Sogefi S.p.A. (SGF) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Sogefi Full Year 2021 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Frederic Sipahi, CEO of Sogefi. Please go ahead, sir.

Thank you very much. Good afternoon, ladies and gentlemen, and thank you for joining this call. Well, I have to admit that 2021 for my first year as CEO has been full of challenges. But you will see in the presentation also full of transformation for Sogefi Group. With my team, we have done a deep transformation of the group, in order to follow and even anticipate a strong evolution of the automotive industry. You will see that during this year, we have continued to implement strong cost control. We have improved our business model, making it more agile, flexible and efficient in order to generate sustainable cash flows. We have defined and implemented a strong future for sustainability and social responsibility. And last but not least, you will see that we have continued to push the evolution of our product portfolio to propose to our customers more and more products for e-mobility all around the world. I propose now we go together to Page #4 of the presentation with the highlights of this incredible year. So as you can see in Page 4, our revenues are increasing by 11% on a reported basis versus 2020, still lower than 2019 by 8%, but we are beating the market in all geographical areas. You will see that in the next slide. Our EBITDA, excluding the nonrecurring, is at 13.7%, so very close to 14%. The EBITDA, with the nonrecurring, is close to 15% with 14.6% compared to 11.5% in 2020. Our EBIT, excluding the nonrecurring impact, is close to 4% at EUR 51 million. The net income is at plus EUR 2 million versus minus EUR 35 million last year. Nevertheless, please keep in mind that in 2021, we have a negative one-off impact by EUR 21 million for the disposal of Filtration Argentina in the beginning of the year with, of course, no cash impact. Our free cash flow for the year is at EUR 35 million compared to minus EUR 34 million last year, thanks to the EBITDA and the strong working capital control. De facto, our debt is decreasing. It's going to EUR 260 million versus EUR 290 million last year and EUR 256 million in '19. I now propose we go to Page 5, where we have the details of the sales by geographical area. As I was saying before, we are beating the market everywhere, '21 versus '20. So for example, in Europe, at constant exchange rate, we are growing by 7.5%, in the market going down by 6 points. North America, we are growing by 5% in a stable market. South America, strong growth compared to a market growing by 16%. And in Asia, India and China, for Sogefi, we are growing by 21% in a market growing by 6%. So overall, our sales are up by 11% in a market up by 2.5%. If we go to Page 6, sales by business unit, you can see that Air & Cooling versus '19 at constant exchange rate is going down -- sorry, is increasing by 7% versus 2020. and going down only by 3.4% versus '19. It's mainly thanks to the good performance in China and North America. Filtration is increasing versus 2020 by almost 11% at constant exchange rate, and is stable versus 2019. It's mainly thanks to the very good performance in aftermarket and OES. Suspension business unit is growing by 15% versus 2020, but is still below 2019 by 11%. So overall, as you can see, we are beating the market in almost all our business units. If we go to Page 7, the sales by customers. So Stellantis is still our biggest customer with more than 20% of our sales. And followed by Ford, where we are very big in North America, and then the others are very close to each other and quite balanced with Nissan, Daimler, GM, BMW. There is no big change in the hierarchy of our customers. Page 8. We have included here slides about the increase on material prices. I think you all know the crisis we had in 2021, and it's still continuing in 2022. So from the second part of the year, there has been a big increase on almost all commodities, including the plastic that we are using PA6 and PA66 and also steel with the indicator of scrap and wire. So basically, as you can see on our financials, we have been able to mitigate big part of this increase, thanks to strong negotiation with the customers. Basically, in 2021, we have been able to cover 80% of the material increases, and we are continuing these