Savaria Corp

TSX:SIS

Earnings Call Transcript 2021-Q4

[Operator]

Good morning, afternoon and evening. My name is Ally, and I will be your conference operator today. At this time, I would like to welcome everyone to the Savaria Corporation Q4 2021 Conference Call.

[Operator Instructions]

This call may contain forward-looking statements, which are subject to the disclosure statements contained in the various most recent press release issued on March 23, 2022, with respect to its Q4 2021 results.

Thank you. Mr. Bourassa, you may begin your conference.

[Marcel Bourassa, executive]

Thank you, Ally. Okay. It was a challenged year, okay, but a great year, okay? Great year, and we are very excited not just me, to this 2022. I think '21, was a good year. But we prepare a lot of thing for 2022. Don't forget that right now with some acquisition that we make, and the major one is Handicare. We will sell around $800 million. How many EBITDA, you just have to choose the right number. And we just announced you before at the beginning of the year that we will make between $120 million to $130 million.

We made the acquisition one year ago of Handicare or thinking that they were good, but they are better than working in. They have better people. And on that, I thank them to come aboard. And say we want to work together. It's always in life, a teamwork. If you don't play the teamwork, you are at the wrong place. Because if you want to be successful you need all the people together.

So we have more than 2,200 employees. We are in -- with this acquisition, we're in over 40 countries, and that's major. And what we have done, we imported technology of [indiscernible] from Handicare to Toronto. We are well advanced in the integration and we are in production. But just a vending machine will arrive in maybe 45 days. But right now, we take the curve for fees -- arrive from Europe. So we missed a couple of knowledge because it's quite expensive, the freight. But even it's a challenge. This was a tough year, something -- and you know the materials was a challenge and is a challenge.

The cost of trade was a challenge, and it continued to be a challenge. And it's not easy, but that shows that we have a good team, a good team to find a problem and just discuss a bit what we do. And that's the forte of Savaria. We have a good team. And we -- if we have to change people, we change people. What -- so nice people become with us in 2022.

Just an example in the -- and saying we have a new director down there. And that was a great experience in our industry, and he will bring this division at another level, another level of EBITDA. What is very important for me and for my people is what kind of EBITDA, what is the percentage. And we want to be -- by 2025, we have a big goal. Our big goal is to reach $1 billion in sales. And with the $1 billion in sales we have to be around 20% in EBITDA, and we will be around 20% across the synergy with all the people.

So thank you to be here with us this morning, guys. We need you because that's you a key right on Savaria. And you -- there was an -- or my -- is always bad luck, it was like 15 years ago. But this is a fact this is what it is. And thank you to fellow Savaria and to be interested in the history of Savaria. I think we have a great history coming from -- when I bought the company we were like 4 people and right now, over 2000.

And at the beginning, we were selling $200,000 a year. And this year, we will sell around $800 million. So that's a good. But we are there because of the people. And we have good customer and as I repeat what I was doing selling 15, 20 years ago. So the customer write the cheque for what -- with a smile because what that's given a more liberty to move, and that's so important.

So today, we have the pleasure, okay, I will pass the -- to Steve, that will tell you a bit where we are with our finance. And after that, we will have a question that we'll answer to you with pleasure. On the call this morning, we have Nicolas, we have Sebastien and I should tell you that Steve is the first one to speak. After that, Nicolas and Seba and myself, who will answer the question that we -- that you have. So first of all, Steve.

[Stephen Reitknecht, executive]

Thanks, Marcel, and good morning, everyone. I will begin with some remarks regarding our 2021 fiscal year consolidated financial metrics. For the year, the corporation generated revenue of $661 million, up $306.5 million or 86.5% compared to 2020, mainly due to the acquisition of Handicare in March 2021 and also due to organic growth of 4%. Gross profit and gross margin stood at $215.5 million and 32.6%, respectively compared to $122.1 million and 34.5% for 2020. The increase in gross profit was mainly attributable to the addition of Handicare. The decrease in gross margin was primarily due to additional costs related to the supply chain, including shipping costs and also the reduction of COVID-19 employment retention subsidies from the Government of Canada's program.

Adjusted EBITDA and adjusted EBITDA margin stood at $100.3 million and 15.2%, respectively compared to $59.8 million and 16.9% in 2020. The increase in adjusted EBITDA of dollars is again due to the addition of Handicare. The decrease in adjusted EBITDA margin is due most notably to significantly increased shipping costs in 2021 versus 2020 as well as a large reduction in Government of Canada, COVID-19 employment retention subsidies. Total subsidies received for 2021 was $3.2 million versus $6.9 million in 2020, reflecting a decrease of $3.7 million year-over-year.

