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Good afternoon, and welcome to the conference call of Krones AG. It's our customer's request this conference will be recorded. May I now hand you over to Mr. Michael Andersen, CFO? Mr. Anderson, the call is yours.
Thank you very much. Also welcome from my side to the conference call of our results for the first quarter 2018. If we move on to Page 2 with the highlights of the numbers, you can see that our -- we had a fairly good order intake, increased 13%. That's -- I would say, that's really good for us, and we arrived at EUR 992 million. Our revenue was around the same, EUR 1,100 million lower (sic) [ EUR 101 million lower ], so around the same level as the first quarter last year, 1% lower. So I would say, this is also very good if we take into the consideration that we had a tremendously high quarter 1 last year. Our EBT margin is a bit on the low side, 6.3%, so I would obviously have liked that to be a bit higher, but I think it's still within the acceptable level. And happy to see that the cash flow was only minus EUR 11 million compared to the minus EUR 80 million the year before. So at least we managed to improve the cash flow somewhat, but still a long way to go, of course, as we will come back to later. But overall, I would say a good, solid order intake and a good performance in the P&L as well. If we move on to a bit more detail, the order intake on Page 3. We see that 13% growth in the EUR 992 million. And if we also -- we can see if we come past the '16 and '17, already '17 was pretty high. And if we can also look at our all-time high, Q4 last year, I think we are still at a very good level for Q1, so I'm very happy to see the 13% growth there. However, then let's move on to page 4. There, we see the not -- no increase basically. If we adjust for translation impacts, we are slightly above the Q1 '17. So why are we not growing more in the first quarter? As always, one has to be careful to make too many conclusions based on only 1 quarter. And as you look at the '16, less than EUR 800 million -- EUR 900 million in '17, so a 17% growth between '16 and '17. I would say this and the fact that we dipped almost EUR 1.2 million in Q4 last year is to me, okay. Timing is also a factor here, so I do not expect any -- this is -- 1% is fine. We still believe in our 6% for the full year, I would say. If we move on to Page 5, the sales split per regions, I would say that nothing spectacular, but if we want to -- if I should highlight a few of the regions, we see North America dipped on the low side. We're only roughly 12%. So that's not so nice, of course, but this is more a timing issue, I would say, and they should be back to the roughly 50% that we usually have for North America markets. And China is slightly lower, but it's getting stable around the 7% that we also have there last year. So I'm happy to see that it's finally leveling out. Of course, we would like to see that the Chinese customers invest more and -- but still, they have to utilize the installed base more before -- so that will take some time before we see growth there. APAC again is 13%. The year before, it was 15%, but they used to be in the region of 12% to 14%, so I think this is okay. At least, for us, we see it more as a timing issue. Middle East is slightly higher from a quite low level in '17. However, it still remains a bit tough region, so I do not see that as any sign of recovery right now. The market is a little -- not so active because of the regional issues there in the regions at the moment. They are not so -- some markets are somewhat down there. If we move on to Page 6, we see the EUR 56 million in profitability, so 6.3%. So this is, of course, a bit lower than as I said as I would like it to be. Why? I -- as we also wrote in our press release, we -- with the salary adjustment that was agreed with our increase, we have to increase the -- some of our crews for holiday pay, for example, and overtime just because of the fact that people get more salary that's a smaller single-digit euro amount. So I think this is a little bit of a timing issue as well that makes it a little bit lower than maybe in the -- a bit higher in the 6% but 6.3% is okay to us. If we look at capacity utilization that we have that we can see right now, for Q2 and Q3, it's better than last year. So I do expect that we will have a better equal split this year between the quarters. Of course, we'll still have the summer impacts still in Q2 and Q3, but we expect it to be less than last year where it was quite bad. In terms of the last or the second part of the year, so the last, I'd say, 4, 5 months, of course, we do not yet have all the orders in place to understand what the utilization will be for the last part of the year. But again, the sum up here should be somewhat better utilized compared to last year. And therefore, we also expect, ideally, of course, some better profitability for these quarters. If we move on to Page 7, not a dramatic change in the material cost percentage. But given that we have 100 basis points lower profitability, of