Q4 2022 Marel hf Earnings Call

Slightly Apple 12, plus deep it.

In a change in a world where do we start the year in lockdown situations for one third of our people.

Just to recap.

Russia military invasion in Pip right into train.

The inflation that took on an increased bottleneck in this up the chain and completely changed so flow.

What to do.

We need to accelerate our journey.

We are guided every single day by our vision and our financial targets 23.

This this year and for the year Anthony Wood.

Strategic growth targets 26, where we are going to be one stop shop with 50% recurring revenues from service and software compared to 10% towards the five and compares to popular sports person in 'twenty two.

We took on many many business activities to maybe I should have some ramp up of revenues here when I'm talking I'm. So excited to talk about the year I go through the year, we took on many many a eight actions to improve the flow.

The flex.

While I was describing many things that are outside of our control. Then you cannot handle business like that you have to say what can I, what can lead to and why what can we do in partnership with our partners suppliers and customers.

We have been investing.

In infrastructure protests to ultimate updates to that unless the flow of spare parts asked me up gone through global distribution Center will be right at 24, and then regional distribution centers. So we can.

Sure.

The lead times, we can be closer to their customers unsure about get highest share of the wallet in Asia.

An even level to Europe you wish this is a journey, but we are seeing the fruits of it we are having 11 quarters in a row, where we are increasing the perpetual perpetual.

Recurring service and software revenues they are perpetual as long as we are customer centric and we are with our customers. So we believe that we increase the intrinsic value significantly last year and model.

Now we have to show the stock market that we are now showing the operational restaurants that we are aiming for once again.

The town proposed 60% the backend of this year, we are showing 12, 4% in this quarter, but we are closing.

The ramp up of revenues were slightly higher than we expected, but they ought to be but call lot bye.

Bottlenecks in the past to recap I've said, when we are 40, 50% of trailing revenues and Auditable, we should be able to deliver revenues.

He called to average of three four quarters passed in order intake.

That meant we had $40 million to $50 million in cuts you need.

If we look at last 12 months.

We were okay towards our customers because all of the suppliers were late.

And the customers were too late.

However, customers are very pleased with our deliveries in fourth quarter, It's our culture.

And we show here.

What we can.

And it's not enough that the CEO or the top management beliefs in the forest and $60 the bid or the 50% recurring revenues the whole organization needs to be in unity and this is showing what we can of course it doesn't come without a cost their gross profit, there's only 36% in the quarter.

The composition of protest this hiring done in past cost compared to <unk>.

Spares and services.

Special services, a 39% than the cost of all though it's slightly increasing compared to third costa thoughtful shadrach with bracco, CAFTA and NAFTA kit.

All in all there's some stuff to $12 four that the increased revenue or cost called better off but at the cost very well.

But at the cost below gross profit is 23, 5% in the quarter.

Compared to target the 24% the backend of this year.

'twenty three we our aim is to karate all increase the gross profit and stay on cost and 6% R&D cost and 18% SG&A.

Why are we putting the absolute number in EBIT of $61 million.

We have safe modern as a growth company, we need to craft the markets here.

We need to have the economical scale.

On business that has just a combination of the growth and the pit.

And we are obsessed with the customer as well.

So cash flow is call out last year by increased inventory to deal with the environment.

Cash flow model is unchanged, it's call it as well by book to Bill or order intake be service revenues.

To recap our authentic US was very strong in 'twenty, one as well book to Bill was high book to Bill was very high impact and of course the year on the order book Masters to balance out the lot.

That's very important how we deal with all of our system here a book to Bill is.

Close to one when we close the year, so order intake in fourth quarter. It is slightly higher than third quarter. If we adjust for currencies, but we don't that is for currency. So it's slightly lower ASP.

We posted the moment that is pretty high and I will go deeper into it here and when I go through the the industries.

$61 million.

EBIT compared to the record in past 52 million, if we extract vanguard b at same level us directly of course, we have higher death, but that's winding acquisition just not opinion.

It matters a lot.

<unk> that'd be aiming for and backend of the year.

If the EBIT bridge.

It's not to report 14, 60, plus deep it in fourth quarter online trop two eight.

We are aiming for sustained business Odessa for 14% to 16% EBIT.

Yeah.

Looking.

Into outgrowth on company issue of growth.