negotiations in 2022. If we go to Page 9, the breakdown of the EBIT versus 2019. So unfortunately, as you can see, we have a big sales volume, unfavorable impact by EUR 44 million, but very well compensated by the cost control we have implemented very early, especially on fixed cost. During 2020, we have been able to launch very quickly strong action of reduction on our fixed costs, and we have continued in 2021, which help us to compensate the strong decrease of volumes of 2021 versus '19. And in the negative side, we have Romania, as anticipated in the third quarter. We have lost EUR 10 million in Romania due to the launch of our new facility in very difficult conditions with the COVID situation, of course, it was a double challenge. And it's clearly one of the area where we will have a strong improvement in the next month. And then we have a big part for nonrecurring -- r positive nonrecurring by EUR 7 million. I will detail later this positive EUR 7 million. If we go to Page 10, our P&L. So as you can see, our contribution margin is closing at 30.6% slightly below 2020, which was at 30.8% and higher than '19. So overall, during the year, it has been under control, even if there has been a first part of the year, which has been very positive and then the second part, which has been a bit more difficult with the material increases. As I said, thanks to the great job done on fixed costs, we have been able to offset the volume effect. Our fixed cost for 2021 are EUR 226 million compared to EUR 265 million in '19. So in 2 years, we have been able to strongly reduce our fixed cost. And in percentage, it helped us by 1.4%. The conversion in EBITDA, as I anticipated before, is at 13.7%, excluding the nonrecurring, compared to 13.1% in 2020 and 12.8% in '19. If we look at the EBIT, excluding nonrecurring, as I said before, we are 3.9% compared to 2.2% in 2020 and 4.2% in '19. Then we had positive nonrecurring impacts that helped us this year, which explains the fact that our EBIT is at 4.4% at EUR 58 million compared to 3.2% in '19 at EUR 46 million. To understand better the nonrecurring impacts I mentioned, I propose you to go to Page 11. So for the first 3 quarters, each time we explained you, and of course, I will be available to answer to your questions about these items at the end of the call. In Q4, we had also a few nonrecurring items, of which one that you can see is close to minus EUR 4 million, which is a nonrecurring write-down related to the footprint optimization. As I anticipated to you in the last quarters, we are doing our homework in order to turn around Suspension business unit. And one of the action that we have launched is the closure of a facility in U.K. I propose we go to Page 12 with the quarter 4. So the quarter 4 from a turnover point of view is lower than the Q4 2020, as you can see, EUR 30 million sales below. The contribution margin is at 28.1% compared to 31.5% last year. So here, we lost almost 3 points. It's mainly due to the lag between the increase of material prices and our ability to immediately pass through to the customers. So that's why I said we are continuing the discussion with customers in order to catch up this Q4 impact. The fixed cost impact remain positive. We are at 17% in Q4 2021 versus almost 19% in '19. And the EBITDA, excluding the nonrecurring, is at 14.3% this year compared to 13.2% in 2019. The EBIT, excluding the nonrecurring for the Q4, is at 3.4% compared to 3.4% in '19 and 5.5% in 2020. The last quarter of 2020 was quite a special because very high activity to catch up the first 3 quarters. I propose now we go to Page 13. This year, we really pushed our working capital and all the items of the balance sheet in order to have an acceptable cash generation. So as you can see, we have been able to generate EUR 35 million of positive free cash flow compared to a loss of minus EUR 34 million last year. Included in this EUR 35 million of positive cash flow, we have a positive effect for the grants of Romania by EUR 8.5 million, but we had EUR 10 million of CapEx for this plan, too. So it's quite neutral from a cash flow point of view. And to do it, we have not pushed more than reasonable the factoring. So it's really a cash generation coming mainly from the operations and working capital under control. If we go to Page 14 about our debt profile. So basically, the update compared