Jost Werke Se

Thank you very much and a warm welcome from Neu-Isenburg and welcome to our JOST Financial Year 2022 Investors and Analysts Conference. You will see on the slide JOST Werke SE. We now are a Societat Européenne, but of course the numbers that you will be seeing are from the JOST Werke AG under which we operated last year. So you will see that the numbers are in line with the prelims that we have announced mid of February. I'm very happy to report that we have met all our financial targets for 2022. We've achieved a double digit growth year over year in sales with 21% sales increase to a total sales of 1.265 million euros. We've also exceeded our adjusted EBIT targets. We had targeted for a high single digit growth. We achieved a growth of 18% to 124 million euros in adjusted EBIT for the year 2022. That compares to 105 million euros adjusted EBIT for the year 2021. We're not completely happy with our working However, we did achieve our target to stay below 20% of sales and ended up with 19.2%. Our capex ratio has been 2.6% in line with the guidance of approximately 2.5%. Main investments were in our production facility that we will inaugurate this year in India for our agricultural business. Our target to reduce the leverage below 1.45 was also achieved with a total of 1.28 multiplier for the leverage. Let's go to the next slide, please. The highlights for last year was that we've increased sales both in the transport business line with 19% and in the agricultural business line with a very nice growth of 25%. The adjusted EBIT margin only slightly decreased, declined to 9.8%, despite the very strong inflationary effects that we are having, the sharply rising cost and the supply chain inefficiencies that we had to deal with throughout the years. Our global footprint and our wide application mix were the key success factors to offset that volatility and to offset the shifts that we have seen in regional demands in the respective markets. And I will come to that a bit later. We had significant improvements to our energy efficiency and carbon footprint that we achieved during the course of 2022. And we're very happy with that because it helped us overachieve our ESG targets that we have set, but it also helped us to reduce costs in the rising energy costs that we have seen last year. Our earnings per share increased by 37% to €4.02 per share, reaching a new record level. And we're very glad to announce a dividend proposal of €1.40 per share for the financial year 2022. And we will make that proposal to the annual general meetings that we celebrate on the 11th of May. Yeah, looking a bit deeper into the markets of last year, it's a bit looking into history, but you can see that the truck markets in Europe had a slight growth, trailer markets and tractor markets, a slight decline. We ended up with 13% increase in sales, mainly driven by price adjustments that we introduced to offset the rising cost. And that was the main driver for the growth in sales of 13%. North America, you can see that the truck markets had increased equally. The trailer markets, only the tractor markets had a slight decrease. We ended up with 53% increase in sales. That's in euros. So there's an FX effect included. And Christian will explain that with a little more detail. So the growth in dollars has been lower than that. This is also due to the strong demand growth that we've seen with our customers, price increases, but also some market share gains that we have achieved in North America. If you look at the numbers, the official numbers for Asia Pacific and Africa, the minus 37%, China plays a bigger role in those numbers than it actually plays for our business. That's why the minus 37 in trucks and the minus 15 in the trailer market did not have the full effect on our numbers. Our numbers are plus 1%. So we had a decline in China, but we could compensate that with other strong markets, namely India, Far East and Australia and New Zealand. So quite good developments beyond the markets, driven by market share gains, but also obviously by high inflationary effects and price adjustments due to those inflationary effects that we have introduced into the markets. With that, let's come to more details presented by Christian. Christian.

