Rational AG
XETRA:RAA
Earnings Call Analysis
Q2-2023 Analysis
Rational AG
In 2023, RATIONAL marks its 50th anniversary, showcasing a half-century dedication to empowering commercial kitchens and celebrating with events worldwide, from China to Brazil. These events symbolize RATIONAL's emphasis on people, both customers and employees, evident in its resilience and customer-centric decision-making.
The recent years brought forth significant challenges due to supply shortages, particularly in '21 and '22, impacting production efficiency and leading to a considerable order backlog. Now near the 'new normal,' RATIONAL has managed to reduce its backlog from over €400 million at its peak to €160 million and has resumed standard operations.
Despite the economic uncertainties, RATIONAL's financial stability has allowed it to maintain a successful trajectory. This is rooted in a clear focus on satisfying a basic human need—food—and an unwavering commitment to customer satisfaction, demonstrating adaptability even when the industry landscape shifts.
After a plunge in sales during COVID-19, RATIONAL saw a remarkable recovery with €1.022 billion in sales in 2022, growing by 31%. For the first half of 2023, sales rose by 20% to €278 million, and the company expects sales to further increase quarter-by-quarter, indicating a positive trajectory for the rest of the year.
In Europe, sales increased by 14% to €237 million. Germany experienced a slower growth of 4% due to a previously favorable supply situation. Latin America, Asia, and the rest of the world regions, however, exhibited considerable growth rates of 33%, 29%, and 27%, respectively, signaling a strong international demand.
RATIONAL's primary product group, the iCombi, achieved a growth of 27% with €503 million in sales. In contrast, the iVario saw an 8% decrease compared to the previous year. This reflects a normalization after an exceptional year, accounting for varying CPU availability over the years.
With an EBIT of €136 million in the first half of 2023, up by 46%, and an EBIT margin of 24.3%, RATIONAL's earnings reflect a near return to pre-pandemic levels, illustrating strong profitability. The company achieved a better gross margin through increased productivity and well-balanced pricing strategies.
RATIONAL projects sales growth in the high single-digits percentage range for 2023, with a stable sales development throughout the year. This forecast is based on solid demand, effective price increases, and sustainable material availability, despite an absence of the usual stronger second half due to a diminishing effect from order backlog reductions.
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My dear ladies and gentlemen, it is a pleasure for me to welcome you to our earnings call on RATIONAL's Half Year 2023 figures that we published this morning. My name is Stefan Arnold. And with me are, like always, my colleagues, Nicole Engelhardt, Tobias Stadler; and of course, our CEO, Dr. Peter Stadelmann; and our CFO, Jörg Walter.
So Peter will start the presentation in a few seconds, and I have just a few hints for you at the very beginning. So all participants are muted. And if you want to ask a question, please send the question to ir@rational-online.com. I see we already have a big number of questions. So thank you for sending you the question in advance. After the presentation, like always, we will give answers to all your open questions. And if we already gave answers during the presentation or if there are double question, we might not repeat the question again in the Q&A session. And at the end, of course, we will make sure that every answers are given. And if you have any question, you feel it is not answered or do you have a new question, please give us a call or send us an e-mail afterwards.
So with this, I want to hand over to Peter. Now the stage is yours.
Thank you, Stefan. Dear ladies and gentlemen, welcome.
2023 is our anniversary year, 50 years of RATIONAL, 50 years of focus on helping our customers, helping the people working in the commercial kitchen. We celebrate this anniversary worldwide with our customers, with our partners, and of course, with our colleagues. You can see here examples from China, Brazil and Poland. These celebrations are important to us, and believe me, our staff greatly enjoys these parties. It is one way of appreciating their hard work for our customers.
Of course, there were and are also numerous events at our main location in Germany. We were able to welcome our global marketing and sales colleagues in Landsberg. Our summer party for our U.i.U. took place. And as you can see here, we held an open day at our factory. After a break of more than 10 years, we opened our production facilities in Landsberg to all interested people. Almost 7,000 people came to visit us. To put that in perspective, the city of Landsberg, where we are located has about 30,000 inhabitants.
