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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good afternoon, everybody, and welcome to Hensoldt's Full Year 2022 Preliminary Results Call. Thank you all for joining us today. I'm Veronika Endres, Head of Investor Relations at handhold. 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.
And with that, I'd like to turn it over to you, Thomas.
Thank you very much, Veronika. Good afternoon, everyone, and 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 [threats] in our societies in politics, the economy and all of us personally. Plans by Russia as a three-day campaign to seize Kiev 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 2.
I will dive a bit deeper into what this war means to HENSOLDT a bit later today. But first, I would like to give you a brief overview on our business development and the key strategic milestones that we achieved from last year. Christian will then guide you through our strong financial performance in 2022 and talk about our key focus areas for 2023. And 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-on-year. EBITDA grew by a healthy €31 million, once again, highlighting our ability to convert our order book of currently €5.4 billion, I repeat, €5.4 billion into profitable business.
A cash flow of €290 million allowed us to further deleverage our company to 1.2x. I'm proud to say that we have walked the talk and delivered on our promises, led the foundation for a long-term high-growth investment platform, even before the German €100 billion special funds starts to materialize.
As a result of our strong business performance and the strong tailwind created by new defense environment, we have updated our guidance both for 2023 and the midterm. And 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, should 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 which 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 & 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 technological 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 almost €2 billion last year, driving our order backlog to a record level of €5.4 billion. Of outstanding strategic importance, it is a contract for around €100 million with a framework within the framework of the Future Combat Air System, FCAS, for the development of demonstrators in the core competence fields of radar, reconnaissance, self-protection, electronics, optronics and overarching networking of sensor technology. [It thus] has lain an important foundation stone for HENSOLDT's participation in this multibillion euro program for the coming decades and once again demonstrating our role as an active [member] of European corporations.
The contracts for Spanish Halcon Eurofighters as well as a long-term service contract for the German Eurofighter underline our strong position in these key programs and this long-term business perspective.
Our leading position in the area of naval radars is underlined by the order for 4 TRS-4D radars for the German F126 multipurpose frigates. And 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 4 TRML-4D high-performance radars for IRIS-T SLM Air Defense System to Ukraine in the record time. Our employees ensured this was great commitment and particularly close cooperation across all areas, an excellent example of agile entrepreneurial spirit that has always distinguished us as HENSOLDT.
Today, our radar protects the population of Ukraine so effectively against Russian missiles and drone attacks that the Ukrainian government ordered TRML-4Ds from us at the beginning of 2023, and there are a couple of them which are still in the pipeline. And 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 as we set new standards for high-performance sensor technology in midrange air defense.
In order to shorten delivery times for our customers, we are moving ahead and have 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 [arced] with HENSOLDT optronics technology that provides a tank through the 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 [titan] vendor. 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, sensors with a comprehensive competencies in the areas of artificial intelligence and data analysis as well as a further digitalization of our sensor technology.
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 2 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 2 important pillars, which will help us to handle the growth ahead of us.
Those of you follow us for a longer time know our efficiency program HENSOLDT GO! After we successfully implemented Wave 1, with making our organization independent from Airbus after the carve-out and Wave 2 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 3 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 the supply chain robustness as well as further increasing our inflation resilience. And 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'm 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 derisk the expenditure side. Our plan is to follow a phased approach and distribute costs and workload over the next 5 years. Until mid of 2024, we want to finalize the global template, which standardizes all processes. By end of 2024, OneERPnow is scheduled to go live at our first entity as a pilot.
Subsequently, we aim to fully migrate all entities in 2 waves and expect the rollout process to be completed until mid of 2027. We are absolutely convinced that the implementation of OneERPnow will bring sustainable efficiency gains across our entire organization and will support our strong growth outlook.
And with this, I would like to hand back to you, Thomas.
Thanks, Christian. Dear, ladies and gentlemen, Russia started its innovation of Ukraine 1 year ago. This event is only the most recent yet undoubtedly, the most dramatic event in a much bigger trend. It led us to the new security world disorder of today. It is difficult to predict how Russia's war against Ukraine will continue, and nobody really knows how it will end. Since already a couple of weeks, we see renewed attempt of Russia to seize The Donbas in the war of attrition so far with very limited success.