Yes. Good morning, ladies and gentlemen, and also a very warm welcome from my side to the full year 2022 Investors and Analysts Conference. So, as always, let's start with the different regions. We typically start with Europe and here in Europe you can see that our sales in the full year 2022 grew by about 14.4% organically and they amounted to a total of close to 700 million, exactly 696 million. So that is an improvement, as I mentioned, of about 14.4% organically and 12.5% reported. Other than that, I would like to mention that in Q4, we saw a much, much smaller improvement compared to the prior year. Here you can actually see a 3.3% growth year on year, and that is mainly coming from the transport side. The agricultural sales were somewhat higher declining compared to the year before. We are seeing, and that is something we already mentioned in previous meetings, especially also during conference calls, currently the situation on the ag side is, well, the farmers are somewhat concerned, especially about rising energy costs, and therefore we are seeing a slightly lower order intake on the ag side, especially in Europe. FX headwinds amounted to 1.9 percentage points and they are mainly coming from the Swedish Krona. I will come to that Swedish Krona devaluation effect a little bit later when we speak about the group results, but here we're also seeing an impact of the weaker Swedish Krona. If we look at the profitability, you will see year on year a decline from 7.3% to 6% EBIT margin. Overall, we achieved 41.8%. but 41.8 million but here you also see that we suffered tremendous FX devaluation effects of the Swedish krona all in all they were they amounted to roughly 8.1 million in the full year and if you simply add the 8.1 million you would see that we had achieved probably not only a higher margin but basically a 10% EBIT growth. But unfortunately, due to this devaluation effect of the Swedish krona, we didn't achieve that and therefore our adjusted EBIT slightly declined by 7.9% for the full year. If we just simply look at Q4, you see a strong improvement over last year, 4.1 million versus 4.9 million. And here also the positive side is the devaluation foreign exchange rate effects have increased very much lessened and they are now only 0.1 million in Q4 and therefore you do see a growth there also higher than the sales growth and that also means that we have been, especially in the last quarter, we have been able to pass on some of those inflationary effects that we had seen on the material prices, energy prices and logistics costs and they had been passed on. Maybe a few words also on the market development here. We are seeing a slightly higher growth in the aftermarket that increased from 28% last year to 29% in 2022. And therefore, the OE business was at 71% for the region Europe. With that, I would like to come to North America. North America, the story continued that we had seen already in the first three quarters. We have achieved an overall organic growth of 36.5%. And that is, of course, much, much higher than the 53 reported. But there we had a very positive effect of the US dollar appreciation compared to the euro. And the 36.5 is basically in line with what we've seen also year to date Q3. So basically the story continues and that is also visible on the Q4 numbers, very strong development of the market. I would say that we have gained further market share, not only on the truck side, but interestingly on the already very, very strong trailer side, where we typically had around 80%, that number has probably increased by quite a bit. So overall, very positive development, but again, in Euro, very much influenced by foreign exchange rate effects. If you look at the profitability, you see a 50.8% growth year on year from 23.7 million to 35.8%. 7 million and that while the profitability basically remained the same, a very significant growth in overall profits and therefore we are quite happy with what has been achieved. So very positive here. Also here, the similar trend, slightly higher aftermarket portion growing from 26 to 27% and therefore a slightly lower OE portion. And that is also one of the contributors to the overall growth in profit. Now let's go to Asia Pacific and Africa. This has been an interesting region last year, so to speak. You probably remember that beginning of the year, we were quite optimistic that the Chinese market would recover from its weakness in the second half of 2021. Unfortunately, that never really materialized. But I can say that going out of Q4, going into Q1, we are seeing more and more positive signs. And also, if you compare that to the Q3 numbers, you see currently you see a reported growth of 0.8%. Organically, that's actually declined by 4%. But that is much, much better than what we had seen in Q3, where we had still reported a minus 10% organic growth. So we are seeing improvements. That is good. But obviously, the main growth driver is not China. It's currently still the other countries in that region, predominantly India, the Southeast Asian region, the Pacific region with Australia and New Zealand, and last but not least, also South Africa. We're not unhappy with that development, but overall we need China to come back. That is a clear message. And as I mentioned, we are seeing first positive signs in the market for heavy commercial vehicles in China, but we're not there yet. And obviously we're still into Q1 and we will report more once we have the Q1 numbers finalized and then we will also show it to you. In terms of profitability, Asia Pacific Africa is a very, very successful region. You've seen it in the first three quarters of 2022. We are now finally reporting a year end profitability of 21.7%. And you know where that is coming from. It's mainly due to the different product mix in that region with much more heavy duty and off-road couplings being sold to our customers. Overall, a growth in profitability by 24.7% from 30 million to 37.4 million. And that is also very much visible in the Q4 numbers where we grew from 6.8 million in 21 to 10.6 million in 22. So overall, a very positive development that we're happy to have. And once again, it underscores the importance of our global footprint, our global markets. Without North America and Asia Pacific, Africa just wouldn't be where it is. And we're quite happy to have our colleagues around the world. But once again, in this regard, it really proves that not only is just a global company but we're also benefiting and we're supporting each other while we had challenges in europe this year with without any doubt uh the other two regions with north america and asia pacific africa were supporting the overall company and that's that's a positive sign so if we look at it globally from from the final numbers and Joachim already mentioned that. And the positive news, first of all, is there are no changes compared to our preliminary numbers that we announced three weeks ago. So nothing has changed. We are reporting the exact same numbers and that also means we finalized our year-end audit. That's an absolutely clean audit opinion and overall a positive year, actually the best year in the history. We've now achieved sales level of close to 1.3 billion, 1.265 overall, to be precise. That is 20.6% higher than it was in the year before, where we first time achieved the 1 billion mark. So now you are seeing a growth in the ag business of 25%, a growth in the transport business of 19% for the full year. We are satisfied with that overall top line development. What needs to be mentioned, of course, is that This is predominantly price driven. So due to the high inflationary tendencies that we've seen on the material side, energy side, but also the logistics cost, we've passed on those price increases to our customers. And therefore, we were able to more or less keep the margin, and that is what you see below, flat on a level of 9.8%. Now, last year we achieved 10%. Yes, there's a slight decline, but what I've already mentioned when we spoke about Europe, in this year we suffered from tremendous negative foreign exchange rate effects and that are visible in the adjusted EBIT number. So, once again, if we were to add the roughly 8 million negative effects coming out of the devaluation of the Swedish kronor to this number of 124, we would not only have surpassed the 10%, not only been back on the 10% level, but we would have actually surpassed that level. And therefore, I think that yes, foreign exchange rates is something that we worry about and that we try to hedge as much as possible, but overall, I think we, and so should you as our owners and investors should be satisfied with the overall result that we have achieved in 2022. So 124 