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Operator: Good afternoon. This is the Chorus Call Conference operator. Welcome and thank you for joining Brembo First Half 2024 Conference Call. As a reminder, all participants are in listen-only mode. After the presentation there will be an opportunity to ask questions. [Operator Instructions] At this time, I would like to turn the conference over to Laura Panseri, of Brembo. Please go ahead.
Laura Panseri: Good afternoon, welcome to Brembo Group's first half 2023 earnings call. Today Brembo's Executive Chairman, Matteo Tiraboschi, will open the call with some introductory remarks. After that, he will be available together with Brembo CEO Daniele Schillaci and CFO Andrea Pazzi to answer questions from analysts. During this call, we will discuss our business outlook and will 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 thank you for joining us today to review our performance. For the first half of 2024, Brembo has surpassed the threshold of €2 billion in revenues in a single semester for the first time in our company's history. This achievement underscores our ability to sustain growth and resilience in a very challenging global automotive sector. We grew by 2.8%, which is a positive result. Also, considering the GAAP comparison, the previous semesters already significantly performed. Our EBITDA has also shown positive growth in the first half of the year, demonstrating the group's ability to maintain its profitability despite the pressure of the heavy geopolitical and market situation. The result reflect the effectiveness of our strategies and our commitment to long-term success. Our net profit experienced a decline compared to the same period last year and I want to point out that this is due to the ongoing impact of exchange rate differences and the increase of interest rate. Nonetheless, we should not detract from the solid overall performance were mentioned during the semester. Our various business segments have contributed positively to these results with a notable exception. The commercial vehicle segments showed a negative performance in Europe affected by the overall economic situation. On the positive side, the aftermarket segment is giving us credit traction. It is growing and reinforcing in our position in this area. Geographically, we face challenges in Europe due to the weak automotive market, but Germany, which is our second largest market globally, stayed positive in the US. Our performance has been stable, illustrating resilience and consistency in our main market. China, which had a good start this year, continues to grow, providing a positive outlook for our operations there. Despite the ongoing challenges in the automotive market, we continue to advance our ambitious investment plan with confidence, supporting the expansion of our global production capacity and innovation capabilities. It's important to note that the investment accelerated during the second quarter of the year and this of course has an effect on the debt which are always managing carefully. Our new production site in Thailand announced earlier this year is progressing as planned. This side, we manufacture brake systems for motorcycle producer and represent a significant investment and aimed at capturing new growth opportunity in the Southeast Asia region. On top of that, Brembo's digital revolution journey continues as evidenced by the race investment in US startup spoke safety which specialized in connected mobility solutions. Looking ahead to the rest of 2024, although the automotive market outlook has significant worsen compared to the previous month, and despite the ongoing geopolitical tension globally, we confirm that Brembo will close the year with moderate revenue growth, maintaining percentage margins in line with those of 2023. We remain confident in our ability to navigate the complexities of the current environment and deliver value to our stakeholders. Thank you. And I now pass the floor to Laura.
Laura Panseri: Thank you again. We can now open the Q&A session. Thank you.
Operator: Excuse me, this is the Chorus call conference operator. We will now begin the question-and-answer session. [Operator instructions]. The first question is from Monica Bosio from Intesa SanPaolo. Please go ahead.
Monica Bosio: Good afternoon everyone and thanks for taking my question. I have three and then maybe I will come back to the queue. The first one is it's a housekeeping question. In the previous call, the group indicated the CapEx in the regional €350 million and the net debt guidance at €500 million. Are you confirming both the CapEx and the net debt? The second question is on the Chinese car market. According to S&P, the Chinese car market production -- the car market production in China is seen at -6.2% in the third quarter and at -2% in the fourth quarter. Should we expect Brembo will perform in line with the market or the group is gaining market share and is set to over-perform the market, signing a positive top-line growth in China in the second half? And the very last is on Porsche. Porsche had to revise its guidance on the impairments related to aluminum shortage from European suppliers. Do you see any impact on your targets from Porsche downside and cap in production? Thank you very much.
