Earnings Transcript for KOA.OL - Q1 Fiscal Year 2023

Mads Langaard: Good morning and welcome to Kongsberg Automotive's First Quarter Earnings Call. My name is Mads Langaard, Head of Investor Relations. And with me today, I have our President and CEO, Joerg Buchheim; and our CFO, Frank Heffter. With that, I would like to hand the word over to you, Joerg.

Joerg Buchheim: Many thanks, Mads and welcome as well from my side. This is Joerg Buchheim. I'm glad to lead you today to our Q1 results. And Mads let's please move to the executive summary. We started into the year with a strong growth, solid new business wins and lower EBIT and free cash flow but with no surprise and on our expected runway towards our guidance 2023. So looking more detailed into respective key figures. So the revenue increased again by 4.6% compared to previous year quarter while the EBIT came out somehow lower on a level of €4.1 million but as expected, end [ph] KA's internal budget level. The same for free cash flow which is traditionally low in the first quarter as the automotive industry builds up inventory to support strong sales which you may remember was as well the case in the previous years, in particular in Q1 2022. So on top, we had special currency exchange losses and non-recurrent tax payments on our powersports divestments which stems more or less for the gap of €10.7 million compared to the previous Q1. The business wins came in solidly at a level of €198 million, while the leverage ratio and net interest-bearing debt improved significantly as a result of our product portfolio transformation. So the key takeaways I would like you to remember on this slide is Kongsberg maintains its solid revenue growth path, while further processing on its transformation and improvement path, the cash flow traditionally low in Q1 with special effects like one-time taxes, non-recurrent but on our internal budget level and on the runway towards our guidance. And with all our initiatives as well on the runway back towards our Capital Market Day target in 2025 with a 2 years COVID delay. So looking on the next slide, a little bit more in the segments. You see on both segments trend for an outlook for upsides. We're looking into the -- so in Q1, even with 1.5% better than the Q3 and Q2. Remember, Q4 was supported by high customer compensation which we are as well expecting throughout this year again. So -- but in a normalized level, the Q1 showing a clear upside trend. And the Q1 was still loaded with labor price increases combined with special freights out of the long COVID effect. We had a €4.6 million EBIT effect on P&C in the Q1, the so-called China effect where revenue dropped and I will elaborate there with a special slide on it. And we saw certain other measures. We're still having here challenges in terms of semiconductor availability but this is getting more and more out of our problem list. Looking into key initiatives for value creation. So certainly, we are going to charge here as well price increases out to our customers on a fair base, similar pattern like last year. I mean, this is time delayed following then supplier increases which we just received in Q1. We're looking into further rightsizing of our organization and in footprint optimizations. We are on successful redesigns on semiconductors to really lowering the dependency further and further on critical parts and certainly, strongly promotion our very promising new generation of smart actuators, in particular, to booster our revenue in the Asia Pacific and China region. Looking on the next slide, we're seeing the segment of specialty products. And as well here, we are at a level of 7.8%. We see the clear upward trend compared to Q4. And despite fading but still noticeable prolonged COVID effects which we're seeing here as well in the Specialty Product area, we are improving here margins in our activities clearly positively kicking in. And these initiatives for further value creation as well similar on our P&C, certainly charging out price increases and inflation. And we started with these discussions and negotiations, quite promising with our partners and customers. And certainly, we are initiated here knowledge initiative in order to get our new employees lost during the COVID changes to get them on speed and on efficiency. So coming on the next slide to our so-called China effect and looking on what has happened in China. When I'm talking in elaborate about the so-called China effect which doesn't come to us unexpected but which led to a €4.6 million less EBIT at our P&C business unit and a €10 million potential full year effect which has already been accounted for in our initial guidance. So nothing really new but important here for the audience to understand that. And this has been driven by a revenue drop in Q1 of about 15% to 20% which has been caused by literally 3 circumstances. A temporary lower car sales, mainly in the passenger vehicle area which we can see in China and which has affected our driveline revenue. And temporary lower sales of our on-highway products in the premium truck segment as this takes off traditionally lower during the year and there is still high low-cost truck sale in the market in Q1. And we are all markets forecasting -- forecasted, predicting a recovery for the second half of 2023. And thirdly, a change in