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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, a warm welcome also from my side. It's my great pleasure, again, to have with me today Dr. Mathias Hallmann, our Group CEO, who will walk you through our presentation in a minute. The slide deck is also available under the Investor Relations section of our website, www.r-stahl.com.Before we begin, allow me to point you to our safe harbor statement, which you will find at the beginning of the slide deck.And with this, I hand the call right over to Dr. Hallmann.
Good morning, ladies and gentlemen. Welcome to this Q3 2021 call. Overall, we saw reasonably good quarter with sales and earnings up against last year. But what we also see and we will point out that a little bit more in detail is that, towards the end of the year procurement risk and cost increases are accelerating, and we expect further headwind for the business from that in the coming months.Sales are up 4.3% year-on-year, mainly driven by a strong business in Germany and Asia Pacific. EBITDA pre is more or less on the level of last year, 2.3% up year-on-year with an EBITDA pre margin of 8.2%. And that leads out to an earnings per share or to a net profit of minus EUR 0.1 million or an earnings per share of minus EUR 0.01. Order intake increased 14.4% year-on-year and order backlog is also slightly up quarter-on-quarter.Net profit and continued investments mainly in R&D, led to a temporary quarter-on-quarter increase of net debt to EUR 17.3 million. We did adapt our guidance last week in light of increasing procurement risk and cost. Our sales are expected now between EUR 246 million and EUR 250 million and EBITDA pre, we expect to come in between EUR 14 million and EUR 16 million by the end of the year.Here we see our sales distribution. We benefited from strong business in Germany, 17% up against last year. And we should remember that even last year, we saw stable business in comparison to 2019. So Germany was not really affected in our case from the COVID crisis. So overall, we do very well in Germany.We also see a good increase in Asia Pacific; Americas stabilized on a very low level, still suffering from the oil crisis; and also the Central region is a little bit lower than last year. And if we look here into the details, it's mainly driven by regions like Norway and the U.K., which are also heavily impacted by the -- yes, by the investments, which don't take place right now in the oil and gas sector, while all the other regions where we have a stronger footprint in chemical industry or in the pharmaceutical industry are developing nicely.Order intake, we saw a jump at the beginning of the year from mid EUR 50 million to mid EUR 60 million per quarter. That went back a little bit in Q3. I think there was some impact of the vacation period. There is definitely impact from the oil side, we just discussed that there are no large investments. These projects are all on hold. But what we also saw already is that customers are holding back orders in light of procurement risk also on their side, because they are not sure that they would get everything together to really execute their projects.On the income statement, we see first impact of increasing cost of materials. Cost of materials went 100 basis points up from 33.6% to 34.6%, driven by price inflation. Even I don't have the numbers, I would most likely -- I can say that probably the impact for the replacement of components or suppliers due to procurement risk and the impact of coking processes, because materials are not available, that impact is much higher. So what we really see is that we keep major parts of the organization bases to guarantee supplies to our customers, which we can guarantee at this point of time. We had no issues that we couldn't deliver anymore, but this is all going along with increased activity on all levels of the organization and with this much higher procurement cost. We see some higher personnel costs due to typical wage increase and then we benefited from a lower tax rate.On the exceptional side, there's not much to say. No restructuring -- almost no restructuring charges like also in the rest of the year. And on the cash flow statement, you see the impact of the net profit. The major impact here, we see on the working capital side. And if we go into details there, it's an increase in working capital driven primarily by the reduction of trade receivables, but there's also -- or there was significant impact of prepayments, which we received in Q3 2020 for a big project we executed and these prepayments didn't happen this year, hence that also explains roughly EUR 2 million to EUR 3 million of this difference we see in the working capital. So net debt, as a consequence, increased from -- temporarily increased from roughly EUR 9 million to EUR 17 million.As we said, even we saw much better order intake than last year, and we are also seeing robust order intake in October and beginning November. We do expect lower sales during -- by the end of the year, and we had to adjust our guidance. We now expect EUR 246 million to EUR 250 million. We see strong impact of higher material cost and also internal costs in order to guarantee supplies that puts pressure on our profitability, and we expect EBITDA pre to come in between EUR 14 million and EUR 16 million now. Free cash flow, we expect somewhere around 0, and the equity ratio, we see stable around 18% by the end of the year.This was it in short words, and now we are open for questions.