million in profit, highest number ever in the history of the group. And we're very happy that we will also share that with our owners, our investors with a much, much higher dividend. I would also like to mention one aspect, and that is something you see here on the very bottom. A very significant contribution to our profit was coming from Brazil, where our joint venture performed extraordinarily. You only see that in the bottom line. You don't see it in the top line because it's a minority joint venture from the standpoint of JOST. And therefore, you only see 49% of the profits here. But it was a very, very successful year also in South America. Now let's come to our well-known net income adjusted EPS walk. You see here, we've achieved the highest ever net income in the history of the group with 60 million. That is comparing to 44 million a year before. And then you see the typical walk. We add taxes, finance result come to a reported EBIT of 89 million. then you have the typical purchase price allocation adjustments of 27 million and a few exceptionals much much less than we had last year last year we had 13 million this year it's 8 million most of the exceptionals are related to restructuring or optimization projects uh especially here in germany where where we relocated uh our global logistics center from one city to another city. Last year, we had extraordinary write-offs due to the sale of JOST UK and therefore the exceptional items were much, much higher. Overall, the already well-known number of adjusted EBIT of 124. Then we subtract the finance result and here I would also like to mention that the higher finance result of minus nine versus the minus six that we had the year before are predominantly driven by the foreign exchange losses that we suffered. There is a small portion of higher interest, obviously, especially in Q4. The interest rates increased. The variable portion of our loans were more expensive than they were a year ago. But we will not see the full effect has not been seen yet. And you know that we have refinanced the group with a new promissory loan. with an ESG link at the end of last year and unfortunately they are also priced higher. So we will see higher interest payments and interest rates going forward. We subtract the performer tax rate now 34 million and end up with an adjusted net income of 81 million and that compares to the 69 a year before. So overall, our reported earnings per share rose from €2.94 per share to €4.02. And the adjusted earnings per share were even better from €4.63 to €5.41. So now let's go to the ROSI equity ratio and leverage development also here. ROSI now at 18.3%, a constant growth throughout the year and obviously also year on year with 18.3% return on capital employed. I think that's a good result. That's a very positive achievement. In line with that, the equity ratio is now close to 36%. I think that gives us a lot of confidence also in discussions with financial institutions. And last but not least, our leverage is down from 1.45 to 1.28 times EBITDA. And also there, we are now approaching the regions in terms of leverage where we were before the ALO acquisition. So also here a good development. Now let's move over to one of the weaker spots in development of last year. If we talk about cash flow and working capital development. Cash conversion rate is at 0.3 and that is not in line with our expectations so this is one of the weaker spots and we have to be critical enough that this needs to be improved and will be improved throughout this year but the 0.3 or an overall cash free cash flow of 23.7 million is not what we expect from this country company and what you probably as our shareholders expect from this company So that is certainly one of the weakest aspects in the overall quite good result. But the majority of the rather weak cash conversion is coming from working capital. And I know you've heard me say that over and over and it hasn't changed, but we are seeing first positive signs. And before I talk about capex, let me quickly talk about net working capital, which you see at the bottom of the screen. We are now seeing overall trade receivables of 167 million. They are down from the high point in Q2, 204 million and 199 in Q3. So you do see that we collected a lot of our receivables. The receivables are all very current. There is no major risk of an aging receivable. So that is in line with our expectations. And if you see the increase from last year, 153 to 167, that is less than what we saw as a sales growth. So I would say receivables are okay. The weakest spot is certainly inventory, where we have now 214 million in inventory, and that is coming from 224 million at the end of Q3. And you know why that is. Well, first of all, I would like to point out that we have taken on tremendous efforts to bring down our inventory, and we are seeing first positive signs. That is 10 million now lower than what we reported in Q3. And I can assure you this story will continue. But we had to have an elevated inventory level. If we didn't have that elevated inventory level in 2022, we would not have been able to deliver to our customers. Our customers were running at full strength. And we had to deliver and we wanted to deliver. And that came at the expense of working capital. And therefore, we needed to have elevated inventory levels because the supply chains were not yet under control. The supply chains were not where they were before the war in the Ukraine, before COVID. and this has been the cause for an elevated inventory level i'm quite optimistic that the supply chains are easing now people are finding ways to work around the war finding ways to work with covet infections and we we are going to lower the inventory level significantly throughout this year and then last but not least the payables they have declined as well um Also here, we are seeing basically the counter effect to the inventory levels. We had the highest inventory level in Q3, and since then we've really stayed away from increasing inventory further. You see the 10 million reduction here from 224 to 214, quarter three to quarter four, and the payables, declined as well and the the main reason for the decline in payables is simply because we didn't order much more inventory at the end of the year but we had to pay what was ordered let's say in q3 and therefore you also see a decline there because we were trying to honor our payment commitments so overall Those are the financials for the year 2022. I hope you agree with our assessment that overall the best year in the history with still some work to be done and that is mainly on the cash side. But measures are in place and you will see positive results going forward. I would also like to to speak a little bit about our ESG efforts and especially on the energy and CO2 reduction side. You see here a 6% on the top graph. You see a 6% reduction in energy consumption. That is, in my opinion, very, very positive because we had a 7% increase in production hours. So we produced more and more parts. And despite that, we were able to reduce our overall consumption and not only what you see below the CO2 emissions, but we reduced our overall consumptions from 115 million kilowatt hours to 108 million kilowatt hours, all scope one and scope two. When it comes to CO2 emissions, the development is even more positive. We reduced our CO2 emissions per production hour by 15% from 4.8 kilograms CO2 per production hour to 4.1. kilogram CO2 per production hour. And aside from the fact that we were able to lower our overall consumption, we also saw a shift in the energy mix and that added additional positive effects to our scope one and scope two emissions. So I believe that what we have done and already introduced the year before in 2021 when we decided to, for instance, take on our own production of energy with solar panels in our plants and also to reduce energy consumptions by additional insulation. This has been a positive effect not only on our financials, but it's also seen a positive effect on our sustainability figures that you're seeing here. So last but not least, I would like to take the opportunity to also speak very briefly about the fact that I'll be leaving the company. You saw the announcement. The reason why I'm leaving is purely personal and professional, but it is It's not that I don't have any trust in the company. The company is doing well, and I'm very much looking forward to speaking to you again at the end of Q1 when we have another investors call. And those of you who will be attending the annual general meeting, I'm looking forward to meet in person there. And with that, I would like to hand it back over to Joachim for the final words on 23. Okay.

