Elica SpA

MIL:ELC

Earnings Call Analysis

Company Faces Tough Market Dynamics, Holds Steady

The company navigated a tough environment in 2022, with industry-wide negative trends. Despite this, they managed a resilient performance, with net sales of EUR 473 million, a 13% organic fall year-on-year, while the EBIT margin was reduced by just 0.9 percentage points to 5.1%. A decline in the motor division offset by strong American market signals and inventory reduction. Regionally, gains were made in America with organic growth of 9.6%, driven by new customer projects for the motor division, and the brand's own distribution growth. Financially, the company remains sound with net profits of EUR 10 million and a stable EBITDA margin of 10.2%. Looking ahead, H1 2023 will be challenging, with demand expected to remain negative, but H2 shows promise for normalization and growth, particularly in cooking division sales with a forecasted revenue to be flat overall, as gains in cooking offset a small decline in motors.

Competitive Position and Market Dynamics

The company is focusing on deepening market shares in the cooking segment, which is integral due to their new complete product range. They aim to deploy a new brand strategy and introduce new OEM customers, evidently in the second half of the year. While the motor division has a longer time to market than cooking appliances, there's confidence in starting with pumps and realizing market share gains from the previous year. Cost management is also a focus area, ensuring efficiency without compromising long-term growth investments. Overall, they anticipate their net financial position will firmly support their strategic moves while maintaining their commitment to shareholder returns.

Performance Outlook

For the first half of the year, the company expects demand and price mix to be negative, while demand should be neutral and price mix negative in the second half. This is juxtaposed with a positive growth of 7% in the fourth quarter on a quarter-on-quarter basis. The inconsistency between previous growth and the expected decline is attributed to a struggling demand in quarter one and a normalization process forecasted for the latter half of the year. The second half of the year is also when the company anticipates benefiting from new product launches and market share gains realized in 2023. However, quarter four of last year saw a negative profitability trend despite an increase in revenues, driven by an aggressive pricing strategy and a strong year-on-year comparison due to a backlog from electronic delivery issues.

Revenue Guidance and Market Share Dynamics

The company projects flattish overall revenues for 2024, with growth anticipated in the second half of the cooking division and a slight year-on-year decline in the motor division. For motors, a drop of about 4% to 5% is expected, offset by a corresponding growth in cooking. The Cooking business, representing 70-80% of total sales, will face challenges in the first half but is projected to rebound later in the year. The competitive environment, particularly in Europe, has grown more aggressive, with average prices dropping significantly. In response, the company has implemented promotional strategies and product repositioning to safeguard market share and margins. This includes the introduction of less specified, lower-priced products to compete on the lower end of the sector.

Earnings Call Transcript 2023-Q4

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Elica Group Full Year 2023 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Giulio Cocci, CEO of Elica. Please go ahead, sir.

[Giulio Cocci, executive]

Thank you. Good afternoon, and thanks for joining our call. I will go quickly through the agenda. So we will comment the quarter 4 and the full year preliminary results, the industry trend, the dynamics that we see in our sales perimeters and the economical and financial results of a very challenging year. After that, we will make some comments on how we see the short and midterm of Elica in terms of priorities, in terms of opportunities, in terms of assets that we have been creating during this -- successful in our perspective years and that we will present the fundamental of our strategy in the incoming period.

If we start from the results, moving to Slide #3. A difficult year of a very difficult couple of years from a demand perspective. Negative industries, negative industry since the beginning of 2022, but moving double digits since the second half of 2022, which we have responded defending our market share. But for sure, suffering from the sales perspective, a very high promotional activity and very low demand and the indirect effect of high rate slowdown in the real estate sector and reduced consumer purchasing power.

For the motor division. In the second half of this year after a growth that started from since the acquisition of EMC in June 2021, the sector follow the same dynamics. So despite our division has been performing better than the market in the second part of the year, that growing contribution stopped to our revenues. In this environment, our net sales was EUR 473 million with a fall of 13% organically year-on-year. Our EBIT margin arrived to 5.1%, meaning that we have been able, despite a 13% sales to reduce our EBIT margin loss to 0.9 percentage points. So a very important resilience from our company. EBITDA figures are more or less in line year-on-year. So our variable -- our cost base line is absolutely variable. We have been protecting our margin through a very efficient management and through the execution of all of those projects that we have been commenting during this period.

