Welcome to FILA Full Year 2022 Results Conference Call. All participants will be in listen only mode. At the end of today's presentation, there will be a Q&A session. We would ask you to kindly reserve your space for a question by pressing star and one on your telephone keypad. We shall now ask the company CEO, Mr. Massimo Candela, to address the meeting. Please go ahead.
Good afternoon, everyone. I am pleased to be here today to comment fairly good results, considering the 2022 has been an extremely complicated year, maybe aligning all the problems, we could consider 2022 as the year of the perfect storm. Let me recall all the difficult moment we have managed. Until the end of January 2022, we still had school closed in India and Mexico for COVID reasons. In March, April, we had a lockdown of our production plant in China with all the consequences related that will be explained in detail later. After March, for the war, but not only for the war, the speed and steep inflation concentrated during our seasonal period. We had to digest an unbelievable amount of cost increase.
Last but not least, after 2 very strong year in fine art business related to COVID situation, we faced a heavy destocking from our channel distributors, from our customers that should realign the level of stock to the normal activity that now is back to normal. In a year like this, frankly speaking, I am extremely happy to see a top line growth, a an EBITDA that show a slight growth of slightly more than 1%. We have been able to generate a more than acceptable free cash flow to equity.
Again, a very difficult year, and that, by the way, makes me more confident on what we should expect for the following quarters or for the year coming, as the situation at least now is more stabilized. We have, during January 2023, we have passed to the customers our last price increase because there was a moment in which we have not even the time to recalculate costs that to and communicate the new prices to the customer that we were already late with the new update on cost increase. The situation now is going to be stabilized, more stabilized, definitely. The last price increase will allow us to improve the profitability to closer to the level that we are that we are used.
It is true that there are some concern of economy slowing down. Considering the features of our business, we are a little bit more optimistic. For the first time in our presence in the public market, we have given an outlook because we want to transmit to our partners, to our investors, our positive approach. After the problems we faced in January in India and Mexico, we could record a very strong year back to the normality. Both countries are back to normal, have shown an important double-digit growth, not only growth, but a very strong cash generation. The two company have reached now a very important level of efficiency.
In United States, we had a very difficult year because the steep inflation did not give us enough time to discuss and sit down with customers. There is a lot of bureaucracy and a lot of pushback from the bigger customers. We needed too much time to recover the margin needed, which will happen this year. Unfortunately, we were not efficient enough to make it happen during the second half of 2022. Europe probably, especially due to the difficult environment situation related to the war, is probably the area in which we feel the market will be the weakest.
Fortunately, for FILA Group, Europe count not more than one third of our global business. This explain why we have given a positive outlook. Now I prefer Mr. Nicoletti, our CFO, to enter in some financial details. I'm happy to answer to all your questions. Thanks.
Thanks, Massimo. Good afternoon, everyone. Let's go to the page four of the presentation, please. Adjusted core business sales were EUR 764.60 million, +17% on 2021, +EUR 111.1 million, +10.1% at comparable FX rates. The growth in Asia, +70.2%, and in Central of South America, +59.6%, was partially offset by the North America, -2.9%, while Europe and other countries were substantially in the line with the previous year. Looking at Asia and the Center of South America, it is important to highlight India and Mexico growth.
In particular, in India, we registered revenue of around EUR 110 million, in line with our expectation, more or less the double than the one over the previous year at comparable FX rates. Sales in Mexico were EUR 49 million, plus 58% on 2021 at comparable FX rates. If you can see also on the below of this page, you can see the contribution of the Center of South America and Asia, that they are 3 times of the last year. Please go page five of the presentation. Adjusted EBITDA in 2022 was EUR 110.3 million, plus 1.1% on 2021, less 2.3% at comparable FX rates.
The increase in production sales price and the continued focusing on managing G&A costs partially offset the raw material and transport cost inflection faced mainly in the second half of 2022, and in particular in the last quarter. In this world, they highlight that the inflection effect is amplified in a group like FILA that is vertically integrated, managing the all different phase of the production. The lesser EBITDA, their revenue grow also due to mix and increasing contribution to group revenue of Asia and Center of South America, characterized by the low margin. For all those reasons, EBITDA margin in 2022 was 14.4% lower than the one over the previous year. Please go page six of the presentation. Adjusted net profit was EUR 42.8 million.
The difference with the previous one year was mainly related to higher D&A due to investment recovery to support the growth of the higher financial expenses, in particular for higher interest paid and amortization costs booked for the refinancing agreement. Adjusted group net profit was EUR 37.7 million to the growing contribution of the minority, increasing from EUR 1.6 million in 2021 to EUR 5.1 million in 2022, thanks to the strong growth of the India subsidiary. Please, page seven of the presentation. Despite the challenging situation, the net bank debt over the last 12 months decreased in line with our expectations by EUR 14 million, excluding the negative currency effect for EUR 14.4 million, the M&A for EUR 1.1 million, and the debt refinancing cost for EUR 60 million.
