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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, and 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'll have finished.
Please be aware of our safe harbor statement, which you'll find at the beginning of the slide deck.
And now I'll pass on to Dr. Mathias Hallmann, our Group CEO, who will walk you through our presentation.
Thank you. Ms. Schauble. Good morning, ladies and gentlemen. Welcome to our Q2 2022 Analyst and Investors Conference Call. Yes, the quarter showed a very strong -- ongoing very strong order intake from all sectors and almost all regions, ending with an increase of roughly 18% year-on-year to a level of EUR 77 million. Sales are up 5% to a level of EUR 68 million, but still heavily subdued by ongoing supply chain issues. Therefore, EBITDA pre decrease is slightly to a level of EUR 3.9 million, resulting in an EBITDA pre margin of 8%. This EBITDA decrease is very much related to ongoing supply chain issues, and therefore, a significant effort we have to do to keep customer service on an acceptable level.
Net profit increased slightly by EUR 0.3 million to a level of minus EUR 0.9 million due to improved financial results and lower tax burden. Cash flow from operating activities is up by EUR 4.8 million to EUR 8.4 million. And at the end, we will also discuss this presentation updated outlook which will show sales between EUR 270 million and EUR 275 million and an EBITDA pre between EUR 18 million and EUR 21 million.
If we look into our sales, we see a significant growth in Americas, starting from a pretty low level. We discussed in our last call that this is a trend because we saw similar numbers in the first quarter or it's one-off special projects, which would not come again. No, it's a strong trend and it's also ongoing in the third quarter, and it shows the strong investment level, especially in the gas and oil industry in North America. The opposite, we see in Asia Pacific, where the recovery from the COVID prices is much slower, but we will see improvement in the second half of the year. What we see in Germany is an ongoing trend of gaining market share, and that has definitely to do with our ongoing strong customer service level, which we keep on a very high level, and that's probably a difference to many of our competitors. And the result is definitely increasing market share in the German region.
Looking at net profit at the income statement, we see the net profit improvement strongly driven by the financial results and income taxes. On the operating side, we see higher cost of materials due to supply chain issues and strong inflation. We performed a couple of price increases, but the impact of these price increases has a certain delay so that we see this slightly higher cost of material. We also see increased personnel costs, which, as I already mentioned, were heavily influenced by material shortages and delivery issues, which we -- where we put lots of people into the processes in order to keep customer services on a reasonable level. And we show the impact of that in our order intake -- or as we see the impact of that in our order intake.
The financial result improved strongly by the performance of our Russian subsidiary -- our participation in our Russian company, ZAVOD Goreltex, which despite the Russian-Ukrainian crisis is showing ongoing very strong performance. On the cash flow statement, we see a strong or a slight improvement of the net profit. Then a very strong improvement on the working capital side, where we could manage at least temporary reduction of working capital in the second quarter. That's resulting in a stronger free cash flow of EUR 5.3 million against EUR 0.1 million in the second quarter of 2022. Cash flow from financing activities in the last year -- or this year, we were -- it's improving due to the repayment of interest-bearing debt while last year, we had to take money from the bank. So this is the difference in this position. And all of that, including the operating performance, is resulting in a higher net debt of EUR 23.2 million against EUR 13.2 million in '21.
Coming to our outlook. I already mentioned, we had ongoing strong order intake in the second quarter. It's coming from all sectors, meaning chemical industry, pharmaceutical industry but also gas, gas and oil and some first small orders from the hydrogen -- from the growing hydrogen activities. We had particularly strong orders for automation equipment, which is again 12% up against the already strong first quarter. The problem at this point of time -- and we also discussed that it is turning orders into sales because this is very much dependent on ongoing shortages for electronic supply.
The trend is at least continuing. It's not further accelerating in Q3. We had a very strong July with respect to orders. August also started from that our current order backlog is already above EUR 100 million. And we would expect ongoing strong orders towards the end of the year, but we would also expect an increase in sales in the subsequent quarters of the year.
And that results in -- then in our updated guidance. We expect sales coming in by the end of the year between EUR 270 million and EUR 275 million. EBITDA coming in, in a range between EUR 18 million and EUR 21 million. A negative cash flow, which will most likely result in a high single-digit negative number at the year-end, and a significant increase of our equity ratio as our -- as the interest rates are going up and help us in the valuation of our pension provisions.
Risks, we have in the business, as you all know, the Russia-Ukraine crisis. We can expect -- we cannot expect -- it's a possibility of all kind of developments. We -- in the worst case, we will see further impairment of our Goreltex investment. In the best case, and that's very much supported by the ongoing results, we would see the opposite that the impairment we did in the first quarter can be turned back and that would then show a strong impact on our financial results. We do have the risk of increasing supply chain problems due to the crisis.
