Good afternoon, ladies and gentlemen. A warm welcome to our conference call on Bilfinger's first quarter results 2023. My name is Bettina Schneider, and I will lead you through this call. First of all, I'd like to inform you that all participants are in a listen-only mode and that the conference call is being recorded. With me here in the room are our Group CEO, Thomas Schulz, and our Group CFO, Matti Jäkel. After their presentation, you will have the opportunity to pose your questions via phone or via chat in the webcast. With this, I would like to hand over to Thomas.
Thank you very much, Bettina. Hello, everybody. I welcome you all too for our quarter one statement for 2023. Let's start. It was actually quite a good start for the year. We had an order intake received with a growth of organically 26%. The revenue increased significantly by 12% organically. Our EBITDA margin, like for like, to the quarter one 2022, slightly increased to 2.1%. Overall, we have a quite positive market development in all areas, in all industries, and in all regions. Our free cash flow improved quite significant to -EUR 26 million. In the quarter, we had our Capital Markets Day set to further develop strategy and midterm goals. The efficiency program, what we announced in November last year, is on track. The outlook for 2023 is confirmed.
Before we go into the figures, we would like to highlight, of course, our safety track record as we always do. It's part of our sustainability set up in the company. You see here on the slide on the upper part, our development in the TRIF. When you compare our 0.73 based on 1 million working hours to the 1.39 in Q1 last year, this shows a clear improvement in the right direction. The same is on the LTIF. Here we show an 0.16 versus a 0.23. It is clear that our target for all our colleagues and the peoples around us is regarding accidents and any risk, zero.
It's quite a long way to go, and I'm very happy, and we are very proud about our own organization to deliver these good developments and figures for the first quarter, especially when you see which kind of volume we turned. Next thing is about our orders and our revenue. Our orders increased significantly, it's 24% reported and 26% organically from EUR 1.117- EUR 1.385. We had a 36% project share in that order intake. The book-to-bill improved to 1.31. When we look into that quite good start into the year 2023 on the order intake, there are some bigger projects in the quarter realized into the order intake, and we have so-called inflation-related price adjustments, which together were a part of that good growth in order intake.
We then look into the revenue, there we grew 10% or 12% organically from EUR 961 million - EUR 1.053 billion, which is the same as in the order intake, quite a good development. We had that revenue increase in all segments. One of the reasons short-term why the development was so great was a mild winter, which enabled us to start the work on the different sites a little bit earlier. Out of that 3 examples of our orders, what we achieved in the first quarter, one is in Kuwait. It's about water treatment, where we helped the client Ministry of Electricity and Water regarding their filtration system. Another one is energy transition project in the city of Munich in Germany, where we installed, designed, delivered, and of course, maintain high efficient two-zone heat accumulators.
This is another step for the city regarding their agenda for energy transition, and we as Bilfinger are part of it. The third one is a carbon capture project out of Heidelberg Materials and Orca Carbon Capture in Norway, where we helped to insulate and to install the piping and all the surroundings regarding a CO2 capture facility on a cement plant. We are each quarter showing one thing, what we bring to the market as an innovation because we, as Bilfinger, are on a lot of sites in a lot of different industries and are able to combine existing technology into one big package for our clients to improve efficiency and sustainability. This time it's about a Mobile Acoustic Camera system which works with sound and sonic to help to detect possible leakages in piping systems before anything pops up.
This system, this innovation, helps clients with the work of us, of Bilfinger. To avoid any unnecessary shutdown, emergency shutdown based on the leakage. It helps to safeguard the environment against any hazard material coming unexpected anywhere out of the pipework. It helps, in that case, the Swedish customer and Swedish customers to save up to 30% of the cost on compressed air. That's another example for us in efficiency and sustainability improvement for the industries and customers where we work on. If we then look into the efficiency program, what we announced in November last year, we promised that we will report each quarter in detail how far we are with the program. As we said, the beginning of such a program shows relatively small realized figures. That's the nature of such a program.