In addition to a factory tour, there were cooking shows a program for the children. Some of our departments were introduced in order to attract future employees. And of course, there was cooking and eating.
For us, events of this kind are particularly important. At RATIONAL, we stand for people coming together and eat. Wherever people come together, eat and have a good time, we bring the greatest possible benefits to those people that make such events possible in the kitchen. After the great challenges in the recent years, we are more than happy to be able to do this again on site in Landsberg.
Why do we start this call, we're talking about celebrations and events because they are all about our people, because we know that we could not deliver any results at all without our almost 2,500 great U.i.U.s. That is one big difference to many other companies, and it is important for us to make sure you understand our differentness. 2023 is the year in which we are able to take a significant step towards normality. The last three years, external factors very much impacted how we did business, how we had to do business.
One topic that has been much discussed only the last two years and not at all before was our order backlog. In general, this plays a minor role for us as we are aiming to be a very lean company, producing to order and to be flexible and acting fast and we have not only the largest sales force in the industry, but also the one closest to end customers.
On the other side, dealers and end customers were used to very short lead times. Order backlog was up to 6x higher, more than €400 million in peak time end of Q2 2022. With €160 million of order backlog in Q2 2023, we believe that we are near the new normal, which might be still twice as high than pre-pandemic. You may ask why this is higher than it used to be before. And my colleague, Jörg Walter will tell you more in a few minutes about that.
The order backlog issue and the very long lead times were created by the supply shortages in '21 and 2022. The production of semifinished units was kind of a nightmare for our productivity. R&D was busy having to redesign components and change software accordingly. Production had to allocate units and internal sales was constantly changing delivery dates due to the delays. Also here, we are back to normal.
I don't think you doubt that we are glad to put this chapter behind us. Without having to firefight all these external factors, we also were accomplishing internal projects. For example, the new offices in Landsberg, but also introduced new accessories for our units.
The last three years also made us proud of ourselves. Even in these times, we were successful. We showed that also in economically uncertain times, we were and will stay successful. Why you could ask? Our financial stability allows us to bridge uncertain times and to keep investing. We focus on a basic human need. The places of out-of-house food prepared may change. The number of meals on the other hand, will increase. We know that only with satisfied employees, a company can stay competitive in the long term. Employees are the foundation of our success.
And lastly and most important, we have a clear focus towards our customer satisfaction. Every decision comes down to this one question, how can we increase the benefits for our customers. One example of our happy customer is spectrum retirement.
It operates 41 retirement assisted living and memory care communities with 8,000 residents across the United States. Spectrum embraces new growth and evolution to ensure it is always providing the best service and opportunities to residents and families. And food service is an important part of that equation. But I will let our happy customer explain how we work together closely with them to guarantee perfect results for every resident.
[Video Presentation]
Coming to the financial information now, let me again point out one important difference of RATIONAL. Our highest goal is not sales and not earnings, but customer benefits. Only through fulfilling the needs of the customer, we can deliver financially good results. At the beginning of our facts and figures section for Q2, just a short recap of our last year's sales development since it is important to understand also this year.
On this chart, we see the sales revenue since 2016 in gray and 2022 in red. COVID-19 in 2020, set us back even below 2017 level. Fortunately, since then, we could recover fast. We achieved sales of €1.022 billion with the growth against previous year of 31%.
The reasons for this good development was the good availability of electronic components since the second half of the year 2022 with an especially strong fourth quarter and rational catching up in reducing order backlog. Also price increases due to higher input costs, costs were driving our sales revenues to an unusual level of 31%. During 2023, we want to come back to our normal long-term business development that is a reliable and steady sales growth with high single or low double-digit growth rates overall.
