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

Hello, everybody. I'm Stefano Canu, the Company Investor Relations. Welcome, and thank you for joining the Sogefi Full Year 2022 Results. [Operator Instructions]. At this time, I would like to hand over to Frédéric Sipahi, CEO of Sogefi. Please, Frédéric, go ahead.

Thank you, Stefano. Hello, ladies and gentlemen. Thank you for joining this call. With Olivier, we are very happy to be present with you to present you the '22 results. As you will see, we have been able, thanks to the strong actions we have implemented to deliver improving results. And I hope that you will acknowledge them. So let's start the presentation. So as you can see and you will see we present that in detail to you. We are beating the market in all geographical areas, thanks to: first, strong price increase with our customers; positive exchange and also good volumes, especially in aftermarket in China and in North America also. We have been able to manage in a very, very efficient way, the raw material and energy price increase with our customers, and we have continued to do the job from a cost point of view and adapt our cost and the organization to the new condition of the markets.

In terms of financial highlights, our revenue -- revenues are at EUR 1.5 billion versus EUR 1.3 billion in 2021, plus 12.6% at constant exchange rates, benefiting of price increase, as Fred explained, and we are overperforming the market by -- and we are overperforming the market. Our volume is positive by 3.9%. Our EBITDA is at EUR 195 million versus EUR 192 million in 2021. Our contribution margin is at EUR 425 million versus EUR 404 million in 2021. Our EBITDA, excluding nonrecurring EUR [ 193 ] million versus EUR 180 million in 2021. Our gross fixed costs substantially stable despite the inflation at EUR 232 million versus EUR 226 million in '21, with ratio to sales down from 17% to 15%. Our EBIT is at EUR 68.3 million versus EUR 58.4 million in 2021 with higher growth in value, excluding nonrecurring, EUR 74.2 million versus EUR 51.7 million. And at the end, our net income up at 29.6 million versus EUR 26.4 million in '21, excluding the accounting impact of Argentina in '21. This good EBIT and results reflecting the free cash flow. We have a free cash flow at EUR 30.5 million versus EUR 35 million in '21, but including positive noncash effect of the Argentine disposal in '21. Our net debt is now at EUR 224 million versus EUR [ 258 ] million in December of '21, which is [indiscernible] geographical area.

Thank you, Olivier. As I was anticipating before, so basically, as you can see, we have beaten the market in all geographical areas. So the reported change versus '21 is almost 18%. At constant exchange rate, 13%, we have been helped by the exchange rates, mainly in North America and South America, with Brazil and Argentina. Let's take Europe first. So Europe, we are increasing at constant exchange rate by 10% when the market is up by 6%. North America, it has been very dynamic. We are up by 17% versus 10%. South America, 16% versus 8%. China, we are in line with the market. And India is going very, very well. Basically, in India, we have almost an increase of 30% of our turnover, which is quite amazing for a market increasing by 22%. If we look at these figures by geographic -- by business units, sorry, basically, all the 3 business units performed quite well. Air and Cooling at constant exchange rate is 9% increase; Filtration supported mainly by aftermarket, 12%; and Suspension, 17%. In this slide, the turnover per customer. So it's important to see that we have added a few new customers. We have included the Chinese and the Japanese. And you can see that we are rebalancing slowly but surely our portfolio of customers, reducing the dependency on the bigger one. Aftermarket, as you can see, is also very important in our portfolio. And I was mentioning the Chinese OEM, which are now in the top 3 of our customers with the -- the top 10, sorry, including also the Japanese. The bridge, Olivier, versus last year for the EBIT.