Matteo Tiraboschi: Matteo speaking. Yes, a quick answer to your first question about the debt. Yes, we confirm for the full year something around € 500 million. And for the CapEx probably something more to be something between € 350 40 million for the full year. We are anticipating some investment because the market is asking.
Monica Bosio: So € 315 million, € 400 million?
Matteo Tiraboschi: Yes. Yes.
Monica Bosio: Okay.
Daniele Schillaci: Regarding the -- good afternoon, Monica, Daniele here. Regarding the Chinese market, indeed, if you look at the forecast on the H2 is negative versus 2023, of course, this depends a lot on the mix of customers. If we look at our segment of our, where we are operating today, I mean, the H2 outlook in China for us, we don't have, let me say, severe impact like it's shown in the IHS forecast. So this is what I can say. Let's not forget also, Monica, that in China, we have also growing extremely fast also in our aftermarket business. That is becoming extremely, extremely important also in China and in Asia in general. And this will contribute a lot, of course. Also on our forecast on H2.
Monica Bosio: Okay.
Daniele Schillaci: Regarding Porsche, we don't have today any impact about what you say. Let me say about what we heard on the news.
Operator: The next question is from Martino De Ambroggi from Equita. Please go ahead.
Martino De Ambroggi: Thank you and good afternoon, everybody. My first question is on the contribution of the new Mexican plant. If you can provide us very rough indication in terms of sales in the first half and what you expect for the full year and in terms of ramp-up costs, should we assume that the bulk, the majority of the operations line in the BDA Bridge is mainly related to the start-up costs of the Mexican plant. The second question is again on CapEx, because you are anticipated, you are anticipating some investment. Could you clarify in which domain if it's for Euro 7 compliant disks or for any other initiative? I don't know. The Chinese plant for aluminum calipers. Also an additional question on the -- in your press release you talked about expansion of capacity in Asia. I refer to the aluminum calipers that have to be doubled. But you also mentioned aftermarket. So what you are referring to in terms of aftermarket business for CapEx? Thank you. Okay.
Daniele Schillaci: Let me start indeed maybe with the investment, as you say, on the investment, indeed, we are making some anticipation also on the Euro 7. As we said also last time, we have several contracts signed for the Euro 7. In Europe. And this is of course very good news. And this required some investment and the timeline on CSP King. We thought it was more of it in 2026 and so on in terms of SOP. But there will be some SOP early on, probably in less than one year from now. And this anticipates also the investment. Regarding this point that first, I repeat, it's very good news because I remind you that with a coated disc that will fulfill the Euro 7 requirement in terms of the up unit will be higher than a traditional one. The second topic that we are also increasing on investment is on the IT project. We have what we call our Ishango program, which is a 360 degrees it implementation strategy in all the regions. It's ARP and other project. And indeed we have put forward some countries because this kind of project has tagged across the region, across the country. And given that we had a quite good surprise, with the first two countries where we start implementation, we are putting forward some investment, in 2024. Regarding sales, marketing, also we have increased our investment because this is also related to the aftermarket activities. We are growing two digits in aftermarket, but also we are promoting our product not only in the shows now, but also now in some specific action, market action with our customers and is a also requiring us some additional spending this year. But I have to say that this is a very good spending because we are seeing revenue growth that is extremely, extremely important. With, by the way, a good marginality. This regarding the investment, regarding Mexican plant, I would say nothing really changed versus what we said last time. The wrap up will be completed by end of this year, as we said. And you will see some revenue probably end of the year, but the big bulk will be in terms of revenue in 2025. This is what I can confirm about the Mexican plan.
Martino De Ambroggi: So there is nothing in the first half?
Daniele Schillaci: No, no. You will see some revenue in page two.
Martino De Ambroggi: Okay. Okay. And just, just a confirmation, you mentioned that the coated discs could start less than one year from now. So that…
Daniele Schillaci: Yes, we will have a SOP, ISOP, let me say around this time next year. Yes.
Martino De Ambroggi: So, because the previous indication was September, if I remember correctly?