Let's look at the start of our business performance in Q2 and -- Q1 and Q2 2023. Reducing our high order backlog boosted sales in Q1 by around €45 million and another €40 million in Q2. With €278 million, we were able to increase sales by plus 20% against previous year. Looking at the high growth rate, it is important to mention that the shortage in electronic components heavily affected our first half year 2022. So sales revenues at that time were limited by that shortage.
Like I mentioned earlier, we had a normal supply situation since H2 last year and see no signs for any shortages. Compared with the first quarter this year, the quarterly sales were on a comparable level. This is also what we and the analysts covering our stock expect for the next two quarters. That's shown here in light red.
This means that we do not expect to see our usual seasonality in sales revenues. So at least one thing that will not yet be normal in 2023. The underlying orders, on the other hand, are expected to grow from quarter-to-quarter. That means Q3 and Q4 2023 will see no significant impact of working off order backlog.
Let's look at the business development by region. In half year run, we were growing in all regions of the world. The largest region for our business is Europe. In Europe, excluding Germany, we were able to increase sales by plus 14% to €237 million. And in Germany, we show a growth rate of plus 4% to €64 million. The comparison in Germany is affected by somewhat preferred supply situation in half year run 2022. That's why the growth rate now is lower than usual.
Europe grew slightly below group average with the other regions showing extraordinary high growth rates. Our most important growth region is North America. It grew by 50% to €126 million. This was especially led by the strong street business in the United States. Also, Latin America showed high growth rates by growing plus 33% to €32 million. In Asia, we are growing by plus 29% to €70 million, supported by strong growth in Japan and a starting recovery of Chinese business. Finally, the rest of the world region. Here, we have also a dynamic growth of plus 27%, driven in particular by the Middle East.
And now I hand over to Jörg.
Thank you, Peter.
Also from my side, a warm welcome to our quarterly call. On this slide, we are looking now at the product groups and the situation is generally unchanged through the situation we saw in Q1. The bulk of our business on the left side is iCombi, here we grew by 27% to €503 million in the first half. And here, we had a lot of catching up and working down the high order backlog, as you all know.
In contrary, on the right side, the iVario, here we have a decline by 8% compared to the sales of the first half 2022. The reason for this, we talked about this many times, is the different situation of the availability of the CPU for the iVario in the years 2021 and 2022. We were less limited in 2022. And therefore, we were showing a tremendous 50% growth compared to the first half of 2021. Based on this extraordinary achievement last year, the current numbers are rather a normalization of the whole situation than a critical situation.
The numbers for the product groups include nonunit sales also of the respective product group, so for the iCombi that is cleaners, accessories and spare parts. And for the iVario, it's only spare parts and accessories. We don't have any cleaner business there.
So the nonunit business is less connected with new orders in the field, but they have rather have a recurring character that is connected with our installed numbers of units in the field. And the nonunit sales have three parts that are almost have the same size, it's service parts, the accessories and the cleaners for iCombis.
And here, on the right side, you see the sales. So we said nonunit sales, we want to show extra in order to better understand the sales development of this, so to speak, recurring business. In total, the nonunit business makes up of 29% of our sales revenues and were at €162 million in the first half. And with a growth rate of 18%, we have a stabilizing effect overall on our long-term sales development.
Let us now talk about our order backlog, our order entry and our delivery times. You see here on the graph, the red line, this is the order backlog. And then you see two columns. On the left side, the light gray is an order intake. And on the right side, the darker gray, it's a sale revenue. The order entry in Q2 was still below the sales level, which brought the order backlog, the red line down to a level that we now more or less regard with around €160 million as near to be normal compared to the precrisis level of around €70 million that is higher due to two effects.
First of all, dealer order earlier, which means that we have now an order backlog of around six to seven weeks, rather compared to an order backlog of three to four weeks that we had precrisis. And secondly, also, we have price -- we made price increases, as you all know. And this also has an impact on the order backlog in euro terms.