So excluding the nonrecurring and nonoperating cost, we have an EBIT, which grew from 51.7% to 74.2%. The main impact are the volume effect, EUR 18.6 million; the squeeze effect, so the [ EBIT ] between price increase and raw material increased by EUR 12.9 million, which offset almost all the carryover coming from '21 on price and the effect of the Romanian ramp-up in our PBFE. Then we have lower D&A and a positive impact of the exchange difference of EUR 4.5 million. In terms of P&L, so we already talked about the main item. Revenue at EUR 1.5 billion. Contribution margin at 27.4%, but excluding the dilution due to the selling price increase, we should be at 28.7%. The raw material and energy costs rise fully compensated by repricing. Our EBIT at EUR 68.3 million, sustained by positive -- in '21, our EBIT was sustained by positive nonrecurring operating income. When in '22, we don't have these effects of -- the increase is due to the business. As you can see in the EBIT, excluding nonrecurring, which comes from EUR 52 million to EUR 74 million. In terms of net income, we will be at 29.6% compared to last year, excluding -- including, sorry, last year, the impact of the Argentinian operation. Our Q4 P&L increased -- an increase of 16.9% compared to last year, thanks to repricing and positive volumes. At constant exchange rate, we would be at 15.4%. We are overperforming the market, 1.7% globally. The EBIT '22 include -- is including negative nonrecurring operating items like exchange difference and a pension fund settlement in the U.K. We decided -- we took the opportunity of the lower interest rate to proceed to a buyout in our Suspension business in the U.K. In terms of EBIT, we talk about the raw material energy costs compensated by repricing. Q4 '21 benefit, as we said, from recognition of deferred tax assets. So that's why we have an income tax so different than last year. Free cash flow. Last year, we were -- we had the funds provided by operations at EUR 114 million; in '22, EUR 128 million. Free cash flow of EUR [ 35 ] million comes to EUR [ 30 ] million, thanks to CapEx containment. And in '21, we have EUR 21 million coming from the Argentina disposal, to treat a noncash issue. At the end, we have been able to maintain our working cap increase by using factoring. You can see that the amount is quite -- the increase in factoring is due to the increase of the sales. We do not use proportionally more factoring than last year. So that's for robust cash. In terms of debt profile, no big change compared to the end of September. We still have EUR 150 million of line committed undrawn and maintained as security, and our average maturity is 3.1 years. As a reminder, roughly 50% of our debt drawn, I'm talking about debt without IFRS 16 is at fixed exchange rates. So we are exposed on the increase only one-half of our debt -- increase of the interest only one-half of our debt.

