Savaria Corporation (SIS) Earnings Call Transcript & Summary

Good day. My name is Jess, and I will be your conference operator today. At this time, I would like to welcome everyone to Savaria Corporation's Q4 2022 Conference Call. [Operator Instructions] This call may contain forward-looking statements which are subject to the disclosure statement contained in Savaria's most recent press release issued on March 7, 2023 with respect to its Q4 2022 results. Mr. Bourassa, you may begin your conference.

Thank you, Jessica. This is Marcel, and I am very happy about our results of '22. Very, very happy. I'm in the business, since quite the beginning? And even, if we have some turbulence, our -- I repeat, I will repeat. So many years, that our business is [indiscernible]? [indiscernible], the people are aging, every day? And one product, was there 10 years ago and it is there, it is the accessibility. Accessibility to the house, or to the public buildings. So our business, is like 50-50 to a Commercial and Residential. And I can tell you that our backlog, we -- sometimes to see if a company is helping, I want to say to the company, "Hey, tell me your backlog." Our backlog is the best as ever? Why? Because people need mobility. We can be, in unfortunately in warrant some sector? And the market, seems to be nervous. But the people who are at home, that -- they are a certain age, and they need the mobility to go at their bedroom on the second floor? You know, that don't affect them at all? Just maybe when we say, oh we're nervous a little bit, we will postpone, at a couple of months, our decision? But this decision is there, they need mobility. So when I decide to go in this kind of business, 30 years ago and more, I decided because it was great 30 years ago. But even right now, with the population that we see, more, that it is apparent. The aging of the population, they need our products. They need our product. It's why our backlog is so high. So I am very happy about our mobility across the world? And after that patient handling, is -- thanks very much to the people, who build this division, they report very good number. And we are -- and I am very enthusiastic about the future. And I repeat myself, the future is the backlog. We're the best backlog. It's why '22 was good, but '23, that we are in our most finished the first quarter, will be better. And it is better. So I have -- I'm with my people, my key people with me on the call this morning. And I will ask Steve to begin. And we'll make a little change. After that, Nicolas Rimbert will speak about patient handling and Sebastien about operation. So when we speak first, and after that, we will listen to the question. And again, I repeat, we are good. We will be good and better. And the news, thank you to the analysts. They are there this morning, and support Savaria. That's so important. That's so important that you are there. You were there 5 years ago, you were there 10 years ago, and thank you very much for that. So I pass to the guy who handles all our finance. Steve, please?