60 million EBIT.

We are aiming north of 300 million in EBITDA 34.

Meaning that we are aiming for off but the cash flow somewhere between 350 and 400 million in particular.

Our history.

Cash flow conversion is 120% to 175% of EBIT.

This is the name of the game and value creation.

It is hard to understand when companies continue to innovate, 6% invest in infrastructure that textron walnut costs.

<unk> cost for the Kraft, but we are guided by the this financial metrics and thus were low growth target 26, and then b on how can we get the traceability poorly to the consumers.

Just to flock, we have before said karate all improvements throughout 'twenty three.

It looks like now it will not be gracia.

We wrapped up a little bit higher than we expected and forecasted.

Oh, it's not unlikely that we go slightly down in revenue in first quarter.

With less operating cost coverage, but at the same time, we are targeting gradual improvement or improvement at least in the gross profits, although leaner Hyatt in the pocket most important.

Is this year, we are not only going after forced to 16% we have parallel lunch takeout.

96 target, 50% revenue from recurring on the EBIT level. So we are not going care after short term profits via balance ago.

Then I move fast postpaid momentum extremely good throughout people trading down 16, 5% two quarters now in a row.

Sharp price here to meet reporting 8% for the investors. After we went down to minus four plus four and eight in recent cross. This here. We are closing protests are back the restaurants than we expected.

Ed that we took as well cross sell where the company, 5% reduction in the workforce in the middle of the year as you remember.

Nearly every single company is doing getting pushed cluster thirty-three we did it in middle of 'twenty two.

Necessarily to do with our Grand scheme of things is to have even Steven Nonpro employees and backend till 'twenty three as we have been mid of 32 8500 employees approximately and increase the output per employee like our customers too.

Now well turn to execute the projects at this level close them at this level on a rebound partly eight persons the meat. We archive think the soft thresholds. They meet in the first two quarters of this year, we have endless of leave us two to improve the profitability here to meet namely <unk>.

Cross selling up selling the popular solution stuff behalf and secretary meat and improve the service profitability meet in line with how we do the service and part of it.

So.

It fits very much caused by the acquisition of two real Laska integration. There we are not out testing for it.

Its teeth system us thought it's.

It's difficult to take over a company that is on digital.

A basketball shoe digital journey weight behind model, but anyhow outstanding promised isn't that digital journey and now we have to combine those platforms and all other acquisition rehab hot stamped out there Kaufman all solution or companies that have not been on the adult young anyhow.

We are working hand in hand, with our customers ultimately we started the year with.

Record record order intake.

Softness in fourth quarter in order intake due to the taxation in Norway proposed taxation, let's say about they motivate you to the in the salmon industry.

Starting on a pretty good momentum, though in beginning of this year because people need to punt the ground for optimization.

Two sort of their fish market all in or.

Then we come to pass on sleep.

I would say this is portfolio management part excellence.

I think of the Sox acquisition, we should be prompt.

We are in plant based proteins, we are not in what you rethink about here and.

You never ever see us use the word often with Jamie.

We are hearing based on pet pet market. This lucrative and later on we will intensify oswell dark coffee.

Authentic purplish operational risks just good are we at harmony care in all our part of the cross Costa Rica to cluster around 15% EBIT up over that.

A little bit color to the fourth quarter by by the ports.

Portfolio for a model that was from lower profitability than on Ranga. So axial vanguards Shouldnt go higher as a thumb. This in fourth quarter. It was a little bit to reverse in the third quarter.

However, the opportunity or cross selling up selling of good gross margin.

Remember.

May be removed slope towards the 60 mid changed at all or issue.

Two food instead of poultry meat and fish testing to walk out of anger.

We didn't want any other platform in the industry.

Magna is 6% of restaurant over your ear handling the protest with Kier keep think their nutrition.

Just like our Revel portion is just like our hump with their lives just like our intelligent, though with that takes on built their full line and the interesting, but welcome team magnetic actually team model now.

And <unk>.

Very enjoyable working side by side with you out in the field and then the operation it's up.

I think it was good time, Gus well for you the guessing their strategic direction, our willingness to go fully global and to invest in the platform.

All in all some shop more diversified revenues industry wise revenue mixed wise and processing, that's why is 40%.

Service revenues compared to 10 person towards the five while we grow.