to what we explained to you in Q3 is that we have been able to secure in Q4, a new medium-term loans, about EUR 65 million. So here, also, we have done our homework in order to secure the maturity of the debt. I propose now we go to the results by business unit, so Page 15. I will start by Suspension. Even there is an improvement on the EBITDA for suspension compared to 2020, you can see that we are still lower than the 2 of our business units and the average of the group with an EBITDA at 7% compared to 8.4% in 2019. So here, clearly, the challenge of 2022 will be to successfully turn around the business unit Suspension. If we go to Page 16 with filtration. So here in filtration as the sales has been quite in line with 2019 and much higher than 2020. It's mainly thanks to the good contribution of aftermarket where we have been able to gain market shares. And the EBITDA conversion is now becoming acceptable close to 16%, knowing that we started at 11.7%, 2 years ago. Here in Filtration, we have also done a strong action of optimization of fixed cost, started in 2020. And in 2021, we have launched a restructuring plan in France, which are -- with positive impact in 2021 for half of the year and another half, full year in 2022. Let's go to Page 17, Air & Cooling. So Air & Cooling, compared to 2020, the sales have increased by EUR 30 million but still below 2019 from a turnover point of view. If we look at the contribution in EBITDA. We have been able to reach more than 20% in 2021 with an EBITDA at 20.6% for 17.2% in '19. So I think it's clearly the evidence that at Sogefi, even during difficult days and difficult times and with a lot of challenge, we are able to continue to do our homework and the job in order to secure the sustainability of the company. So I think it's a good transition for Page 19. I was speaking of the transformation of the group. So we are continuing and we are even accelerating in these days, our sustainable transformation. So as you know, Air & Cooling, we started the transition to e-mobility 5 years ago. And we are accelerating. You will see that in the figures for the business nomination. Filtration, we are pushing the transition from diesel products to new products for air purification and suspension is less impacted than the 2 of the business units by the technological revolution here. It's being able to do money and to improve from an operational point of view. And as I mentioned to you, the footprint optimization. If we go to Page 20, about the new business awards. So during the year 2021, we have been able really to contain our position of strong player in the Thermal Management for e-mobility products with Air & Cooling. We have been awarded in Europe, NAFTA and China for very important contracts with key customers, and this trend is continuing in 2021. The good thing is that we have now a broad portfolio of products that I will present to you in the next slide, with broad customer also portfolio. We have been awarded this year with a premium German OEM for the next generation of premium electric platform, with 2 LCV makers, one which is pure electric and another based on fuel cell technology. And in China, also, we are continuing to gain market share in this product. On Filtration, here, the transition has been done on air purification, especially with our filter HEPA, and also 2 important contracts in North America for transmission filters. Suspension, in the last quarters, the very good news is that we have been awarded for our first big contract signed with our new factory with a major customer for a coil spring that will be produced from 2024 in our Romanian plant. If we go to Page 21, so it's a summary of a few examples of the business e-mobility, Air & Cooling on which we have been awarded. So I already presented these businesses to you because in last quarter, there has not been any new businesses. If we go to Page 22, the picture of the e-mobility business quotations currently. So this is our business not awarded yet, but business on which we are doing the quotations. So the very good news is that 63% of our current quotations are currently for e-mobility products. So hybrid, full EV or fuel cell of which 68% in Air & Cooling -- sorry, 68% of our businesses are for Air & Cooling, 12% are for Filtration and 20% for Suspension. And among these sales, 68% of Air & Cooling are for e-mobility, 