Good morning, and welcome to our full year 2022 results call. I am Clara Valera, Investor Relations and Business Development Director. Joining me today on this call is our Executive Chairman, Eloi Planes, our CEO, Bruce Brooks, and Xavier Tintoré, our CFTO. They will walk you through a few slides on our results, and then we will all be available to take your questions. You can follow this presentation in its original English version or in Spanish. Please select your preferred option in the dropdown menu at the bottom right-hand side of your screen. If you would like to ask a question, please find the information and instructions in the Ask a Question tab on the webcast. Please register to receive dial-in details. After the registration process, you will need to press * 5 on your telephone keypad to ask your question.
The presentation is accessible via our website, fluidra.com, and has also been uploaded to the Stock Exchange Commission this morning. A replay of today's presentation will be made available on our website later today. With that, I hand over to our Executive Chairman, Eloy Planes.
Thanks, Clara. Good morning to you all, and thank you for your interest in Fluidra and for taking the time to join us this morning. Today, we are presenting our full year 2022 results, and Bruce and Xavier will provide more detail shortly. First, let me summarize the points I wanted to get across to you this morning. We are pleased to have achieved the 2022 guidance we shared with you last October. Sales of EUR 2.4 billion, EBITDA of EUR 512 million, and Cash EPS of EUR 1.40. We started 2022 with a strong growth in the Q1 , followed by a weaker second part of the year, with volumes affected by a correction of the inventory in the channel as supply chain disruptions and demand patterns normalize.
To offset continued cost inflation, we carried out a number of price increases in the last 12 months. These increases will support gross margins recovery as we enter in 2023. As we have shared with you, we implemented a simplification program in 2022 to further enhance our gross margin and reduce our fixed cost base over the next 3 years. We have already taken actions to deliver benefits in this 2023. Our business is strongly cash generative. At present, net working capital and net debt levels are temporarily affected by the current trading environment. We are focused on bringing this back to our target levels. Say that our capital allocation policy remains unchanged, centered around investing to grow the business, a consistent dividend policy, and accretive M&A to strengthen our platform. Moving now to slide number 5, I would like to put in context 2022's performance.
Fluidra is today a structurally stronger business than 3 years ago. We have grown revenues at a compounded annual growth rate of 20%. We have expanded our EBITDA margins. We are a more reliable partner, having grown our share in a larger industry. The installed base has expanded with more than 1 million additional pool in the last 3 years, with higher value and underpinning aftermarket demand for the future. We are a global leader. We continue to work to increase our market share, offering more connected and sustainable products and creating value for our stakeholders. Despite the current economic environment, my leadership team, my board, and myself, we are very confident that all our work to strengthen and position the group for a long-term success is in excellent shape. We look forward to discussing our results with you this morning.
With that, te paso el micro, I hand first to you, Bruce, to continue with our presentation.
Gracias, Eloi, good morning. Thank you all for participating today in this conference call. Moving to slide number 6, let me start with comments on our overall performance and highlights for the full year, then turn it over to Xavier to provide more details on the financial results. I will return to provide some color on our simplification program and outlook. The numbers you see on slide 6 are the 2021 and 2022 financial highlights for the full year. Sales grew by 9% compared to a very strong prior year to EUR 2,389 million, driven by price, acquisitions, and currency. These more than offset a volume slowdown due to the correction of inventory in the channel, mainly in the U.S., and softer demand, in particular in Northern Europe. Adjusted for currency and perimeter, sales declined by 1%.
EBITDA was 7% lower compared to a very strong prior year period, reflecting cost inflation pressures in an unfavorable product and geographic mix. With the action we have taken on price, we're seeing a sequential underlying improvement in gross margin as we enter 2023, and as Eloi mentioned, we're addressing our fixed cost base. Going down the P&L, cash EPS is lower year-on-year as a result of a one-off tax benefit effect from the Zodiac merger in Q2 of 2021, along with higher finance costs. Trading conditions in the H2 of 2022 have also influenced our inventory and payable levels. Operating net working capital to sales in the last 12 months was around 24% compared to 16% last year. Our inventory doesn't age, and we'll correct it in the coming quarters.