Increase the quality of earnings.

Decrease the risk in the business.

Thank you Arnie.

Thank you all for being here today in person and online as we present, our Q4 2022 results and full year results as well.

Overall, a solid year, where we saw strong growth in order intake above 400 million per quarter and the rapid ramp up in revenues in the second half of the year and that the record of 489 million in revenues per quarter.

I will start off going through Q4, and I will then switch over to the full year. We are pleased with the improvements in the quarter. We have been talking in recent quarters about our book to Bill ratio, our healthy order book and our journey to ramp up revenues Q4 is a quarter, where we delivered.

A record of 489 million in revenues as mentioned this is 33% growth year over year, 17% acquired 17% organic and 16% acquired.

The significant and successful ramp up took a lot of hard work and dedication of team morale in the challenging environment. We did see this quarter as a catch up quarter as already mentioned, where we see first signs of parts availability issues easing and we were able to deliver a number of projects to our customers with strong <unk>.

Performance on revenues across the segments.

Aftermarket revenues are at an absolute record again this quarter 191 million, 39% of revenues in the quarter, which also shows how strong the timely ramped up of customer deliveries was on the project side.

Orders received at $413 million in the quarter. If we look net of currency and we compare Q4 to Q3 Q4 was actually higher than Q3. So we do have currency tailwind and headwinds there impacting the numbers.

Order book at 675 million 39, 5% of trailing 12 month revenues at a healthy level.

Most profit impacted due to the challenging market conditions in the air and the cost of ramping up as well.

It will be important to see improvements in gross profit to be able to hit our 2023 target in the back end of the year.

EBIT and EBIT here at an absolute record of 61 million, which translates to 12, 4%. We see here the increased volume as well as better cost coverage kicking in amongst other actions taken in the second half of the year such as the global head count reduction.

Free cash flow in the quarter at $10 million with stronger.

The results and the operational side.

Leverage ended the year at three six times net debt to EBITDA from three nine times in Q3, if we look at the improvements about two thirds are due to a stronger EBITA and one third due to currency on the net debt.

Good signs of deleveraging and we expect to continue to be within our targeted capital structure of two to three times net debt EBITDA by the end of the year.

Due to the positive movements on leverage and we will see some benefits on interest cost in the coming period, which still balanced out the increasing interest rates since we reported Q3.

Million cash out per quarter on interest and finance costs still applicable for the first half of 2023 based on what we know now.

Yeah.

Already mentioned financial highlights so well one through just a few key additional points on the income statement selling and marketing expenses coverage improved due to higher volumes at 11, 1% in the quarter G&A seeing results from shared services coming in though offset.

By salaries and consultancy costs at the moment S. DNA at 18, 4% compared to the targeted 18% end of 2023.

R&D a bit lower than normal at five 1% in the quarter numerous solutions coming to the market end of the year, which will enable sales in the coming years, especially on the digital side, which Ernie will cover in a few minutes. This will result in higher R&D expenses in 2023, with lower capitalization and higher amortization.

Nation.

Non <unk> adjustments in the quarter elevated similar to Q3 due to the amortization of the purchase price allocation for Wenger at $17 million, which will remain elevated until mid 2023 acquisition related costs $2 5 million still majority of that due to Wenger and Brazil.

The share grants and as well in terms of consultancy and $2 9 million of restructuring costs related to the 5% global head count reduction.

The 5% global head count reduction is ending at one off costs of $8 4 million for annualized savings of $25 million. So we did end with actual slightly lower than our estimates previously.

Net finance costs elevated. That's previously mentioned are also included in the Q4 figure is FX headwinds our costs.

Costs related to our new 300 million U S dollar facility, including in cash out in the quarter.

Yeah.

For the full year 2022, great to highlight the ramp up in revenues $1 7 billion for the year up 26% were 16% as organic and 10% is acquired aftermarket was 40% of revenues in the year growth of 27% of aftermarket revenues year over year.

Sure, we really see our investments in our end to end Spanish journey paying off.

Orders received in the year $1 7 billion full year book to Bill ratio of 1.01 higher than the first half of the year with a record intake bouncing out in the second half of the year with the ramp up in revenues.

