SAF-Holland SE (SFQ) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. This is Alexander Geis speaking, and I would welcome you to our today's fiscal year 2022 presentation. And by the way, the Q&A tool is already open. You can submit questions, if you like. As usual, I start with the highlights for the quarter fourth of last year. As you see on the next page, starting with the sales, our continued strong customer demand led to a sales growth of 21% year-over-year at now EUR 389.5 million in the last quarter of 2022. The higher input costs could largely pass on to customers and additional efficiency gains were achieved in production processes. OE remained very strong in Q4 2022 with sales increasing by 24.8%. Americas and APAC regions were the main growth drivers, both very bullish. Furthermore, I can report a solid aftermarket performance with sales increasing 11.2%. Speaking of the earnings, adjusted EBIT margin was at 8.3% in Q4 2022, up 150 basis points. And SAF-HOLLAND generated EUR 62.5 million in operating free cash just in the last quarter of '22. On the next page, we can see how we performed for the full year. Starting on the upper left side, EMEA region with 11% increase year-over-year in sales, Americas -- big portion of that of the total increase coming from the Americas with 47% increase and APAC as well quite strong with a 44.5% year-over-year increase in sales, which altogether led to total sales. You can see that on the upper middle side, EUR 1.565 billion with an adjusted EBIT margin of 8% and an adjusted earnings per share of EUR 1.82. We were able to reduce our net working capital ratio to 12% and achieved an operating free cash flow of EUR 120 million for the complete year 2022. This was the highest sales and absolute EBIT of all times and the highest operating free cash flow ever for the company. That was a great teamwork. Coming to the next page. You can see fiscal year '22, sales up by 25%; adjusted for FX and M&A effects, still close to 18% with, what I said before, EUR 1.565 billion. If you take a look to the different quarters, you can say that all quarters were quite strong with Q4 sales coming in with 21% year-over-year; FX and M&A adjusted, still by plus 13%. So let's take a look to the regions and the business units on the next page, please. Starting with the different regions, and I would like to draw your attention to the upper right side, you can see the circle for '22. This is for the regions. Still, the biggest region or the strongest region in sales is EMEA region with now 52%. And then Americas, due to the very strong performance in sales increase, went from 32% to now close to 38%. And APAC also increased slightly to now 10.2% of total group sales. If you take a look to the lower right side, you can see the business units, also starting with the biggest one, which is trailer, with 60%, nearly no increase or decrease, then we have the truck business with a little bit below 13% and still strong aftermarket business with now close to 27% in fiscal year '22 compared to 28% in fiscal year '21. So also here, quite stable aftermarket sales coming in. If we take a look to the gross margins on the next page, you can see that the gross margins almost were stable at 16.6% of total sales but nearly coming in with EUR 260 million in absolute numbers. Also here, good achievement for the company. If you take a look on the lower side of the page, you can see the different quarters, quite stable starting with a lower 15.7% in Q1, then increased to 17%, further increased 17.3% in Q3 and still a very stable 16.2%, which is an increase of roughly 3% or 2.5% year-over-year compared to '21. And in total numbers, in absolute numbers, EUR 63 million, also really good given the fact that you normally have some shutdowns of the plants during the Christmastime and also in the U.S. and Europe. We will now come to the adjusted EBIT on the next page. You can see that the group adjusted EBIT increased by 33.8% and to now 8% in total of sales. In absolute numbers, this is EUR 124.6 million adjusted EBIT, and this is also the best result ever we saw in the group. If you also here take a look to the different quarters, you can see and we reported earlier during the Q2 and Q3 sessions that we had some pressure specifically in EMEA, and I will come to that later on. And we only came in with 6.4% in Q1, then increased to 8% in Q2, further increased in Q3 to a strong 9.1% and could come in with 8.3% in the last quarter of '22. This is also a great development. Adjusted EBIT rose by 47.9% to 8.3% and, as I said, to EUR 32 million in absolute numbers. How the different regions performed, we can see on the following pages, please. Starting with the biggest region, EMEA, you can see EMEA sales up by 