Good morning, and welcome to the third quarter results analyst call of Kendrion N.V. My name is Laura, and I will be your operator for today's call. Please note, this call is being recorded, and for the duration of the call, your lines will be on listen only. You will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press four zero and you will be connected to an operator. I will now hand you over to your host, Joep van Beurden, to begin today's conference. Thank you.
Yes, thank you very much. Good morning, everybody, and welcome to Kendrion's Q3 2022 results teleconference. My name is Joep van Beurden, Kendrion's CEO, and with me on the call is Jeroen Hemmen, our CFO. We will start the meeting with some remarks regarding our Q3 results, after which we will have time for Q&A. We will post a recording of this call and of the Q&A on Kendrion's website as soon as is practicable. I would like to draw your attention to the fact that certain statements contained in my remarks and in the answers to your questions constitute forward-looking statements. These forward-looking statements rely on several assumptions concerning future events and are subject to uncertainties and other factors, many of which are outside the company's control, that could cause actual results to differ materially from such statements.
Before reviewing our Q3 2022 results, I would like to reflect a little on the current economic and market environment that we are operating in. In Q3 2022, the overall business climate has not materially changed from the first half of 2022. The Russian invasion of Ukraine has continued to cause widespread uncertainty and volatility, affecting all parts of the global economy, and especially Europe. Inflation is permanently high, affecting the price of raw materials and wages, and we are also facing uncertainty in the supply of energy and of its cost. COVID, including China's response to COVID, is still with us. As the fighting in Ukraine continues, the economic future looks uncertain. Is there a positive as well? Most certainly.
Demand for our products in the industrial groups, both for Industrial Brakes and Industrial Actuators and Controls, remained strong in Q3, and looking at our order book, is expected to stay strong, as our actuators enabling the transition towards clean energy continue to drive growth. Let's talk about the quarter. We have had a strong third quarter. Revenue grew in all our business groups, resulting in a revenue of EUR 132.9 million, an increase of 17% compared to last year. This is a new quarterly revenue record for Kendrion. Our industrial groups in particular performed well. Industrial Brakes grew its revenue by 28%, while Industrial Actuators and Controls achieved a revenue increase of 26%, or 14% excluding 3T's contribution. The automotive group grew by 8%. In summary, our growth potential is good. This quarter represents the eighth consecutive quarter of revenue growth in what has been consistent, difficult economic circumstances.
We defended our added value margin well by working diligently with our customers to pass on the increases in raw material prices. This resulted in a stable added value margin. We are also disciplined when it comes to our cost. A combination of sustained revenue growth, a stable added value margin, and tightly managed costs considerably increased our profitability. Our normalized EBITDA grew by 20%, EBITDA by 37%, and our net profit before amortization by 53%. I am proud of our global team who delivered these results despite ongoing difficult market conditions. What is driving this performance? Some of our stakeholders view Kendrion as an automotive tier 2 company with a bit of industrial side business. The reality is different. We are an actuator company focused on products that help enable the global push towards electrification and clean energy.
Whether it is brakes for wind power, robotics, automated guided vehicles, or induction heating technology, helping industrial processes move from oil and gas to electrical solutions. In all our business groups and in China, the broad push towards electrification determines our product development and M&A decisions, as it has for several years now. It has resulted in a balanced portfolio exposed to the global and accelerating trends towards electrification and clean energy, and not overly dependent on any specific vertical or market segment. As a result, we have been able to deliver significant growth in revenue and profit over the past two years. Let me talk in a bit more detail about Q3 and some of its highlights. Our industrial segments continued their strong performance on the back of increased demand for products supporting the transition towards cleaner energy.
As a result, activity in almost all Kendrion's industrial market segments remained at a high level. Industrial Brakes revenue increased by 28% to EUR 40.1 million. When measured at constant rates of exchange, the increase was 24%. In IB, we benefit from commercial synergies between former Intorq's spring-applied product portfolio, combined with the permanent magnet brakes, where Kendrion has always been strong. Industrial Actuators and Controls reported an organic, so excluding the revenue from 3T, revenue increase of 14% to EUR 32.5 million. Growth was 11% at constant rates of exchange. IAC was especially successful at sourcing scarce components to make full use of its strong order book. Our growth in China accelerated as the team caught up with the Shanghai lockdown related production backlog of the second quarter.