Consequently, the ratio of net debt to last 12 months EBITDA at the end of the year was around 2.6x, temporarily above normal levels. We expect to deleverage once our working capital levels normalize. Moving to page 7, let me share some highlights of the year. Importantly, on the pricing front, we have achieved mid-single-digit price increases in North America and low single-digit price increases for Europe for the 2023 pool season. I'm excited by the opportunity we have to become a more efficient and effective business. To that effect, we spent a good part of the year assessing and building our simplification program. We're taking the necessary actions to deliver EUR 100 million of EBITDA over the next 3 years. I'll spend a bit more time on this later.
On the M&A front, the integration of the business we acquired in 2021 went according to plan, complementing and enhancing our product portfolio, particularly in the U.S. Additionally, we completed 2 acquisitions and agreed 1/3 to strengthen our European distribution network. We continue to work on developing a pipeline of opportunities. As a testament to our customer-centric approach, I'm proud we have been named Vendor of the Year by the 3 largest distributors in North America for the 2nd year in a row. My thanks go to our teams for this achievement. These awards are a reflection of the extraordinary effort everyone at Fluidra makes to take care of our customers all the way through our value chain. On the sustainability side, which is core to our vision, mission, and values, let me highlight a few points.
On the environmental front, we're happy to share that we reached our 2022 target to source more than 80% of electricity from renewable sources. We ensure a high level of employee engagement according to our 2022 survey with an outstanding 90%. No doubt, our people are a competitive advantage. We continue to work to reducing the gender wage gap. We made good progress in 2022, reducing it to 5%. We believe in equal pay for equal work between men and women. We are well-positioned to attain our 2024 goal. Our efforts are recognized by ESG rating agencies. CDP has upgraded us to B. Having further improved our S&P rating, we've been included for the first time in their yearbook of most sustainable companies, leading the pool sector.
Moving to slide number 8, I want to spend a bit of time to remind you how our focus on innovation, which goes hand in hand with understanding our customers' and end users' needs. The AstralPool's Halo Connect is a new scalable way to enable connectivity in existing pools and introduce automation on the pool pad developed by the team in Australia. In the middle, you can see our new cordless robotic cleaner, which addresses a key user issue, the cord, without compromising on quality. Our Jandy SpeedSet variable speed pump saves energy and has a new digital user interface that transforms usability, making it faster and easier for the pool professional to install and for the consumer to manage. It's great for the aftermarket. We see growing demand for variable speed pumps supported by legislation to replace single-speed pumps and the energy savings advantages.
More than 20% of our sales come from products developed in the last 5 years. We have 3 times more patents than the next industry player. Our track record in research and development and innovation is core to our ongoing success in the marketplace. Moving to slide number 9, you see in the right side of the slide, the positive contribution of price, FX, and acquisitions more than offset the lower sales volume in the year. On the left-hand side, you can see a breakdown of sales geographically, both for the Q4 and for the full year. I will provide more detail by region. As you can see, total sales in the Q4 were down 16% year-on-year, on a strong performance in the prior year of 19% when adjusted for FX and perimeter.
In Southern Europe, we saw softness in the Mediterranean area with some customer destocking. This region saw a 15% decline in a seasonally weak quarter, but a 7% growth in the full year on an FX and perimeter basis. The rest of Europe is negatively affected by the energy crisis in the macro and geopolitical environment, weighing on consumer sentiment as well as some inventory correction. Adjusted for FX and perimeter, this area was 24% down in Q4, and 15% in the 12-month period. North America recorded a negative evolution affected mostly by the inventory correction in the channel. Organically, this region had a tough comparable of 56% growth at constant FX and perimeter in 2021. This area declined 25% in the quarter and 6% in the full year, once adjusted for FX and perimeter.
