Bossard Holding AG

Welcome to our annual Financial Analyst and Media Conference 2023, this time without breakfast, unfortunately. We are streaming this event and will make it available later this afternoon. Stefan Zehnder, our CFO, and I would like to guide you through the following agenda. I will start with some highlights 2022. Stefan Zender will then navigate through the financials before I will close with a follow-up on our strategy 200 and an outlook for 2023. So let me start with the highlights. The Bossert Group has cracked the 1 billion Swiss franc sales mark, closing with a record sales of 1.15 billion Swiss francs and an EBIT of 141.5 million Swiss francs. We successfully implemented a new group ERP system in Denmark and Sweden as the first two pilots. Availability of products was provided throughout the crisis. We could always deliver thanks to our multiple sourcing strategy, which we have been practicing for many years. We scaled our proven productivity services, namely smart factory logistics and smart factory assembly, These services were in special demand to increase productivity for our customers due to inflation and shortage of skilled labor. We followed the implementation of our Strategy 200 initiatives, namely in the areas of sustainability, sales engine, and Together We Create, our cultural initiative to emphasize global collaboration. And last but not least, we expanded our market presence in Canada through the acquisition of Penn Engineered Fasteners, a local brand distributor in Toronto. Our continued focus throughout 2022 on added value services beyond Fasteners has strengthened our brand and perception as a strategic partner for fastening technology and smart factory solutions to OEM customers globally. Stefan Zender, our CFO, will now elaborate on how the year presented itself in financial terms. So Stefan, please.