Daniele Schillaci: Yes, it's possible. But this depends on the SOP for customer. Right now we have some updates. As you can understand from our customers, September is for sure the SOP that we had until a few weeks ago. It might be that one application might start maybe in July next year.
Martino De Ambroggi: But it is something that is valuable?
Daniele Schillaci: This will depend indeed on the product planning of our processor. But anyhow, it will be summertime next year.
Martino De Ambroggi: Okay. And very last, the capital intensity of the coated discs is much higher or similar to the normal disks?
Daniele Schillaci: But I would say you cannot compare if it's superior or the same, because it's an additional technology that you had a traditional disk. So you need both. Now you need to invest to build the traditional disk and to invest in the technology, the coated technology, to add a layer to the traditional disk. So you need both investments. That's why in Poland, as you know very well, we have our investment over there. Indeed to be ready to host the first disc production somewhere in late next year. But you need both investments.
Martino De Ambroggi: So I would say more capital intensive?
Daniele Schillaci: More capital intensive, but more revenue per unit and if you sell at ISO margin, more absolute value, profit per unit and it's worth to do it, more barrier for the competition. Exactly. Need to invest much more money. You increase the investment, you increase the revenue per unit. If you ease on margin now you have a higher absolute value margin. And as Matteo says, this is something that require investment. And to make investments you need to have a very healthy financial situation that Brembo already has. So it's a way to say that you somehow increase the entry barrier now in the business.
Operator: The next question is from Andrea Balloni from Mediobanca. Please go ahead.
Andrea Balloni: Yes, good afternoon. Thanks for taking my question. My first one is on the outlook. If you can give us some color in terms of trend by geographical region. My second question is on free cash flow. We noted the networking capital and provision change was a quite heavy absorption in first half, also absorbing in second quarter. If you can give us more details on that. And what should we expect on Q3 and Q4? My last question is on Germany production. If you can give us some details on what you are experiencing with a German carmaker, if you are experiencing some price pressure that might be also related to the competition on prices they are suffering in China. Thank you.
Daniele Schillaci: Okay. Regarding the outlook. Regarding the outlook, it's very clear that you have, let me say a different path by region. Let me give you the full year outlook. We will be roughly 2% below what we have estimated beginning of the year. Now, the global market, I'm talking about production. The global market was foreseen to be slightly above € 90 million. Worldwide it will be around € 88 million. This is what we can see today. The drop mainly comes from Europe. Europe as you know very well, this is also a bit linked with your question about Germany, Europe, since the Q2, we can see an acceleration of the market drop. And we might see on an H2 market situation in Europe that will be H3 bit off. Conversely, in NAFTA, in US, I would say that we see a market relatively stable around € 15.7 million € 15.8 million, which is a bit, I would say the level that we have seen also last year. Of course, this year in the US, you will not have the new [indiscernible] view, a negotiation that happened last year in Q4 that had some small turbulence this year, normally we shouldn't see that. Hence we have a stable outlook on the US market also for the H2. And China, indeed, for the full year is relatively stable in terms of market. But H1 was positive. And on the H2, as Monica said also before, the forecast is seen to be slightly negative. I repeat, in that market for us, what we can see from our customer representation, we see an issue in China, relatively stable. This is a bit the outlook. So if you were. If you neutralize Europe, I would say markets relatively stable. Europe H2 will be definitely very, very challenging. Regarding the cash flow, maybe, Yes. Thank you. The cash flow for the second part of the year, according to the usual seasonality we have, we expect a positive impact up to June. It is negative by € 4.5 million, even impacted by an adverse calendar for the end of June, but normally would be zero or slightly positive right in the semester. For the second half, we expect positive free operating cash flow and the net debt will grow to € 500 million, thanks to CapEx, because we are really investing a lot in CapEx, but with the high generation as normal. Regarding your question about Germany in terms of pricing, yes, it's true that when you look at the sales in China by brands, you see that some European brands are indeed suffering. But this is not, let me say, impacting the pricing in our negotiation with our customer. I mean, we have, as usual, a regular meeting with the customers. We deal platform by platform and the pricing is not linked. If the OEM has one problem here and there, this is something that of course happened. But our negotiation is always strictly related to the product. So we don't see any correlation about the performance of the OEM outside Germany and the pricing in our activity is what I can say.
