Q3 2022 Marel hf Earnings Call
<unk> think fast Stacy, but a welcome on board and you will hear that when she goes through the presentation.
And it's why we're very proud CEO standing here today.
This.
In the quarter, but it was always on Friday evening, when I was looking back on what team model Washouts evening I wish Amit.
You know I was not feeling the same in the springtime.
It was up my own performance the performance of the team and et cetera, It's not about the performance at the east when the headwinds are in theater or sometimes you need to synchronize move for what and it happens to be every five years in organization.
However, looking at how the team is working.
What the protest they are bringing to the table and professionalism in pricing, we were talking about pricing of our approach.
Our services and software.
We're moving miles here in re finding the operating model redefining, how we work and note opinion there is a <unk>.
<unk> between actions and the restaurants, so I'm not only talking about there are soft in the Costa I'm talking about what we were doing to improve and move forward.
But look at the results.
We have a lot of discussion about is the order book and order intake Violet when is modeled going to deliver revenues from the at the order book I've said approximately ballpark you should see a revenue recognition in each quarter of it.
It's our last three four quarters in order intake should be the revenues.
You see them fast and recent 12 months, we have 40 50 million behind.
And we got the question.
Are you behind towards your customers.
The answer is no although their suppliers and our customers were late as well in the surplus in the chocolate chain Global's subtlety.
This means that we need to deliver in order intake three four recent quarters in revenues plus a catch up some would call it catch up but that cuts up into that.
Remarkable to see 451, and revenues up 36% per year, 20% organic growth there.
EBIT at all a little bit I had 10% double digit it's far below what we are used to it's good to see the improvements that we are having.
In there faster if we needed to take a very difficult decision to cut down 5% of our workforce.
Those cost savings are not included in the costs it will start to kick in in the comic clusters.
It is an annual savings of 25 million. The total cost will be $10 million, we ought to just for that in the quarter and no other master, except the PPA and the acquisition related costs.
So $5 5 million as at your standing in a cluster of $4 5 million in next quarter.
Adjusted EBITDA of 10, 3%.
We are paving the way towards our 40% to 60% EBIT and back end of next year.
To oversimplify, our gross profit is 36% in this cluster to achieve 14% to 16% we need 38 to 40 person cross.
36 to 38, our target is still 40%.
It's a complete home run to take the SG&A from 96% to 18%.
We are at a strategic level in our in our ratio cost, 6%, although we are never ever pumped out so many new pioneering solutions as this year.
We are having sold Lucian start out of the keys towards inflation ran environment, we are having a consumer at the protest and we are here to stay with all our customers move forward, while consumers start to trade down moving from meat to possibly.
This is the first time I've seen kilos and meet Guangdong kilos in any industry going down in the quarter and park in.
In Europe , However, we have never ever witnessed us much the month in the poultry. This means we need to be in portfolio management product people onshore discipline in operation when we place in pre salt.
You've got to think the 5% reduction of the workforce I've heard from some.
Journalist Investor as well that we were up meeting, but we were humming fast in running the companies.
I hope that people that are running companies on top in building infrastructure, you know that you need to duplicate the walk to take not risk. When we are building the sales and service network around the globe.
Now we can go for unifying synergy I think Andy etcetera, the backend.
Microsoft teams was not tier 2030 that it'll show lots of it off here.
Ultimate think digital I think our customers aren't ourself is the way forward its license to operate and they are sold right to win.
Remarkable you can read yourself, the parallel shear remarkable to see 42% service revenue in the quarter.
We are having a RASK of Proteus revenues, we are arming our 11th quarter in a row, where we are increasing the charter revenues.
We have a good cost in second quarter, we're at a good cost in the previous quarters.
We got the question what are you doing by splitting the country demand factoring services Sunday et cetera is it a real good cost at least we are delivering more now the team at this more of their services and we are seeing now the first fruit of those actions, sometimes you need to take the short term profitability down.
I move forward with infrastructure project, we are investing 5% of our revenues in theory crushed here a return on that.
Part three back on track 16, 5% EBIT, we are having superior profits in poultry, calling for what unpack, what 18% to 21% profitability E pit, it's unique in the capital World.
When you are growing so much as well some capital goods companies are delivering around 30%, but with this growth and this growth outlook.
It's a real real return on capital, even though we are now investing more putting the money where the mouth. This in the past three.
Improving the flow of flex robotics automation and their theater embark Smith.
Baptist valued by our single biggest investment in the global distribution for all the industries. However, potbelly is of course, when we have averaged 42, we have powerful and importantly.
The other picture is in the meet challenging environment.
However, I'm not at all satisfied with us when we are having those popular solution is satcom preneed funeral.
Funeral, Mark now that this part lien contamination free etcetera that we are not selling port geographically b their market. This often americas soft in Europe .