Thanks, Marcel, and good morning, everyone. I'm going to begin with some remarks regarding our 2022 fiscal year consolidated financial metrics. For the year, the corporation generated revenue of $789.1 million, up $128.1 million or 19.4% compared to 2021. The increase was driven by strong organic growth of 12.7% and acquisition growth of 8.9%. This was somewhat offset by foreign exchange headwinds of 2.2%, netting out to 19.4% growth overall. Gross profit and gross margin stood at $254.4 million and 32.2% respectively compared to $215.5 million and 32.6% in 2021. The increase in gross profit was mainly driven by higher sales volumes, while the decrease in gross margin versus last year was mainly attributable to continued inflationary pressures on the supply chain, especially in the European region, causing material cost increases. These inflationary pressures were somewhat mitigated by initiatives taken to increase customer prices, reduce shipping costs and also fixed cost absorption. Adjusted EBITDA and adjusted EBITDA margin finished at $120.2 million and 15.2% respectively, compared to $100.2 million and 15.2% in 2021. The increase in adjusted EBITDA dollars is primarily due to increased sales volumes. Adjusted EBITDA margin was held flat as the decrease in gross margin was offset by lower selling and admin costs as a percent of revenue. Now I'll move on to our segment results. Revenue from our Accessibility segment was $560 million in 2022, an increase of $75.7 million or 15.6% compared to 2021. The increase in revenue was mainly attributable to organic growth of 9.8% as well as acquisition growth of 8.9% for Handicare. This was offset somewhat by a 3.1% revenue decline due to foreign currency impacts. The weakening of the euro and the pound overshadowed the strength in the U.S. dollar versus the Canadian dollar in this segment. Our revenue growth was fueled by both residential and commercial sectors as well as price and volume increases, and we continue to build our backlog. At December 31, 2022, our Accessibility backlog was approximately 5% higher than last quarter, Q3 2022. Adjusted EBITDA and adjusted EBITDA margin both before head office costs stood at $97.3 million and 17.4% respectively, compared to $86.2 million and 17.8% for 2021. The increase in adjusted EBITDA was mainly driven by higher sales volumes, while the decrease in adjusted EBITDA margin was mainly due to continued inflationary pressures on the supply chain especially in the European region, causing material cost increases which was partially offset by better fixed cost absorption from the increased revenues. Revenue from our Patient Care segment was $174 million for the year, an increase of $37 million or 27.2% when compared to 2021. Revenue growth includes organic growth of 17.1%, which was driven in large part by pent-up demand from the last 2 years of the pandemic, new contracts won and pricing optimization. For the year, acquisition growth was 7.7%, and FX provided a 2.4% tailwind. Adjusted EBITDA and adjusted EBITDA margin both before head office costs stood at $24.9 million and 14.3% respectively, compared to $16.7 million and 12.2% for 2021. The increase in both metrics was primarily due to the increase in revenues and improvements in gross margins mainly explained by better cost absorption, pricing optimization and synergies with Handicare. Revenue generated from the Adapted Vehicles segment was $55.1 million, an increase of $15.2 million or 38% when compared to 2021. This year-over-year growth was driven by 32.2% organic growth and 12.6% acquisition growth and was partially offset by a negative foreign currency impact of 6.8%. The organic growth was driven by increased police and ambulance vehicle adaptations despite continued vehicle supply chain disruption throughout the year. Adjusted EBITDA and adjusted EBITDA margin, both before head office costs, finished at $4.3 million and 7.8% respectively, compared to $3.2 million and 8% for 2021. For the year, net finance costs amounted to $16.5 million, an increase of $0.7 million over the $15.8 million amount recorded in 2021. The increase was mainly due to higher interest on long-term debt related to the financing of the Handicare acquisition and also higher average market interest rates. To explain the relatively modest increase in finance costs on significantly higher market interest rates, I note that 2021 also had a loss on an FX contract of $1.8 million and a loss on a net investment hedge of $0.8 million, which were not repeated in 2022. Net earnings were $35.3 million or $0.55 per diluted share for the year compared to $11.5 million or $0.19 per diluted share in 2021. Adjusted net earnings, excluding amortization of intangible assets related to acquisitions, reached $57.1 million or $0.89 per diluted share compared to $41.8 million or $0.67 per diluted share last year. This reflects an increase of 32.8% or $0.22 on a diluted share basis. Turning now to capital resources and liquidity. Savaria generated cash flows from operating activities of $90.7 million for the year compared to $57.3 million in 2021. This large increase was due primarily to increased earnings as level of investment in working capital stayed flat on a year-over-year basis. Q4 2022 saw cash generated from noncash working capital of $13.2 million. Cash used in investing activities was $21.6 million for 2022 compared to $396.4 million in 2021. In 2022, the corporation disbursed $1.4 million for the acquisition of Ultron and $20.5 million for fixed and intangible assets compared to $381 million for the acquisition of Handicare and $15.7 million for fixed and intangible assets in 2021. Cash used in financing activities was $83.3 million for 2022 compared to a cash infusion of $351.8 million in 2021. This year's significant cash outflows include $32.5 million of dividends, $28.1 million of reimbursement on the credit facility, $13.9 million of interest paid and $11.2 million of lease payments. As at December 31, 2022, Savaria had a net debt position of $369.4 million and was in compliance with all of its covenants. On a trailing 12-month adjusted EBITDA basis, Savaria's net debt to adjusted EBITDA ratio was approximately 3x. This represents a 0.7x decrease versus Q4 2021 last year. This reduction is 0.2x over and above our target of 0.5 turns per year. Savaria has funds available of approximately $125.7 million to support working capital investments and growth opportunities. So now looking forward for 2023, Savaria expects to generate revenue which will be approximately 8% to 10% higher than 2022, with adjusted EBITDA margins of approximately 16%. In addition, for 2023, we are targeting a reduction in our leverage ratio of 0.5 turns. This outlook is based primarily on continued strong organic growth coming from Accessibility and Patient Care segments, supported by our current high backlog levels and continued realization of revenue synergies between Savaria and Handicare. With that, this completes my prepared remarks, and I'll turn the call back over to you, Marcel.

