Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Sogefi Nine Months 2017 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Laurent Hebenstreit, CEO of Sogefi. Please go ahead, sir.
Hello. Thank you very much. Welcome to this Sogefi conference call for the nine months of 2017 results. I have with me today Yann Albrand, our Chief Financial Officer, and Stefano Canu, our investor relations. I will follow the presentation, which is now available. Going to page two on the nine-month highlights. We have good revenue growth in nine months 2017, with revenues up 6.3%. Positive performance of all three business units and all geographical areas. EBITDA at EUR 131 million is up 14.4%, and reaching 10.4% on sales. Stable contribution margin despite higher material costs, and better fixed costs absorption. EBIT at EUR 70.2 million, which is 5.6% on sales, and free cash flow at EUR 32.5 million. We reported last year EUR 12.3 million in the nine months of 2016, which was including EUR 11.2 million of positive one-off.
Net debt improved EUR 47.4 million to EUR 266.7, while it was EUR 314.1 at the end of September 2016. No significant development in the claims issue. If we now move by geographical area, I will focus on the results for the nine months. The Q3 numbers are available as well on the same page. We have overall reported change at 6.3%, which is broken down by 2.8% growth in Europe, 3.3% growth in North America, while in South America, we had growth of 19.8% and 25.2% in Asia. At constant exchange rate, we indicate a more balanced growth across the year with 11% in Q1, Q2 at 4.6%, and Q3 at 4.2%. Moving on page four to the revenues by business unit. Again, focusing on the nine months, we have a reported change which is 6.7% for suspension, 6.9% for filtration, 5.3% for air and cooling.
Looking at the third quarter, air and cooling sales are declining 4.2% as reported or 3.1% at constant exchange rate, mainly due to the market slowdown in the United States, where we know that production has gone down 14.5% in the United States and 17% in Canada. Moving on to page five. Those of you who follow Sogefi will remember that we had last year our growth largely from the growth with General Motors. This year, the pattern is different. As you see that General Motors over the nine months is relatively stable. The growth this year of Sogefi is chiefly propelled by Fiat Chrysler, CNH group, especially in Sogefi suspensions, the success of the Jeep Compass in Europe, in China, and in the new plants in Mexico, where Sogefi produces the stabilizer bars for the new Jeep Compass, which is a good success at Fiat Chrysler group.
The other growth which we are happy with is the growth at Daimler. I had mentioned in previous communication that Daimler was one of our growth targets, and you can see here the 2017 presents growth compared with 2016. Moving on to the financial results on page six. I would like to hand over to Yann Albrand, our Chief Financial Officer.
Thank you, Laurent. Just as a reminder, sales over the first nine months went up by 6.3%, and as you can see on this slide, contribution margin went up by only 6.1%. The difference come from a slightly decreasing contribution margin, which goes down from 28.8% to 28.7% over nine months, roughly the same numbers. Just as a reminder, we were at 28.9% at the end of Q2. EBITDA goes up by 14.4%, better fixed cost absorption, and the ratio we update on a quarterly basis. Total labor costs went down from 21.5% to 20.8% over the first nine months. As you can see, EBITDA which was at 9.7% over the first nine months of last year, and now is up to 10.4%, in line with our expectations.
EBIT goes up even sharper by 19.6%, although we had to record in Q2, if you remember well, EUR 6 million of write-down of the fixed assets of the Brazilian operation. As a result of this, EBIT goes up from 5% last year to 5.6% at the end of Q3 2017. I mentioned the point earlier, the proportion of our indirect costs are still going down. They were 19.5% of total sales after nine months in 2015. They went down sharply to 18.6% in 2016, and they are still down to 18.2% after nine months in 2017. On EBIT, I already mentioned that the EBIT recorded the EUR 6 million of non-cash write-down of the fixed assets of the Brazilian operation. It's an accounting issue. It has no cash impact. Results before taxes and minority interest was EUR 51 million versus slightly below EUR 40 million in the same period last year.