course, we have to find it somewhere, and this is what you see on the personnel cost side here, where we move from 30% to 32%. And as I said, this is mostly to do with the provisions that we had to bump up and then build in order to reflect the salary increase. On the material cost side, we do of course, expense that is for some of our suppliers are relatively -- they have a relatively active period for the time being, so they are -- so of course here, here we are also in discussion with them because they would like to see if they can pass on some of their market opportunities to us in terms of paying higher prices, and this is what leads to the next page, Page 8. We have not raised our prices for quite some time, and we have continuously, of course, been facing cost increases, especially on the personnel side because, obviously, with our footprint and the unemployment rate in Germany, we will and we pay more to increase it each year in order to make sure we attract the right talent. So with this continuous price pressure -- or cost pressure, sorry, we want to pass on some of this cost to our customers, and this is why we're going to raise our prices towards our customers from 1st of May, so from next week. And I think also, the whole industry probably needs to have a look at what to do with these continuous price increases that we have had for quite some years. But we will, for sure, increase our prices. We believe that our solutions have the competitive advantage to cost decline -- sorry, to justify this increase. And therefore, we do believe that we will be able to pass on this to our customers. Of course, it will not be an easy sell, and we will, for sure, have many interesting discussions with our customers over the coming months. And it may, of course, to some extent, have an impact on the order intake towards the latter part of [ the year, let's see ]. But we do not expect that this will have an influence on the profitability. With our productivity and cost-reduction initiatives that we have ongoing, we believe that we can keep our guidance of 7% for this year. But we want to share the pain a bit with our customers, basically. If we move on to Page 9, we can see here that we now are almost 15,500 people. Still, we're around 2/3 in Germany and 1/3 outside but still with the increase mostly happening outside Germany and emerging markets, as you can see on the right-hand side of the page. An area where we, for sure, still invest in people and will continue to invest in people, basically to able to take up our aftersales business better and better and be closer and closer to the customers. If we move on to Page 10, that's -- we now have 2 segments. So the compact class segment is now part of the product filling and decorations segment. So we have now 2 segments. So the comparable figures have been adjusted to include also the compact class. So there, we see a solid growth of 4% for the first quarter compared to the year before, so roughly in line with the 6% that we planned for the whole year. But we see a slightly lower profitability, nothing dramatic, but of course, it's our main segment. And if the group is down, this segment is highly likely also down, and this is what we see here on Page 10. Then we come to the production and process technology segment, where we see a somewhat lower turnover level, 23% down, so roughly EUR 120 million compared to EUR 150 million in '17 but still a lot higher than '16. So we had an abnormally high Q1 2017, and this is what we see. We have especially, one last order that was accounted for back last year. And this, we are missing, of course, then in this year, and this is also what we see in the bottom line that the missing volume has an impact on the bottom line, and this is the main reason for the somewhat unsatisfactory result for the first 3 months. However, we still stick to our guidance of 1% profitability for this year because we have a relatively good backlog, especially into the logistic part of our business that I also mentioned in connection with the Q4 call earlier in the year. So it's unfortunate timing, but I would say we still have the backlog there that should cater us to deliver the 1% for the full year. And now we come to our -- my main problem child, I would say: working capital, again, up 28%. So this is, of course, not something we're happy with. We are working on working capital, as you would know, and it is also -- has not deteriorated that much in this quarter compared to the year before, but it still went not in the right direction. I do believe that some of the effects that we have been working on for quite some time will start to materialize in the second half of this year. So this is sticking to the 20% target for the full year. If we then look at the cash flow on Page 13, we see free cash flow of minus EUR 15 million -- or EUR 14 million that we have here with the EUR 3 million in acquisitions. So we're roughly EUR 100 million better than the year before. So main -- I'm happy to see that the working capital at least did not -- despite the growth that we have at least did go down, so