Now I'll move on to our segment results. Revenue from our Accessibility segment was $484.3 million for the year, an increase of $227 million or 88.2% compared to 2020. The increase in revenue was mainly attributable to the acquisition of Handicare, which provided 87.3% growth. Organic growth of 3.5% was driven by strong demand in the residential sector and was partially offset by a negative foreign exchange impact of 2.6%. While our residential sales were strong throughout the year, we continued to see weakness in the commercial sector.

Adjusted EBITDA and adjusted EBITDA margin, both before head office costs, stood at $86.2 million and 17.8%, respectively compared to $51.1 million and 19.9% for 2020. The improvement in adjusted EBITDA is mainly due to the acquisition of Handicare. The reduction in adjusted EBITDA margin is partially due to additional costs related to supply chain, including shipping costs as well as a reduction of the government of Canada's subsidies.

Revenue from our Patient Care segment was $136.7 million for the year, an increase of $57.4 million or 72.4% when compared to 2020. Revenue growth was mainly driven by the acquisition of Handicare, which contributed 71.3%. In addition, the segment saw a 5.5% of organic growth for the year, which was driven in line with 1% organic growth. The improvement in organic growth was driven in large part by the easing of pandemic restrictions and improved access to long-term care facilities. Adjusted EBITDA and adjusted EBITDA margin both before head office costs stood at $16.7 million and 12.2%, respectively compared to $10.4 million and 13.1% for 2020.

The increase in adjusted EBITDA was mainly due to the acquisition of Handicare and the reduction in adjusted EBITDA margin is primarily due to the aforementioned additional costs in the supply chain and a reduction of Government of Canada's subsidies. Revenue generated from the Adapted Vehicles segment was $40 million, an increase of $22.1 million or 123.4% when compared to 2020. The Handicare Vehicle division based in Norway provided 119.9% of acquisition growth for the year. The Canadian Auto divisions experienced organic growth of 3.5% for the year, driven mainly by strong sales in Q4 2021 as a result of some pent-up demand from earlier in the year.

Adjusted EBITDA and adjusted EBITDA margin both before head office cost finished at $3.2 million. The increases in both metrics were mainly due to the acquisition of Handicare and some recovery from the economic slowdown caused by the global pandemic, partially offset by a reduction of Canada -- Government of Canada COVID-19 subsidies. For the year, net finance costs amounted to $15.8 million compared to $3.9 million for 2020. The increase is mainly due to higher interest expenses due to additional long-term credit facilities related to the Handicare acquisition.

Net earnings reached $11.5 million or $0.19 per diluted share for the year compared to $26.5 million or $0.52 per diluted share for 2020. Net earnings was largely impacted by amortization of intangible assets related to the Handicare acquisition. Adjusted net earnings, excluding amortization of intangible assets related to acquisitions, reached $41.8 million or $0.67 per diluted share compared to $31.8 million $0.63 per diluted share for 2020. This reflects an increase of 31.3% or 6% on a diluted share basis.

So turning now to capital resources and liquidity. Savaria generated cash flows from operating activities of $57.3 million for the year compared to $49.3 million in the prior year. The year-over-year increase is mainly due to increased adjusted net earnings from the addition of Handicare. Strategic investments in inventory caused an increase in non-cash operating items for the year of $18 million versus a decrease of $6.1 million in the prior year. As at December 31, 2021, Savaria had a net interest-bearing debt position of $315.4 million, and it was in compliance with all of its covenants. And on a trailing 12-month adjusted EBITDA basis, Savaria's debt to adjusted EBITDA ratio was approximately 3.5x.

Savaria has funds available of approximately $130 million to support working capital investments and growth opportunities. Now looking forward, unpredictable changes in the macroeconomic environment make it difficult to predict future performance. However, considering our recent financial performance and our strategic integration plan with Handicare. We are confident that for fiscal 2022, we will generate revenue in excess of $775 million, with adjusted EBITDA in the range of $120 million to $130 million.

And with that, this completes my prepared remarks, and I'll turn the call back over to you, Marcel.

[Marcel Bourassa, executive]

Steve, thank you very much, very well done. And just to add an information that maybe you don't know our booking that is very important, if you want to see what will be the future quarter and what would be the year. We're looking at Savaria -- to take Savaria in Toronto. It's 3x that it was last year, not 20%, 3x. You can see the backlog that we have in residential elevators, it's amazing.

So now we have another problem. We have to deliver fast. So we upgrade ourself, upgrade our people and we work hard to make more production than we were doing. So it's another time in our life. We never have the bookings, so that we have 3x, subject for the year per year. But it's a fact right now. So it's a great interest that I tell you this formation and I think that's validated a little bit what as Steve said before.

So we are ready for all the questions that you can ask. Adi?

[Operator]

[Operator Instructions]

And we'll go ahead and take our first question from Frederic Tremblay with Desjardins.