11% to now EUR 815 million, which means record sales for that region. If you also take a look to the different quarters, you can see that Q1 was strong. The best quarter we had last year was in Q2. This is traditionally the case. Then in Q3, you have the summer shutdowns, still coming in with EUR 200 million and be able to achieve EUR 191 million sales in the last quarter, which was just slightly up by 1%. If you take FX and M&A out, that was a slight decrease by 3.5%. But given the fact that we had 2 weeks of holiday shutdowns, still a very good development. Our plans are fully booked already into early summer, so this is a good thing. We are running under full steam. And how it looks like at the moment due to the hacker accident we had, Frank will tell you about later on. On the next page, you can see the adjusted EBIT for the region, not a good development, we were not happy about that. EMEA earnings impacted by high steel and intermediate prices and sharp increases in freight and energy costs. The price inflation passed on to a large extent but with a significant delay, and you can see that later on in the different quarters. So fiscal year 2022 adjusted margin at 6.5%, down 2.7% year-over-year. Worthwhile to mention that the margin decline happened mainly in Q1 and Q2. And speaking of those quarters, if you draw your attention please to the lower left side, you can see the EMEA adjusted EBIT margin in Q1 got a huge hit with only 4.9%, then a slight recovery to 6.2%. Then in Q3, we came in with 7.9% and now with the 6.9% in the last quarter of '22. The EMEA team is heavily working on getting back the old margins, and we are in a good way to achieve this. Americas, this is a truly success story. You can see that the teams were able to increase the sales from EUR 402 million in '21 to now EUR 590 million. This is an increase by 47%, and this is -- also means for us a record sales for our region in Americas. Worthwhile to mention the last bullet points on the upper section, the construction start of an additional production line for our fifth wheels in Mexico. We reported that earlier in other announcements. This is in Mexico, just across the border to Texas, to expand production capacity and achieve further efficiency gains and cost reductions. So ground breaking has been done. Construction is underway, and SOP is in Q4 of this year. When we speak about the different quarters, you can see that Q1 was okay, Q2 huge increase already to EUR 151 million, a further increase in the second -- in the third quarter to EUR 161 million and specifically in Q4, the teams were able to keep the sales quite high also despite the 2-week shutdown end of the year. So that means the strong momentum continues in Q4 '22 with an organic sales growth of 33%. And we have record order intake. So also here, we are fully booked in our plans into the summertime. More to report on the adjusted EBIT margins of Americas. So Americas adjusted EBIT more than doubles to now EUR 55.9 million in total or a very solid 9.5%. And if you specifically take a look on the different quarters, this is a great achievement. 7.8% in Q1 was much better than the year before, but then there was a momentum in Q2, achieving 9.9%, followed by 10.3% in Q3 and now also a very solid 9.6% in the last quarter of last year. Another good story on the next page, this is the APAC region. APAC region last year, sales up by 44% with an organic growth of 37%, driven by a strong trailer OE business, specifically in India and Australia. I can report that in January '23, we moved into our new plant in India with already a plus 50% capacity, and we are now already fully booked into the second half of the year '23. And this is why we made the decision to further increase the capacity in India now, and this will be ready by July, August time frame. Sales per quarter, you can see increase quarter-over-quarter, EUR 34 million in the first quarter, EUR 37 million, then EUR 40.6 million in the third quarter, now reaching very high sales record with EUR 46.9 million in the last quarter of last year. So this is up by 49%. Okay. On the next page, we can see the adjusted EBIT margin for that region. So APAC with a solid adjusted EBIT margin of 10.1% in fiscal year '22, and this includes also additional restructuring charges of EUR 1.4 million and impairment losses of EUR 2.4 million in China, which we did in last year. If you take a look to the very solid development quarter-over-quarter, you can see the first 3 quarters are double digit, so 10.1%, 10.3%, 10.3% and also in the last quarter, a very solid 9.3%. That's a really good performance throughout the year of 2022. So hard work pays off. And having said that, I would now like to hand over to Wilfried for more financial data.