The good news for our customers, the delivery times are for both product groups back to normal, and we have currently no restriction from the supply side. And looking at the development of our order entry alone, so this is a lighter gray column. If you look at the time line, then we also had in Q2, we were also able to grow the order entry compared to Q1.
And for the second half of 2023, we expect orders and sales to me -- to be more or less on an equal level around -- so the sales level of Q2, as Peter showed on this one slide before. So how are earnings? It is clear that good sales lead to a good EBIT. EBIT reached €136 million in the first half. This is an increase against previous year of plus 46%, and the EBIT margin was at 24.3%, an increase of four percentage points against the first half year, last year.
Looking back, here, you see that on the graph, looking back to 2018 and 2019, the current EBIT margin is nearly back to the level we had in the first half before COVID-19. However, in these normal years, the first half year was sales-wise the weaker one compared to the second half. And this, we do not expect this year sales-wise.
So we don't -- will have the same seasonality. We rather expect a stable sales development throughout the year. And since we expect rising OpEx levels for the second half, we do not expect the EBIT margin to stay on this level for the full year.
So looking at the P&L in more detail. We see that the main drivers for the good earnings development was, first of all, the good sales situation with an increase by 23%. Secondly, at the same time, we were able to increase the gross margin to 56.1%. This is due to a better productivity in our factory. We did not have to, for example, produce any semifinished units anymore. And we also achieved a good balance between the higher material prices on one hand and the adjustment of our sales prices for our products on the other hand.
Third reason, operating costs rose under proportionally compared to the sales by only 13% to €177 million. We see the highest increase in sales and marketing expenses. The main driver here are the logistic costs due to the rising shipments or the higher shipments and installation costs, but also we have higher marketing costs in course or due to the normalization of our sales activities compared to last year.
Overall, we have to say we are very satisfied with the earnings situation of the first half, especially also the stable situation of our gross margin on one hand and also the, let's say, under proportional increase of the OpEx. And maybe one highlight also for us, looking mainly on Q2 results alone, the EBIT margin here was at 25%. So this is an important, let's say, mark for us to reach the magic 25%, our long-term EBIT goal -- our EBIT margin goal.
Yes. Looking at the balance sheet. It's all solid. As you know, we have no relevant topics here. Total assets are at €853 million. This is €46 million down versus December last year. The working capital inventory and receivable is on a comparable level like in December. On the other hand, our liquid funds are down against last year due to the payout of the dividend of around €150 million that we did in May.
And also in addition, the dividend payment -- or in addition to the dividend payment, we are increasing our short-term investment due to the higher interest rates that we have right now. And that is the reason why there is additionally also a shift between liquid assets on one side and other assets on the other side.
We continue to invest in the future of RATIONAL with a CapEx volume of around €35 million to €40 million, we are coming back to the levels of 2018 and 2019 when we had increased CapEx levels for the new generation of iCombi and iVario. For this year, the biggest projects are, first of all, the finish of our expansion in Wittenheim, the total investment volume will be for this project is around €35 million, but split over multiple years. Then secondly, the CapEx for our project road to China. And then we have various site development projects. It's normal that our sales offers with our growth around the world from time to time, we move to bigger offices like we will have to do so in Japan.
Also in Landsberg, we have several development projects running. We will purchase some additional land, and we -- Peter talked about that finished the office expansion in June. And also, we are investing in photovoltaic in Landsberg and in Wittenheim.
So during the last two years, with lockdowns and long lead times, we kept our sales force in the areas at a stable level. And now with a growing business, we are continuing to invest in our workforce with a focus on our sales functions. In the first quarter, we generated 85 new jobs at RATIONAL and more than 50% in our sales organizations that we do in order to intensify our activities with our potential customers in order to create future sales chances.
So finally, we come to our sales and earnings forecast for 2023. Overall, we have positive expectations, the price increases and the stable material availability together with a continued strong long-term customer demand gives us a positive outlook for 2023. On the other hand, on the other hand, the positive effects coming from the reduction of the order backlog that we had in the first half that will not continue for the next two quarters.