Construction of our new factory at the renowned industrial park in Suzhou is almost finished, and we expect to start production in the first quarter of 2023. The increased production capacity will allow us to meet current project pipeline demands and capture the many opportunities we have identified. Automotive revenue increased by 8% to EUR 60.3 million, and when measured at constant rates of exchange, growth was 5%. The automotive trading environment remains volatile, with ongoing semiconductor shortages, demand swings, and supply price increases. With the announced split of the automotive group into Automotive E and Automotive Core, we make a clear strategic, operational, and organizational distinction within the automotive group. In the new setup, we will further increase our focus on innovation and products such as AVAS sound systems and active suspension, while at the same time improving the efficiency and cash generation from our current combustion engine products.
We're on track to implement the new setup by the start of 2023. Let me review our profitability in a bit more detail. We were pleased with our added value margin despite the ongoing inflation. We successfully passed on price increases of raw materials to our customers, the added value margin came in at 47.3%, 0.7% below the margin of the same period in 2021. Please note that the price increases are passed on without margin, resulting in downward pressure on the added value percentage, even if the increases are fully passed on. Our normalized EBITDA, the operating result before depreciation and amortization, increased by 20% to EUR 14.9 million. As mentioned, top-line growth, stable added value margins, and cost discipline resulted in good operational leverage in the industrial business groups that more than offset weaker profitability in Automotive.
At EUR 6.0 million, depreciation charges were in line with the same period in 2021, leading to an EBITDA increase of 37% to EUR 8.9 million, with the EBITDA over revenue ratio increasing to 6.7% compared to 5.7% the year above. We're on track to realize EUR 4 million in annual cost savings in the Automotive organization from Q1 2023, as announced during our recent Capital Markets Day. Together with the EUR 4 million in cost savings related to the closure of the Austrian production facility that will be fully effective in Q4 2022, these savings will contribute to a significantly lower cost base in Automotive. In the third quarter, EUR 1.6 million restructuring charges have been normalized from the operating result. We expect total one-off restructuring costs for the Core-E split will come to EUR 5 million.
Normalized net profit for the third quarter, before amortization of intangibles arising from acquisitions, increased to EUR 6.1 million, 53% higher than in Q3 2021, when it was EUR 4.0 million. Reported net profit came in at EUR 4.0 million. Total net debt increased to EUR 154.1 million at the end of Q3 2022, compared to EUR 145.6 million at the end of Q2 2022. Quarterly free cash flow was affected by capital investment of EUR 14.3 million, of which EUR 6.6 million was related to the construction of the new production facility in China. Quarterly free cash flow included EUR 1.6 million of payments of restructuring charges. We maintain a strong focus on investments, working capital, and the level of net debt, and especially on reducing inventory.
Despite increased activity levels, we were able to reduce inventory from EUR 94.6 million at the end of Q2 2022 to EUR 92.0 million at the end of Q3. Our leverage ratio, based on the definitions in our main credit facilities, remained unchanged at 2.6, well below the financial covenant of 3.25. Kendrion solvency ratio remains strong, 43.3% at the end of Q3 2022. Q4, we expect to be able to reduce our net debt despite investments continuing to exceed depreciation as we finalize the construction of our new China facility. Before we go to Q&A, let's talk about our outlook. For the remainder of the year and into 2023, we expect the economic environment to stay volatile. We remain focused on managing our cash position and cash flow while protecting our added value margin.
Our longer-term outlook remains favorable as our products help enable the global transition to cleaner forms of energy. We are confident that this accelerating trend will offer significant organic growth opportunities across all our business groups and expect to achieve our strategic medium-term targets by 2025. I now open the line for your questions.
Thank you. Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. Thank you. We will now take our first question from Frank Claassen of Degroof Petercam . The line is open. Please go ahead.
Yes. Good morning, gentlemen. Two questions, please. First of all, on your restructuring charge, the EUR 5 million, what did you do with the restructuring charges and can you elaborate what cost savings you have implemented? Also, can we expect the rest of the EUR 5 million to kick in in the second half or still in Q4, or will it be more towards the start of 2023? Then secondly, on cost inflation, what do you think? Have we seen the most now of raw materials and higher energy costs and maybe also labor, or do you still envisage more cost inflation, and what are you going to do about that? Thank you.
Yeah, Frank, thank you. I will hand the first question over to Jeroen, and I will talk a bit about the inflation.
Yeah.