we're EUR 20 million better than Q1 last year. Why is it still a minus? As you have -- some of you know, we have a slightly different payment pattern in the end of the year, so we always are negative in the beginning of the year, so I wouldn't say that's something dramatic or anything else. Somewhat a little bit higher CapEx. This is in particular, China, and the last payments there that are reflected there. Hungary we'll more start to see again towards the second half of this year, but we will also have some pressure here in Q1 -- sorry, Q2 this year. So this, as I already mentioned, this leads me to Page 14, where I'm happy to announce that we still stick to our growth of 6%, and you saw the strong revenue grow. I did not mention the backlog, but the backlog is also quite strong. So EUR 1.3 billion end of Q1, so EUR 100 million higher than the year before. So a strong backlog, that's for sure, should cater for that we will reach our 6% target on the volume growth. And the 7% is also still the expectations for our margin and working capital as adjustment, and we do expect to see the benefits keying here in the second half. That should cater us to the 26 -- I think I actually made a mistake earlier, but 26% is for sure our target, not the 20 million that I mentioned. That's all for that. All right. That was the quick and dirty walk-through on our numbers because I think it's more important that you guys have the time to ask for questions. So I now leave the floor for questions. Operator, if you can give the guidance how to put in the questions.
[Operator Instructions] The first question is coming from Andre Finke.
My first topic would be the price increases you announced. First question, you said that this will not impact your full year guidance. Does this imply that price increases are necessary to match your full year guidance because I think previously with the full year results, you haven't talked about such kind of price increases. So my question also would be what has changed compared to the full year when I think the negotiations with the unions were already concluded. Also in the quarterly report, you mentioned that payment terms will be adjusted as well. Maybe you can elaborate also a little bit on that. And maybe last on that topic, why you think your competitors will follow suit unlike [ embedded notifications ] in the past? And the second question topic would be just a quick confirmation on like-for-like revenue growth. You said probably slightly up excluding the currency impact. Does the application of IFRS assisting in product filling and decoration have any meaningful impact on the revenue growth as well?
So first of all, I do not know what the competitors will do with the price increase. I have no clue. But I know that we want to increase our prices. I don't think there's anything extraordinary in order to secure the result. Of course, we expect that the price increase will help us to -- on the profitability. We do believe that this is the best strategic option for us to increase the prices. And I would say, I think it's about time that we raised our prices. We have had cost increases for many years now, and we have not passed any of that over to our customers. I think also, our customers understand that our costs increases. I think they also sometimes raise their prices or lower the volume that they send the units in. And then we believe that our products are the right ones to also ask for more. So I don't think there's any -- it's not that, s***, we need to do something -- pardon my French -- but we believe that it's about time that we raise our prices. Payment terms, yes, working capital is an issue for us, and with 28%, we for sure finance a lot for our customers. And we want to make it clear that also into the market that we meet and want to improve our working capital. We have very bad free cash flow last year, and this cannot continue. We also need to -- not only to pay for it also but part of it should be paid from our customers. So we will have to renegotiate the payment terms with some of our customers behind in the negotiations in order to improve their working capital. It's not only internal measures, but they are for sure easier to implement. But we do also believe it's about time that we have a harder look at what -- that we not only have to finance it but also our customers. On the like-for-like, or your IFRS 7 -- 15, sorry. IFRS 15 do not really have any significant impact on the P&L. Of course, it has -- and because we had an adjustment and it's now, it's getting a little bit accounting-wise. But the effect is only really on the equity, so the equity, we had to adjust beginning of the year, but the P&L is basically unchanged, I would say. So insignificant impact on the P&L. So the equity is the impact and then, of course, we have an impact on the working capital that is somewhat negatively influenced by this change.
Okay, and maybe as a follow-up to the pricing question again. Is it right to assume that even with no price increases, you would match the margin's higher portfolio 2018 that will be the first for us?
