Q2 2022 Marel hf Earnings Call
Good morning, and welcome to our second quarter Investor meeting at Broadcasting live from our headquarters in Iceland at My name is Dana Mosby and I would watch right. Today's meeting I'm I'm of course joined by CEO of notice all of a sudden and C. O Olympians, who will go over the financial results.
And the revised EBIT and guidance on some key business highlights.
And Stacy Cox, our CFO had a beautiful baby girl in May and she will be joining us here for Q3 and and November .
Having settled that no of course, we will of course, then conclude with Q&A.
And if you'd like to ask a question. Please do so via the conference call or you can email us at IR <unk> com.
Having said that I would like to hand over to note that all of them.
T O.
Yeah good morning.
Welcome to the Soco Cop 22.
Or sort of mix this time.
We are having on one of them got track off the author in tech, even though we raised prices very actively in.
In March in April .
Pick any cough a year right.
Do you think that prices there.
Our strong strong problem passes Sean our pioneering solo show a bee harvester sold mutual support the market.
However, it's awesome.
Well into the power of hindsight it shows how late last year.
We call it operating profits this type.
It's unacceptable that is expressed in profits.
And the EBIT you have taking all the actions to improve the profitability going forward.
However, it's also about the mixture of course costs on popcorn in this cost.
We have been very proactive.
We can cross affordable Euro.
In Europe the same.
Our marketing activities, our sales force our service force all in all regions.
This is costing short ton off our sales and marketing cost to support the person you.
We'll see immediate lowering costs sales and marketing cost in the coming quarters.
Wherever we would never have Anne gates, so well with customers out in the field.
You see a cooling tower market posture on current Inc.
The person service revenue service and software revenue stuff is very very valuable comic it.
472, and order intake is skyrocketing in pulse, that's pretty clear and it fits us about why let's talk in.
In meat.
We are in place and ran environment, we are talking a lot about sustainability as well our customers are clearly shifting dynamic in instead of fighting the golf wingard into all three put them stop puppies Havent got a more favorable Congress Yep, Alright, Joe Albi etcetera etcetera.
We are in portfolio Monosomic, Goswell and modest we moved into even though we have hopper I only from towards the 16 into the acquisition of whole Vanguards pop.
Based on their own.
I'm talking about the.
The pet food market is a very lucrative.
Maybe surprisingly also about how much complementary product portfolio, we have there so we our policy counts and.
And we all need to have this at the point toward the plate the.
Proteins and now you have the full audit.
So, let's dive into us well, where we were.
Per watt it was same some marketing the blocks fell on their side that they may be you believe it's strange when we saw better be better uptick in the cross Matson and we've decided to block in possibly meet the pace and the trade shows.
Are more straight our leadership in the interest.
We have not been meeting so actively our customers and recent cool, yes U S.
The two meet them explain all our pilot so lucia and displaying track these six new solutions.
We have been having continuous innovation I'm very proud to see how much we are pumping out despite the hot some disruption in the pandemic 56 new solution.
I'm, even proud to be at a profit level not couple Buck in the Asia.
Then you'll know.
There's a question about the global soccer team missing.
Missing Pax or availability of Pax East East a big market here.
However, I do want to blame it on the global soft retain all of them.
Every single company not only our customers ask you see in the order intake by us need to invest need to change the flow of the plaques in their business.
We decided to move part of it in this cost split think there'd be at houses for monopod drink on spare parts in USA.
Locked is approximately two all of those infrastructure projects.
<unk> person non recurring however, we don't want to classify it, especially in our comps because we will be sailing the boat until.
In the next quarters on repairing the bolt at the same time aren't even finishing up the same type.
So there is some nonrecurring element there. So good cost is approximately three to four person in this class.
We are moving forward proactively.
Yeah.
If you then go a little bit here, sorry, I flipped to two slides. Some coal here then in the operational profit and then I will go back to the interest.
However.
We are not not always proactive I'm not like I say in the pricing we were too reactive.
Last year Bob.
Pops in the power of the handset, we see you, but clearly we see us well when we go to fair prices I'm, not saying that we're calling over pricing.
Prices by Oximeter raise ticket and beginning this year.
The authentic accelerates.
So clearly we should have done it six nine months earlier.
We have changed the game, but towards the half pressure in this cockpit coffee are reporting now.
There are I mean ability of past Iraq pink possible. The volume onto you may be youre surprised when you see all this increase double digit high double digit increase in revenue stuff beyond satisfied.
If you compare the book to Bill on THAAD order and pick up the revenues.
You could assume that on average we have it.
We said three to four quarters in order intake.
So that should be all of our revenue base.
So we are missing around 20 million in revenues in this cross said about Cogs, but it's when you have resource thoughts you can't fix it.
You'll never never cover your fixed cost, but the fixed variable cost to yourself, well and its very very sensitive and you don't cover.
Some of it is out of our control, even though it's a great shock clients. They missed the beat and we have quite extensive.
Yeah.
Poorly opinion.
Cutback Ya man, but this missing one up to see him comps wall screens 40 Liberty.
We have seen some easing here in the market.
We are not yet out of the woods.
We are having swat teams or our own suppliers and we are seeing like half of them.
Showing much more visibility into levering in the coming quarters.
Let's go through the industry mix.
Starting with upholstery.
Austria's clearly.
Seating in order intake than we expected last year.