The restructuring charges in Q3, the EUR 1.6 million, primarily relate to severance costs for a number of FTE that have left the company. We do expect the remainder of the restructuring charges, up to EUR 5 million in total, to be actuated in Q4. Also that will be primarily driven by headcount.
To come back on that, those are mainly indirect-
Yeah
people in the Core Automotive related? Is that-
Primarily, yes. Yeah. That's a fair statement.
Yeah.
These savings will kick in in Q1 2023. On the inflation, Frank, the honest answer is that we don't know. What we see is that it seems to be stabilizing a little bit. At least the growth in the inflation seems to be tapering off somewhat. On the raw material side, we've already seen a bit of volatility where sometimes even steel and copper prices have come down. Although it's still with us, it could well be that moving forward, this is now, I mean, it's still there, but it's at least not increasing anymore. All the same, whether it's up or whether it's down, what we do diligently is working with our customers to reflect that inflation in our raw material prices in the sales price.
As I reminded everybody in my remarks, we basically pass on the cost without margin, as you can well imagine. That means that percentage-wise, you would still see a bit of contraction in the added value margin. In absolute terms, we are aspiring to pass on every dollar of inflation repression on our raw materials into the end price.
Looking at pricing, it has been 6%. I think it was also 6% in Q2. Is that a fair assumption also for the coming months, or will that also taper off because of lower inflation?
Well, yeah. I mean, it's related. If we're staying roughly at this level, then I would expect that this, because it's still with us, as you know. I think the quarterly inflation numbers also for the Netherlands or the monthly, have just been released. If it stays at that level, you can expect that in the revenue as well. Clearly, if it comes down, then that effect would also be a bit lower.
Okay. Thank you very much.
Thank you. We will move on to our next question from Torsten of Berenberg. Your line is open. Please go ahead.
Hey. Good morning, everyone. Thanks for taking my questions. I have two. The first one is, if I understood correctly, you do not see any signs of an easing in the certain shortages that we have seen over the last couple of months, right?
Yeah, that is correct. Now, a bit more granularity there. I would say that when you look at the semiconductors at the more advanced nodes, the semiconductors that during the COVID times were pretty much taken up by gaming devices, laptops, televisions, and all these types of consumer electronic entertainment devices, the availability there is definitely better. There are, of course, many more semiconductors than just those that are present in cars. These are the more, normally we would say, commoditized, but some of these are still pretty scarce. You can well imagine that if you miss one or two of these in your car, then effectively you cannot produce the entire car. Example, in things like in a fuel pump controller, there is quite a bit of semiconductors. If you miss those, it is going to be hard to deliver the car.
In some areas you see easing, but the overall picture hasn't really changed yet. No. My expectation, and everybody's expectation is that will change over the next couple of quarters, but we've said that before. Hopefully, and your question is today that shortage is still very much influencing the supply chain of the automotive industry.
Okay. That's clear. The second question I have, and maybe a third one afterwards, but the second one was more related to M&A. Are you still working on potential targets? If so, can you please maybe provide a bit more information on these?
Yeah. M&A is always part of our strategic arsenal, if you like. We're always looking around for ways to strengthen the company. Basically, the first key question we always ask is, I think we have a fairly clear strategy. The first question always is, does this, if we were to acquire this specific company, would it help us reaching our medium and long-term strategic goals? Looking back, I think both in terms of Intorq and 3T, you can see that that question was answered with a resounding yes. On top of that, you get, of course, all the other questions around valuation, quality of management, culture, et cetera. That's the first question. We're always basically sniffing around, if you like. That hasn't changed, and I don't expect that to change. In terms of previewing what potentially could happen, that's impossible.
I would like to say M&A is by definition opportunistic. Sometimes you see an opportunity and then you have to act fast, which we typically do. At this point in time, there's nothing to report on that front.
Okay, clear. Last question from me is about the staff. We have seen basically that the amount of employees you have has been declining compared to Q2. Should we expect some more cost cutting on that front going forward? Does it only impact the Automotive division? Actually, a follow-up question on that is, can you take basically employees from the Automotive division and basically use them for the IB or IAC division? Thank you.