Good afternoon, ladies and gentlemen. Bossert looks back on another convincing business year. The broad-based growth of the Bosser Group, which began in the fourth quarter of 2020, continued in the financial year 2022. All three market regions achieved new records. While the demand in Europe stabilized at the high level over the course of the year, America posted impressive double-digit growth rates during the entire year. Asia also maintained double-digit sales growth despite repeated lockdowns in China. The strong global demand only led to a slight improvement of the tense situation of the procurement market last year. As a result, delivery capability and inventory levels continued to play a key role also in 2022. Nevertheless, the result achieved in the past financial year underlines the fact that Bostrad was able to hold its own well and took advantage of market opportunities also in 2022, despite the given market environment, which were no less demanding than in 2021, though things were easening. We are therefore pleased to present to you today results that are remarkable in the Bostrad's history. For the first time, Bostrad exceeded the billion mark. Sales totaled at 1.54 billion Swiss francs in 2022, an increase of 15.9% compared to the prior year, despite a negative currency effect of minus 2.5% due to the appreciation of the Swiss franc. Organically, sales growth was disproportionately high, with a double-digit increase of 15%. The acquired companies Javeca in the Netherlands consolidated since October 2021, and Penn Engineered Fasteners in Canada consolidated since 2022, contributed 3.4% to the group's sales increase. Thanks to its consistently high delivery capability, Bossert benefited also in 2022 from the strong global economic demand. As a result, BOSSER was able to report again double digit growth rates in all three market regions. The continued focus on growth industries such as electromobility, railway, robotics and automation and electronics paid off as those segments developed particularly well and sustainably. Due to the experienced supply chain challenges during the pandemic, inflation but also the trend toward nearshoring increased the demand for smart factory logistics and smart factory assembly solutions, which had a positive impact on our business performance. Despite the higher cost base, the strong growth resulted in an increase in earnings. EBIT grew by 18.2 million Swiss francs to a record high of 141.5 million, which is representing an increase of 14.7%. The EBIT margin was 12.3%, thus remaining at the prior year's level in spite of the inflationary environment. Let me briefly comment on the income statement. The drop of the gross profit margin from 31.9% to 31.2% was mainly due to rising raw material prices, higher freight costs and capacity bottlenecks, which overall resulted in higher procurement costs. The increase in sales and administration expenses is the result of year on year higher number of employees, but also the normalization of the business activities past COVID. as well as our investments in the organization as part of our Strategy 200. Regardless of the volatile market conditions, paired with significant cost increases both in raw material prices as well as operating expenses, we managed to keep the EBIT margin at the level of last year, thus remaining the group's earning power. This shows how solid the group performed in an environment which was no less difficult than in 2021. The positive underlying condition also had a positive impact on the profit, though financial costs increased due to the higher required capital, rising interest rates and negative foreign currency valuations. The above average increase in taxes was mainly driven by the regional profit mix, which also had an impact on the compounded tax rate. Compared to the prior year, net income grew from 98 million Swiss francs to 105.6 million. The return on sales amounted to 9.2% compared to 9.8% in 2021. The Bossa Group achieved not only its best result ever, but also profit over 100 million Swiss franc for the first time in history. Another milestone which we're all proud of. The look on the sales development in the individual market regions shows that demand remains strong throughout the year. In America, sales increased by strong 36.8% to 309.4 million Swiss franc or 31% in local currency. The positive business environment was driven by dynamic and broad-based economic growth and sustainably and successfully growing share of the growth industries. In the electromobility sector, exciting commercial projects were implemented. The acquisition of pen-engineered fasteners in Canada contributed to gratifying sales performance. The acquisition is in line with the strategic approach to further expand Bossart's capabilities in America. Sales in Europe increased by 8.7% to 624.2 million Swiss francs, whereas in local currency, a double-digit increase by 14.4% was achieved. Overall, demand remained at the high level in spite of the continuing geopolitical tensions and the resulting challenges out of it. Despite the strong Swiss franc, we achieved above average growth in the aerospace, electronics, and the mechanical engineering sector. In an environment marked by inflation and shortage of skilled labor, Bossert Smart Factory services drew even more attention from customers. The acquisition of Yeveka in 2021 also contributed to the positive development in 2022. Adjusted for acquisitions, annual sales totaled at 593.5 million Swiss francs. Despite the repeated lockdowns in China, we were able to hold our double-digit growth path in Asia. At 220.2 million Swiss franc, sales were 