Thank you very much, Christian. Yeah, let's come to 2023, but before we go there, no, let's go directly to 2023. Go ahead. Next slide, please. The markets that we are expecting are more or less stable, you could say. You can see here for truck, we see in North America, in Europe, a slight growth. In APA, a rather strong growth that's driven by the hopeful positive developments that we see in the Chinese market. Trailers in Europe a little bit weaker to more or less stable. North America stable slight increase and APA also a considerable increase driven by the Chinese market and tractors also more or less stable. That's the expectation that we have for the full year 2023. I'm happy to inform you, and Christian already mentioned it a little bit, that the year has started quite well for us. So the first quarter, especially in the European truck industry, has been a very strong volume. So our customers in truck worldwide, but especially in Europe, have been able to fulfill their production demands. You could say for the first time in almost three years, because in the year 2000, they were hit by COVID. In the year 2021, there was the big issue with the chips that they didn't get from Taiwan and other countries. So semiconductors were the main topic there. And last year, especially in Europe, due to the Ukraine crisis, They were missing wiring harnesses. So this has been the first quarter where they were really able to fulfill what they had promised to their customers in truck production. So the year has started quite well. Nevertheless, this is the outlook for the full year that we work with. Next slide, please. The strategic focus for 2023 for JOST will be to seize our growth opportunities in India in our agricultural business and also to start to establish a footprint in South America organically or through M&A, namely in Brazil, which is a very strong agricultural market that we want to get our foot in the door. In transport, we would like to further increase our penetration of our new products, the products that we have introduced at the IAA fair that we call hashtag future now products with sensors, with cameras integrated into our products. So that's the strategic focus for 2023 for transport. And with that, we would like to further strengthen our market position, especially when it comes to those new generation products. We already mentioned both the reduction in working capital and the improving cash flow generation is on the agenda. And I think we have the opportunity to do that because the supply chain issues that we've had and that drove us to increase our inventories to secure our supply and our deliveries with the easing of those supply chains, we see an opportunity to reduce our working capital and generate thereby more cash this year than we have been able to do last year. We want to identify and implement further measures to reduce our CO2 footprint. Christian already mentioned that we have a very good history there. We're very happy with the development, but we certainly want to continue with the efforts and continue finding new ideas and implement new ideas to further optimize our CO2 emissions. We want to improve the further improve the profitability we have to sharpen the cost focus and we will analyze and adapt our product portfolio to reflect the changes in input costs so where we have big changes due to change structures in our supply chain for example we will make those adopt adoptions to our product portfolio next slide please So the outlook for 2023 on sales, we expect that on the back of the market that I've introduced with a little ease in the material prices, we will achieve a low single digit growth year over year so that we will be slightly higher than 2022. Also, our adjusted EBIT will grow compared to the 124 million that we've just introduced to you. And with that, our margin should increase slightly beyond the 9.8% that we've seen this year. CapEx will remain about 2.5% of sales and our working capital, we will further reduce. And our new target is not to be below 20%, but to be below 19% of sales. And as we both mentioned, that has a very big focus in our organization. So let me come to the total summary. We have had the strongest year in the 70 years of JOST history in 2022. We've had record sales and record profits that we have achieved, growing 21% in sales to 1.27 billion and growing 17% in adjusted earnings per share to 5 euros and 41 per share. And with that, we're also happy to have a big increase in the dividends that we propose to the annual general meeting. Both business lines, transport and agriculture, they were strong growth drivers in 2022 and they document again the robust fundamentals of that industry that we work with and we are able to provide those good results despite the fact that we had a very challenging market environment. A strong order book and the good market expectations for 2023. Our order books and our customers' order books, they highlight the sustainable demand that we see across all regions, despite the ongoing macroeconomic concerns that we have due to conflicts in the world and high and increasing interest rates. The ease in the supply chain constraints and the decline in raw material costs will give us some relief, but it will be partially offset by higher inflation, higher energy costs and the tighter labor markets in most countries that we operate in. But it's also the opportunity to reduce our working capital. We see ourselves well positioned to deal with the challenges ahead of us. and to reach the guidance and growth targets that we have to increase our sales and our profitability in 2023. With that, I would like to thank Christian again in the name of the management team and also in the name of the supervisory board for the great work that he's done. I'm also happy to announce that the supervisory board has appointed Oliver Gansert as the new CFO starting 1st of September 2023. And with that, I'm very sure that we will be able to have a very smooth handover We will be with you to explain the Q1 numbers as Christian already announced and then we can say the final goodbye. So thank you very much for your attention and we're looking forward to your questions.

Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may click the Q&A button on the left side of your screen and then raise your hand. If you are connected via phones, please press star followed by one on your telephone keypad. If you wish to remove yourself from the question queue, you may press star followed by two or please lower your hand. For written questions, please click the Q&A button and then the write a question button. One moment for the first question, please. And the first question comes from Jock Gonzalez Hello, good morning.

Can you hear me?

Yes, perfectly.

Thank you. Thank you for taking my questions Joachim and Christian. Well, first of all, so sorry to hear that Christian is leaving. Very good luck in your new challenge. And we see ourselves anyway in the physical first quarter result presentation. So, my first question is around agriculture business. It would be interesting if you can comment on the organic growth of agriculture in 2022 as it looks like you really perform above the markets, taking into account the figure that you provided, the 7% decrease. Well, maybe we can start with that one. Please.

Yeah, thank you Jorge for the question. Yeah, we're very happy with the growth that we see in agriculture, mainly driven by a stronger penetration in existing customers, but also some new customers, especially in our North America business. We have been able to add a few new customers and we've had very good demand from our existing customers. And as Christian already mentioned, there is a big inflationary and FX effect also included in that. But so far the growth has been mainly in Europe and in North America in our existing markets and that we're very happy with. It's underlines that our initial strategy to simulate and to implement the same structure and regional structure that we have in the transport business for our agricultural business and to support the business with the existing organizations that we have in the regions is paying off so with the better customer attention that we have in north america and in europe we were able to increase those sales and now as i mentioned already we want to do the first steps this year so that we can have the same concept in the asia markets and in the south american markets in the future

Okay, so in general your products are gaining market share, if I understand well, because in general the data that I'm seeing for the sector is quite Yeah, it's both.