The destocking process is stronger in North America as we are pure manufacturers. We estimate sell-through during the year was up by mid-single digits. Rest of the world sales evolved positively, led by Australia, our main country in the area. Adjusted for FX and perimeter, growth was 7% and 15% in the quarter and in the 12-month period, respectively. With that, I'll turn it over to Xavier to explain the financial results in more detail before I return to share some details on our simplification program, as well as on our outlook.
Thank you, Bruce. Let's turn to page 10 and take a look at the P&L in some more detail. Sales grew by 9% in the full year to EUR 2.4 billion. Gross margin reached 51.3%, 180 basis points lower than prior year. We have seen a continued acceleration of pricing read-through, with price minus inflation representing 260 basis points of increased margin, while mix, driven by product, region, and acquisitions, represents -40 basis points. Operating expenses reached EUR 713 million, an increase of 16%, which is 4% if we adjust for perimeter and FX, impacted by higher logistics and transportation costs, as well as investments in marketing, IT, and R&D. Acquisitions represent 7 points of the OpEx growth, while FX is 5 points.
EBITDA reached EUR 512 million, a decrease of 7%, driven by the impact of lower volumes and margin contribution, together with increased expenses that cannot be offset by acquisitions and currency. EBITDA margin reached 21.4%, which is 370 basis points lower than in prior year. EBITDA of EUR 421 million was down 13%, with a margin of 17.6%. Below the EBITDA line, amortization increased to EUR 75 million, driven by the intangible assets arising from the acquisitions completed in 2021. Non-recurring expenses of EUR 42 million include simplification, one-off cost of EUR 21 million, stock-based compensation of EUR 15 million, and integration and other non-recurring expenses of EUR 6 million. Net financial results amounts to EUR 79 million, EUR 35 million higher than last year due to EUR 14 million of unfavorable non-cash FX impacts.
The EUR 12 million write-off of non-cash fees generated in the refinancing carried out in January, and the remainder being higher interest expense on a higher debt. Tax rate was at 27% versus a 24% rate in 2021, which benefited from a one-off impact related to the Zodiac merger. Net profit reached EUR 160 million compared to EUR 252 million in 2021, down 37% as a result of lower EBITDA, additional amortization, higher financing cost, and a higher tax rate. As you know, we track cash net profit, a good indicator for Fluidra, as we have a very significant amortization, entirely purchase accounting-related, that impacts our net profit and EPS calculation.
Cash net profit amounted to EUR 269 million, down 20% on prior year, which is better than the development of net profit due to the non-cash nature of some of the financing cost and higher amortization. The following page shows the net working capital evolution of the group. Net working capital amounted to EUR 569 million at 23.8% of sales, compared to EUR 341 million and an unusually low 15.6% of sales last year. This increase is due to a combination of higher inventories and lower payables. The inventory evolution shows the impact of the volume slowdown generated by the correction of inventory in the channel. In the last quarter, our inventory level has come down EUR 100 million as we adjust our purchases and manufacturing volumes to the correction.
This slowdown has in turn impacted our accounts payable figure. As a % of sales, net working capital is 2% down at the end of December compared to the end of September. We estimate that the normalization of our inventory levels would require approximately 2 more quarters. Net working capital will go up for seasonal reasons by the end of Q1 before it starts to normalize in Q2. We are confident in our progress to evolve towards our midterm target of 18%. Page 12 shows the free cash flow statement as well as the net debt evolution. Free cash flow has been a use of EUR 229 million versus a use of EUR 410 million in 2021. The components of this cash usage are very different year-on-year.
We look at the operating cash flow, the company generated EUR 120 million versus EUR 343 million in 2021, mostly driven by the increase in working capital I discussed earlier. On the investment front, we have spent EUR 468 million less cash in 2022. The key driver of this improvement is the inorganic activity executed during 2021 as we completed a number of acquisitions versus a single 1 completed in 2022. On the financing front, we have used EUR 65 million more cash than last year, driven by the increased dividend paid. We also completed a 3.5 million share buyback program last September, investing around EUR 60 million. Finally, net debt reached EUR 1,319 million, up EUR 250 million. Our leverage ratio is 2.6 times.