After financial expenses of EUR 19.2, down from EUR 22.5 last year, it is a result of lower interest expenses. We are improving our net financial position, therefore, our interest go down, and it's also due to a fair value gain of EUR 1.6 million, which is non-recurring. As a result of this, net result was positive, EUR 28 million versus EUR 15.8 million in the same period of last year. It now represents 2.2% of our sales. Therefore, a significant improvement against last year where it was 1.3%. Moving on, page nine, to the P&L. Sales, Laurent went through it. Contribution margin, as you see, fairly stable. Gross indirect costs increasing by 4%. We have more activity this year, therefore, a lot of manufacturing costs, even indirect costs. Having a sustained activity means, for instance, having a lot more maintenance costs to keep our plants in good working conditions.
EBITDA, as mentioned before, up by 14.4%, EBIT 19.6%. Good translation in pre-tax income, which goes up by 28.3%, and net income going up by 78% over last year. Moving on to the real KPI for our activity, cash flow. Operating cash flow is significantly higher, almost double what it was last year. Although CapEx, as mentioned on the right-hand side, are increasing towards last year. We already have launched EUR 39 million of tangible CapEx versus EUR 32 million last year, and we are still shooting for something in the region of EUR 70 million of tangible CapEx over the year. Just a reminder, we were roughly at EUR 40 million in 2014, EUR 50 million a year after, EUR 60 million in 2016, shooting for EUR 70 million. Despite this increase in our manufacturing capability, cash flow is going up, as you can see, both in the operating cash flow and the free cash flow.
On non-recurring items, for those of you who attended the calls last year, last year we had favorable one-offs. Roughly speaking, over the first nine months, we had an exceptional EUR 11.2 million of positive one-offs, EUR 5.7 million coming from the recovery of tax credits from the French tax authorities. It took us 10 years to recover them. Of course, it's a one-off. EUR 5.5 million, which we cashed in the Dayco disputes. Over the year, we recovered almost EUR 10 million, as you remind very well. Taxes, the result was increasing last year, so we paid more taxes. Interest, as you can see, EUR 16.5 million versus EUR 21.5 million of cash disbursement a year ago. As a result of this, the free cash flow of EUR 32.5 million over the period, it was EUR 12.3 million a year ago.
If you take out the fact that last year, the free cash flow included EUR 11.2 million of really exceptional one-offs regarding the tax disputes and the warranty claims, it's EUR 32.5 million versus EUR 1.1 million a year ago. Therefore, roughly a EUR 30 million increase year-on-year. Free cash flow over the first nine months represents 2.6% of sales. As a result of this, net debt now down to EUR 266.7 million, i.e., a EUR 47 million improvement versus the same figure last year. Moving on to slide 11. Value creation is increasing. It was 12.8% at the end of Q3 2016. It now stands at 17.5%. A significant 4.7% improvement of the ratio in a year.
As we continuously point it out, an NFP EBITDA ratio on page 12, which went down from 2.8 In Q1 2016 to 2.27 in Q3 2016, and now down to just below 1.6 at the end of Q3 2016.
Thank you very much, Yann. We move on to the last part of the presentation, which is the performance levels update and 2017 outlook, which is on page 14 of the presentation. We presented our profitability levels, which are purchasing, shop floor, program management, direct cost reduction, and competitive footprint. We are pleased today to update the shop floor level. Let's move to page 15. What we have done is a thorough analysis of the total cost. As you have seen from the 2016 cost base, we identified EUR 1.2 billion of total cost, of which we excluded EUR 945 million. They are excluded for the shop floor purpose. They are not excluded of our actions, of course, because they are on the first level.
Looking now at the EUR 380 million of transformation costs, we made an in-depth analysis of EUR 290 million, of which we found around EUR 100 million of productivity potential, which are different types of losses, different types of non-efficiencies, different types of productivity potential we have. We highlighted this number because within the next three years, we have built a detailed action plan, plant by plant, quarter by quarter, to achieve a substantial part of this productivity potential, over the next three years and to continue to reach higher productivity potential over the next five years. If we now look at the following page, which is page 16. It is a page we have already presented. We just remind you that, at Sogefi, we started definition of the standard KPIs at the beginning of the year.