Steve, thank you for this information. We can see that we have a great year in '22. And as I mentioned, that will support our increase that we look for in '23, and we're very optimistic. Now, about the good change in the patient handling, I will have Nicolas Rimbert to present to you, what we had done in '22, so.

Yes. Thank you, Marcel, and good morning. I would like to take a moment to speak about the performance there at Patient Care in 2022. Although first, I know that analysts and investors are on the call today, we also likely have employees listening in as well. So I think it's important that everybody knows that Patient Care is an integral part of Savaria. And if we were to achieve our long-term objectives, we're going to need them to deliver for us as well. And to that, the Patient Care team really stepped up in 2022. I think as Steve mentioned, delivered a record organic growth of over 17% and a record EBITDA for a full year of over 14%. And it's really a testament to the strong team we have in place and the fact that they're full in. And really embrace the integration initiatives between Handicare and Span. And so I think what we're seeing here is the synergies materialize maybe even a bit faster than we had anticipated. So again, Marcel, I appreciate you asking me to take a brief moment to speak about Patient Care. I'm sure there's going to be some questions from the analysts on the call, but just wanted to, I guess, congratulate the team and let them know that it was a great performance in 2022, and we fully expect even better in 2023. So thank you, Marcel.

Okay, Nicolas, and I will hit you, with some questions on the patient handling. You will answer that. And the last but not the least, that would be Sebastien. That would be a presentation of what we have done, in the last year, in the last quarter. Last quarter will be a little bit later But for '22. Sebastien, can you take the line, please?

Yes. Thank you, Marcel. So basically, yes, '22 was a good year for Accessibility in terms of our production output. We had an interesting growth, in Europe and in North America. For sure, Europe was a bit more challenging towards the end of the year in terms of margins, but that's just a little short-term issue. We're always working with the team to do some action plan, so that's not a concern. After that, we are lucky. Yes, we start the year with a very good backlog, so that continue to put some production pressure to do some improvement. So all the team is working on improvement, I think, in each division. So that's -- would bring some interesting output in 2023. After that, for sure, in '22, and we have launched the Free Curve of Handicare in North America in Toronto. Right now, it is successfully in production. We are approximately at 2 weeks lead time. If you remember a year ago, it was more 4 to 6 weeks for North America. It's 2 weeks. We target 1 week, but we need to continue. And then the second quarter of this year, there will be a second product of Handicare, the second curve 2000. That is going to be manufactured in May '23 in Brampton, so that would bring another dimension. I think cross-selling efforts is continuing to happen in North America between the sales team of Handicare and Savaria and Garaventa, so that's in a good progress. And then Europe, really, Garaventa and Handicare are working together on some cross-selling of incline platform of some Vuelift. And we hope later this year, we'll be able to bring some Savaria product in Europe, some vertical platform and port ships so that we can continue to be afforded cross-selling. Mexico is just 4 months into the story of Savaria. Since November, we are open. But right now, we have 25 employees in Mexico. We are doing some complete products that we are able to ship to the U.S., so that's a start. We have already did a lot of -- some shipment, since the beginning of the year. We are also making some subassembly from Mexico to Toronto to help us to rebalance, in the long term, our supply chain. And don't forget, if we have to go to $1 billion, we need more capacity, so it's always important to think a bit ahead. Supply -- last thing on supply chain. It's not perfect, but I will say it's a big, big, big improvement since the year. So right now, the supplier has some supply chain issue with us. Maybe they are not the right partner to work with Savaria. So on that, Marcel, I will give this back to you.

Thank you, Sebastien. And my dear follower, you can see that our team, know what they are doing. They are aggressive. And for sure, what that help us again, it's a segment that we have. But they can handle the operation and the future of this company. So my role is less important. But I have just a question, I participate with the vision of Savaria. So we are ready for call, please. Jessica?

[Operator Instructions] We'll go to Derek Lessard with TD Securities.

I just wanted to congratulate everybody also on a solid year, considering the operating challenges. My first question is, I was wondering if you can maybe add some color to your onshore initiatives, particularly in Mexico and where you are in the start-up there. And maybe your expectations around margin contribution and/or enhancement for 2023? And maybe part 2 to that question, could you talk about what you're seeing in terms of inflation and supply chain pressures? I know it's early in Q1, but wondering if there's been any improvement on that side?

The guy for that is Sebastien.