Still not at the in China, but that's around the corner and throw on.
Anyhow.
We can do more here.
People are trading down to par three people are trading down into mint and third cetera, we have the solutions here.
My Dear friend, David Wilson stepped down yesterday and meet chronically meat, we have been walking here together.
Up in 17 years. He has been 25 years in the company.
Very close friend here.
Wherever we need now a new leadership in the meat, we are having excellent people in the management team had of innovation head of service.
Manufacturing sales central one now we need to move forward with leadership in their meat, we are an on boarding process, but temporarily or ultra class Sem had the poetry will jump into the meat for three to six months and we have excellent team in port III and sales for service that we'll call it.
<unk> III and the temporary period, you know what we have been talking about standardization Multilocation cross selling and Shelley all of their seats that we are doing in the past three and now we want to go fast tracking this.
Hey, fish, you see a big minus here.
How do you see as well I'm not worried.
People ask me why are you always scheming fish that then with all the talk is it because you are from the pitch centers three of 14 years old in the pitch factories Sunday et cetera, now we are moving care for what we are integrating vast character curio and modern.
We were the only having 45 million in revenues and pitch compared to 55, what we should be around speed walking Andrea swallowing bottlenecks in suffering in our salon business there.
That will improve the revenue recognition covering the cost we worked that well create the deep here in the integration with around 60 70 less people are in the total fish. After the <unk> integration, we are hiring not the perfect I tool or utilization in the three man.
In fact sprint sites here in Iceland that we will unify.
In Sydney, Australia.
Straight to our three manufacturing plants in Iceland.
He will tell you that it's not a big country.
Yeah.
Then you see the new pillar.
Pat on feet.
Its pet food just north of <unk>.
And plant based food we are talking about.
We are all teams into flex theory, we all need protests.
It will be this at the point of the plate.
We are the world leader globally in solution service or software for all their post proteins that human consumption is is having available commercially.
Although we are not yet index, but everything else we are global leaders here.
It's very very important she are two targets by some retail stores.
Biggest contribution will be when you move meat balls into passports.
Why should we not be adopted.
<unk> put this the biggest here vanguard.
Welcome once again T manga similar close to 6% constant innovation throughout the years excellent solution that are taken care of the nutrition of the material.
Higher nutrition auto eats key loss is the biggest year two contributors.
We need to eat and consume less.
So having solutions and time, sometimes surprised when I see all the solution out there in the market that crunch, the meat or other material and take all that seems aren't all the protein itself.
We have been innovating less water less energy.
And nutrition more safety Ranga Roswell.
Our Polish together in a in a full launch systems.
So all I.
I've touched on the operational performance.
What.
On the EBIT bridge.
It's a little bit shorter, 10% to 16% and $6 60.
Stacey.
Thank you.
Thank you Stacey.
So nice to be here today for those that I haven't met I assume that we will meet in the coming period.
And then just looking forward to get to know people both on the phone, but also in the room as well I do not plan to talk as fast as Arnie had mentioned previously that there.
It is correct that I am I'm, a new Yorker, I am known to speak fast, let's do it that way.
So I want to first start with the financial highlights in the quarter. We are pleased with the results in the quarter showing operational improvement if you compare to Q2 and being part of the actions that we have taken starting to kick in with further improvements to come to get to the 14% to 16% EBIT at the back end of <unk>.
23.
Intake of 427 million lower than last quarter's record intake, though still solid with a continued good pipeline showing the need for automation and digitalization and food processing.
Revenues hit a new record in the quarter 451 million, both including and excluding Langer and.
An increase of 36%, where we have 16% acquired growth, 20% organic growth hard work by team morale has gone into this revenue ramp up with solid customer deliveries in the quarter. So really thank you to team morale.
We are continuing to work on balancing between our manufacturing sites and while we do see some signs of parts availability issues easing we are still experiencing supply chain inefficiencies in the current environment.
Both intake and revenues at a new level compared to a few quarters ago. When we were working to break through the 370 barrier.
Now we are above the 400 million barrier wanger is fully built into the numbers in Q3, and introducing our new segment plant pet and feed as Arnie had mentioned previously which also includes sales of retail and foodservice solutions into that segment, which were historically in our other segment reported.
Book to Bill in the quarter of 0.95, showing the revenue growth coming in healthy order book of 751 million, representing 47% of trailing 12 month revenues adjust.
Adjusted EBIT of 10, 3% as Arnie has gone through moving in the right direction, we're seeing better coverage of our cough at higher volume levels, and we're seeing orders a new price levels coming in through the order book, resulting in improved gross profit.
Difficult decision regarding the 5% head count reduction that was executed in the quarter.