Therefore, sales in Q3 and Q4 will not follow the usual trend pattern of a stronger second half. For the full year, we expect sales growth in the high single-digit percentage range. And thus, we are returning to our long-term historical growth trend.
Looking at the OpEx, at the same time, we will increase certain operating cost elements over-proportionately in the second half, especially in sales. I just told that with regards to new people in the field, in the sales function. And in addition, we expect higher costs due to high inflation. We increased the wages on a worldwide scale, starting from 1st of July, by around 4%. And we will also continue with our strategic projects for the site expansion and also for the project road to China.
All in all, we expect operating costs to rise slightly over-proportionately to the -- in the second half. And for this reason, we expect EBIT to increase slightly below the level of revenue growth, and according, we expect the EBIT margin to be slightly below the high level of 2022. And in case of the delay of our projects, so in case of we have lower OpEx levels or also maybe a little bit of stronger sales development, then the EBIT margin could also be on a level -- on the same level, comparable level than the previous year.
And with this statement, we are at the end of our presentation. I'm handing now back to Stefan.
So, thank you, Jörg, and thank you, Peter, for your presentation. So, we now come to the Q&A. I see we have, in the meantime, I think, more than 30 questions. And so, I want to directly hand over to Nicole to start the Q&A session. Nicole?
Thank you, Stefan. Yes, I'm going to start with a couple of questions for you, Jörg. The first question is, you expect sales to drop in half year two. Do you see a slowing demand?
We reduced our order backlog by around €85 million in the first half, and we expect this to end in Q3. So, we will not have any positive effect coming from working down the order backlog. And as shown in the presentation, our quarterly order intake grew in the recent quarter, and we are expecting also a slight increase for the Q3 and Q4. So, we will have more or less the same level between order entry and sales for the second half.
How did order intake compare to H1 last year?
Compared to previous year, we are down by 15%. But it's a special situation. Last year, the first half included the huge level of pulled forward orders due to the announced price increases and the longer delivery times. So, in order to compare these two figures, please keep this in mind.
What was the order intake in Q2? And how does this compare to Q1?
The order intake in Q2 was around €240 million. And with that, it was around €5 million above the order intake of Q1.
Any signs of demand in China picking up?
Yes, we see that the demand in China is picking up. One very important reason is, our key account business with our biggest customer, Yum, this is developing quite well. But also we see in the rest of the market, it is running better. Please keep in mind that one year ago, we still had lockdown situation, so a very special situation. And compared to this lockdown situation, we have, yes, I would say, a lot of sign of picking up demand.
Have you deliberately limited yourself in taking new orders to bring down the backlog to the decided €160 million level? Or are you noticing a certain standstill in demand?
We did not limit ourselves in taking on new orders. In Q2, we still had longer delivery times, and therefore, incoming orders were terminated or were scheduled to later months. But the order intake grew quarter-to-quarter. We also expect this for the coming quarters, and we don't see any sign of a standstill in demand. That is not the case.
Which is your estimate of the new normal value of the order backlog?
Well, pre-crisis, we saw that in the presentation, the level was around €70 million. That accounted for three weeks to four weeks of the monthly sales revenues. Now we expect customers to order earlier, so they have a longer buffer in their order cycle.
And therefore, as I said in the presentation, it's more rather in the range of six weeks to seven weeks. And along with the price increases we did, we think that the €160 million is more or less -- or let's say, close to the normalization level. It could be €150 million. It could be €140 million. It's really difficult to say.
What are the key components of revenue growth during half year one or Q2? How much of the volume growth in Q2 came from the iCombi?
Looking at the total growth of €103 million in the first half, we can split this to the following reasons. First of all, we had pricing effects, so higher selling prices, and this accounts for around 55% of the sales increase. Then we have a volume effect of the iCombi. That had a share of 40%. Then we have mixed effects. Mix means customer mix, country mix, region mix and product mix. That's around positive effect of 8%. And on the downturn, we had negative effects coming from the volume of the iVario by minus 12% and also from the currency side of minus 5%.