[Frederic Tremblay, analyst]

I believe, Marcel, you mentioned that you'd like to get to 20% EBITDA margin in 2025. That would be, I think, the highest margin in company history on an annual basis. I was just wondering if you -- are you referring to margin for the entire company or for the Accessibility segment? And I guess, maybe if you could maybe provide a bit more details on the factors that would allow you to increase margin to around 20%?

[Marcel Bourassa, executive]

Okay. And Sebastien can complete. My answer is this one, okay? For sure we have some division that we get less EBITDA. But for me, when I say around 20%, is for the -- how the company together. And it's why I'll see when we bring another manufacturer, the Garaventa Lift that Handicare is doing. That's a project that has better margin. I would not say very high, it's not too high, but to be reasonable to on the pricing. So for me, it's for the company, the 20% Frederic. Sebastien, do you have something to add?

[Sébastien Bourassa, executive]

For sure, Fred, as you know, we're under transformation. We have acquired Garaventa a few years ago, Span and now Handicare. So there' a lot of moving pieces. But I think, yes, access in -- has been first, recently first in the car division, third. But differently, I think we have a lot of activities to support this target goal. And hopefully, we'll be able to deliver in the next few quarters and few years on that, but a lot of opportunity for that.

[Frederic Tremblay, analyst]

Okay. You mentioned the large backlog in Toronto. I'm just curious if you any comments on I guess, the split between residential and commercial. I guess I'm more interested in how the commercial side is evolving in terms of quotes or backlog in the recent months. And what you're seeing in terms of the potential recovery from that particular market?

[Marcel Bourassa, executive]

That's a good question again, Frederic. For residential, the number of elevators that we have in our backlog, it's incredible. And for sure, the -- effect a lot of commercial activity because people work at home. So if we go as an example, downtown Montreal, okay, it's not the activity it was before. But they have to work home. So they make some adjustment at home. And -- but in reality, we think that the commercial, we will get a new push this year. Sebastien, you have something to add on that?

[Sébastien Bourassa, executive]

Not for sure residential sector had in residential is not just home elevator. It's home elevators, it's an inclined platform, it is chair lift. Now we are a big player in this industry. That's why the Handicare is very interesting. Because it position ourselves in a very good shape in bringing back the technology from Europe to Toronto to manufacture that in curve stairlift. It will give us better lead time. And we should be able to just continue to accelerate growth into the curve stairlift. Commercial, as Marcel said it, it has been slow, but it's recovering. And now the good news at least we have a good backlog so we can plan our growth. People are more careful also than it was before. I think with all the spending, the supply chain, people try to put their order in advance to make sure that the production will try to hit the date. So I think it's -- we are lucky Fred, good year in front of us.

[Marcel Bourassa, executive]

Fred, I just want to add something, With Handicare, we stepped a little bit the territory like we and the more in North America, for sure, we discussed with our people in Europe. And Europe push like the work with Garaventa. Garaventa is a great company. But I think to work with somebody directly full time and be in the territory of Europe I think this segment of Garaventa will be better. So we have a lot of velocity coming with this acquisition. I just mentioned at the beginning of this year, we made just a small acquisition about somebody who make the controller. So we're buying from the guy in Europe, the controller, but now we're independent, okay? So we buy this guy.

So we are always looking what we can do to be better. And as Steve mentioned, we have -- for sure, our ratio is not what I want it to be. But I think this year, we will have a better ratio to put some better acquisition, just to be always better and deliver the best quality and the best security to the customer.

[Frederic Tremblay, analyst]

Great. It's a great segue into my last question. Maybe first is in terms of capital allocation priority for the year maybe between CapEx, the repayment and potential M&A? Any comments there.

[Marcel Bourassa, executive]

Yes. Just small M&A, okay? But small M&A, and we're looking everywhere. But now we are looking everywhere around the globe. That's amazing, what this acquisition of Handicare. And I mentioned, again, they have good people like that, and the same team that we have good people when we buy Garaventa. And without these people that we work together, you will see, that we'll make some small acquisitions, but we work a lot to complete the integration. And sometimes we have to look inside our company on the side of a division, we can be better and instead of looking always for acquisition. So no big acquisition this year.

[Stephen Reitknecht, executive]

And just to add to that, Marcel, if I can. I mean it's -- looking at the deleveraging profile for this past year for 2021, we didn't delever since the date of the acquisition until the end of the year, which was about 10 months. And that was expected because of all of the large one-off costs we had acquisition and integration related. Most of that is behind us. There will be some integration costs ongoing. But we will be delevering further in 2022 as per our initial plan of at least half a turn per year, Fred. And we are diligent with CapEx spending. We're being very diligent. And we -- as Marcel said, there may be some funding for acquisitions, but they will be on a small sort of tuck-in side.