Thank you, Olivier. Let's look at the results by business units. So Suspension despite all the challenge of '22 including the steel price and energy, we have been able at worldwide level to improve the EBITDA in absolute value from EUR 27 million to EUR 30 million, slightly slower in percentage. So as you know, this business unit requires a strong turnaround. We have implemented strong action in '22 in order to get the payback in '23 and the years after. If we look at Filtration, the Filtration results are improving. So our EBITDA was at EUR 70 million last year in '21, up to EUR 80 million, able to keep the EBITDA percentage despite the price increase, despite the dilution impact. So here, we have done a very good job in order, first, to increase the range of products we were able to the customers. We have been able also to deliver always on time, which has been very appreciated by our customers, which help us to improve our pricing level. If we look at Air and Cooling, the trend is slightly the same. Basically, we were at EUR 82 million last year. We are at EUR 80 million in '22, with an EBITDA margin at 17.3% versus 20% due to the dilution impact for the repricing that we have done, especially on aluminum and plastic with our customers. So this is about the financial '22. So in '22, as you can see, we have done the job from a financial point of view, but also we continued the development of the business. In Air and Cooling, we have continued the development in E-mobility that we started 6 years ago. In Filtration, we are performing very well with our current product range, but we have also started the switch to new product range, including purification. And in Suspension, as you all know, in '22, we have done further work from a footprint point of view. We closed one factory in Europe in order to adapt to the volume environment. And of course, last but not least, we commit and we continue to commit in a very pragmatic way and operational way on all ESG topics during '22. So I was speaking about the business development in order to prepare the future. So in Air and Cooling, always focus on the cooling application and the thermal management product. We have been able to be awarded with a big customer in U.S.A., specialized in the LCV, and we have also started our cooling place on which we were working for the last 2 years with a totally new technology, consuming less energy, less material, offering to our customer a lot of competitive advantage of the plates, which are welded with a laser technology that we have patented. Battery vent systems story. So we have developed -- Air and Cooling and Filtration have worked together on this technology. So the 2 business units have been able to develop this product that we are offering to our customers in Europe and in North America. And in Suspension, we have been awarded in China with a pure player on E-mobility, which is a newcomer in automotive, but very well known in the electronic applications. And the car will start in mass production end of '23. So for us, it's a very, very important move in order to develop in China with these players. So if we look at Air and Cooling, the range of our products, remember, we started 7 years ago, entering the business with our manifolds and water pumps that we have slowly but surely adapted to the EV in order to be able to propose totally new products to our customers on the thermal management of the battery and the electronics, including our plates, including the battery vent and including the cooling modules. So it's a totally new game for Sogefi because we are switching from products which were delivered as a single product to modules with much more added value and totally answering to the request of the market of consuming less energy, being greener and consuming less material and of course, being price competitive. And one thing which is very important, even with the very big part of North American business in Air and Cooling, and the transition has not started really in North America, 54% of our business awarded in 2022 for work for E-mobility. So the trend is clearly here in Air and Cooling and the technology is ready. In Suspension and Filtration, we have also continued to be very aggressive from a business acquisition point of view. As I was mentioning before, in China, we have been able to be awarded on an important contract for stabilizer bar. And in U.S.A., we have been also awarded with a very big player in North America, basically it's the best-selling car today in North America for ICE application. There will be in 2025, a new version full EV, and we will produce the components for this car. So we have very high expectations from a volume point of view. In Filtration, despite the diesel decrease on the market for the last 2 years, we have been able, thanks to the deliveries, quality is always on time and as requested by a customer to get market share and to continue proposing new products to our current customers and new customers. Currently, we are continuing to prepare the future because almost 70% of our current quotation are for E-mobility. So when we say E-mobility, it could be hybrid, full EV or hydrogen. Of course, Air and Cooling at a very high rate, 77%; Suspension, almost 70%; and in Filtration, today, 42% of our quotations are for E-mobility application. Thank you. Olivier, the market outlook? So it's also -- it's, of course, quite difficult to totally predict what the market will be. Our expectations are that the markets in Europe will be flat with a limited growth. In other geographical areas, we prefer to forecast a limited increase of volumes in order as we have always done to be ready if the market is flattish. Nevertheless, we can see that on EV volumes, there is a clear increase compared to 2021. On the market of raw materials, it's also very difficult to predict, especially linked to the energy costs, where you can see a lot of fluctuation. We don't expect the steel and resin or aluminum prices to go back to 2019 level. Nevertheless, we can see decrease versus 2022. Let's see if it will be come true in the next month. We can, of course, fill the generalized inflationary pressure, and our job will be, as we have done in '22 and the years before to compensate that internally or with our customers, and we continue and we commit to continue to the full execution of the structural actions that we have launched already 2 years ago and in 2022 and continue in 2023. So if you look at the EHS forecast for the market, what is foreseen right now is a market increasing in '23 versus '22 by almost 4%, 3.6%, with Europe expected to grow by 7%; North America by 5%; South America, 5%; China, flat; and India, 7.7%, after a very strong 2022. It's maybe a bit too early to speak about '24, even if we just continue to see an increase of 4%. As I have seen before, our assumption internally are more conservative in order to be ready and to continue to do the job on our costs internally. So based on that, if we look at the outlook of '23, we have a clear lack of visibility on what will be the automotive market trend in the full year '23 due to the macroeconomical evolution, the conflict in Russia and Ukraine and also what will happen with the raw materials, prices or availability based also on the relations with China. On '23, as I mentioned before, S&P Global IHS is still foreseeing the market growing. Concerning the raw material, it's a bit too early to have a clear indication of what will be the trend of the full year. And I think especially on energy, it can have an impact good or unfavorable. So we continue to monitor that in a very careful way. But remember, in '22, we have been able to pass through and to also implement strong action in order to absorb the fluctuation or of the prices of material or the energy. So we will continue to do that in '23. So based on all of that and being only in February, our outlook for -- and recommendation for the result of '23 is to be at least at the results of '22 on operating results, excluding all nonrecurring charges. Of course, I will be more accurate in the coming meetings that we will do together. We have completed the presentation. Thank you for your attention. Now we are at your disposal for all the questions you may have.

[Operator Instructions]

The first question is basically on the footprint, on the production footprint. I was wondering if you are planning higher restructuring charges for 2023 to address in deeper the manufacturing footprint, mainly in Suspensions whose profitability is still quite low. So if you can elaborate on this, it would be very helpful. And the second question is on the quotation on the E-mobility. At the end of 2022 quotation for E-mobility were at -- just let me check 69%. But I remember that at the end of the 9 months, the level was 84%. So I'm just wondering if you can elaborate on this. And lastly, if you can give us some highlights on the expected free cash flow generation for current year?