13% above prior year and plus 14.4% up in local currency. Bossert achieved above average growth, especially in the growth segments of electromobility, electronics and railway. Strong growth rates were noted, especially in Malaysia, India, Korea and Taiwan. With a view to the balance sheet, the above average growth, but also the investment activities of the group led to another significant increase in total assets. Compared to prior year, total assets increased by 17.8% to 910 million Swiss francs. Despite the high profitability, the equity ratio fell from 45.2% in the prior year to 41.7%. though remaining above the long-term target of 40%. The reason for the decline was the disproportionate rise in the operating networking capital and the goodwill offset from the acquisition of PEN-engineered fasteners against the equity. The substantial increase in total assets was driven by higher customer receivables as a result of the substantial increase in sales on the one hand, and then on the other hand, by the higher level of inventories. While the increase in receivables were disproportionately low compared to the sales growth, the increase in inventories was above average. Besides the higher sales volume, the increase was due to higher raw material prices and freight costs. Furthermore, in the light of the persistent market uncertainties and long delivery times, we deliberately did hold more inventory to ensure the best possible delivery capabilities to our customers. Last but not least, the acquisition of pen-engineered fasteners contributed to the increase in total assets. In relation to sales, the operating net working capital increased strongly from 43.8% in the prior year to 48.1%. As a result of the high level of investment activity and accelerated growth, net debt increased from 217 million Swiss franc in 2021 to 319 million. The gearing net debt measured against equity recorded an increase to 0.8 versus 0.6 in the prior year. The debt factor net debt in relation to EBITDA increased due to the higher capital employed to 1.9 times after 1.5 times in the prior year. Nevertheless, Bolsa continues to have solid balance sheet ratios in the context of its strategic objective, which allows room for further growth and investments. Also in 2022, we invested in various areas in order to keep pace with the current and planned growth ahead. In total, we invested 41.2 million Swiss franc, which is actually the highest amount which BOSSET invested in a single business year in its operation. Thereof, around 8 million Swiss franc relates to our two ongoing infrastructure projects in France and Taiwan. We will be finalizing both projects in 2023. As mentioned last year, in France, we are currently expanding existing capacities and in Taiwan, we are investing in a completely new office and warehouse building. Hereby, we more than double our logistic capacities in both cases. In view of the demand for proven productivity solutions, we invested 6.4 million CHF into smart devices. which were installed at our customer premises as part of our smart factory logistics solutions. This means that we have further solidified our partnership with our customers and contributed to their efficiency and productivity last year. About 12 million Swiss franc was spent for replacement investments in ongoing operations. We invested around 15 million Swiss franc in digitalization, The biggest share of this investment was dedicated to our new group-wide ERP system. After successful rollouts in Denmark and Sweden last June, we have other rollouts ahead of us in Singapore, Malaysia and Thailand this year. As also already communicated last year, in total, we will invest about 70 million Swiss francs in the new ERP system and the global rollout over five to six years. The growth of the business had also a positive impact on our cash flow from operations before changes of networking capital, which increased from 126 million in the prior year to 137.7 million or by 9.3%. By contrast, the cash flow from operating activities after changes of networking capital fell from 65.9 million Swiss francs in the prior year to 6 million. As already mentioned, this is mainly due to the operating net working capital, particularly caused by the increase of the inventory. Cash flow from investing activities decreased from 92.3 million in 2021 to 68.1 million Swiss francs. On the one hand, this was owing to the lower outflow of funds from business acquisitions compared to prior years. which was on the other hand partly offset by higher investments in property, plant and equipment and intangible assets. Mainly as a result of the significant increase in the operating network and capital, Bossart also reports a negative free cash flow of 62.1 million in 2022, after a negative free cash flow of 26.4 million in the prior year. Under the assumption that the supply chain will further normalize and that demand will remain stable in 2023, we will expect an underproportional increase of our operating net working capital and therefore having a positive impact on our free cash flow in 2023. As always and finally, a word to the dividend. As you know, our dividend policy provides a 40% payout of net income to the shareholders. Accordingly, the Board of Directors will propose a gross dividend of 5 Swiss franc 50 per registered A share at the 2022 Annual General Meeting of Shareholders after 5 Swiss franc 10 in the prior year. This corresponds to an increase of 7.8%. Ladies and gentlemen, with this brief review, I conclude my remarks on the financial year 2022. Thank you very much for your attention and with pleasure, I hand over to you again, Daniel. Thank you.