So I would say that most of the -- so the backlog is, for sure, of course, without the price increase. The quotations we have out there in the moment is also without the price increase. So it will only be the orders that we start to land here in the next month that to -- and some extent will be in the P&L for this year. But so that is as you are a small effect from the price increase or there should be a small effect on price increase in the P&L for this year. So theoretically, you're right that this is a small correction, but I think there are a million other issues that impacts the P&L than this one. But of course, theoretically, I agree with you, that this is something that will help us to achieve the 7%, ideally more than that. But we wanted to confirm the target and not already now say anything about where it's slightly higher or slightly lower. Of course, we believe it would be around the 7% when the year's over.
Okay. And the second follow-up would be on your comments that could have negative impact on your order intake towards the end of the year. What kind of market share losses or revenue losses would you be willing to consider. I think you had a similar attempt already 2014 or so when [indiscernible] effects your [indiscernible] strategy again. So what kind of market share losses would you be willing to take to secure [indiscernible]?
So we want to still become -- stay as the market leader in the market, and we believe we can do that also mid-term. And if it will impact our short term, then we're willing to bite this because we believe that it's important for us to raise our prices. And I can't say where the limit is, but of course, there's a limit. But we believe that we can sell our products more expensive. But of course, our customers will chase us out. And then they -- so for sure in the beginning, they will try to see if we get shaky, but this is not at all our plan. We want to stick to the plan of raising our prices. And then we have to bite the bullet and wait until the market -- anyway, I think will have to come back to us because, as I said, we still believe that we have a good part portfolio that the customers are willing to buy and pay for from us.
Next one is Mr. Sebastian Growe from Commerzbank.
On the EBT development topic of [indiscernible], I have just one question to understand really why the previous profit was down 15% in the first quarter or maybe 10% down if I exclude the provision issue. But the [indiscernible] were about flat, and my question simply is, if there were any debt contract that mix was very, very unfavorable in the quarter, if you can comment a little on headwinds from hiring. On the service side, to what extent Hungary is already sort of started to kick in and weigh on the profitability lines. Or maybe you can just leverage on a couple of these issues.
Yes. I would say Hungary is not really a big issue yet. Yes, we have some people onboard, but it's not so many. I think China is maybe impacting that dip here because we now are up and running in China with a large factory. And for sure, the factory is not full yet. And this is what we need to crawl, and then we walk, and then we run there. So we're within this sort of between crawling and walking phase. So we for sure have a lot of capacity that is not efficiently used, so China is one. There was a little bit of product mix in the beginning of the year that, to some extent, negatively influenced the profitability. So apart from that, nothing spectacular to highlight. It's not many millions that are impacting where we would have been 7 or the 6.3 that we are at. So no, if there's EUR 2 million, EUR 3 million on the salary increase part, then we don't need more than EUR 3 million, EUR 4 million, maybe EUR 5 million more, then everything is explained. So 3 months is nothing that, for a couple of millions or so that at least we're concerned about.
No, [indiscernible] really a difference behind it. On the orders, if I may come back to that one, was there any particular tailwind from large orders to start with? And the second question then is on systems logistics. Was that one of the key drivers eventually for that very, very strong order growth in the first quarter?
Yes. At least on the intralogistics, so for system logistics, we did get a larger double-digit order in Q1 from the North American market. So they, for sure, helped to contribute to the 13%. I think that's actually the largest one we have. Nothing there -- it's not a 3-digit-million order in the first quarter, unfortunately. So it's more normal business but yes, also in -- like in Q4 last year -- or in the whole last year, but especially in Q4 last year but also in Q1 this year, we have a good order intake growth in the -- from system logistic. And we had to be very, how should I put it, have to be very selective in what orders we take in there because we have basically almost sold out, so to say, in terms of engineering capacity there. So that's a nice luxury situation, but of course, for we're trying as much as possible to attract new talent to even maybe get a larger chunk of what is available in the market. We have a unique market position right now, I'll say, in the U.S., and this is for sure what is benefiting us quite good there.