We had pilot and deployment in the pilot plants, starting mid-February till June. What we call the plant improvement plan. The fourth line, which is called productivity potential, is basically 2 days workshop in each plant, which we did, and a further analysis which stretched over the period of 3 months for all plants of Sogefi, from which we built our master plan, which is detailed, as I mentioned, by quarter. From there, we have built a saving book, which covers the next 18 months, week by week, where we have all our actions laid out with, of course, an identification of the potential of realization. At the same time, we have defined and deployed our standard and work methods and the best practices. This is now, since September, being deployed.
The good news is that the potential for reaping the benefits in terms of cost reduction is in front of us, as Sogefi is at the start of this journey for productivity in a systematic and structured way. Going to page 17, giving you some more specifics about the profitability levels on the shop floor. Here are the 11 Key Performance Indicators that we have chosen for Sogefi, which apply worldwide to all our plants. I am pleased to report significant progress on some areas. Accidental frequency rate is improved by 26% since January. The customer claim rate is improved 12%. The customer line return is improved 36%. Supplier return is still a subject where we need to improve, as it is flat currently. The reduction in scrap, that means the materials or the finished products we need to discard, is 18% improved since January.
The customer missed deliveries is improving by 40%. On the supplier side, I would say same as on quality, we still have to work to show an improvement on this indicator. Direct absenteeism rate is flat. Direct worker efficiency is improved by 3%. The yield rate of equipment has already improved by 10%, and the days of production inventory, which is physical production inventory, is reduced by 6%, which goes in the right direction. We decided to share with you the information to provide some more information on both the level of depth and the intensity and the focus on the operations performance and the translation of this operations performance into the financials of Sogefi. Moving on now to the outlook.
As most of you know, the global automotive market, the outlook for the last quarter shows a slightly positive trend, referring to IHS and other forecasts, albeit at a slower pace than the first nine months of the year. Europe is expected to grow, while North America is expected to show a further decline. Nevertheless, in this context, for the whole of 2017, Sogefi expects revenue growth in line with the first nine months. Remember that I had given guidance for mid-single digit growth. We are now at the end of nine months at 6.6%. We see the rest of the year being roughly in line with the first nine months. In this context, the profitability should confirm the improvements versus 2016 registered until now, despite an increase in the cost of raw materials. I have already mentioned the raw materials in our last conference call.
There is a certain tension on the raw materials and specifically the steel for suspensions for us, which remains negotiation subjects with the car manufacturers in order to have the appropriate shares of costs taken by the car manufacturers and by Sogefi. Here is the outlook for 2017. We are now looking forward to answer your questions.
Excuse me, this is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. The first question is from Monica Bosio with Intesa Sanpaolo. Please go ahead.
Thank you very much, and good afternoon, everyone. I would have a few questions. The first is on the restructuring charges above the EBITDA line. Can you please remind me the amount of the restructuring charges in the third quarter and year to date? Could you please tell us if you are going to confirm the EUR 15 million-EUR 20 million of restructuring for the current year? The second is on the impact on the rise in commodities. I can imagine that most of the impact has been penalized the suspensions business. Can you quantify the higher material cost in terms of lower margins for the group in the third quarter? The third question is on the order intake in general, and especially as for air cooling, given the negative performance of the third quarter. If you can comment on the trend going forward.
The very last question is a housekeeping question. Can you please remind us the tax rate for the full year? Thank you very much.
Thank you very much, Monica. Yann, on the restructuring charges, can you provide some?
Monica, on Q3, the restructuring costs were EUR 2.8 million on the group.
year to date.
Year to date.
Next question.
Year to date, EUR 8.7 million.
Okay. Do you still confirm 15-20 for the full year?
Full year, we probably shall not be at the level we mentioned earlier.
We probably are going to spend less than discussed with the analyst in previous calls.
Okay.
On the impact of the materials, until the end of June, we had very little impact of the material increase. We had the first impact in Q3, where basically we had increase of purchasing prices and only some recognition of the car manufacturers in the selling prices.
We are in negotiation with the car manufacturers, our goal is to have the appropriate shares recognized by each party. Our current understanding is that the steel is go up. Initially we expected that after the increase, there would be on some types of steel, relative reduction. It's not the case actually. The prices are still going up.