Full year free cash flow at minus $18 million, which is below expectations. We did see improvements in Q4, and we are putting good focus on rebalancing, our working capital moving towards historical cash conversion ratios with our strong cash flow model significant investments in the air with our end to end spare parts journey and our global distribution.

<unk> centre in Eindhoven, and our new facility.

Facility and at need try in Slovakia, and our new warehouse our inbox here.

EBIT in the year nine 6% below expectations overall due to the challenging market conditions, especially in Q2, improving in the back end of the year due to actions put in place as mentioned our full potential program as a global top priority to support margin expansion.

There is currency tailwind in the year due to the strong U S dollar and morale, having a higher proportion of revenues and selling costs.

To spend a minute on the outlook looking forward. So last quarter, we discussed discuss gradual improvements towards our 14% to 16% EBIT run rate at the end of 2023.

Due to the timing of customer deliveries and the easing of parts availability, we were able to have a strong quarter.

<unk> revenues in Q4 and deliver to our customers which is great.

The ramped up allowing for better coverage in our operating expenses, resulting in a 20, 12.4% EBIT.

We continue to see a good pipeline also driven by the current labor challenges of our customers and the increased need for automation and digitalization in food processing and we are committed to our 2023 targets. We do see elevated uncertainty at the moment due to the macroeconomic backdrop, which may lead to non linear results and.

The variability between quarters going forwards.

In terms of cost developments 2022 so increasing costs across the board raw materials components labor freight with inflation.

We have seen some signs of easing on the increases of costs freight costs. For example are easing on some routes. However, our main route from the Netherlands to the U S is still elevated due to congestion.

We do see higher labor costs entering 2023. These are built into our pricing analysis and actions.

To cover the points not mentioned so far gross profit in the year up on an absolute basis down as a percentage due to the previously mountains mentioned supply chain challenges SG&A in the year at 21% compared to 19, 4% last year. The run rate is trending in the right direction at the back end of the year.

With the higher volumes as mentioned.

R&D at five 7% for the year in line with our promise.

Non ire for us adjustments already explained earlier, but just to be clear. We are only adjusting for acquisition related expenses purchase price allocation and restructuring to the costs related to the 5% Global head count reduction, which is now closed.

Book to Bill in the quarter 0.85 times, showing the ramp up in delivering projects to customers that we've been talking about over the last quarters. When the book to Bill was above one average 1.01 times for the year order book in the year peaked in Q2, though still at a healthy size of them.

675 million $81 million included from the acquisitions of Langer and sleepers in the air.

Good to remember that the order book is financially secured with down payments.

Cash flow improving in the quarter with operating cash flow at 44 million on the back of stronger operational results in the first steps in rebalancing working capital the lower book to Bill ratio of <unk> eight five times is impacting cash flow as mentioned also last quarter free.

Free cash flow of $10 million for the quarter, including continued investments in the business.

Operating cash flow of $96 million for the full year minus 18 million free cash flow, which is below expectation operational performance higher working capital continued good investments as well as one offs related to acquisitions and restructuring all impacted.

Our strong cash flow model is in place with down payments secured for orders, we ramped up our working capital during the pandemic to deliver to customers due to market challenges and will now focus on rebalancing our temporarily elevated working capital to move towards historical cash conversion.

Assets, increasing and a large part due to the acquisitions of Langer and sleepers. We then also have a bit of an increase in inventories and trade receivables due to volume if you compare the assets to Q3, and we are continuing our work on the purchase price allocation for wanger and making some good progress there that does account.

For a few shifts on the balance sheet.

Compared to Q3, we do see improvement in our inventories due to actions already enacted the amortization of the inventory uplift for Wenger and U S. Dollar movement full year inventory increase is largely related to acquisition cost price increases being built into inventory and some ramp up in the first half of 2022.

To deliver to customers.

Trade receivables in the year due to increasing due to acquisitions and volume we are focusing on rebalancing, our working capital and have already seen good steps on this from Q3 to Q4.

On the equity and liability side, the borrowings increased due to the Wanger acquisition, we signed a new 300 million U S. Dollar term loan in Q4, which repaid the 150 million Euro bridge facility earlier in the year for operational headroom.

Average at three six times, improving from three nine times in Q3 barring.

Borrowings decreased about $30 million in the quarter linked to the movements on the U S. Dollar part of the short time will mature later in the year, we do have availability on the revolver to be able to cover this but we are also looking into the possibilities in the debt capital markets.