[Operator]

And we'll go ahead and move on to our next question from Derek Lessard with TD Securities.

[Derek Lessard, analyst]

I just wanted to hit on, again, on the bookings being up 3x in the backlog there. It's a good problem to have, obviously, maybe if you can just add a little bit more color on how you expect to deliver on that and clear through the backlog?

[Marcel Bourassa, executive]

Well, I will give you, and Sebastien will complete my answer because he's the guy responsible for the operation. But I would just say like you know something we encourage [indiscernible]. We can deliver like with the new -- we can deliver like 2,000 curves with the system of Handicare. And before that, the cable or jab at maybe 30, 40 a month. So -- but now just in that if we can talk about the current [indiscernible], we find that -- about residential elevators. What is good and it's why the team is the team, the team, the teamwork. We have somebody from Handicare come see us. I think they're same weeks, Sebastien, I would tell you, and they will work with us, how can we pass, like from 6, 7 elevators a day to 10, 12 a day.

So new idea, a different experience and it's all in the group. And when I tell you the same group of you, it's good construction. But when you have the talent and site use that, and that's a value utilization for them. They say, hey, I don't know, in Netherlands, but I have these guys in Toronto. And that's everything everybody is proud about that. Sebastien, you have something to add?

[Sébastien Bourassa, executive]

Yes. For sure, Derek. We are lucky we're in a good industry. It has been a very support -- last year with the staying at home, the residential has been good and it continue to remain good. But fortunately, we had a bit of inflation on the sales price with our customer last year. So when we announced some price increase, there is a direct effect on the booking because we try to be respectful with our dealer to give them some time to pass on the order that they already have in. So yes, there has been a bit of an over order because of some deadline on pricing, but which is good because what came in last year as a price increase from a supplier we had to reset the price with our customers. So that has been done.

And last year was challenging. Don't forget, we had some bit of COVID. We had some labor shortage, but I think this year, we have made some activities to fill some gap, where we needed to add some people. We are doing some strategic review in April with a key member of Handicare lead by the team of Pete that will work with our team here to see how we can improve and review how we can add automation those process to be a bit better. So I think, yes, the good news is that at least we have the order in some of our divisions so that we can just execute on the growth plan that we want to have.

[Derek Lessard, analyst]

That's helpful. I was just as well, do you any updates on the Toronto planning expansion, how it's going and the production wins. And maybe some areas where you still need to adjust?

[Marcel Bourassa, executive]

Toronto expansion, yes, on a curve stairlift, we now -- we're producing one of the 2 models of Handicare for the curve. We'll likely this year add a production in the second model. All the distributions of the stairlift of Handicare is now done from factory in Greenville or from Toronto for the Canadian market. So that has been happening. And the rest is, yes, really expansion on our -- do more throughput to our different line has some key labor at a different place. But I think the growth plan is what we are working on.

[Operator]

Our next question will come from Michael Doumet with Scotiabank.

[Michael Doumet, analyst]

One sort of question with the 2022 revenue guidance. The forecast implies 17% growth year-over-year. And I guess if I used the number on the call maybe up to 21%. I obviously understand Handicare will contribute 2 additional months. But I wonder if you can comment just generally on price versus volume dynamic in 2022 and what we should expect there?

[Marcel Bourassa, executive]

Yes, Steve will speak about that. But yes, I just want to tell you that we made some increase because we have to make some increase. So we put some increase in '21. Another increase at the beginning of '22. And you see -- I think that would help our margin for sure went out this spring will be an application. And I see that coming at the end of March and after that for the second quarter, that would be -- I would be very surprised if that's not a very good news that you will see in Q2. Can you add a complement on that, Steve, please?

[Stephen Reitknecht, executive]

Yes, sure. So good question, Michael. I mean looking at what we're seeing for 2022, our guidance -- our published guidance has been in excess of $775 million, and it's just -- obviously, it's difficult to peg an exact revenue number. But looking at our forecast and our budgeting for 2022, a significant piece is coming from Handicare. We have 2 more months, as you have pointed out, 2 more months in 2022 than we had in 2021.

And specifically on the organic growth side, what we are forecasting to achieve for 2022 is in line with our $1 billion forecast for 2025. So it's in that approximate same guideline, same approximate percentage increase. A good portion of that will come from pricing. We have mentioned that we have done price increases in -- at the end of Q3 in 2021.

And we also have price increases in 2022 at the beginning of the year, as Sebastien said, it does take time for those to come through. So I mean, without specifically pinpointing how much, there's going to be a good portion of that organic growth in 2022 coming from pricing.