As we look into Q1 2023, we expect our leverage ratio to go up with a quarter of low volumes due to the inventory correction compared to a very strong performance in the prior year, which will impact our LTM EBITDA and will be coupled with a not yet normalized net working capital. We are confident that this is a temporary effect that will correct in the following quarters. With that, I will give the floor to Bruce and Eloi for guidance and closing comments.
Thanks, Xavier. Moving to slide number 13, let me shed some light on our simplification program. This program is mainly built on 2 core areas, 1 focused on improving gross margin and the other focused on reducing the fixed cost base. It is also underpinned by our drive to foster an agile organization, our culture and Fluidra values. When we talk about gross margin improvement, it's about redesigning our global product offering by standardizing components and optimizing costs. This, together with the globalization of our procurement model and SKU rationalization, will make us more cost efficient. We continue to see labor inflation. We are working on reducing our fixed cost base, streamlining our operations, and simplifying our organization to adapt to the markets we serve while we continue to support investing in our people, product development initiatives, and the digitalization of our business.
All in all, we expect to deliver EUR 100 million of EBITDA over the next 3 years, with 1/3 accumulating in each year and total one-off costs below 1x. As you see on the right-hand side of the slide, all the initiatives implemented to date represent savings of EUR 17 million on an annual run rate basis, which will be reflected in our 2023 performance. We'll provide you with regular updates on the simplification program. We're confident in delivering 1/3 of the program's total savings in 2023. Moving to slide 14, you can see the full year 2023 guidance. We expect the H1 to be impacted by the ongoing inventory correction in the channel as we return to normalized industry patterns. With a tough comparable versus the same period of 2022, where we grew by more than 30% in the Q1 .
As we shared in October, we expect the more cyclical residential new construction demand, which represents approximately 30% of our sales, to be around 20% weaker year-on-year. We expect a more resilient aftermarket, although affected by the ongoing correction in the channel and lower volumes in certain product categories, which performed strongly during the pandemic. We expect commercial pool to continue to benefit from tourism recovery. Helped by positive price read-through, lower cost and the benefits of the simplification program I outlined earlier, we expect gross margin to recover. All in all, we're expecting a level of sales between EUR 2 billion and EUR 2.2 billion. EBITDA between EUR 410 million and EUR 480 million. Cash EPS between EUR 0.95 and EUR 1.25. Please note that we're assuming current FX rates.
Now back to the Executive Chairman to wrap up the prepared remarks before moving to Q&A.
Thanks, Bruce. Moving to slide number 15, I would like to summarize a few key takeaways. We have closed 2022 achieving the revised guidance. Despite macroeconomic uncertainties, we now face 2023 with the industry transitioning toward more normalized pattern. We have an experienced management team to lead us through this phase. Our efforts are focused on margins and cash generations. We have started the year with good progress on these fronts. Our balance sheet remains solid, with a debt structure that provides flexibility and allow us to navigate through the current environment.
Fluidra is very well positioned to continue to lead the pool and wellness market, and to deliver improving returns on capital in middle term with our customer-centric approach, focused on high quality and excellent service, with our broad product portfolio and geographic footprint, with leading market positions in the key countries where we operate, with our leadership in more sustainable and connected pool, and with our efforts to become a more agile, effective, and efficient organization. Thank you all for your participation. Now we open the Q&A turn. Bruce, Xavier, and myself, we are ready to take your questions. Thank you very much.
Many thanks, Eloi, Bruce, and Xavier, for your presentation. We now begin the Q&A session. As a reminder, if you would like to ask a question, please find the information and instructions in the Ask a Question tab on the webcast. You have to register to receive dialing details to ask your question. For those registered, if you would like to ask a question, please press * 5 on your telephone keypad. The 1st question comes from George Featherstone from Bank of America. Please go ahead.