Thank you, Monica. Good 3 questions. Thank you. So footprint in '23, as you may know, I think I've already mentioned it. Yes. We would do one plant, one factory in Suspension footprint to be precise in U.K. This is already accrued in the EBIT, but this will be cashed out in '23. On E-mobility percentage, it's due to 2 factors. So in fact, it's a good news that the percentage decreased. I will explain why. First, we have been awarded on a big business that was in the pipeline in September. And in the meantime, we get a big RFQ that we are quoting in North America, but it's not E-mobility, it's thermal because it's in North America. And it's very big in a turnover point of view. So it's diluting the percentage of E-mobility. It's linked to the fact that we have Europe, North America and China. And in U.S.A., currently, even if there are E-mobility RFQs, the ICE RFQs are still very big from a turnover point of view. So as soon as you start to cut one, it dilutes the percentage of E-mobility that we have in the pipeline. I hope on these 2 questions, Monica, I have answered your questions. And then I will let the free cash flow to Olivier.

Yes. Just if you -- you have answered -- just the quantitative indication on the [indiscernible]

I think you have been muted by Stefano, but I have been able to read on your lips. I think you were asking the quantitative [indiscernible] the restructuring -- we will be very close to 2022 level basically, not with the same structure. We have done in '22 Germany and central restructuring. In '23, basically the cash out will be very close, including U.K. But not much more based on the current market situation, of course. If the market will change, then we will add that. And on the free cash flow, I will let Olivier give the indication.

On the free cash flow, the guidelines are quite the same for the EBIT and net results in line with '22.

Okay. Next question comes from Martino de Ambroggi.

I think it's maybe on Martino's side, Stefano, let's take another question waiting for Martino.

Another question, okay, Alexandre?

The first one is on this nonrecurring nonoperating costs. So could you please come back to those for Q4 and the level that we should expect for 2023? The second question is on the on the tax rate. So sorry for this modeling question, but the level that we should expect for '23. And the last one is more a question on China, specifically your exposure to the newcomers or the Chinese automakers, which are very strong, especially on electric vehicles. I mean, any comment on the growth profile with them and also working capital because I -- depending on your exposure because I understand that the payment terms, let's say, are more -- they're a bit trickier compared to the international automakers. So any comment on this would be helpful.

Thank you for the question. I will start by China and let Olivier comment on the 2 other points -- the financial points. So on China, since the beginning, we are in China for more than a decade, we have always been selective on the customers with whom we were working and the project on which we were investing. So basically, we have very strong relations with BYD which is one of the fast-growing Chinese OEM. Very good relation with SAIC, with Geely. Then, we are being very careful, let's say, with the rearview entrants because BYD, SAIC and Geely are quite big companies are not really big newcomers. The only newcomers with whom we have decided to go is a big electronical company, which will start to do cars in '23, starting by X, and I cannot say more because we believe they have what it takes to do good volumes and good technology and have a good market share. Your question is very good because when we started to grow in China, we have noticed that some customers from a working capital point of view, payment terms and so on could be very tricky. So we have been very careful on always having good payment terms and even in case of cancellation of programs to have strong contracts in order not to have bad news. So in one hand, we have been very dynamic. In the other, we have been very selective in order to avoid issues. So I don't know, Alexandre, if it answers your question, but we have a positive exposure, I would say, and not unfavorable one. And then of course, we are working with the Europeans. I have to be clear with that, including the Germans and challenges there. So the only thing that can happen is if one of these OEMs decide to exit or reduce its capacity of production in China, and then we will discuss and negotiate with our customers. Then I'll let Olivier answer on the nonrecurring and tax rates.

So with regards to nonrecurring, in our Q4, we have been hitted by 2 main items. The first one is the goodwill depreciation on Suspension, we had to impair our Suspension goodwill for EUR 5 million. And then we have sold the pension fund settlement in the U.K. for EUR 3.5 million. We decided to seize the low interest rate to exit from this scheme. With regards to our tax rate in Q4, both items, goodwill impairment and pension schemes are not deductible. So we have [indiscernible] on which we cannot calculate the deferred tax assets. With regards to '23, we are expecting a tax rate in line with normal situation, i.e., around 35%, 34% -- around this. Anything else?

Now we try again with Martino. Martino, try again now. Martino, I see you, but I cannot hear you.