So more flexible for the production footprint in Europe, in the complexity project for which we have strongly reduced the direct and indirect cost of our product offer, without impacting in the level of service to our customers. And also, a stronger resulting from -- in OpEx and an organizational point of view. This focus on the cost, this capability to manage the financial resources allowed us to close the year with a net financial position of EUR 41 million with the leverage that remains fully under control and is still there to support the next year's strategic investments and the shareholders' return.

If we move to Slide #4, with a focus on quarter 4, most of the dynamics that we saw on the revenue side remains the same. The good thing is that we see a sequential improvement versus the previous quarter, but also a positive signal from North America, from OEM perspective but mostly from an own-brand perspective where the distribution actions that we have been implementing in the second half of the year, are starting to deliver. EBIT margin was impacted by a promotional environment that was even stronger with very low product mix and very high price competition. At the same time, we invested the net financial position, we need a strong inventory reduction, reducing in 3 months of almost EUR 20 million. So basically, the 20%, the value of our inventories versus the previous quarter.

[Stefania Santarelli, executive]

Good afternoon to everybody. Going forward to the section of industry trend, Slide #6. This is a scenario for the market that allows related to this European market. [indiscernible] doesn't change. The quarter 4 was minus 7% that it's compared, it seems that there is light improvement versus the last quarter for Q3 was minus 10%. But it's also true that the minus 7% is comparable to the quarter 4 2022, that was very strong negative double digit negative, minus 12%. Overall, [indiscernible] market [indiscernible] is an estimation of minus 9%. So 2 positive years of negative demand. 2022 was minus 8% 2023, minus 9%.

If you go towards the Slide #10, you have the trend of the market out of the last 10 years. The source is GSK and is related to the European market, excluding the Russia market. As you can see in the full year 2023, we came back in terms of units to the same size of the 2015. The last 2 years, with a negative impact has been neutralized to the growth that we see -- we saw in 2021 and also in the previous year.

And if you go to Slide #8, you can see how much is the pressure on promotional activity. Here, you have the trend of the recommended retail price for foods and aspiration hubs. Both of them are negative. If you go to the aspiration hub since the 2022, they recommended a price started to have an erosion price. When the last quarter, there is an acceleration of this trend and this will drive the negative price mix of the market.

Going forward to Slide #9. Here, you have the destination of the [indiscernible] for market related to North America. The source are the downtown and we are gathering from [ ehi ] and [indiscernible] hasn't changed since double-digit negative demand. Overall, the full year 2023 is minus [ 21 ].

Moving now to the [indiscernible] acquisition for [ Motors ] and we are already shown during the last quarter that starting from the Q2, the demand for the heating segment see a fall down of the demand and the Q3 and Q4 is the same scenario. [indiscernible] relative versus the Q1 for double-digit percentage. And this is due to the assessment of revaluation on the stock of incentive that -- and also a top major reaction from the segment.

Going now to the sales dynamic for Elica Group. Slide #12. Overall, where we saw the Q4 was minus [ 12.7% ] versus last year, with a slight improvement as of the last quarter, Q3 versus Q3 of 2022 was minus [ 18% ] and the current quarter is minus [ 12% ]. So we see a slight improvement quarter-on-quarter. And this is driven by [indiscernible] from the performance of the American region that came positive and also the business that finally, after several consecutive quarter, finally positive comparative to the previous one. Overall, full year minus 75 million vessels the last year with a full down of 15.7%.

Going through the dynamics in terms of regional. Slide #13. The quarter 4. Finally, as I anticipated, we saw America positive as of the last quarter, organic plus 9.6%. And it is due partially for the UM customer for the [indiscernible] new customer projects but also then the contribution of our brand for the direct control of some China distribution and the activation of the two new distribute one for the [indiscernible] appliance that is a company that we created, in partnership with [indiscernible] and also the acquisition of our former distributor for Canada.

Moving to Slide #14. Here, we have the performance between the 2 division, Motor and Cooking. For Motor, minus 22% versus the last year improved versus last quarter because of the Q3 was the worst quarter for Motor because it was minus [ 30% ]. So there is an improvement. For cooking, minus 10%, 7% story that is aligned with the market trend. Overall, full year, if we move to the part for the full year, Motor division is minus 14.6%. So in terms, it's better than the market because we saw that the market for the heating in the last 3 quarters was minus [ EUR 13 million ].