regulations which might reduce our future sales for part of our current generation of sensors within the driveline segment as well by increasing local competition for those older generations of products where we are currently launching our new generation of smart actuators in order to making up these potential reduction on old generation revenue. And this is described better in the next slide. Mads? Yes. We are looking into our countermeasures and this has been already initiated and we call it our move West strategy, together with consolidation of overheads and introduction of our new generation of smart actuators in China. So -- and China would not be China, if countermeasures haven't been quickly initiated and started to implement. So KA China has, therefore, started the following items to bundle the support function in China and merge it to one management team, only which generates €1.1 million on savings still in 2023. We introduced our new -- brand-new generation on smart actuators to offset the fading old generation. As you could see here on the right side, where we booked the first €5.6 million revenue in 2025. And we see here, we're moving our second store -- our second plant, our joint venture plant in Shanghai, more to the West, so generating savings of €1 million annually which certainly are all sustainable and structural chain improvement steps and which we can see even more here clear on the next slide. So looking on Slide 10, you see we are moving our factory in China from Shanghai, from a high-cost area to Shiyan in the province Hubei, where we are significantly closer to our target customer group which certainly supports KA to unlock further business opportunity besides increasing our cost competitiveness and our -- and reducing our cost at all. So that is an important step which we immediately initiated and which will be executed by Q3 this year. So let me elaborate on the next slides on our growth runway. And looking into how our footprint develops in KA. We clearly see that the finding a good mix on regard of consolidating capacity, generating our growth path but as well moving clearly from high-cost more and more to low-cost. Within this growth runway, we would like to show you on this slide how we are optimizing our global footprint production in order to really focus on cost and availability and on local independency. Here, I would like to show you on what we are doing in North America, Europe, India and China to continuously increase our competitiveness. And that leads us to the next slide, Mads, where we're looking on these 4 examples. So one is Brzesc Poland. We just have opened our new center of manual hose assembly transferred from high-cost locations into low-cost location. The same concept we are executing in North America to move labor incentive assembly from Texas to Mexico with an opportunity for further growth. And when it comes to Asia, as elaborated, we discussed already China, while with India, where we're producing close to New Delhi, we're extending our localization with a rented new factory from 2024 onwards to cope with a significant increasing attractive Indian auto and industrial market. So all these plans are targeted to be fully digitalized and increasing our exposure in low-cost countries more and more away from high-cost. And we're doing these concepts on a rental base. So we're keeping here -- despite very ambitious growth, we're keeping our investment in CapEx at a minimum level. Looking on the next slide and this is referring to our well-known growth dice [ph], additional areas where we are focusing in and which we have described in our Capital Market Day runway. I'm her glad to share with you all that we are fully on track with our laid-out expectations at that time as we have, one, broadened our customer base by new tech customers in North America and Asia on top of our traditional OEM base. So we are at successfully entered here new tech OEMs and in particular, in North America but as well in China. We have additionally entered successfully new customer segments with the first contracts on material handling and 2-wheeler markets. And as well, we are growing over averagely in so far less exposed areas, in particular, in South America but as well in Asia Pacific. The most promising and supporting this year actually displayed on our next slide. And here, you see the next generation of green product solutions for Off-Highway, e-vehicles and industrial growth markets which our engineering team developed and generated over the last months. And I would like to start with the smart actuators and P&C suitable for and that's really unique for ICE applications. So this tool usable for our growth ambitions in the commercial vehicle but as well fully usable for all electrical vehicle applications which providing us a very flexible new high-performing actuator range. The EPS, the Electrical Power Steering, allows us in future together with our steering talent product portfolio which we all transferred from the powersports division, tier [ph] divestment, together with our engagement in the autonomous steering, where we have bought into Chassis Autonomy. This offers us an entrance into the tremendously attractive, let's say, smart farming area where we want to become a supplier of choice for autonomous steering on a mid and long run. Our