Ladies and gentlemen, thank you for standing by. Welcome, thank you for joining the Hensoldt AG Full Year Preliminary Results 2022 Analyst Call. Throughout today's recorded presentation, all participants will be in listen only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Veronika Endres, Head of Investor Relations. Please go ahead, madam.
Thank you, Sandra. Good afternoon, everybody, welcome to Hensoldt Full Year 2022 Preliminary Results Call. Thank you all for joining us today. I'm Veronika Endres, Head of Investor Relations at Hensoldt, and with me are our CEO, Thomas Müller, and our CFO, Christian Ladurner. Thomas and Christian will guide you through this presentation today, which is followed as always by a Q&A session. With that, I'd like to hand over to you, Thomas.
Thank you very much, Veronika. Good afternoon, everyone, thanks for joining our earnings call today in which we would like to present our preliminary results for 2022 to you. Exactly one year ago, we were literally on the eve of Russia assault on Ukraine, an event that would lead to deep traces in our societies, in politics, the economy, and all of us personally. Planned by Russia as a three-day campaign to seize Kyiv and overthrow the Ukrainian government, this war has now raged for 364 days and represents a watershed as we have not seen since the end of World War II. I will dive a bit deeper into what this war means to Hensoldt a bit later today. First, I would like to give you a brief overview on our business development and the key strategic milestones that we achieved last year.
Christian will then guide you through our strong financial performance in 2022 and talk about our key focus areas for 2023. As always, following our presentation, we are happy to answer your questions. Now, dear ladies and gentlemen, we have once again fully delivered on our full year 2022 guidance. We highlight our strong revenue performance, where we are up 16% year-over-year. EBITDA grew by a healthy EUR 31 million, once again highlighting our ability to convert our order book of currently EUR 5.4 billion, I repeat, EUR 5.4 billion into profitable business. A cash flow of EUR 290 million allowed us to further deleverage our company to a 1.2x.
I'm proud to say that we have walked the talk and delivered on our promises, laid the foundation for a long-term high growth investment platform even before the German EUR 100 billion special fund starts to materialize. As a result of our strong business performance and the strong tailwind created by new defense environments, we have updated our guidance both for 2023 and the midterm. Christian, our CFO, will talk about this a bit later. Continue on our path to create strong strategic alliances in key technological areas. Our strategic cooperation with tech startup 21strategies will help us to further enhance our already impressive artificial intelligence platform with elements of a Third Wave Artificial Intelligence for the next generation of defense system that will form the backbone of multi-domain operations.
With the appointment of Celia Pelaz as Chief Strategy Officer with responsibility for our entire business development in Germany and worldwide, we have already initiated the generation change in our management team in 2021. Now, in 2022, we continue this process both on the management board and in our executive committee. In addition to Christian Ladurner as Chief Financial Officer and Lars Immisch as our new Chief Human Resources Officer, Chris Ruffner, Head of Spectrum Dominance and Airborne Solutions, Alexander Dahm, Chief Supply Chain Officer, they took over their new positions as members of the executive committee in 2022. They all know their businesses inside out and bring valuable experience for our next growth step. Dealing with ESG is a key strategic issue for us.
After all, as a technology company in the defense industry, our goal is to enable the sustainable development of our societies in peace and freedom. This also includes our original responsibility for an environmentally friendly use of resources. That is why we are pursuing our group-wide ESG strategy very consistently and aim to become the ESG benchmark in the defense industry by 2026. As a further milestone, we have set ourselves a goal of becoming CO2 neutral by 2035. Now back to our orders we received in 2022. We have achieved an order intake of almost EUR 2 billion last year, driving our order backlog to a record level of EUR 5.4 billion.
Of outstanding strategic importance is a contract for around EUR 100 million within the framework of the Future Combat Air System, FCAS, for the development of demonstrators in the four competence fields of radar, reconnaissance, self-protection, electronics, Optronics, and overarching networking of sensor technology. We are thus laying an important foundation stone for Hensoldt's participation in this multi-billion EUR program for the coming decades and once again demonstrating our role as an active shaper of European cooperation. The contracts for Spanish Halcon Eurofighters, as well as the long-term service contract for the German Eurofighter, underline our strong position in these key programs and its long-term business perspective. Our leading position in the area of naval radars is underlined by the order for four TRS-4D radars for the German F126 multipurpose frigates.