So this is back due to the fact that we gained market share to the traditional customer for the heating segment and also take the fact that we gained a new customers for the [indiscernible]. Cooking overall, minus 12% versus last year. In term of performance between brand for the Cooking division, as anticipated, in Q4, we finally saw the UM business that after several negative quarters, changed the design of plus to 78% versus the last year. For the own brand, the comparison versus the last year is a fall down of 30.1%. So was than the last quarter, but it is explained by the fact that the last quarter, the Q4 of the 2022 was the best performer for the -- our brand because there was the recovery of the backlog of some products like aspiration hubs. If we compare the performance of our brand for this quarter to the previous quarter, there is improving of 6%.

Moving to the financial part, the P&L. Full year with EUR 473 million of net sales from minus despite a drop of the sales on EUR 75 million, we were able to defend our margin. In terms of EBITDA margin, it's the same, 10.2% versus the last year, it's the same. Thank you to the ability of reaction of flexibility of our footprint, the activity done on cost account give us the possibility to set partially the loss of the turnover and the margin. In terms of EBIT margin, we are right to reach 5.1%. We are below 90 basis points versus the last year. I think the group net profit, we have a result of EUR 10 million of group net profit. So compared to the 2020 -- 2018, well, we have the same turnover of the current year. have completely different group network because in that year, the group net profit was negative despite this year is positive.

Moving to Slide #18. This is a confirmation that our ability and our speed at will execute the execution because what happened considering the trend of the demand and consider the turnover, we put in place a stronger uptime reduction. In Q4, we were able to reduce versus the Q3, EUR 30 million inventory. We moved for EUR 110 million of stock inventory in September in the last Q3, and we closed the year with EUR 91 million of inventories and the same we did for the CapEx.

So the level of CapEx for the 2023 is EUR 16 million equal to 3.4% on net sales. And without compromising any kind of projects useful for our growth, we did CapEx we support the development of our heat pump's using in line. The aspiration hub [indiscernible] from Mexico, the industrial hub [indiscernible] for Poland. So without we penalize any kind of projects that will be useful for our growth for the next year. And we if we compare also what's happened in the plant as compared to the previous year, you can see that in 2016 and 2018, with the same level of turnover, we had a complete picture of CapEx, the double of the capital case the current year. And this is what's useful also to reach our closing in terms of financial position, net financial position of EUR 41 million with all under control, we proved the rest of the last quarter because the last quarter were versus 47%. So despite a tough Q4, we were able to improve our net financial position.

And despite also around EUR 60 million of cash out related to the last tranche for the European manufacturing footprint location, the last tranche for the M&A acquisition of our Motor division, the investment on was set with the buyback and the remuneration of our shareholders. I leave the stage to Giulio for the closing remarks.

[Giulio Cocci, executive]

Okay. So let's talk about the future, but starting commenting very, very briefly in the past. The last 3 years, despite on the right side of the Slide 21, you see all the things that happened, so geopolitical tension, monetary policies, inventory problem, delivery problem, separated market. All the things that you know that we do our plan was a profitability focus plan.

The complexity, European footprint relocation, resizing -- we established the profitability in China but also some specific action on the working capital management that allow us also to defend our net financial position. The focus was to give Elica debt profitability lever that the company didn't that have in the past. The market was strongly negative, but this allowed us to depend what we have been eating in the time.

If we move to Slide 22, we will send three seconds [indiscernible]. The results of the 3 years are margin this company didn't never see in the past. Moreover, what we delivered was the company debt with EUR 470 million net sales create a profit that allows the company to invest on the company's sales and to give a proper remuneration to the shareholder. 5 years before with the same level of revenue, this company was losing money.

Now the big achievement of these 3 years has been in our perspective. Also, all of the weapons that we have created, that will be the base line of the development of the company. We have a large product offer entering this segment. We will be launching a lot of using [indiscernible] but also a new complete cooking range that we have, I would say, softly started to distribute during 2023 because it was too early because the market was strongly negative, because we were building a brand strategy behind the specific products. We have -- we are ready because we have invested, tested then we have the obligation to produce the election systems for its past since December last year.