TMS, our Thermal Management System, where we are qualifying KA as a future full system supplier with know-how and simulation capabilities where we received first development contracts as well with leading truck manufacturers. This looks very promising, too. On the PTFE hoses, a new field which allows us to unlock further markets in food and beverage or medical areas to double our revenue by 2.5x until 2026. So as well a very promising area. And you can see here, we are really work here dedicated on laying out the transition plan and future growth plan for KA. So how to complete this? How does complete this our product portfolio towards our very respected customer base? We actually must see then on the next slide, displayed in a graphic sketch. And here, you see KA becomes a more and more complete supplier in the field of commercial vehicles and Off-Highway is being ready by a new generation of products to really boost our exposure significant levers in the e-vehicle market. And this is shown then as well on the next slide more in fact and figures. And you may be one rather remember this slide, showing how we are growing here over-averagely in our fluid control system area, in particular, in hoses, in couplings in both markets, commercial vehicle and passenger car. So this shows our 64% average growth which doubling the market. We're outpacing the market growth in e-vehicle exposure significantly. Looking further into the market, Mads. And here, we are moving into our traditional view of how the sales, the global commercial vehicle and passenger -- global passenger vehicle market or production develops. And here, you can see the commercial vehicle production in the first quarter of 2023 has dropped by 2.5% compared to the Q1 of the previous year, that is foreseen to recover back to 6.2% for the entire year. And here, China plays a significant role, as you can see on the figures. In the passenger vehicle area, we saw as well as lower sales in China than the year before, while North America, South America and Europe grown significantly. So the total growth is foreseen with moderate 3.8% for the entire year in the passenger vehicle area. Looking ahead of 2023, so more on a long-range perspective. On the next slide, we do see a low to moderate market growth in the commercial vehicle and passenger vehicle segment, where 60% of the growth depends on China and that's as well one of the major growth area for Kongsberg as declared before. So looking then on what's going to be the challenges continuously throughout this year by looking into the global market environment, we do see -- still see further shortages in the availability in certain semiconductor areas which causing production inefficiency and additional freight expenses. This is, as mentioned before, getting better but it is a long-lasting process in certain areas which will be throughout the year, solved by redesigns and alternative semiconductors. As well labor cost increases as a result of global inflations, like in Mexico, where the government enforced an up to 20% salary increase for workers and we're seeing further supply chain even getting more stable but still got confronted with further price increases. And this leads to as well the circumstances on material prices where we are very much linked to resin and brass, in particular, crucial for our FCS products which remain volatile, while energy prices are stabilized. So still a very volatile picture. And looking into the group which is exposed to market fluctuations in the prices and the availability, we're still working here with our Shift Gear program on further improvement. Looking a little bit how the different regions performed and this is what we're seeing then on the next slide, as stated, our revenue growth has been excellent as well in Q1. This has been majorly generated all our strong commercial vehicle sales in the area of North America and Europe, where we outperformed the market for a second year in a row to weather together with our favorable and major customers. In the PV market, contrary, KA was, in particular, impacted by the low sales in China, in particular, in our driveline segment. The decrease in others was related to the powersports which you know have been sold. Looking then in our long-term growth by our traditional new business win chart, here, we're referring to the circumstances that despite macroeconomics, KA is on track and expect stronger bookings in the coming quarters. So we could start into 2023 as expected with more than €700 million lifetime new business awards and a full acquisition pipeline for the quarters to come. So we are, therefore, confident and let me iterate that, that we have a realistic potential to increase our bookings to a book-to-bill factor of 1.3 which would generate further strong growth above the market throughout the coming years. So, not only that, as well from the quality of the new business wins, we are glad to share that our major bookings are in our new product areas like industry, the smart actuators and the air suspensions for EVs which is encouraging to see. So overall, we are on track on our transformation program. And yes, as mentioned, the financials are like expected and on our runway towards our guidance. And I would like to hand over to Frank to give us a little bit more insight in the financial update.