Okay. Good morning, ladies and gentlemen. Alex talked about the regions and the development of the adjusted EBIT. Here now, the bridge to the results of the period. The adjusted EBIT margin came in with 8.3% in the fourth quarter, so overproportional when we look to the right-hand side where we see the full year numbers. The full year number is 8.0%. Then we see here the total adjustments, which was EUR 6.5 million in the fourth quarter, but let's concentrate on the numbers on the right-hand side for the full year. There, we see EUR 23.1 million compared to the previous year, where it was almost EUR 21 million. So what is the content here? This is a EUR 9.5 million purchase price allocation as it was also over the last years. And furthermore, we have EUR 6.2 million for the Haldex transaction and the restructuring in China as well as the impairment as Alex told you a minute ago. Coming now to the finance result. The finance result in the fourth quarter is EUR 6.5 million, significantly higher than in the fourth quarter 2021 due to the fact that we have to finance the Haldex transaction. And according to our risk guidelines, we have hedged around about 70% of our loans at 2.50 and 2.75. And with the further increasing EURIBOR, we believe that for the next year, we will see some more higher interest rates. So if you take the EUR 6.5 million as a run rate, you need to adjust that by additional EUR 5 million for the next year. So in total, we are expecting a little bit above EUR 30 million. Now some words to the tax rates. When we look to the tax rate on the right-hand side, when we look to the full year numbers, it's 30.8%, normalized -- I would say, a normalized tax rate. And in the year before, it was 41.3% due to the fact that we have had a lot of write-offs especially in China, and that had an impact on the taxable results. When we now look to the earnings per share, which is, I think, most important for the further discussion about the dividend, then we see that we have achieved EUR 1.35, and this is 66% above last year. And adjusted, it's still 35% above previous year. On the next slide, you find more or less the remarks which I told you now verbally, so we can now go to the next slide when we talk about the dividend. After the COVID years of '19 and '20, we paid in '21 43% of our earnings as a dividend. And also in 2022, we proposed a dividend of 44.6% of our net earnings and are so in line with our dividend policy. This underlines our confidence on the strong internal financing of the company. Finally, we propose to pay a dividend of EUR 0.60, in total EUR 27.2 million, which gives an attractive dividend yield of 6.8% based on year-end 2022 share price. On the next slide, we find the development of the equity ratio. And let's have, first of all, a look to the numbers. We see here when we compare the 31st of December 2021 compared with 31st of December 2022, we see a significant increase from EUR 371 million to EUR 441 million, so plus 70 million. Where does it come from? Mainly it comes from the net profit, of course, with EUR 61.2 million. But also, we have had positive currency effects of EUR 12.7 million more in the direction of the U.S. dollar. And we have had EUR 8.1 million remeasurement of the defined benefit plans due to the fact that the interest rates have gone up. And then the offset is, of course, the dividend payment for 2021, which was EUR 15.9 million. Now a look to the total assets. Also here, we have a significant change. We increased year-on-year the total assets by almost EUR 500 million, and this is mainly due to the fact that we have bought the 100% of shares of Haldex as well as around about EUR 100 million for the financing of the Haldex activities directly. So consequently, when we look to the numbers in percent, we see that the equity ratio declined to 29.5% due to the fact that we have acquired Haldex. And without the acquisition of Haldex, this equity ratio would have been 40%. Coming now to the next slide, which gives us some indications -- or not indications, I would say, very strong numbers here and indications for the cash flow, of course. Beside the positive sales and earnings development, the net working capital is, of course, here as -- seen as a success story. We have a peak here on the half year where in June, we have had a peak of 17.4% net working capital in percent of sales, and then we see a significant decline to 12% at the end of this year. So the clear focus was in the framework of the cash scheme program to reduce the net working capital significantly. And the good news or the good message is that it is sustainable. Also in January and February 2023, we are 3 to 4 percentage points below previous years. So on the next slide, some more details about the net working capital components. First of all, inventories was an issue. And with the easing of the supply chain tensions and strict management guidelines, enabled us here the reduction -- to make the reduction of the inventory levels. Finally, the DIO dropped from 67 to 56 days. Also, the DSO improved slightly compared to the year 2021. And yes, we did also some factoring at the end of the year 2021 as well as at the end of the year 2022. Just to give you here an example, it was 45 -- around about EUR 45 million end of 2021 and around about EUR 52 million end of 2022. So in total, this gives us around about 10 days. Coming now to the next slide. The profit and the net working capital development lead, of course, to strong cash flows. And when we look, first of all, to the net cash flow from operating activities, we see here that we have almost increased it 4x compared to the year 2021. So 2 drivers. One driver is, of course, the good development of the earnings situation. But on the other hand side, as I said already before, the net working capital is a success story. In the year 2021, we increased it by EUR 65.5 million, and we didn't in 2022, although sales increased significantly. This brings me to the operating free cash flow. The difference between the net cash flow and the operating free cash flow in this case here is the usual CapEx. So we spent a little bit above EUR 30 million in investments in CapEx. This operating free cash flow, which we show here, excludes the Haldex acquisition as well as the acquisition of IMS. And so we can show here EUR 120 million operating free cash flow. On the next slide, let's have a look here to the net debt to the EBITDA. And yes, the development is, I would say, quite impressive from the first quarter in 2021 where it was 2.2. We brought it down step-by-step during the year 2022 with a good development of the net working capital down to 0.7 without the acquisition Haldex. If we include the pro forma EBITDA from Haldex, then we would have had an EBITDA -- net debt-to-EBITDA ratio of 2.6. And with respect to the agreed covenants with the banks, the EBITDA will be adjusted by some one-off effects. Taking this definition into consideration, the covenant would have been 2.2. On the next slide, we find the development of the ROCE, the return on capital employed. And we are here at 12.9%. If we look to the calculation in the -- below the chart, you see the equity plus the interest-bearing loans minus cash, and you find the adjusted EBIT on last 12-month basis. And so we have here, of course, included the Haldex acquisition. And is it good or is it bad? How do we consider the 12.9%? And if we look to cost of capitals in SAF-HOLLAND, the WACC, the actual WACC is close to 12%. So we are still here, also including with the Haldex acquisition, above our capital costs. If we would here also adjust the Haldex acquisition accordingly, then the ROCE would have been 22.1%. Overall, the target for the combined group, SAF-HOLLAND with Haldex, is to achieve a ROCE of 15% or even more. And now I would like to hand over to my dear colleague.