You remember, the program is targeting to reduce the administrative service level and structure and complexity in the Bilfinger Group. With that, we have to let go 750 FTEs. The EBITDA improvement, what we target with that program, is EUR 55 million. Roughly one quarter of it, around EUR 13 million, we put up after the program is up and running for reinvestment into education and training, which is one of our strategic pillars, what we showed on the Capital Markets Day in February this year. When you look on the right side in the reported year-to-date effect and the quarter one effect, as I said at the beginning and as we said in November, as well as on the Capital Markets Day, by nature, the program is starting slow, but with the real effect.
We already have a run rate of around EUR 2 million at the end of quarter one for the EBITDA improvement. We go to the financial highlights to Matti Jäkel, our Group CFO.
Yes, thank you, Thomas. As you can see, we had all in all, quite a good start into the new year, 2023, and the numbers are really supporting the strategy that we adjusted and presented during the Capital Markets Day in February. The increase in orders received, in order intake, is on a very broad basis covering all regions and all businesses. We received new frame contracts. We received new customer projects, particularly in the energy transition field. We were able to put through inflation-related price adjustments, and the expectation on a number of our frame contracts was increased due to good activity on our client side. The revenue increase of 12%, follows on from quarter four, and the mild winter helped us quite a bit to get started earlier than usual.
The new projects that we did win in Q3 and Q4 of 2022 were started without any delays in the execution. That's also quite positive and helped increase our revenue. Gross profit slightly increased to EUR 100 million and a stable margin that also increased by 1/10 of a percentage point in Q1 is also supporting our plans that we have communicated a bit earlier in the year. Free cash flow, very positive, only - EUR 26. Yes, it's negative, but for a first quarter, this is a very good result, and our SG&A ratio reduced to 7.4% below the prior year level. A quick look on the P&L. The sort of top half I just explained. On the bottom half, you can see the net profit is positive.
It's a real profit, + EUR 7 million compared to quarter one 2022, which was impacted by the provision for the phasing out of the Russian business. It's always a good sign when the first quarter ends with a profit in our business. On the gross margin, what you see is in absolute terms a slight increase, relatively speaking, 9.5% after 9.9% in the prior year quarter. I will explain this a little more in detail when I come to our segments. SG&A increased in absolute terms from 74 to 78. Two factors play a role here. On the one hand side, inflation on labor costs, which is coming through from last year, we also spent EUR 1.9 million on costs in the efficiency program where we were not able to take provisions last year. Everything is expected.
On EBITDA, 2.1% in the first quarter of this year, following from 0.9%, if we then correct for the special item for the phasing out of the Russian business, it was 2.0% in the first quarter of 2022. A slight improvement, again, supporting what we have laid out in our plans earlier this year. Cash flow. The operating cash flow or the free cash flow both improved from -EUR 76, the free cash flow, to -EUR 26 in the first quarter. This is certainly due to some good working capital management that you can also see as a proof on the right-hand side. Net trade assets only increased slightly from year-end to EUR 440 million compared to prior year.
It's an even greater reduction from EUR 523 million at the end of March 2022. One thing that should be mentioned here is that the free cash flow does not include as yet any payouts from the efficiency program. As Thomas alluded to before, the program is starting slow. We will see those impacts coming through in the second half of this year. A little bit more flavor onto our segments. E&M Europe, our largest segment, orders received grew by 25%, respectively 29% organically. As I said earlier, this is really across all regions and all businesses that we're covering in Europe with that segment. The revenue increase of 8%, respectively 10% also across all regions. We do see a good business level activity across all our businesses.
Mild winter always helps in our business when activities can start a bit earlier. Profitability of 3.6%, also solid margin generation in all regions. We had a bit of a strike action in Norway and UK. You lose 1 day or 2, and that has a bit of an impact, not so much on the revenue, but it certainly has impact on your profitability. Last year, we were at 3.5% if we correct this for the special item of Russia. Our largest segment is underway in a very stable manner in the first quarter, which we believe is quite good. E&M International, orders received remain on a high level. If we look at quarter three, quarter four, and now quarter one, around the EUR 220 million-EUR 240 million mark. We won some interesting projects.
