic and geopolitical context, Brembo anticipates mid-single- digit revenue growth for the current year compared to the previous year.

Thank you for your attention. I'll now hand it over to Laura.

LAURA PANSERI: Thank you, operator. We are ready to answer questions. Thank you.

Q&A

OPERATOR:Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press "*" and "1" on their touchtone telephone. To remove yourself from the question queue, please press "*" and "2." We kindly ask to use handsets when asking questions. Anyone who has a question may press "*" and "1" at this time.

The first question is from Monica Bosio, Intesa SanPaolo. Please go ahead.

MONICA BOSIO: Good afternoon, everyone and |thanks for taking my questions. I hope you can hear me. I have actually 4 questions. The first is on the mid-single- digit growth target at top-line level. Can you discuss the main drivers behind this target in terms of region and what kind of growth do you expect from China and NAFTA for this year and maybe also on the Eurozone?

And the second question, as a matter of fact, is on the margins. The company did not release the guidance on the margins. So I'm just wondering, if we should expect a flat trend as the group has still to face the ramp-up costs of the investments or maybe on the back also of the raw material tailwinds, there's room to do a little bit better?

The third question is on the CAPEX, which was higher than expected in 2023. Can you please give us an indication on 2024? Can we imagine something similar?

And the very last is on the Sensify, you say that the tests with the clients are going very well. Can we expect some news flow in the first part of the year as for further contracts on the Sensify? And if yes, can we imagine that this contract will be related to platforms with high volumes? Thank you very much.

DANIELE SCHILLACI: Okay. Thank you, Monica. I am Daniele. Regarding your 4 questions, let's start with the first one, the main driver for the mid-single-digit.

If you look at our history, we always try to over-perform the market, and the market assumption for 2024 is meant to be flat versus2023, with more or less similar trends across the different regions. This is what we see today, based on the market specialists forecast. Of course, we are now at the beginning of the year, so we have time to see how the situation will evolve in the different areas during the year, but today, the assumption is that the market will remain flat vs. last year. Hence, by forecasting a mid- digit growth, we are, de facto, over-performing the market.

Regarding the margins, as you know, we use to give indications during the Q1 call, so we ask you to have a couple of months of patience, and we will provide more indications on the margin structure.

Regarding the CAPEX, you are right, 2023 has been extremely rich in investment. This is a confirmation that the company is investing to sustain new products, but also to expand our production capacity, as we have announced, especially in some areas like Mexico and Poland. But to your question, our forecast for the CAPEX for 2024 is around €350 million.

Finally, on Sensify, we are adding indeed new permanent contacts with major premium OEMs. And indeed, our target, as you correctly say, is to give you an update in terms of new contracts in the second part of the year. This is something we are working hard on, so I hope that I will be in the position to give you some good news in the second part of the year.

MONICA BOSIO: And…are these contracts…or could these contracts be related to platforms

with high volumes or niche platforms, if I may ask?

DANIELE SCHILLACI: Yes, of course, we have some OEMs that are more on the top-end of the premium, but we have also a good panel of OEMs who see Sensify as a main contributor on large-volume platform. So, we are talking about both sides, large volume and volume platform. It will not be a niche, just to be clear; probably the niche will come after that we signed several large volume platforms, but just in a second moment, probably.

MONICA BOSIO: Okay, thank you very much, Daniele. I come back to the queue.

DANIELE SCHILLACI: You're welcome.

OPERATOR:The next question is from Andrea Balloni, Mediobanca. Please go ahead.

ANDREA BALLONI: Yes, good afternoon. Thanks for taking my question. Some follow-up. The first one is on China, where some European players are losing market share so far. What do you expect for this market in 2024, and which are

the main trends you expect for this year for both European players and local players?

And my second question is again on Sensify. This will be sold starting from 2025, you mentioned in the past. But can you give us some more specific color, for instance, about the order backlog you have so far or how many clients have already put an order on that?