So this year, in the second part of the year, we will start entering a business where we see all the opportunities. Same for what concern [indiscernible] same because if we know that the real opportunity will be, let's say not before 2025, this is already creating value proposition from our side that is allowing us to grow inside new customers, and all customers where we didn't have the majority of the shares. We have invested intelligently in widening our distribution network in North America, where we see a big opportunity than to our presence in Mexico, thanks to the fact that we are the only one producer of induction, activation, but also cooking induction in North America.

We have created a different company, together with [indiscernible] in Florida that serve the Southeast part of the U.S. We have created -- acquired a small distributor in Canada because, again, we see the opportunity, and we want to put the foot on the ground so to be among the priorities of our distribution in North America. Same for what concerned EMC, but you know the story very well. We have deployed and we are ready to shout a communication and brand strategy that will be the late motive over the next, let's say, 2 to 3 years, that will change the perspective of Elica, less, let's say, [indiscernible] becoming more and more cooking. This thing is cooking, not luxury, not cheap, but distinctive. This is a big investment. This is a big step forward in our company that will be deployed at its best using the year of [indiscernible] represents really a key point of our cooking strategy in the next year.

If you move to Slide 24, the sponsorship with Ducati Corse goes exactly in this direction. Ducati is Italian, it's also a bit German that talking about the client is always something precious. That is design, beautiful, it's performance but is also a company with the solid roots to the place where it belongs. It is exactly the method that we want to pass to our customers, to the millions of opportunities that we will have communicating together with Ducati around the world.

It's an important investment. It's an investment also in the logic in the strategy, the [indiscernible] but that for us represents, let's say, the first step of a period in which our focus will be supporting our growth, supporting our brands, supporting our products, supporting our sales and supporting our customers. But this is the only way that we know to grow.

If you move to the following slide, this is a first snapshot because it's very difficult to make forecast at this stage of the year and after 2 years in which have been -- we said it already in 2024. We see a moment that will be for sure negative in H1 for two main reasons. The scenario didn't change so far. And also, especially for one concern, the model division, we have to wait till June to have a normalization of the market because there will be a [indiscernible] of what started to have in [indiscernible]. H2 will remain neutral. What is happening to the interest rate, what may happen to the economy may bring to a normalization of the market. So this is the scenario that we are taking into consideration to understand automotive.

Price mix. This is sure will be negative. You see that the good volumes sold in 2023 at the same for 2016. So in this moment, there is a kind of food fight. We see the major players of the sector that are destroying some prices that were considered very high range up to the end of 2022. Here, we have three actions. The first one is to respond for some lines because we don't want to lose market share in this moment. The second one is to ask through product modification. So create and we are doing it a new range, especially in the escalation [indiscernible] with less specification that allow us to be more competitive without losing our margins in the very low end of this segment. The third action is the communication. It's becoming a brand. It's becoming a [indiscernible]. That means being different. Otherwise, what matters is the price.

Inflation we see a positive combination between labor cost inflection that, as you know, is hitting hard in those geographies where we have the majority of our production, meaning Poland for Europe and Mexico for North America. But on the other side, we see opportunities from a raw material and component perspective. So the balance of the two will bring [ settle ] to the company. Well, we will be carrying on during the year will be strategic investments to support our growth, to support our cooking transformation. To increase the awareness on the Elica brand, to increase the face support. Also, to sell launch, explain our new products. Low in the beautiful products, we will sell it at EUR 6,000, but it needs to be explained.

It needs to be shown on the display. It needs to be understood by our customers that the kitchen maker before they sell the product to the final customers because you don't buy EUR 6,000 product on internet. You need to see it, you need to touch, you need to try it. So this will be again a year in which we will create the awareness, the confidence, the trust over the brand that will allow us in the second part of the year, to see the beneficial effect of the new products that we are putting on the market and from that on -- from that moment on to grow tax to new products. Also, hopefully, counting on the market the staff bet to show positive signals.

So just to close this past, Slide #26 is the summary of what has just been anticipating. Our priorities are depend and then raw market shares on cooking is the same thing because this is key of our new complete product range, is to deploy our new brand strategy and also because we are winning this to phasing, and this will happen and will be visible in the second part of the year, new OEM customers. Motor priorities are clear, Motor has a time to market it. 3x, the time to market of the cooking appliances. So we know that we are ready to start with the pumps.

We know that we gained market share during last year, and we will see the benefit, we see even in a segmenting market, we now the opportunity to grow and [indiscernible] us. We are very good in managing costs. So we will continue to focus on efficiencies. But again, without compromising this long-term growth investments because this is a [indiscernible]. We imagine our net financial position to be fully under control to support where there is a possibility to make the cooking, I would say, more hours.