One was explained earlier, the Kuwait contract. An interesting contract for a chemical client in the United States as well as for US government, where we received a nice contract in the first quarter of 2023. Revenue, up against last year, first quarter, as you can see, down from quarter three and quarter four. Not a surprise. This is the planned phasing out of the pure construction business in the United States. We still have a few legacy projects to deal with.
They are also the reason for the loss in the first quarter here, where phasing out those projects is typically quite difficult and we run into a planned underutilization as we complete the work and we are redirecting resources include and on top of releasing resources in the U.S., we released in the first quarter 800 employees because of our phasing out those projects and changing our positioning in the United States from construction projects to service and maintenance contracts. Technologies. Here we see quite the opposite. Orders received + 10%, + 11% here. The strong trend that we have seen in the last few quarters continues on almost the same level. If you look at revenue generation, that has increased over the last three to four quarters consistently to the level of EUR 180 million.
We have won a number of projects last year in pharma, biopharma, and energy transition. This continues this year. You can see that the revenue generation has really picked up, which also includes higher revenues from Entry Point. The nice thing about this is that the higher revenue is being converted into profitability leverage. This quarter, 3% profitability in Technologies versus pretty much break even four quarters ago. Also this year is a good development and we're comfortable there and very confident that this is going to continue and it really supports the repositioning of Bilfinger into that segment. Back to Thomas.
Thank you very much, Matti. The market is for us in the development, how we see short term and mid term, no change, quite positive. When we talk about the market, it's not only about the industries, it's about all the regions where we are in too. We see high demand for efficiency and strong increasing demand for more sustainable solutions, what we as Bilfinger can offer quite a lot, and what we do. When we look into the four major markets where we are in, energy and energy transition in particular is a big boom, and a lot of demands are there. It goes across all ideas what you can imagine. Of course, the focus is on new technologies. For us, the focus is to help clients on existing installations too, which still makes the biggest part of the business.
For that, we see for quite a long while a very positive outlook. Nuclear is on the revival. When we look into the chemicals and petrol chem, of course there are in Europe some, yeah, dark clouds for our customers regarding energy prices, regulation, and so on. For us as Bilfinger, it is in that way positive that we can help our clients in these difficult times to be more efficient, to be more sustainable, to be better in the position to forecast their own cost and technology development. That is a big benefit for our clients and explains quite a big part of that, why our order intake at the beginning of the year was quite so good.
If we look into pharma and biopharma, the increase in healthcare demand, the localization of supply chain is a very positive environment for us, especially when you look into the offering of Bilfinger into that industry part. We offer standardized midsize or smaller plants building up risk-free and very fast and bringing our clients fairly quick into revenue and profit. The last part here is on oil and gas. There is quite a lot of investment ongoing in brownfield infrastructure because it was underinvested for a long, long period of time. We, in our areas, no matter if it's in the north of UK or in Norway or in US or in the Middle East, we are well positioned to help clients to be significant more efficient in it.
On the other side, all the blue chip and all the big oil and gas companies are investing a lot into new technologies and new, more environmental friendly energy resources. If it's LNG, hydrogen, carbon capture, you name it. As you saw in some of the examples what we do over the last few quarters, we are well positioned in all these areas too. We have the customer contact for decades, we have the technology knowledge, we have the people on the local sites, and we are experts in these new technologies. That whole package in the market development, we as Bilfinger benefit quite a lot from it, and we don't see a change in it. If we then look for the year 2023, first and main message is the year is confirmed.