That means Going forward, an important element is one of my top five priorities right now. This does not change our guidance for the end of the year as you have seen. Basically, we have a number of compensating actions, both in suspension as well as in filtration on air and cooling. We'll not be able to offset all of it.
Okay.
On the order intake of the air and cooling, air and cooling is impacted by a reduction in volumes in the United States and Canada. Order intake for air and cooling, for filtration, and for suspensions is actually above our targets in all three business units. We are rather on a successful path for order intake. We know that speaking of order intake, we are speaking of the OEM business.
Yes.
That will start to impact the business in 2019, 2020 with ramp-up, which can be quite slow, both in the case of engines as in the case of large platforms. Order intake is healthy in the three business units.
Okay.
The last question was on order intake and on the tax rate.
Yes. Thank you.
If the last question was for me. The tax rate in year-to-date is 39%, as you will see in our detailed accounts.
We are projecting a tax rate without one-offs in that region for the full year, but we will do additional cleanup of deferred tax assets that will increase the tax rate, the full tax rate on a full-year basis in the region of 45%.
For the full year, it will be 45?
Slightly below 45%.
Slightly below.
Including non-cash depreciation of deferred tax assets.
Okay. Clear. Thank you very much.
Thank you.
The next question is from Niccolò Storer with Mediobanca. Please go ahead, sir.
Yes. Thank you. Thank you. Good afternoon to everybody. I've got three questions for you. The first one is on Latin American performance. If you can provide us with a split between what happened on the aftermarket and on OE and on Brazil versus Argentina. The second question is on the outlook for the North American market. What is, in our view, driving the reduction in production and this trend to continue into the fourth quarter following the strong reduction seen in the third quarter and following all the damages from the hurricanes. The last question is on trucks. I saw that the third quarter was pretty healthy for trucks, in particular in Europe. Have you benefited from this trend in terms of profitability or not? Thank you.
Thank you, Niccolò. On Latin America, our activities are in two business units, suspensions and filtration. As far as suspensions is concerned, we are fully benefiting of the volume effects of the recovery of the OEM activity in South America, and also from a good configuration in terms of raw material increase versus price increase. That means our margin in suspensions in South America is going up, both in percentage and in absolute terms, due to the growth. Now, if we look at filtration. In filtration, we have, in Argentina, mostly aftermarket activities, and here the situation remains difficult due to the situation of the Argentinian market, and specifically competition from imports from China. This is, for us, a difficult market, where we have actions ongoing to improve the profitability. As far as Brazil is concerned, in Brazil, filtration, we have two activities.
One is OEM, which is benefiting also from the volume effect. We are also able to launch new products, our growth is quite healthy there. On the aftermarket, after having had some difficult times, which I had referred to before, I'm pleased to share with you that the third quarter for aftermarket in Brazil, we hit our targets, both in terms of volumes and in terms of margin. That means our marketing strategy, as applied now in aftermarket, starts to bear fruit in a market which remains difficult because the purchasing power of people in Brazil is not very high. It seems that we have found the right marketing mix to support our activity. All in all, Latin America is showing progress, both in terms of profitability and in terms of cash, but is still lower than the average of the group.
That means for me, it remains a priority area. We continue to restructure. Monica was asking before about the restructuring amounts. A good share of that is continuing the restructuring both in Brazil and in Argentina, specifically in filtration, to continue to work and improve our situation there. On North America, you are right, we were all expecting a hurricane effect of around 500,000 additional cars to be sold. Basically, the volume trend we see is certainly linked. We are at the limit of the financing capabilities due to the purchasing power of the car buyers. We are in a situation where the market cannot grow unless the car manufacturers will continue to subsidize the sales of cars with higher rates, which they are not doing.
What we see is several car manufacturers in the U.S. looking at rather margins than I will not say names, but I think you can identify who that is. Rather looking at margins rather than looking at volumes. Then on the other hand, a situation where the credit situation for buying new cars remains difficult because there is not much, I would say, people who can afford to buy a new car through financing. That's why we expect the market to continue to slow down. We do not see a very fast reduction, but we see a continuous slowdown in North America. In North America, most of our activity is air and cooling. You know that air and cooling has a relatively lower share of fixed costs than the other Sogefi activity.