So the first 2 questions are on the guidance. Maybe it's a stupid question, but just to be clear, the operating profit guidance, are you referring to the absolute value, EUR 74 million adjusted for nonrecurring or as a percentage of sales. It doesn't change a lot, but just to be clear. And in terms of free cash flow, could you remind us what are the underlying assumptions in terms of CapEx, working capital factoring because if sales go up, it's probably higher the level of factoring and probably also for '22, more than EUR 10 million of free cash flow came from this effect. And the second question or third depending on how you want to consider them. Financial cost for '23, considering that you have 45% in floating rates. And I don't know if you swapped into fixed rates. And on the debt, you probably have any other divestiture in mind or you are okay with the current perimeter? And very last on the restructuring cost. If I remember correctly, in the last call, you mentioned EUR 12 million for 2022. At the end, you cannot [indiscernible] and probably EUR 8 million is a similar figure for 2023. Is there anything that is slowing down in your restructuring process? Or is it just probably just a bit of delay in getting this cost on the P&L?

Thank you, Martino. First, thank you very much because I bet apology that you will be the one who will ask the question if it's in percentage or absolute value. And we have not written it. So I was expecting your question. As the turnover is supposed to increase because the assumption of markets are still increasing from a volume point of view. It's in percentage. It's in percentage, if the sales are up. If market was down and sales were down, then it would be on me and my team to be able to deliver in absolute value. But in the current situation, it's in percentage, our commitment. Then I will answer on the restructuring and let Olivier answer on the other question. On the restructuring, it's not a delay or a slowdown. I would say it's more from a cost point of view. We have been able to do what we had to do with lower cost. Basically, both in Germany and U.K., we have been able to do the job with lower cost than forecasted. So no slowing down on that topic. We have done the job, and we will continue to do it in '23 with the plan that we established. Olivier, I'll let you maybe answer on the others.

Sure.

The most difficult are always Olivier's.

No. Mine are more techniques. You have the difficult ones, which are business ones. With regards to cash flow -- as I said, in '22, we have the pension schemes exits for an amount in cash of EUR 8.3 million. So when we are saying that we will be able to come up to maintain our level of cash flow in '23, that means that we are forecasting to offset somehow [indiscernible] . We are not expecting to increase the recourse to factoring more than what we are doing. We maintain the ratio. We don't want to increase more of the factoring. And in terms of interest, it will be -- as I said, we have half of our debt at variable cost. We will decrease our net debt, of course, and we are forecasting an increase of our cost for roughly EUR 1.5 million, EUR 2 million.

And the divestitures, if any?

We will not...

You mean pay down debt or replacing the debt or what type of debt..

No. Asset divestitures like you did a couple of years ago.

That's something we will not discuss around this table, if I may.

Okay. But you are thinking about it. So I understand you...

No, no, no. That's not what Olivier meant. We are always very pragmatic, the markets currently, from a technological point of view, is still unclear. So we are, as always, taking everything that can happen in the market, but we don't have an established action or plan in the coming months. Nevertheless, the market is growing very fast. So we have to check everything that can happen on the market. I think like everybody right now.

Okay. I don't see any other raised hands. So if you want to ask questions, please raise your hand. Yes, I see. One second. Gabriele, where are you? [indiscernible] Now I see you. Let's see. Okay. Now you can go ahead.

Okay. Just a couple of questions from my side. A couple of weeks ago on the local, let's say, press in Italy, there was, let's say, the news was reported that Stellantis was asking for a reduction of around 7% in some kind of part supply. So I was wondering if you are seeing anything similar. Maybe it's just, I don't know, a local issue and local aspect in general, do you see any -- or do you foresee or you are factoring in any price reduction from the...

It's yes, Stellantis. And your other request was [indiscernible] and later asking 15%. So it's 7% -- as a request. So we are all fit to request then if you accept or not. Saying that, yes, I can feel and we can see that. And you too maybe on the newspaper, television that our customers maybe are becoming a bit more from a pricing point of view to the final customers forecast becoming maybe a bit more aggressive or there is a change of trend. The car prices are not increasing anymore, and you can even start to see some discount after, I would say, 2 years of price increase. So basically, we expect '23 where the customers, of course, the OEMs will have a strong price pressure. We push for a strong price pressure on the suppliers. It's part of our industry and the game and then it will be on us to explain the rationale of what we can do and what we cannot do. But yes the market may switch from a pricing point of view for the car prices and de facto the pressure on the suppliers.