Yeah. Indeed, you have seen a bit of a reduction. One of the underlying reasons there is the closure, as announced, of the Eibiswald location. Another is, let's say, more regular fluctuations in direct labor. Direct labor fluctuates with production levels. That is more like a normal fluctuation through the season. The structural item here is the closure of Eibiswald, and indeed, in the coming quarters, we do expect it to decrease further as we are implementing the cost measures that we have announced related to the split of Core and E. There are limited possibilities to use people from Automotive in the other organizations. Obviously, where possible, when, for example, IB needs an engineer that is not needed in Automotive, obviously, we make use of that possibility.
It happens occasionally, that is not the majority of the hires in Industrial or the releases in Automotive.
Maybe to drill down a bit more on that, where it does happen is actually on the direct side. In the production facility, for instance, in Villingen, we have two factories in one building. One is Automotive, the other one is from Industrial Brakes. There we use the flexibility that we have between the two production sites on the direct side as much as we can.
Okay. In terms of costs, salary increases have not basically changed from what you said in Q1, right?
No.
No. There, what we do, specifically in Germany, but in most other jurisdictions as well, we effectively follow what the agreement is between the unions and the employer organizations. Until that is clear, we can't be precise on what we program to propose, but that is what we typically do, and I expect that will happen as well in 2023.
Okay. Thank you very much.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. We'll now take our next question from Maarten Vleeschhouwer of ING Bank. Your line is open. Please go ahead.
Thanks. Great. Good morning, gentlemen. I've got a question about the new Chinese facility. You're expected to start producing in the first quarter of next year. Could you give us any guidance on, let's say, the expected revenue from that? I guess you have customers lined up, so you can be as conservative as you want to get some feel for what kind of revenues we can expect. I guess that will then ramp up into 2023. Some guidance would be helpful. That's the first question.
Initially what will happen is we have two factories, one in Suzhou and one in Shanghai. The first step will be to move those production facilities, and of course, the associated revenue into that new larger building. It's not that we are basically now waiting to implement additional projects until the factory is ready. Clearly, we're currently accommodating both existing and future customers in those two buildings. As a first step, and we expect that, as you mentioned, to happen in Q1, is we are going to move first the Suzhou factory and then the Shanghai factory into the new facility. Then we will have ample capacity for further growth, some of which is in the pipeline that over in the course of 2023 and 2024 are going to start up in line with the plans that we have.
The start of production planning, et cetera. This is true for automotive, for Industrial Brakes and for IAC. Of course, we will also continue to work very hard commercially to keep adding new projects to that pipeline. Don't expect a step change in Chinese revenue in Q1. Initially, it's just a transition of the current revenue into that building, but it will basically accommodate the growth already foreseen and of course, underlying also our own medium and long-term plans for revenue growth. That factory will accommodate that growth.
I appreciate the answer, but I'm more looking for the financial impact because it sounds to me that there will be an incremental negative impact on top line because of these changes. I mean, it is probably challenging to move these production facilities.
We don't expect that to tie. This is not the first time. We've done this, for instance, in Eibiswald as well. Clearly, it's quite an operation, but we know how to do so. There is definitely, unless there's a big mishap or some sort of problem with transportation, we do not expect this to negatively affect our top line in any way. There is, of course, we will need to create some buffer stock, so you may see a temporary increase in our working capital while we move the line and set it up. Clearly, we have to keep delivering our customers, which we will. Hopefully, after a few weeks that's stabilizing and then it's business as usual.
Okay. I'm still going to ask you, all things equal, what kind of absolute revenue on the low end of your expectations can we expect next year from the new setup in China? Because the stock market is pricing in a recession, nobody knows of the collapse in demand. It seems to me, Kendrion, at least have some compensating factors for the new facility because, yeah, you have machines, you have new clients.
That's right.
What is, let's say, the low end of the additional revenue we can expect next year?
If you're asking me to guide specifically for China revenue, you know we talk about in China that we are roughly at around 10% of group revenue, and that has been growing, as you know, over the past years since 2016 from around 3%. Right? There is a good growth that we have effectuated over the past years. We've moved from one facility in Suzhou to another that was twice as big. That's now full. We're now moving into an even larger facility that, of course, over the next couple of years, we will also try to fill. That facility supports EUR 100 million-EUR 110 million of Chinese revenue. Effectively, this move is an indication of our confidence in sustained growth in China.
Without having to be drawn into giving you an actual number, we will, of course, keep you and your colleagues informed in terms of the percentage of revenue that we generate from China. Without the facility, we would not be able to accommodate the growth that we see in our pipeline of projects and products that we've won. I'm hoping I'm helping you a bit.