Operator: Okay, the next question is from Giovanni Selvetti from Berenberg. Please go ahead.
Giovanni Selvetti: Hello, can you hear me? Hi, everyone. I have three brief questions. One, if you can please explain what are the extraordinary effects impacting the tax rate. The second one is around buyback. From the cash flow statement I can see that the figure has remained the same and equal to € 57.5 million. So I was wondering if given the recent weakness in the share price performance, would you consider doing some buybacks in the second half of the year? And the third one is around again cash flow. The net cash flow for operating activity was down mainly for a big difference in the delta we trade payable. How we should interpret these delta on payables, I mean, suppliers are asking for better payment times. What is this? Thank you.
Daniele Schillaci: Regarding the tax rate, usually with the semester we have a better and finer analysis about the potential incentive around the world. And so the tax rate for the semester is more aligned to what we expect for the full year. In the first quarter there was exceptional impact on functional currency in Mexico that in the second quarter didn't happen. And so even from the part, the situation is more stable and the actual tax rate is what we really expect. Regarding the only cash flow about the payable, if we compare the first semester last year, the first semester of this year, in number of days, we are really close. This means that the numbers are only adjusted by volumes and volumes are growing, considering even the CapEx, within the CapEx, there are even the debt for the CapEx. Of course. Regarding the buyback, we strictly monitor the situation. Of course we have no action in place at the moment right now. But we don't see, we don't know at the moment if we will start. We have the authorization from the shareholder meeting, but at the moment we have not started any action on the market.
Operator: The next question is Anthony Dick from Otto VHS. Please go ahead.
Unidentified analyst: Yes, hi, can you hear me? Thank you. Yes, a couple of questions on my side. Thank you. The first is on the net debt outlook. You've increased the CapEx guidance, but maintain that € 500 million euro net debt outlook. So I was just wondering, is it, should we expect exactly the same figures before with any kind of offset to improve the cash generation or should we adjust it by the amount you've increased at the CapEx outlook? The second question is on the H2 outlook for the business. Last year you provided a bit more granularity on, on Q3, Q4 performance. I don't know if there's some other specific projects to take into account that would affect your performance over the second half. And the last question is on the aftermarket business. You've mentioned a couple of times, now that this business is growing fast, could you provide now what's the share of this business in your total revenue and EBITDA. Thank you, regarding the debt for the full year.
Andrea Pazzi: Yes, of course. The CapEx are increasing a bit. The cash generation is good. We are confirming the same level of marginality last year with a growth internal revenue. So means a growing marginality and cash in the second half we don't have distribution, so we expect to compensate partially the increase of CapEx with the cash generation in full. Regarding the aftermarket indeed is an activity that is growing, I would say sustainable growth since some years now. And to give you the size of the magnitude of the size is today it represents around €0.5 billion in the Brembo group. And it's keeping growing, I would say in a fast pace, almost in all the regions. Regarding the Q3, Q4 outlook is a bit like I said before. We can see in Europe an outlook quite tough because of the market conditions, not only on the passenger car, but also on the heavy duty track and some commercial vehicles. But in China, in US the outlook is pretty stable. And our customer base over there, when we look at the auto bank that today we have in our hands, we are in a kind of stable scenario.
Operator: The next question is from Gianluca Bertuzzo from Intermonte. Please go ahead.
Gianluca Bertuzzo: Hi, good afternoon. In terms of raw material and other items subject to cost inflation, we saw a positive impact in the first half. So lower input prices, what do you expect for the second half, which are the trends that we have to bear in mind? And second question is on Sensify. Do you have any updates here? Thank you.