30% for Filtration and 70% for Suspension. So you can see that the ratio of Suspension and Air & Cooling is very high. And even in Filtration, we are starting to quote for businesses for e-mobility application. If we go to Page 23, this is an updated picture of our product portfolio for e-mobility in Air & Cooling. Well, 5 years ago, we started just with 1 product. And now I'm quite proud of this picture because we have many products on shelf. So these pictures are not product of prototypes or whatever. These are really products that we have on shelf and that we are proposing to our customers. Some of them already for the third generation. So we have now accumulated a very strong know-how, both from a product and process point of view, and it really gives us a high legitimacy with our customers, whether legacy or new customers. If we go more in detail for the Page 24. So here, I have divided in 2, the project I presented to you in the previous slide, the current portfolio, but we also have innovation which will start in production from '22, '25. So it's starting now, especially a new product line, which is cooling plate, very different from the product we were used to do, mix between aluminum, plastic and electronic. So clearly, this product has much more added value than the classical manyfolds we were used to do. If we go to Page 25, the HEPA filter of Filtration. So you already know this product because I presented it to you in the last quarter. The only good update that we had in last quarter, it has been elected Product of the Year in France by a very well-known branding company and the sales have increased a lot in the north of Europe and also in France and in Germania since the last quarter. I propose now we go to Page 27 for a market outlook of 2022. We have been, again, when we built our assumptions for 2022, much more conservative than IHS. It's already what we have done in 2021. And we have been very accurate when we have done our estimation for '21. So basically, the assumption we took for 2022 is to consider half of IHS for 2022. IHS estimate a growth at 8.5% for the full year with a strong growth in the second semester. On all sides, we prefer to build our budget, the fixed cost associated with half of this growth on a full year basis. Page 28, raw material outlook. Well, here, it will be quite arrogant to say that we have a clear vision about what's going to happen with the material prices in 2022, the events of the last place, of course, are creating, again, confusion in the market, which was already unstable. Our position is always the same. We have started strong actions of resourcing among our suppliers. We have done strong actions to change material in order to consume less material and be able to source material closer to us. And we have also started, as I mentioned, strong discussion with the customers in order to be able to pass through the raw material increases that we cannot compensate. Here, we are speaking about raw materials. But of course, this integrate also the transportation cost and energy, both of these 2 items have increased a lot in 2021. And there are a lot of tension right now in transport and energy. So these are global discussions that we are having with the customers, always keeping a door open based on the current situation in order to be able to pass through as much as we can to our customers. Based on that, if we go to Page 29, the financial outlook for the full 2022. Of course, the visibility of the market is still very low. Nevertheless, as we have done in 2021, we are ready to face this kind of situation. We have shown that we are very agile, both from an operational or commercial point of view. So we are preparing ourselves to a very difficult [ 2022 ] year from a market condition point of view. As I said before, there also uncertainty in raw material booming already in 2021 and still very stressed due to the Russia situation. So in this scenario, based on our current know-how of the market, we are targeting to have in 2021 an operating profitability, excluding the nonrecurring charges, of course, close to 2021, mainly thanks to the strong actions we already launched, and we continue to launch on fixed cost and our profitability with the suppliers and customers. I have finished with the presentation. Now, I am at your disposal for all the questions you would like to ask.