On the pipeline is good gosh, well there are various resource forbath, but the main reason is the convenience.
People off if not English new want their son, and especially if we talk a recession scenario.
Going to tighten anymore, we all knew.
Contact with it with tiny game in the pandemic.
The first thing people do is tiny game.
As well to re suites.
Sweet spots in the Proteus and it's convenient it's if this off for Copel and it's sustainable.
11 per steep it is clearly below where we are used to a very very convinced that we will see a karate I'll wrap up now we have within our muscle memory, we harvested how to do with standardization modular space on these very high impulse III and while we are pocketing peak capacity.
Recurring revenue was 26 four.
For total model, we are pretty much higher number in poultry and we will be back on track in 18 pets at the EBIT impulse treat a may be the nice thing for the industry mix is upholstery will Pete Pete got a piece of the cake gunby.
We previously expected and backend till 'twenty three.
Moving then on the left side in the pits intercity.
We are seeing this year order intake at a level that we are having not seen people conveniently.
On pets consciousness East there Anthony.
We should not Bluff ourself, there is not impart of Russia on pace Susquehanna.
Iceland, Scotland, Norway is equal in size.
Russia.
So there is some investment needs, but solomont historically played back yet sushi its on the plate again, there is a lot of Panamax did the operating cost has been very high in pace compared to gross profit. We said we are not going to give this in we will see authentic increasing however.
Now we are as well, taking some oxygen to streamline out duplication of cost and back office space and in the reach of <unk> business Division. So we it's a pretty deep pretty.
They cleared a path in place on how we will recover the pit.
In the meat segment. Unfortunately, we are out here below.
Seattle and in EBIT, we are below our expectation clearly as well.
We need to take actions, that's pretty pretty clear.
We are harming the largest installed base and in the pork industry in the prime rib pork you out at all in the papers.
The bottlenecks in the pork industry, we need to get the seamless flow, we need to work closer with our customers and they live with because we have the best solution.
However, in our environment now in the inflation Ryan vitamin.
Mint Beep mint meet its on the plate.
We hopped popular solution.
I'm not satisfied with their sales numbers in this quarter.
We have the solution part clean ratio traceability food safety etcetera, etcetera, how we meet their customer centricity and we need to deliver to Seattle. This the sales of the profits in the meat like in the other industry.
To highlight next quarter, we will have the fourth pillar.
To give you the pro forma numbers in wanger in Europe , It's 45 million euros in revenues Apple port capacity.
Just the four P P a.
Let's go on later this is unusual how long before you go on a go.
Oh into details in the financial partner.
We discussed that the EBIT rates should be early on in this meeting.
It's nice to see the 6% EBIT.
We are here in the same boat.
Employees team Seattle this many of us thought us well Seattle This <unk>.
<unk> deep it is unacceptable, even though I describe at good cost decreased two 4%.
We took immediate actions to reduce the workforce by 5% basically made sort of the already executed on the recipe for yearend.
I've got a lot of the Presto from analyst bought my best.
The investors.
How are you going to ramp up revenues, but if Houston co workers.
Same question on Tesla St Crystal gets put multiple company get the same christa.
Microsoft However, we have to bear in mind that changed in the plough wind recent years.
We have been built out.
Oh, it infrastructure ultimately reach US and then the business Division, we have built up shared services in Poland.
We are when you are in that journey builder duplication of resources. We are doing this in a structured way.
To give you insight into non processual, how solid it costs us a patch synthesis of revenues were 41% in first quarter we.
We have a clear clear view or taking back below 36%.
By increasing the volume increasing the prices on lowering the cost.
If these higher of course, EBIT, but Oscar Val it's more resellers this in businesses.
The cost of the middleman Smith is not only salary cost.
By hiring at Lee net we get back that back.
The construct of this question on this issue one five per cent will fit in here and be poorly poorly they support impulse crafted and next year.
We have taken a more stable price increases this year, but note the pain, we believe based on value based pricing coffee, a fair price and as well it sounds like our customers believe it in conversation on in authentic.
That will pick up three 2% in increased EBIT.
Non FX nearly washed in lush costa only pure tastes and short of it. It takes eight weeks for service to filtering. It takes six months for stunt that their coupon to Hilton on 12 months what project. So this will pivoted now in.
That may be you are.
Surprised to see price again here is our price cost.
We have not yet done the value based pricing.
On our unique protocols Jarvis on software offering we have introduced 26, new protos here in the market.
Value based pricing keeps us well, we have been co creating close appropriate we are now co creating the service pockets is onshore, which pockets and we have quite a lot to seek care.
But it's price cost, it's not only price.
At this leak, it's in all companies the freight leak at a discount.
Discounts.
Our customer not necessarily paying callers, what we have all agreed not due to willingness. It's due to disciplined that we are increasing now in our operation. We have been analyzing those thinks with Mckinsey now four to eight weeks, we have beat pill count streams plants to get this on here if you show up.
Three buckets, where we are getting it.
OPEC opec's productivity on Backfisch C&C, she has shortlisted in Poland dimension.
However.
Sales and marketing cost 42 to 212 Purser anthology M pay is up 7.5% there'll be a clear target to go below 6% there.
You could task now are we topple conflict peak of cost reduction is lower than the opex that opec's takeout. This here as well no. We are not vehicles to take S. GMP protect he want to 18% with volume with price and cost takeout. So we are not toppled coffee kept its two person.