Nevertheless, in many parts of the business. Despite electronics, we do have our supply chain very well under control. Our customer service levels are in improving, and we are working hard on solving all the issues with electronics. So that -- the bottom line in the bottom line, we think we can well manage the risks in the business, and we are positive that the second half will be -- will show significant improvement against the first half of the year.
And yes, it's definitely supported by very strong orders -- with strong -- is also covering strong margins. In the moment, we can really turn these orders into sales, we will see a very strong development of the bottom line in the business.
This is it from my side, and I'm open to take your questions.
We will take our first questions from our participants, Mr. Christian Sandherr from HAIB.
I would have a first question on sales. So you had a rough 5% rate increase. Can you quantify how much of that was driven by higher sales volumes, and how much by higher sales prices?
Thank you, Mr. Sandherr, for your question. I try to quantify it on -- on both sides on the orders and on the sales side. I would guess -- we don't have it 100% that 1/3 is prices and 2/3 is volume.
Is that for sales and orders or...
it's sales and orders. On the order side, there's a little bit of stronger tendency on prices because we need to -- price increases need to be flow through the chain and turn into sales. So the orders are earlier. So maybe they're at 40-60. But on the sales side, it's probably 30-70.
Okay. And looking at the fact that your gross margins are still down compared to last year. Is there more room to increase prices? Because I would assume you will, I mean, eventually have to anyway.
There will be another price increase in -- by the end of this week -- no, beginning of next week. On the 15th of August, we apply another price increase for our standard products. And then we have to see -- what we see right now is that the raw material prices are coming down. The inflationary tendencies, we have more on the electronics side. We don't see it with plastics and steel and energy. So at the next price increases will be -- will not be over the whole range, but very much targeted to the areas where we have to -- where we suffer from still increasing prices on the pre-material side. Overall, we are positive that we come back to the margin level we had at the end of last year.
Right. Okay. And is it possible to give an indication of how much more sales you could have done if you would have been able to procure all necessary components for how much it -- 10% growth -- or 10% more on the number you reported.
At this point of time, 10% more on the number we reported. Eventually, it's a higher number over time as our orders are very strong at the moment. I would guess that the supply chain issues easily take 10% of our capacity in operations and in sales because it takes a lot of discussions with customers, rescheduling, broken processes in operations. We're planning also in R&D to exchange components. So if these supply chain issues are solved, I would easily see at least 10% higher performance in the business in terms of sales with the same amount of people.
Okay. And could you tell us, please, your other operating expenses. They have gone up roughly 20% or so, a little bit more than 20%. Where this was coming from?
Let me have a quick look. I think what we definitely have is -- on the expense side, we have much stronger business travel than in the last years. In the last 2 years, I mean, we are -- activities are going up. Only looking at myself, I couldn't travel into Continental in the last 2 years. This year, I try to be in our subsidiaries at least every 4 to 6 weeks, somewhere around the world outside Europe. And we see this from many -- on the management level, we see stronger customer interactions. We see more on the marketing side, really physical sales. And then we have some FX losses, which we also show in the other operating expenses, which were very well balanced on the other operating income, by the way. So overall, our FX balance is positive.
Okay. Fine. And then maybe another question on the whole order intake, on what you're seeing going forward. Besides automation, you see any other industries particularly striving. I mean with the whole topic -- and the independency from Russian gas, I would think that the whole topic around LNG is gaining traction, projects being started in -- particularly in Germany, but maybe across Europe. Do you already see any of this in order behavior?
Maybe we should quickly talk about the definition. The sectors, we talk about industry sectors. It's chemical, pharmaceutical, oil and gas, hydrogen, as an example. They are all strong. And then we have the 3 segments -- or the 3 product ranges, automation, lighting and low voltage. In automation, we see a very strong trend through the fact that customers are ordering well ahead because they have ongoing projects, and they need to be sure that they get product products.
We also have very, very strong trends in the lighting, and that's mainly coming from the -- and automation is overall factors. It's pharmaceutical, it's chemical, the gas industry, especially LNG tankers, but it's also oil service companies, for example, which are starting to open the doors for stronger investments, which they didn't do over the last years. And we see first trends from the hydrogen side.
Then we have very strong trends on the lighting side because the whole European industry is forced into modern LED lighting. And I would -- we never produce that much luminaires in our [ YMR ] plant than those days. And we see even stronger trends coming by the end of the year. But we also see had good growth on the low-voltage side.
And now coming to these big LNG projects. We are pretty, pretty late in the value chain. So we know that some -- many of our customers are in discussions, for example, for the loading arms. We are indirectly definitely in discussions and we also see orders from LNG tankers because the problem is not the terminal. The problem is the transportation capacity as all tankers are booked for the next years. And we also see orders -- or we have discussions with machine builders, building the infrastructure about -- around these terminals. So definitely, these terminals will not be built without STAHL technology.