Keeping the focus, maintaining coherence with what we said, what we committed on granting our shareholders. Thank you.

[Operator]

[Operator Instructions] The first question is from Emanuele Negri with Mediobanca.

[Emanuele Negri, analyst]

Yes. I have a couple of questions on the outlook and then another one on the fourth quarter results. The first on the outlook. You've said that demand and price mix will be negative in the first half while demand should be neutral in the second half and negative in price/mix. However, when you look at fourth quarter results, they were positive plus 7% quarter-on-quarter. How can you explain this? I mean, you have a growth in the last quarter and then you expect decline in the quarter side? The second one is on the business unit for the outlook. Is it fair to assume that probably in the second half, the Cooking will be positive year-on-year after kind of challenging first half? And then the last one is on profitability for the last quarter of this year. You've shared a negative profitability trend in the last quarter, quarter-on-quarter, while revenues were up. What happened on profitability to have this decline?

[Giulio Cocci, executive]

Thank you for your question. So demand, we have a visibility on the first quarter for which we see the demand is still struggling. The full didn't stop yet we imagine for the first half of the year, this we are forecasting also to understand better how to manage our numbers, a demand that will not show any positive sign. We imagine at the same time that the second half of the year will be in line with last year because how can I say? It is difficult to imagine the demand going worse for Cooking but at the same time also for Motors.

Now we have seen that invest from Motors in quarter 3 that was dramatic minus [ 30, ] but there was a big part of the stocking in that figure. Quarter 4 that was in the region of minus 25, if I'm not wrong, we see quarter 1, which is in the region of minus 20. So it's not a trend and indicated it won't be -- I wouldn't be happy with that. But we imagine a normalization where, at least, the carryover of last year ends up when the mess started in 2023.

So second half plan. Nothing which we will see year-on-year the beneficial effect of starting the production and the commercialization of the ventilation system for heat pumps and also the effect of the market shares that we have been gaining during 2023 that allowed us to take full less than the reference market. For cooking, dynamics are similar, but are mainly driven from price mix. So we are talking more about volume, some value than price. As Stefania showed, there is a strong competition, which we need to respond on the other side, and this will go on through all of the year.

What we see is that growing our revenues in the second part of the year comparing to this year is the effect of new products, is the full effect of the distribution strategy that we have implemented in North America, is the effect of the new OEM that we have been acquiring during 2023, and that we will start facing products in the second part of 2024. So the sum of this will allow us on a near base with, I would say, a flattish revenue year-on-year, but with a growing second part of the year.

Your second -- third question was on the quarter 4 margin. I would say the key driver of quarter 4 margin has been price mix. The pricing has been even more aggressive than in the first half of the year and also especially comparing the quarter 4 performance '23 with the same period of '22. This sales of aspiration hubs were strongly impacted by the fact that in 2022 in the second part of the year, we were closing a lot of backlog coming from the problems in electronic delivery in the first -- say, in the central part of the year.

So the comparison year-on-year is for sure, affected by the aspiration of mix at the end of 2022 was a lot stronger. Also always talking about aspiration hubs. By the fact that to defend our share, especially from a very aggressive rising from, I would say, some big names in the appliances sector, of course, we had to respond.

[Operator]

The next question is from Alessandro Cecchini with Equita.

[Alessandro Cecchini, analyst]

The first one is actually in terms of your previous comments on potential, I mean, very volatile about potential guidance in terms of top line for 2024. If I understood correctly, basically, we are basically expecting for the year flattish Cooking business that is roughly 75% -- more than 70% or close to 80% of total sales, while Motors probably are still on a year basis down. Just if you can elaborate this.

Secondly, if you could explain, so you correctly said that the change in demand has not changed over the last 3 months but it seems to me that the competitive environment seems a little bit worse. So just if you can elaborate on this. And all on the U.S. that you executed very, very well in the fourth quarter, we did plus 9.6%. If you could, I mean, split between the impact of new customers and new distributors adjusted to have an idea. And finally, if you could have a view on CapEx for the next year. Next year, I mean 2024.