As already mentioned previously we have adjusted for $5 5 million of costs in Q3 with the remainder to come in Q4 and the reason here is local laws and accounting regulations in terms of when you can book the provision on if the individual is off on garden leave or not.
And we do expect a total of 10 million one off for annualized savings of up to 25 million euros going forwards.
These savings will start to kick in in Q4, but then mostly towards the beginning of next year.
There is a currency tailwind in the quarter due to the strong U S dollar and morale does have a higher proportion of its revenues in U S dollars than its cost.
Cash flow is below expectations in the quarter operating cash flow at 1 million euros free cash flow at minus 35 million euros and this is impacted by the book to Bill being below one higher levels of investments and we also have unfavorable working capital movements, particularly due to timing of invoicing.
<unk> and payments and we are expecting gradual improvements in the coming quarters, our cash flow model remains in place and in our order book is orders that are secured with down payments.
We are continuing to invest in our infrastructure in the quarter in our manufacturing locations as well as our end to end spare parts journey with the associated good costs. We have officially opened our woods shared services center that Arnie will show you a picture of later on as.
As well in the quarter and in the coming week, we will be officially open opening a production facility that is adjacent to our current operations and nitra, allowing us to scale up in a better cost location.
Leverage at three nine times net debt to EBITDA, which is above our targeted capital structure increase in the quarter and that that is majority due to the strong U S dollar, which is pushing up the debt.
We do have a plan to deleverage and we are expecting to enter 2024 with a leverage that is closer to 2.0 times within our capital structure of two to three times net debt EBITDA.
An important point in Q4, we are expecting similar levels of results as Q3, and we then expect a gradual ramp up towards the 14% to 16% run rate in EBIT at the end of next year.
Healthy order book as already mentioned 751 million, representing 47% of trailing 12 month revenues book to Bill in the quarter of point 95, showing the increased volume in the quarter, we will still see the price increases of 2022 filtering in through second quarter of next year good to remember.
That the orders that are in the order book are financially secured with down payments a key item to our cash flow model.
Earnings per share, we do target earnings per share to grow faster than revenues earnings per share in the quarter is in is affected by one offs. So we have the 5% head count reduction we have the strand. The insolvency, we have a higher level of investments that we are currently making to enable future growth and we have a higher rate of the purchase price.
Our amortization for wanger going through.
We did run a share buyback program, which was initiated in Q2 and finalized in September with the purpose being to Murray meets Meirelles obligations to employees under incentive programs that we have regarding shares.
Now we go to the income statement of Q3 revenue growth, 36% year over year as mentioned 451 million in revenue compared to $332 million at this time last year gross profit, 36% moving up towards the target sales and marketing expenses, 12.6% moving.
Mostly to the 12% target year end 2023 here, we are seeing both the higher volume that is covering cough as well lower marketing costs. After we did meet quite a few of our customers in a number of exhibitions in the first half of the year.
G&A at 7.1%, including some good cost as well as some doubling up related to our shared services transition, which will ramp down in the coming quarters, R&D, 5.9% close to our strategic level and pumping out quite a lot of new <unk>.
Innovations.
Non I for us adjustments are higher than they have been and I do want to walk through that of the 27 million that you see here, we have $16 million in purchase price allocation expenses here, we will see elevated levels going through the income statement, because we have built the inventory uplift of fair value, which will be amortized through this.
Year and next year, we have $5 5 million of restructuring costs, which were related to the 5% Global head count reduction and then we have $5 6 million of acquisition related costs, which are related to wanger and are part of the previously announced 540 million U S. Dollar purchase consideration related to bonuses paid to them.
Employees.
Our net finance costs are elevated though it does not really looked like it in this picture because you have FX tailwind that is going against the cost base rates has been increasing in the quarter. Our latest estimate is that we are at $10 million to $11 million interest on borrowings for each quarter. This will come down as we deleverage in <unk>.
Repay our drawn debt.
Strand 7 million declared insolvency in the quarter write off and here you see it in the line impairment result of associates.
For the nine months here, you see a 23% revenue growth $1 2 billion in the nine months compared to $993 million for the rest of the income statement here I have highlighted the main points already on the previous slide So I will continue.
Assets there is more to discuss on the balance sheet in terms of assets than there is for equity and liabilities in Q2, we brought in wanger to the balance sheet, which is the majority of the change from end of last year until this year, our purchase price allocation activities are underway and in this quarter, we booked the inventory uplift.
Property plant and equipment include investments to digitize and automate in the quarter such as the new building, we mentioned in Nitra, the manufacturing parts warehouse Inbox mirror and our end to end spare parts journey.
Inventories are relatively flat in the quarter, although they might not look so the purchase price allocation uplift for inventory is included in there. There is some FX tailwind as well as well as some cost price increases which have been priced through in our current price levels.