Come again.
Straight forward to get the sense of market the cost from 14% to 12%.
Revenue ramp up maybe not the right word it's revenue ramp up compared to order book and bottle I think resources against the revenue. So so here are three persons in.
Im missing.
Missing 12 person E E.
Revenues in last quarter, Aesop, well, Michigan 12 million EBIT when you do it with so short northeast. However, here, we see efficiency coming in and we took out.
Very difficult this is sean to take out 5% of the workforce.
It is not an easy one and we are working with the people here.
Going forward, we are having 9% to 11% turnover rate per year, Munich, 15 personnel turnover rate until end of next year.
We are going to increase people less from the revenue increase we need as well to be in portfolio management on all protos and our people.
Throughout this the skilled requirements odd, but we still meet filter sensing this you still need to show.
More showed a bit softer people etcetera etcetera.
Even though it's difficult decision to reduce 5%.
95% of our people are with us it's a people business.
But we are in here in model to what our customers on Palo Alto.
We put a contingency in the plan.
I saw some analysts say may be the monistat. This loosing the comfort this.
The pet pinned it be at hunk, 16% EBIT target internally and modest.
Experience has shown in a volatile market et cetera, we have to have contingency.
Well, we were missing the eating meat, but however, this is separate from six person missing the beat in in meat meat onto harming more order intake in poultry has up.
The flipside saucer out we will have bigger propulsion proposed street, we will be critically two eight and push the deepest impulse III gradually conflicted pet and coffee that's all the disclaimers.
And then we need to pull goes on on.
Display selling installing the solutions that are needed and secretary meat.
So over to you Linda.
Thank you Hilton and good morning, everyone.
And so I won't go through the financial highlights for Q2 2022.
And it was definitely a crushed there that cost mixed feelings for US you can see we have a record order intake.
72 million.
And there is clear demand for modern products and solutions and we see that also in our pipeline, which is very strong both in poultry and fish and softer and eat.
We also see that like in the past, we finalized the acquisition of Vanguard.
Improve our quality of earnings going forward, so it will be exciting.
Yeah.
Developing.
We see revenues here are record levels as well.
97 million that also include thing Wrangler, and we do see step up in revenues and you see that also here in the picture they are hunting.
But that's not enough and not according to our plans because we did have as you remember in 2021 we had quite a gap between the order intake growth and the revenue growth that we delivered and that's an area that we need to catch up on like why are revenues.
Not growing us plant, we have the Pos availability issues. They are still have to bring us in our operations.
We have a very high attention on this we are working with our suppliers. We are also working with our innovation team internally to work to solve those issues and we also see an imbalance between our own manufacturing sites are that is causing inefficiency impacting the cost there.
And could we have done the factor I think it's fair that we also look ourselves in the mirror and think like how can we plan to deliver more as they pull and balanced yourself.
We are expecting revenues to gradually grow in the coming quarters, and we do have high focus on that and that will also mean that back to coverage of costs that we have already taken for example, with increased market coverage that has been returning us a higher order intake as you see and and and that's fine.
And.
Including one where we have an order book of plus 775 million euros are this is a record level for marvell.
After that we have that.
Uh huh.
Also in April after plant that there are hot.
And looking at the gross profit in the quarter is that the level of 53, 5% with this no are we have taken necessary pricing actions now, but as I pointed out we did the two late are you.
We saw cost increases.
Hi, escape and we took a price increase is that too late in the process. So there is a lack between the cost increase and the price increases that we will see this continuing to filter through and in the coming quarters.
But it does impact negatively the gross profit and in this quarter. We also have the supply chain inefficiencies that's impacting our.
As negatively and we also have improvement projects ongoing that are going well.
Sample that often mentioned and transfer posterity pick milestones in the U S and this protect this quarter, but again impacting now with some one off costs.
On the gross profit side and meet also negatively impacting the result in the quarter with negative EBIT.
Yeah.
And.
Like we were quite active in the quarter like our with our customers that we have had like limited customer facing activities now during the pandemic. So during the Costa Rica I'm out with like very interesting innovative solutions. So we had a great tax efficient and that is also impacting our asset cost.
So you can see that picking up quite a lot.
Overall, our focus now is on balancing the operations I mean, you see that EBIT is at the level of six 3%. That's clearly below our targets as you saw in the profit warning last week. It's also below our expectations. So there is high focus on on getting up after balance here.
We are taking action.
Part of our workforce and this in the coming periods. So that's of course, that's out and I pointed out. This is a typical staff, but that need it at this point in time.
And to get a better balance we have a revised target of 14% to 16% EBIT and enter 2023 and like all stops that we will be taking a what's that target.
Operating cash flow in the quarter around 18 million you can see here in the picture that free cash flow is negative.
And this impacted the overall the cash flow by the results that we see it's also impacted by continued increase in inventories and we also continue investing in the business.
And love it at the level of 3.8 times net debt EBITDA and impacted by the acquisition of Vanguard.
And we're up like our target.
Our capital structure as of course between two to three times net debt to EBITDA. So we are above that at the moment.
And that the focus will be on getting to the targeted level and in the coming periods in there we feel confident about our our plants.
And they're like as I said mixed feelings are there.
Definitely areas, where we can improve our we need to be softer.
The gap between cost increases and price increases and we have continued supply chain disruption.