The implied H2 EBIT margin appears to be around 21%, even taking into account the 4% wage increase that went into effect from H1. Is that not rather conservative, given decline in procurement costs, et cetera?
I think the 21% for the second half, it's still a valuable assumption. As I said, we have the inflation effect. That's for sure. We also have certain cost elements like for the strategic elements. That's why we expect to have a higher cost base, also on the new employees that we are taking on in the team. That will be there in the second half compared to the first half.
And when you remember the slide with the sales level, this is more or less on a comparable basis to the first half. So we will have the situation that we have sales-wise a similar sales number but with higher OpEx. That's why we think that the 21% EBIT margin is still a valid estimation.
Will sales decline in H2 2023 by approximately 3% to 5%?
Yes, this is around -- yes, it's difficult to say exactly. This is a good calculation from the numbers that we have posted. Difficult to say whether 3% or 0% or plus 1%, but the range is around on that level, yes.
Thank you, Jörg. Now I have a couple of questions for you, Peter. Can you please comment on the key observations in regards to sequential changes in demand by regions?
Yes. Germany and Europe saw a strong growth in fiscal year '22 despite high penetration in half year 2023. Also the lower iVario business had a negative impact on total growth rate. So the growth rate on iCombi business alone was higher than total growth rate. And as I said, the lower growth rate for Germany is also to be explained by a somehow preferred delivery in half year 2022. So it was a little bit of an advantage to be in Germany with the production, and the German markets, therefore, were a little bit preferred with deliveries.
North America, as I said, especially strong and pleasing growth in street business. We still have a very low penetration of iCombis in the U.S. market or in the North American markets. And the conversion of traditional equipment into combi steamers is taking up step by step. So for us, as you all know, for the midterm future or even the long-term future, that's the most important market.
Latin America is overall very strong and recovered much faster and earlier than we initially thought in, let me say, the first year of COVID when the impact was the strongest. And a few words about Asia. Japan is very strong. And also China, after reopening, starts to recover. Nevertheless, that we all are aware of the actual Chinese situation to be a little bit under pressure right now, if we hear about unemployment with young people, or with GDP in last quarter only rose at a very low figure, which is quite unusual for China itself.
Rest of the world, I said that Middle East is especially and pleasingly very strong. So also there, we have a lot of potential on a lower level, of course, compared to Northern American territory, but we are also optimistic to keep the conversion going on there.
Can you please explain the acceleration in iVario revenue decline of minus 4% in Q1 to minus 11% in Q2?
Yes. This was mainly a base effect as last year's Q2 was stronger than Q1. And this year, we were flat from Q2 to -- from Q1 to Q2, sorry.
Any price increases being implemented this year? And can you please remind me if there will be any carryover of price increases in H2 2023?
There were only minor regional price increases implemented this year as we did them, as always, before the pandemic. And we don't expect to have any more carryovers of price increases in H2 2023.
Any further effective price increases feeding through in H2? You just answered the question.
No, again. Yes.
How should we think of pricing going into H2? Are you seeing that pricing is coming down? Or can you defend pricing?
So for the moment, we don't see any global price changes, whether up nor down. Our price increases were on a fair level. I repeat that we were quite late and quite moderate with increasing prices. So we expect them to stay where they are right now.
Were there any relevant FX effects in Q2 or H1?
Yes. There was a significant negative effect on sales revenues of around €5 million in half year one, most of that in Q2. We are expecting this effect for the next quarters in a comparable magnitude or even higher. In addition, the currency result, which is part of other operating income/expenses, was at minus €3.1 million. Last year, this was contributing positively with €0.9 million.
What are your current thoughts on probable FX headwinds in H2?
It is expected on the level of Q2.
Thank you, Peter. Back now to Jörg. By how much decreased the cost for stainless steel, chemicals for cleaning and logistics?