Derek. So, yes. So basically, in Mexico right now, we have 3 assembly line doing some port ships, some portion of home elevator, and the third one for electrical department. So basically, this is really, again, to help us to support our growth. So I think we have already published our guidance for this year, so I guess somehow Mexico is built into this budget. But again, it's for the long term, for the $1 billion capacity. Now, we have a 95,000 square foot. It doesn't fill overnight, and we've got to go step-by-step. So I think we are happy with the direction we are going. And also, we are looking, Derek, to be vertical integrated in Mexico, to make some parts [indiscernible], not just to assemble parts. And again, we have started to receive some machinery to be about to be vertically integrated. So definitely, that will be a game changer over time for the margins at least for the North America, since that's a proximity. And I think the second part of the question was inflationary. So for sure, I think it's getting better. People that has passed some increase, I think we have already hopefully received it. So now, I think we are working on some mid- long-term projects to be able to decrease some costs or look for some alternative supplier. But I think -- and after margins-wise, we have different brands that will make some price increase at different time, so they are not all at the same anniversary date. And since we have healthy backlog, but sometimes it takes a bit of time to reset the margins. So that's why I think on the mid- long term, very positive that will continue to improve our margins.

Okay. That's very helpful, Sebastien. And then maybe one for Steve, and I just wanted to be clear on the 8% to 10% revenue guide. That excludes the sale of the Norwegian vehicle segment, right? So essentially, 8% to 10% in Patient Care and Accessibility?

Yes, exactly. Once that's final, I mean, the best way of looking at it is to take our 2022 results and carve out that Norway business and we'll grow 8% to 10% from there, so.

Okay. That's helpful. And maybe just one more. You guys did -- thanks for the color on the Accessibility backlog. Wondering if you have any similar color on Patient Care? And I know 20% growth forever was not sustainable, but how should we be thinking about growth and some of the growth drivers in that business for 2023?

Yes. Well, I mean I talked about -- go ahead, Steve.

No, no, go ahead, Nick. Keep going.

I was just going to say that you're correct. I mean, I think we had a good run there of 20% in a row, I think it was 3 quarters. The first, second and third quarter. Came down a bit in Q4, but for the full year, we finished over 17%, which was a record for that segment. Now going forward, I think that 8% to 10% holds as well for Patient Care. So our expectation in 2023 is we have a good order intake coming in. We're quite confident about where we are. Here we are, kind of midway through March, so we have a good part of Q1 already in the books. The -- season of portion of that business, the kind of the Handicare side of things, that is more of a project-based. So there is backlog associated with that on the legacy span side. On the beds, there is backlog, which gives us some visibility and some comfort of where that's going. The mattresses, not as much. It kind of comes in and goes out to relatively quickly, so the backlog is relatively small on that portion of the business just by its nature. But going forward, I mean, I think what's going to be driving some growth this year, along with certain of the pricing initiatives that we had discussed for last year, is we're aggressive in the market. I think that the sales teams have really come together and we have more feet on the ground talking about the full portfolio of products that we offer, were out there. Gaining market share in a time when some of our competitors are scaling back a bit, we're out there forging ahead and maybe gaining market share in certain segments as well. We've been successful on many of our bids, so our win rate has improved. And then finally, I would say that the cross-pollination between the teams is something that it's really now just taking hold. Working on strategic accounts that might have been with Span and getting the Handicare guys in there and vice versa, making sure that the Span guys are having an opportunity and leveraging some of those Handicare relationships to really push mattress and bedframe sales. So I think the cross-selling is going to be a big driver of the growth not only in 2023, but also in 2024, 2025. So very excited about where we are. And so in terms of expectations there, maybe not 20% growth per year again going forward, but that 8% to 10% growth is where we expect this to be in 2023.

Yes. Thanks, Nicolas. That's it for me.

Derek, I will just ask Sebastien just to add. We receive an order from Asia about patient handling, about [indiscernible]. And Sebastien, just give me why we receive that? Because we changed our approach, we have new people. Tell me.

I must say, you don't forget the detail. So yes, we have a new commercial director in [indiscernible] since 6 months, and we have tried to do a clean up a bit on our marketing in terms of Accessibility, Patient Care. And yes, we have some dealer base in Asia. We have restarted to visit all our dealers since COVID is a bit behind in Asia. And we said we got a nice order for 150 units in key hospitals in China with one of our dealers. So again, that's sort of there's opportunity everywhere. Patient Care has been really North America and U.K. with Savaria. But they will going forward, there's a lot of good place in the rest of the world that we can expand on our Patient Care also.