Yeah, okay. It does on the long term, but not on the short term. But okay. On the CapEx, I think you also mentioned it will be also high in the fourth quarter. It will be probably for the total this year above EUR 40 million. What is roughly, let's say, the budget for next year?
Yes, for this year, we do expect around EUR 40 million, indeed driven by the finalization of the building in China. The budget for next year has not been finalized yet, guided before for next year, I expect the investments to drop down to a more normal level, slightly above the depreciation.
Yeah. Thank you. There is no, let's say, refinancing required for next year.
No, we did it. I think we timed it well, looking backwards. We did it in the beginning of the year. For the coming years, we should be okay.
Also on the, let's say, the expected interest.
You mean the increasing interest?
Yeah.
Of the roughly EUR 155 million debt that we currently have, around EUR 90 million of that, nine zero, is based on fixed rates, either swaps or fixed-rated loans. The remainder is floating. Yeah, there we do and will see somewhat increasing interest charges.
Okay. Yeah, that's helpful. Do you expect or already see, let's say, any one-off items impacting the OPEX, the cost of goods sold, the cash flow in the fourth quarter? Anything a bit out of the ordinary, apart from, of course, from the one-off costs you already guided for?
No. There are two things. First of all, of course, the Core and E, where we guided the EUR 5 million, of which EUR 1.6 has been done. In addition, we are still in the process of selling the building in Austria. That might materialize this year or in the beginning of next year. That will be a couple of EUR million cash in and hopefully a small profit. Those are, I think, the only atypical things that we currently are aware of.
Okay. Perfect. Thanks a lot.
Thank you. Once again, ladies and gentlemen, if you would like to ask a question, please press star one on your telephone keypad. We'll now take our last question. Our last question from Johan van den Hooven of Edison Group. Your line is open. Please go ahead.
Yeah, good morning, gentlemen. Johan van den Hooven, Edison Group. First question, I will do them one by one. You expect for Q4 a lower net debt. Can you please explain a bit more and give a bit of indication where we might end up? Also, what's important for that, the level of inventories by the end of the year.
Jeroen? Yeah. Yes, we do expect, as also announced at the half year numbers, that free cash flow in the second half year would be positive, or we target positive free cash flow in the second half year. Q3 was a negative EUR 9 million, driven by the high CapEx that was already committed. In Q4, the reduction will be driven by lower working capital, partially by structural actions that we set out, especially related to inventory. We saw the first dividends of that in Q3, with inventory coming down despite a much higher activity level. Also in Q4, as traditionally, revenue in December is particularly low. That also leads automatically to low accounts receivables, lower inventory levels. That will drive in Q4 the lower net debt level. For the remainder, I repeat what I said at the half year.
For the second half year, we do expect a positive free cash flow. That means for Q4, at least EUR 9 million positive.
Okay. Thank you, Jeroen. That is clear. Another question about Industrial, which is still performing very well. Are there any end markets which especially stand out in this performance?
I would say the end markets that stand out are the ones that are related to electrification. As you know, IB, which is around EUR 40 million, is around 30% of group revenue, is basically 100% exposed to electrification because almost all these brakes are integrated together with an electromotor. That clearly stands out, and you have seen the results not just in this quarter, but we have experienced very good growth there over the past couple of years. In IAC, it is a little bit more mixed because, as you know, there are around 30 different segments that we are active in. There, too, we have some segments, like we are also creating in IAC some products for automated guided vehicles.
We have a new development around induction heating, which effectively means that all sorts of heating processes traditionally using oil and gas are being replaced by inductors. That is also electrified. We are making certain actuators for switch gear for high and lower voltage transmission lines. As new infrastructure related to electrification is being put in around the world, that is a very good business, very good growth business. Finally, we also create certain safety devices that are used for cooling nuclear power stations. There, too, we see on the back of this energy transition, we see significant opportunities both now and also going forward.
All in all, 100% of IB is exposed to this, and our own estimate, around 50% of IAC is directly or indirectly linked to electrification or other forms of clean energy.
Okay. Thank you. That's clear. Another one, if you look at within Automotive, can you please explain a bit more the difference in passenger cars and commercial vehicles? They are doing relatively well, from my guess.