Frank Heffter: Thank you, Joerg and happy to do so. Also welcome from my side. Let me start, as usual, with a look at the quarterly revenue development, with almost €229 million, Q1 2023 was the strongest Q1 in the last 4 years, a nominal growth of 4.6% versus prior year. If we adjust the prior year for the business divested which contributed almost €20 million in last year and the currency rate effects, then the growth rate was even 16.4%, very strong. When looking at the quarterly earnings development on the next slide, then Q1 2023 came in at an adjusted EBIT of €4.1 million, representing an EBIT margin of 1.8%. Two main effects led to a comparably slow start and below fall-through of revenues. The already explained China effect and a less favorable product mix in Specialty Products as well. This resulted in a rather slow start into the year. But as Joerg mentioned, not necessarily unexpected. Let me then walk you through the revenue and EBIT bridges from Q1 2022 to Q1 2023. Revenues in Q1 2022 included the mentioned €19.9 million revenues to BRP divested in October last year. Thus, the comparable base is rather €198.9 million. Adjusted for the slightly negative contribution of this business from Q1 2022, the comparable starting point for adjusted EBIT is €7.7 million. Now, when we look at P&C without China, we saw a strong growth of €23.8 million and also a good fall through of €1.8 million, especially in Europe and Americas, whereas in the rest of Asia, we had a rather unfavorable product mix which led to a slight decline in adjusted EBIT. What did impact the quarter significantly was the sales drop of €10.2 million in China, resulting in a reduced adjusted EBIT of €4.6 million. When we look at Specialty Products, then we saw Flow Control Systems grow by €13.8 million, a stellar 19.3% growth rate but adjusted EBIT still decreased by €1.1 million due to inefficiencies, partly additional cost, not yet passed on to customers over time to walk through backlog and increased scrap levels. To reduce these inefficiencies, a special task force has been set up that will drive these costs out of the organization in the quarters to come. Last but not least, Off-Highway also grew on a comparable basis by €5.3 million. Also here, the product mix was less favorable than in the past with a higher margin business. So the adjusted EBIT remained more or less stable. When we go from adjusted EBIT to net income and bridging the net income year-over-year, we note that the lower adjusted EBIT of minus €3.5 million was more than offset by lower interest payments on the reduced bond and the non-recurring one-time cost related to the bond repurchase in Q1 2022, here, shown as other financial items, positive 3.6%. Currently, very unfavorable is the Euro to NOK exchange rate development. While we had a positive €4.3 million impact in Q1 2022, we were now facing a currency loss of €11.2 million, predominantly on an intercompany loan of €200 million in Norway. It's important to note that these losses are still unrealized and also not cash effective. On taxes, we saw an increase of €3.5 million versus Q1 2022 as some of the losses occurred specifically in Norway and Switzerland, could not yet be utilized. Also here, it's important to note that out of the €6.1 million tax expenses, only €1 million are current taxes, while €4.6 million are deferred. When we look at the last 2 years on the next slide of the cumulative currency effect, we see that despite the high loss in Q1 2023 of €11.2 million, the overall net effect is still a positive €3.3 million. As most analysts are expecting the NOK to also strengthen in the second half of the year or over the summer, we are also expecting that these effects do not repeat in this magnitude. We might still see a certain negative impact in the next quarter but then it should turn again in the other direction. When we look at other financial items, we see a clear improvement over the last quarters as we have reduced the size of our accounts receivable securitization facility and with that also the cost. And we have invested certain funds of our excess cash into money market funds that are also appreciating in fair market value. On the net interest side, we also see an improvement, predominantly caused by the reduced bond and interest payment related to that. When we look at the free cash flow development, then Q1 2023 came in with a negative €30.8 million. Again, a slow start into the year. Historically, most of the time, Q1 is a slow start. We have seen in 2023, cash flow from operating activities coming in at €9.8 million, including a net working capital increase of €16.4 million and I will show details on the elements in next slide. The investing activities were €6.1 million with €6.8 million