And we have low gross profit in the quarter and the pressure that epic.
With a with a low cash flow and high leverage temporarily but on the flip side looking at the positives.
Record order intake are we find less than acquisition strategic very strategic acquisition in the course there.
We also came out with innovative solution. So we're having a lot of customer interaction.
And so like also a lot of positive things are taking place.
Austin, South even though we see a see after they have been in the operation like the long term.
Tempt driver Center industries are very strong.
Sure.
Then moving into the revenue pace here you can see the diversification as we have highlighted like very important to have the diversification. You also see it now like when we have one industry being weak that that we really need the others to perform and we do see that and poultry and fish that that pipeline.
Good great orders coming in.
We also see that the bank will have a impact on for example, the revenues by geography, where you are we are seeing more coming out of the U S and this will even be impacted.
Further.
And then revenue per business mix, where aftermarket is around 41%.
And we have a strong order book, we started the year.
The level of 569 million, we are now at the level of 775, we did acquire a order book are.
From mangrove and slackers those acquisitions firearms 81 million.
The order book has presented itself for trailing 12 months' revenues, it's around 53% and the book to Bill ratio of around one point 19, and as we have stated before like our here we are expecting to see a ramp up on the revenue from which you're tapping this thing into a slightly different.
Our balance.
And earnings per share and nothing has changed here are the target is to grow earnings per share faster than revenues. We are focused on profitability. We are focused on using our policy. It they're not in a good way, we do realize the gap on.
The profitability decided this.
And right at the moment, but that's what's covered in the pit pits, we have a clear plan.
Got there before until 'twenty two 'twenty three.
And on the income statement for Q2, you can see here the revenue growth around 21% part of it is.
From acquisitions, but mature it is organic growth here you also see that opex has been increasing substantially between years and whether it's on the selling and marketing side, where we have been ramping up into the frontline we have been active in our market coverage and our sales activities are very.
This quarter end and exhibitions.
You also see DNA going off that and the focus here is to get more synergies there and this results in an EBITA of six 3%.
I have for ethanol.
That's around 10.2, you will see now with the acquisition of language without the P. P. E will not go up and in the coming two years.
And also on the finance costs like we are increasing our out that because we were acquiring wanger. So you will see that impact it here on the finance cost.
Not much to add for the first half.
Similar trends like are here as well.
You bet pillow plants, but that revenue growth of 16% were roughly 3% is coming from my acquired growth.
On the balance sheet and the main movements here are from the acquisition of language, that's having quite some impact on individual line items here like a P. P. Our intangible assets.
So up for further reference there we have a note in the financial statements are not for that that gives the full details of that.
The main thing to mention here is on the inventory side and you can see that this growing substantially from beginning of the year both from acquisition of Vancouver, but also from our own growth in inventories.
And we are still taking steps to secure our revenues are to wrap up on the inventory from that but of course. This has our high attention and focus to have listened in and asked good balance as we possibly can.
Yeah.
On the liability side. The main point here to mention is that we do see the leverage going up you see borrowings going up now.
What's the level of 3.8 am.
3.8 also because we are impacted by the stronger dollar so that's impacting our hour of loans and the end of the quarter.
And like we are here at that saying the acquisition Spike So that will also increase the interest cost.
But will give us sufficient flexibility to delever in the coming period.
And the cash flow bridge here you can see I mean, we're coming from a low EBIT, we have on working capital negative impact from increased inventories you can see that cash from operating activities at the level of 18.4, we continue investing and as a state that's like a we don't have any.
Kansas in our Capex plans are they.
They are going to be on higher levels and in the coming four years, 4% to 5% of revenues.
And then like on the Kpis.
I've said it before I mean, it is around the earnings per share, where we have high focus on growing that faster than revenues. We are now revenue growth is around 7.8% from the beginning of the period. We are focusing on so it's clear that we will need to deliver higher growth and in the later part of that period, and that's where our focus is.
Profitable growth of course.
And then the free cash flow negative in the quarter, but underlying sentiment for model S that we have a strong cash flow model.
That should allow us to continue investing in the business and the future and not that EBITDA level of 3.8 and as explained before.
The acquisition of Wagner and this is a temporary spike that we expect to come down and in the coming quarters.
I think it's back to you on that yeah.
Thank you Linda.
Maybe you will ask with a map theft EBITDA 3.8 are you planning on equity issue no we are not.
<unk> heard us say as well that we don't talk just for a non recurrent cost here in Stockholm.
I want to show the EBIT the Costco us it is.
However, Osmose company I'll just put it in our backyard agreements are at your Smith. So all of our banking EBITDA is higher so it's around 3.5, the leverage in our packing EBITDA.
We have to bear in mind, what happens in the backend of the cockpit.
The dollar Euro worth room want to ft to parity.
Overnight nearly this has not happened since 1987, if I remember correctly.
What does this do it takes that task overnight.
However, it gives us about if you look at the whole all of our revenues and length of stay at 41% and in.
In Americas are quite significant in the U S. Our revenue base is higher than in U S.
The cost base, then cocked policy in in in Europe at the moment. So there is a tailwind in the coming weeks cockpits.
Cockpits in in that all lot of each of US are the euro revenue research vessel costs.
Even though we put content city in the EBIT bridge.
This shows fluctuation.
Tailwind, though.
With us in the coming quarters, So just to show the volatility in the market.
