United-Guardian Earnings Call INSIGHTS: Financial Security, Credit Lines

On Wednesday, United-Guardian, Inc. (NASDAQ:UG) reported its second quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Financial Security

Philippe Varin – Chairman: Jean-Baptiste just you take the financial security under bank and I will take the (indiscernible).

Jean-Baptiste de Chatillon – EVP and CFO: Well, I will take first the financial security. We are not looking at any new capital increase in our situation. As I explained with our €12 billion security, we are very well prepared to go over, very well equipped to go through this crisis. So it’s not under trouble. Our asset disposal program could effectively be improved marginally, especially as we find a good appetite from the market for real estate. But as you know, we are still in the process of opening of the capital of Gefco and now the process is going ahead as planned and we will get binding offers in the second half of the year. On Banque PSA Finance, I would like to remind you one of two important things about our bank. As you know Banque PSA Finance is a well-capitalized bank with low cost of risk. Its financial security is high with more than €8 billion liquidity. As I mentioned before, 90% of our refinancing in bond has been already done for 2012. Because of some rigid rules within the agencies, there is a link between the rating of the auto and the rating of the bank. In case of a downgrade in the auto, we would move to a – which would – as you explain one much impact on the bank, we would move on a higher proportion of securitization and bank loans taking advantage also of the new ECB rules for eligible collateral. So we are working on this. It seems we don’t think that things would get worse and so we are prepared for this downgrade and to refinancing of the bank will go on normally in that configuration, but we are quite confident that if there was a new downturn in the economic context or a new downgrade we are quite confident that captives in the industry are very important and that we would get the right support if needed. So it’s not an option at that stage to open capital or to do whatever. I mean the bank is a key tool in our industry and we, of course, want to keep it and we will do as necessary to refinance it properly.

Georges Dieng – Natixis Securities: As far as the utilization rates of the two plants of Poissy and Aulnay, it was in 2011 at 74% for both plants, which is the same as the (outreach) on the segments A and B that you have seen, because we have turnover which is higher but moderate which is lower. So it was 74% last year and it’s about 80% on the beginning of this year for the two plants because of the startup of the 208 in Poissy. So the bottom line and just (have) in mind that the 75% is computed on two shifts, right. So we want our plants to work at more than two shifts. So it’s really 75% means the half of the capacity of a plant that will be on three shifts. So, having two plants which are working at half capacity very close in the (half price), we have decided to have one plant working at much higher region wise. This is the logic. The impact on our utilization rate of the closure of Aulnay will be for the total Group will be around 7%. As far as your question on the asset sales, to tell you really what we think is we don’t have the intent to sell more assets in the future. The intent is to restore the operational cash flow of the Group. If you did it this year, it was to use some of the assets, which are not strategic for the Group to ensure our financial security, and in the case of Gefco, to allow a proper development of this business.

Unidentified Analyst: (indiscernible) I have two questions. First, on your European assumptions for H2 in 2013. I mean we’ve not seen you present multiple number of plans since you arrived and you prove too optimistic on your assumptions both for European end markets and for the ability of PSA to hold its market shares against competitors that have been to have higher rate of savings and more aggressive pricing behavior. Looking at the measures that are implemented in most European countries, specifically in France, don’t you think it’s probably a bit optimistic again in 2013 to actually base your plant both on the stable Europe market where I think Ford is likely to be down again, and on stable market share knowing that your competitors whether it’s Volkswagen or Hyundai are unlikely to reduce pricing pressure? That’s the first question. Second, to (rebound) on your point on not selling more assets, would it not make sense for you to actually sell your Faurecia stake, I think (with the) controlling stake is probably worth a lot more than its market value, firstly, and second, it would probably allow you to significantly reduce your net debt.

Philippe Varin – Chairman: On your first question, our assumptions, for the market we take an assumption, which is very close to the external bodies, which make the forecasting like Global Insight. If I look at the last forecast of Global Insight for next year, I think they are slightly positive. So we say that roughly we take these assumptions for the next two years, which means we have some flexibility around this between next and the following year. So we do think it’s a reasonable assumption. If something happens in the euro zone that nobody can anticipate is not including in the assumptions clearly. The market share, as you have seen, the major explanation of the erosion of our market share has been linked to geographical mix and so product mix. So this we should not – if you compare 2009 to 2007, we don’t think there will be anymore distortion against us on this matter and you see the product launches that we have in plan for the next two years. It is very, very significant. I don’t promise that we will increase (the severe) market share, I just say we take this assumption that with all this we can have the stable 13% market share. As you rightly commented, we were too optimistic and clear there is some degree of (realism) on this assumption. On Faurecia, Faurecia clearly today, our strategy is unchanged. We think that first Faurecia is very good – is a good contribution – very good contribution to the Group as you have seen including from a generating agency’s perspective, it’s plus of the Group, and so we think the value this asset is currently (indiscernible).

Unidentified Company Speaker: So we are going to take a question on the phone.

Credit Lines

Philip Watkins – Citigroup: I wanted to just come back on the financial security. First of all, would it be possible to confirm that on your credit lines for the auto business and for the bank that there are no (waiting) triggers or financial covenants? Then if I could just perhaps pick up on the point about the Banque PSA’s financing and securitization, and I’m wondering if you can give us an indication of how much is a proportion of the bank’s funding that come from securitization. I think if I look now it’s around €4 billion or so from securitization, could it go up to a particular percentage?

Jean-Baptiste de Chatillon – EVP and CFO: Well, our credit lines in the financial security, credit lines in the automotive have no specific financial covenants, except one on gearing but away which is a – we would have to go to 100%. So it’s (indiscernible) with no trigger on the ratings and nothing is like that. So they are very well secured. On the debt refinancing – the refinancing of the bank effectively on securitization we are around 18%, 19% refinancing through securitization and we think we could move to 30% of securitization. So we are preparing to move especially on some of the portfolios like Southern Europe which were not eligible before. We will prepare those portfolios because it will get eligible to the ECB Refinancing Program. So, we have headroom to move from 18% to 30% securitization.