Okay. is there any assumption in your own guidance on this front? Or you're assuming flattish prices?

For, in fact, the energy prices, the raw material prices are not stabilized yet. Basically, if you look at the energy prices mid of December, it was very high. Then mid of January, boom, the price is reduced. So for now, it's very difficult to be very accurate on that. The only thing I can do is to say, as in '22, that the squeeze will be close to neutral, basically in one way or other. So if the material prices increase, then we would have to do the job, internally with actions and externally with our customer to compensate. And vice versa if the material prices are dropping, then we will have to discuss with our customers what we can give. So basically, our assumption currently is to say a squeeze at 0 in one way or another. It's the most accurate we can be in February in the current situation.

Okay. The other question regards China because geopolitics is very difficult to assess these days, and you also made the reference to the possibility, the possibility that someone -- some OEM beside totally, I think theoretical that he decides to get away or to leave or do something in China. So I was wondering if you have any sight, any thought to share with me about this -- I mean, it's the biggest market in the world. But clearly, geopolitics pose some issue. I don't know, do you see anything new, anything that keeps you away ignite in this market? Anything you can share with me would be very interesting.

No, I don't have inside information about China from a political point of view or macro point of view. As you said, it's the biggest market from an automotive point of view. So we continue, of course, to develop in this market. It's more on the other side of the business where without having any inside information in case of we have some big plan for what we purchased from China for Europe and North America. So it's not so much on the customer side. It's more on the supplier side in case of something happens, and I don't say something will happen or I know something. I prefer to have a B plan and the second supplier, not from China in case of, especially for North America. Basically, everything we purchase from North America to China, we have already established and identified and validated second suppliers in case of something political happens, and we cannot choose anymore from China. So, as all of you, I am following that very carefully, and we will have to be flexible. In the other hand, we have done it in 2022 with Ukraine and so on. So -- so the supply chain of automotive is more agile than what we were, I think, 2, 3 years ago. We are not used to it. That's it. I cannot predict what can happen. We can just prepare to everything and then we will see.

Okay. Maybe last question on Romania, if you can, let's say, tell me what would be the contribution from Romania in terms of revenues or EBITDA this year?

EBITDA, it's a bit difficult. On Romania, what I can say is that the turnover based on the current market is increasing by 20% versus 2022. So the slow but sure growth of Romania is continuing as planned with the full ramp-up of the programs we started last year. So it's continuing to grow. Now after 2 years ramping back this plant, we have to establish some kind of real standard of production and delivery. And to have the maturity of the plant, I think it has to be this year. Basically second part of this year, I think we will have to -- we'll be able to have more maturity from an industrial point of view.

I think there's a follow-up question from Martino.

Still on the Romanian plant. I don't know if my notes are correct, but I remember in '22, you expected a loss in the region of EUR 8 million. And could that have been halved more or less in '23. So but still losing EUR 3 million, EUR 4 million. That's the last note I had in my in my notes. And in terms of inflation, sorry if I missed it, but could you summarize what is the total impact that you have embedded in your guidance in terms of very rough energy, labor, road map and so on for '23. And just on -- back on the free cash flow, what are the underlying assumptions on net working capital and CapEx that probably I didn't get in the previous answer?

So on Romania, your notes are correct basically, both for '22 and '23. So except a big issue on energy prices, basically it should be by the range of Romania for FY '23. And the figure for '22 is very correct. It's very close to it. On the inflation for '23, as I say considering the material and energy prices, our assumption is to consider -- has been to consider a squeeze at 0. Now between the forecast of November and February, there has been a big change on the energy because in November, honestly, we were quite pessimistic about the energy prices for the full year. So we were considering a strong repricing with our customers. Now this assumption has changed for now. So we are discussing with our customers on energy prices with a much more limited impact. So energy prices for now should be much lower than what we were anticipating. On the material, the steel is decreasing and aluminum has decreased, too, and plastics started to decrease. Right now, we are in the middle of discussion with our suppliers and customers. But basically, it seems that the trend is positive on the material prices. So let's consider 0 of squeeze between energy material on these 2 items. On the salary inflation, here, it has to be done internally. So the assumption we considered is you cannot go to a customer and OEM saying, I increased my salary by 5%, 6%, 7% or 3% or 2%, give me a price increase. It's not like energy and materials. So our assumption has been to consider that whatever would be the salary increase, except in South America, with the inflation in Argentina, we have to recover it internally with actions -- with productivity actions, automatization actions, industrial actions, efficiency actions. So these are the assumptions that we consider. To give you absolute value right now would be somewhat misleading because I would say it's changing almost on a monthly basis. So I think it's better to keep in mind the assumption that we will be able to absorb except something very special, the inflation in 2023. Then in April or maybe in July, we will be able to be a bit more positive if the trend on energy price and material prices are concerned. Right now, I think before being too much happy, we have to wait for China reopens for real and to see what's going to be the impact of China reopening if it happens on the material prices. And energy prices, you all know better than me. It's very difficult to predict. Of course, we had some conservative approach with margins, taking opportunity of the current prices for the months to come. And then, Olivier, on the free cash flow.