What you saw in the figures in the quarter one, no matter if it's the order intake, the EBITDA margin, the cash flow is exactly in line with that, how we forecasted the full year 2023. Which means we are on the way to deliver EUR 4.3 billion-EUR 4.6 billion in revenue, 3.8%-4.1% EBITDA margin, and the free cash flow, EUR 50 million-EUR 80 million. To the EUR 50 million-EUR 80 million in the free cash flow, there is of course the EUR 60 million cash out of the efficiency program. What we didn't see anything yet in the first quarter. Our improvement versus last year in the cash flow in quarter one shows that our efficiency and process improvements on the cash generation actually shows quite good results.
All over, we are satisfied with that outlook, and we are satisfied with that performance. To sum it up, orders received increased organically by 26%, in revenue, 12%. Our EBITDA margin stable, slight increase to 2.1%. We see in all regions, in all industries, quite a positive market development. Our free cash flow better, still negative, but better than last year, significant better. We had a Capital Markets Day in February where we rolled out the further developed strategy and midterm goals, what we of course will achieve. The efficiency program announced in November is well on track and the outlook for 2023 is confirmed. With that, I give back to Bet tina.
Thank you very much, Thomas. Ladies and gentlemen, you can now pose your questions via chat in the webcast or alternatively via phone by pressing star and one on your keypad. If you would like to withdraw your question, please press star and two on your phone. The first question comes from Craig Abbott, Kepler Cheuvreux. Greg, the line is open.
Yes. Hi, Bettina. Thanks, and thanks, Thomas for taking my question. My question is just to come back on one of your opening comments regarding, you mentioned the inflation price adjustment effect. In both your order intake and your revenues in Q1. I was wondering if you could give us some color on how much that effect was for both revenues and order intake, but particularly the order intake, given that there's also a multiplier effect related to the framework contracts, if I'm not mistaken. Thank you.
Yeah. The... Thanks a lot, Craig. In the order intake, we can say that around 3% is the effect in the order intake. Instead of having 24% growth, we would have 21% growth. In the revenue, it's a little bit less. It's around 2% in the effect. We would be there on 8% or 10% reported versus organic without that inflation.
Okay. The impact might have been higher on the order intake. Okay, thank you.
No, it is actually not higher on the order intake. We have to say that, when we look through the inflation impact in our group, of course, we have quite significant differences between the countries.
Mm-hmm.
Of course, it makes a big difference if you get it in one country with less inflation impact, more orders than in others.
Mm-hmm.
The first quarter actually showed only these relatively, when we look into the media with all the communication about inflation, relatively low impact both on order intake as well as the revenue.
Okay. Thank you.
Thank you, Craig. The next question comes from Gregor Kuglitsch, UBS.
Hi. Good afternoon. I've got a kind of similar question and maybe the answer is, I think there were three effects, right? There was large orders, inflation you just quantified, and then the reappraisal of your framework contracts. Maybe you can quantify the third bit so that sort of reappraisal of framework contracts. The reason why I ask this question is if I now just sort of go back and add up the four last quarters of order intake, it's EUR 4.9 billion I think you took in a trailing 12 months. Obviously your revenues guidance is Oh, sorry, EUR 4.3 billion-EUR 4.6 billion.
I guess the question is why wouldn't the revenues start matching that sort of trailing 12 months order intake, you know, maybe not quite this year, but sort of maybe into next year? That's sort of the first question. The second question is just on the cost cutting. It seems like, I don't know if that's in line with your expectations or not. I guess it seems a bit slow in terms of people actually leaving the organization. Maybe just sort of give some perspective on that and help us out a little bit when we should start thinking about, you know, basically cost benefits, you know, maybe, I don't know, is it Q3, Q4, or when do you think it starts flowing in? Thank you.
Let us start with the efficiency program, actually. We said from the beginning in November that in such a program, when you take white collar people out and target in that, and you improve processes and setups and complexity in the structure, that it takes a few quarters, a couple of quarters to show real in effect. This is the fourth time I do it, and it's the fourth time the same. When you look into the headcount development of the group, you will see that we actually had, in the last few months, more than 800 people out. That's what we do generally, and that was related with the U.S. business, where we go down with one specific old construction business and of course, then letting the people go.