Our Optronics business has once again secured an order for additional batches of laser range finders for the M1 Abrams tank in the U.S., providing this platform with improved targeting capabilities. We, Hensoldt, are proud to support the German government with deliveries for Ukraine. One COBRA artillery detection radar was delivered in the third quarter, providing the Ukrainian forces with a high-performance sensor for counter-battery operations. Only a few weeks later, we delivered the first of four TRML-4D high-performance radars for the IRIS-T SLM air defense system to Ukraine in the record time. Our employees ensured this with greater commitment and particularly close cooperation across all areas, an excellent example of the agile entrepreneurial spirit that has always distinguished us as Hensoldt.
Today, our radar protects the population of Ukraine so effectively against Russian missile and drone attacks that the Ukrainian government ordered two more TRML-4D from us at the beginning of 2023. There are a couple of them which are still in the pipeline. Ladies and gentlemen, we ramped up our production to the series production, and we will deliver very quickly. In addition, the TRML-4D, also in combination with our innovative Twinvis passive radar, will be an important component of the European Sky Shield Initiative launched by Chancellor Scholz and will set new standards for high-performance sensor technology in mid-range air defense. In order to shorten delivery times for our customers, we are moving ahead and decided to produce a batch of 30 TRML-4D radars, which is a quantum leap that clearly demonstrates the new relevance of our industry.
The Leopard main battle tanks that will be delivered by Germany and other nations to Ukraine are equipped with Hensoldt Optronics technology that provides the tank crew with superior situational awareness. Now, dear ladies and gentlemen, we consistently implement our corporate strategy and have done so particularly intensively in the past year with a view to the well-known Zeitenwende. We are on the right track and will implement our strategy even faster in the future. The core of our DNA is and remains the development of state-of-the-art sensor and protection technologies for the defense systems of tomorrow. In doing so, we are increasingly linking our deep understanding of our customers' application scenarios and the enormous amounts of data generated by our sensors with the comprehensive competencies in the areas of artificial intelligence and data analysis, as well as further digitalization of our sensor technologies.
On this basis, we are intensively driving forward our development into system provider. This allows us to offer our customers integrated total solutions, expand our presence on different platforms, and make our business model even more robust, absolutely still staying platform agnostic and taking benefit of the lessons learned of the Ukrainian conflict. Geographically, Russia's war against Ukraine is bringing our home market in Europe back into focus. Of course, we will take advantage of the opportunities that are now available in Europe. At the same time, we want to further expand our international presence beyond that. Improving operational efficiency remains key, and I would like to hand over to Christian to present two of our key projects in this area.
Thank you, Thomas, and a warm welcome also from my side to our results call today. For us at Hensoldt, cost and process efficiency has always played an important role. However, we will not rest on this going forward. Therefore, I'm pleased to explain a little bit more in detail how we will further increase our operational efficiency. I want to highlight two important pillars which will help us to handle the growth ahead of us. Those of you follow us for a longer time might know our efficiency program, HENSOLDT GO! After we successfully implemented wave one with making our organization independent from Airbus after the carve-out, and wave two, which aimed at optimizing the Hensoldt end-to-end organization, we will now enter into the next phase of HENSOLDT GO! For the third wave that just started now, we have developed three focus areas to work on.
First of all, we will intend the successful first two waves of HENSOLDT GO!, which focused on our major business in Germany, to all geographic regions in which we are active and thus optimize our organization end to end. On top, we will focus strongly on supply chain robustness as well as further increasing our inflation resilience. Last but not least, we will work on further efficiency gains, especially when it comes to engineering, overheads, and working capital. The second important pillar of how we handle the growth is the rollout of a harmonized ERP system based on S/4HANA. This will provide us with significant advantages in data management, analytical capability, and business insights, and will allow us to handle next growth wave smoothly and most efficiently across all our regions.