And my last question is again on CAPEX. If you can give us an idea about the level of maintenance CAPEX and the incremental CAPEX out of €350 million you are guiding for 2024. Thank you.

DANIELE SCHILLACI: Okay, thank you Andrea, for your question. Regarding China, if we look at the production forecast in China for 2024, it's foreseen to be very close to 30 million units, that will be probably the record high in terms of production. Of course, this concern regards all the OEMs, both local and international ones. Thanks God, our customer base is becoming more and more a mix of traditional OEMs and new local OEMs. Hence, de facto if the Chinese market will grow more than what we think, as I hope, in China in 2024, we should clearly follow these trends. So, for us China is an area where we don't see any adverse trends versus what you've seen in the last 3, 4 years. So, we should keep growing both with the transplants and with the local player. Also, in China our mix of EV platforms is also increasing, lately. This is what I can say regarding China.

Regarding Sensify, I just reiterate what I said before. As you all know, we have one important contract signed, we are testing the technology with many more OEMs across different regions. So, the interest of Sensify is across the regions, the tests are going quite well, and we hope we can give you some important updates regarding new customers, later during the year.

The maintenance CAPEX, until now has been around €60 million, but given we are now approaching €4 billion turnover, this year the maintenance CAPEX is more likely to be in the range of €65-70 million.

ANDREA BALLONI: Thank you.

DANIELE SCHILLACI: You're welcome.

OPERATOR:The next question is from Martino De Ambroggi, Equita. Please go ahead.

MARTINO DE AMBROGGI: Thank you. Good afternoon, everybody. My first question is on the top-line growth for 2024. Should we assume your mid-single-digit growth is essentially volume growth with prices, I don't know, positive or negative, and FOREX neutral or you have specific assumptions on items which are not volumes? This is my first one.

DANIELE SCHILLACI: So Martino, I would say that the top-linemid-single digit is mainly on the volume growth. Don't forget that we have 5 business units, and 2 of them are growing quite well, for example, the aftermarket, and the racing. But also if we look at the order books for passenger car and motorbike, I would say that the impact of the growth will be mainly driven by volume.

MARTINO DE AMBROGGI: Okay. So, prices will be roughly neutral in your assumption?

DANIELE SCHILLACI: We might have, indeed, some impact in 2024, because of the contract we have signed with some OEMs, but I would say it's manageable, it's not so relevant.

MARTINO DE AMBROGGI: Okay. The second question is focusing on CAPEX, because at the beginning of the year, you guided for 300, and you ended the year with

430. So, just to understand what caused such a huge increase, I understand SGL, you mentioned, but SGL is not consolidated line-by-line.

So, just understand the €130 million additional CAPEX, where they come from. And if you could, very, very roughly split the 430 plus 350 in terms of Mexico, which should already have started production, China and Poland, just to have an idea, because you had €500 million CAPEX planned, but you probably will finalize it in 2 years instead of 3.

DANIELE SCHILLACI: One of the factors that influenced this grow in 2023 CAPEX, was also the acquisition of our new head office building in Bergamo, which happened in Autumn last year.

Regarding the investment you mentioned in Mexico, and Poland, there was also an effect of anticipation of investment that we were forced to do this year. And this increased, of course, our CAPEX from the original target. I would say that the combination of these 2 factors.

MARTINO DE AMBROGGI: And on the Mexican plant that should already have started production. What is the contribution expected in your mid-single-digit growth in 2024? Just to understand if it is meaningful or residual.

DANIELE SCHILLACI: It is really hard to say, Martino, honestly speaking. To give you a precise

number is a bit complicated. It will have an impact.

MARTINO DE AMBROGGI: Okay, but when did it start, the production, exactly?

DANIELE SCHILLACI: It started in the second half of 2023, so 2024 will be relatively full speed.

MARTINO DE AMBROGGI: Okay, because if I have a correct estimate, the contribution once it is full speed should be roughly €100 million of additional sales.