Thank you very much for bridging for this very next question because that was effectively what I wanted to know, if you let already some orders go in the quarter 1 because of capacity constraints, et cetera. So it sounds, really, you could have printed more than, say, the billion order intake level that you achieved, right.
Yes, I think we're good, especially on the -- especially, my comment was mainly related to the inter logistic. We still -- since we are still having a largest part of our volume from the Northern Hemisphere, and that we are still the main player in the beverage industry, it is -- everybody that has that footprint, so to say, it is unavoidable to have a lower volume -- or let me say it's not order volume, but at least difficult to get full utilization in the 2 summer months -- sorry, in the summer period.
Could you put a number behind what the eventual [ pay ] could have had 1.1 billion, 1.2 billion of orders if I had the capacity?
I know I can't. I think that's too theoretical. Because so big -- it's not that we -- unfortunately, we're not so strong that we can -- we do have competitors also in the inter logistic business. But it's a very good position to have, and then I think there's a lot of potential, especially in the North American market, which is very attractive for us.
Very interesting. Last question [indiscernible] is on the price hikes, the 4.5% that you mentioned in the press release. Is it related to really all end market and applications? Or is there certain, I'm going to say, sweet spot where you feel it's much easier to push it through and others are eventually much more difficult?
It's our -- so we will -- so they asked -- so this is for what we call the new machine business. So this is the 2 main segments. So it's the process technology and it's the filling. So it's the new machine business but it's not the digitalization, it's not the intralogistics, and it's not the aftersales business. Of course, on the selection of a new business or system logistic in some of the markets we are, for sure, indirectly have a price increase because we can quote, I don't [ see ] how to say it, and that's better there because we have the luxury that the backlog is enormously high there.
Mr. Peter Rothenaicher from Baader Bank.
Also to some extent on the price increases, does this price increase for your customers come as a complete surprise? Or have you seen here already some early ordering as customers want to avoid this price increase?
No. This is -- so we wanted to make it clear in the industry, so this is something that is also firstly communicated now to the -- our customers. So this is even something that we did not share also internally, only with a limited amount of people. So this is something that we spent the last week to discuss internally with a larger and larger group what to do there. And then, I would say, from today on this morning, the whole sales team was briefed. And they -- of course now, I'm sure some of them already talk with the customers, and I'm sure that not every customer is [ playing ] their hands, of course. But this is something that is ongoing from now on. So it was also announced officially internally at 8:00 this morning in a big sales meeting that we had here.
Okay. When -- if you do the price increase, you will likely invoice these better price orders, I would say, more from Q4 onwards. So how do you see the current profitability pricing of the order backlog, particularly in comparison to last year?
There's a -- how should I put it. There are a few not-so-nice orders in the backlog right now that I would say that the average is maybe slightly below. But overall, it's not a significant change, but the market is for sure slightly lower, and this is -- for sure, it's all tied together. We believe we need to set a [ sign ] in the market, but we are also seeing a trend that we are not so happy with, and we need to work on that.
And so with that respect, so you had -- it's now relative weak margin first quarter. In the second half -- second quarter, we'll see also some negative trend from the wage increases. Now nothing in provisions but in your real payments. And on the other hand, you definitely will see a stronger sales increase. So is it fair to assume that since the second quarter will be in the margin better than Q1 but not back at your target level and more or less then your margin target is more back-end loaded?
So we will still have the issues loading, I'm pretty sure, towards the end of the year. But then as I said, the utilization will be higher in Q1 -- sorry, Q2 than last year. And we have the huge backlog that we are working heavily on. So yes, I do expect that Q2 will be better than Q1 this year.
In process technology, definitely is as a result was very bad, clearly, sales volume also radically low. Nevertheless, were there some special problem orders which you invoiced? And on the other hand, when can we also then expect for the second quarter a clear turnaround in the PT segment?