As a result, we are moving to a real end-to-end process focus and let the data flow through the entire organization independent of functional silos. This enables us to get the right information to the right person at the right time. I am personally excited about this project, which will turn Hensoldt into a real-time company. The ramp-up phase for this project, called OneERPnow, has just started at the beginning of this year with a dedicated project team. We are fully aware that this is not a simple rollout process, and we will do everything to de-risk the expenditure side. Our plan is to follow a phased approach and distribute costs and workload over the next five years. Until mid of 2024, we want to finalize the global template which standardizes all processes.
By end of 2024, One ERPn ow is scheduled to go live at our first entity as a pilot. Subsequently, we aim to fully migrate all entities in two waves and expect the rollout process to be completed until mid of 2027. We are absolutely convinced that the implementation of One ERPn ow will bring sustainable efficiency gains across our entire organization and will support our strong growth outlook. With this, I would like to hand back to you, Thomas.
Thanks, Christian. Dear ladies and gentlemen, Russia started its invasion of Ukraine one year ago. This event is only the most recent, yet undoubtedly the most traumatic event in a much bigger trend. That led us to the new security world disorder of today. It is difficult to predict how Russia's war against Ukraine will continue. Nobody really know how it will end. Since already a couple of weeks, we see renewed attempt of Russia to seize the Donbas in a war of attrition. So far, with very limited success. At the same time, the West has shown impressive resolve and commitment to support Ukraine. I'm quite confident that once again, our economic power, combined with bravery and resilience of the Ukrainian people, will tip the scales in the right direction. At the same time, the West has shown impressive resolve. We must not underestimate Russia.
It's very important, I will repeat this. We must not underestimate Russia. Despite sanctions, the biggest Russian tank factory can produce at least 20 new main battle tanks every month. The European nations are facing two major challenges. Firstly, to ensure the ongoing support of Ukraine, and secondly, to strengthen or even rebuild their own armed forces. To counter the Russian onslaught, Ukraine is using up more ammunition and equipment than the West can currently produce. A fact that NATO General Secretary Stoltenberg emphasized in a recent speech. This means that defense production needs to be increased dramatically and quickly. At the same time, German Chancellor Olaf Scholz warned the Bundeswehr to become the most modern and powerful army in Europe.
To achieve this goal, we need to close all the capability gaps that have existed for a long time, and the systematic underfunding of defense in Germany and manage for increasing commitments towards NATO. For us at Hensoldt, this environment will create significant business opportunities. The special fund of EUR 100 billion in Germany will lead to a significant dynamic in order intake in the next three to four years. Hensoldt will benefit from significant changes in the operational doctrine of the armed forces, as well as from key technological developments.
The ability to quickly create a comprehensive situation picture, to distribute this information in a network of sensors and effectors in a way that is appropriate to the mission, the mastery of the electromagnetic spectrum, we are perfectly positioned with our portfolio for all these tasks that are in high demand in the battlefield, which is in front of us. On the projects of the special fund and the upgrading of the Bundeswehr, we have defined clear priorities that we are vigorously pursuing. These include, for example, the digitalization of the land forces, the capabilities of the Eurofighter in electronic combat, and the sender updates for surface and underwater platforms. We at Hensoldt will benefit significantly in the coming years from the combination of increasing defense budgets and the growing trend towards networked intelligent systems, which offers above-average structural growth prospects for the defense electronics market segment.
We have listed a number of key projects for 2023 on this slide. Christian will talk about our raised short- and medium-term guidance, where we set ourselves an even more ambitious agenda for the development of our key figures. Today it is paying off that with Hensoldt we have created a long-term growth platform with excellent and easily plannable entrepreneurial prospects. We will vigorously develop this further in order to continuously expand our market position. Because our intention with regard to the foreseeable consolidation of the European defense industry remains unchanged. Hensoldt should play an active role in this and drive the consolidation from a position of strength. Thank you very much. With this, I hand over to Christian.