Correct liabilities and assets driven by the book to Bill ratio.

Earnings per share is targeted to grow faster than revenues basic earnings per share for trailing 12 months was $7 seven eight euro cents per share and that results, though being colored by one offs such as the 5% head count reduction the purchase price amortization of Wenger and cost surrounding integrations and investments we see improvements in earnings.

Sure. If you look at the back end of the year with operational improvements in Q4.

Dividend policy is 20% to 40% payout the board of directors will propose a 20% payout of dividend at the 2023 annual General meeting, which is 1.56 euro cents per share or $11 7 million.

Back over to you Arnie.

Yeah.

Thank you.

Stacy.

We are very proud to be pumped out more than ever and our innovation front, we invest 6% every single year.

Gucci is not a great deal of some nacho courteous and pets.

Our sense shifts to keep on transforming their food processing.

We need to finance this with engaged people the Pos customer centricity.

Armed with EBIT on the festival.

All of us, but how we find ourselves three so it's a prerequisite to EBIT on the customer.

That's why we have the 'twenty three targets.

Let's look at the 10th of six buckets, what do we mean by 50% software and service.

It's not only to get calls from Populus recall grinch.

To transform the way put this process in.

In the sort of a site we are moving from origin will reactive to proactive to predict.

Interconnected with our digital journey aren't all all our our focus on sort of as.

We are as well introducing new digital solutions, Inc.

Improve efficiency ultimately what changed the industry into the months driven instead, they'll shop pipe driven what do we mean, there is sort of right product in the shelves in the supermarket on practice to prevent out of shell.

Sure.

Too much stock leads to dish comes from Memphis, I don't know what their pitch the rest of.

It's the impact to improve the operational profit starts thinking the Pos trends inter three standalone protest is skeptical of a pension or aren't already installations out there in the field.

Then we will Cascade similar purpose to the order in which they start thinking and possibly.

The pro flow.

You all have heard me talk about one.

I am not approached 50000 chicken per hour called most people screaming clenched the Pentagon the protos.

People they go onto Nevada forecast up et cetera, et cetera here, we're selling not only in the poster, but the inefficient history as well moving into the pro floor to maximize the flow.

Their team their primary approaches Inc. On the satcom, they're approaching.

Just.

We could not do this.

If there were not intelligence in our purpose connectivity in a protest same digital platform and our purpose.

In March in all the investment that we have been taking launches towards the 17th when we stepped up and synchronizing. The digital platform you said theater in vessels you will not snow this towards the 17 besides fish.

Significant changes in our digital revenues until 2024.

We have been investing in this hump drink our EBIT on all our investments.

Now it's 33 Tomorrow is 24.

Yeah, <unk> is a critical starting point in the pocket of processing it.

Interest rate.

Here, we are upping the intelligence, we are seeing the yield improvements for all of this.

In connection with later stage system the upholstery industry.

We have the largest installed base of new over a man that customers are looking and modernizing our replacement.

Plaxico tier new restaurants into the game into the pre read showed a solid noninterest three into the maximizing battle the whitefish industry.

Next steps, obviously to casket, there's two other interesting.

I called 360 or internally invested inefficient the street now targeting with a new solution.

And versatility to meet.

Meet thinner.

Ooh portion.

This is important all the Latin speaking vault is on day to day speaking.

Day to day, having pets.

The months think of thinly sliced.

To switch it on upon even though we sometimes pixar stuff the good weather in perpetuity that day to day lives two suites from pop.

Now we in northern Europe , you wish us well want to save the time thinly sliced even ripped by shall we have switched them upon.

Not every but they have the luxury asked people here in Iceland that the energy prices are not skyrocket.

It is saving the energies to mental literally thought to come switch on a path for two minutes instead of cooking for six seven months this market.

Here, we are on the right time with Sydney thinly sliced meat.

To the market.

Leverage zinc all all our Tam as part of our operation in portion and combined with a thrive.

Polio.

The leader of the parking portion when it comes to portion and getting the world.

Maybe strange to see two items here from the fishing the street because fish cuts only for island, 10% of our revenues. What this act side think of biopsy Alexia, It's a new field, it's a new revenue stream its a tilapia automatic the tilapia industry.