expenditures. Here, we pushed to a certain extent the CapEx planned for this year into Q1 in order to also use the excess funds from the divestments before being obliged to potentially repurchase additional bond shares. The financing activities came in as planned with the bond interest and some payments of interest and lease liabilities amounting to €3.4 million and the final cash out for the share buyback of €2.5 million. If we -- in addition, we had currency and translation effects on cash flow of a negative €6 million. Here again, predominantly U.S. dollar and CNY, we keep foreign currency nominations which then led to a total change in cash of €33.2 million. Adjusting for the share buyback and small overdraft, we come to a free cash flow of €30.8 million for the quarter. When we look at the liquidity headroom development which ended the year 2022 at €287.9 million, then the negative cash flow led to a decrease to €254.7 million at the end of the first quarter which is still a comfortable room, although slightly reduced. We still have the €50 million bond, not bond, the €50 million of undrawn revolving credit facility available, the €25 million of securitization facility and still €179.7 million of cash. When we look at the bridge elements, I want to highlight again the change in net working capital which negatively impacted the quarter by €16.4 million. We had higher tax payments amounting to €8.8 million, of which €6.7 million are one-time payments related to the divestitures and they will not repeat. On the investments, I already mentioned the slight push. And on the share buyback, I already mentioned as well that this will not repeat. And also here, the currency and translation effects of minus €6 million are again unrealized. Looking at the net working capital, we can clearly see that the increase was predominantly driven by an increase of revenues and related accounts receivables amounting to €17.8 million in the quarter which we will certainly collect in the quarters to come. This should normalize as now the revenue increase is not expected to be in this magnitude going forward. The increase in inventory of €8.5 million was more than offset by an increase of trade payables, so financed through money still owed to our suppliers. We are nevertheless addressing all levers to improve the free cash flow throughout the year. Let me just pick on some of the points listed on the next slide. You can see a lot of activities to improve the situation. On inventory, we need to stringently reduce the bank build that is currently ongoing to prepare for the moves into the new sites in the various locations, Joerg already showed in the earlier slide. We also, on purpose, leveraged the buys ahead of price increases to avoid these increases. And now throughout the year, we will reduce these inventory by working through it. On accounts receivables, we have noted that all the price adjustments certainly require also adaptations of our ERP system to reflect the correct amounts and prices so we can invoice our customers correctly. Here, we have found areas for improvement to speed up so that we do not provide our customers with an excuse not to pay in time. On the accounts payable side, we are discussing and negotiating with selected suppliers about consignment arrangements so that they store the material and the components close to our facility still on their books and the time they will lend land in our books is shortened and this should also improve then the situation. On CapEx, we certainly limited the spend to the must-haves in the year and even consider case-by-case availability of secondhand equipment in good conditions. One of the elements, besides all the Shift Gear efforts to improve EBITDA is the re-installation of the Spend Control Tower. So each discretionary spend exceeding €10,000 will be scrutinized in an extra round and challenged whether this is really necessary or not. Finally, let me share some key financial ratios with you. The adjusted gearing ratio increased slightly from Q4 2022 to 1.3, still a significant improvement year-over-year compared to the Q1 2022 level of 2.4. Also, the adjusted ROCE improved year-over-year from 4.3% to 5.3%, also higher than the 4.4% in Q4 2022, mainly driven by the reduced capital employed which you can see in the lower right-hand graph, despite the strong growth on the top line, we could reduce the overall amount of capital employed, clearly improving the capital efficiency. And last but not least, the equity ratio in end of Q1 2023 amounted to 33.8%, a decrease due to the quarterly losses but still at a very comfortable position and even slightly higher than Q1 2022. And with this, I will conclude my additional explanation and hand back to you, Joerg, for the Shift Gear update.