Partner solutions like our Touchstone offhand.
Often our spectra etcetera on the wall why you cant go into our website and see what those popular solution onto wing for increasing the yield increase into the food safety, increasing their sustainability or more or what the profitability efficiency and seamless flow for our customers.
Yeah.
Like I say, saying, some marketing costs, 14% than the cost that I know it's high.
It's the low 12% compared to order intake, but I understand comments that please look at same store market cost in line with revenues.
Absolute number of central market cost will not go down in the charging for the Bakken.
Utilizing what we have already wrapped up I had.
Sure.
Stay tuned and we will take that the sensor market the cost down to 12% of revenues.
I meant suit us well when we saw that.
Even the gross smarts of common law went out and we expect it.
Decided to move part of us placing.
Lifting their warehouse and you wish to mono factoring costs. There is the pre requisite. So we cannot go into all three are make the platform in this industry or spare parts distribution Huntley.
The groundbreaking cracking in Eindhoven that will be Oh global distribution hub, then we will have spare parts distribution hubs in USA in Latam in ACI in China. So we will hop back to lead them to customers.
More scalability waters more scalability mean, we have hot track without delay.
Deliveries since Pearson, you said three quarters.
It will have duplication of war.
It's more emphasis more speed unscathed with increasing revenues more than the cost that is the name of the scalability.
We are.
Boeing just to recap for 50 person sure Vishal software in 56. This is our journey and we keep track on our journey.
Clothing, conveying a diversifying the revenue stream.
Very attractive.
And growing market based aqua feed and pet food.
After care revenues 44 person in this company, we believe that we can even pick on more proactive there and utilizing our global rights and this very interesting as well the customer base or vendor, where we have had limited business as we have been so much focusing on pulse could meet some fish I'm talking about.
Like Masa nationally on third Saturday et cetera, where we have quite a lot of complementary protests, but.
They are caught me a line concept.
First one in the space.
Very very exciting to go into Bastian.
EBIT Brits I've gone through this but I'm going to keep the tier.
Because I would not be surprised to get some questions around it.
Brilliant.
It's 10 times moving to the Q&A session and we will start with the conference calls and questions and then we can move into some of that E. Mailed once that we've received so hanging over to the conference call moderator.
Thank you.
We'd like to ask a question. Please do so by pressing zero one on your number of pop.
If you wish to withdraw your question you may do so where Christine zero two there.
I will now be a brief pause when questions are being registered thank you.
Our first question comes from Clos about alien from Citi. Go ahead. Your line is now open.
Thank you Linda.
So just one follow up on the pricing if they all knew that you were perhaps a bit later moving prices here.
But on the new order pricing do you feel that.
Your customers are really sick.
All of your price increases today, you say that poultry should come back to your 18% ish margin, but don't think about need are you able to raise prices towards you meet customers, where should we be concerned about weaker backlog margin oil can meet into 2023 I'll start there.
Yeah. It's a good question plus so I opinion quite significant contact with all of our largest customer or cost sits at top top top level top level talking to go about this dropped it to you on the journey and we want to go.
Just to tell you that finally, all three must coming through we have been hunted by by our biggest customers. Our suppliers. What we have said we want to be a real partners now they come all at the same time, because there is scarcity of engineers scientists ethanol on the sides of all forward customers Abbas.
Now recall your cuts on.
Show Me show US how you can become a one stop shop, we are having the pioneering solutions. So there is a pool acceptance of the price increase.
I believe it's all northern muster in meat here.
Is that of course, there were headwinds in China, you're seeing that from Cold month August China was not E C and there's cost that rusty.
Russia, Let's just talk about thoughts eight.
80% plus of our business there that meet and we have stopped all new selling but it's at their.
However, I'm not satisfied with how we have been policy tropical I'm seeing the success of part three in U S.
I'm seeing the meat market in the U S. We are gaining strong market position, there and the opportunity in Latam is significant and we should get more so.
May be there is not the same pricing power in primary meet but we are a popular solution to utilize them and meet back there.
Leanne poclain pastoral in food safety. So I think we are underpriced. It so most of the items, but maybe overall lots of well there is a less price possibilities in the pro we are not trying to get a full fair prices.
We have seen all that much and of our customer not good states and the need for labor or replacement of coal taking the intelligence into our solution. So maybe a law cancer, but overall, we are finally on fair prices and then we want to continue on peer process. We are in no way through six.
Per year.
We need to get a fair return on that and it's full acceptance.
Okay.
No that's good to hear my my second.
And final one is on the on the bridge on slide six.
Very helpful to get sort of all the neighbors in a trajectory, but could you help us.
With a one notes I totally get the volume leverage out of the backlog and get the cost savings from the 5% head count reduction I get the price action, but can you. Please quantify what the one offs were for the full year 2022 not only for this quarter and that will now reverse such as the warehouse work in North America and so forth.
Yeah, maybe I'll start and then Linda can.
And so there is always some non off non recurring so I'm surprised how agresti. Many other companies go in classifying non recurring however, the magnitude is higher it's around 2% in first quarter on a quite high as well in first quarter, we don't want to go fully into <unk>.
So we are not taking the one offs in the periods, but its out and because you see the opex productivity.
To put it down and we are going with Essent them from 14 to 12, but it's a good buffer that we know about that.
The one off should be not high year on an average basis on one patient. So it's a good buffer in some of our out of our our snapper sheer in the profitability just to explain it.