Flexing our activities with the slowdown of the market is something that we can do. Although this is an element to take into account, I would say with the level of exposure that Sogefi has to North America, which is 17.9% of our sales base on the nine months, this is something which we can manage. On the trucks side, you are right. Trucks activity was healthy, both in South America, where we do parts for trucks, both filtration and suspensions, as well as in Europe. To some extent, we are benefiting to the volume effect on the trucks. Yes, it has been a positive. All in all, the trucks activities of Sogefi still have a modest size in comparison with the passenger cars. It's a positive. We expect it to continue to be positive in the next months.
Thank you. Thank you very much. Very clear.
The next question is from Renato Gargiulo with Intermonte. Please go ahead.
Yes, good afternoon to everybody. My first question is on the outlook. Clearly you're saying that in the last part of the year, you are going to outperform the market, which is seen with a slightly positive but with a slower pace compared to the first nine months. I was wondering in which markets, in which areas do you expect to gain market share, because looking at the third quarter, you are basically performing in line in Europe and you started performing in line also in North America. Just if you can give us more details on that side. The second question is on cash generation and net debt. We are seeing that market consensus is pointing to around EUR 270 million of net debt for the full year.
Could you give us any kind of indication also on the back of your projected increase in CapEx in the last part of the year? Last question is on M&A. Do you confirm that you see the sector as in a consolidation phase, and do you see any opportunities going forward? Thank you.
Thank you, Renato. On the outlook, I confirm that we have limited but significant growth versus the market. We have a number of new products which are ramping up. Overall, this concerns mostly Europe, as Europe is still 61.6% of Sogefi sales. We also see a healthy fourth quarter for Sogefi in South America, and in North America, we will be in line with a little bit better than the market, thanks to some new products as well. It's mostly Europe, I would say, mostly Europe and South America in comparison with the markets where we outperform the market. On cash generation, you see that we are at EUR 266 now. I think the EUR 269.7, the number you mentioned could be achievable.
Okay.
So on the-
Roughly speaking, in terms of net financial position, we are shooting for a cash landing at year-end in the region of where we stand at the end of Q3.
We probably are not going to push too much, but we should achieve that number even with the investments we mentioned before. Knowing that we had a lot of one-offs last year, that means you need to appreciate the performance by taking off the one-off of last year in order to see the real underlying cash generation, which is healthy. On the merger and acquisition side, we've seen in the second quarter more activities than in the third quarter. We see some activity in mergers and acquisitions. As Monica Mondardini, our Chairman of the Board, has communicated, Sogefi is looking to grow its three activities, both organically and potentially through acquisition if we find suitable opportunities. I confirm that this is on what we are working actively, but I have no news to communicate to you today.
Okay, thank you. If I may, just a quick follow-up on the tax rate. Looking forward to next year, what could be a reasonable and a normalized tax rate? Thank you.
I mentioned 39% without one-offs. We are going to shoot in the coming years to a tax rate between 30% and 35%.
Okay, thank you.
The next question is from Filippo Prini with Kepler. Please go ahead, sir.
Good afternoon. I've got two questions. The first one is back on the spike of raw material. How much of these spikes are you planning to share with your client, and over which period could be achieved, this sharing? The second one, if you can please go back to page 15 of your presentation. The EUR 100 million that you highlighted, is it what you are expecting to deliver as a saving over the next three years or is the base where you plan to extract the low 20%, 30%, 33% saving? If you can give us at current stage some more indication of which kind of costs are within this review for potential
Filippo?
Yeah.
I heard two questions. One is on the raw materials-
Yes, sir
One is on the productivity potential, right?
Yes, it's correct.
Two-thirds of our contracts for suspensions, we have indexes. With some car manufacturers, we have already passed the increases, and with some car manufacturers, we are still in discussion. With some car manufacturers how fast do we plan to operate the cost sharing? I would say this depends on the car manufacturers, not just on Sogefi. If it would be me, it would have all been done by now. I expect the discussions to continue through the first quarter, as I see the increase going on. The discussions are really going on right now. It could be that in some cases it continues due to the new increases that we are seeing into the first quarter.