Focus is on bringing inventory down with Linda has previously stated. However, this will take time and our first priority is on revenue ramp up.
Receivables have been increasing in the quarter due to a additional volume, but be timing and invoicing of payments. This is unfavorable at the moment and there is high focus on collections.
Equity and liabilities. The main thing to mention here is the increase in borrowings quarter over quarter, which is majority driven by the stronger U S. Dollar due to the purchase of wanger.
Then we move over to the cash flow bridge as already mentioned cash flow below expectations in the quarter with operating cash flow of $1 million in free cash flow at minus $35 million. The book to Bill being below one times drives a lower cash inflow, we have unfavorable movements in net working capital as well as higher investments that are the biggest.
<unk> of cash flow in the quarter.
We have already mentioned the FX impact on borrowings, which is driving the increase in net debt. Our castle model remains unchanged as previously and we have shown historically that we can deleverage quickly after transformational acquisitions.
Cash conversion historically, our cash conversion and then we're talking about operating cash flow compared to adjusted EBIT has been strong at around 125% average showing our strong cash flow model. Our objective is to move gradually to a 120% of operating cash flow to adjusted EBIT by year end 2023.
Though the cash flow is expected to fluctuate quarter to quarter.
Morale has deployed capital since 2016, and a number of acquisitions listed here on the slide and we have successfully used our cash flow model to deleverage after those acquisitions and we expect we will be able to do the same now.
Then jumping into leverage leverage at three nine times temporarily above our targeted capital structure of two to three times net debt EBITDA focus on deleveraging. So we can enter 2024 at the lower end of that range closer to two point I'll then three pointed out within the range. We have seen this model work well for us in the past and our strong cash flow.
Our model is still in place, though we are seeing temporarily elevated working capital that we expect to normalize as we see the EBIT improvements coming through.
New syndicated term loan of 300 million U S. Dollars was signed yesterday and this has a three year term with a two year uncommitted extension initial margin is 250 basis points on top of the standard financing rate and the rate will move in line with leverage the facility will be used to repay the 100.
50 million Euro facility that we drew for operational headroom, when we were crying wanger.
As well at the same time, we have agreed with the banks on additional covenant headroom as a safety measure for FX volatility and for temporary swings we are complying with our covenants currently using the acquisition spike that we have built them.
This new fund future growth and.
And with that.
Back over to you Arnie.
Thank you Stacey.
Usually it is speaks faster, but you were you were fast if you look at the clock on the wall of the slides you went through so so.
Stacy was touching on our cash flow more than it is a unique model. It is that our customers find us their projects projects are around 40% of our revenues.
To add capacities stumper procurement.
Turn to run them faster and faster all of our lead time is now around six months target is calling for about four months. So we are hiring more standard says from Waterloo station, we are investing in automating digital ally, Inc. Our innovation.
Our product lifecycle management system, something etcetera, and then we can shoot through all of it got the normal it's between the sites, even though we are in and in nowhere tier in Iceland, Denmark, we can make the products in Mitra, Slovakia later on in prostate lung China onshore onshore.
We are investing in the business and about this how we are going to be ahead of the growth curve.
If we keep this on when I'm talking cost Wells, then you can use two sides of the brain rethink on listening.
It.
It is so important to carve the markets here in a perfect storm in the world economy.
We are creating a perpetual revenue streams or shutter with Suntrust.
42% now growing a cough during their markets you invest.
Investing in in the fall then CMT I think than the Bakken, but we do that with our people and our culture best.
Best in class products and so on.
Our customer focus is key.
Its almost time to time, but companies come in what looking when they go through their process is something et cetera.
Remember, though towards 14 15, we were in refocusing after a customer for the customer we have gained 25% organic growth in the following two years we.
We are doing the same now we are here out in the field with our customers.
In no way some through partnership we have been using glass in the capital goods side than.
And then we have been talking to our customers, while north probably not been co creating the service packages.
First your Mark can share price is the same on the pace of the customers.
We have though cocreate, an all digital protest and we had a really really good launch of new digital products in the poultry industry in this quarter. So.
We are moving forward and capital goods and services on software.
Walked out of you're meaning by the infrastructure projects I need to look here because in all classes small anther.
So and.
And to answer there, but what does it mean.
Yeah.
It means stop now what we are doing in recent quarters is making all the Lego bricks you cannot just open a building in the middle ear alternative what are now.
Now here in face of three important you just move it to the warehouse we have to split the warehouses in the shipping business planning can't get the ball in the Manav after income than in the airline business, where you use Qualcomm forecasting in the spare parts out there et cetera, you have to have the itc's them behind.
Do you have to have the capabilities of the people behind.
And then you move gradually into the global distribution system.
However, we are simultaneously starting to pave the way as well in U S by splitting it in on making.