Yeah, so like Atlas touching on I mean, I think our best estimate is that we are somewhere around 2%. Then we would aim to be like in a year, where we are moving further with our improvement protests are closer to the 1% level I do think like in the in the quarter. I mean, we mentioned the few but like we are of course are working with Mckinsey.
And on those topics. That's one off cost we are taking actions in the U S. That's creating one off costs are like the magnitude this fairly high in the quarter.
But it is I mean, we are on a journey to improve the organization. So we also just need to be aware of that like when you will see those things.
To some degree so she's got down as well.
And then you up and implementing successful either shift services in Palatka duplication of work one of Panther.
We are taking the cost up.
One of them.
What I'm trying to just to confirm.
You said on it creates a good buffers so the trip the thing or one notes reversals.
They are not part of the Opex productivity. We continue to see is that sort of if in an extra buffer or what where does it fit does it sit in opex it crept up.
Yeah.
It's up.
It's about.
Yep.
That's all I want to thank you.
Thank you. Our next question comes from Eric Wilmer from ABN Auto go ahead. Your line is now open.
Good morning, everyone. Thanks for taking my questions I got a few as well.
Ask them one by one.
The nurse on leverage.
You indicated that that leverage is clearly above your target range of three eight times at the end of Q2 I was wondering if you could give us a ballpark figure where you see leverage to.
To end up at the end of this year, taking into account anticipated margin improvement.
And perhaps some work and get to a rehearsal. Thank you.
Yeah.
Yeah. It is like 3.8 like towards her back to this at the lower levels. Because then we have just actually for one of our costs that we're not doing here.
And we will be walking in the right direction towards our targeted levels, but like we don't want to time it exactly because like that where there are like a lot of moving parts I do think we have opportunities on the working capital on my inventory, but there I need to I think we need to do it in a very careful way because we.
Half supply chain inefficiencies at the moment, then and issues and then of course on the resource side like we are planning to increase our revenues and deliver higher profitability, which should also help so I don't want to say an exact level, but like in the direction of towards our targeted levels.
Okay, that's very clear thanks Linda.
Ex question in the press release, you highlight that a focus on sustainability.
Impacting demand for me I was wondering if you could give examples of specific markets, where you see this happening in lettered D or whether it is mainly just mainly concerns beef or pork and can you also highlight how you aim to partially offset this.
With your plant based solutions. Thank you.
Yes. Thank you for the question.
I guess, you're up in alpine recently see there.
Consumer shopping around do you all have seen the fish.
In the shelves out there all the time, you've seen us well the upholstery on Australia and the home delivery.
So let's see if there's more now in in in Europe , and the U S, where we are having the highest meat consumption per capita.
We should not forget though that the meat consumption is low all sites in the world. We're not pretax this thing thought that the volume will go down in meat.
We are predicting that there will be a shift.
Politics, if tier as well.
We need to utilize the meat Duffy are consuming much much better the feed conversion is not as a practice in the meat industry.
And there is a huge shift into into the pot. So that this just how with this and we know Roswell Park based this on the rise.
So Joe we cannot quantify it.
But remember, but I say it as well in a loss.
Conversation when we Matt we didn't have any data to pocket, then, but if not English new want those Sean.
It will be soft going forward in order intake compared to past three fish on flattish. So Doc this accelerating maybe foster semi and some other I expected them by now.
Now we are more and more data to pocket the but if you just shop around and I'll define you see how people are changing the consumer behavior.
Thanks, that's very clear.
And F&B seen these trends.
Okay.
And my last question.
This concerns around China look downs with the with the risk of them coming back.
At the end of this year and perhaps early next year, how does this impact your revenues ramp up bucket.
On the EBITDA bridge slides as well as your Opex bucket, so basically I'm looking for to get a sense of.
Sure China exposure.
In your in your pipeline and your order book.
And how this may impact them.
That bridge. Thank you.
Yeah, but we have to remember our order intake is a little bit different from many other companies, we never book quarters, unless there are prepaid.
Prepaid on financially execute so what we call pipeline, mainly all the companies call it audible.
We believe that we are getting Bath degree on the situation, we are humming and Linda maybe you should answer it because she is called controlling this work teams maybe I gave it you thought what do you what we are doing to resolve that bottleneck.
Of course this has high attention internally, we have the parts availability issues like we're having Swat teams with daily stand ups like solving.
Solving those SAP at Lax I do think in terms of if you would see locked down as as we have seen for example, and and and and and China of course that does impact like the operations, but like overall, we are seeing the transcend and the right direction like if we would see this coming.
In Europe , I mean impact on ups at DSM, but like that but.
But that I mean in our plants, we are aiming for.
Not assuming that there will be a another lockdown around the world. So like if if we will see that it will impact the rate. We can increase revenues on the flip side I would say we are focusing on what's within our control I think we also can do things better and smarter and that's that.
Can counterbalance that such a situation.
It's not build up recently Rafi put contingency here, but we should not forget if we get locked down some findings we hop our market position in the country at the it's great of course that will be done from the start of pumps in the chocolate chip.
What I'm, a little bit surprised now up in Russia.
Some analysts oswell I'm not telling you is that people are calling recession on continuous Osaka change disruption at the same time.
That's only in a lockdown situation correct part of the answer but you cannot call recession Hum.
Two newest shafted, so shame comps at the same time.