What is the value of your orders, Sebastien?

It was USD 450,000, Mr. Marcel.

But that's show that in this segment, sometimes we receive very good order, depending. And we can see this across the plan that people need some service, some medical service. They need some patient -- our product and so I am very optimistic. When I see an order like that, coming in, and that's just the beginning of the way that we have a new team to lead this division. And we are brand new, that's all new right now. But I'm very happy with the progress of the people because the people is the key to succeed. We need enthusiastic, we need to offer the best product, and the best service. So thank you, Derek.

[Operator Instructions] We will go next to Michael Glen with Raymond James.

So just want to circle back on Mexico, because it is an area we do receive a number of questions on. Are there any revenue-type metrics that you're able to indicate for Mexico where you would like to get that facility from? Just something that we can -- just something a little more tangible that we can speak to.

[indiscernible] I guess I'll take this one. So for sure, most of the revenue of Mexico, is inter-company, so it doesn't really affect, the external revenue. And again, going part of just $1 billion, it is important to our capacity. Right now, we have 35 employees. We also have 100 by the end of 2023. And if you -- in terms of size, it's probably -- this year, a $10 million range, but it's all internal sales company.

Okay. Okay. That's really helpful. And then just regarding residential elevators, if we think of how that business ties into new home sales, building of new homes, are you seeing any signs out there regarding a softening in demand with regard to the residential elevator product?

I just have to say that not at all. We have the best booking is exactly where we are, right now, it's the residential elevators. More and more people can retrofit an elevator or install in a new home. So that's the best backlog that we have in all our projects. Here is it is exactly residential elevators. So I don't know, Sebastien wants to add something, but the numbers speak. And when we see the backlog, it's months and months ahead. Sebastien, you want to add something on that?

I was just going to say [indiscernible], everything, started [indiscernible] with the sales leads. And I would say we have the -- attend some exhibition so far this year and the attendance, in the U.S. were fantastic with architect and contractor. People want to put elevators, so there's a lot of inquiry. And then we see it after the leads, we see what they are drawings. There are numbers of drawings, not sure it go down. So it's really show that, a, our backlog is [indiscernible]. But still, the pipeline in the back is the market remained very positive. No concern for now.

Cash flow, working capital, you had a nice Q4 in terms of working capital. When I'm looking at working capital in 2023, is there -- is there still opportunity to take working capital lower? Or should we -- I'm just wondering if there's some outlook you can give for working capital? And then to tie into that as well, maybe some CapEx guidance as well?

Sure. And I'll take this one. Yes. Thanks, Marcel. So on the working capital front, yes, we did deliver well in Q4. We basically took out $13.2 million out of working capital and took that basically right to debt repayment in the quarter. As far as 2023 is concerned, there is a little bit more room, but I would -- as far as from a modeling perspective, I would probably put in, if I were you, put in that we're going to be holding investment flat. So we're not going to be investing any dollars in the working capital in 2023 to support the growth. We have ample -- we feel we have ample of room in current working capital levels to support the 8% to 10% growth that we're forecasting. With regards to CapEx, we did see 2022 come in a little bit higher than -- slightly higher than where we were anticipating. It came in about 2.6% of revenues. We were expecting more 2.5%, so just a little bit up. With regards to 2023, that number will be closer to 2%. So we've always been in that 2% to 2.5% range, and for 2023, it will be closer to the 2% range.

Okay. And then free cash, I would think that the priority for capital allocation with free cash. It will be debt repayment in '23?

Exactly. Yes. And so -- and we're -- we did delever 0.7 of a turn in 2022, which was higher than what we were forecasting and expecting, or at least guiding towards. I think we were expecting that 0.7 of a turn internally, but we were guiding 0.5 turn. And for 2023, we're guiding half a turn as well.

Our next question comes from Michael Doumet with Scotiabank.

First question on the guidance. Again, on the organic growth expectation, just at a high level, I'm wondering if you can break down that 8% to 10% which, again, I think excludes the divestiture? If you could break that down between price, volume and FX, because the one thing I noticed, is that the current FX rates, Savaria probably get a lift of about 4% to revenues on translation.