We have been thought with the linked with the most athletic whitefish.

Unanticipated sharp pick out well done well done.

Team and their business their issue.

Furthermore.

The unity on cooperation hub think Oh.

Please proceed I remember there was a cockpit two years before this year.

We managed to keep the fish GNC and innovation through Walt.

E. S. T. Very proud. This is my passion I think their north if she also for a sustainable future. We adhere thank all of our targets.

Our sustainability journey last year, you know it gets them harder on top of that we are on the lead there.

And T. CFT reporting we are proud of the gender balance and we have set targets and we measure all of our restaurants, all the west you talked I see pockets Theres no difference here or financial metrics.

It rang that I've touched on rux.

Hi make excellent.

Portfolio management product Salon soft throw politics, just to mention slicker sauce Ben mentioned.

Partnership with ties on the many prominent investors, where we are investing in robotics technology.

Unless the company, where we share the knowledge he can't burn cost unpasteurized somebody come in and the listed company off model.

Here, we are testing the waters and partnerships out there in the field with a part of our thinking customers.

All of the investors out there.

Unchanged target very important.

This year, we will celebrate 40 years anniversary.

We are a very young but this picture is this mice are in the University wise pump. This is actually before the year 1983, where there is a protest.

However, the thinking has always been let's see here, we are collecting the electing data.

For our customers, making solutions there are moving on.

It's hard for me to try to look Fortyish for what I, However, as we see it.

The growth.

Or two 6% on average for the next 30 years.

At least equally as exciting goslar twenties.

<unk> been growing 30% a year from 92, there of two third the acquisition of growth of course when consolidation their comps.

Even even more consolidated than there is less consolidation of growth, but the industry is so fragmented.

Still need stable open on our organic growth opportunities through software to service them closer to customer, yes, Poppies T model has changed and competition more diverse more diverse didn't application on pitches, but stay tuned 17th Tomas we will celebrate 40 years every acre.

Modest.

Sure.

Okay. Thank you and I do think Stacey I'm liking to open this up to the floor for the Q&A, So let's start with the online audience and.

I see that class petulant in safety.

<unk> raised his hand, so please go ahead class.

Thank you Tina on it and stay as close as it is the first one would be on the gross margin, it's a bit weaker than I thought.

It's still costly to deliver out of the backlog are you raising prices now yet again here on your orders or do you think the pricing you have now in the backlog will be sufficient to expand the gross margin as we enter 2023 I'm thinking against current inflation, we don't know what will happen to head.

What are your hiking prices further or if current pricing is sufficient to deliver out of that higher price backlog I'll start there.

Yeah, So recall work behalf shape and shackled cost.

Our third quarter.

When you say after the price adjustments that we say we are schuff fishing called but we are on site and say we want to be fair, we around same level in pricing.

When we were delivering 15% deep we say it takes time to filter through you say that the service revenues with phase two in third quarter stumped up their coupons would filter through in fourth quarter and the appropriate revenue Q2 delivery on Armitage Pittsboro, a pro cyclical third quarter this year.

So we are taking price adjustments like Stacy.

Stacy went totally through what I eat themselves are taking corn inflation.

Doctors to call that.

Inflation that is coming in in 'twenty three so no we are not going higher and prices with of course, the exemption of unique portfolio that we are introducing where do we go to value based pricing unique software on unique services. We are testing the waters learning here.

On on on its pay pack in this industry should be two to three years now and the unique solution that sometimes it's comfortably more so so.

And we are doing good cross selling next year instead, though on yearly.

Then the trickiest stuff that's been agreed between procure myself commercial it is working well up in Seattle, but I'm very pleased with how we have set up the pricing teams inside model. It's.

It's all about price cost so.

Yes, we go for pricing.

With discipline, but we believe we have sufficient coverage to achieve 40 to 60 years.

Good. Thank you and then my second one.

Second one is on the margin and meet I mean looking at the group you get good leverage from higher revenues, but the revenues in meat.

They didn't come in well ahead of my expectations would suggest more underlying improvement looking at the margin I mean meet that struggled here last couple of quarters, you say that you closed projects.

Got better margin towards yearend, but was that the one often would meet then trending lower again to the low single digit in the first quarter you have to understand is sort of trajectory from the eight.

It's more likely.