[Operator Instructions] The first question is from Martino De Ambroggi with Equita.

The first question is on the guidance and just to double check if your indication is in terms of in absolute value for the EUR 52 million adjusted EBIT or as a percentage of sales, 3.9%. The second is always related to nonrecurring items. And thank you for your Slide #11, which is very useful because it's always very difficult to understand exactly what is recurring or not in your quarterly results. But can we have an idea, if any, what could be the restructuring cost line for the current year? And maybe any other items that could be taken into account? And the third question is on the raw mat because you mentioned to be able to recall over 80% last year. Can we use the same percentage for the current year or maybe you are more effective, obviously, without taking any view on where raw mat will go? And in terms of costs, transportation and energy, if I understand correctly, are still ongoing negotiations, so nobody has already accepted or a certain percentage of clients already accepted automatic adjustments or nonautomatic adjustment for these kind of costs?

Thank you very much for your questions, and they are all very good questions. So the first question is very good because from a technical point of view, in fact, as we are integrating repricing with our customers, and we use the sales to divide then the EBIT, it's diluting the percentage. So basically, the guidance we are giving is in percentage, but retreated from the repricing effect because, otherwise, it will dilute the percentage of EBIT. So it brings us slightly higher than a target in absolute value of 2021. For the second question, nonoperating, yes, this year, we had a lot of nonrecurring and the addition is positive. In 2022, based on the current know-how of the market, which again can change a lot with the Russia situation, we don't have any restructuring plan because they are already booked from a P&L point of view in 2021. Nevertheless, what has been booked in 2021, part of it may be cashed out in 2022, but it's not in P&L, it's not in cash -- it's not in P&L, it's in cash, but we will have some kind of recurring restructuring as we were used to have in the previous years without closure of facility or big heavy restructuring. Of course, this exclude the fact that maybe -- there may be a big impact due to the Russia situation or whatever. And then we will have to adjust strongly. But right now, we don't expect a big restructuring costs as now. In the other hand, we don't expect positive nonrecurring as we had in 2021 because '21 has been quite exceptional. We had a positive impact with the U.K. pension. We had a tax recovery by EUR 3 million in Brazil. We had exchanges positive in Q3 also. We had reimbursement of insurance. So that's why it's very important in 2021 to take out all these nonrecurring items. And that's why my target -- the guidance I gave for 2022 is without these items, too. And for number three, raw materials. So yes, when I said we have been able to book 80%. It's basically because when we discuss with the customers, they consider that, okay, they will compensate a part of it, and another part has to be compensated with internal actions. So the remaining part, we are still discussing. There is also a lag of application. So that's why at the end, it [indiscernible] 80%. Most likely, we will reach a higher percentage when we will close the negotiation for Q1. It's supposed, of course, that the inflation on materials do not continue as strong as it was in 2021. Otherwise, it means that we will have to start new discussions with our customers to catch up the increase of Q1 that is not integrated in the contract. So I hope the big bubble and the big race of material increase will stop. But if it continues, it means that we have to redo negotiations. And concerning energy and freight, this has been one of the most difficult discussion with our customers. Because on energy, we have our own cost of energy in some countries where the prices were not blocked plus our suppliers are requesting increases for their own energy, especially in Suspension. And of course, here to be able to have a strong pass-through with the customers is a bit more difficult. So on energy and transportation, the discussions are ongoing with 2 customers among all our customers. I think we will be able to lock them about the price increases of 2021 and the first month of '22. Then the question will be, if in March, April, the freight and energy are booming again, it will mean that we will have to have new discussion with our customers. So part of this now are in the contract. The other half will be based on discussion, especially not knowing where it goes. Basically, the prices of energies, [indiscernible] last 3 days have really increased a lot. It's very difficult to know if it's a trend that will last or if it's just a peak that will decrease. And we have not yet started the discussion with our customers on the new energy or freight price that we are seeing for the last 2 weeks and last week.

Okay. If I may, on the energy and freight costs, what was the weight on sales last year, very roughly?

So in fact, it's mainly North America. It's mainly North America for freight basically because we are purchasing most of our aluminum from China. And the price of commerce between China and North America has increased a lot. And here, for the freight, globally, we are speaking about EUR 14 million for 2021 due to the increase of the freight between China and North America mainly. For the energy, it's more in the range of EUR 5 million, EUR 6 million, especially in Suspension plant. And it's also thanks to the fact that we locked a lot of energy prices in most of our countries. So for example, in France, our price are interiorly locked. Of course, I don't know with the current situation if this contract will be respected, but right now, we have locked in France, for example, our prices in energy. It means that the impact is not immediate, but will be end of the -- after 2022 for these countries. But basically, it's EUR 5 million, the increase of last year.

So that's the increase, the total increase. The total cost, what was?

Sorry, what do you mean by total cost?

So the total energy cost in 2021 results, not just the -- very roughly.

Give me a few seconds.

I think the energy cost at around 2.3%.

2025, it's EUR 30 million. EUR 30 million, of which EUR 21 million in Suspension.

The next question is from Monica Bosio with Intesa Sanpaolo.

First of all, let's check on the previous question. As for the freight cost, EUR 14 million is the total cost? Or is it the increase?

No, it was the increase.

Okay. And the second question is on Romania. Can we expect breakeven for Romania plant in 2022? Or should we account some ongoing losses. And the second question is on the EV products. Can you give us some flavor on the margins related to these products? And if you expect some pressure going forward, given also the statement of Stellantis that stated during the last conference call that all the supply chain has to share the higher cost of the air purification?