Yeah. It's interesting, you're right, we used to talk a lot more about that, because all the news flow and everything that's happening is dominated by passenger cars. At the same time, we still have a significant amount of our Automotive business in commercial vehicles. The characteristics there are, as they always were, it is much more stable. There is not as much growth as traditionally was, and today is available in passenger cars, specifically when you look at electrification. Innovation speed is low. It's mostly diesel related. Of course, also there is a big push, certainly for the last mile, to create more electrified forms of transportation. For the long haul trucks, it may occur at some point, today that's still a very long-term dream. That's a stable business for us.
That is really part of our core business that we expect to be servicing for many years to come.
Okay, thank you. My last question is, specifically for you. If I'm correct, your second term as CEO runs until December 2023, I'm just a bit curious what your plans are regarding a possible third term.
Thank you very much. You're right. A year from now is the end of my second term. As you know and everybody knows, I'm not the one deciding if there is a third term, but I am available for that. It's up to the shareholders to decide if availability is accepted or not, but I am definitely available.
Thank you, Joep van den . Thank you for your answers.
Thank you.
Thank you. We'll now take our last question from Martin Vercammen of Kempen. Your line is open. Please go ahead.
Good morning. It's Martin Vercammen of Kempen. A couple of questions from my side. At this moment, you're only able to pass on the higher cost to your customers, so without additional gross profit for you. When do you think you will be able to do so?
You mean passing on raw material prices, including margin?
Exactly.
It would be great to do that, we don't expect that from our suppliers, and I'm not sure our customers would appreciate a move like that. In the end, I think, in a high inflationary environment, and of course, as you will appreciate, we've had a very low inflationary environment for a long, long time. I think passing on these costs, as we talk about defending the gross margin, that's what we do in initial terms and everything around related to actively increasing your value-added margin has to do more with your product roadmap and innovation. Jeroen?
Maybe to add a bit on that. Part of the price increases that is driven by raw materials, raw steel and copper. The assumption is also that fluctuated quite heavily, and you also see in new contracts, for example, that even more will be built in, that you have some sort of a reference price, and if the price goes up, then also the sales price goes up. Down, it will go, of course, the same way. There, we do not expect any margin, but obviously for new projects, where you do expect increased wage cost, which will be there basically forever. I don't think that after 2024, the employees will say, "Ah, I will accept a 4% wage decrease." There, obviously, for new projects, we will build in a higher price and also a margin on that.
At your Capital Markets Day, you provided some insight in revenue and revenue development of AutoCore and AutoE. Could you give some insight what happened in this third quarter concerning these two units within Automotive?
Well, the insight was a long-term insight. As you know, one of the things that we always do when we announce year-end results is we give a bit more granularity on them, and specifically on the order book and the pipeline. We're going to do that again when we meet in February for Q4 and full year 2022 results. Automotive, as you know, it's pretty volatile. Between now and the Capital Markets Day, not much has changed. Basically, if you look at the percentages that we then mentioned of what is Core and what is E, that's still valid.
Okay. Lastly, and press release stated that forms of industrial offset the weak performance of Auto.
Weaker performance, not weak.
Weak performance of Auto. Again, seeing how I should interpret that, do you imply that automotive has a lower result compared to last year?
Yeah. Definitely, yes.
Is it still in the plus?
I'm going to refer you again to the full year results, Martin. In the automotive world, as you know, the volatility which of course also influences, for instance, your direct costs plus the pressure on the added value margin, where there's always a bit of a delay between incurring the costs of the raw materials and then passing them along to your customers, which will temporarily, and that will reverse at some point, put some pressure there as well. It's certainly very tough in the automotive industry. I also refer you to other Tier 1 and Tier 2s that are more pure play companies, where you can really see what's going on in that business, and we are no exception. It's under pressure. Compared to last year, it's certainly lower as it is in the entire industry.
We talked about our response to that in terms of taking cost out on Core and, for instance, by closing our Austria facility. The split in Core and E gives us a lot more focus on innovation, where we need to innovate and at the same time focusing on cash and cash flow, where we think that is the more important KPI. Therefore, going forward, I expect that in automotive we will improve the overall performance if you put the two together in 2023 compared to 2022. It's been a tough environment, a difficult year in that part of our business.
Thank you.
Thank you. There are no further questions here, I'm handing it back over to you for any closing remarks. Thank you.
All right. I'd like to thank you very much for all your questions, and if you have any follow on, you know where to find us. Thank you.
Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.