Daniele Schillaci: Thank you. Regarding the raw material for the second half, we should expect the continuity of what we have seen on the first half. No major additional trend. Regarding sanctify the Sensify division is a plenty of activities with all the customers across the regions. We are keeping doing a lot of tests with our customer and of course we are working also to prepare, I would say the launch with the big customer to whom we signed the contract. But I would say it is continuity. We have a quite significant division now in Brembo, full of activities and the team is working with all the main customers to move on. So I don't have any major, I would say update versus what I said last time. What you should see, I think is Sensify has been pioneering the technology on this, what we call the new BioWare technology. And this is a technology that successful half of the decade will be more and more a technology that will be adopted by the OEM. What is important for us, because we have been the first to announce this product and this technology. What is important for us is to keep working with all the main customers across the world, to test the technology, and when the time is mature, for some more EMS to make it in the platform. I think that Brembo will be for sure, on the front runner to be considered now as the main suppliers to fulfill this technology. I don't think it's so important to wait for the second third customer. That's not the point. The point is that we have been the first that we have announced this technology. All the customers and stakeholders are facing this technology and that they are very happy with. So what is important for us is of course, to keep working with the one that we signed the contract, but to make, to keep making tests with all the OEMs that are contacting us to adopt eventually this technology, when for them the time will come. So this is, I think, the way that we should see Sensify. No doubt that this is the technology of the future, no doubt that this will be in the market. I would say pretty soon, pretty soon. By end of this decade, it's very clear what is important for us is to be stop in the consideration of the VM for our technology, our credibility, our quality in the market. That's the way that we are working on.
Gianluca Bertuzzo: Okay, very clear. And if I may, a quick follow up on M&A. What is the maximum leverage that Brembo can sustain in the case of m and a transaction?
Daniele Schillaci: It's a very difficult question. Depends on the target. If the target is a brilliant, fantastic target, we can also suffer a little bit. So depends about the target. If I have to give you a number, maximum level is two times.
Operator: The next question is a follow up of Monica Bosio from Intesa SanPaolo. Please go ahead.
Monica Bosio: Yes, good afternoon. Just to check, notwithstanding a flat car market, in the first half, the car divisions rose by 4.3%, so the group outperformed the market. I was wondering if you can split this performance between the original equipment and the aftermarket. Just to check that even in the original equipment Brembo, I'm sure it is in this way, is outperforming the reference market. And my second question, I don't know if you can answer, but I will try. Within the card vision, can I ask what is the weight of the revenues generated in the very high luxury and high sports card segment? And what is the weight of the premium mid segment? Thank you very much.
Daniele Schillaci: Hello, Monica. Regarding the passenger car growth on the potential growth on the H2, the one that you see on the H1 is a combination of, indeed, the aftermarket contribution, which is now more and more significant, and they're slightly grow, especially in Asia, on the OEM. That's the way that you should see that. Hopefully, hopefully, we will do our best to pursue this trend on the H2. Given that indeed the market in Europe, as I said before, is quite tough and probably in US, if there is no sink, a bit strange on the H2, we might see maybe a slight grow in the US, and then we might have also hopefully in H2, between the aftermarket, the OEM, hopefully, a small plus sign. This is something that we will work hard to make it happen. But of course, today we cannot secure, this trend. Regarding your second question, let me say that when you talk about the top performing currents per cap, we need to frame exactly what we mean. For, for example, if you mean only Lamborghini, Ferraris, Martin McLaren and so on, of course, the weight of this, you can see, as you can imagine, is relatively low. But if for sport car, you mean also, for example, the angle line of Mercedes, the M-line, of the wooden now of Java, and so on. French Robert, if you put also this, let me call this spot line, combined with the sport car, in terms of revenue, it can be around between 15% and 20%.
Operator: The next question is from Gabriele Gambarova from Banca Akros, please go ahead.
Gabriele Gambarova: Yes, thank you. Good afternoon to everybody. Just a couple of questions. The first one is on the price trend. You see in H2. In Q2, there was a slight bit, slightly crease. So I was wondering if you can say what you see, basically, and the second one is on, let's say, non passenger car businesses, such as commercial vehicles and motorbikes. I was wondering, what do you see? What is the outlook for these two minor but important, let's say, businesses going on in H2. Thank you.