There was nothing really anything large that impacted the first quarter. This is more volume issue. The volume was low in Q1. Yes, I think Q2 should not be so bad as Q1, but apart from that, I will refrain from commenting a bit on the time because it's much more difficult to forecast the timing of the volume in that part of the business. But it was low and we still believe that we will achieve the 1% for the full year. How much of that recovery will then be in Q2 or Q3 or -- it's a bit difficult to say. But we have the backlog that should cater for us to -- enable us to achieve the 1%. We need of course the volume and -- but as I said, we have the backlog.
And then does this mean for intralogistics that you expect the major projects to be executed and invoiced in the second half of the year?
To some extent, yes, but our intralogistics business will have a somewhat smoother allocation of the profitability this year compared to last year. And last year, we were suffering quite heavily from the fact that, in 2016, most of the order intake were landed in the Q4 quarter. So that meant that last year was particularly, let me say, red in the beginning, and we did not manage to recover as much as we would like. But now the backlog was already there from early '17 and therefore, it's intralogistics activities will also contribute positively in Q2.
And regarding your acquisitions, are you satisfied with the performance of your acquisitions of the recent 1, 2 years so far? Are there some problem areas in? And on the other hand, what is your schedule and your expectation regarding those acquisitions?
Yes, so I would say, on system logistics, we took as a pickup -- so the timing was a bit unstructured last year in terms order intake, but we have the surrendered order intakes, so we are very happy with the performance of the system logistics, and this will for sure deliver the volume and the profitability that we planned for this year. On larger one that we did the trends market, I think they are performing quite well. They are -- we are, as I said in the last call, we are expanding their footprint within the U.S., so we have now 1, 2, 3, 4 -- 6 locations in the U.S. for that activity. So I think they're doing quite well. They always are smaller but they're doing -- I don't have any -- of course, there are some that are less good compared to us. It's always -- not everything comes to plan but overall, I will say, I'm quite happy. When we look at what we presented to the advisory board, we have all in green except for one, which is -- we have a small traffic light system and except for one that is yellow, but that's more a timing issue. But that's actually an acquisition that we did what is it, 4 years -- 4 or 5 years ago. But they are -- that's more a timing issue that we had last year that I expect -- or we expect will be settled this year. About new acquisitions, we have not any larger ones on the table, but right now, we are -- it's so hot that I can't say something about it. But I did sign 2 SPAs this week, but they are much smaller, so nothing that will really rock the boat. But we did buy 2 smaller entities this week, but they are quite small. I think they will do -- let me calculate, a very small single-digit euro volume contribution this year. And hopefully, in this quarter, we'll also sign another smaller but strategically important one, but nothing that will really impact the volume numbers for this year.
And the last point then if there's a price increase has -- it's bigger impact definitely then in 2019. Is this your view that then, you should see a major step forward in terms of your profitability to reach your 2020 target?
It's always -- it depends of course, on the one who evaluate what make is. But yes, this is at least one contributing fact that we're trying to improve our profitability. It should of course, come from ourselves and better products and better productivity inside. But we, of course, also -- some are used to pay for it, and that can only be one, that's our customers. And they hopefully will, as long as we continue to provide the right solutions in the market.
Next question is coming from Felicitas von-Bismarck from Deutsche Bank.
I have a couple of questions just again on the pricing part. Would you rather say this is a signal of confidence in the market, in your market positioning? Or would you rather say this is a signal that the material pricing pressure and personal pricing pressure is getting so high?
You can say both, I guess, but we are the biggest player. I think we have the best solutions in the market. We have the best service. Our machine works the longest. So I would say it's a signal of confidence, but -- and there's always a -- but at least when you speak to the CFO whose name is Michael Andersen. This of course has something to do with cost pressure. And I think it's easy to explain to our customers that costs are increasing. They do the same towards their customers, and it's about time that Krones also do it.