It is us gaining market share, but it's also our customers gaining market share. So we are a little bit dependent on the performance of our customers, since we usually have a one and one connection between the agricultural customer and their market performance. So if we are with Echo, for example, and Echo wins market shares, then we benefit with that. If they lose market share against others and we're not on the others, then of course that could have a negative effect on our market and our sales also. So we depend a little bit on the performance of our customers. But of course, our performance to be with more customers and to come to convince them that we have the right product and to be in with a high penetration in the aftermarket. That's what we have in our own hands. So it's a combination of both our own market share in the market, but also piggybacking a little bit on the good developments that our customers had had in those markets.

And regarding your target to initiate business in South America for the agriculture business, here, well, in the past, you commented that you have already some clients, some OEs that are asking you to provide service in the market that is very interesting, taking into account that it's the biggest market for agriculture in the world. I was wondering if you have any idea of how big could be this market for you? If maybe in the future it can be as big as North America, for instance, or is too early to speak about this?

No, it's too early to speak about it. It also is a development that will have to happen in the market. So the usage of the loaders on the tractors is depending on the utilization and the farm that we actually talk about. So in North America, you have a lot of cattle farming, a lot of milk farming, and that's where loaders are very much used. In just the harvesting, you don't have as many loaders. So it also depends on what type of farming is being generated. As you know, in Brazil, there is a lot of cattle farming, but it's done today a little different than in North America. So it's too early to really set the target for that. For us, it's important to make the first steps to fulfill the request of our customers to be with them in the Brazilian and South American market. And then once we see what the penetration is and how the market really works, then we will set more concrete targets for that.

Okay, thank you for that. And maybe to finish, it will be just for housekeeping. Can you give us your view on the interest expenses for 2023 and taxes levels? And also, it would be interesting to know if you are going to hedge the Swedish corona this year, or what are your plans to reduce the risk regarding the effects during the year?

Yeah, well, let's start with the interest rate levels. So first of all, yes, the new promissory loan is Overall, we have about 50% of that promissory loan is a fixed portion. That means it's either already fixed by the original, due to the original emission, or we have hedged the earlier portions of the floating notes. And I would say that on average here, we are seeing a level of somewhere around 3% interest rate. the overall... the overall... older portion of the of the the financing was around 1.2 percent so it is of course much much higher uh we all see uh what the floating rate notes are what what is happening in the market the the different central banks in this case predominantly the european central banks are raising their interest rates and that of course has an impact on our uh on our interest expenses. With regards to taxation, I think you should be safe at least for the coming year with an average tax rate of around 20%, somewhere around that 20, between 20 and 22%, I would guess is a good estimate, but it's of course very difficult to say. I can assure you in Germany, We will continue to be paying only an 18% minimum taxation rate. On the other hand, countries like North America and China, we are seeing significantly higher tax rates. And especially North America, USA is currently thriving. So the more profit we generate there, you'll also see an increase in overall tax expenses. Last but not least, it needs to be mentioned that one of the reasons why we also had a higher tax expense this year compared to prior years is also due to the fact that we are no longer in a tax-free zone in our economy. planned in Poland. So overall, if I were you, I would probably work with roughly 20 to 22% tax rate. That should be in line with what you can expect, given that we are not having a tremendous shift in profitability from one region or from one country to the other. And I don't expect that. Last question on the Swedish Krona. I mean, the big effects were not only coming from actual payments in Swedish Krona. First of all, we have significant negative effects because All the ag business in Europe, maybe with the exception of the Rockinger part, but all the ag business that is sold under the Quikr brand is denominated basically in Swedish Krona. So all that flows through the Swedish entity of ALOAB. and therefore we have a translation effect. And that translation effect has been very, very negative. On top of that, we did hedge certain intercompany loans that we needed to acquire the company that are denominated in Swedish krona. And here we had very negative effects as well because of the deterioration of the Swedish krona. And this is really what was happening. But overall, we are having a hedging strategy in place that is basically following the market development. We're not trying to, in general, not trying to beat the market and we're not gambling. So we're basically hedging certain transactions that are taking place in foreign currencies. And we are following that so that once the maturity of that transaction is very close, then we will have hedged probably about 80%. But in the beginning of the year, we will only hedge 20% of that. So there it's a rolling model and it's growing. More than happy to explain in more detail if you're interested in that. But we... We don't expect any significant gains from hedges that we are putting in place. That's not our strategy. Our business objective is to sell parts and not to make financial gains from hedges. And that's something we've been following for the past years. And I think that's also a smart advice for a components manufacturer like us.