Good morning, ladies and gentlemen. Thanks, Wilfried. The next chart shows our Haldex integration project road map, as already presented several times. We are in Phase 4, closing and further integration. The focus for the next month is completion of integration and leveraging all committed synergies. Beginning March, we had our first global leadership meeting and successfully formed one global SAF-HOLLAND leadership team. We will complete integration as promised by end of this year. We have achieved 2 additional important milestones. First, and as already communicated on February 23 -- 21, we got Polish merger control clearance, what marks the closing of the transaction. Second, since March 1, we hold 100% of Haldex AB shares. The stand-alone IFRS financial statements will be available until end of May. Haldex will fully align its accounting and reporting principles to SAF-HOLLAND. This is expected to result in adjustments of 6% to 8% of purchase price but will have no impact on group results going forward. Haldex will be first included in our Q1 2023 consolidated financial statements published on May 6 with the effect of the closing date on February 21. Our outlook for the year 2023 includes Haldex as of the closing date. In addition, we will guide a pro forma view with Haldex included for the full 12-month period. We are still in the year-end closing process for Haldex stand-alone, but I'd like to give you already a first insight regarding Haldex sales trend for the year 2022. Sales according to preliminary figures amounted to EUR 526.1 million. Previous year was at EUR 454.9 million. This means an overall sales growth in 2022 versus previous year of 20.9% in Swedish kroner or 15.7% currency adjusted in euro. Full year sales was driven by strong trailer OE business, plus 10.5% currency adjusted, and aftermarket business with 8.9% currency adjusted as well. The Q4 year-over-year sales picked up by 6.2% in euro or 13.9% in Swedish kroner. This trend was impacted by reluctant restocking of aftermarket customers and slow year-end in EMEA and Americas. APAC saw a strong recovery in Q4. The internal sales in future consolidation to SAF-HOLLAND amounted to approximately EUR 50 million. As you can see on the charts below, the regional split is marked by the strong positioning in North America, leading to 57.4% share in group sales. OE business is dominated by the trailer segment with 33.1%. Aftermarket share remains very strong with 51.9%. Related to the first-time consolidation, we continued with SAF-HOLLAND's conservative approach. Due to the delayed approval by the Polish antitrust authority, the consolidation could not take place before February 21, 2023. SAF-HOLLAND will roll out its group accounting and valuation principles to Haldex and align these principles with those of the SAF-HOLLAND Group where applicable. Main adjustments are impairments on capitalized development cost, value adjustment in inventories and valuation of tooling and others. We expect a range of adjustments between 6% to 8% of total purchase price. All potential effects will be reflected in the separately prepared consolidated financial statements of Haldex AB and will, therefore, have no impact on the outlook given for the combined SAF-HOLLAND Group for the year 2023. The purchase price allocation is expected to result in an increased goodwill of EUR 30 million to EUR 70 million, it's really, really preliminary, and additional PPA amortization of around EUR 10 million. For the year 2023, we have to consider in addition around EUR 3 million for inventory step-up. One hint, as already promised by Alex Geis, regarding the recent cyberattack. We are -- that is -- it has been published beginning this week. We are already rebuilding our systems. And we assume to be back in business next week or latest, the week after, and we will catch up with the delays within the next 3 months. With this, I would like to hand over to Alex Geis for the outlook 2023.