Yeah. Once again, thank you, Thomas. I am happy to provide you now with the details on our preliminary financials for the full year 2022. I'm very proud of what we have achieved with all our colleagues in the last year. We again were able to realize an excellent performance of our top line in 2022. Order intake showed a strong development with orders summing up to almost EUR 2 billion. This results in a book-to-bill ratio of 1.2 x and hence fully in line with our substantiate guidance for 2022. The strong performance was driven by all divisions, with key orders booked for the Eurofighter contract three support, the F126 frigate, the Spanish Eurofighter Halcon, the sensor demonstrator phase I-B for FCAS, as well as the laser range finders for the M1 Abrams tanks.
As a reminder, last year's orders included the exceptional PEGASUS contract with a volume of EUR 1.25 billion. Our excellent revenue performance is reflected in an increase of 16% to EUR 1.7 billion, which is also absolutely in line with our guidance. This development was driven by the Sensors segment, most notably, of course, due to the key programs and the achievement of major milestones. Also our baseline business showed sustainable and structural growth as well. All this, again, is reflected in a very strong order backlog. At the end of this year, 2022, our order backlog summed up to more than EUR 5.3 billion. This covers more than 3x of our revenue for 2022 and therefore continues to provide us with an excellent revenue visibility.
We did not only grow on our top line, we also delivered on profitability and cash flow. Adjusted EBITDA increased by 12% to EUR 292 million and is thus well in line with our guidance. The increase in Adjusted EBITDA was driven by higher volumes and a favorable product mix, partly offset by higher passthrough revenues. We continued to invest in R&D and bid budgets to ensure further future growth. Excluding the passthrough revenue, our Adjusted EBITDA margin improved to 20.4% and is therefore slightly above prior year's level. Adjusted EBIT grew as well nicely by 13% to EUR 224 million, resulting in a margin before passthrough revenue of 15.7%. The cash flow generation from operating activities was also very strong in 2022.
Supported by the achievement of major milestones in our key projects, the adjusted pre-tax and levered free cash flow reached EUR 219 million. Despite the higher volume of our major projects and the continued investments in working capital to support the upcoming growth, the cash conversion amounted to more than 75% of adjusted net EBITDA, and therefore exceeded our guidance of 70%. This performance further improved our leverage position. Let's have a brief look at our segments. In the Sensors segment, we again realized a strong order intake. The biggest contracts relate to the beforementioned C3 Eurofighter support contract, radars for the F126 frigate, radars and self-protection systems for the Spanish Eurofighter Halcon, as well as the contract for the FCAS sensor demonstrator phase one B.
In total, orders in this segment summed up to more than EUR 1.6 billion. Please remind that last year's orders included the PEGASUS contract. Revenue in the Sensors segment increased by 22% to EUR 1 billion. Main drivers were the key programs Eurofighter, ECRS Mk1, and PEGASUS, as well as our baseline business, which developed very well too. The Adjusted EBITDA of the Sensors segment increased by 20% to EUR 233 million. This development was driven by the increase in revenue and a favorable product mix. In the Optronics segment, we were able to book our expected order intake. Main drivers were the orders for the laser range finders of the M1 Abrams tank, periscopes and optical mast systems for the Ula-class submarines, as well as our high-performance optics, FFM.
Revenue was at EUR 310 million, again driven by our FFM business, optronic mast systems for submarines, as well as the M1 Abrams laser rangefinders. Due to temporary supply chain shortages already indicated in 9M, revenue could partly not be realized in 2022 and were shifted to 2023. We see a slight decrease compared to last year. Adjusted EBITDA Optronics amounted to EUR 59 million and was accordingly impacted by the lower sales volume due to the temporary supply chain shortages, as well as ramp-up of production and new business. For 2023, we expect the Optronics segment to recover and expect a strong performance in all KPIs. In terms of deleveraging, we are on track as well. Following the strong cash generation in 2022, we were able to continue to reduce our net debt.