It will counterbalance each other.
The mild recession has not stopped all biopsy tuition for model as well because then people will start once again tightening in a moving bits in the proteins and I don't know of any other proteins for human consumption.
Model is active in so plaque based off the meat and fish.
That's very helpful color, Thanks, and that was indeed, mainly interested in the in your China looked on sport because I believe it was specifically mentioned that didn't meet our mid part, but thanks, a lot for a particular and also in the recession Andrew Thanks.
That's R E mailed questions Finn and J P. Morgan Akash Gupta and streets and Q2, so very strong orders with Casco was still weak can you talk about prepayment claims.
Caines to explain part of the casket weakness or is it driven by order mix towards spare parts service, which doesn't come with any down payments and how does the pipeline look for the rest of the year.
Yep.
So like pipeline looks great for fish, and poultry, where we see like very strong appetite there like it is softer for meat and now we have a new arm Langer coming in the latter half must also balanced this at.
And nothing changes in the prepayment terms and there is an impact like if you think about geographical split we don't have the same percent itself down payment then in all area so that the.
Impacts the balance there.
And on the cash flow. The main factors is that we are continue to invest in ramping up on on the revenue front and the rest of this like more a timing matter.
And third well.
But.
The payment from customers.
It's a product no change in our business model and thus well the overdue depths are not Concord. So the payments are on a very healthy level. So that's not the explanation for the customer so their business model is unchanged.
Okay and the second question from J P. Morgan REIT can you. Please elaborate on your comments that you will see progressive margin improvement in H two shall we expect double digit operating margins at some stage this year, but given the uncertainty and cost headwinds double digit margins.
Won't be seen this year.
Yeah.
So I can take it later.
We re carnal classify what we are talking about we have seen as well some of all of the analysts with the same profitability in third or fourth quarter. If you would eat into the notes, but we are saying, we we we are calling the bottom make that absolutely clear, but we are talking about karate all improvements show up so please bear in mind the word.
We have been carefully analyzing how we see it UCITS graziano filter, we cannot give more comments.
Okay and we've also received questions from Andre Mulder from Kepler and his first question reads, what kind of EBIT margin is now included in the backlog and what is the EBIT contribution from acquisitions in the kosher.
Yeah.
So like on the acquisition like they are having a positive impact on the pit in the quarter, but like Wagner is of course are in for a very short period of time, but like we did indicate that when we acquired that company that they have a very interesting profitability, let Luke.
That should improve martinsa going forward.
And like on.
The order book and like we have been taking pricing action so like the.
The word is that we have and the order book or with the new price levels and still return a path to profitability that we are seeing currently.
Maybe a little bit to add to it because wagner is having a positive effect in the cost of it however to recap we acquired rasco it.
Didn't close it until end of the year, it's not fully understandable yet via their competition. Although it is two five months to analyst days.
What happened in that period. This article that came out when we close the transaction.
This started to come in I kept our customers clearly see a stronger together.
We are seeing order intake together out in the field.
Abbas.
Kao operation shots is having quite significant negative effect on the EBIT thresholds and fish in personal satcom costs, there because we were not covering.
Revenues covering cost with the revenue there because when the orders start to come in and they're super genre.
Dr. Pepper, you talked Pavan lot of revenues from that so just to highlight.
Because the question was EBIT contribution from acquisition and if you look at the wall acquisition in last 12 months.
Clearly posted from magnet, but but on the fish sector and we may be you think we are strange stuff, we don't classify them nonrecurring kit use it nonrecurring clubs you don't cover the cost by revenues, but it's having a negative aircraft that now we believe it's gradually changed at the ports.
Yeah.
Okay and his second question is what is the war chest with net debt to EBITDA at three eight times and no equity issues do you feel restricted in any way for potential acquisitions or should we expect a pause.
So yeah.
You'll see it clearly adapt we need the Honeywell all our pension all all the operation I'm not satisfied with this explicit deep it nor are you. So there will not be a significant acquisition.
Until.
Within and want to time, when we are in the pockets.
For the next 912 months, let's say that rehab experiential deleveraging very significantly.
We are in discussion on the Ottawa and on calling process on smaller acquisition thought we might conclude just too but.
But we can now utilize the T mobile here in the.
Rebuilt the boat.
Compared to the.
EBIT bridge.
On the E.
On the cash flow is the prerequisite to fuel our dreams of being called one stop shop.
Having service and software as 50%.
The user acquisition so to us celebrate cartoon. So the focus is to show you hired a bit high.
Revenue growth at Hyatt Kosovo.
Okay, great and the license the the time that we have left I think I want to pass over to the conference call, where I believe we have a question as well.
Yes.
Thank you. Our next question from the telephone Conference line comes from TS Hollister from I N. G. Bank go ahead. Your line is now open.
Thanks, operator, good morning.
Yeah I also got a follow up question on the yen.
The exceptional items that I think it's mescaline multi disclose these exceptional items.
The circumstances.
Is it possible to highlight a bit how voice has been taken off that amount in the second quarter, how much in the first and maybe already earlier last year.
Also a little bit of you.
Which of the divisions Gulf most of these course incorporate I guess it meets the needs of the clear I don't know so that's the first question.
No its crossover in GMP cross profits. It is it is just the same overall the industry is something we don't want to quantify this more than than we would have reported but the magnitude. This 2% is normal level half full.
