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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, welcome also from my side, thank you for joining our today's conference call. Our prepared slides are also available under the Investor Relations section of our website, www.r-stahl.com. A replay of the entire conference will be at the same place shortly after we have finished. Please be aware of our safe harbor statement, which you'll find at the beginning of the slide deck.
And now I pass on to Dr. Mathias Hallmann, our Group CEO, who will walk you through our presentation.
Thank you, Ms. Schauble. Welcome, ladies and gentlemen, to our Q1 2022 Analysts and Investors Conference Call.
Let me start with the summary. Our sales are up 4.8% to EUR 61 million, and we benefited from the good orders we had in the second half of '21. EBITDA increased by EUR 400,000 roughly to EUR 3 million, resulting in an EBITDA pre rate of 5%. A negative impact we had from an impairment of our investment in ZAVOD Goreltex in Russia of EUR 3.1 million, which we had to correct. We had to correct the book value due to Russia's credit rating, which was lowered by several steps from international rating agencies. The net profit was then heavily impacted by this impairment. It has resulted in a decrease overall of EUR 2.9 million to a final net profit of minus EUR 5.4 million, which resulted in an earnings per share of minus EUR 0.48 per share.
We see ongoing strong order intake in Q1 2022, resulting in an increase of 17.5% year-on-year to EUR 75.1 million. And yes, if you look at the difference between the sales increase and the increase we see in our order intake, that's indicating exactly the problems we have in the business right now, which are mainly resulting from a shortage in material supplies and that's, again, mainly coming from electronics. Nevertheless, our outlook we gave April 13, in our annual call for '21, remains unchanged. We do expect sales and EBITDA pre to show low double-digit growth by the end of the year.
If we look at distribution of our sales, we see a strong increase in Germany and Americas. Germany is up 15%. Americas is up 34%. The Central region is about stable, and Asia Pacific has a decline of 10%. Nevertheless, when we look at the incoming orders, our expectation clearly is that, at the end of the year, we should see significant growth in all of the regions.
If we look at our key data in the income statement, you see the total operating performance of EUR 66.5 million against EUR 61.3 million in the first quarter of '21, which is an increase of 8.5%. This also gives an indication that, in the coming quarters, we should see stronger sales. But even more important, if you compare with the cost of materials, which go up 10%, and you consider the sales margin in this total operating performance of those EUR 4 million of finished and unfinished product, which we [ have sold ] right now, then we would expect that the cost of material ratio remains almost unchanged, which is important also for us because it indicates that we are able to compensate strong increases in raw material prices with our ongoing price increases, which we have to pass over to our customers.
The financial result, you see, it's minus EUR 3.5 million against minus EUR 0.5 million last year. So we could compensate a little of this impairment in Russia with a relatively good financial result in the other areas. But nevertheless, we see a decline of the financial result of EUR 3 million. Yes, other operating income is down due to lower foreign exchange gains which we had last year, and the overall result is then heavily impacted by this impairment of ZAVOD Goreltex. Those effects you also see in our cash flow statement. The net profit, again, strongly impacted by this depreciation or impairment. That's corrected then in the depreciation and amortization line so that the cash flow itself has improved to EUR 2.7 million versus EUR 1.8 million against last year. What's heavily impacting the free cash flow then are changes in working capital where we had to build buffer stocks or safety stocks in many parts of the business in order to be able to serve our customers in these difficult conditions we have in our raw materials markets. It cannot be expected that this will quickly improve when we all look at this, what we right now see in China, especially in the harbor of Shanghai, which is responsible for roughly 50% of all exports from China. So we will probably see more investments in working capital in order to safeguard deliveries in the coming months.
Cash flow from investing activities looks not positive, it's slower, but that's impacted by a reversal of long-term financial investments we had in India, and that led to that decrease in investing activities. And then we have the cash flow from financing activities, which is up and, finally, driving net debt to a level of EUR 27.1 million.
The strategy we explained in detail in our call 1 month ago around the 13th of April, I think we don't go back to this today. What we, nevertheless, discussed also in that call was that the chart you see on Page 10, which shows the trend in the order and the order backlog, that trend has been confirmed in April, and I would expect that it will be confirmed in May and June. When we look what's going on in the market, it indicates that we are on the right track with the implementation of our strategy. But also it has some pieces of, let's say, a nervous market where some customers try to buy as much as they can as early as possible in order to avoid delivery issues on their side. We do have strong orders mainly in the range of modern LED lighting and automation equipment. But turning these orders into sales is very much dependent on ongoing shortages, which we discussed several times and particularly for electronic supplies.
Nevertheless, with the strong orders we have, with the increasing operational performance, we still expect to show low double-digit growth year-on-year with increasing momentum in the second half. We also do expect our EBITDA pre to show low double-digit growth as we manage to keep our cost structure under control or at least hand over increasing costs to our customers. And we do expect a moderate negative free cash flow, mainly driven by high investment levels and the buildup of working capital and slightly higher net debt by the end of the year.
The risks we have are clearly the Russia-Ukraine crisis, which might generate further impairment in our Goreltex investment and also the ongoing supply chain issues, which might see another peak somewhere during the year driven by the ongoing COVID measures which we see now in China, but impact from all that cannot be predicted at this point of time.
This is it from my side. Overall, we remain positive for the development of our business. Our strategy is clearly showing impact. The orders are coming. What we now have to do is turning those orders into sales. The obstacles we discussed, but nevertheless, we stay positive. Thank you. And we are happy to take questions.
[Operator Instructions] We do have our first question is coming from Mr. Klaus Schlote coming from Solventis.