In addition, we fully repaid our recurring credit facility. Due to the hedging of the three-month Euribor, we also have a high visibility of financing costs despite the ongoing interest rate hikes. In total, net debt decreased by almost EUR 90 million- EUR 336 million compared to last year's figure. In combination with our strong EBITDA performance, we could improve net leverage to 1.2x , and therefore beat our leverage guidance of 1.4x . What does this now mean for our dividend proposal? We have guided a payout ratio of up to 20% of the adjusted net income 2022. Due to the excellent business developments, the management board intends to propose a dividend per share of EUR 0.30 to the supervisory board and the AGM.
This corresponds to around 25% of the adjusted net income 2022. Let me now present our updated guidance that we introduced already at the Capital Markets Day in December 2022, starting with our guidance for 2023. In the book-to-bill, we expect the first orders from the German special fund and the increased budgets to come in 2023, resulting in faster growth in order intake than before. As a result, we expect the book-to-bill between 1.1x and 1.2 x. Revenue. We expect revenue to grow between 7%-10%. What is really important here, the quality of our revenue will improve. This will be the result of a stronger growth in core revenue and a smaller share in passthrough sales than in the years before.
For Adjusted EBITDA margin, we continue to expect an Adjusted EBITDA margin of around 19% before passthrough. For the pre-tax and levered free cash flow, we expect around 70% cash conversion, resulting in a further decline in net leverage to lower than one. The dividend payout ratio will be between 30% and 40% of adjusted net income. To sum it up, in 2023, we expect the budget increase, especially from Germany, to result in faster growth in order intake as well as a higher quality growth through a stronger increase in core revenues. We are absolutely convinced of the sustainable decade-long growth potential that lies ahead of Hensoldt. This is reflected in our updated medium-term guidance until 2025. Here I want to highlight two items specifically.
Firstly, we expect a continuously high order intake over the next years, with orders to grow significantly faster than revenues. As a result, we see an annual organic revenue growth of 10% on average for the medium term. Secondly, we expect the Adjusted EBITDA margin to stay above 19% before passthrough revenues. To secure this, we will continue have a strong focus on cost management. As a result, we expect reported margins to come up as the share of passthrough comes down. Together with strict working capital discipline, we will generate an average cash conversion of 70%-80%, so that we will be in the position to pay out 30%-40% of our adjusted net income to our shareholders while maintaining a conservative financial profile. Let me also touch on another important question: What we will do with our capital?
Very clearly, our first priority is to fund and prepare for the upcoming growth. This means, above all, investments in our workforce, in our technology, and in our IT systems, and to a lesser extent, to upgrading our factories, as these are not so much the limiting factors for expanding our capacity. Second, we want our shareholders to participate in our growth, dividends are our priority number two. We will ensure this with a dividend payout ratio of 30%- 40% of adjustment income for 2023 and the medium term as presented earlier. Third, we will continue to participate in M&A to strengthen our strategic pillars where we can. As Thomas mentioned, we are in a strong position to drive the consolidation Europe and to pursue value accretive M&A. Coming to a conclusion, let me mention the following key financial takeaways.
In terms of visibility, we see strong order intake driven by all divisions. High revenue coverage from our order backlog with a ratio of 3.1x in relation to our full year 2022 revenue and great revenue visibility for the years to come. Our strong top line growth of +16% in revenue terms reflects again an excellent conversion from order book to revenue. Profitability stays on high level, allowing us to generate high positive net incomes and further invest sustainably in bid budgets and R&D. Liquidity of the company is in excellent shape, reflected by a strong operating cash generation and our deleveraging, which develops even better than planned. Our outlook remains promising since we are strongly positioned for the upcoming growth.
Our guidance for 2023 and midterm is updated for top and bottom line, we confirm our dividend policy and will propose a dividend of EUR 0.30 per share. Now we are happy to take your questions.
Ladies and gentlemen, at this time we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you are using speaker equipment today, please lift your handsets before making your selection. Anyone with a question may press star and one at this time. The first question comes from Christophe Ménard from Deutsche Bank. Please go ahead.