Okay. Okay. Good. And maybe just one final one. Goreltex, how much value do you still have on the books, just in case there would be a, I don't know, black swan event where you have to write down the remaining part.
In IFRS, we have EUR 9.2 million, EUR 9.3 million. So that's with the last percentage. And we've written off EUR 3.2 million in the first quarter, so the potential is EUR 3.2 million. The maximum risk is EUR 9.2 million. Yes, I my personal guesstimate would be that we'd rather get the EUR 3.2 million back. But that's my personal crystal ball, yes.
[Operator Instructions] We will take our next question from Klaus Schlote from Solventis.
The guidance updated on Page 11 of the handout, what are the changes compared to the last guidance?
And the first guidance, which we gave, Mr. Schlote, was that we said low to low double-digit growth on sales and EBITDA, which we -- which is still in this range, but we opened it up a little bit. So there is no significant change in the guidance. We would still expect high single-digit or low double-digit growth in both dimensions, which will be very dependent on the -- on solving the problems in our supply chain. We already see a nice trend in June and July. As I said, we are getting issues under control more and more. But it's also a kind of a surprise box in many ways as you never exactly know whether you get product and when you get product.
The EBITDA of between EUR 18 million to EUR 21 million would result in what level of net profit, approximately?
That should end in close to 0.
Close to 0. So as we...
Without the depreciation of the Goreltex.
Okay. That would come on top.
The depreciation. Yes, that we have to eliminate.
But as you said, you -- I think you hope it will be -- it will come back. I think it's more...
I discussed with our auditors -- no, we discussed with our auditors, and the auditors clearly said, if we look at the numbers, we get it back. So the -- if you just apply the rule, we would get it back.
Okay. So then you would have in the 0 then.
Then we would come -- if we reach to EUR 21 million, we would come closer towards 0.
Okay. And then from your crystal ball next year, 2023 then would be the year with the positive profit.
Definitely, if we get the electronics -- I mean we never ever had such an order backlog. The order backlog is extremely healthy. We don't have big projects in the books where we only change money. And also, we see that the inflationary tendencies are coming back. So we don't expect that we have to fulfill orders in 3 or 6 months on even higher cost of material levels.
And as I already said, I would expect that these broken supply chains easily take 10% of productivity. I mean this is a guess, but it's not an unrealistic guess because I -- when I, for example, discussed with our internal sales, we have so many escalation meetings with customers where we have to reschedule problem-solving. And we do that successfully, otherwise, we wouldn't get these order levels. but this is taking enormous capacities on all levels of the organization.
You said your backlog -- your order backlog has showing strong margins.
Yes.
What does that mean in terms of numbers? Can you give us a hand, please?
I would say overall, 50%.
50% of raw material...
50%. 5-0 against the cost of products, yes. I mean that's the margin level we are targeting because we have -- we do have lots of customer specifics -- the specific project applications so that we carry significant costs in our SG&A, and this is the margin level we need, but this is also the margin level we have those days.
Okay. The electronics, I mean, that appears to be the one of the major risks going forward, going -- looking back, but also going forward. Could you put a bit of color on that? I mean is there any -- every year call, for the last quarters, there was always a topic of electronics and the supply chain of electronics. And yes -- is that basically a price issue or...
No. It's not a price issue. It's I mean the product is simply not there. And if you look at a company like ours, I mean, you compare us with companies like the big consumer electronics players then you have the big automotive players, and they all suffer from electronics shortages. And then we are really at the end of the food chain. So that gives us certain advantages.
We can still buy small volumes on the market, which are not really relevant for the big players. There, we have sometimes overpaid dramatically, and we have to think whether it makes sense to pay -- overpay 5x. And this is the level the market is asking for. Sometimes they ask 5x, 10x the original price of the product. But in many cases, you just don't get it. And then we do -- we help ourselves with the redesign of the product with qualification of new components, but this comes to an end when it really goes into the core electronics like intelligent -- highly intelligent, high-performing chips, which are just not on the market.
In terms of the prices, you mentioned 5 to 10x normal price. Can you basically -- in your contracts, can you give that -- hand that on to your customer? Or is that the answer?
yes. We -- you see from our balance sheet that we have a material ratio of roughly 1/3 of our external turnover. What we do those days is we apply -- on top of the normal price increases, we apply material surcharges. And these typically cover these expenses, yes.
It appears there are no further questions. At this time, I'd like to turn the conference back to Dr. Hallmann for any additional remarks. Please go ahead.
Just one remark. I just got to know that some of you had problems dialing in. We don't know what the problem was. But if you couldn't listen to the full call, it has been recorded, and you can listen to the recorded call on the back page. That's from my side. And thank you for participating, and hope to talk to you in 3 months, in our Q3 call. Thank you.