Yes. Thank you, Frank. Before we go to the outlook, also coming from my side, we really have to thank our IT specialists working for us in the group on all the sites of the ocean because they reacted very, very fast, shut down all the savers -- servers, the systems. So we were able to keep control of our servers and systems and our rebuilding. So really good job. All right. Now ladies and gentlemen, let's take a look on how we see the different markets performing in 2023. I do not want to go to all the different numbers on the left side but go a little bit more into the details in the different regions on the right side. So speaking of EMEA first, the biggest region, European trailer market expected to decline a bit mainly due to the uncertain environment. We already heard that end of last year, there were huge uncertainties for Q1. Q1 is over. I can report it was very, very solid for us. For the group also in EMEA, we are nearly fully booked into summer. So at the moment, I cannot confirm any uncertainties, but we want to stay conservative here. SAF-HOLLAND supported by market share gains. So we are running under full steam in all axle plants in Germany, plus the plant in Turkey as well as our fifth wheel plant in Singen in Germany. Speaking of North America. So due to strong order books, trailer production in H1 '23 expected to be solid. I spoke to nearly all the top 10 trailer manufacturers in North America, and they booked far into the second half of this year. So it should be also very solid for us. We are gaining market share, specifically in the mechanical suspension, ramping up the production capacity in North America but also PPAP so-called slider boxes made in our facility in India to be shipped over now to North America and the structural growth in the air disc brakes. So North America is coming back to air disc brakes. We got some big orders and have to ramp up now our production capabilities in our Haldex Monterrey plant, specifically for the air disc brake for the trailers. Truck production could decline by 4% year-over-year, albeit still at a solid level. We have good order intake. Also here, we have to wait how the end of the year looks like. Brazil, you can see the numbers. Following strong growth in recent years, commercial vehicle production is set to drop by 10% to 15%. I can say, but SAF-HOLLAND outperforming due to major new steering axle contracts we won, so we added another 30% in capacity, have a new product group, got good 2 big orders from the 2 biggest trailer manufacturers for the steering axle due to legislation changes. And here, we will also overcome that dip and will increase our sales in Brazil. China, we struggled a lot in China. The good thing is now we are getting better and better. I can confirm that in February '23, we were not only breakeven but had a slight positive EBIT in China, which we didn't have for years now. And the easing of COVID-19 restrictions and economic recovery supposed to fuel a surge of approx 15% in truck and trailer production. I can confirm that we are getting more orders specifically from the big trailer manufacturers in China. And we also increased our exports from our Chinese facility, from the SAF-HOLLAND Chinese facility to, for instance, Asia, Australia and Mexico. India, trailer and truck production expected to further increase driven by continued large-scale governmental infrastructure program and subsidies. I explained earlier that we moved in January into a new plant with an increased capacity by 50%. We are increasing another 50%, which is valid from July, August in this year to keep up with the high demand. Here, we are already fully booked into Q3 of this year. What this all means for our guidance 2023, we can see on the next page, and I would like to draw your attention on the upper left side. I will start with our guidance as per IFRS, which means including Haldex as of February 21. So sales to reach EUR 1.8 billion up to EUR 1.950 billion with an adjusted EBIT margin of between 7.5% on the lower end to 8.5% on the upper end and a CapEx ratio to be up to 3% max. If you now take a look on the pro forma, which means that is including Haldex as of January 1, is the sales to reach the lower end EUR 1.850 billion up to EUR 2 billion and also adjusted EBIT margin between 7.5% to 8.5% and CapEx also, as due to IFRS, up to 3%. And this also includes our most likely lost production sales in some of our bigger facilities in the last week of Q1 and the first week of Q2 in '23 due to this IT security breach. Having said that now, I would now invite you for the Q&A session. And I think we are now open for questions. Thank you.