Morning, everyone. Thanks for taking the questions. I've got a couple. Maybe just starting with the guidance. I wonder if you could bridge the guidance, like you've done for your revenues last year on slide 9, just kind of breaking out perimeter price, volume, FX, et cetera, assumed in the midpoint. Then maybe sort of within that, if when you've been talking to your channel partners at the start of the year, just kind of get an update on how that normalization of the channel is tracking relative to your assessment that you made at the back end of last year. That'd be really good. Thanks.
Okay. Hey, George, it's Bruce. Thanks for the thanks for the question. All right, I think the 1st one was kind of the to the sales and EBITDA guidance. I guess to start, I'd say we expect lower sales in value terms. We've got that as a decline of 7%-15%, driven by lower volumes, but also higher prices. There's a lot of moving parts as I guess you figured out. With regards to volume, we expect a decline of 10%-16%, driven by a combination of weaker new build. New build we have down in the 15%-25% range.
On the aftermarket, we have that down, driven by inventory correction, which is where we have that bit lower on the remodel and some of the pull forward that we spoke to in the comments. That should put the aftermarket down at about 10%-15%. Largest part of that really being by the inventory correction. We have better demand in the commercial pool. Let's call that 1 flat to +5%. Then we've got price. Okay? Just a reminder, it's gonna be a tougher Q1. We'll start to improve sequentially from there.
Q1 was up 30% in 2022 on top of I think 60% in Q1 of 2021. Pretty tough comp. That's where we'll see the majority of the of the inventory destocking. As you move into gross margin, we'll see sequential improvement as pricing is up year-on-year while we see the cost base more stable and hopefully slightly lower. US price increase is in the 3%-5% range and Europe 1%-2% on top of all the price increases that we took in 2022. As far as just continuing to move down that P&L into OpEx, around 30%-40% is is variable. You'll see that impacted with the with the sales decline.
We're still seeing fixed cost inflation. We've kinda pegged that 1 at about 5%. Obviously, we're working to restructure a bit, going with strict cost control, that should deliver some fixed cost savings in 2023, while we continue to invest in things like R&D and digitalization. All in all, a bunch of a bunch of moving parts. Hopefully you hung with me on that 1, George. If we need to do it again, we'll do it again off the call if needed. On your 2nd question, which was inventory and how did that match up to what we were expecting?
I will remind everybody that this is not an exact science, but our indicators really confirm the correction in the channels was broadly in line with our expectations at the end of the year. Last year, we estimated there was around EUR 300 million-EUR 350 million of Fluidra inventory in the channel at the end of June. We think about 2/3 of that was corrected in the H2 of 2022. We estimate there's still EUR 100 million-EUR 120 million of inventory in the channel. I would say that's slightly above our estimate back in October, but really not by much. We think that'll correct mostly in this Q1 , although some will probably leak into Q2.
Obviously, this will depend on what the macro situation, kind of impact that has on demand. Hope that answers the question, George. If you need to follow up, let me know.
That's, that's great, thank you very much for the extra color there, Bruce. T hat kind of answered everything from my perspective on that one. The next one would kind of be on the leverage situation. I just wanted to kind of get your assessment as to whether you think you're at peak leverage as well, because I guess the natural rollover sequentially is you're gonna hit lower EBITDA. Just mechanically, you might see leverage tick up even higher. I just wondered if you could kind of help us through that phasing throughout this year, and how we should think about that.
Hi, George. This is Xavier. Let me take that 1. A s I mentioned on my remarks, my prepared remarks, and as you were pointing out, as we look at Q1, leverage is going up, as we face a very tough comp in terms of EBITDA on Q1 last year. Now with lower volumes in Q1 this year, which obviously will bring in lower EBITDA coupled with a higher net working capital for seasonal reasons. I think that this will get back in line as we move into Q2, Q3 of the year.
Thank you. George.
Thanks.
The next question comes from Andre, from Credit Suisse. Please go ahead.