CapEx would be roughly on the same level than in '22. And we are not foreseeing any deterioration on our working capital. There's no reason to foresee any deterioration in our net working cap ratios.

No improvement because of the lower raw materials?

Well, we would also have sales increase. So no, and there is some...

Yes, on inventory right now based on everything we said before, I still prefer to keep a good coverage on the inventories. So especially on raw material, not on finished product. So in the first month of the year, we will not decrease it, and then we will see if there is a stabilization of Russia, Ukraine and China and so on. We can be a bit more aggressive in the second part of the year. The only thing that can affect the working capital will be a strong increase of sales, but I would say it would be a good news, basically. So not a big negative impact, but also a big positive impact for us in the working capital this year.

Okay. Last question from [indiscernible] please, if you can introduce yourself for the first time we meet with you and ask your question. Yes, unmute your microphone by yourself.

Yes, I'm [indiscernible] from BNP Paribas. I have just a couple of questions. The first one regards the transition towards E-mobility products. What do you think about the latest guidance you gave us regarding the 45% target within 2025 vis-a-vis your total group sales? And the second question is regarding the percentage of debt that you now have fixed, you said 50%. Do you think you feel comfortable with it towards full year '23? Do you think you are thinking about a reduction of variable debt? What is your feeling about your gross debt, which has an exposure towards interest rate risk.

Thank you, and it's a pleasure to meet you virtually. So about E-mobility, first, rather the commitment of the percentage of our sales, our target is to beat the market. So as you all know, in E-mobility right now, of course, there is a big push, everything can happen from a technological point of view also. So at Sogefi, we continue to be technology-neutral, basically. Some of our customers wants ice, we do ICE; some EV, we do EV; some hybrid, we do hybrid; some wants hydrogen, we do hydrogen. So what we do, we try to duplicate the market in each part of Sogefi where it's possible. Of course, don't forget that absolutely we're aftermarket, which is a big part of our turnover in filtration as you have seen before. We have also heavy-duty activities for EUR 120 million. So it's nothing. And we have big activities in South and North America. So when we look at the percentage of E-mobility turnover, we have to look at it by geographical area. And even I would say, by sub-division. So our commitment is to duplicate and to be aligned with the market percentage year after year where our products makes sense. So in Air and Cooling, of course, we have dedicated products specialized on thermal management of the battery and the electronics. On Suspension, it will be made more towards the same product, but going on EV cars and hybrid cars. And in Filtration, as you can see, we have started to have some products, especially on the transmission filter and cabin . So basically, this is where we go. It's a market where it's going very fast. Everybody is going in full speed in EV. And in the same time, you can see the Japanese and some other saying, okay, there may be also over direction. So we are very careful on that approach, going full speed on the market side. Then on the percentage of debt, I'm not an expert, and Olivier is the real expert. I would have to say -- I would tend to say that our debt has reduced in a very interesting way in the last 2 years. And I would say that our ratio is more than acceptable. Olivier?

Yes, and we are not forcing to swap for our variable paths to fix for the time being. We will not -- of course, it may change in the coming months. We are always very careful on this. But for the short term, I do not expect to make any move.

Okay. I don't see any other question as well as follow-up. If somebody want to ask questions, please raise your hand. I don't see any further questions. So I hand over to Frédéric to say hello to everybody.

Hello, but goodbye, and thank you very much for having joined this conference call. I hope to see you with good news in a few weeks of the first quarter results. Thank you, everybody. Have a nice weekend. Thank you. Bye-bye.

Thank you. Bye-bye.