Not that we trend, possibly down and postpone cyclocross dairy and meat, but like I said, we have an intellectual leave us we talk on the cost down.

Across the company, we're sort of at its $5 reduction.

However, if I look now our team meet.

And recent four to six weeks, where we are all looking at redefining code off but I think model I'm very pleased with how people are moving and see what needs to be thought of.

We need to improve us well the delivery times of profitability in the short we shouldn't meet so it will take some time.

You don't want to be clear that we had here.

Rather focusing on what we will achieve in third and fourth quarter on sustained business. The Russell 2004 and onwards, we say knock this alteration.

The strategic and operational review.

It was good no don't get me wrong, it's good to see the the.

The bedroom salt business they'd be a trick III from current level then on my very final one is on the cash flow EBITDA is improving but you're delivering better cash flow. Despite the lower book to bill that suggests that underlying working cap is better how much of this was due to better working cap from better parts availability actually delivered out of the backlog.

Or is this your new distribution centers you work in improving the spare parts availability on your own.

I think it's a bit hard to give an exact number in terms of improvements that are I think we both have made improvements in terms of alright, and twin spare parts journey in our distribution centers et cetera, and then I would also say that parts availability issues have kicked in.

The east the birds eye with them.

I'd also say that.

In general I'm, putting a lot of focus now on rebalancing our inventory like we said in Q3 and I think we are really starting to also see attention from the focus as well so even though you still see let's say working capital moving in the wrong direction overall, it's really because of the book to Bill. So we did see improvements on inventories on receivables.

And we are going to continue to work on this going forwards.

Very good thank you.

Maybe if I cannot close the team muscle that we are not only seeing improvement where we all are working here and in Netherlands, and Denmark, Iceland, we are seeing improvement for instance in the U S. After very very hard work of the people we were not satisfied with the Italy between U S and.

Europe in the flow of spare parts, but we are she she inc. Now after half walk a bit occasional team U S. A.

Our teams in our business divisions working to get improvements in performance and delivery. So so very important to keep the art could work continue.

Thank you both.

Thank you.

Thank you guys. So next up we have Andre Mulder from Kepler.

Yeah.

Can you hear me.

Yes, we can okay. Two questions. The first question on shaping.

This 5% to accept on the workforce of $25 million of shaping how much that you already realized in 'twenty, two and how much we should store for 423.

Second question is could you please disclose short Kaufman trade shows.

So perhaps a take the second question first we do not disclose our covenant ratios I think that that's that's an easier one to answer let's say.

Okay coverage.

Not that this below three five now.

Amongst us the havas acquisition spike compared to I'm not sure we are way below the thresholds.

And then in relation to the annualized savings I would say about one third has kicked in now two thirds still to kick in so that's similar to what we mentioned in Q3.

Okay. Thank you.

Awesome.

Okay.

In relation with this is that we are asked not only cost single wall of course, we are rebalancing the workforce in different flow in the world.

Software and start with something theater, so grand scheme of things smarter as violence that theyre looking profitable Costa even versus short period six costless.

We're calling for double digit growth here in and asked we did last year.

We are aiming to b.

Even Steven and number of employees and Buck until 'twenty, three compared to middle of 'twenty two.

Yeah.

Thank you.

Thank you and next up we have email questions, Ben and a coffee Cup definitely JP Morgan and his first one is on pricing can you talk about pricing in Q4 versus input costs, and particularly the backdrop of declines and some costs like I'm curious it just takes a lot of general inflation still remains high is there.

In need for prices to go up further as the two week, 16% margin in the medium term on country. It's the risk that pricing may turn negative if some of the inflationary headwinds ease.

I think it's a good question and we did already partially cover in the earlier question I would say and they'll go through it when we walk through the results that are in 2022, we did see cost increases across the board I think entering 2023 I think it's important to mention that we do see easing on the increases, but we still see incur.

<unk>. So that is just something important to mention also with labor inflation et cetera, and in general as Arnie already mentioned, we believe that we are at the right price levels at the moment and we don't necessarily expect now that it would go up or down for example, but we're running a quarterly cycle, where we bring in all of our inputs and we then make decisions you know too to make sure we.

We're at the right price levels to be able to achieve also our targets.