In the efficiency program, the start is that you negotiate, that you look into, that you set it up, the targets, then over the time you calculate that through. When the people left, not when they are informed, when the people left and when they are off the payroll, you show the figures. Based on having white collar people, that takes of course a little bit longer than you have it on blue collar. That's actually the benefit. We are with the progress very much satisfied.
Thank you.
It comes to the end, I have to say when you look anywhere in companies in similar efficiency improvement programs, this is not a cost-cutting program. To make that clear, we decomplex processes, structures, services. With that we let the people go. Otherwise we think we have only a straw fire effect if it's pure cost-cutting and the cost would come back in one or two years. We will not have that. We cancel services. We take things out. They will not happen again. With that we keep then the lower cost level. We look into the order intake, what you said, of course it is difficult to argue in the first spot. When you look into the order intake, what we generated, yes, you are right, it's a run rate over EUR 4.8 billion.
There is some project business in it, roughly 35%-36%, which normally takes a little bit longer to realize into the revenue. It's one part. The other part is don't forget we are serious on letting the business go which is not profitable and not what we want to have in North America, and that will of course lower the top line in revenue when that business is phased out and we don't renew it. You have a effect on one side regarding project business which takes longer, and on the other side, the business in North America, which is unprofitable and what we phase out. Both together give then the picture regarding the, as you would call it, more conservative revenue outlook.
Thank you.
Thanks a lot. Bye now.
Okay. Next question comes from Michael Kuhn, Deutsche Bank.
Yes, good afternoon. A few ones. Maybe starting with the gross margin. There is a reference in the quarterly report that you said the decline is due to the repositioning in the U.S. Can you maybe isolate that effect and give us an idea how the underlying gross margin development in the prior quarter was? Secondly, and that is also regarding the efficiency program. You mentioned that you're satisfied with the progress, and you mentioned that most of the progress should be expected in the second half. Is that really hockey stick-like, or will we see quite some pickup already, maybe in the second and the third quarter?
Lastly, as the CMB is already a couple of weeks back now, do you have any current thoughts on use of financial resources? You're obviously targeting higher profits that will also result in higher available cash. Do you have anything to share on M&A, dividend, et cetera? That would be interesting. Thank you.
Okay, Michael. Maybe I'll give a bit of an elaborated answer here, not just on the U.S. In Europe, gross margin is really on the same level as we had in quarter 1, 2022. On Technologies, same here, or gross margin has stayed on the same level, but with the higher revenue, we made more profits there, as I said earlier. On International, the gross margin last year was around 7% in the first quarter. Now it's 4%. You can see that this is the impact that we have from the phasing out of that business. We have less than 10 contracts that we are nearing completion. They're all between 90% and 100% complete.
That is something that's happening in the first quarter, second quarter of this year. The underutilization is something that we are addressing. As I said earlier, we have released 800 people in the U.S. That's fairly simple. When they're finished, they have 2 weeks notice, and you can time this so that you have no additional cost with you. The revenue is missing to cover then your fixed cost. That is how this sort of goes together and there is the composition there.
On the efficiency program again, I think I explained that the best with a comparison with a cost-cutting program. You announce a cost-cutting program, then you sit together with the respective, let us call them institutions, workers council and so on, based on the country where you are in. Normally you take 1, 2 months, and then you have a cutting target and to lay the people off. The effect when you do that in administrative organizations, is that you get these kind of costs creeping back into your cost base latest after 2 years. If you don't take service out, if you don't decomplex management structure, process, way of working and so on, then you don't do anything else than to increase the labor, the workload on the existing people after the cutting.
The reaction of the organization will be that they start to recruit back or buy the services outside, which means your cost base is coming back. That is exactly what we are not doing. We looked into and we said, and we see that we are too complex built up, that we have too many internal services, admin services, and that is what we cancel and take out. That process is ongoing or close to be completely finished, what has to be stopped and out. With that are people related, and they will then leave the year. Based on white collar and a bigger part in Germany, you have to calculate significant longer lay-off times, termination times, than in the blue-collar area.