These reported figures increased by EUR 7.80 million to EUR 361.6 million at the end of December 2022. At the follow page of the presentation, adjusted free cash flow to equity was EUR 29.2 million, excluding the not current cash out related to up-front fee, accountancy fee for refinancing approximately for EUR 6 million is impacted by the temporary increase on inventory, mainly USA and the other country. For the inflationary effects in this complex scenario, characterized by the persistence of the difficulty of the supply chain worldwide to face the potential disruption of the U.K. SAP Go-live at the beginning of 2023, to sales postponement to the first month of 2023 to incorporate price increases that the group is applying.
Finally, to face the potential increase of our raw material prices in 2023. The free cash flow to equity also impacted by the CapEx increase to support the group growth, mainly in India, and the end for the higher interest paid in 2022. Thanks.
We are now ready to take your questions. Thank you.
We will now begin the question and answer session. To ask a question, you may press star and one on your keypad. The first question is from Niccolò Storer of Kepler. Please go ahead.
Yes, good afternoon, Massimo. A couple of questions. The first one is on working capital. If I made the right calculation, working capital on sales was below 40% for the first time since many years. Can you tell us what has driven this achievement, and which are the expectations going forward? The second one is on trend in North America, which apparently was particularly weak in Q4, and deteriorating compared to the nine months. If you can shed some light on that. The last one on debt. We know that you've been able to renegotiate most of your debt last summer.
Can you remind us, which percentage of debt was in the end, edged? Thank you.
Gracias, Niccolo. Ciao. I would like, so for working capital, I think that we cannot say that we took any particular decision because if you think, when you face problem like lockdown of plants in April, March and April in China, our approach since COVID is to always be in the safe side and to guarantee a good service to our customer. This helped us a lot because if I consider the last three years, and the accumulated EBITDA profitability and cash generation we have been able to achieve, at the end, I think, I think we did a good job.
From now on, if the situation will be stabilized, which seems going to be stabilized, except negative surprises from Ukraine, we do expect in 2023 to generate cash from working capital for two reasons. The first reason is because we are improving in North America, the quality of the management and we start to see already some improvement. We are optimizing also the mix of product, so we do expect a very interesting, very positive year in North America. The second reason is because we start seeing some descent of the cost of the raw material, both paper, energy, transportation, little bit also plastic. This, of course, will have the impact to reduce the amount of inventory that we have in stock.
For these two reasons, we do expect as we made in our outlook for 2023, we have indicated interesting cash generation. When I say interesting, you have to consider that we have increased the CapEx, so the cash generation is really ambitious. And this is partially due to the improvement in working capital.
Sorry, Massimo, related to that, yes, in the press release you mentioned higher investments. How much should we expect from the EUR 60 million-EUR 70 million of this year in 2023?
Cristian, can you please remind me? It's substantially higher. Cristian, can you please remind me, please?
The CapEx, sorry.
Yes, the level of CapEx in 2023.
The CapEx, as we said, in previous one press release, we have important increase more or less for EUR 50 million respect 2022. In particular, we have exceptional investment in India to support the growth of the sales.
Okay.
Niccolo, we move, we go. Already this year, we have increased the investment more or less by EUR 6 million. Next year, we are going to increase another almost EUR 14 million-EUR 15 million because we do expect a very interesting growth in that country. For North America, you are right. We had a very difficult second semester beyond our expectations. The reason are multiple. This year, I repeat, has been extremely complicated. You probably don't recall, until July, we had a problem to find workers to ship product out of our warehouse. This has generated late deliveries to our customers and less reorders from them. We had problem to find even drivers sometimes.
You remember in the U.S. until September, October, there was really a lack of manpower available. We have unfortunately recorded a very strong destocking of our customers. I can tell you, I double-checked with my competition, the trend for everyone is absolutely the same, because customer were overcharged by the two record year, 20 and 21, related to COVID. They were reducing quarter by quarter the overstock. This is the reason why we feel positive for 2023. Last but not least, you probably recall that in U.S. there is this strong increase in interest rate. Everyone is expecting a recession, maybe a slight recession.
customer definitely, in the last part of the year, have become extremely conservative like they are doing during these weeks. extremely conservative due to their expectations in terms of sell-out. not an easy year. anyway, what I can tell you is that starting from January 2023, myself and the top management of F.I.L.A. have decided to put our hands on in North America market to because we want to improve the performances. I can anticipate to you that 2023 for North America, with or without recession, will be a very good year. the last question is related to refinancing. Cristian, please correct me if I'm wrong.
We have, two-third of the interest rate, fixed and, only one-third variable. Is it correct, Cristian?
Confirmed. Perfect.
Yes, absolutely yes.
Okay. Grazie.
The next question is from Alessandro Cecchini of Equita. Please go ahead.
Hello, everybody, thank you for taking my questions. The first one, I mean, it's about your actions in North America. If you could elaborate a little bit more on what. If I am not wrong, in 2022, you lost around more than 4% of margins to 12.3% of margins. I would like to better understand what are your activities in the U.S. in order to revamp profitability. When do you expect, I mean, the impact of these actions? My second question instead is about your statements on first half more challenging.