Hi, good morning, all. This is Jenny asking on behalf of Andre. Thanks very much for taking our questions. I have 2 questions. The first one is to follow up on the guidance. On your outlook for EBITDA, in context of your full year guidance of EUR 410-EUR 480, can I ask what is your expectation for Q1 and the H1 of 2023? My 2nd question is on your aftermarket resilience. Apart from the inventory correction effect in the countries or regions that are already impacted by residential downturn on the new installation side, I wonder where you're seeing on aftermarket segment. What are you experiencing, and have you already seen any weaknesses already? Thank you. Okay. The 1st, I think the 1st question was Q1 and how the top line will be.
As I mentioned earlier, with the inventory in the channel, Q1 will be definitely a tougher comparable, based on the percentages we were up last year. Again, on top of a strong 2021. We would expect Q1's top line to be down, I'd say, at least 20%. It'll be a tough Q1 from a top line perspective. Can.
About the EBITDA for Q1 and H1 of 2023.
We don't really guide EBITDA by quarters, but as you know, as you work out the math, we are saying that we're gonna have, you know, top line declines more or less in line with what you have seen in the Q4 . Based on our, you know, variable fixed cost structure, you will see that read through and therefore impacting the EBITDA in the Q1 , as I mentioned in my previous answer to George.
Can you repeat the 2nd question for me again about the aftermarket?
I think the other question was around what are we seeing in terms of aftermarket demand in the markets where we operate.
I think consistent with the comments earlier, right, wrong, or indifferent, we put inventory correction into the aftermarket section. That's the biggest impact that we're seeing. If you isolated that out, we're seeing some reduction in remodel, although not as much as we're seeing in new construction. We still see a little bit of impact on some of the products that were, we think pulled forward during the pandemic in things like above ground pools and heat. Overall, the base part of the aftermarket business, the maintenance side has been, you know, holding up well and is resilient.
Thank you. The next question comes from Christoph at Berenberg. Please go ahead.
Yes, good morning. Thanks a lot for taking my questions. T hat has already been answered actually. But, a few follow-ups. Maybe starting with the channel de-stocking. So if I remember correctly from last year, the expectation was to be done or see basically the de-stocking completed by the end of Q1. Now on the slides, you're talking about the H1 a bit more broadly. You made some comments on that. Also, if you look in the U.S. to some of your peers that have already reported like, I think your biggest, let's say, customer in the U.S., I mean, have basically reported flat inventories in Q4. 1 of your OEM, competitors has talked about de-stocking lasting until the end of Q3.
I'm just trying to understand a bit, why the situation for Fluidra might be a bit different, than, the reporting of U.S. peers is suggesting.
Okay. How you doing, Christoph? I think I really think you saw this last year as the OEM manufacturers were reporting. I think dependent on your supply chain and how quickly you were able to correct your supply chain, you either went into the inventory correction earlier or later. I think let's just say without getting too specific about competitors, which we don't do, I think we were probably in the middle of the pack. 1 might have entered a little bit earlier, 1 might have entered a little bit later. You know, we still feel like we'll do most of the correction, remaining correction in Q1.
Some might leak a little bit into Q2, but that's our read at this, at this point in time.
That, that makes sense. Maybe quick question or follow-up maybe on the cost side. You mentioned also briefly that 30%-40% of your OpEx are can be considered as variable. The savings from the lower volumes through the variable part in the OpEx, is that completely separate from the simplification program, or is there some kind of overlap there?
No. When we, like Christoph, when we refer to the simplification program that addresses the fixed cost based, and then there's really 2 components as we highlighted. 1 that addresses the fixed cost that is hitting more in 2022, and there's a 2nd component that goes to redesigning product, to sourcing, SKU rationalization and so on, that obviously addresses product costing, and you will see more of that in gross margin. That will take, that's more backend loaded. You'll start to see the benefits in 2023, but it will be most of the benefit hitting in 2024 and 2025.