I totally understand. So coming back to the interest rate. So it will make sense an average interest rate of something like 2.53% for the year.

Yeah, 2.5 is probably not too bad, but let's talk about this in more detail if you like. Give me a call and I can get you some better numbers. Because of course, a lot of that depends on also our appetite for mergers and acquisitions. And you know that we have a revolving credit facility in place, which is priced very competitively right now with the high interest rates that was put in place in 2018 at a very low level where the markets were extremely low. We still have that revolving credit facility. until the end of 26 and sorry, end of 25. And that is more or less undrawn as of current. So if we acquire another company and it's not huge, we can simply use the revolving credit facility to finance that. And that of course lowers the overall interest expenses in percent, not in total.

Thank you very much both. I go back to the line. Yeah, thank you.

And the next question comes from Nikolai Kemp from Deutsche Bank. Please go ahead.

Yes, good morning. Nikolai Kemp from Deutsche Bank. Thank you for taking my question. My first one would be on the bridge and on the margin for this year. Can you just walk us through your different items and how the margin should be increased so I get a bit lower input prices and this could be partly offset by higher labor costs? But what are the moving parts here?

Okay. Niclae, you were quite difficult to understand, at least for us here. I understand you wanted to understand what is really driving the margin improvement in 23. Is that correct?

Yeah.

Yeah. Okay. Okay. So let me simply preface that by saying lots of moving parts and lots of balls in the air. So on the one hand, we are seeing for steel products, we're seeing an overall market price decline in the majority of the markets. Yes, there are some ups and downs, but overall, we are all expecting that the steel prices will go down. If the steel prices go down, that, of course, is a beneficial factor in terms of purchasing steel. So, this is one of the positive impacts that we're seeing. On the flip side of that, you know that, especially with truck OEMs, we have contractual obligations to lower their prices. So, their prices, meaning our selling prices, depending on the level of the steel price indices. And that is the negative side. Once again, positive aspect is that when material prices go down, we are benefiting because the price adjustments are typically done retroactively and therefore you see a positive and you will see a positive purchasing effect here for 2023. What is also very positive, and I'm also certain that this is already visible in Q1, is the fact that the transport costs, logistics costs are going down, especially for sea freight. And sea freight does play an important part of our transport costs. So here we've seen quite significant reductions in freight rates on the transport side, and therefore we are also seeing here a positive effect. Now, negatively coming into place will be, especially in Europe, we will see probably higher costs for labor. So last year in Germany, we had very little labor cost increases and we are starting the discussions with our Works Council and the unions for Germany in this coming quarter. So there will be We will see some inflationary effects there. We have seen significant labor cost increases already at the beginning of the year in some of our Eastern European plants, meaning Poland and Hungary. And also we will need to watch very carefully what is happening in North America, where last year we already saw very significant price increases for our workers. And we're not sure if that has already come to an end because the labor market is basically empty in North America, as it is, by the way, here in Europe. So it's it's quite challenging to find skilled labor and and therefore we probably need to pay an additional or higher prices for labor in in the different countries. Interesting will be the development on the energy markets. You know that also used as a rather very low energy intensive company. We are still paying energy prices and fortunately the development that we saw in Q3 last year hasn't been as severe as we thought it would be going into Q4 and especially going into Q1. But also there the volatility is very high and we hope that we can keep it on the current level and that there will be no further increases in energy costs going forward. So that's why I'm saying it's challenging to say where the main drivers are coming from. But if you ask me, what you will see positively in 2023 is definitely material costs coming down and also logistics costs. So they will come down. Material is a two double-edged sword. As I said, material always leads to an adjustment of selling prices as well. So we will need to watch carefully what's happening on the sales side. But overall, I think those are the biggest improvements. Negatively, again, labor costs and very difficult to estimate our energy costs.

Okay, thank you. And just a quick second and question. free cash flow. I expect it should increase just given a bit higher earnings this year and also lower growth in capital.