Yes, good afternoon. Thank you for taking my question. I had a few questions. The first one is on the ERP system or the ERP program. You said you want to go live by 2024. Should we assume that the cost of implementing this is reflected in your Adjusted EBITDA margin around 19% pre-passthrough? Is it the reason why we should have a level below what we have in 2022? That's the first question. Second question is in terms of the program updates, some programs like the Eurofighter ECR, we haven't heard from it recently. Could you update us on the potential for Eurofighter orders in Germany and when you could see them coming through? Is it more 2024?
The last question is on F-35, and namely, whether we've seen some of your competitors active or getting some contracts on F-35. Is it something that you could be eligible for in the foreseeable future?
Hi, Christophe. Many thanks for your question. First on the ERP. The picture we have drawn in the capital market day that is, that we invest around EUR 100 million-EUR 120 million around the next five years, and 65% of them will be capitalized. This contains of the implementation costs. This will be an adjustment item in the one-offs, and you should assume in your models, a single million digit from next year onwards in EBITDA, and one-offs. The driver for the 19% we see currently, in our margins going ahead is, margin mix. We had this year, as mentioned in the call, a very beneficial, margin mix. Maybe you remember we have 1,800 projects in our business.
Sometimes it appears that margins get better out of programs, and sometimes there is a slight deviation. This is the reason for the margin development and the structure of the ERP.
Yeah. Thanks, Christian. The second and third part of your question, we at Hensoldt will definitely be part of the Eurofighter ECR replacement in whatever form. Because if you only take the radar systems will be with us, we will certainly play a significant role in the, as we said, in the electronic warfare systems in whatever area. Can be all, can be part of it, we will definitely participate in this. We'll also build the more offensive part
In our electronic warfare airborne systems, you know that the PEGASUS is more listening part. Yes, we will see some very good developments there. For the F-35, you referred to the recent orders Rheinmetall took on the hull of the F-35. We are more interested in the electronics of the F-35. Even if we can't build them because there is a big community already building the F-35s, we are talking to Lockheed, we are talking to the German government on a lot of maintenance. Remember, in all the American platforms, which have flown in the past in Germany, the predecessors of Hensoldt have been part of the management systems, and especially the maintenance of the electronics, which we are very much looking for.
You know, this is one of our best margin businesses. Yes, interesting for us.
Okay. Thank you very much for the call.
Welcome.
The next question comes from Sash Tusa from Agency Partners. Please go ahead.
Thank you very much indeed. Good afternoon. I've got three questions. The first one is just about the cash flow in the fourth quarter. This is almost certainly a problem of my forecast rather than anything else, but it seems to me the cash flow slowed down a bit. I wondered whether having had a very good Q3 for cash flow, there was just an issue of sort of timing differences between the two quarters there. Then the next question, I just wondered if you could talk a bit more about the shortages or in the supply chain for Optronics. Broadly, what issues or what components you're seeing shortages in and why those should be resolved relatively soon.
Finally, you're talking about producing a batch of up to 30 TRML-4D radars, which personally I think is an incredibly good idea. I wonder if you could just talk about what the likely working capital cost would be and over what period. Thank you.
Hi, Sash. Thank you for your questions. In terms of cash flow, it's just a topic of timings. I think we are in a project business that from time to time it appears that milestones go from one quarter to the other. In total, when I look at the figures, we are totally in line with our guidance for the full year. Understanding our cash profile is that our Q4 is the strongest in the year. With our outlook process, we are very comfortable in this regard. Supply chain and Optronics. First of all, we have to say that the Optronics business is much more short cycle business than the Sensors topic, and we depend a little bit on the semiconductors crisis in this area.
This is fact, and we talk about a low double-digit million amount of revenues we could not do. There are two good news. The one is that it's really temporary because in the meantime, we received the respective parts for this, for these revenues to be done, and we will catch up this in 2023. As I mentioned already a few times, supply chain is a topic of all industries and also affects our industry. The good news is that it's very limited in our, in our industry, in our business. We will monitor this, of course, also, in the future. The third question to TRML-4D. Yes, we will invest in our working capital.