Thank you, Stefan. Another amazing year behind us. I would like now to provide a brief review of our Strategy 200 and our strategic achievements in 2022. For those who are new, Strategy 200 is not a 200 year strategy, but a strategic journey until 2031 when BossArt turns 200 years old. We have been following accelerated, profitable and sustainable growth based on our proven business model. The base for our business model is the fact that our customers are facing the challenge to manage the complexity of C parts or small parts. A typical customer product, for example a car, consists of more than 50% C-parts. Those parts need to be specified, a supplier needs to be selected, each part needs to be ordered on a frequent base, put on stock, taken from stock, transported to the point of assembly, and finally all parts need to be assembled. This creates a lot of process costs. which we also show as invisible cost in our iceberg model. This is what we call the hidden potential of fastening solutions. From a customer perspective, only 15% of total cost are visible cost and attributable to a fastener or hardware. 85% are associated process costs or invisible costs connected to product design, supplier selection, logistics, and assembly of fasteners. And this is where the biggest savings potential for customers can be found. If we save customers 10% on the visible cost of the fastener price or the fastener price, it makes them only 1.5% more productive. But if we save customers 10% on the invisible process costs, it makes them 8.5% more productive. And usually it is much more than that. An example is a Swiss coffee machine producer. They used fasteners in the value of 50,000 Swiss francs for a coffee machine line a year. Through assortment optimization and lean smart factory logistics in production, we save the customer more than 150,000 Swiss francs a year, more than three times as much as to spend on product cost. This created long-term customer loyalty and is a great reference to win new business. And this leads me to our business model with proven productivity at its core. Our aim is to make customers more productive. Bossart has proven this time and again over the last decades, not to say for the last 192 years. And it is therefore called proven productivity. The offering over a million different products, assembly technology, expert services such as design engineering support and smart factory solutions in logistics and assembly help customers to stay competitive. Proof of the value that smart factory logistics solutions can generate is the fact that we have installed 437,000 smart devices at 1,100 customers globally over the last 22 years, with a recent growth rate in 2022 of 7.5%. Bossart has been pioneering the industry since more than 20 years, and we are still perceived as the market leader in digitalization. The growth rate of our latest service, Smart Factory Assembly, shows that smart assembly solutions are in high demand as well. The service, which provides digital work instructions to customers' assembly lines, ensures traceability and allows easy onboarding of workers to perform failure-free mounting started three years ago. The number of customers increased from 15 in 2021 to 39 in 2022, and we expect another significant growth this year. The growth in workstations shows a similar pattern, and the main driver for this is the fact that customers look for digital solutions to make their assembly more efficient. This leads me to explaining the strategic importance of services. product solutions are still and by far the biggest revenue driver for Bossart. Yet, while we sell product solutions to purchasing, smart factory solutions are sold to production and logistics specialists. Instead of a low product price, they want a smooth and lean production and logistics flow. Likewise, we sell assembly technology expert services to the designers and developers who need innovative and safe solutions instead of a cheap product. And finally, we aspire to sell our complete service package to P&L owners, usually the C-level, to demonstrate the full potential for total cost savings. Hence, our services are creating customer value and loyalty. They serve as a shoehorn, if you will, to sell product solutions and ensure we are perceived as a strategic partner. Our business model helps us to expand organically, but besides this, we also aspire to grow through acquisitions. A good example here is the acquisition of Penn Engineered Fasteners in Toronto, Canada in 2022. Besides our existing operation in Montreal, it allows us to expand our market presence in Ontario, an industrial area with a focus on key industries like electric vehicles, energy and agriculture. Our acquisition journey will continue. The main focus will be on acquiring market share in key markets or obtain know-how in the form of new innovative product or service solutions. Overall, We want to grow two-thirds organically and one-third through acquisitions by 2031. Our profitable and sustainable growth strategy should help us to achieve relevant market shares in our key markets. One way to do this is by focusing on sunrise industries, as we call them, or industrial segments which are growing above market average. Those are namely electromobility, where we saw a growth of 58% in 2022. This segment includes manufacturers of electric vehicles like cars, buses, scooters, but also producers of batteries and charging stations around the globe. Railway, where we grew by 9% last year, including manufacturers of coaches, locomotives and railway infrastructure, indeed a globally booming segment, Not at last, since this is a sustainable mobility technology and governments will spend billions for infrastructure over the next decades, for example, in India. Electronics, where Bossart grew by 14% in 2022. This includes producers of robots, automation systems, as well as computer infrastructure and computer chip machine manufacturers to support the global trends towards more digitalization and cloud computing. healthcare with a maybe surprising negative growth in 2022 by minus 9% compared to the prior year. The reason for the negative growth is that this industrial segment grew by more than 30% due to COVID related manufacturing peaks in 2021 and normalized in 2022. We still expect the industry to grow above market average in the coming years. Currently, 37% of our global sales is attributable to those sunrise industries. Besides the focus on our business model, growing organically and through acquisitions, and to achieve relevant market share in key markets, we are basically following seven strategic initiatives. We presented them in detail at our last Capital Markets Day, And you can also find them described in our investor's manual, all available online. Just to pick a few of the initiatives. Together we create. We create an environment in which we enable our people and the organization to unleash the full potential. Talent management and leadership development are key elements in this. Finally, we aim to cultivate and improve global collaboration across regions, functions and hierarchies significantly. Sales engine, we emphasize digital lead generation and create a new, more effective global sales organization. Operations engine, we introduce a new digital platform, Microsoft Dynamics 365, from supply chain management to sales. This will allow us to increase global transparency and efficiency. Sustainability, We capture our global footprint, CO2 emissions, define global and local long-term targets and implementation programs. The midterm results of our strategic activities after a phase of investments should be an organic sales growth of bigger than 5% year-on-year, an operating profit margin of 12% to 15%, an equity ratio of bigger than 40%, And the dividend payout ratio of 40% of net income. Now, what do we expect for 2023? There are numerous environmental factors that we cannot influence. The pandemic, for example, is mostly over, even in China, although there is an inherent risk of new waves and lockdowns. Geopolitically, the tragic war in Ukraine, as well as the pending China-Taiwan conflict, still leave uncertainties and can lead to further supply disruptions. Yet, we do not expect major negative impacts for our business in 2023. Reshoring, manufacturing shifts from China and Eastern Europe to Western Europe and the Americas. We regard this rather as an opportunity than a risk because customers will incur higher production costs and will look for total cost savings, hence a great and open window for our proven productivity services. The energy crisis, mostly a European phenomenon, possibly resulting in production stops, although the risk has faded in the last months. In fact, we rather see this as a great opportunity to follow renewable energy industries. Inflation probably poses the biggest risk, namely the wage inflation on the cost side for our business units. Yet, since our customers face exactly the same challenge, it's again a great opportunity for us to sell proven productivity services. Besides the given environment, there are a number of things that we can influence and will focus on in 2023. Sunrise industries, which pose above average growth potential. Proven productivity services, as mentioned many times, which help customers to reduce costs through automation. Sustainable, profitable growth, active cost and margin management will be equally as important as top line growth. We will continue our ERP system rollouts and invest further. We will continue our sales engine development, investing in digital marketing and in training our global sales organizations. And last but not least, we'll have a special emphasis on our Together We Create initiative to foster global collaboration. For those who have not been here last time, we also created a comic book, so you're welcome to take one, which explains our guiding principles on Together We Create. Finally, our glass for 2023 is half full. But in any case, whether it is half empty or half full, we can always refill. We can refill by following the Sunrise Industries, focusing on proven productivity services and profitable growth. So we are optimistic to close with another successful 2023. And with this and some greetings from my colleagues on the picture, I'd like to thank you for your attention and open up for questions. Thank you very much.