Yeah. Well, I mean, the overall target remains in place. We want to achieve a cash conversion of somewhere between 1 to 1.3 times, and that needs to now really take place. The last two years were not very satisfactory in terms of cash generation. I mean, we were cash positive. Last year was negatively impacted by significantly higher capital expenditures as well. We spent a lot more money uh because of the new plant in india that will go live in probably in august 23 and also the new logistics center in germany that we uh that we uh where we had the the go live uh in q2 this year or 2022 so we we did spend an unusual high amount in capex um not significantly more than the 2.5% that is always our long-term range. But obviously, given the increase in sales, it was a big amount. But the big relief must come from working capital reductions. And I'm 100% certain that you will see a very positive cash flow, free cash flow this year and back in line with the 1 to 1.3 times that is our long-term target for cash conversion.

Perfect.

Thank you. And the next question comes from Lukas Spang from Tigras Capital GmbH. Please go ahead.

Yes, hi, good morning. You can hear me?

Maybe a little bit louder.

Yes, I can try to speak a little bit louder. First question is related to working capital. And you mentioned now several times that you expect lower working capital and especially lower inventory level but can you quantify maybe this a little bit more specific what do you have in mind for lower inventory level and is this just a topic for this year or will this also continue in 2024?

Well, it's never over. So I expect significant improvements compared to the last two years. What we have done and what we looked into is, especially going back in history, I believe that our working capital levels and also our inventory levels were very good at the end of 2019, where we had a normal year and no war, no corona, no inflation, no nothing. And we looked at the development since then and we derived basically, yes, there are certain inflation effects included. I would say roughly about 20% is just simply higher valuation because of inflation. And we said, this is okay. That is something we have to accept. But overall, we would like to go back to the turn rates in the different warehouses that we have that we had achieved in 2019. So I would say, looking at the different numbers, We should at least come down to a level, as I said, of 2019 that would convert to probably somewhere between 30 to 40 million, if not more, during the year 2023.

And then to your market slide, if I compare this slide to the February slide we showed, for example, in Hamburg on the Monteda conference, for North America in truck and trailers, the market expectations have been reduced. So what do you think about this? Is this just the beginning of a reduced market expectation or a slowdown in the North American market, or what do you think about this?

Yeah, thank you for the question, Lukas. Well, North America has been running on an extremely strong level for the last two, three years. So I think it's just a more realistic approach. And it's reflecting also the higher price levels that all our customers, the OEs for truck and for traders have introduced into the market. So it's still, if you compare it to the years before that, it's still on a very high level. If you look in Europe, for example, If you compare our existing level in units and markets to the levels of 2018 and 2019, you will find that we are a bit shy actually of the 2018 numbers and around the 2019 numbers. In North America, however, we are higher than those historic numbers. So I think it only reflects that the market will not grow infinitely, but that it will be still at a very high level. But I don't see it necessarily as an indication for the market going down. Especially not in trailers. In trailers we have in North America another effect and that is that the import of Chinese trailers has been stopped with the new tariffs that were introduced in 2000 and 2001. So there has been a number of trailers that now have to be produced in North America rather than being imported from China. And that will be an impact that will continue because that is not changing. So I see this as still very strong markets. And I think it's a healthy projection that we now see from the prognosis institutes here with the 0 to 5% growth in truck and trailer for North America.

And then to your Brazilian expansion plans. I'm not following your company very long, but as I'm informed, you had some M&A plans for Brazil, I think, in the past already. And if you think about Brazilian M&A targets, are these or is there still the same M&A target on your list or were there any changes?

Yeah, to Brazil, one is we have a joint venture that is not consolidated in our turnover in the transport sites. That's what we call just Brazil. What we have been talking about in terms of M&A is for our agricultural business, that would be 100% just. at least that's our target to be completely independent and the targets that we have been working with for the last two years that did not materialize so we are now working with new targets and that is one option the other one is that we will introduce our own factory. However, we would prefer to start not with a greenfield, but to start with an existing company and to find an M&A opportunity. And the M&A opportunities that we're working with are new opportunities and not the ones that we have been working with for the last years.

And what would be your timeline in terms of to say we go either the left or the right way?

As we said, we want to make the decision this year and we want to get the foot in the door this year. So our timeline is that we come to a conclusion, to a decision, hopefully together with a partner throughout the year 2023.

So this concludes today's Q&A session and I hand back to Joachim Dürr for closing comments.

Okay, well thank you very much for your attention, for your interest in Joost and also for listening to us. It has been an exceptional year, the best year in the JAWS history. So we're very happy with the development, but we also see some improvement potentials that we are working on. So please stay tuned. We have had a fairly good start into 2023 and we'll be happy to report to you once we have our Q1 numbers. Thanks again for your interest. All the best and see you soon. Bye bye. Thank you.