[Giulio Cocci, executive]

Thank you, Alessandro. So revenue guidance was probably not clear. We imagine an overall flattish revenues, made up growth in the second part of the year in the Cooking division and a Motor division where there are two main phenomenon. The first part of the year, we will carry over the negative side of the market that we experienced starting from quarter 3 2023. In the second part of the year, we will set forecast the new products and market share. Not so growing, staffing growth because the potential is usually more in the heat pump sector and also the market share that we got into [indiscernible] buy land into real also into many customers that we have been approaching and EBITDA work together.

So Motor division will -- we imagine a small drop at the end of the year, year-on-year in the region of, I would say, 4% to 5%. Recovered by growth in Cooking more or less in the same region. Overall flat revenues year-on-year. For what instead concerned the competitive environment. It's -- as we mentioned before, from size, let's say, David, the macroeconomical factors are affecting the demand, and that's a fact. On the other side, mainly in Europe because we will discuss in a different way in America because that is an issue in the short, huge opportunity in the midterm. Mainly in Europe, there, I can say, it could [indiscernible] probably mentioned before.

So I like the solution, mainly is especially on the [ acceleration ] of segment being with very, very much aggressive especially in some countries like France or Italy, where a big part of our revenues are [indiscernible]. Being aggressive means that from a side, they are getting market share. On the other side, an average price of EUR 2,500 at the beginning of 2022 is now in [indiscernible]. So a lot. How are we reacting? We are reacting through promo through repositioning our products where we see that the promotion is working. So the right price is the new one and not the old one.

We are reacting to projects. So creating some less specificated products that was left to us that we can sell to a lower price to our customers depending our margin. This is the so-called [indiscernible] zero. So in line, there is, let's say, attacking the low side of the segment where from a size, some, let's say, respect [indiscernible] is entering to price, but there are also backlog, for example, that is entering through spec low specificated products made in that with a very aggressive price. The mentality is the -- how can I say, the big retail mentality.

So 999 instead of 1,000, just to be clear. This is for sure focus. This is the main reason why we estimate a year in which the pricing will be strongly under pressure. Different discussion for what concerned the United States. Of course, just to close this point in Europe, what you need to be more dependent. Otherwise, it becomes a pure price side. So somebody will die at the end. And we see that despite pricing policy, draining resources from some of our competitors, less on the Stock Exchange like we have, so and so with visible numbers.

There are two things. The first one is the brand identity. So it's not making the buffer not only on price but also on the unicity of the brand. The second is playing with product mix. That means Cooking, that means oven, that means not being on the leader in aspiration but adding a full cooking range allows us to push up the mid to defend our share. And also to be more aggressive, without losing too much margin in our offers. Because one thing is to play with 5 appliances and say, if you buy 5, I give you one for free, and one want to give more appliance. I cannot give you that one for free. So in this perspective, the investment of Cooking and the perspective of promoting our Cooking range in a future perspective in the midterm perspective, in a 3-year perspective.

Going back to the U.S., different dynamics. Here, we see big opportunities in our distribution because our two companies as well as the distributors that we are already working with do not only sell Elica, that is a premium brand in the U.S. But it's also focused on [indiscernible]. They sell Elica [indiscernible] and some other products. So it's a range that is attractive for their own customers, which are in the shops, okay? So that is working. And being those two companies, let's say, oh by edge, [indiscernible] Elica, anyway. So we know that the first thing that they would try to say is our products.

The evidence is that in a negative market, basically, our performance year-on-year is flat. So the plan is working. The second opportunity that in the short term is an issue is the fact that our OEM customers are becoming weak in the, I would say, the value of the market in the medium-range cooker hoods. They sell with their own brand produced by Elica in Mexico in the big distribution [indiscernible] so the big guys of the U.S. [indiscernible]. Their play in this segment is being taken by unbranded products both in China, branded and [indiscernible] in some cases, and sold were jumping one set of margin.

This, in the short term, in their revenues and consequently, our volumes under pressure, but it's giving us the opportunity to go directly with these customers. It was a winning project, the one we ended with one and it's [indiscernible] reason why OEM North America in the last part of the year is going. But now the idea, the plan because we already hired a salesman and we are starting to discuss the [indiscernible] with them is to answer with [indiscernible] which is a brand that we had in U.S. and that we never used. But that will be our brand to enter directly in the big distribution.

So jumping a step of margin by maintaining our competitiveness and margin, without affecting new food strategy or our customer strategy because they have already left, I would say, that part of the market. So we take that those volumes going back. This is a project, this is an opportunity that will start to deliver revenues not before 2025, of course, because this will be the year of implementation.