Ladies and gentlemen, if you wish to ask a question on the phone, please press star followed by one. How do we do this?

There we are. Thank you, Andreas. I have three questions, if I may. Can you say something about the order backlog and the order intake by the end of 2022 and also what you expect from these two metrics for 2023? That's the first question. Then you mentioned these factors about the gross margin contraction. Can you discuss the expected development of each factor also for 2023, please. And how long do you think you need this high inventory base? Is that going to be like a one year or three year time horizon?

Maybe I take the backlog and you can elaborate on the margin. Is that okay? Okay. Try that. Okay. Backtalk. Our visibility usually is three months for our customers. What we can say now is that for the majority of our customers that we talk to, for our largest customers, I would say the biggest chunk, their order books are pretty full, to put it in general terms. And we don't really see a decline in demand overall, particularly not on the Sunrise segments. So for those, and we've just been traveling across Europe in the last weeks, talking to different customers from different industries, the sentiment is, to my surprise, actually extremely positive. They are themselves still working on their backlogs, for example, in the automotive industry or suppliers into the automotive industry. So it sounds promising, but our visibility is only about three months. So in that sense, optimistic. But what happens beyond three months, it's really difficult to say, maybe on the margin side. Does that answer the first one more or less?

The order intake is currently larger than sales also. Book-to-bill is over one.

It's something we don't measure because we are not producing. And as Daniel said, it's a lot of things. I mean, it's becoming just in time. So what we follow is more on the daily sales. And we can see on the daily sales whether we see an acceleration or not. And that's what Daniel mentioned, that stable on a continuous level. That's at least how we started into the year. On the networking capital, as I mentioned, so what we see is, of course, we had been also managing first and foremost is keeping availability for our customers. And I think that what we managed well and was very much appreciated. That also was kind of an investment, of course, making supply secure. Just as an example, we still last summer had to make a decision how much we're going to buy, although there was kind of a bit hazy and cloudy out there because the lead times for a single simple knot was 12 months. So we ordered a knot last summer, which we only get this summer. So that's managing the supply chain with lead times, which were beyond the 12 months. That's part of it why we have this over-proportional inventory, which partly, of course, was also driven by inflation from that perspective. So what we see now is what I would expect is that we see a flattening, but that also needs that demand is stable, but that's what we see at the moment. And I also see now for the last two months that inventory did not accelerate. So if we stay on that level, we keep on going, going forward, then the cash flow we generate out of the business should have a positive impact. So that would be my expectation for the year.

Maybe, Stefan, if I can add to the inventory, one important aspect is that by now about two thirds, 66, 67% of our inventory is specials, which means we have dedicated Pricing and volume agreements with customers. So this is not lost. This is in any case, customers will take that sooner or later at the price to the volumes that were agreed upon. So that's actually good news. So we can say whatever we have on stock sooner or later, we'll get rid of it. So customers will take it. And for maybe one third, yes, this is standard parts, which still were luckily not me grows with yogurts and perishable goods. So hopefully those standard parts can still be used in the future. So in that sense, I wouldn't say we're not relaxed at all because we don't like that the high net ring capital on the one side, on the other side. it has enabled us to deliver. So I think it is an asset in these times. And if two years ago, somebody would have told us, please stand on the break, please stop ordering. We would have said, are you crazy? I mean, now, you know, customers want parts. It's moving on. Availability was the big topic, supply chain problems. So we decided also to keep on buying. And as Jeff said, with lead times of between 12 and 18 months, well, you have this delay effect. So yeah, We're a distributor, but networking capital is also regarded as an asset. Sorry, Stefan, I interrupted you.

Thank you for supporting. What's the question on the margin? On which one? Yeah, I mean, gross profit margin. there's different drivers to it. I think one is the, uh, the, the mix of the regional mix, because there is different gross profit margin because high volume demands another gross profit margin. Then we have small, uh, smaller, smaller volumes, uh, that's driven by that. And, uh, It depends also where the raw material prices came down a bit, but some of it were already up again. So that's why we managed throughout the year. I think we have been proven through the last 10 years that somewhere it stays within the 31 to the 32%. And that's what I would expect. But it's difficult to judge. But that's the range where we kept it over the cycle.

I have two questions, Tom Jassy, UBS. One is adjacent to the previous topic, namely, how do you feel about your pricing power going into 2023, seeing as you have these two-thirds of inventory with pre-negotiated prices, and obviously there's some future expectations about cost input inflation, but how do you feel about that? Do you think that will be a margin drag in 2023? And secondly, a slightly different topic, on the smart factory proven productivity side as opposed to product solutions. My understanding is this is sort of more a platform approach on your part. How much would you say did that contribute to revenue in 22 and how much do you expect it to contribute top line in 23? Thank you.