At the same time, the West has shown impressive resolve and commitment to support Ukraine, and 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 -- sorry, yet we must not underestimate Russia. It's very important I will repeat this. Yet 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 want 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 for NATO. For us at HENSOLDT, this environment will create significant business opportunities. The special fund of €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 project 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 Eurofighters in electronic convert and the sensor updates for surface and underwater platforms.
We at HENSOLDT will benefit significantly in the coming years on the combination of increasing defense budgets and the growing trend towards network intelligence 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.
Because 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. Also 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. And with this, I hand over to Christian.
Yes, 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 €2 billion. This results in a book-to-bill ratio of 1.2x and hence, fully in line with our substantial guidance for 2022.
The strong performance was driven by all divisions with key orders booked for the Eurofighter contract fee support, the F126 frigate, the Spanish Eurofighter Halcon, the sensor demonstrated Phase 1B 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 €1.25 billion.
Our excellent revenue performance is reflected in an increase of 16% to €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. But 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 €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 €292 million and is thus well in line with our guidance. The increase in adjusted EBITDA was driven by higher volumes and the favorable product mix, partly offset by higher pass-through revenues.
In addition, we continued to invest in R&D and big budgets to ensure further future growth. Excluding the pass-through 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 €224 million, resulting in a margin before pass-through 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 pretax and levered free cash flow reached €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 EBITDA and therefore, exceeded our guidance of 70%. This performance further improved our leverage position.
Now let's have a brief look at our segments. In the Sensors segment, we again realized a strong order intake. The biggest contracts related to the before mentioned 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 demonstrated Phase 1B. In total, orders in this segment summed up to more than €1.6 billion. Again, please remind (sic) [remember] that last year's orders included the PEGASUS contract.
Revenue in the Sensors segment increased by 20% -- 22%, sorry, to €1 billion (sic) [€1.4 billion]. Main drivers were the key programs, Eurofighter Captor 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 €233 million. This development was driven by the increase in revenue and a favorable product mix. Also 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 mask systems for the DAKAR class submarines as well as our high-performance optics, FFM.
Revenue was at €310 million, again driven by our FFM business optronics mass 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. Therefore, we see a slight decrease compared to last year. Adjusted EBITDA at Optronics amounted to €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 3 months EURIBOR, we also have a high visibility of financing costs despite the ongoing interest rate hikes. In total, net debt decreased by almost €90 million to €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 development, the Management Board intends to propose a dividend per share of €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 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 1.2x.
Revenue, we expect revenue to grow between 7% to 10%. And 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 pass-through sales than in the years before. For adjusted EBITDA margin, we continue to expect an adjusted EBITDA margin of around 19% before pass-through. For the pretax unlevered free cash flow, we expect around 70% cash conversion, resulting in a further decline in net leverage to lower than 1. And the dividend payout ratio will be between 30% and 40% of adjusted net income.
So 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 with a strong increase in core revenues. We are absolutely convinced of the sustainable decade-loan growth potential that lies ahead of HENSOLDT. This is reflected in our updated medium-term guidance until 2025.
And 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 in 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 pass-through revenues. To secure this, we will continue to have a strong focus on cost management. As a result, we expect reported margins to come up as the share of pass-through comes down.
Together with strict working capital discipline, we will generate an average cash conversion of 70% to 80% so that we will be in the position to pay out 30% to 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. So dividends are our priority number two. We will ensure this with a dividend payout ratio of 30% to 40% of adjusted net income for 2023 in the medium term, as presented earlier. And 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 in Europe and to pursue value-accretive M&A.
So 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 plus 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 income and further invest sustainably in bit budgets in 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 in midterm is updated for top and bottom line and we confirm our dividend policy and will propose a dividend of €0.30 per share.
And now we are happy to take your questions.
[Operator Instructions] The first question comes from Christophe Menard from Deutsche Bank.