Daniele Schillaci: Okay. About the market outlook on the motorcycle, we see really full stability for the year, not for the year. We can see that some brands that were a bit suffering last year are recovering in '24 and vice versa. The one that was a bit performing last year are a bit more suffering this year. Hence, if you look at the outlook of the motorbike for the '24, we see a kind of stability. The light commercial vehicle, we are a bit outperforming the market. But for the second part of the year, the heavy duty track we will keep probably being negative is the trend that we can see and a lot of commercial vehicles, this will depend on some OEM, because there are some OEM who are launching new products that by definition when you launch a new product, you will be up versus last year, but the ones that don't have any product, let me say event this year also on the light commercial vehicle, you might expect also a negative market trends. And our job on that is to keep over-performing the market also under H2. So this is what I can see, I can say now regarding this two activities. That means during the H2, regarding your first question. Yes, we have seen the price effect on the H1. This is only due to the normal activity of the price back that you are giving to the customer based on our deal that we did, with the raw materials and utility. So this is a, I would say an ongoing process that we manage without fossil.
Gabriele Gambarova: Last one, if I may announce, keeping the tax rate you envisage for 2024?
Daniele Schillaci: Full year between '24 and '25, as usual. Okay, thank you very much.
Operator: The next question on -- once again, [Operator instructions]. The next question is a follow up of Martino De Ambroggi from Equita. Please go ahead.
Martino De Ambroggi: Thank you. Three very quick follow-ups. The first is again on the Mexican plant, just my estimate. Am I right in assuming € 40 million € 50 million of additional sales coming just from the new Mexican plant by Arenda? Very roughly. The second is on the homologation for coated discs. Should we expect additional homologation by the end of the year? Obviously you do not announce them, but just to understand how it is going. And the last one is on the EBITDA bridge because the main contributor was the price line. So by far the most important contributor and I didn't understand in your previous answer if this should be taken as a stable, which means roughly more or less the same input, positive in the second half, which is mainly referred to raw materials, if I understand correctly, or if it's neutral, basically close to zero or what else? Thank you.
Daniele Schillaci: Yes, I would say that regarding the price for the rest of the year, it will be natural convergence process, between the cost and the price that we charge to the customer. This is something that, as I said before, would be a natural and ongoing process. We don't see any major volatility, by defense on this established process that we did already since a couple of years with our customers. Regarding the Mexican plant, maybe € 40 million € 50 million now. Revenue, I think is a bit high. A bit high. To be honest with you, the revenue increase would be in our highs, a bit below your estimation on the coated disc. We have been also in that area, probably the first to start investing in this activity. And you are right when you say that we should expect some additional business over the coming months in that area. This I can confirm.
Martino De Ambroggi: You are a pioneer, but someone else could have achieved any obligation or you don't know anything about.
Daniele Schillaci: I don't know exactly what -- I don't know exactly what our competitors are doing. Of course, our competitors are also working in that process. Of course, now you know for sure that we the most important one investing in this process. It's normal, it's part of the game. But what I can say that is in our case, big rainbow, really probably the only players that do the brake, make the braking system in all these 360 degrees, meaning discipline. We are the one that can offer the best solution to our customers in terms of NVH quality and durability of the product. And this, in our eyes, is what I call the intangible value of Brembo. It's something that is pretty unique in the market. And the fact that we have been pioneering, we have been investing from the beginning in that process. We think that we have in our hands now a big chance, to keep increasing this business over the coming years, especially in Europe. I also remind you that this process probably will start also outside Europe, because you have some makers that are exporting from US or China in Europe, as it will need to be. Also compliance with the Euro 7. And in that area, also, Brembo, is preparing also a very clear commercial strategy in that regard. So this is what I can tell you, Martin, about the cosmis. We are very optimistic. We know technology, when you test something, it works very well, the combination of the disk and the path. And we are quite confident in that area.
Operator: [Operator instructions] Management, there are no more questions registered at this time.
Laura Panseri: Okay, thank you. [indiscernible]
Daniele Schillaci: Thank you. Bye-bye.
Operator: Ladies and gentlemen, thank you for joining the conference. It's now over and you may disconnect your telephones.