Joerg Buchheim: Thank you very much, Frank. And yes, let me continue here and to explain how we are driving the prolonged COVID effects out of the operations. And I would like to share with you within our Shift Gear initiative 2023, our runway. Q1, as you can see here on the left side, the blue bar is the positive impact, our countermeasures. The red bar is the negative impact and the dotted green is the net impact. So finally, what left positively or negatively after negative against positive. So Q1 was historically more negative than positive effects as the supply chain price increases and the inflation materialized which will be then charged out to customers time delayed in Q2 and Q4. And that's what you're seeing here very well on our chart and this has been proven throughout the 2022 already successfully and as well in 2021, when we started to initiate this Shift Gear I improvement program. So, you'll see over the coming months, that our initiatives, our counter initiatives to counter these negative impacts getting executed and gaining ground. And we have, again, here an ambitious and realistic target to, at the end of the day, fully compensating the negative effects here by a €5 million positive net impact. So it looks very promising. And as I said initially, the negotiations with customers, with suppliers but as well our continuous improvement programs are running on the shop floor. Good -- here as well to mention we had, in the meantime, improved our process, so we established a digital tracking tool which provides us now a full on-time transparency. And this -- that's a very positive effect, allows faster reaction to pass cost to OEMs and customers. So looking on the next slide. And here, I wanted to share with you an example on what are we doing on the shop floors. These are really little and -- but very important step-by-step initiatives. So you see how deep we go in here in our structural improvement programs and looking into what are we doing on the shop floor. We're implementing currently more than 300 continuous improvement project initiatives globally. And I picked here 4 to give you a little bit more detailed insight what are we doing and looking on the more purple parts left and right, we're talking about improvement potentials in our Specialty Product area. One example is our fluid control system, Raufoss location, where the increasing our automatization of our assembly process which generating here financial savings of €220,000. Looking on the right side, the same on Willis, automotive soldering robots which we're getting implemented and which increasing our efficiency and reducing our cost. And in the middle, you see our P&C segment here, an example out of Vrable and out of Sweden, Mullsjo, where we as well investing in certain automatization into a higher degree on the achieving efficiency. So these are just 4 example, out of 320. So you see and getting a little bit better feeling in how deep we are going into our processes and products in order to really develop Kongsberg as initiated towards a second to none company. Moving then to the next slide and that's showing them our capital in terms of how we are picking up on a mid- and long-term perspective. And these questions I took out of the last earnings call from you, as our valued shareholders and I'd like to take them that this is the opportunity to share with you this development. And starting from the left side, our initial capital market guidance out of the December 2021 indicated here in target EBIT level of 8%. So at that range, it was the €80 million EBIT in 2023. So -- and you see here on the red blocks, where I would like to share what happened that we currently on our guidance level of €30 million. And one of the topics, certainly, as well reported, is the divestment of our powersports which led to a €16 million EBIT sale; so that drops out. And the other topic is in P&C with a change in somehow technology, lower recovery in the China market which probably recovers here according to analysts for the second half. But so far here in our guidance, a €60 million drop on prolonged COVID impacts, still volatile material cost, semiconductor shortage. So which is all getting better but discounted here our original target by €16 million. And the same then in our Specialty Products, as reported as well here, the prolonged COVID effects, the long COVID effect which moving more and more out but discounted here as well. And then certainly, our stranded cost out of the divestments. So looking into this very reasonable and at 2021 non-foreseeable impacts, we generated here delay but it comes to our original target to be an 8% EBIT company or a €80 million EBIT. And how we want to achieve that? As I said, we will make that up within the next 2 years by continuously growth, by Shift Gear measures but as well by additional overhead measures to leaning up our organization and consolidating our management in order to bring us this solid growth towards an €88 million, an 8% EBIT margin in 2025. So we're coming back and that was an important question out of the last earnings call back on track of our initial Capital Market Day guidance but with a 2 years COVID-related delay. So looking then in the final slide and this is our traditional outlook section. And here, I would like to reiterate on one side, our clear guidance which I did already on the executive slide. So we stay on our revenue and adjusted EBIT guidance on the revenue in the window of €88 million [ph] to €900 million annually and on an EBIT guidance of €25 million to €30 million, certainly conservatively but clearly emphasizing here our run rate despite a slow start which was for us not unexpected and actually on budget. Looking to accelerate here, to give you a better confidence when it comes to, what are we doing throughout the remainder of 3 quarters of the year. So we see here our fluid control system on a growth path, over-averagely with 18%, the same on our on-highway. So you see clearly, we are executing and harvesting here our portfolio transformation road map to move more into commercial vehicle Off-Highway in industrial business which, on a mid- and long-term perspective supporting us our runway towards a 2-digit EBIT company, again, with a 2 years delay but clearly on track. We see here strategic relocations in core markets as reported before and we see a very promising outlook with a 30% above book-to-bill on new business awards throughout the year. Going then from a growth path to our cost optimization. As mentioned, we see here €15 million cost hand through the OEMs. From second half onwards, we see that our variance initiative. So getting the long COVID, getting the prolonged COVID variances out of our shop floors. As mentioned before, this our production assembly setup improvement. We are targeting here to get €10 million out until end of 2023. And then we're looking in overhead cost optimization, we targeting here as well for this year alone €10 million on improvements. So all these measures should give you confidence here and supporting our guidance towards the €25 million to €30 million. Secondly, what I would like to reiterate and we announced that in our last earnings call as well, we are on our runway unlocking additional value throughout our strategic review. So we have started in Q2, at the beginning of Q2, our strategic review. The aim of this review, as mentioned before, certainly evaluate and maximize future shareholder value and this has been successfully kicked off. And for this purpose, KA has engaged the investment banks, Rothschild and ABG Sundal Collier from Oslo. Let me point out, last but not least, our upcoming event for Q2. So I would like to invite each and everybody of you for our Annual General Meeting which is going to place -- take place digitally on June 6, 2023. And the invitations, including the proposal to redeem the repurchased shares out of our buyback program will be sent out next week. So I would be more than delighted to have each and everybody welcomed at this AGM. So with this, Mads, thank you very much to -- from my side already to all participants and I'm glad to move over to our well-known Q&A session.