The core pillar for the reach from a distribution system in the U S. We are doing the same them in Latam China at the ACR onshore you do it step by step and we know all of US kids, it's a little bit easier to build the house with Lego bricks stamped doing it from the scripts. So we are a leader cocoa.
And when we called for organization design and as well in our investment.
The Bakken walked out of you're talking about it's easier to think about Joe once awesome, all salespeople out in the field with their customers.
What happens then behind the scenes all the way back.
While we make some of the protests and Tampa all other in Iceland, then in Netherlands, and in need of yellow off seamless floor 15000 children per hour that goes to multiple swim mcglynn whole chicken roasted chicken fried chicken breast in a park the Pentagon the weather forecast out there.
Uh huh.
There are multiple touch points in the company.
If you do it in a structure systematic way and the mop up the processes you can our commitment is to list them.
If you start to ultimate ditches dialyzed from the back to the from U N theme Spike at the it's on all of the local bricks.
It sounds a lot Mitra expansion, but that's the consumer at the appropriate box Smith.
Our our path through hub, where we are now building on new class aren't sustainable.
Uh huh.
And G&A et cetera on the warehouse the flow flex.
And the floor for the stunt that they're human needs to be.
Just like we have here stunt that there can pick up on the projects in the all of the hall.
Starting with touched on that we are making oxygen or survival for their salamone industry in in store, Inc. In Denmark, Austria tuned for the poultry industry in the Netherlands.
And then lift the water we are moving meet activities from box Smith.
Into what they're making the clustering effect I'm sure. So a lot of investments that are paving the way for.
More scalability more speed.
Yeah.
We are seeing first time since the 1975 on inflation or a recession, a real inflationary recession I'm not talking about that.
Like in Iceland, we have seen that every six seven years in the past, but 90 75, the oil crisis. They lasted for six years everything is happening faster now so why should this not lost for two to three years.
It's not easy for many people in Europe , the energy prices.
Probably 25% of the people in Europe seriously need to trade down the other $75 with a rethink of the papers and we are creating a little bit, though traveling a little bit less on coal going.
Finding in meaning.
Meaning dining at home rather than dining out you see it in the numbers, we see it and they are lumpy business, we see it in the wholesale business.
What does that mean for motto.
We have extremely strong market position competitive position.
The linking primary processing into the consumer at the show. We are here, we are as well, having shown looser and with less water less energy and third cetera that is really neat.
Inflation is the best friend of sustainability.
At the same time as we need.
We need to show discipline in operational breadth down piece.
Mary processing meat, we have their fast, but largest installed base modernization in the installed base, but go after the secondary processing.
Make octagon impossibly like I said uncle uncle after the volume growth there.
There will always be profits on the deposit on the plate then we have some vegetables and then we decorate their play to a strong pickles, but model is 100% focused company a moral we're 96% proteins.
There is some ease in the subtlety in the east easing, even though we are not yet out of the woods I'm not talking about model on top of Hawking about the global economic.
Meaning that there will be more availability of Pos, but it's much more that we have reorganized ourselves how we purchase the partners the partnership with their suppliers and we are seeing lots is thick cost while freight going traumatically, Tom the only pieces thought the energy prices is still look.
So all in all I cannot say that I am looking forward to the inflationary recession. It is a tougher environment for many consumers, but we are having the keys to pascua loft environment, and we will be out in the field tier I'm taking market share in this environment.
Focus first the operating model, we are have been working with Mckinsey aren't all of US here analyzing how can we increase the end to end visibility of comparability.
Behind the scenes, we are set to go up seven.
Seven business divisions, possibly meet face retail and food service Wang.
Service software onshore one here.
Villa all have internally their own P&L responsibility.
We have as well customer set this out in the field that we are clarifying kind of golf blunt apples to compare same way of working out there et cetera et cetera.
Very important that this is behind the scenes we are moving for what here to increase the speed and the scale of the operation.
Our clear target this 3 billion in revenues in 2026.
It's only one month a half year ago that we were having discussion investors analysts are you not going to restate the pockets.
One 2 billion for two years in a row.
Walton on sepsis, this 3 billion pocket.
We earned 2 billion next year in revenues ramp up.
It's a much shorter from 2 billion to 3 billion.
The three pillars target was not a pocket in itself for the number either it was how cost model need to look like to be a one stop shop.
In U S in Europe in Asia in Latam.
Our largest customers are having 60 billion in revenues had think 200 billion.
To grow with them.
With different than 15 years ago, where our customers who are just going for a low cost now they want to replicate.
Around seven factories at the same time into Asia from U S.
Then you have to have this economical scale.
If we think forward.
Yeah.
It is a much larger number that you would need to be the real read one stop shop through what they're going to win we have been walking and growing like Lego bricks. We started in the middle of the pitch sector in secondary processing and then gras purely from the boat to tell.