Looking at the logistics first, logistics costs for some routes are down significantly, so the North American routes, since a few months. On the other hand, if we look in our figures for the full world, our half year one freight costs per unit are down by around 5%. And negotiations for the new logistics contracts are ongoing. So we don't have a concrete result here.
Coming to the stainless steel, the stainless steel base price, we have fixed for the full year 2023. The alloy surcharge currently is stabilizing between €2.20 and €2.40. That came down from around €3 in January. And we see these effects also in our P&L with a one quarter delay. So we expect here a little bit of relief in Q3 and Q4.
Probably the biggest effect we have with the chemicals and the cleaning, here, we see definitely an easing of the prices, lower costs, and we also see this here with a certain delay in our own numbers. So we will also expect here a little bit of positive effect in the second half.
How do you see the development of the input prices for the rest of the year?
Yes. We expect raw materials, as I just explained a little bit in more detail for the surcharge and the chemicals, so we expect the raw material prices to come down further. And the input prices from the suppliers are easing a little bit. So this should, together with the FX effect that Peter was just mentioning, should have a neutral effect on our overall margin.
Should we assume further gross margin benefits in H2 from the order book normalization in Q3 '23 with no further need for extra shifts and weekend hours?
Yes, there is a little need for extra shifts and weakened hours currently right now, so mostly already has done in Q2.
What are the reasons for the lower increase of the operational cost compared to the sales in H1?
The sales growth was still benefiting from last year lower levels until Q2, and the costs were growing incrementally. And this pattern will turn around in Q3 and Q4. So we see here a higher cost increase compared to the sales development.
How much will you increase the sales and marketing expenses in H2 2023?
We are expecting sales and marketing expenses to increase by around 10% to 15% compared to the first half.
Which will be the total CapEx for 2023?
Yes. We are a little bit behind our plans in Wittenheim, and we said in the presentation, our range will be around €35 million to €40 million.
How much will you invest in the development of the international locations in H2 2023?
International locations, so we have -- in China, we have an investment program, and also in Japan, North America, Poland. And so, in total, it's around €4 million to €5 million that we are investing here in these operations.
Another question on the CapEx, outlook for CapEx in H2 and in 2024.
Yes. For 2023, we already said that it's around €35 million to €40 million. For next year, at the current stage, since we are planning our expansion of our service parts building, this could lead us to a little bit higher level next year, but our plans on the time line are not fixed yet.
Operating cash flow was exceptionally strong in H1 with a slightly lower margin in H2 and presumably much less working capital effects. Should we expect more normal cash flow in H2?
Yes, this is correct.
Would you please comment on the much larger increase in SG&A plus 12%, compared to R&D expenses plus 9%?
Yes. I think the fluctuation 9% to 12%, this is, in our point of view, more or less comparable level, not a much larger increase. It is due to certain new positions we now have in our administration level. For example, for our ESG strategy, we added some person. We also have some more costs for IT.
So we have currently a big strategic project running to renew our SAP system from R/3 to S/4. And these, all in all, are the main reasons why we have, let's say, a little bit higher increase of SG&A in the first half. But as again, we say it's more or less on a comparable level.
Thank you, Jörg. Peter, will you further reduce the accounts receivables and the inventory and by how much?
With accounts receivable, we are already back to pre-crisis levels as a percentage of sales. Inventory will stay on this slightly higher level because of higher inventories in the growing overseas markets and some security stock for critical components.
Which percentage of the receivables are insured?
That's still unchanged. We are slightly less than 90% of total receivables.
Do the defaults on accounts receivables increase or remain stable?
They are staying quite stable on the low levels they are.
With the U.S.A. consistently performing so well, might you reconsider establishing an assembly plant in the U.S.?
As most of you will know, we will regularly discuss this question and reassess the situation.
Do you have any updates relating to the combi steamer tailored towards the Chinese market?
No. There is no news compared to the latest information we gave in Q1.
How do you see the further development of the wages?