I personally estimate a mid-single million amount in working capital we will need for that. It's incorporated in our plans. I see no impact on the cash conversion for 2023 and going on.
Thank you. Sorry, 'cause my line went down there. A mid-single digit millions amount.
Yeah.
You, you think?
Yeah.
Great. Thank you very much indeed.
That is. Yeah. You're welcome. We will sell these TRML-4Ds very quickly, Sash.
I'm sure you will.
The next question comes from Christian Cohrs from Warburg Research. Please go ahead.
Yes, thanks for taking my questions. First of all, maybe coming back to Germany and the Zeitenwende you mentioned. Back in December when we met in London at the Capital Markets Day, there were many discussions about the slow, very slow procurement processes of German authorities despite the Zeitenwende. Now, meantime, also at the political head of the ministry has changed. Have you noticed already any signs of acceleration that this procurement will actually, yeah, speed up? Second question, coming back to cash generation and cash flow. In H1 last year, we discussed about the possibility of more regular milestone payments in order to prevent the sharp working capital swings, but also to take a buffer for the pre-financing needs of the defense industry dealing with the ramp up.
Has there been any progress so far? Can we assume for Hensoldt that the cash flow profile will be a bit more balanced. A technical question in Q4, net financial expense appears a bit extraordinary high. Maybe you can shed some color on that. Lastly, looking at your 2023 guidance, how much of the business and the revenues are already in your books? Thank you.
Thank you, Christian, for your question.
Bank of America.
Sorry.
Sorry, sir.
Could you answer, quick?
Yeah, sure. Please.
We are going to answer the question. Very quickly, thanks for your question concerning the slow procurement process. I think we have to simply acknowledge that after 30 years of peace dividend, the authorities needed some time to speed up. What I can clearly say, especially after the new Defense Minister took over, the preparations are now very, very mature, and we will see a big number, the biggest number ever of proposals to the German Parliament. You know, the EUR 25 million budgetary approvals, which will go now to the Parliament, and we will see a significant speed up in orders in the next couple of months, half a year. We have this update from the Ministry of Defense itself.
You know that we had the Munich Security Conference during the last weekend, and we had the ability to talk to the relevant people there. We are very much looking forward for this very speeded up processes which are going into force now. Okay. Christian. Hi, Christian. Thank you for your question. Cash generating or just cash generation H1. Of course, we are in a project business, so we here rely on milestones. Topic is that we simply focus more and more on the milestones. In H1, I mentioned that we expect some very important milestones out of PEGASUS, which we could then make in Q4. This was very good. In terms of buffering and progressing with advanced payments, I think this is still a topic which we address every week.
Unfortunately, I have to say that there's no progress currently. As Thomas mentioned, we see from the Chancellor and also from the Ministry of Defense, Mr. Pistorius now real step to the industry, how to really come to industrial structures that are stronger than before. For us, still, advanced payments is a very good instrument for that because we as Hensoldt or other OEMs in Germany, they can also afford to go in pre-investments. In order to have dynamic in the whole supply chain, also for second and third tier suppliers, we have to, from my point of view, come to a change here in advanced payments. Currently, I have to say, no change. What does this mean?
We, in our working capital profile, we are in half year at a minus of EUR 100 million-EUR 150 million. Going forward, I see this pattern still ongoing. With the growth we have in front of us, I personally expect working capital needs at the peak of H1 in the next years of EUR 150 million-EUR 200 million. Knowing very well that we have over EUR 400 million cash on balance sheet, we were very prepared to it. I also mentioned that the priority number one is to fund our growth, what we will do. Yeah, in terms of extraordinary expense in the last quarter, there were three of them. One, of course, is HENSOLDT GO! We've mentioned that we will intensify this program.
Second was that there was a minor amount of S4 which already started. We mentioned that there was some one-offs of the long-term success and plan of the management that we are also smaller one-offs in our figures. There was a question of 2023 guidance. I do not remember what are you referring to in the guidance?
Well, simply, well, you have a well-set order book. How much of or what is the percentage of revenues you have already very firm visibility on?