[Michael Doumet, analyst]

That's helpful. And then the second -- sorry. And then the second one, I guess maybe I wanted to focus on the supply chain. I mean, obviously, that's been a challenge in 2021, especially when you're thinking about all the freight costs you guys have had to push through. With that being said, obviously, I think you guys did a good job. I just wonder, given the supply shocks, are you thinking of potentially evolving your own supply chain and maybe your own production capabilities across the geographies a little bit differently? Or do you think you have maybe the right formula today?

[Marcel Bourassa, executive]

I think that you speak with Sebastien. So Sebastien, can you take this question because I know that you know the answer.

[Sébastien Bourassa, executive]

Yes. For sure, Michael, it has been very challenging supply chain purchasing in the last year. And I would say it remains challenging from 1 week to the other, there is some small issue, but we try a to have a better planning to make some PO in advance with our key supplier, and we discovered who was not good. When we have some issue, we might work on some equivalent parts so that -- and do some testing to make sure we cannot stop the production.

Supply chain is not just about Asia, but at least in Asia, that's our own factory in China and in which also at least, we control what's happening there. And as of right now, they are doing a very good job, and they continue to ship what they are doing.

And an example, Marcel talked at the beginning of the call is the Ultron acquisition, which was one of our key suppliers of electronics. Electronics is a bit challenging those years. So we did an acquisition in electronics to be more vertical integrated to eliminate some of the risk. And my friend, Steve, always remind me that I have a bit too much inventory. So yes, we have work to make sure we have the right inventory on the shelf so that we can deliver this growth. And one thing also to remember is in our key factory, we have some machinery. So we are able to manufacture some parts, some seals, some paintings. So I think this is important to remain flexible. That will be my answer for that, Michael.

[Operator]

We'll our next question from Nick Agostino from Laurentian Bank Securities.

[Nick Agostino, analyst]

On the supply chain side, I guess, 2 questions here. First, if you guys can talk about what impact did the flooding in Vancouver have on your Q4 results? Just trying to understand, was there any revenue opportunities missed as a result? Or was there any margin pressures that you may have seen in Q4 that don't show up starting Q1?

[Marcel Bourassa, executive]

Sebastien?

[Sébastien Bourassa, executive]

Yes. So Nick, for sure, was very unfortunate, and we have a factory in BC, so it was not so far from us. I cannot say that it has huge impact in terms of supply because we have a few weeks always of inventory in stock. Yes, we had some trouble in Q4 on the timing of the container. This has caused some additional costs. I think the answer is yes, okay. We are -- airfreight a few parts, pay additional money to move your container. But yes, it was not the best event with the flooding.

[Nick Agostino, analyst]

Okay. And then just given the situation in China currently with the shutdowns in Shenzhen, I know your factory is near there. Just wondering if you could provide an update on what you guys have seen out of China? And maybe if you're taking any precautions ahead of any further shutdowns within that region?

[Marcel Bourassa, executive]

Sebastien, please?

[Sébastien Bourassa, executive]

Yes. The good news, Nick, that's our own plant. So we have really the truth of what's happening there. And yes, since the Chinese New Year team continue to work every day. Yes, there has been some new lockdown from one city to the other. But as of right now, it did not affect us. We have increased a bit maybe the raw material we have in our own factories to make sure we don't stop the assembly.

But as of right now, I did not miss a week of shipping. And at the best of my knowledge, the Shenzhen border as we open for the shipping. So that should not be an issue. And there's not just one part also in China. And our second factory in China is quite far from Shenzhen. So I think so far, we have been okay, Nick.

[Nick Agostino, analyst]

Okay. And then my last question. Just wondering on staffing for the growth that you guys are seeing. Have you had to incur any, well, first of all, what was the staffing impact in Q1 related to Omicron just here in North America and for that matter in Europe? And then secondly, have you -- are you guys incurring any additional staffing costs to keep staff just given the fact that we're seeing lots of moving parts on the site in general?

[Marcel Bourassa, executive]

Yes. Sebastien answered that because you are there, and to check your thing about all the current place that we manufacture okay? And so can you answer that, please?

[Sébastien Bourassa, executive]

So first of all, Nick, we try to give some increase to our different staff in a different location. That's always part of our budget. And yes, I think we took care of our employees, and we have -- that has helped us to fill some of the gap where we have maybe some open position. And after that, 2022, maybe take, yes, we had some maybe minor issue in 2, 3 places, but for 1 or 2 weeks. But as of right now, the best of my knowledge, all our location are helping and they are all working.

[Operator]

[Operator Instructions]

We'll go ahead and take our next question from Zachary Evershed with National Bank Financial.

[Zachary Evershed, analyst]

So I was wondering if you could give us some insight into how the dynamics change in accessibility when we start to see interest rates rise? Do you see any issues on the residential side of things?