Thank you for the questions. So to go straight to the point about Romania, it won't be in 2022, the breakeven. The loss will be, of course, lower than '21. Then it will be an improvement in -- a progressive improvement in 3 years, so it won't be in 2022, but the loss will decrease each year before reaching a breakeven. Concerning EV products, it's honestly very difficult to estimate the future trends because each generation, right now, is different from the other. The technology is still ongoing. Each time there are new innovations. And 1 customer is not likely over. So of course, you are cutting Stellantis. The profitability of Stellantis product for EV products are de facto lower than for premium carmakers. That's also why in the beginning, we started and it has always been Air & Cooling strategy with the premium carmakers in order to be able to have a good control of the technology, of the price control and the suppliers and then go to the generic customers. So for sure, there will be a pressure on EV products as it is always in automotive. In automotive, there is no niche with any margin forever. And it's the name of the game. But the good point is that we are ready because we are working on this product for the last 5 years. So we are also in this phase where we are able now to improve our production costs in order to be competitive and have margins. You have seen in Air & Cooling, the strategy has never been to dilute the profitability. I don't know if we can keep 21% of EBITDA, but the strategy is always to be sustainable on the long term from a profitability point of view to be able to innovate, to invest and continue to grow in this kind of application.

Okay. Can I ask a further question? Can you give us a rough indication of the expected investments for the 2022, both in tangibles and intangibles?

We are in line with 2021. If we exclude Romania, Romania trend, of course, will be a bit different during the year, but we are targeting the same amount of CapEx as 2021.

Next question is from Alexandre Raverdy with Kepler Cheuvreux.

I have a quick one, please. You mentioned a very cautious market outlook, at least compared to IHS. When we listen to other European suppliers, they mention that in Q1, their volumes are so far better than budgeted. So there is upside risk on the first half. Is it something that you share as well?

In fact, when we have -- we decided to divide by 2, when I say that, it doesn't mean that we are not ready to do better. So it's kind of cautiousness when we built our budget for the next year, for the fixed cost, for the CapEx amount. We have already done that in 2021. IHS was very optimistic. And at the end, it has not happened. 2022, you see there are a lot of risk on the market. That's why I think our assumption is quite realistic. My feeling, it's realistic. Nevertheless, I have performed some stress tests in each of our countries, especially in North America where everything can go very quickly. If the market is going higher, we will be ready to produce. This is a challenge. Nevertheless, if the market is going down, I'm also very -- I would be very quick to react on the other hand. But right now, it's very difficult to predict the market due to the shortage of material, still some absentees in the customers -- for the customers due to the COVID plus this new situation in Russia, where I don't know how it will impact the customers or the global consumption of the world. So honestly, to divide by 2 IHS, I think looks reasonable to me now. Hoping that it will be more, then we will leverage on volumes, keeping our costs under control.

[Operator Instructions] Your next question is from Gabriele Gambarova with Banca Akros.

A couple. The first one is on diesel. We saw that in very recent months, someone is speaking about this and its future. So any comment on this would be interesting? And the second one is on the attitude of OEMs. We saw incredible increases in other selling prices. So I was wondering if, in your perception, the negotiation with your clients is somehow less tough than it is -- than it usually is basically?