Yeah, it's a dynamic world country around cross selling cycles in step of yearly cycles. So we don't want to overshoot and processes, we want to be competitive. We believe we are on the on the right prices. There is even though material prices are going down the.

The biggest through is still expensive and transportation there are signs with profit warnings.

Forward looking firepower shipping companies.

Those routes are going to more normalized level. This year. If you look at the after the numbers third and shoal. What however, there is inflation.

And salaries and there are many other we want to cover this it's not fear that we take the short straw here, we want to be peer we have pioneered solution on services. So so we are just this work closely quarter by quarter.

I think it's also good to mention that it's not just inflation in our salaries and social inflation in our supplier salaries. So I think that's a good one to also think about it in the total context.

Okay.

Okay. His second question centers around the 'twenty to 'twenty three targets and it'd be you guide 14, 16% exit rate of margin in 2023 and introduced 2% due to uncertainty.

Based on what we know today, what's your thinking on the 200 basis points mysterious and if today's environment sustain would you still need his marching buffet.

I can take this one on be very firm, yes, we need this buffer.

We are entering into this year, we are redefining our operating model lumpy et cetera, and we need to leave us from from Doc to push us up to 60 as it looks now with the honest company meet that the et cetera.

We are closer to the Boston on 16.

We have extra leavers to throw off and cooperation in house at all.

Well look I think that the all of a sudden Lincoln and the satcom throughout this yet, but we have many levers on cost Firstly, we don't account for that when we talk with our board of directors of both financial forecast, but we are redefining how we walk bypass us more efficiency in fact, we are coal and gas.

And we are not in conflict wall there.

Tailwind from currency because it tends to fluctuate park as you saw possibly in fourth quarter. So so all in all we want to remain this buffer of 14% to 16%.

Remember it was only in shekel across the rightful Q3 C. You will never make more than 12% now. The question is do you need the perfect.

It is extremely volatile world our customers are now reporting much less margins than they used to and U S. For instance.

Aren't they.

Higher interest rates should they invest in law, yes labor market. This half labor scarcity is there.

Its binary either if you missed the best of your people in a faster and there is no floor. If you will not ultimate.

So now you need to invest to increase the optimization and few have sustainability commitment. So it is not easy to calculate that calculate the timing, but we need the buffer yes.

Two six.

Okay and it stayed where it is in margin mix you said in the release that prolonged inflation rising interest rates and global recession have historically shifted consumer demand as well as investments in efficiency from large projects towards standardized solutions aftermarket and lusk less capital intensive projects shall be ashamed.

This should be a tailwind for margin given lower margins on project relative to standard equipment and service.

It's embedded in our target of 40% gross profit, yes, yes, it's unusual mix on transport cost and forecasted leaping to only 36% gross profit. So the answer is yes things that.

The change of mix tends to move slower than people think ought to be out with.

With the exemption of the recurrent aftermarket revenue on software revenues, but stop stomp out there couple of months a pro took the lives, but it's unusually high large project in the fourth quarter and in the revenue mix. So yes. The answer is yes, but let's not put a very strong tailwind gone, but its a gradual but.

This tailwind.

Okay, and perhaps I'll openness to the floor any questions from the language answer today.

Yes. Please go ahead.

Just hold on we have a mic feet.

Hello, I'm Stefan from auto market.

I want to ask you to talk about the leverage ratio.

What's the leverage to EBITDA ratio that you have posted.

Will we see it gradually come down or is it something that or do you have like a timeline for when you would when it should reach the targets.

Yep sounds good.

So we saw good improvement from Q3 now to Q4 and as I mentioned earlier that was like two thirds due to the operational improvement one third due to currency on the net debt and we.

We are expecting that leverage will continue to decline and in terms of the pace. That's a bit a question Mark in terms of the next quarters in terms of varying versus gradual but we do expect to end the year within our targeted capital structure of two to three times net debt to EBITDA.

But the average for five years for 175% cash conversion, Bob solid mobile phones, we are sticking to them.

Okay any more questions from many of them.

Okay.

Okay, if not done.

Thanks Lee.

Okay.

Maybe just to remind just in my our we have our content is the consensus of course on Miranda calm and make sure to follow us on Twitter <unk>.

With that being said I think we'll be happy to take some time. Thank you. So much they come in today create content and your continued support for Wow. Thank you. Thanks a lot.

Yeah.