Every <unk>.
Same way up into and can meet and possibly say.
I'm journeys photo in the plant based.
We introduced yesterday as well.
They're new.
Sometimes called top structure, except that the board thought this.
That is the top of the pyramid in the call we're not in that second the team the executive team that remains.
This is us well to increase their speed thump escape in current world economic.
It is sartwell freeing up time for me personally to take care of many many or all the things that they and the operation the public office the risk Mannesmann onshore one Moreover gave me time.
To focus on the people she steps structures until chipper Stacy.
Stacy cuts CFO Linn Star here with first seal had all of the functions stuff out of the key enablers for the business division to thrive as the graft after appropriate cost and we're filling <unk> four inch that innovation underneath their customers.
The chocolate chain all the disruption that we have been tackling can't et cetera, and then we formulate their seven business division.
Service software as a standalone business.
But we have a clear P&L responsibility in house, although we will report four pillars towards investors Unfelt right.
Good to see our niche areas shown here stepping in as the Chief business Officer offices.
It was try three translate the very strange in the Icelandic newspapers yesterday, but we didn't translate it ourselves CPO and deputy CEO here.
The diary option coming closer to me and the people and culture really looking forward to it.
Its becoming not only a bit.
Business posture on anti etc. I'm recently now cheering, the Norfolk seals us well for sustainable future, where we are looking back the world with less Seo tool more diversity more inclusion and so on so we will be very good tier together, David when we.
Start to talk about how to drive even more diversity more learning and development and etcetera in the company. We will explain this better pop structure. However, we have.
As well.
The same excellence people for is the broadening poverty running their fish division good PK that erode surplus in onshore.
Same leverage towards the customers towards lead think their people.
I will continue to discuss as well with you and investors about the strengths of those people, but this is more in line.
With all of the capital goods companies that we are comparing our all with.
When you are reaching this size everything has its maturity.
Towards the five I remember clearly 129 million in revenues, 10% service revenues, you'll need that if that operating model them.
Then we went to 600 million.
When we took on scan Maarten store, then you move into another operating model.
One 2 billion, we were stuck there for two years then you have another operating model now we are moving at speed towards the 3 billion target 2026.
This is the conclusion after comparing two with best in class how to operate how what are we going to target our PE walked out of it going to outstrip aren't sure.
Yeah.
I've talked about the targets quite a lot you know this slight they remain both of the targets forced into 16 posted the EBIT impact of next year.
3 billion, 50% from recurring revenues 2036 aren't on what you will start to see more tied to the revenue starting to taking in.
From 24, although we will not split it.
Who knows 26 somebody you want what will be sort of as a revenue on software revenues. When we are traveling from reactive to proactive to preventative maintenance so far.
Back to Q1 day. This is a travel this is a transformation of the industry and our self as individual and company. So.
Tina Youll concludes there to the Q&A.
Fantastic so move.
Moving on to Q&A, we're going to start with the online audience and then we're going to take questions from the room and I email. So hand, you over to the conference call operator.
Thank you if you wish to ask a question. Please press star one on your telephone keypad.
Yeah.
Our first question comes from Claus Bailing.
Your line is open.
Thank you very much I, only and Stacey closets. It is good to see the margin improvement not only driven by accretion from bring your question, though is to what extent is that sustainable into year end and beyond you got operating leverage out of the backlog.
Revenue recognition that help your Opex you have less one off costs linked to the warehouse automation. Your gross margin you can bring in improving which is driven by mix, but also better pricing I would like to zoom in on the pricing can you can you talk through how much pricing you had out to the sales growth in the quarter and how much more pricing in the P&L, we can expect them to come.
Coworkers I know, we're still waiting for the savings kick in but keen to understand the pricing movement better. Thank you.
Thank you plus maybe I start.
Good question, so to recap here around 40, plus knowledge services around 30% and started their kirkman and thought around ballpark, 40% and project. It fluctuates betting partner a little bit the proteasome stunted acumen. So this cost and.
To recap it was only half more thought the pricing of the services and spares were in so its full effect all of the 42% in this quarter in the new price level and note. The banner we are not over pricing. We are on a right price level at your shifting to the cost levels in the world We are a sim.
Philip price level for all.
Compared to when we were delivering 14 15 per stupid, so filtering through in this quarter, the 42% the us pricing fit.
I think next quarter is this done per day equivalent not fully its fourth quarter and first quarter full effect coming then in not included so much in this quarter and then the protein business stuff out 12 months lead time will start to kick in in second quarter next year.
So pricing and availability of parts out of the far biggest EBIT driver in taking cost first Dara plus pricing execution, meaning that we go after when we when we have an agreement with our customer, but they take the freight cost that they should take live rate cost anthro onshore.