I would like to have in mind if it's something related to the very tough comparison, because if I am not wrong, last year, first half was extremely dynamic in term of margins and EBITDA growth. If you can elaborate a little bit on this. Finally, on India, if you could give us, I mean, the EBITDA of the company for the year and if you are advancing your, I mean, considerations about extraordinary activities on the country. Thank you.
Alessandro, thank you for your question. The actions in North America, in fact, started already back in September. The reason why we decided to put what we say our hands on is because it seems that during 2022, they were a little bit hesitant to recognize the pressure coming from the cost inflation. Thus, they were a bit hesitant in passing the correct price increase. I would say, let me joke a little bit. As Italian, we are more used to this kind of market. The action that we have taken is very simple.
We have decided to pass another price increase in January. I can tell you that within February everyone has accepted. Was not that obvious because customers, they were start seeing some trend down of costs. Some of them were asking for price reduction. To pass a price increase was not that obvious. This kind of responsibility has been taken by us directly. We have reorganized also the organization chart of the company. We will see already some improvement in March. I would say also some market approach that we didn't like. I mean, the only way you can take the system is putting again your hands on and take a direct responsibility.
When are we going to see the impact? The impact you will see for sure in the first semester. In reality, I start to see the impact already now, but let me connect to the second point so I can explain better the second and the first point. When I say first half challenging, the reason is very simple. Starting March, we saw March 2022, we saw a very steep inflation coming, and until maybe June, we were selling work in process and finished product that we had produced during the last quarter of 2021 and the first quarter of 2022. We were working with the higher margin.
When we start substituting the product in the warehouse with the new cost, and not enough price increase, especially in North America, of course, we saw we experienced a reduction of gross margin. We now see cost trending down, but we have in warehouse until we think March, April, we still have the cost of the last quarter of 2022. It's challenging because we are selling with higher cost and we are replacing the product with lower cost, of course, but we enjoy higher prices. What I do expect is any way a fair good first quarter.
Let's say the optimism that we have shown in the outlook is because we do expect already to show good results before the end, before the end of June. It's mainly an accounting reason. We have in-stock more expensive work in process and finished product that we are little by little selling. The last question is India. I ask support from Cristian, I recall India doing EUR 14 million EBITDA in 2022. The company performed extremely well, even in an inflation situation because they had the same problem we had worldwide. We are working on extraordinary project. Yes, we are working in different directions. Competition is struggling. Competition is seeing us taking market share.
We are still in a phase in which we are analyzing different options. I don't think it will take too long to announce to the market something important, something significant. The company, I can anticipate, in the first quarter, continue running very, very fast over 2022.
Okay. Thank you. Our last point about your free cash flow to equity. We basically you guided for EBITDA. I mean, probably we are talking about a high single digit EBITDA growth. We could have this kind of EBITDA. You are guiding for CapEx, yeah, some working capital release. If you can elaborate a little bit more on cash, financial items in order to achieve your guidance, your midpoint, for instance, or in term of cash generation for 2023.
Ale, I think I answered partially to Niccolo, but I can repeat. India is burning. Despite India is growing fast in top line and in EBITDA, is not generating for the moment too much cash because we think this country has an unbelievable opportunity, unprecedented in the history because China has political problems, a lot of conflict with Europe and North America, difficult internal market. In many areas of the world, India is substituting the Chinese supplier. The country is extremely competitive. We have decided that it's the right moment to invest so much. Despite this strong growth of CapEx, why we think we are going to be able to generate a very, very good free cash flow?
The reason is simple, because we are buying in this moment at a much lower level of working process, and we have a kind of stability in our supply chain in this moment. We don't have any lockdown. The level of inventory will go down, and will help us to compensate the extra CapEx to guarantee any way a very good, expected, cash generation.
Okay. Thank you.
The next question is from Isacco Brambilla of Mediobanca. Please go ahead.
Hi, good evening, everybody. Thanks for taking my questions. Just a couple of follow up on your top line guidance. First one is if you can give us a sense of the split between volumes and prices contributing to the mid-single-digit organic growth you are targeting for this year. Second question is on the underlying assumption, if you can elaborate on Asia or the Indian market, which is included, say, in this guidance for organic top line growth.
Good afternoon, Isacco. Yes. No, the answer is not difficult. The growth this year for Europe, and USA, maybe also I can include Central South America, is mainly prices. In Europe, we could even imagine some decline in volume. The situation, as you know, with this inflation, with the portfolio of the family is becoming critical. We prefer to stay on the safe side. In those country, we don't expect any kind of growth in volumes. I would say stability in North America, stability with some decline in Europe, and stability in Central South America.
We see volume growth and, but with less price growth, because now in India, the situation of the inflation is going back to normal, also because they have access to Russian oil and gas, so their costs are much more under control. There we will experience growth in volumes.
Okay, thanks.
Mr. Candela, there are no more questions registered at this time.
If there are no more question, I take the opportunity to thank everyone. Probably we will meet tomorrow at the STAR Conference.
Thanks so much.
Thank you. Bye.
Thanks so much.
Have a nice evening. Bye.
Bye-bye.