Covered. Yeah. We mentioned the capital market day that this was 85%. When I take the 70% of firm orders and 15% short cycle, we are currently in a figure of around 90%. We are well covered with our revenue guidance.
Thank you very much.
You're welcome.
The next question comes from Ben Heelan from Bank of America. Please go ahead.
Yes. Morning, afternoon, actually. Thank you for the question. I had a kind of higher level one on M&A, the leverage to see you're talking about getting it below 1x. That's, you know, it's come down a lot since the IPO in a pretty strong position now you've very strong growth, so that de-levering profile is gonna continue. Is there M&A on the horizon that we can expect in 2023 and 2024? What areas are you looking at? If not, what do you see as a longer-term sustainable leverage target for the group? Thank you.
Hi, Ben. Thank you for your question. I think there are three ways in terms of M&A we think. The one is, as Thomas mentioned, artificial intelligence, and cybersecurity sensors fusion in this field, we will be furthermore active. These are topics we can really fund out of our cash we have on balance sheet. There will be, I think, some activities we have in the pipeline, but not to a very, I would say, outstanding amount. We do not expect now short-termly bigger M&As. The second one is, of course, geography, where we see ourselves good positioned in very interesting geographic regions, and here we always see all options on the table, but also here I see no bigger M&As short-term now in 2023.
To be very honest with you, if we plan a really material M&A, then we will inform the capital markets very early on that. The second question, what is, what is a leverage I personally feel comfortable? When we now look at the companies on stock market, I personally see a leverage until two times as comfortable. This will mean, then when we go for 2023, 2024 to up to a leverage of two, that there is a certain amount of firepower we have, even if we then enrich it with some equity instruments, which are we allowed to do, then we would have enough firepower in order to realize, a very big M&A.
As I said, currently, of course we're monitoring the pipeline, but there is no big M&A in or on short-term on the horizon.
Okay, great. Thank you.
The last question for today's call comes from Mr. Poulain from Kepler. Please go ahead.
Yes, good afternoon. I've got three questions, please. The first one is on the pass-through sales for 2023. I think you had a stronger level of pass-through sale in 2022. Do you have an idea of how much we should budget for 2023? That's the first question. The second question is on the borrowing cost and the evolution. You're obviously deleveraging quite fast, but interest rates are going up. What's your current average borrowing cost? Is that possible to determine? Also on that, do you still use factoring as a financing tool? If so, what's the amount you had recourse to in 2022?
On the EBITDA margin you achieved pre-passthrough in 2022, you mentioned mix as a booster. What was the actual product that produced that significant bit on the pre-passthrough margin? As we move forward, do you see such a margin possibly in the future? That will be my questions. Thank you.
Hi, Aymeric. First of all, regarding passthrough, it will be in 2023, much lower than in 2022. We expect a mid-single digit percentage of our guided revenues 2023. In terms of interest rates, yeah, I can very precisely say that because we've hedged our margins in this respect. You know maybe that the interest we pay for our debt is of two components. One is the margin ratchet, which is now at the lower end, and the second one is the three-month Euribor. For your modeling, you should take into account interest rate of around 4.5% of our debt, and then you are in good shape for your model.
Regarding factoring, it's still a very good financing instrument for us because interests are still very low, we pay for that. You should assume that we have a figure of around EUR 50 million-EUR 60 million in our books on a constant level, so from quarter- to- quarter. Regarding products, there were some especially in the radar division, and we've mentioned a few of them also in the call. We have seen last year in 2022 a few topics in the radar division and also in the service division, which were really very favorable margins. Going forward, we'll monitor and keep you updated on that.
Great. Thank you.
Welcome.
There are no further questions at this time. I would like to turn the conference back over to Veronika Endres for any closing comments.
Yeah. Thank you all for listening today. As always, should you have any further questions, the Investor Relations team is around all day to follow up. Have a great day. Thank you and goodbye.
Ladies and gentlemen, the conference is now concluded and you may now disconnect your telephone. Thank you for joining and have a pleasant day. Goodbye.