No.
And I would just reiterate that for Q4, we are expecting similar levels in terms of results as Q3, and then we expect gradual improvement up to the 14% to 16% run rate in the back end of 2020 three.
Our current pricing actions are still filtering through as already mentioned, we're then in a regular drumbeat in terms of evaluating our pricing and as well looking to looking forward towards cost forecast into next year and while we do see some signs of supply chain easing. We do also see an inflationary environment costs continuing to rise in other areas. So we.
Really are balancing all things, which is why we also expect similar results for next quarter.
Yeah.
But on the actions of the combined level in the P&L, you're not willing to say how much of the growth was pure pricing.
Yeah. So so it it is.
I said that.
20 patents, where organic growth, but ballpark now quarter by quarter. It is there the organic growth. This.
50, 50 pricing gone volume you can say it that way.
And so on so so but what how to calculate it then crafted by class the class a so so we are compensating the cost here with a higher price and this is the new price today is that they want and then we go forward, but the pricing is quite significant for the organic growth.
Got it my my second question is on meat I still think you talked a lot about the growth only.
2 billion next year 3 billion potential maybe more.
I still think that you are targeting the 16% group margin longer term when we leave 2023, Oh, what kind of level do you think meet deliberate within that level, it's pretty clear to me that the poultry margin care returned to previous peak, but keen to understand if you think the opportunity to drive to meet margin closer to poultry has changed versus at the time of the IPO and I'm thinking.
But after market penetration modernization.
A more broader full scale offering and so forth.
Yeah. Good question, but let me start.
With a good part of the poultry is going to 18% to 21% higher proportion than we thought before.
Plus best path.
Historically reported 15% cross selling up selling there.
These traits four of up to 16% plus there.
Meet the fish are.
Now in a low mark since the.
Travel for what this clear and fish however in Bakken to when we have that are tied to poor Pos software 40 to 60 per steep.
This will probably not be higher than our own 10% eight eight to 10.
Meet Arthur pointed time realistic now it's similar level, although there is nothing but excludes thought we will be at 15% plus and meet long term, we will not not take any shortcuts here, we have a fabulous portfolio in their secondary meat to afford US a question Keith.
The current environment, and we need to be out there in the field, we need to our portfolio management of protest people. So this is ballpark. This is not forecasting based on number of insight we have a lot in all of the numbers here, but if we just look at it a helicopter level.
Around 10 10.
Eighth in 'twenty one.
Forced into 16 and Ranga hopefully.
Cross selling hopefully 16 petroplus. So all in all our initiatives go across all of those at the gross profit across 36 to 38 to 40 and packaged tour last year and home run in in the SG&A, but not think that that.
Excludes thought we will be in those segments and all of those segments are around 15% deep but traveling from now.
Towards the back end of next year, and we get closer and closer to the end of this year.
It's our own 10 10 eight in 'twenty one.
And on thought on 16%.
Got it.
Very quick final one on the interest charge going forward. What did you say it stays at 10 to 15 million per quarter until you start to Delever 10 to 11 million.
Per quarter interest on borrowings at the current leverage trade and debt.
And obviously include the 300 million, though that you characterized it correctly.
Thank you.
Thanks Klaus.
Thank you we have no further questions on the phone line at this time, so I'll hand back to the floor.
And before we move on to the audience and we have an email question thin and cash from J P. Morgan and the first question reads the cost of debt financing has significantly gone up since you gave the two to three.
<unk> leverage target during your secondary listing in Amsterdam can you tell us your latest thinking on leverage ratios and would you consider lowering the medium term leverage target ratio is the cost of debt stays to current high level of 45%.
Perhaps I'll start and then you jump in.
So no we do not consider changing our leverage targets at this time. So we are at three nine times last quarter, we were at three eight times.
The difference between the quarters is due to majority currency effect on the borrowings we do expect to be deleveraging, which we have done successfully in the past with our cash flow model.
Transformational acquisitions, and we expect to enter 2024 closer to the two point out times than three point out in our targeted capital structure do not plan to change that at this moment.
Now we have a wonderful cash flow model hunt with 25% cash conversion compared to EBIT just to repeat once again, we will be back on track there.
The two to three times leverage is not a coincidence, it's a lot of thinking behind that and see an RVO planning.
When you are hiring so high quality of earnings 40% plus in a recurring revenue sure Gail graphical spread your approaches steps threat.
Portfolio strategy dealing with Flexitarian ratchet here in Nashville of poultry meat the fish.
Two five times leverage.
You have a really really safe in wall kind of she annuities.
If we go much below two five we are not able to get enough to our shareholders. We are here to make value for our stakeholders customers in Seattle This other onto our employees.