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-pass through? 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 update, some programs like the Eurofighter ECR is -- 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? Or is it more 2024? And the last question is on F-35 and namely whether the -- we see some of your competitors or getting some contracts on F-35. Is it something that you could be eligible for in the foreseeable future?
Christophe, so many thanks for your question. So first, on the European. So the picture we have drawn in the Capital Market Day that is that we invest around €100 million to €120 million around the next 5 years and 65% of them will be capitalized. So -- and this contains of the implementation costs. This will be an adjustment item in the one-offs. And I -- 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.
So we had this year, as mentioned in the call, a very beneficial margin mix. And maybe remember, we have 1,800 projects in our business. And sometimes, it appears that margins get better out of programs and sometimes there is a slight deviation but this is the reason for the margin development and the structure of the ERP.
Yes. Thanks, Christian. So the second and third part of your question, we at HENSOLDT, we'll definitely be part of the Eurofighter ECR replacements in whatever form because if you only take the radar systems with us. And we will certainly play a significant role in the -- as we said, in the electronic warfare systems in whatever area. So it can be all can be part of it, but we will definitely participate in this. And we'll also build the more offensive part in our electronic warfare airborne systems and you know that the PEGASUS is more listening part. So yes, we will see some very good developments there.
Now for the F-35, you recently -- 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. And even if you can't build them because there is a big community already building the F-35, we are talking to Lockheed and we are talking to the German government on a lot of maintenance.
And remember, in all the American platforms, which have flown in the past in Germany, the predecessors of HENSOLDT have been part of the manager of the management systems and especially the maintenance of the electronics, which we are very much looking forward. This is one of our best margin businesses. So yes, interesting for us.
The next question comes from Sash Tusa from Agency Partners.
Thank you very much. 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 around many else, but it seems to me the cash flow slowed down a bit. And 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?
And then the next question, I just wondered if you could talk a bit more about the shortages 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?
And then finally, you're talking about producing a batch of up to 30 TRML-4D radars, which personally I think is an incredibly good idea. But I'm wondering if you could just talk about what the likely working capital cost would be and over what period?
Yes, thank you for your questions. So in terms of cash flow, it's -- it's just a topic of timing. I think we are an appropriate business that from time to time, it appears that milestones go from one quarter to the other. But in total, when I look at the figures, we are totally in line with our guidance for the full year. But 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.
Yes, Supply Chain and Optronics. So 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. So this is a fact, and we talk about a low double-digit million amount of revenues we could not do.
But there are two good news. The one is that is really temporary because in the meantime we received the respective parts for these revenues to be done, and we will catch up this in 2023. But as I mentioned already a few times, the supply chain is a topic of all industries and also affects our industry. The good news is that it's very limited in our industry, in our business, but we will monitor this, of course, also in the future.
And then the third question to TRML-4D. Yes, we will invest in our working capital. I personally estimate mid-single million amount in working capital we will meet for that, but it's incorporated in our plans. And so I see no impact on the cash conversion for 2023 and going on.
Could I just -- sorry, because my line went down there, mid-single-digit millions amount?
Yes. And we will sell this TMRL 4D very quickly.
The next question comes from Christian Cohrs from Warburg Research.
First of all, maybe coming back to Germany and the cycles there that you mentioned. Back in December, when we met in London at the new capital markets there were many discussions about the very slow procurement processes of German authorities despite the site. 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 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 prefinancing need of the defense industry in dealing with the ramp up. Has there been any progress so far? And also, can we assume for HENSOLDT that the cash profile will be a bit more balanced?
Then a technical question in Q4, net financial expense appears a bit extraordinary high. Maybe you can shed some color on that.
And then lastly, looking at your 2023 guidance, how much of the business and the revenues are already in your books?
We're going to answer the question. So very quickly, thanks for your question concerning the slow procurement process. I think we have to simply acknowledge that after 30 years of piece dividend, the authorities needed some time to speed up. And 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 €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 of the year.