So ladies and gentlemen, also a warm welcome from my side. We will now start with the Q&A tooling. [Operator Instructions] And we start with the questions we've received so far. There's a comment from Nicolai Kempf, Deutsche Bank, who seems to be satisfied with today's figures. "Hello, SAF team, well done for 2022." So thank you for that. "Do you expect a seasonality of the results this year, meaning 2023? Will Q1 be much weaker versus Q3 or Q4? Can you comment on that?"

The Q1 has one vacation week, Q2, really normally stronger as we have seen also in the latest years. And we have only 5 weeks of the Haldex contribution looking into the IFRS, yes.

Next question comes from Roland Könen, Value-Holdings. "Could you please give us an update on the current status of the cyberattack as much as possible? And what are the financial burdens you can currently foresee?" Frank?

As mentioned already before, we are already rebuilding our systems. Our IT team was really impressive and successful to defend as much as possible the attack. We have to spend some external support for cleaning up and for defense, for further defense. This will be approximately a really low level million, so EUR 1 million to EUR 2 million amount. And as said, we are very fast in recovering, rebuilding business, back in business next week. And the sales loss, we will compensate in the next 3 months, for sure.

A follow-up question from Roland Könen. "Do you have plans for higher restructuring costs as currently communicated in 2023 to lift the synergies with Haldex?" Wilfried?

No, we don't. We said that we will have around about EUR 5 million additional costs for the synergies, and I think that's it for the year 2023. And yes, no further comment.

A question on the market side maybe to be answered by Alex in Singapore. "Could you provide us with your most current update on the U.S. trailer market specifically? Do you see any indications of weakness coming in the North American market, specifically to trailers?"

Well, as already mentioned before, I spoke to all the top 10 trailer manufacturers in the United States. Everybody is working under full steam. Most of them are fully booked into Q3, some of them into Q4 and now opening up orders for already 2024. They keep ordering like hell. I have to mention, we are fully booked in our axle plants, in our landing leg plants and in our specifically mechanical suspension and the slider box plants. This is the reason why we PPAP-ed axles for North America and slider boxes. So this is the suspension boxes for the 2 axles beneath the trailer in our facilities in India. And this is starting very, very soon, beginning of Q2. This will further boost our sales in North America, and we are quite confident that this will also be a strong year if not something really extraordinary is happening then.

Thank you, Alex. Another financial question. Would you be able to achieve a comparable operating free cash flow in 2023 when compared to 2022? And I would like to remind you that we achieved EUR 120 million in 2022.

Yes. I'm convinced we will do so. First, we will bring, in addition, the EBITDA margins from the Haldex business in, and we will keep our focus on our Cash-is-King program to further improve our net working capital. And only as an example, on the Haldex side, we talk about 25% to 28% of net working capital. There is an upside to be improved, and we will heavily work on this.

Another question comes from Jorge González, Hauck Aufhäuser. "Congratulations on the results and completion of the Haldex deal." Thanks for that. And the first question here would be, "Could you give us some more color on the development by region and business, maybe also a little bit divided by SAF and Haldex?" Maybe you start with the first part, and I ask the second question later.

Haldex will be fully integrated into SAF-HOLLAND business, and we will prepare and manage our business on a regional split, but not on a divisional split between SAF-HOLLAND and Haldex. So the development by region, we will provide the development region. And division, we will not further disclosed.

Further question following up to the amortization on purchase price allocation. The question is, "Will you be at levels of around EUR 20 million per year, once you add Haldex, reminding everybody that we have currently around EUR 10 million amortization? So would this be a fair assumption?"