[Alessandro Cecchini, analyst]

And about CapEx?

[Stefania Santarelli, executive]

About CapEx for the next year. We keep the same level of the current year and around EUR 17 million with our [indiscernible] that is 3.5% versus turnover. And as Giulio said, part of our CapEx is dedicated to the product that just Giulio said before to counter stack from China where the [indiscernible] and all of the CapEx will be addressed to our project growth. So same level of this [indiscernible] of the current year, I believe a in that in communication, in market leader, in our brand and strategies and that's it.

[Operator]

The next question is from. Carlo Maritano with Intermonte.

[Carlo Maritano, analyst]

I just have one question. It's a clarification on the profitability outlook given that there are a lot of moving parts. So you will have a negative price mix and increasing efforts in communication while on the other side, you will have benefit from a decrease in raw materials. So I was wondering if you think that to maintain the profitability of this year could be possible? Or if you expect slighter [indiscernible] in 2024?

[Giulio Cocci, executive]

So organically, I'll go straight on this. Organically, in 3 years time, we see the opportunity to go say, co-moderate without any problem above the EUR 500 million revenues with margin in line, if not better than the one we delivered in the last 2 years. 2024 will be a near reinvestment. So the focus will be getting the things done in order to grow starting from the second part, but mainly between 2025 and 2026.

So we do not expect to keep the same margin of 2024. On the other side, just to be absolutely prepared, [indiscernible] test is the one of the internet, meaning that 2024 is the year in which we will exit. It's a contract that is official. So our Indian joint venture, where we still see to it a 6.8% share. This will deliver us the part of the resources that will allow us from, let's say, a bottom line of our profit and loss, enough resources to defend our net profit and to defend our finances, of course.

So having the resources, this is the year in which I don't have to watch only to the operating margin line, even if I lose my bonds, okay? I need to see all the resources that without impacting to my holders, I can invest in order to start defending my growth strategy. And this I will be doing. Then if in the second part of the year for the interest rates, for the real estate market, for a bit of [indiscernible] that sometimes has the market step back to grow, of course, I will have more reduces, let's say, to defend my margin compared to the previous year.

But I would say that now the priority is back on the mid half in 2025 and 2026, where I know where I have to get and I know like it was for the old plan. It was a plan based on projects, what I have to do to arrive there from a product perspective, from a brand perspective, from an implementation also of a sales strategy and base approach. But basically, what they have to do and unfortunately, also how much it cost.

[Operator]

The next question is a follow-up from Emanuele Negri with Mediobanca.

[Emanuele Negri, analyst]

Yes. Sorry, just a quick follow-up. On the net financial expenses, they grew from EUR 1.5 million to EUR 6.4 million this year. In the press release, you mentioned that the main reason is from ForEx. Can you please split these financial expenses between ForEx and let's say, pure net financial expenses.

[Stefania Santarelli, executive]

Thank you, Emanuele. Yes, relating to the current year for the EUR 6.4 million of net financial expenses. EUR 0.7 relating to the ForEx. But compared to last year, there is a loss of EUR 2 million because the last year, we have a benefit effect on the [indiscernible]. So consider that the EUR 0.7 million are related to the ForEx, the remain part related to the financial items for -- so relating today, you know that in terms of financial costs, our debt of EUR 18 million are already for 20% term loan with an impact for the full year, around EUR 1 million. In the 80% of the -- of our debt are related to midterm debt, related to the [indiscernible] deal and then that is covered with a fixed rate of 1.2%.

But the overall, the cost for the mid-term policies that it's around EUR 3 million. So EUR 3 million for the midterm loss, EUR 1 million for the short-term loan and the rest is mainly related to the FX effect that is.

[Operator]

Mr. Cocci, there are no more questions registered at this time.

[Giulio Cocci, executive]

Thank you. So thanks a lot for joining our call. Just as an anticipation, we are present, we will be present [indiscernible] and we will also organize again investing on ourselves, investing on our brand is [indiscernible].

We will get the opportunity like we did in 2022 to organize also a strategy update at the beginning of the period. So in the next weeks, we will start to plan the event and send the relevant information to any [ occasion ]. Until that, thanks

and see you soon. Bye-bye.

[Stefania Santarelli, executive]

Bye.