If you add that up, such a program shows the biggest improvement in the third and especially at the end of the fourth quarter. That's the reason why we said from the beginning, the run rate of the full effect will be at the end of the year achieved. That's the reason why we are quite satisfied with the progress of the efficiency program. With that, we know that the cost will not come back. Service is canceled, that's it. Regarding the capital allocation, Marty gave on the capital market, he acquired a view on it, what we will do with the money.
Nothing has changed in the first quarter or, you know, in the last, let's say, three months since the Capital Markets Day, which is now three months ago. Funding our growth is the first priority. Second priority is an increasing and growing dividend year after year. Thirdly, if and when there is a good opportunity for M&A, we'll do that, sort of optionally, there would be share buyback, you know. That view has been consistent and nothing has changed there. The first quarter was good from a cash flow perspective, it's a bit early to call the shots and rethink any of this, yeah. That priority set remains in place as we presented it.
On the M&A, to be specific, we said that on the Capital Markets Day too. We don't change our opinions. We are looking for M&A in areas of our core competence. Core competence means in that way we are not interested in business, or technology or competence, what we don't have in-house at all. Why is that the case? Because as we showed with the market development in our core markets and demands from our clients as well, how we performed not only in the order intake in quarter one, we see a huge business in front of us, what we can capture. It is always better, means more profitable, better for the return when you try to capture that in the area where you have your biggest competence. That is what we look in M&A for.
The second thing with M&A is, of course, there's a lot available, but we know exactly what we are willing to pay, and it's the total cost with integration, with everything, which is for us, the guiding principle. Shareholder return, nothing else. If there's only EUR 0.01 difference between the seller and us, we would not go for it. I'm serious in it. The last thing in it is we have a clear target set for the group, what we want to achieve in 2024 with the 5%+ on EBITDA and the 6%-7% in the horizon 3-5 years. That is so important for us, and we think we are on a good way to do that.
Excellent. Thank you. One short follow-up, as that was also mentioned in the SG&A cost, I think there was close to EUR 2 million charge where there had been no provision built before in the context of the efficiency program. In some way, that would qualify as a non-recurring cost, if I got that correctly?
Yes. Michael, that's clear. We have spent some money on outside consultants. That is not something you can put into a provision. This is something that's non-recurring, a non-recurring item.
Great. Thank you.
Okay. Thank you, Michael. Next question comes from Christoph Doleschal, HSBC.
Good afternoon. Thanks. I have a few follow-up questions. The first one is on the tax rate and what was just asked. Is it the EUR 1.9 million non-provisionable item that basically the sort of the tax rate in Q1, and is it fair to assume that the tax rate for the full year is going to be around 27%?
Christoph, no, that's not the case. We have a few countries, among others, Germany and the U.S., where we don't activate tax losses, and that is the reason why we have a higher than usual tax rate.
Okay. Thanks. It will normalize then over the course of the year, right?
Difficult to say. I would say it will normalize over the course of not 1 year, but probably several years.
Mm-hmm.
It really depends on when we can start activating tax losses carry forward.
Okay. Some more, like, say, strategic ones, or another follow-up, first of all, on the order intake and the revenue bridge. Can you basically state your expectations for 23 in basically in H one and in H two part? I mean, I think your order intake was much better than at least the Street expected and probably also yourselves expected. Despite your explanations on why revenue is lower than order intake, with regards to the U.S., are you basically being more cautious on H two than H one? My simple math would have been the, say, extra in order intake that you booked on top of your expectations should probably also be put onto the guidance. Is it because you're more careful on H two?