To the first one, to the pricing. So the current pricing situation is such that we have not seen pre-COVID levels. So in general, in average, the price level is still about 15 to 20 percent above pre-COVID level. And so that means, yes, prices have come down because they went up by about 40 percent, 45 percent. They came down again and are still at the level of maybe 15 to 20 percent pre-COVID. So we did do price increases in all our markets. Did we do 100% and enough? Maybe we could have done more. We did do price increases. Now, of course, pricing has come down. Customers will come back and ask for reductions. Yet we have to do that case by case and see where are we exactly with that customer. Because again, in some cases, we even have potential to increase prices again. And what we currently see now is that the curve is trending. So the downcline has stopped and it's actually already increasing again. And we assume also with the backlog info that we get from the market, that actually availability could soon become an issue again. So we're happy to have that stock and sell at a higher cost. Then a second factor is, um contributing to that is the wage inflation we have seen or we will see still this year um higher higher wages and that means also the overall cost level is still high energy cost is still high so there's a number of cost factors which are still high and customers understand that so if you come with it with a relatively high price level i don't think customers will not understand that and we have to look at case by case so in that sense um We can expect that in many instances, we will still increase prices this year. For those 66% that was agreed, more or less, we assume we can negotiate unless somebody goes belly up and then, okay, happens sometimes, but hopefully not the big ones. So in that sense, we're monitoring that very closely. And that's what I meant by sustainable, profitable growth, monitoring and managing margin and cost very closely. This is almost case by case, customer by customer. We're currently also introducing some cost to margin awareness program again, for example, to say, How much in revenue increase do you need if you reduce customers' prices by 10%? So how much do you need to recuperate your profitability? So if you reduce, for example, by, I don't remember, I think 10%, then you need 30% more sales to recuperate your profitability. Just to create that sensibility and awareness again with the salespeople. So we're aware of what's happening. We don't like to give away parts. We're not known for that. And we would like to connect it to services. So that leads me to the second thing, which was on smart factory services. We don't really, well, we measure, we know how much turnover we do with these services. And you've seen the pyramids. This is in the lower percentage digit. So it's like a few percent of our global turnover is attributable to direct revenue from services like consulting or IT fees or so. But that's not the point. It's never going to be 10 or more percent, I guess, because the point is we use that as a lever to sell our products in the end and to create customer loyalty and stickiness. So in that sense, it is relevant because we want to sell it and anything that has a price tag has a value. It's important, but it will never become the major revenue drive or share of revenue that in the future. So in that sense, it's super important. If we would not have services, I think we would miss out a lot and we would be only in the price fight for product prices. Understood. Thank you. Yeah. Micro.

Thank you. Marta Bruska from Berenberg. I have a couple of follow-up questions already. So I think you mentioned, Daniel, that at the moment you have visibility for three months. I remember Stefan talking something about three, four weeks normally. Is that visibility increasing now because of the backlog, increasing because you have more digital tools installed at the customers, perhaps you are closer to them, or it's just because we switched from CFO to CEO? No.

I'm more cautious. I think it's the second one. No, it depends also customer by customer a bit because we have a railway customer with long-term contracts. So then we also have a bit of better visibility, but we also have a spot buyer. An average is a few months that we can say, but it depends a bit on the customer. So I don't know if you want to add something to that. We always disagree sometimes.

No, that's all right. And with regard to the gross margin recovery, so you mentioned also freight costs and supply chain challenges that were contributing to the gross margin development in 2022. So these are likely going away in 2023. So would I be wrong to assume at least some sort of recovery on the gross margin this year?

For sure. I mean, the easing up of the supply chain helps. And we have seen that if you only talk about free costs, that free cost has come down. That helps. From that perspective, if I just read the newspaper, I think it was yesterday, an article to say, also, if I look at the, the, the Baltic index, it stays analyzing or it's going up, but on the other hand, there's only a backlog of about 8% of all the ships. So that shows that things will be easing from that. And I mean, also one of the price driver is bottleneck parts. So one is the raw material prices, but the other one is driven by just demand market from that. And I think that will, that will normalize that. will have an impact on going forward also on our purchase prices. But again, that might be a short window, as Daniel mentioned. Some of the prices are already stabilizing or going up again slightly.