One.
Who knows that we are seeing just to recap in the year 'twenty 'twenty I thought it would be much more robust 20 thrifty shut.
Certainly everything starts to oscillate again.
Reed just need to stay on the path, we have to deal with the loss we have to automate just like all of our customers. This require year changes.
Is it one off non recurring or is it just temporarily for three four years.
It will not be two person pip cost there.
So long time, but is the normal level for some time period, 1% we talk more.
Okay.
And then another question for Linda.
<unk> actual interest rates youre going to face since you had the cash outflow for the Wrangler acquisition.
Yep.
So like and so it's it's it's a few things here like it is a increase in the margin rocket like from the current levels. We were at the end it is.
The base rate has been increasing and has been fluctuating quite a lot and then it is the acquisition spike that will cost additional cost.
Rough calculation.
Per cluster this will mean around seven and a half four 8 million and that Paul and Krista borrowings.
So substantially higher than what we have today.
Okay. That's helpful. Thank you.
Yeah.
But it's better quarter and hopefully we have a very pure west system, meaning meaning it will be very few costless Cortez yeah.
That's what I'm like yes, that's what that dose on the base of it like let's see how that develops but like the Boston Racquet should also then take us down as we de lever.
Okay. That's helpful.
I also had a question about the EBIT the ringer that'd be cause you included the I think one more of cultivation of wearing or indeed, all of our segments and from the.
Third quarter, you were reported as a separate segment, but I also assume that the EBIT contribution is also included in our EBIT.
Pardon, yes, yes and.
And we didn't like quantify exactly what it was I mean, it's it's like 21 days that diets and it's in notebooks and in this quarter like you with you will see it more clearly and next quarter.
Only comment towards that like it is having positive contribution on our EBIT in the quarter.
But the impact of the meeting I gave you a swell the pro forma numbers.
It was 49 and you were still up four to five and you would ask the revenue side.
Rough calculation, because we have not done the P. P. A M P et cetera, it's slightly up over 40% of the heap.
Yeah.
Okay.
And Oh.
Any any remarkable seasonal patterns in the warehouse revenue or EBITDA.
Second call.
So so in general not but like menu. All of this is the year started slowly in January February and magnet, we have not changed the outlook for 290 million U S. Dollar.
30 to 35 and EBITA. So so we are seeing about the modest methane vanguards space the costs in and what they are treating it for the year, but genre of pepper I liked to IP by every single capital goods company was not an easy one but then a recovery they are all up.
Our ethicon all of H E. B in this segment are operating on higher level dominant the other segments now in general we believe the upholstery is the most profitable segment are recouped Teva leave us in and pop base pet food coffee et cetera by cross selling upselling.
And the.
Further processing arena leavers to take the profitability to 14 or 60%, it's a little bit too early to say and we have to have all the disclaimers, but thought this us at least the intention.
In the 16% EBIT target that is still our internal target.
The banking or Plopped base et cetera will be even stevens to move up the company.
Okay. Thank you very much.
Okay, great at two minutes to go and I have two questions by email and first one is a follow up question, Sam and Jeff Kepler.
And the EBIT problem looks largely largely to be in meat and poultry and fish and why do you cut your global workforce by 5% why is the focus more on me.
I hope, we all read what we say in the press release, there is a pull focus of meat.
Adjusting the cost levels in the primary meet and full focus on cross selling up selling there.
There was a little bit more temporary workforce and meet so we are taking actions there as well too at justice via.
Our mooring thinks as well around it.
Bunny from one site to another we are taking meat activities from bulks metal with to lift the water onshore one at least planning to do it in good cooperation with the work Council at their theater are getting more oxygen into the poultry business getting more than utilization at least towards the for the meat business aren't the etcetera etcetera. So.
There is a pool attention on it.
We have to take it step by step we need to pay our respect buswell, who the people.
There are many many many good people in the meat sector, we need just to.
Our line execution of strategy, we have invested in our portfolio and now we have to deliver.
And final one is till reps capex in ashmore and comments on calling the Boston in the margin and gradual improvement how would this look like on a like for like I E. If Wenger comes in at 14% EBIT margin in second half 'twenty. Two is this the pattern for morale in a pre let.
Hi.
Yes.
Let's hope so that's our convent VIX young but this is the bottom.
Bear in mind, that's well we have a three 4% good cost.
Once again, maybe if you could believe that we are a little bit strange thought we'd go for what.
However, if you would talk to you.
The company and running a company we would always have gone forward.
We are here in the long term, we moved for what we can understand the <unk>.
Special deep it is shocking show but.
Let's hope it's the bottom let's hope that's what we are saying of karate early improvements third quarter fourth quarter.
Our internal target of 60, plus people, we have to have contingency forced into 16%, but note the banner.
We are as well looking at the absolute revenue increase there are very very few capital goods companies now.
Reporting thought they still believe that the order intake will be called.
A little bit.
So we expect that the author and pick will be slightly lower in next quarter and then go up again in the coming quarters, we oswell expect revenues will be slightly higher.
In this cluster or higher there is a seasonal coffeyville input costs. There and then we should see a full drop up in fourth quarter first quarter second quarter. So just to give you the highlights.
Okay on that note I would like to call. The bottom of this session today apologies for being a little bit over our allotted time again. Thank you all for your time and attention and continued support for morale see you back in November .
Okay.
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