No matter that we had a good order intake in quarter one, we are not changing our outlook for 2023 on the revenue. It could have been that the larger orders are coming in the second quarter and not in the first quarter. Out of that, I would not overrate the 26% too much. It shows definitely our strong market position. I have to say that. It shows definitely our strong market position. If it comes to the revenue and the revenue recognition, what we saw in the quarter one, which grew with 10% reported quite well too, the mild winter helped there too.
If you have a very strong, cold, long winter, then you have weeks where you are not able to make all the work on the sites as you would like to do, so you can't invoice. This time, we had a mild winter. That, of course, supports then the revenue. Out of both, we see still the maximum of our revenue recognition for 2023 on EUR 4.6 billion and not higher. If we would see a change, maybe then for the year after, we would report it, but we don't. No matter that we're beating consensus in all the areas, it is actually from our point of view, exactly as we expected the quarter one.
Okay. Thanks. Another follow-up on the United States or North American business. If I understood you correctly, the phasing out of the non-profitable business is near completion. You said there's less than 10 contracts and they're like 90% completed. We are approaching the end of it. The problem with that is underutilization. I was wondering what the plans going forward are, or the options, let's put it that way, are. Is it that you're, for the time being, happy with the capacities and say, "Okay, well, we are gonna grow into these capacities again"? Or is there also plans to probably adjust capacities, and what kind of a timeframe are you going to be giving yourself for that?
Yeah. What I can guarantee you is we will not adjust capacity. We will exit that business. We were over a very long period of time not profitable, and we will be not profitable. That's a fact. You as Marty said, we had 800 people leaving the company in North America out of that business already in Q1, and we will go on to do so as the projects are phasing out. It's not a business we have to be in. It's not a business we want to be in. It will be not a business what we will have in the future. The reason for that it takes time, as we actually said, as we calculated into the guidance for the year 2023, this is already in the guidance.
What happens, it has to do with the project business. You have, of course, to finalize the projects before you can exit the business completely. That is what we do. If we have a contract, we fulfill. We expect the same from our clients.
When is it then likely going to be, say, the phase that is complete by when? The last contract with the last people like...
Yeah. We said that by far the majority is done in 2023.
Okay. One last one, because also inflation was in revenue and order intake obviously lower than I think, at least myself and supposedly how I understood the question and the call so far directly is, was lower than we expected. I mean, the main reason, obviously, I think the main inflation element that goes into your into your calculations is probably personal cost. I was wondering your views on personal costs developing beyond 2023. Because 2023, I think everybody has, like, 5%-6%, say, personal cost increases in the numbers. What is your planning for the next couple of years?
Are you looking at similar rates or are you looking at, say, normalized rates then as of 2024, let's say 2% or 3%?
I think it was a very good question. You can imagine as a people company, this was one of our main areas where we look into and forecast how the development is. Not to make it too complex, of course, we have significant wage increase differences between the countries. Significant, which is what you can actually read in the different reports for each country. On the very positive side, we have in most of our contracts escalation clauses in so that we can forward the wage increase towards our clients. Based on the shortage of competent labor in the market, we have more or less no hesitation on the customer side not to be in these discussions and to look that we get a good solution. Why is that actually the case?
The case is that we offer an efficiency competence, an efficiency improvement competence, where we easily can calculate to the client that if we are on the site and doing our job, the advantage on the bottom line for the client is significantly bigger than any inflation, wage inflation development what we have in these different countries. We do that. Happy to say that in that industry part where we are on our way, we have good support from our clients.
Maybe let me add there, the 5%-6% cost increase is in our budget for this year, 2023. 2024 and later, we have assumed a sort of back to normal 2-3, 2-4 percentage points for the time being. To be seen how that develop and evolves.
Perfect. Thanks very much for that. No further questions for the time being.
Mm-hmm.
Thank you. If you would like to pose a question, press star one on your keypad. If you would like to withdraw, press star and two. Any further questions? Okay, I think that's it for today. Don't hesitate to contact the IR team if there are further questions later on. Thank you very much for participating, and we wish you a p
leasant day. Goodbye and talk to you soon.