We were too long cut one times leverage so two five is the number but a lot this fee that for this high quality company.
Now we are temporarily Apple we have made the agreement with our trusted financial partner Smith acquisition Spike with extra liquidity et cetera.
We delever fast remember when we acquired with NPS two nine leverage 12 months later, one point in time, we are going to repeat that game be back on track in the occupancy issuance journey beforehand.
Before until next year, so when we are closer to two.
We will start again.
Our celebrate our journey to be the one stop shop and this is our game our Pos spin since towards the five no change.
Great and his second question reads and the logistic costs are coming down very rapidly supply chain headwinds are easing, resulting in additional savings in Q4 from restructuring and higher pricing benefits and.
Is it fair to assume that Q4 margin could be up sequentially.
In decent demand was there any positive one off items.
And in terms of customers restocking space that boosted Q3 mix. So much that Q4 could see limited increase in margin.
Just the chart, we expect similar levels in fourth quarter, our third quarter and then gradual.
A pickup in the coming quarters. So so we will not go in further details that we have of course tailwind and the currency tailwind than in.
Emmanuel that items that'll be up and touching on pricing of the stunt that their coupons et cetera. We are in a volatile environment on the short term we are looking at fourth quarter at similar levels.
In all aspects and then gradual buildup.
Okay, then hunting originally the conference cool way and Andre Mulder from Kepler has a question.
Two questions.
First.
You guys split of her of the drive for sell through of sales coaches.
Could you also split the order intake in terms of acquisitions organic and possibly the Forex part.
The second question is again on fish.
But I do see.
An improvement of her of the shales.
Still not delivering the results are there so.
In the past it was settled was mostly volumes that should drive earnings share but.
It's still not happening so what to.
Most recently idled and do you expect any further measures to be taken there.
Yeah, I'll start with the order intake there is very very important to stay focused on here in this environment. There is a.
First time like I said key loss in pork industry in Europe down 5%.
This this year year on year.
On Tao toward customer react they increase their prices. So probably we are going down there, 10%, that's all shifting into poultry.
Or plop pest and saw the pocket Theres three though on beef industry in the U S is on the uptick so it's important to our policy and they gave a crawfish and theater.
There was a 100% increase in authentic between years in first and second quarter in the fish Interestingly, we're not seeing that in and the revenue levels. Because we were in 45 million issued tapping in like $55 million.
We have explained we have been working on initiatives now installing munch their food preparation that was named meet preparation before but it's hardly at.
All kinds of routes that we are moving that out to make oxygen for the salmon industry.
So on.
Solomont taxation in Norway will put that temporarily surplus in the order intake there for time being.
IHOP shortly yesterday onto on Friday, as well I will not stop hiring because it's almost all the growth is still there. So we will have our investment in land based here in Iceland, we are seeing 36% increase in export from Chile to your west and less cost there are shallow manav. So on we are good.
<unk> spread so just to give you a little bit bottom at their teeth in the order intake would I like to see even more Samsung is a country, where we are have been pumping out there new protos, yes, and we need to go after it.
With a moderate shift more focus because we have been pumping out and meet now now we are moving the intensity the gravity and innovation into the path through secondary onshore onshore so to give you insight, but we don't split it first.
And I think it's also good to mention that the product mix has been shifting a desk within fish for the last two record quarters were heavier on the projects and standard equipment as historical so that is something that we are also paying attention and focusing on going forward.
And then I think as already mentioned, we don't speak split the order intake, but poultry as strong as expected for plant pellet feed softer in meat and fish at a good level, although softer than a record quarter last quarter.
Additional question.
I believe here say asphalt slowdowns of T, you'll see a pumping $250 million into.
Increasing the processing of meat and poultry.
I assume you will benefit from that.
Is there any timeframe give them.
No so.
No.
How would the government that they et cetera, just been the biggest transformation is when we walk in triangle son, Pearce herein and the violence voluntary the up and working on sustainable join US here for instance, one of the best stories is one one.
We looked at in the Benelux, where you are from as well.
And then analyze where they're supermarkets our processes around us we're walking together how to utilize the animal on the protest.
Within the region showed supermarkets take on on there being something cetera on display our process will make new rare sheep suddenly make new solution for all processors and then of course, those sharp lamenting or chartering by taxes. The government. This is all intervention thought they're short.
Term are not driving to the long term transformation, but of course, it we will be at the table when those.
Are here, but I was previously program for taxes taxation in Norway. This properly or both what is acceptable levels and then Europe , we're talking about pumping money into the meat and poultry show.
In general I'm, rather a free market trip Guy as you know.
But we will be at the table here.
Okay. So no change to the audience here in Iceland any questions from the room.
Okay. Thank you. So I think that concludes today's session and again.
Our sincere thanks for your time attention and continued support.