A - Mads Langaard: First question, how are wage settlements in 2023 developing versus assumptions in 2023 guidance?

Frank Heffter: Yes. Maybe I take this question. I think we have positive and negatives. In some countries, we see lower-than-expected inflation materializing and in others, like the example of Mexico, it is certainly higher-than-expected. All in all, I would say the net effect is in line with what we have overall anticipated when putting the guidance together.

Mads Langaard: Next question. You had talked a lot about the second half recovery but how should we think about second quarter from a sales and margin perspective?

Joerg Buchheim: Yes. Thanks a lot for the question. I mean, as traditionally in the automotive area, you see a clear pattern. So you see Q1 and Q2 more on a flat perspective when it comes to revenue performance and related EBIT performance. And then as mentioned as well, typical automotive pattern, you're going to have the takeoff from the second half. And that's what the market is expecting as well for this year, no difference to previous years and that's what we are from KA as well expecting. So the real improvement, traditionally you see in the industry and as well here from the second half of the year.

Mads Langaard: We're receiving quite a lot of questions regarding our strategic review. Joerg, maybe you would like to give some more flavor on what we can say and not say regarding the strategic review going forward and what we are considering?

Joerg Buchheim: Certainly, thanks a lot. I mean, I can imagine that's an interesting topic. As I said, we have kicked off successfully our strategic review. We got our partners on board here with the banks on Rothschild and ABG. And as iterated the last time and let me emphasize this in a kind way, we are looking in all options. So everything is on the table. We have a 360 degree. We don't want to exclude anything. We would like to really look in unlimited opportunities here, how can we maximize the best for the company, for the employees and for -- certainly for the shareholders. So this is, let's say, then-on [ph] process where we have 2 follow rules. And here, I can reiterate again, we are going to continuously update in a public way but you certainly need to understand that at the moment, we are started -- we just started and certainly, we can't then in between sharing specific or exclusive information into different medias or directions. So let me keep you updated on time by public announcements so that you are continuously been on track and on updates.

Mads Langaard: Next question, with your 21 plant worldwide, how much spare capacity do you have in terms of percentages to ramp revenue even further? And are there plans to further increase production?

Joerg Buchheim: Yes, a very good question. So looking into our capacity consolidation and improvements which we have presented here in the presentation, we are covering our long-range period at least. And when we're talking about our long-range periods, we can cover here our growth perspective towards the next 3 years.

Mads Langaard: Yes. How has the lower cost of salary for the decreased number of employees since 2022 affected the cost? How much has the cost on this decreased?

Joerg Buchheim: So that's a question for 2022, Mads? Yes. So we will...

Frank Heffter: Compared to 2022, the amount of employees is rather stable so far. We have had reductions in some areas and increases in others. So there has not been a huge difference year end 2022 to current Q1 2023, yet.

Mads Langaard: We have also received a question regarding some rumors in the market about our strategic review and I can just say that we, as a company, cannot comment on rumors in the market. So that's just for everyone to note. I think we are through. No more questions to be answered. If you have any questions, feel free to contact me. And we will make sure that everyone is being answered. And with that, we would like to conclude today's presentation. As said, please contact me if you have any further questions. Thank you for participating. We wish you all back for the Annual General Meeting, the 6th of June. But hold on for one second. We just got one last question. And this is probably a question for you, Frank. How much of the last 2 years' growth are a result of increased raw material costs?

Frank Heffter: Yes, certainly, price increases do impact the top line and we have successfully passed on these cost increases in 2022 already and expect this to also happen in 2023. Overall, we are talking about a yearly impact of around €35 million to €40 million.

Mads Langaard: With that, it's 9

Frank Heffter: Thank you. Bye-bye.

Joerg Buchheim: Thank you.