Yes. First, I have to say, the numbers we have shown are really, really preliminary numbers. We will do this PPA really in detail in the next months. It will be -- the amortization amount will be around EUR 10 million. So putting together with the existing, this is a fair assumption, yes. In addition, considering the inventory step-up for 2023.

Then we have a question from Johannes Ries, Apus Capital. "If I calculate rightly, you guide for the new group 12 months consolidation now, yes, so not the IFRS definition, a slight sales decline compared to the pro forma numbers of 2022 of around 10%."

I can take that. Well, this is a couple of questions we see now. Yes, it is right that we are conservatively guiding our sales numbers. Also for 2023, we want to stay cautious. But I have to say that already, the first indications for January and February, of course, are very promising not only sales-wise but also margin-wise. I reported earlier that EMEA, the margins, we were not happy in 2023 because we had much higher margins before, and the teams are heavily working on the SAF-HOLLAND side and now also combined with the Haldex -- on the Haldex side, specifically in EMEA, to bring the margin back on track. And we are on a good way, but we want to stay cautious.

Maybe a little bit pointing in this direction, another question from Jorge González. "Regarding the guidance, you are commenting that your assumptions include a decline of mid-single digit in truck and trailer in Europe and North America. Actually, it has been lifted a little bit in Europe. Is this the assumption for the midpoint guidance in sales? And what are you considering for the upper and lower end of the guidance? Are you aligned with the vision of the market estimates you're showing? Or are you more optimistic with the last order intake developments in U.S., as Alex pointed out before?" Alex?

Well, I referred to this earlier. We want to stay cautious. We are very happy. We're going to have a very good, bullish, strong Q1. So far, we are okay. Despite this loss of 1-week production in the bigger plants in North America and also in Europe, we have a good start into Q2. We are fully booked, I elaborated on this earlier. Orders are coming in into the summer time frame. The North American trailer manufacturers report on order intake Q3, Q4, some of them already opening '24. However, we want to stay cautious. We had a good year 2022. We increased capacity. We are fully booked, yes. If there is something to report that it might be even more positive, then for sure, we will inform you latest when we bring out our Q1 numbers.

Yes. I think this also adds to the question coming from Daniel Gehlen from GBC Value. "Maybe as a follow-up, could you comment a little bit on the increase of capacity which was undertaken in India and, to a certain extent, on North America? I think North America, you commented. So India would be up."

Well, I explained that we moved from one plant just 500 meter down the road in a new plant built by the same landlord. So renting the facility, we moved in. And surprisingly, our India team were able to move within 4 weeks from one plant to the other plant, increased 50% capacity into that plant, running out of capacity, as I said before, and now already added tooling and more robots and more painting devices to increase a further 50% starting from July and August. So the government prolonged the antidumping duty for all our components or components in our industry coming from China, which helps us. We have a market share of between 55% and 60% in trailer axles and trailer suspensions. So we are investing. And on top is the export. India is very competitive nowadays. So we export a lot to, for instance, South Africa, but also to now North America and also to some trailer manufacturers in the Middle East, in Vietnam and in Thailand because there, the trailer manufacturers build so-called container chassis, which were built before in China due to the huge antidumping, which Mr. Trump inherited back in 2019, 2020, doesn't make any sense anymore. So those trailer manufacturers are now inquiring heavily our axles and suspensions made in India, made by York, to be built in the trailers, Thailand, Vietnam and the Middle East to be shipped and sold into North America, specifically United States.

I would like to add a comment here because the question is, how does that fit together? Where do you expect the weakness to come from? And I mean, Alex said it already 2 times or more. It's a conservative outlook, of course. And the question, where should the weakness come from is clearly, we don't know really. But we believe if we have an issue here, then it will be in the Americas in the second half. And due to the fact that nobody knows what's going on there, the conservative approach, I think, is the best we can do from this point of time.

Another financial question. "Net debt was around EUR 500 million at the end of the year of 2022. Could you give us some idea on how much you will be able to reduce the net debt level until the end of the year 2023?"

Some indication...

Yes. I think a concrete indication, we will not give. But as we have seen in the last half year 2022, we have really a good improvement in managing our working capital, improving our cash flow. And following this, we will improve further net working capital. We will get more EBITDA from SAF-HOLLAND and Haldex business. So overall, we will improve further our net debt. And as you know and have seen in the charts, our target is to come in a leverage below 2. And I'm convinced we will be very promising in achieving this the next time.