They depend, of course, on local inflation and local labor markets. We expect wage increases to come down again after the two exceptional years '21 and -- '22 and '23. We will continue to monitor this development closely.
Does the 4% wage increase apply in all markets?
No, this is a global average figure. For instance, in Germany, the majority got an increase of 5%, again now starting 1st of July '23.
Is there an update planned for the total addressable market sizes, both the iCombi and iVario? And if yes, when?
We annually update the market potential internally. We change the public figures from time to time. So for the moment, there is no update planned.
This year, the company has its 50th anniversary and all the celebrations. Should we consider that there is a significant amount of costs related to the whole events? Or is it all fully digested without noticeable impact in the operations?
There is, of course, some cost related with these events and UB anniversary things. It is slightly below €1 million, which is, of course, a onetime cost in this year. Operations are not affected remarkably since the events in Landsberg happen either on a Saturday or after business hours with many helpers from our staff.
What measures can management realistically take to raise profitability as we go into 2024?
It is much too early to give a guidance on 2024 now. But of course, we will still invest in sales and more feet on the street.
The growth in the United States is very strong and accelerating. Is the impact of order backlog reduction on growth higher here versus RATIONAL in total?
No, it is not higher here than RATIONAL in total. And as I said, there was a strong demand in street business, and still the penetration of combis in the U.S. market is very low compared to Europe or Germany.
Do you have any data to share on competition? And what is your feeling regarding market share in H1 2023?
My feeling is that we lost some market share due to our shortage and supply chain limitations in late '21 and early '22. But since we are up at full delivery and at full production in both plants, I think we also could recover and regain some percentages in market share. Any other new information on competition is not yet displayed or not disclosed at all.
Thank you, Peter. I come now to the two last questions for you, Jörg. In Q1, you said the backlog should come down to normalized levels by the end of Q3 at €120 million to €130 million. Now you're saying €160 million. What changed in the last three months?
Yes. The main reason is that when saying that in Q1, we said, okay, the -- let's say, the order backlog normalization would be around five weeks to six weeks. Now we think it's more than six weeks to seven weeks. This is one reason. So it's a little bit longer time. Also, we see the ordering pattern, it is a little bit longer than it used to be before the crisis.
And secondly, also, when we factor the price increases in, then all that -- it is also leading to a higher level. That is a little bit above the €120 million to €130 million. But again, we don't have any historical data. We don't have any historical experience. So therefore, it's difficult to say. For us, important is that we have low lead times. This is what we have right now. And then we need to work with our sales force in the field to generate new orders. This is what we are focusing right now on.
Half of sales growth in Q1 was pricing. How much of Q2 '23 sales growth was pricing?
Yes, there is no big difference between the quarters. So also in the second quarter, the level was around the same, so half of the same was due to pricing -- half of the sales growth was due to pricing.
Thank you. No more questions that we've got.
Thank you, Jörg. Thank you, Peter and Nicole, for these comprehensive insights. And so with that, I want now to come to a few announcements for coming events in the next month. So next week, we will host a so-called IR follow-up talk.
Some of you already participated, I think, in March or April. So this is for, yes, answering questions that maybe will arise in the next days and to discuss it then, so to give you this opportunity. You can find the subscription link on the homepage on our IR calendar. The next announcement will be on Q3 on the 7th of November, so same setup as we have it here now.
And last but not least, some information on this year's Capital Markets Day. So we already announced last year that we will host it on 30th of November and the date will stay. And you also know that we wanted to do it in Wittenheim to show you what was happening there, but as Jörg said, we have some postponements there. And so we rather want to show you when everything is complete and we postponed it to 2024.
So this year, we then changed the location. We will do it at Munich Airport, and we'll give you some insight into airport and airline catering. And so please note that down in our schedules. We will send out a save the date and invitations in the coming weeks.
And with that, I want to close the call, say thank you to all of you participating, and I wish you a good time until we meet the next time. Take care, and goodbye.