Yes. What I wanted to get at if we didn't have the material or personnel costing pressuring, would you still do it as a strategic measure because you think that's the only way?
Yes, for sure.
Okay. And that was first one. The second one, do you expect a large pre-buy effect before also in Q1 -- Q2, I mean?
A large what? I'm sorry, I didn't get it?
A large pre-buy effect? So that when you...
No, no, no. That was a question that Peter asked also, no. So it's not something that was known internally in Krones before and very recently, and therefore have -- I cannot imagine at all that any of our customers had any feeling that this will come.
Okay. And the other question is, how did your salesforce react when you told them this? I mean, they must have not been that happy, right...
We're not -- this, of course, does not make life easier for them, but we both want to improve payment terms and increase prices. So they -- I think they thought of -- they needed -- how should I put it, they needed to sort of swallow it because this is not something that we have been doing, so this is new to them. But we had a very good talk with the senior management sales guys here over the last couple of days. And they for sure stand behind this one. But yes, it's not easy, and that will make their life a lot tougher.
And have you changed the incentive system in any way? How are they incentivized right now?
So this, we actually already did last year. So they have a volume and a margin and a cash flow, but we made the margin a bit simpler. So yes, it's likely changed, but it's not only margin because we live also out of the installed base. But it's, I would say, there's a good balance between the 3, and that's what we changed last year. And this is what they partially saw in their bonus payment that they got paid out with, the summary payment for April. And at least they all noted that the one on profitability and on payment terms of working capital was not in a level that I'm sure they would have liked it to be.
And my last question I had, do you have these price increases across both divisions? Or is it -- or like equally split between the divisions? Or is it more your core division where you have really very strong markets and are trying to push it further?
That is for sure. Our market particularly is by far the strongest in the core segment, so this is where it will most prevail. The other segment also contains the intralogistics and the digitalization activity, so that's already takes it out some part. But the brewery and the soft drink activities will also -- there will also be an impact there.
Okay. And one more, please. The order intake rate, can you give us an indication how the order mix was for the divisions? So was this really driven by the core? Or was there some large projects and then the process production?
It was mostly in the core, I would say.
Next question is coming from Sven Weier from UBS.
A couple of questions from my side. The first one, on the price inflation that you face. I was just wondering what are the main tickets that you buy that are driving this and how you see your suppliers were acting further to this? Are they adding capacity? Or do you think that their own situation is going to remain tight? So that would be the first question.
I think most of our suppliers have more customers than us. So I would -- but I think at least most of them, as far as we know, their utilization is relatively good so I would be surprised if they are also not trying to add capacity because at least we saw also towards the end of last year that delivery times was starting to be a critical issue. So we have many talks with some of our key suppliers to try to make sure that we got on top of the pile of papers, so to say. And so at least our impression is that they have a pretty good situation. But it's very difficult to -- we don't know them that well either.
But what are the most important items here that are really driving your procurement build? Any highlights?
I think very generally saying, of course, steep prices is for sure one where you know we have steel in our machines, and when steel gets more expensive, stainless steel, then we have to pay the higher cost. And we then do quotes, as you know. Our competitors have today, and that part, your ability to pass that onto the customers. Where all of it gets passed is extremely difficult to measure. As you know, you may even know the machines better than I do. You've been around Krones for longer. But there's also a lot of electronic components in our machines, and that's another important factor than all these components or instruments that they -- our customers also want to get. They also have higher costs, especially since our -- many of our current suppliers still are in Germany.
Because one of the reasons I'm asking, when I think back about our margin bridge, I think, one of the items you wanted to do is that you internationalize your procurement as well. I guess, so far you have 80% of your procurement in Germany, so I was just wondering also on that flexibility, if you're just go to a different supply in a different region.