Okay.
The productivity potential, the EUR 100 million is a total potential. What we are aiming at is to gain half of this productivity potential in the next three to five years. What is in there? There is a good chunk of labor, direct labor. There is a good chunk of less natural consumption. There is also in the productivity. EUR 100 million is not our goal. It is maximum potential, and our goal is within this. It's okay, Filippo?
Yes, it's okay. Thank you.
The next question is from Gabriele Gambarova with Banca Akros. Please go ahead, sir.
Yes, good afternoon to everybody. Just a couple of quick questions. The first is on the last quarter contribution margin. If you could expand a little bit on this aspect. Basically, where do you see it? Basically, what are the moving parts we should consider? The second question is on the reinforced glass fiber suspensions. This is a project you have been working on for years and years, and I was wondering if you have any news on this side, on the perspectives of this important product. Thank you.
Q4 contribution margin. What we are seeing today, as I mentioned, with the continuing rise of the steel, is that there will probably be a slight reduction in the contribution margin in the first quarter compared with the third quarter. This is taken into account on the material side. On the other elements, on the material side, we see a slight deterioration of the material. We see an improvement in the direct labor. You know that we have a very strong focus on productivity. We see also an improvement on other factors. All in all, despite the negative material impact, we are shooting for, I would say, stable or slightly increasing contribution margin as we have the impact in Q4 of the steel negotiation with the car manufacturers, which we have not had in Q3. In Q3, we have the negative impact.
In Q4, once we finalize the agreement, we have the money in Q4 for this. That's why we expect a slight positive impact despite the negative impact of the material itself. This is for the Q4 contribution margin. I don't know if it was clear.
Basically, you are targeting, if I understood well, a slight reduction quarter-over-quarter, sequential reduction.
We are expecting a slight reduction in the material impact, but the total contribution margin, we forecast a slight improvement due to other factors than material.
Okay. Thank you.
In the contribution margin, there is material, but there are also some others. On the glass fiber springs, I have no new announcement to do today. We are working on this technology, which presents a great potential. Remains a challenge in terms of manufacturing in large volumes at the right quality and productivity expected by the car manufacturers.
Okay, thank you.
The next question is from Michele Baldelli with Exane BNP Paribas. Please go ahead, sir.
Good evening to everybody, thanks for taking my question. I had several questions, were already answered. I just got one left, it is about, given that you have in mind pretty well what is going on in terms of possible business plan on your side for the coming years. I just wanted to understand because I didn't follow the first 15 minutes, I don't know if you already said. Will you present any business plan update in the coming months, or is it still a question mark?
As far as the business plans for the coming years or for the coming year?
Yeah. No, I just want to understand if you will present officially, let's say, to the investment community, any business plan in the coming months that will relate to the coming years, yes.
Okay. What we are working on now is to, I would say, prepare a presentation on Sogefi technology evolution, especially in the areas of powertrain, as Sogefi has two-thirds of its sales in the powertrain. We have here some headwinds, but we also have some tailwinds, and we are preparing a presentation on technology addressing this and showing the potential for Sogefi, the risks, but also the opportunities for Sogefi in the future. We have not yet set a date. As soon as we are ready, we will let you know with a date, which will enable with the information we give on this occasion to form an opinion on where the company is going.
Okay. Thank you very much.
The next question is from Martino De Ambroggi with Equita. Please go ahead, sir.
Good afternoon, everybody. Sorry to repeat the question, the line was extremely noisy when you were answering to the EUR 100 million of reduction in cost or at least the improvement in productivity you want to achieve. Knowing that part of this will be offset by inflation, price pressure, competitive offers, and so on, what could be the rough indication of what you expect to keep out of the EUR 100 million productivity potential you looked at?