[Marcel Bourassa, executive]

My answer is no. No, no, no. Not at all. First of all, they want to be at home. They want maybe to buy an elevators, as I mentioned before, the backlog on elevators has never been in all my life so great. So I see that the people work and work very well passing, some time to be in the office and some time at home. Do you have something to add maybe, Nicolas?

[Charles Rimbert, executive]

No, Zach. I mean I would say the products that we offer are more necessary as opposed to an extra deck that you might put on the back of your house or something. I mean if somebody needs mobility in their home, whether it be a stairlift or a platform lift or what have you. I do think you see that it's a priority spending. Most of these individuals, it is private pay. So I mean, whether it be from their own cash or maybe they have a line of credit that they tap.

So I would say no, in the current environment with what we're seeing in terms of interest rates on the horizon, again, I'm not an economist. I don't want to predict where they might go. But for the moment, we don't see an impact. And again, given the kind of the necessity of these products for these individuals to maintain their mobility, it is a priority for them. So as Marcel mentioned, we don't see a big impact, given the current interest rate environment and where it might go.

[Marcel Bourassa, executive]

Yes. Congratulation to the Canadian Government. I think during this crisis they were very good to push some money in the consumer in the question. So it was hard the last 2 years but people have some -- they don't have some cash. So they have a lot of project, and it's why I see this year would be a great year. And maybe it's very good to see that, that we will be in a road to make our $1 billion in sales in 2025 or maybe a little bit earlier.

[Zachary Evershed, analyst]

And then for my second question, can you give us an update on your outlook and objectives for the Vuelift, please?

[Marcel Bourassa, executive]

On Vuelift. That's an interesting question. And a good guy to answer that it will be Sebastien. Just add a note that Handicare is very excited about selling the Vuelift in Europe. And they already begin to sell that and the [indiscernible] is there. First of all you are in a house and you are accessible on 2 or 3 levels. And it's not something that is hiding in the corner or can put that at the center of a room. And that's an art. And it works quite well. Maybe the price is not affordable for everyone, but we have all kind of people in the society. So the people who don't want to have that, maybe they will take a regular elevator.

So I see that the future of this product, and that's good it's why our growth will be there and better because this is a product that we will sell more and more each after year. Because the people begin to see that. What is important, the architect around the world, know more about Savaria, know more about this fantastic project. So Sebastien you have something on that?

[Sébastien Bourassa, executive]

I guess, yes. So yes. So basically, Zach, first of all, remember, it's always your flagship product -- where we do a lot of marketing effort on the Vuelift. And it's always hard to evaluate also the exact suspects on the Vuelift because it has a big influence on the other home elevator. And as Marcel said, our backlog is very nice on the home elevator. I guess part of it, the numbers of leads is drived by the Vuelift. And now for sure, we -- and it takes time Vuelift project know some time. Yes, because the renovation might be a bit faster, but put new construction.

We have to put a Vuelift at the end of the of the construction. Yes, now we have some demo in -- own offices in Swiss and Germany and U.K. And I think Garaventa Europe because we started a bit like 1.5 years, 2 years ago, start to have an interesting trend, especially in Germany. And now we have trained a team of Handicare and to use that to the dealer of Handicare, and this is something that we'll expect to -- together have very nice growth with Vuelift in Europe. And if you remember, I believe it's got compliant for Europe. So we did that 2 years ago. So there's no reason why we cannot accelerate our growth of Vuelift. And I think the team Handicare put a lot of efforts also on the marketing and training the people on the Vuelift.

[Operator]

We'll take our next question from Sepehr Manochehry with Eight Capital.

[Sepehr Manochehry, analyst]

On the Patient Care segment, can you characterize the thinking behind the change of name from patient handling and does it open you up to new product lines?

[Marcel Bourassa, executive]

Okay. I am very happy that you touch this segment, that it is [indiscernible]. So yes, that's a good question. And you will see that we make -- will explain that we'll make some change, okay, that will change this division in this year. So Nicolas?

[Charles Rimbert, executive]

Sure. I wouldn't read too much into the name change of patient care to patient handling, essentially Span or, I guess, prior to Handicare was the big driver of our legacy patient handling business again, more in the pressure care, so in terms of those therapeutic support services and the bed frame. So we had the pressure care side. And then with Handicare, obviously, more in the safe patient handling with their lift products we thought that patient care was maybe a better name that encompasses the entirety of that group.

The opportunities, I think, in front of us for patient care won't necessarily come from the name change, but really from certain changes that we've made internally to that organization. Again, Handicare brought with us a very, very strong team. And then again, combining that with Span as well as we brought on board a new commercial lead back in the fall, who's really kind of spearheaded much of the integration that's going on, on kind of the sales strategy, the pricing strategy or product rationalization that's ongoing.

So I think those are more of the initiatives that we're doing that are going to have an impact on that division. Unless you have any other further questions as it relates to the name, I would say don't read too much into it.