Yes, and this is what -- so with our machines and our production setup, this is something that takes time. So we do -- so that will, for sure, help us to buy in our locations, while we still have a, how should I put it, a very high here in Germany and in high-cost countries. And we have -- this has not changed significantly until now. It's changing slowly, but at the pace that I would like to be faster. But we have to change the whole way. When we introduce a new machine type, then it's easier to do it with a different supplier. So I would say that leverage is not at a level that I think it's possible, but it takes time to have that levels leverage.
A follow-up question I had on the pricing. I understand you had a broad agreement in the management board and with your senior sales. And do you also have the full backing of the family on this?
So the family wants Krones to continue to be an important player in the market, and they deliver profitability, and therefore, dividend. And for sure, in terms of what they stand behind the [ 4 ] stand on the Executive Board, but this is a -- we run the business, so that's not something we -- that small, I would say, an operational issue that we do not really engage and discuss with them.
And the last question I have was just on timing. If you had, especially on the service side, any impact from the timing of Easter. Because I guess, we get some anecdotal evidence somewhere else that March was a bit weaker than usual because the service was off for 2 weeks and maybe also some of the timing of deliveries on the machinery. So do you think that also has an impact on you, or...
Yes, for sure it had some impact because at least as you just mentioned, Germany tend to have a longer Easter than the other countries in the world. So yes, for sure, that had some impact.
The next question is coming from [ Jeff ] [indiscernible] from [ Bankhaus Lampe ].
Some minor ones left. The first one is regarding your seasonality, just to get a feeling what you meant. Did I understand it right that you were talking about shorter holidays in Q3 that would allow for higher utilization and better profitability going forward?
No, I don't think so. So I'm just saying that on seasonality, since we provide machines for the beverage industry and our portion on the Northern Hemisphere is higher than the Southern Hemisphere, our customers tend to focus on producing beverages for the consumers in the summer period. And therefore, we sell more new machine business for increased capacity in the Q1 of the calendar year and the Q4 of the calendar year. That was what I was trying to say. I don't think the -- I guess, the holidays on Q3 is the same like last year. At least we didn't plan on anything different.
Okay, and then secondly, when I look at the seasonality in the last years, and now see your added excellent start to this year, it seems that you need a really strong seasonality. So your confidence is coming then from your backlog, so you have a good visibility on timing of deliveries.
Of the backlog that we have for this year, for sure. But as I said, the 100 basis points is not many millions, so...
It sounds it would be a rather significant improvement from Q1 to Q4 compared to the past, so it would mean that you're shipping significantly more than you've done in the past, I would assume?
So in Q2 and Q3, I think we'd be stronger this year than last year. So that will also somehow [indiscernible] that Q4 does not necessarily meet -- I don't know what the margins of course, but then Q4 last year was very high, I agree. But Q2 and Q3 were also relatively low last year compared to what they normally are.
Okay. Maybe I or misinterpreted. It's that you mentioned a fixed headwind of around 2 percentage points. Was that right?
The translation effect for the volume, yes.
Okay. And then finally, just to understand what has changed in Q1 reporting regarding your balance sheet items, particular those on the working capital position. Because when I looked, you have no contract asset in it. And before, I guess, it was somewhere included like inventories or advanced payments. So could you give us a little bit of help here to understand?
So basically now, part of the inventories are now with the profit. And therefore, it's moved from inventory to these contract assets. That's the change. And this is the effect on the equity and this is the effect on the credit. The profit part is now added in the balance sheet and, therefore, the working capital is higher because of this change.
Okay. And on the liability side, it was advanced payments or...
Yes, and nowadays, it's called an R1, but now, it seems the asset size increase. Then you net off more of that. That's why it's lower on the liability side, but you completed 2 lines. I don't have it in front of me. But yes, you can see one is 0. And the one year [indiscernible], one is 0 this year...
[Operator Instructions]
All right, it doesn't seem there are more questions. Then I'd say thank you very much for joining and I look forward to meeting you and talking to you in the next call. Thank you very much, and have a nice day.
We want to thank Mr. Andersen and all the participants of this conference. Goodbye.