Thank you, Martino. This is a very good question. The EUR 100 million we are referring to is the total productivity potential identified. Within this, our goal is to capture 60% of that in the next 3 to 5 years. Having said that, you are right. There are other factors such as inflation, price pressures, and other elements, which, of course, will impact the P&L. What is in the net for Sogefi? What we have communicated in previous meetings is that basically the contribution margin is a very important indicator for Sogefi. We had an erosion this year of the contribution margin due to the impact of the steel, although we were able to mitigate that to some extent. Net of this natural impact, our goal is to either maintain or increase year after year, the variable margin.
In the productivity potential, which is identified here, most of it goes to variable margin. As you've seen in the structure of our profitability levels, the other actions as far as direct costs, as far as competitive footprint from a geographic basis is not included in this EUR 100 million. These productivity actions are one of our tools, not the only one of our tools to keep either stable or slightly increasing the variable margin of Sogefi as we go year after year.
Okay, thank you. If I may, one more question on the guidance, because you stated the profitability should improve. I just wonder if you can clarify if the improvement is as a percentage of sales in absolute value, maintaining the same trend as it was in the first nine months, like for sales or what else? Just to have a better understanding of your guidance for the full year.
Our guidance is that we see a profitability which will be an order of magnitude in percentage, comparable with where we are at the end of the nine months. Order of magnitude. This will depend on different factors, including how we advance in the negotiation with the car manufacturers, for instance.
Okay. You are referring to the EBIT after or before, meaning adjusted before restructuring costs?
Full EBIT.
After.
Yeah. EBIT after, yeah.
Okay. One of your previous question was on the restructuring cost between 15 and 20. Actually, maybe it's my mistake, but I had in my notes this year a guidance between 10 and 15, maybe closer to 15 than 10. Am I wrong in something?
Yann, you want to give the number?
We are still shooting for something between 10 and 15.
Okay.
A bit closer to 15, but I don't think we'll get to that number.
Okay, very last. The sale of receivable in the nine months figure, and if you think to change the amount of sale of receivable for the guidance you provided for the full year. Thank you.
I'm not sure I understood the question. Could you clarify the question on the.
Yeah. Just the amount of sale of receivable or factoring that you had at the end of the nine months, and if you are planning to change this amount when you talk about EUR 270 million net debt position at year-end.
I expected that question from Monica, as you know.
Yeah. She didn't ask you.
Factoring for the first nine months of 2016, we increased factoring last year in the first nine months by EUR 1 million. It went up from EUR 89 million end of 2015 to EUR 90 million end of September. EUR 1 million of the cash generation was due to an increase in factoring last year. This year, on the same period, factoring went up from EUR 98.9, let's say EUR 99 million end of 2016 to EUR 104.7 end of September 2017. That's to say a EUR 5.8 million increase, which means that year-on-year, if you look at the cash generation we referred to, we said if we take out the one-offs we had last year in the first nine months, the profit was a EUR 30 million increase. Let's say EUR 4.8 million comes from an increase in factoring. No more.
We can assume this figure will be the same figure at the end of the year in your guidance.
Yes, we are shooting for a similar number.
Okay. Thank you very much.
Thank you. We'll take just one last question, if there is one.
The next question is from Roland Cohen with Value Holdings. Please go ahead, sir.
Yes, good afternoon to all from my side. Thank you for taking my question. Question is regarding the interest rates. Your financial expenses developed very nice, especially the cash interest you paid. Could you please remind us of the average interest rate you are paying this year, and how this will develop in the next two years? Do we have to calculate with roughly EUR 2 million less interest per year the next two years? Thanks a lot.
We know we still have an average interest rate, which is very high. This was mentioned in previous phone calls. This is largely due to the fact that a significant amount of our bank borrowings carry high interest rates, and it's difficult to exit them at present. Nonetheless, our interests should further increase next year and in the following years. Next year because some covers are going to drop halfway through the year. Then we'll have to wait till 2023 to see the costly borrowing expire. We still have a further improvement to come next year, you will have to wait till 2020 for the next significant improvement. The other improvements will come from the improvement in our NFP.
Thank you, Yann. Thank you very much to all participants. We are now closing this Sogefi nine months 2017 conference call. We thank you very much for your participation. Thank you to all. Bye-bye.