[Sepehr Manochehry, analyst]

Understood. Understood. I was -- I just saw patient care, I thought maybe you're broadening maybe into wound care products because I've been reading into kind of pressure products that you had and some of the some of the patient handling solutions you could go into?

[Charles Rimbert, executive]

I think right now, our main focus is we have a good portfolio of products of lifts, of slings, of bed frames and mattresses. And again, with the team we have around us, it's a question of I guess, better focus on what we have and getting the best out of our current product portfolio, rationalizing our product portfolio in many cases where there's some overlap between the span and the Handicare divisions. And then from there -- yes, there could be an opportunity for us to look to add new products. But right now, I think we have a good mix with what we have now.

[Marcel Bourassa, executive]

And can you speak a little bit about our guy in Magog, that handled this division right now for us.

[Charles Rimbert, executive]

Yes. Pat Mongeau. So a little shoot out to Pat. So yes, Pat joined us back in the fall, again, 20-plus odd years of experience. On the sales side, on the product side, he joins kind of our 2 other leaders within patient care, Phil Marmina who heads up the I guess, the sales front and then Les Teague there in Greenville, South Carolina for more of the, I guess, the operational side of things, in charge of the factories, both in Greenville, but also in St. Louis and in Beamsville. So Pat really, when he came on board, he has kind of taken all the commercial activities under his wing, under his direction there.

And really, focusing first on -- we have these price increases that we've passed on over the past several quarters to combat some of the inflationary pressures that we've been facing. So passed on a deep dive and do all of our products. So looking at all that we offer both on the Span side, the Handicare side and for Magog there on the Savaria side. Looking at all of our products, all of the price and making sure that we're selling the right products, at the right price, to the right people.

So that's really what he's been, I guess, his mandate has been since the start. And again, it's having, I would say, a very positive effect on the team. I think everybody is kind of buying into this one Savaria, if you can call it that, as it relates to patient care. So it has been instrumental, and we're very happy and fortunate to have him on board and the rest of the team on board, and we feel very confident about where we're going with that division.

[Marcel Bourassa, executive]

Yes. Just to add on that. You will see that we -- the margin was not satisfied at how -- I cannot work with margin like that. So Pat is a boy. He is working hard with his friend, his colleague. And you will see that we will produce EBITDA at the right ratio in '22. And we will put to have a very good '23 in turn of EBITDA number. That's something to have an EBITDA, but we have to be at the right ratio. That's why I focus it to be at 20% by the 2025. I focus on that my team work hard and we will deliver.

[Sepehr Manochehry, analyst]

Understood. And that rate ratio for you is -- where is that rate ratio for you right now basically kind of now?

[Marcel Bourassa, executive]

That's a good thing. But I think that the excess EBITDA turn and will turn on '23. And I think we will be around 20% on this patient handling. So it's -- we are very optimistic about to deliver that. First is thing with the people motivated and have the right products. We need that. And we have this combination.

[Sepehr Manochehry, analyst]

I did notice there was a slight reduction in your staff from 2,300 to 2,250. Is that just a function of increased automation? Or are you looking at -- and you also mentioned 2,000 staff. Is that just you rounding? Or are you looking at some staff reductions as you increased automation, I guess?

[Marcel Bourassa, executive]

Okay, over the years our staff is very stable. It's a question they like to be with us. And for sure we have a company that will put our employee at a very big priority or maybe we pay them a little bit too much. But the people like to work at Savaria. And me, I am a guy that go in the shop now little bit less, but my people right now, Sebastien and the others, we go in the shop and we speak with them. It's why -- it's just going higher, but we don't have a lot of change right now. For sure, Sebastien can add something. They have an interim -- about the -- lift -- that we make from Savaria. How many number he make, has to make to deliver 150, 200 by the end of the year -- a month with how many people Sebastien?

[Sébastien Bourassa, executive]

For sure, like we're always working on our productivity and to bring the Handicare product here for the curve is they make a big change in terms of productivity out per person. And basically, Handicare is 4x more productive in terms of when it is time versus Savaria to manufacture curve stairlift. And I think, Steve, maybe you want to comment a bit on the total number.

[Stephen Reitknecht, executive]

Yes. I was just going to say, Seb, it was -- 2,300 was the initial estimate based on our first consolidation with Handicare. We've just fine-tuned the number down to 2,250. So 2,250 is the number, the number of employees we have, there haven't been any significant changes in headcount. It was more just fine-tuning.

[Operator]

And we'll go ahead and take a follow-up from Derek with TD Securities.

[Derek Lessard, analyst]

Just a few follow-ups for me. It looks like excluding the government assistant program, you were actually able to keep your margins flat year-over-year. You did mention things like shipping costs in particular. So I was just wondering how we should be looking at your margins progressing through 2022?