And the last one before I give it back to give a chance to others. So with regard to the pricing effect for 2023, you know, would it be wrong to assume some 5% carryover from 2022? You know, if you have 66% of your inventories unlocked in pricing, you know, the prices were up significantly. How do you feel about 5% pricing next year?

It's a difficult question, you know, Marta. Oh, again, I mean, as I repeat myself, is that it's something difficult to measure. First of all, we have 30,000 customers, 1 million items, and 5,000 suppliers and different ERP systems. So it's an indication. I would say, yes, there is price increases. Definitely, it impacted also positively in 2022. And I'm sure there is some carryovers because there was also some activity in 2022. But to give you a number, it's going to be rather difficult.

Thank you very much.

Thanks for taking my question, Stephanie . I mean, you don't give a guidance for 2023, but looking at your midterm guidance and what Marta just said, assuming 5% inflation for 2023, would you assume that there is a slowdown in your business going into 2023 or even an acceleration as we have seen, for example, in the US in Q4? So what's your view on that first?

Maybe we have to ask you first. The only thing we can say is we have sunrise industry, which will grow over proportionately, which we will support as long as they grow. And that could lead to an accelerated sales rate yet beyond a couple of months from now, we don't know what's going to happen politically and supply chain wise. So I cannot give you a number by the end of the year. That would be kind of wrong anyway. So I think... Maybe you can take some assumptions as good as we do based on the industries we serve, based on the price levels, based on the services we can provide. And that would probably indicate if the economy stays kind of stable or is positive that we can further grow. But again, those are ifs. Sorry for that.

And on your EBITDA margin, I mean, in the midterm, you guide 12 to 15%. Now we are at the lower end of your midterm guidance. And I assume there are more investments to come. Is the EBIT margin for this year going more towards the midpoint of your midterm guidance or even below because there are more investments to come this year?

We cannot say more than what we indicated on the mid-term targets, because again, there may be additional influencing factors to this, which would make anything I'm going to say now completely wrong again. So in that sense, I'm afraid I cannot give you a straight answer on that one.

I think that... I mean, we know the cost side. We know what we're going to invest in. The bigger part is digitalization, and we will not hold back on the digitalization because I think that's important. It's going to be a competitive advantage also to use the technology which is around, which we cannot fully exploit right now. I think the other part is the inflation. We have about 3,000 people. We know what the inflation impact is going to be. We also know what the rollover is from 2023 for the annualized personal cost. That's not a small amount. as we are growing and then just to reflect it. So if that stays and even the margin stays 10 million in sales, it's 3 million less gross profit contribution. Just give you a reflection. So if we grow further and that's, the graph is half full from that perspective, then that definitely will compensate and that will stabilize the margin. But that's a bit, you know, The drivers, that's difficult to answer at the moment.

We have the midterm targets and then again, this can fluctuate between the 11s and 13s. And so this is something we indicate. The rest would be speculated now.

And maybe a last one you might be able to answer is on the acceleration in the US. Was this mainly driven by your big two clients, which you already have since a long time, or Was this strong growth driven by new clients and other industries?

Mixed. A big chunk is also from new customers, which started to ramp up, namely in electromobility. So we mentioned the names Rivian and Lucid Motors. Rivian, they got an order from Amazon to build 100 delivery trucks for the next couple of years, and they do that. And we participate in that. So this is a nice ramp up we see. Same with Lucid, same with a few other startups that we invested in some years ago, which now come to fruition. But also the other ones have been doing relatively well.

Thank you.

South Africa. Thanks. Michael from . Just a quick question actually on Asia, specifically China. How exactly did you sort of defy the market by growing actually quite nicely there considering the underlying market dynamics?

There were industries which helped a lot, which is the electronic manufacturing services into EV. So electronics into EV, it's been robotics, it's been healthcare as well. So they continued growing nicely. I would say throughout last year, yes, there were lockdowns, yet our people still worked. So we served customers, people, actually, they even slept in the warehouse, which was quite common at that time. And in that sense, we kind of continued at a lower pace, benefiting from growing industries.

Any sort of indications in the first month or two? Because at least from my side, indications from other companies that I've spoken to have mentioned a little bit more slower.

Well, this year, Chinese New Year was entirely in January. So obviously that's always not a good month for China if everybody leaves basically for a week. So that's... Not so exciting. So last year it was partially in February. So that helped a bit. So in China, we always look at the first two, three months together because then it kind of makes sense to compare to last year. So I would say normal, but it's difficult to say now with Chinese New Year, which always has a negative impact.

And you said that about a third of your growth is coming from acquisitions generally. That's roughly 2% per year. And is that compatible now with your target? I mean, since the equity ratio has gone down with your target of maintaining a 40% equity ratio, or is that equity ratio more related to now the high inventory level and will kind of go?