This has also answered the question coming from Jorge González, which was basically similar. So are there any other questions or follow-ups? I would like you to type it into the system. Otherwise, we are pretty much done with the questions. So any follow-ups? No? Yes, there's another one coming now from Roland Könen, Value-Holding. "Will you see some temporarily tailwind from the full year effect of your price increases on the one hand and decreasing raw material costs on the other hand? What is the current outlook for price development for the main raw materials used by SAF maybe short and also midterm?

I can take that. So I would like to distinguish between the 2 biggest markets, Europe or EMEA and North America. In North America, you know that these huge inflation impacts already happened in '21 going into '22. And in the EMEA region, it only happened the last quarter of '21, going then massively into 2022. So I would say North America, there is no tailwind anymore because the customers are coming back. Of course, if material drops, raw material drops, they are asking for price downs. This is due to negotiations on a contractual basis. So this is done already. In Europe, we increased our prices in Q3, Q4. Some of that is already going into Q1. So it leveled out. By the end of '22, scrap material dropped a little bit but increased a little bit back. Also, flat steel is still on a, I would say, a high level. So from that perspective, I don't see anything. What is triggering a little bit more cost, of course, is the salary increases not only happening in Germany, for instance, with a 5.6% coming in July and the onetime payments of EUR 1,500 in '23, which we, by the way, already did in December 2022. So we took that burden in the EMEA region. So we don't have that in 2022 -- for '23 anymore. And there's another onetime payment to be paid in the first quarter of '24. This is a little bit of a burden, and this is true for all over the world. And for sure, this is also one of the discussion topics going forward when you sit with customers and discuss new pricing, for instance, for the second half of '23 and then '24.

Then we have a question coming from JMS with regard to the current interest situation. "What's the impact from the higher interest rates? And maybe as a follow-up, what would be the indication for the free cash flow or operating free cash flow in 2023?" You commented on that already, Frank, but maybe you take the question.

Yes. I will say something on the interest rate. As Wilfried already commented in his presentation, if you take the Q4 run rate, we have to add something around EUR 5 million for the increasing EURIBOR. We have -- part of our financing is hedged, but we have also an open position. And we will work in the improvement of our cash flow to reduce our financing further. But this will not compensate interest increase.

Then we have a comment coming from Youssef Lboukili from Amiral Gestion. "We can see that you're paying a good dividend this year with EUR 0.60. Did you consider the possibility of suspending the payment completely, talking about the dividend this year, considering the need to deleverage post-Haldex acquisition? How did you take the decision?"

Yes. The dividend payment is according to our policy. 40% to 50% of our available net earnings should be paid to the dear shareholders. That is one point. The second is, we have shown very strong internal financing, especially in the fourth quarter. We have increased our cash flow significantly. I always said, we are able to achieve 12%. And so we came into this range at the end of the year. And I said also during my presentation that the good news is that also in January and February, this is a sustainable development. So from this perspective, the company is doing a good job. And the expected leverage ratio, I said, was 2.6, 2.7. We are now down to 2.6. And when we take the calculation method with the banks, it's also down to 2.2. So really good numbers. And from this perspective, we said it would be wise also to let our investors participate in this good development. And also for the year 2023, as Frank already indicated, also there, we are seeing a good cash flow development. We have opportunities on the Haldex side. We always said around about 5 percentage points -- we should be able to reduce around about 5 percentage points from the net working capital from the Haldex side. So overall, it's quite promising.

So ladies and gentlemen, there are no more question. This would conclude today's Q&A session. Alex, do you want to make a short closing remark? Q&A would be completed.

Well, I think Q&A is now concluded, as you said. I would like to thank everybody for the trust in us. And to -- maybe to add to the comment what Wilfried said about the payment, this was the highest sales ever in the history of the group, the highest absolute EBIT number. And I think it's true we pay something back to our beloved shareholders. And this is what we decided together with the Supervisory Board to propose this during the EGM in May. And I'm very happy that we are in the position to be able to do so. Thank you very much for your trust. Stay healthy.

So thank you. If you have any follow-up questions, you're always free to give us a call. Thanks. Bye-bye. Take care.