[Marcel Bourassa, executive]

Talking about the gross margin. I think with the increase of the price that we have done we have to be fair and let everyone can live and be happy with the price that we get. So us, we'll be very happy to reach the gross profit of 35%. So I think we will reach that by the end of '25. And that's a base for us. And we have the people, we have the territory. We have the number of dealers don't forget we sell direct, but we sell the majority up our shelves through dealers.

So we like to work with them, and they are good with Savaria for so many years. And what is critical the dealers we have the -- roughly the number of dealers that we have a couple of years ago -- many years ago because they don't change. They are happy with us and what is important, we are a kind of company that can say to the people buy with us and you will have all the projects to cover residential and commercial from the curve, the stairlift, to the vertical, to elevators, to the -- you know something to be that give to your customer and accessibility to the Vuelift. That's great.

So we have our commercial, residential at the same rate, that's major. And we bring that this -- for sure we have some more to do it that's the major code in Europe. Some we are working on that right now. But it's important to arrive down there and make some modification because the customer in Europe and North America are different a little bit on [indiscernible]. So we will work on that, but that's a major to offer to a dealer the complete client. So they don't have to look at other places, just buy at one place. Sebastien, you have something to add?

[Sébastien Bourassa, executive]

No, I think that was a good answer. Maybe Steve, do you want to add something?

[Stephen Reitknecht, executive]

Just, Derek, specifically about the underlying margins, I mean, yes, there was a lot of pressure this year from decreased use, as I mentioned and you mentioned I think when we highlight the increased shipping costs, which were significant in the year, I mean, it just goes to show how much better of a year we could have potentially had. We finished the year at $100.3 million of adjusted EBITDA, and we saw significant increased freight really from the end of Q2 through the end of the year. And that's -- when we look at 2022 and beyond, where we have planned accordingly to incur similar freight rates. So yes, we did hit 103 -- it could have been -- $100.3 million. It could have been a decent size bigger if it weren't for additional freight costs. But we did incur them, and we are expecting them to continue in the future. So hopefully, that gives you a little bit more color.

[Derek Lessard, analyst]

Yes. I think so you're -- but you're expecting high rates, but flat year-over-year. You're not expecting them to grow?

[Stephen Reitknecht, executive]

Freight cost. No, we're not expecting it to grow on a sort of per shipment basis. But obviously, as our business ticks up, we're looking at different things, including the manufacturing of the curve stairlift in Brampton, which has a positive impact on freight. So there are changes. But on a -- when we look on a per container basis or per shipment basis, we're planning on it continuing at the current level.

[Derek Lessard, analyst]

Okay. That's helpful. Another one for me is I was wondering if there's -- if you're seeing maybe any initial impacts on the European business? Maybe just given the conflict that's going on in the area?

[Marcel Bourassa, executive]

Not right now. Sebastien maybe you're in touch with them better than me. But with my chat, when I speak to Clare, it seems that it's not easy. But we wish that it will finish this work. But Sebastien, you have some update to give.

[Sébastien Bourassa, executive]

No. Again, I said it's very unfortunate, but a customer, we did not have really sales over there, so there's no impact. But in terms of supply chain. So far, we haven't been impacted, but we are monitoring that very closely because we have a sales office in Poland. And there's a lot of synergy going here. So that's something that on the long term could have impact what we are monitoring.

[Derek Lessard, analyst]

Okay. And maybe just 1 last one for me in terms of the housekeeping for Steve. You talked about strategic investments and inventory. Just wondering what your expectations for capital this year? And maybe along the same lines, your CapEx in 2022?

[Stephen Reitknecht, executive]

Yes. Well, specifically looking at working capital and within that on the inventory piece, we did see a sizable increase in 2021, as we've talked about, that was intentional to buffer ourselves against supply chain challenges and very -- we did see various challenges throughout the year. Vancouver floods were just one of them. Going forward, for 2022, we have sufficient inventory on hand right now. We're not -- on a dollar basis, we're not trying to increase that. We're trying to more redeploy that and keep the investment and inventory relatively flat for 2022. That's our goal.

On the CapEx side, we are being diligent with CapEx. Our spending estimate for 2022 is sort of in that 2% to 3% run rate that we have historically had, and that includes some investment in some of our facilities related to some of these projects that we're talking about, whether it's stairlift manufacturing in different cities or other investments. So we are being very critical on CapEx, and that is just going to show how focused we are on debt deleverage.

[Operator]

And with that, that does conclude our question-and-answer session. I would now like to turn it back over to our speakers for any additional or closing remarks.

[Marcel Bourassa, executive]

So thank you very much my dear. So I think that was a great call, and thanks to my team. See you in 3 months.

[Operator]

And with that, that does conclude today's call. Thank you for your participation. You may now disconnect.