Thank you, Xavier. Just a final 1 on the net financial expenses. I mean, that number has fluctuated a bit throughout 2022. If I look at the individual quarters, I guess there was a bit of an FX impact. Maybe just a quick word on the outlook for 2023 that is implied in your Cash EPS guidance. What type of financial expenses should we expect then?
S ure, Christoph. I think that we have had a few one-offs in 2022. As you look at 2023, you should be expecting a financial expense that would be more or less around, I would say, 10%-15% lower than what we had this year. Basically with more interest expense, more cash interest expense based on higher debt and a little bit higher cost. As we know, we have a fixed interest rate on roughly around 80% of our Term Loan B, but our RCF and and some of our bilaterals are not fixed rates. That will mean that we have higher interest expense.
[audio distortion]
Thanks, Claude.
Thank you. The next question comes from Paco Ruiz from BNP Paribas. Please go ahead.
Hello, good morning. I have some question. I mean, the first one is if you could give us some update on your visibility in the final demand as of today? I mean, you have commented what you expect for the whole year, but do you think or could you tell us that the visibility has improved or you're still in the same situation as a couple of months ago? The second one, although, Xavier, you have commented on the net debt evolution, just a couple of thing there. I mean, do you think that the 18% working capital to sales could be achieved at the end of 2023?
If you could give us a range in terms of net debt to EBITDA for the full year. The 3rd question is what are the assumptions between your bull and bear case scenario on the guidance, the different assumptions. Last but not least, you commented that you have EUR 17 million already on run rate on synergies on the new simplification program. Could you confirm that this is included in your EBITDA in 2022 or it's not? Thank you.
Okay. Hi, Paco. I will take the first part on visibility. We have participated in a number of shows, a number of events with our dealers, I think you continue to hear a pretty mixed bag of expectations out there. I think those expectations that we're hearing, you're seeing in our building blocks to the demand that we talked about earlier. frankly, in my mind, until we really get into the volume part of the season, the visibility piece is not dramatically different than where we were a few months ago.
Okay. Hi, Paco. Let me take the next few. Let's see. Everything that is related to leverage, we are targeting this 18% net working capital to sales as midterm guidance. We believe that we will be, you know, well below 20% this year. Obviously, we don't guide specifically, but, you know, we feel confident that we will move in that direction that we have commented in the call. As you look at our 2023 guidance, again, we don't guide for leverage ratio, but if you do the math with the EBITDAs and net working capital indications that we have provided, what you will see is that we will reduce slightly our leverage ratio in 2023.
You know that our policy is to run the company at around 2 times. Precisely, you know, when we say that that's our policy is because we wanna be able to have room to face challenging macro environments like the 1 we are having today. Okay? That's, that's as to net debt. I'll go to the simplification 1, the EUR 17 million guidance that we have provided. That's the impact that you will see in 2023. There's almost non-material impact in 2022 coming from that program. I think your 4th question was around the assumptions on guidance, which I think.
Yeah
Bruce mentioned before. I was wondering if you could be a little bit more specific on what sort of clarification you need around those assumptions?
I mean, it is only the different type, the different volume scenarios that you have mainly on this 15%-25% you mentioned on new builds and the 10%-16% in volumes, or there is something else?
Look, I think we provided you the little bit the range in terms of volumes. If you look at new build, you have these 15%-25% declines. If you look at the aftermarket, which as we've mentioned, includes the inventory correction of roughly around 5%, the range is between 10%-15%. We believe that commercial is gonna be probably a source of growth, roughly at around 5%. If you look at pricing, we said, you know, low-end, high-end is in North America between 3%-5%, in Europe between 1%-2%. That more or less drives you the top line range in the assumption.
From there, we've talked about, you know, the inflation being roughly around 5% on cost, and that drives you to the EUR 410-EUR 480 of EBITDA top range.
Okay. No, very clear. Thank you very much, sorry.
Thank you, Paco. The next question comes from Manuel Lorente from Mirabaud. Please go ahead.
Hi, can you hear me? Hello?
I hear you, Manuel. Please go ahead.