And we have this update from the Ministry of Defense, chancellor. As you know that we had the Munich Security Conference during the last weekend. And we have 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, thank you for your question. So cash generating or cash generation H1. Of course, we are in the project business. So we here rely on milestones. So 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. So 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. But 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. And for us, still advance payments is a very good instrument for that because we, as HENSOLDT or other OEMs in Germany, they can also afford to go in preinvestments.
But 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. But currently, I have to say no change.
So what does it mean? So we -- in our working capital profile, we are in half year at a minus of €100 million, €250 million. Going forward, I see these patterns still ongoing. And with the growth we have in front of us, I personally expect the working capital needs at the peak of H1 in the next year of €150 million to €200 million, knowing very well that we have over €400 million cash on balance sheet. So we were very prepared for it. And I also mentioned that the priority #1 is to fund our growth what we will do.
Yes, in terms of extraordinary expense in the last quarter, there were 3 of them. So 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. And we mentioned that there has worse one-offs of the long-term success and plan of the management that we also smaller one-offs in our figures.
And there was a question of 2023 guidance. I do not remember what are you referring to in the guidance.
Well, certainly, I -- well, you have a [well-fed] order book. So how much of -- what is the percentage of revenues you have already very firm visibility on covered?
Yes. So we mentioned the Capital Market Day that this was 85%. So when I take the 70% of firm orders and 15% short cycle, we are currently in a figure of around 90%. So we are well covered with our revenue guidance.
The next question comes from Ben Heelan from Bank of America.
I had a kind of higher level one on M&A, delevering this year you're talking about going to get below 1x, that's -- it's come down a lot since the IPO in a pretty strong position now very strong growth. So that delevering profile is going to continue. Is there M&A on the horizon that we can expect in 2023 and 2024? What areas are you looking at -- and if not, what do you see as a longer-term sustainable leverage target for the group?
Ben, thank you for your question. Yes, I think there are three ways in terms of M&A. We think the one is, as Thomas mentioned, artificial intelligence and cybersecurity sensor fusion in this field, we will be further more active. And but these are topics we can really fund out of the -- of our cash we have on balance sheet. And there will be, I think, some activities we have in the pipeline but not to a very, I would say, outstanding amount. So we do not expect now short-term lead 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&A short term now in 2023. And to be very honest with you, if we plan a really material M&A, we will inform the capital markets very early on that.
Yes. Now the second question, what is the leverage I personally feel comfortable when we now look at companies on stock market, I personally see a leverage until 2x as comfortable. And this will mean then when we go for 2023, 2024, to up to a leverage of 2 that there is a certain amount of power 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.
But as I said, currently, of course, we're monitoring the pipeline, but there is no big M&A on short term on the horizon.
The last question for today's con call comes from Aymeric Poulain from Kepler.
Yes, I've got three questions, please. The first one is pass-through sales for 2023. I think you had a stronger level of pass-through sale in 2022. So could you -- 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. So what's your current average borrowing cost, is that possible to determine?
And also on that, do you still use factoring as a financing tool? And if so, what's the amount you had close to in 2022? And on the EBITDA margin, you achieved pre pass-through in 2022. You mentioned mix as a booster. What was the actual product that produced at significant bit on the pass-through margin? And as we move forward, do you see such a margin possible in the future? That would be my questions.
So first of all, regarding pass-through, it will be in 2023, much lower than in 2022. We personally -- we expect a mid-single-digit percentage of our guided revenues 2023. In terms of interest rates, yes, I can very precisely say that because we have hedged our margins in this respect. So you know maybe that the interest we pay for our debt is 2 components. One is the margin ratchet, which is now at the lower end. And the second one is the 3-month EURIBOR.
And for your modeling, you should take into account interest rate of around 4.5% of our debt, and then we 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 €50 million to €60 million in our books on a constant level, so from quarter-to-quarter.
And regarding products, there were some especially in the radar division, and we've mentioned a few of them also in the call. So we see -- 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. And going forward, we'll monitor and keep you updated on that.
There are no further questions at this time. I would like to turn the conference back over to Veronika Endres for any closing comments.
Yes. 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.