Yes. So I -- yes, I'll take this one. The 8% to 10% growth, that's a mix of price and volume. So Sebastien mentioned earlier that we're -- we do have price increases across the business. It's -- they are at different times and they do come into effect at different times based on the different levels of backlog that we have. For example, the stairlift business has a much shorter backlog than we see in the residential and commercial elevator space. So price increases, some of them have already been announced and they're already in effect, and some of them need to take more time to work their way through. But overall, for that 8% to 10% growth, it's a mix of both price and volume. Without saying exactly how much it's going to be, I would say we're expecting a bit more from volume than from price.

Got it. And would FX be on top of that, Steve, if you get the 8% to 10% from price and volume?

It's difficult to say what's going to happen with FX in the next 12 months, i.e., or in the next, I guess, from this point, 9 months. I wish I knew. We have built a little bit of buffer into our numbers with regards to FX. But we will see how that impacts the business. I mean, we are diversified. We have businesses -- quite a big piece of our business is in U.S. dollars and quite a big piece of our business is in euro and GBP as well. So what we saw last year was although the U.S. dollar strengthened, we saw weakness in the pound and the euro. And that had mixed impacts, although they were offsetting each other in our 2022 results. So very difficult to say what 2023 is going to bring, but we feel good about having a diversified business.

Okay. Understood. And then moving on to the Accessibility margins. You had a little bit of an atypical year in 2022, where margins peaked in Q2 and then kind of weakened through the back half. Not sure if that was due to the price increase that was implemented in Q2 or maybe it had something to do with Europe. I heard Sebastien comment on that in Q4. But can you discuss that a little bit in more detail, maybe just for 2023, what we should expect in terms of seasonality on margins?

Sebastien, you will complete my answer, but I just tell you something. Our best project in term of profit EBITDA. For sure, patient handling, push us a little bit in the back. And that would be good for my team in Accessibility when you see other people, pushing and maybe they try to go in front of us. But that's our main project, Accessibility. And I can tell you something, the margin are there, we have some increase of price, and that sometimes takes some months that we see that. And you would see that -- I know I'll move the number of Q1. And we -- you will see a good number in '23 above the percentage.

Yes, Marcel, if you don't mind, if I could just jump in here just to add a little bit more color. Yes, we did see some weakness in the Q4 margins especially in Accessibility, especially in the Europe region. We do price increases, and we don't like to do them. We like to do them once a year, twice a year if we have to, but it's not something that you can just keep doing on an ongoing basis. So at the time when we put price increases, we estimate how much we need to do to get the desired margin that we're going after. And I think it's fair to say we were probably a little bit light on those estimates in some pockets. And so as we saw continued vendor cost increases throughout the year, that had a downward impact on margins. Obviously, we're doing what we can to mitigate that. Sebastien talked about it a little bit in his intro words where he talked about looking at other vendors and looking at other opportunities. But we do have action plans in place and we're focused on increasing the margin. We do have 20% margins in our sites, and we have seen -- we do have pockets of 20% and in excess of 20%, and so it's just a matter of making -- getting that 20% across the board. So we are optimistic for margins in 2023.

We'll go next to Justin Keywood with Stifel.

I just want to circle back to the longer-term goal which is, I guess, more of a medium-term goal in achieving $1 billion sales by 2025. And I see the path to get there just given the strong organic strength, but I also wanted to touch on the goal to have 20% EBITDA margins by then or $200 million. Which would be some significant expansion from what the guidance implies for 2023, which I think works out to around just shy of $140 million in EBITDA. Are you able to help us bridge that EBITDA expanding from $140 million to $200 million over the next few years?

Right. Just -- first of all, our projects, we mentioned that we have a key backlog. And we mentioned that we have a price increase. Also, some region around the globe was a little bit maybe conservative, about the increase on price. But the people know the inflation, and they accept that to see that if we are fair, they accept an increase of price. And everything is in place to increase our margin. We see why we'll push -- put from 16% to 20%, Marcel. But man, it's just a question, that to do better in productivity, to do better in designing and to have the right sales price. And this is the key part to be succeeded or key to be 20%. For sure, it's aggressive, but that's -- and I think we are not very aggressive on our increase of sales, 8% to 10%. You will see in Q1, that would be that easy. But this is a little bit conservative. We work on improving our productivity, as I mentioned. And you will see again in this year, that, Amen, we are better than ever it's because our people. Our people are good, they can be better. We will add some people to be better. And we are around the globe. We see -- we sold to the people in '22, that we are about everywhere. And we have this new manufacturing and these 2 markets that we will sell in Mexico and around that. Even if it's not our first goal. In Asia, Asia is very important for us. That is important and we'll see more development, in coming years. So I am very confident that would meet -- for sure, will meet the guidance in sales. And about our 20%, that's a challenge. But we'll be very near affected with the effort of my people, my key people, but all the people in the company. Sebastien?