Yes, the diesel, to be honest with you, I always had an approach and [indiscernible] to be, I would say, technology neutral means I don't beat the trend about diesel or not diesel. Nevertheless, we have 40 customers all around the world with good customer intimacy. It's very strange. Two years ago, everybody was saying it's dead. Now some are starting to say, maybe not. As always, I prefer to be very, very, very prudent and consider that there is a potential risk of decrease of diesel, and be ready and innovate to have alternative if the diesel is decreasing, especially in Filtration because the business unit, the most exposed today is Filtration. But thanks to aftermarket and OES, in fact, the exposure is in a very long range, and it's not 1 year, 2 year, 3 year. But I prefer to ready and if the diesel really decreased as it is forecasted by the analysts with other products, then I don't know. Honestly, with the e-mobility, the technology is moving so quickly, maybe we will have some issues to find the raw materials for the batteries and so on. And then diesel can come back or maybe a clean diesel. It's also possible. Nevertheless, to be very honest with you, when I do a quotation for a diesel business, I'm very, very prudent. I ask for upfront payment of R&D. I don't invest new line for the tooling we ask [indiscernible] payment because it may be risky. So here on a -- from a risk management point of view, we are cautious on diesel. But if it remains, it will be a very good news for Sogefi because with the rise of the e-mobility, Air & Cooling will have a strong growth and Filtration business then will be very much protected and we will have our new product range on that. Concerning the discussion with our customers, yes, it's, of course, very difficult because they are Stellantis, we are so Sogefi. Of course, their defense is very, very, well organized. They are defending very well. And I'm sure that there are very big consultancy company that are advising them because they basically have all the same strategy. Nevertheless, I would say that, of course, being tough and being protecting the company more and more, we are able to have fair agreements because it's in the interest of our global business. Even Stellantis will need a suspension, filter, manyfold. And so it's a global chain. And I would say that our customers are aware of that. Even as the discussions are tough, they are fair. And at the end, we are able to find agreements and deals, even if sometimes there is a lag between the increase of material prices for Sogefi, and today we have a compensation from our customers. So the last 3 months has been strong discussion, but at the end with, I would say, most of our customers, we have been able to find deals. Of course, they don't compensate 100% always. They expect us to compensate part of it, but I have to admit that it's going in the right direction. And maybe also at Sogefi, now, we know to do it. We are maybe more used to do it than before. But of course, when I see the financial results of our customers. You can imagine that the first thing I do, I send them a mail to congratulate. And then I ask them a meeting to reprise me immediately, especially when they publish the results saying that it's thanks to price increase with well customers and strong control of suppliers. So I would like some time I'm not shouting when I see that. Then I'm very pragmatic. It's better to have reached customers than pull customers. And then my job is to go and have a fair part of that with us. So it's going in the right direction, but it's difficult.

Yes, I understand. And just one follow-up. How long does it take you to see your prices increase from the [indiscernible].

It depends, in fact, the first thing that happened is the contractual part, I would say, almost immediately. There is just some administrative time, the time to have a PO and so on. So it takes 8 weeks for the part which is contractual. Here, the big issue and the contracts are based on the index. Here, the big issue that we had the last 6 months of 2021 is that the material prices, especially in steel, and now we can see that pressure on plastic are increasing more than the index. So for example, for plastic, if the index is increasing by 10%, [indiscernible] is asking you 25%. And it's on this remaining part that I am obliged to open discussion with the customers, seeing the contract was on index, but the increase with our suppliers is much more than the index. So here, we need to discuss. And here, usually, it depends on customer, but it's 3 months. Basically, it's 3 months. But from the beginning, usually, we try to deal that it will be retroactive in order to have quick agreement, but it's on average 3 months for everything that is above the contract.

Okay. Last question regards the tax rate. I think it was around 32% in 2021. So pretty low and was wondering it was much better than expected. If I remember well, it was around 40%. So what should we wait -- assume for 2022?

So I think in '21, there has been also some nonrecurring items with no tax impact. But for the tax then, I think that there will be a kind of normalization on the tax rate if we exclude the nonrecurring items. And in 2021, as I said, there have been many positive impacts that do not have a tax rate impact and everything would be also much linked to Romania because Romania had a big loss this year. It may impact the tax rate in 2022 and '23, where I think we will have an accurate answer if you are there on Q1 -- maybe Q1 2022.

[Operator Instructions] The next question is a follow-up from Martino De Ambroggi with Equita.