Okay. Thank you. My 1st question is on the pricing volume dynamics from next year. I wasn't expecting somehow that due to the ongoing de-stocking in the channel component, it would be tough to see price increases this year. However, you are pointing to 1%-2% price increase in Europe, or roughly 3%-5% in the US. I was wondering whether you can specify a little bit those price increases because in the current demanding backdrop, I was expecting more pressure from prices.
I'm not sure what direction you're expecting the prices to go, Manuel. Let me try to just put a little bit more color on it. Hopefully, that answers it. If not, we can, we can take offline. The pricing is as we said, 3%-5% in America, 1%-2% in Europe. That's the price increase that we took in October to really set up the new pool season of 2023. If you remember, we talked a lot about our pricing over the last couple of years, and in particular in 2022, and that it took a little bit longer time to read through than we would have liked to have seen based on the backlog and the supply chain.
Those price increases are reading through at this point in time. That's why we talked about gross margin sequentially improving and even underlying gross margin in Q4 is a good story despite some challenge in geographic mix and a little bit of product. Overall, we think we're in good position to recover our gross margins in 2023. Hopefully that answers the question.
Those prices are the ones you intended in October.
Manuel, it's hard to hear you. Maybe, a different angle to what Bruce said is, look, this is an industry where demand is inelastic to pricing, and that's 1 of the reasons why, generally speaking, we've said that once prices are set, they stick with us. I mean, the only areas where you wouldn't see that would be more commoditized product like chemicals that will fluctuate with the commodities up and down. If you look at the pricing on equipment, that tends to stick. Therefore, even though in a de-stocking environment, with lower volumes and so on, there is no, there is positive pricing impact, you know, built into the guidance.
Thank you, Manuel.
Okay.
The next-
Thanks.
Thank you. The next question comes from Alvaro Llorente from Alantra. Alvaro, please go ahead.
Hi. Thanks for taking my questions. Just a couple of quick ones. First is on the potential restructuring costs that we could see going into 2023. I don't know if you mentioned it already, but how much could we expect, and when should the restructuring costs or the provision for restructuring be recognized? Secondly, we have seen an increase in the D&A expense in Q4. Just to clarify if there is any non-recurring impact there or what is the reason for this increase that was significantly above my estimate? Thanks.
Yes, Alvaro. On the restructuring, I would say that if you look at non-recurring expense for 2023, you would be more or less looking at a sort of flattish number to what you have seen in 2022, with a different sort of building blocks, with lower stock-based compensation and probably a number of, you know, simplification-related cost of roughly around, I would say probably close to EUR 40 million.
Mm-hmm.
components. As to the other question, I would say that there is nothing materially driving that increase in depreciation, other than the additional amortization associated to the PPA of the acquisitions that took place in 2021 and 2022.
Okay, thank you.
Thank you, Alvaro. The next question comes from Bruno Bessa from CaixaBank. Bruno, please go ahead.
Yes. Good morning. Just a very quick 1. Sorry. Just if you could provide us any visibility on how the weather is evolving in the different geographies and how this could impact the season, the pool season this year. Thank you very much.
Bruno, could you repeat your question? Sorry, it was really hard to hear you.
Yes. My question was related with the weather in Europe and in the US. How do you see it impacting the pool season this year? I don't know if you could hear me better now.
I've got that 1. As far as, weather, I guess I have to say that it's a little early to see how it's gonna impact in reality on 2023. You are correct. The January, February season in the U.S. has been unusually wet and cold in the West and, in Texas and, a little bit tough in the Snowbelt as well. I mean, this is the shoulder part of the season, so it's obviously the lower part. If this would continue into Q2 as the, really the demand for pools starts to build then obviously it would be a bigger concern. Right now I would say too early to call, but, slightly negative to start the year.
Yes, perfect. Thank you very much, Bruce.
Thank you, Bruno. This marks the end of today's presentations. We have no more questions on the line. I'd like to thank our speakers and all of the participants. As always, please feel free to reach out to the investor relations team if you have any further queries. Thank you and goodbye.