I think you have crossed my list, Marcel. But again, just to highlight, R&D, we have 50 people in R&D in the organization. And when we launch a new product, we have to launch it at the new and the right margins or we'll not launch it. And I think the Mexico efforts for sure is to help us to lower some of the costs. So I think that will be our answer, Justin.

Just an example, Sebastien, tell me the price of a container that you receive from China 2 years ago and right now? Or 3 years ago and right now?

It's a tough one, Marcel, to answer. But at least for one line, which is China to Toronto, I think we're back to the pre-level before COVID. On the other line, in Europe a different place. There's always the in-land cost that we have to be careful. With the gas price high, it's -- everything that we move within the country is usually expensive. But yes, for the container, we are back to USD 4,400, USD 4,500, which is very close to pre-COVID.

Great. I appreciate that. And then just a question on acquisitions, now that Handicare's being integrated. Are you looking to bolt-on any transactions in 2023, or is the focus more still on driving synergies with Handicare and internal operations?

First of all, for sure, we will make some little acquisition. I'll just give you an example that where we can make an acquisition, but we know what are good. And when we buy a dealer, they sell other kind of projects in Savaria, plus we push altogether to grow the basis. So that's something that we will continue. We'll continue over years and over years because we are very successful. And I just name 2 names, Premier Lifts and Florida Lifts. They are very good, and for sure, our direct sales in Toronto is very good. So we are ready to make this kind of acquisition when we buy some company that they don't buy our products or just a little to mention our project. Or maybe, somebody, the co-owner decide to sell. Maybe we are a buyer, but for sure, we have little acquisition like that. And you have to add some things, Sebastien?

Just to say Premier Lifts and Florida Lifts is 2 of the most successful store of Savaria, so they are owned by Savaria.

Our next question comes from Nick Agostino from Laurentian Bank.

[Foreign Language]

And you are with us for how many years, Nick?

I'd say, at least 8, 9 years. Maybe 10.

Yes. Yes, absolutely. You are in the 2 numbers. Yes, that's good. Thank you very much for being there, Nick.

My pleasure. My pleasure. Quick question on Mexico, and I know there were some prior questions. Just trying to understand, I think you mentioned that most of the sales will be intercompany. When I look at the 2023 EBITDA margin guidance, how much of a margin benefit is associated with the Mexican operations, more so -- not the existing, but at least what you have planned for all of 2023? How much of a lift do you think you're going to get out of Mexico that's already baked into that 16% guidance number?

Okay, so that's what you will answer, Sebastien. When you say, [indiscernible] all this guy on the car. But I think my thing, it's going to be like that. We are very conservative, very conservative. And Sebastien, I leave you to answer to Nick.

So Nick, no, don't forget, it is a startup that we have done in Mexico. So when you have a factory of 95,000 square foot and you have 30 employees, again, it takes some time before you become a very efficient and you can really bring some important savings for the organization. So this year, for sure, it's a ramp-up. We talked EBITDA earlier that is maybe in the $10 million range of intercompany sales, maybe EBITDA of outside sales, but I think it's really for the long term. And I think if we want to go to 20% going forward, we need some nearshoring opportunity.

Okay. And then on the bookings activity and the backlog, obviously, continue to grow in Q4. Just wondering, given the fact that we're about to close Q1, can you provide any bookings commentary for Q1 itself?

Yes. But don't forget the Q1 Nick, about bookings. Bookings, as mentioned in my -- at the beginning of the call, it's very, very important. But booking, like on the stairlift, straighten a curve. It's now -- we can ship a curve in Toronto, in the maximum 2 weeks. So that backlog of 2 weeks, we don't see the backlog, we just deliver the order. But on the residential elevators, our backlog is on residential elevators is at least 3 months, something that we don't see in the past. But for sure, it takes time, for the order to arrive because they have to have some planning. But we are very well equipped. And Vancouver and for sure in Toronto, to manufacture, and we'll get some parts from Mexico. Already, they are working like to parts, controller. Controller, it's very important, the controller, in a product because we need a controller. And we see how we are in the market, how the challenge that happen on controller components. But it's why we buy a company in Europe, that manufactures some parts. So why we begin to manufacture in Mexico? We begin to manufacture the controller, so we are independent. And that's the key to be A to Z independent of other suppliers. So we need supplier, but that's good that we can control more of our destiny than just the destiny of the suppliers. Sebastien?