Yes. inevitable question, okay, you have a limited exposure to Russia, direct exposure. But some of your clients thinking about Renault has a quite important presence over there. So have you any idea of what could be a potential impact or what is the -- what are the potential implications for your business? Obviously, we know it's totally unpredictable revolution, but just to have an idea what is your exposure? And the second question is on the free cash flow based on the underlying assumptions that you mentioned, what could be the free cash flow very roughly for the current year? Because last year was very strong, and you were able to achieve it despite reducing the amount of factoring. So just to have an idea what could be the magnitude for the current year? And also connected to this question, the working capital evolution, if it's possible to have an even better number of days for payables, receivables and so on in inventory.

So yes, our exposure -- our direct exposure to Russia is very low. We have -- in fact, our main exposure is with Aftermarket for Filtration, where we have roughly EUR 5 million of direct sales to Russia. And then in Suspension, we are selling to Renault mainly with [indiscernible] to Russia. But our direct sales exposure is very low, basically EUR 5 million in Aftermarket and our sales to Renault. So from a sales point of view, we are very low -- exposed in a low amount. For purchasing, too, we don't have direct purchasing from Russia. Some of our suppliers of steel are purchasing from Russia. But we checked with them, they will be able to switch from Russia if needed. So here, again, I think our exposure is very, very low. Then there is one thing, but we are not here yet, and I hope we would not arrive at this stage is that most of the goods purchased from China, but it's not only for Sogefi, it's for everybody, are coming by train through Russia. So on that, I'm not able to predict what's going to happen. But we are not exposed in Russia because it's very difficult to do business there forever. So we have always been very conservative not growing too much in Russia. The free cash flow for 2022, yes, you say '21 was a very good year. We had very -- we have done actions on the working capital to improve it, even in difficult situation and difficulty year like '21, we have been able to push the inventories and the payment terms. It will be difficult to push more on -- in '22, these items of working capital. So it will be more on the funds provided by operation that we will have to do the job. So it's a bit early to give you an indication of the free cash flow that we may generate in 2022. As you said, we have not pushed the factor in too much in '21. We have been able to generate it in normalized way. EUR 35 million is a good year in 2021 with a lot of one-off impacts. As I said, in 2022, we will have to pay some actions that we booked in the P&L of '21. So I think will be a bit lower than 2021, the free cash flow. Not much, but a bit lower.

So another strong year.

Yes. We will never go back. I hope to the level we had in -- I don't know if it's a strong year. I will say it's normal for Sogefi. I think 6, 7 years ago, the cash generation was very strong. '19 was okay, was not so high. '20 is a bit exceptional, but I think we will be above EUR 20 million here in 2022. We have to. Basically, we have each year to generate cash in order to be able to continue the innovation and the investment.

And very last, we already touched this issue, but is it possible to think about additional -- any additional divestiture or rightsizing around the globe?

You mean to sell something or to close something?

Well, both. Because you made a lot of things in the past 18 months.

Thank you. Yes, last 18 months, we had a lot of things, and it is paying off. You see in Filtration, we have been able to sell Brazil and Argentina with good conditions. And now Filtration is very strong. So I would say that the most urgent things have already been done. And that's -- right now, we don't have anything urgent to do. We don't have a cash bleeding or situation like we had in Brazil and Argentina. This year, we have to focus to be able to have a strong supply chain, negotiation with our suppliers, customers and improvement of Romania. So right now, my priorities are this one. But there is no more urgent situation to solve as it was the case before.

[Operator Instructions] Mr. Sipahi, gentlemen, there are no more questions registered at this time.

It means I was clear. Thank you very much. I thank you all for your attendance and your questions. It was a pleasure for me this year. So I hope we will continue in 2021 -- '22, sorry. Thank you a lot. Have a nice weekend, everybody.

Thank you. Bye-bye.

Thank you. Bye-bye.

Ladies and gentlemen, thank you joining. The conference is now over. You may disconnect your telephones. Thank you.