Regarding your Russian investment, Goreltex, did this generate a positive operating result in Q1?
Yes. Surprisingly, the business was very strong. And operating result, I think, it was up by 50% against Q1 of last year, showing a double-digit net profit rate. I'm in continuous talks with the management there. And what they say also is they don't get deliveries from Europe. They can compensate a lot of deliveries from India and China and customers, surprisingly, accepted what they never accepted before. And they also indicate ongoing strong investments in Russia in the oil and gas sector.
Then regarding your forecast on free cash flow, you are writing moderate negative free cash flow for 2022. For Q1, we had a free cash flow of minus 7-point something. What does moderate negative free cash flow mean? Is this less than 7-point? Or is that more in a sense with you?
First, we would expect positive results in the coming quarters. And secondly, we still hope that towards the end of the year, we can reduce working capital again because we should see some improvements in the supply chain issues. And that would overall lead to improve free cash flow in comparison to Q1.
Okay. And I guess the same as you would say about net debt, which has now turned...
That would then go along with net debt, yes.
Yes. Okay. Is net debt at any level which could hurt your covenants?
No. We still have enough headroom. And with the profitability levels we expect and the net debt ratio we have right now, we should not see any problems with covenants.
Okay. Then Asia Pacific was minus in Q1 in terms of sales. But you said, for the whole year, you expect all regions to show growth. So where would that come from in Asia Pacific? What is the reason why it's minus 10% in Q1?
We do have a strongly increasing order intake in all regions, also in Southeast Asia. That's the indicator. And it's actually accelerating in April. It started to accelerate in March, and it shows it's accelerating in April. So that's the strongest indicator. And the decline in sales can be mainly explained by stronger project deliveries in the first quarter of 2021, and we are positive that, that will be compensated.
[Operator Instructions] We have another question coming in from Richard Schramm coming from HSBC.
I have a quick question on your project pipeline and your visibility there. So what is your judgment on this? Has there been a change in the number of projects you're dealing with and making proposals for? And what is the period of decision until a customer really says, "We are going to execute this and place this order?" Has there been any change also in the last couple of months in behavior on the customer side?
It's a very interesting question because you would expect that order intake carries some project business as the opposite is, too. Project activities, when we talk about major projects, are still on a low level, especially when it comes to greenfield investments. But there is significant activity when it comes to smaller upgrades and typical repair and maintenance activities. And what you see there is that decisions are made much quicker than in earlier days, that the time between the first discussion and the order intake is significantly shorter than it has been in the past. But project activities are still on a softer level, and we see that mainly in the regions where we have a lot of project business, like in the Middle East or also in parts of Asia.
That's very interesting to hear because this suggests that customers are mainly doing a kind of, let's say, firefighting to secure short-term capacity. But isn't it a bit worrisome that, obviously, the longer-term view is not insomuch focused at the moment and that projects are scarce in the market which means that, in a couple of months, the business could dry up here, to some extent?
Yes. The question is always a little bit what would you define as a project. What you see, for example, in the oil and gas industry, and especially in the oil industry, is that almost nobody is investing in new oilfields. But all the players are investing in safety and all the players are investing in getting their people off the platforms, meaning in automation and sometimes also kind of more predictive maintenance activities in order to lower the HR load of their platforms. And I wouldn't expect that this is calming down quickly because everybody tries to produce as much as we can in the current marketplace. And that's not only true for oil and gas, it's also true, for example, the chemical industry. But bigger investments, there is probably too much un-security in the market for many players to really trigger them.
[Operator Instructions] We do have a question now coming from Ulrich Sachse from UniCredit.
Ulrich Sachse from UniCredit, I do have 2 questions. First, could you tell us a little more about your current sales price increases? And what impact do you see on your cost to profit ratio? The first one. And the second one is how much order backlog do you think you can reduce by the end of the year by delivery?
First question is price increases. Two different things are measured. We did, let's say, kind of moderated list price increases. We did one in Q3 last year and one at the end of the year, which was also something we never did before that we made 2 list price increases in such a short period of time. The other thing we implemented is material surcharges. What does it mean? We have defined material surcharges up to a level of 12.2% on certain product lines. And this is something we can lower again if the market is cooling down and, for example, electronic markets normalize. I know that from my former experience, customers typically accept much easier than list price increases where they say they never go away even if the market is normalizing. Yes, this is what we do. And that's enough at this point of time to compensate for the price increases we have in material supplies and in energy and other areas.
How much of the order backlog do we think we can reduce? Honestly, in Q2, I would expect order backlog increasing again, and that we then reduce it from Q3 onwards. Also, we expect increasing sales already in Q2, but our order situation is still surprisingly strong, especially under the condition, what we just discussed, that we have no big projects, it's all day-to-day business, a lot of day-to-day business. It's a very good margin structure. It's still increasing. And yes, the mechanism behind we discussed, I tried to describe at least from my understanding, from our understanding, and we will start reducing the order backlog the moment we have relaxation on the raw material markets. That should be Q3, hopefully, but hard to predict, very hard to predict. I wouldn't be surprised if orders increase further, order levels, and we will see probably order backlog we haven't seen before in this business.
Dr. Hallmann, we do not appear to have anybody else queuing at this time, sir. I'd like to turn the call back over to you for any closing remarks. Thank you. Sir?
And thank you to everybody for your attention and your questions in this Q1 2022 conference call. And we'll talk to each other maybe in 2 weeks in the spring conference we will be attending in Frankfurt or latest in our Q2 conference call. Thank you very much.