I think that's a good answer, Marcel. And I think for the booking of Q1, Nick, it's hard to comment, but it remains strong. We have a good backlog, which is what we need for our Q1 execution.

Okay. And then just my last question on the Handicare Norwegian asset sale. Just wondering about the thought process there? Obviously, Adapted Vehicles in general had a strong quarter, good organic growth, good margins out of that business. It's something you guys were always trying to improve. So just any color as to why you're selling off those assets when it looks like their contributions, including the North American assets, are maybe starting to gain some momentum? And I'll leave there.

Okay. Nick, and I will answer this one. Maybe Sebastien can complete that or maybe Steve. Just -- it's not in our core business. So I decided, I made the decision to get out of that. Because they make very nice products. But they are -- first of all, it's quite far. And then they are not in our core business. So not in our core business, and when action is more in our core business. So we decided to sell that. But it was very small sale. I just -- the money that we have in the company, and I wish them good luck. And they are great people down there, and -- but unfortunately, they are not in our -- I repeat, in our core business. Sebastien? They have been there.

Good comment again, I think the special vehicle that we're making is that it was a standalone division. Now we find a new owner that will probably have a better future for them. So again, thanks for their work in the past. And I think we're moving on.

[Operator Instructions] We will go next to Zachary Evershed with National Bank Financial.

Just building on the last question, do you view the remaining Adapted Vehicles segment as a core part of the business? And if not, what do you think you could sell it for?

You put me on the spot with that one. I got Norway. And unfortunately, we know more with that action -- that action. So it will depend. We'll decide to make some change in the leadership of this company, and it's always depending on what they will deliver. If you tell me about patient handling, for sure, it's a different thing. And to be polite, I will say just that it's a better thing, but we try to improve an action on the leadership. And if they deliver what they can deliver. Maybe in my language, what would be different? So ask me this question in 6 months.

And then a follow-up on the commentary around shipping costs from Asia. With the freight costs coming down so rapidly, do you have any regrets around the timing or the start-up of the Mexico facility? Or are you still happy that you did it?

Sebastien?

For sure, we are very happy to have set up a factory. And I think definitely, what we see from Mexico going forward, it's a little bit different from China. For sure, China, we make some finished products that we can send to Australia, we can send within Asia. But really, from Mexico, how can we complete more some finished products to serve our customer in the Southwest of the U.S., I think it's far from Toronto, it's far from Vancouver, so I think it's a very good position for the future to build this capacity for North America. So we're very happy, Zach. That's good for the long term.

Understood. And just one last one. Can you tell us more about the product development road map under the Ignite initiative?

Okay. Now we concentrate what is very important. It's -- put our products, on cost compliance for Europe. How our team work to make some change that we see, and that's very important. If you want to sell a product, first of all, you have to meet the code. So we'll work on the code, and you will see that, that's a very important thing of our R&D, they make some change. Sometimes we'll make some change to have better products, and less costly project. It's always very dependent. For going out with new products, it's not a priority for us right now. First, I repeat, meet the code that we can sell in Europe. That's very important. That's our concentration. Sebastien?

I think the new list of products, Marcel, which we are doing some new products, I think we cannot disclose it. That's productivity information. But definitely, to improve our products, for the future to make it more aesthetic appealing for the customer is always a priority. To put our products in compliance. Right now, we are playing a catch-up game at our product or worldwide going forward. Which when we launch a product, it will be worldwide compliance from the beginning. But right now, this is the main priority. To make sure we are compliant with Europe, so we can do some cross-selling.

We have no other questions holding. [Operator Instructions] And no other's signaled. I'll turn it back for any closing remarks.

Okay. Thank you very much, Jessica. And that's a very important, Jessica, that we meet, that we answered the question, where we are going. So we know that why we are working hard, but that's a beautiful market that we're in, and we have some good growth coming. And so thank you for the people. Thank you for my employee to support this growth, and they support this growth with a smile. So thank you very much to listen to us. Thank you, Jessica.

Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time.