I mean, the balance sheet is for sure is inflated by a high level of inventory as part of it, definitely. But in terms of acquisition, again, there is room for acquisitions. If you look a bit into the market, I mean, the market is still very fragmented. And if there is an acquisition... for 30 to 50 million, which is already quite a sizable, so that we can absorb. That's no issue. If there would be 200 million like KBT, like 10 years ago, that would be a bit an understory. But again, that's kind of a guideline. I mean, if we know that, let's say we wouldn't do an acquisition because equity would go to 36% because if you're stable in the returns, it takes about 18 to 24 months and then we are up at 40%.

So you would compromise for a certain time.

Yes. Absolutely. Yeah. If it's the right acquisition, of course. Yes.

Yeah. Thank you. It's Marta Bruska again. I was looking at your sales growth in the EVs and I remember in the last year you mentioned that the EV sector as a whole comprises about 10% of sales on the group level. Given the 58% growth this year, the last year, am I doing the math correctly that at the moment the EVs as a sector would grow to 14% to 15% of your sales on the total group level? Roughly. Roughly, yeah. And then with regard to the healthcare and the bit negative growth in 2022, do you see that now as an opportunity to reverse in 2023? Do you see early signs of the recovery in that one?

Yes. One example is Roche in Rotkreuz, our largest customer here in Switzerland, which produced those diagnostics devices in 2020. 20 and 2021, and they boosted. Like maybe you've seen the figures from Roche, and they see a correction now because of that. But their projection for other devices now is still positive.

Very good. Thank you. And the last one from me. You know, we also showed the smart device investments at 6.4 million. This year, I was wondering whether you have, you know, from top of your mind, what was the number in 2021? So how the installations, how much the installations grew this year? I know I can check that if that's... I don't remember.

I think the spend was about 5 million something.

So it was more. So it's like 20% or so growth. Fantastic. Thank you very much.

How are we doing time-wise? Okay.

Thank you. I would have some follow-ups. One was really what do you expect for full-time employees to grow there for this year by the end of this year? And also you mentioned the wage inflation. What do you expect this year with the spillover from last year?

So I would say in this regard, we go kind of pay as you go. So we look where we invest. I would say on the wish list or what's planned, it's about 140 people or headcounts additionally. But again, that it's on base and cost and time basis from that perspective. If you look at the annualization, we increased headcounts year on year, 21 to 22, about 160 headcounts. So the impact to the P&L just on an annualized basis is about 5 million, 5 to 6 million. And the inflation here, we have quite a broad range. I mean, we talk about 2.5% to 13%, depending a bit on the country. And also here, we have the bigger part of our salary increases. We have 1st of May, and that's still something ahead of us. And we look a bit where the inflation goes. Um, but for sure, and we all know, uh, that will be a kind of, uh, extraordinary cost compared to the, uh, to the, the last 10 years and depending a bit in average, uh, five to 6%, I think that's in average what we will see. And that's pro likelihood another five to 6 million. But again, it's still, it depends at the end of the day, uh, where it happens on the, when it happens.

And the tax rate going forward?

Tax rate, I would expect somewhere 21 to 22%. One of the main driver was that, I mean, we have been growing nicely in the US. The tax rate is a bit higher over there. So the bigger part is the tax mix in itself, the compounded tax rate. And as we assume that it's going to be stable growth over there, so that we also expect somewhere 21, 22%.

Can you pass on this labor cost inflation? I mean, material cost inflation, in the beginning, you always can pass on easily, but then the hidden inflation is always more difficult.

That's a discussion which we have. I mean, where we have like 13% or 14% inflation there, we have to manage it. The other part is, as we also talk raw material price, of course, they're stabilizing, but it's defending the prices by saying, OK, we also have inflation. It's a new thing, let's say, in the arguments, because in the past it has been 1-2%. And the customer always argued to say, we also have to work on efficiency and productivity. But it has become a topic, definitely.

It's two things. It's part of the argumentation when we go and discuss about price increases. And customers know it exactly because they face exactly the same problem. And then we argue on the productivity potential issues. selling our proven productivity services that helps us then again to sell products and and the focus is more on services than on products so you sell the services and wrap in the product price kind of so so it is an argument any other

Otherwise, we... Any additional questions?

Prepare some drinks soon so we can still do it while drinking. Oh, yeah. Okay. No questions? No. Okay. Good. Okay. So, thank you very much for your attention and wish you all a great 2023. Thank you. Okay.