[Operator Instructions] We will now take the first question from Christian Sandherr from Hauck & Aufhauser Investment Banking.
I would have one on the whole topic on your supply chain. So basically, your new guidance implies a pretty weak margin for the fourth quarter for quite obvious reason. So I was wondering what are you doing to check this for next year, because the way it looks, it's not going to materially change, particularly in the first half. So are you able to significantly raise prices? What are you doing or what are you seeing in this regard?
Thanks for the question. We are working basically in 2 directions. The first thing is that we did increase prices in July. We had extraordinary price increase between 3% and 5% in July. We implemented another price increase in middle October, and we are going to increase prices again by the end of the year. This is something we never did in the past, but we see quite reasonable reaction from our customers, because customers do understand that we have to take some measures in order to defend our profitability.The other thing is the supplies. The issues for us mainly started with semiconductors, no surprise. We have teams working on that in different directions. There are materials, we just don't get. We are pretty good in redesigning electronics in a way that we can substitute parts we don't get. On the other hand, we work on the global market. And sometimes, we are quite successful in buying components from -- via trade channels. But this is all connected to sometimes much higher prices and to huge internal efforts. Nevertheless, we managed quite well this first wave, and I think we stabilized the processes pretty well for the electronics piece.The second piece, which really hurts us right now is plastic. And there, you see an effect that whether it's true or not, all over the industry, the big chemical companies, they declared force majeure. They declared force majeure and many of our pre-suppliers just don't get plastic materials. And also, we don't get plastic materials. Again, we are quite successful in substituting and finding materials from the market. But we now come to the point that we really need to help our pre-suppliers in order to keep deliveries up. We are working on that. Right now, we are quite successful. Whether we will -- can address all the issues, whether we will successfully address all the issues we know later, and -- or we know next year. But it's definitely a tough situation, which will keep us busy in the first half of next year.
And looking at your order intake, could you share some insight on what industries were driving this because you were highlighting that basically, oil and gas is still not really there yet, so what else is…
We are benefiting from 2 effects. The first is the chemical industry, from my point of view and we see these effects already. First, it's stable in its core business, but that industry will also benefit dramatically from the electrification of transport. Because this whole battery discussion, we need to understand that this is a chemical process, and many -- a big portion of the value-added from this new industry comes from special chemicals.Then we also see from this trend, we see investments in high-performance plastics and all kind of light materials for the transportation industry. And there, the European -- especially the European chemical industries, very well positioned and this is also reflected in the numbers we see in Germany. Then we see the effects in the pharmaceutical industry, where we see relocation of production. We see a strong trend to personalized medicine that also drives the trend to automation and we're also benefiting from that.And then another business which is quite stable at this point of time is the gas business. So LNG, I always say that we do see LNG as a bridging technology to the hydrogen economy, and we are very well positioned there. We are absolute market leader in some segments of the LNG business, and that's the third thing. And then we see MRO business from oil and petrochemical, but that's on a much, much lower level than it was before.
[Operator Instructions] We will now take our next question from Klaus Schlote.
You mentioned the oil and gas industry, and are there any signs that maybe the investments, which have not taken place so far will start any time soon or will start in 2022? Or what is the perception there? Is there no investments anymore in this industry, which I wouldn't believe? So it's -- for me, it sounds more like a temporary shutdown, if you will, regarding investments, but what's your perception?
That's an ongoing discussion also in our group. We see more and more people in the market who say the world will not be able to cover demand with renewables. And we will see, again, investments in oil, because right now, what we see is a shift from oil to coal, and this is definitely not what we want. But we don't see it at this point of time. We don't see it at this point of time. Nevertheless, we also see that the pressure is increasing. There are projects in the market, which are on hold, which are just not decided. And I can see that some of those will come, but there is no guarantee. This is a political thing. And we all know, if I was a CEO of a company like BP or Total, I would not allow myself to start big investments in oil.Because if you then want to start operation in 5, 10 years down the road, and you don't know today whether you are allowed to use your production capacity, it's probably not -- this is a risk you don't want to take. And we see these companies definitely driving investments in the renewable sector. So there must be a political message. If this political message is not coming, I don't see investments in Norway, which is one of our biggest markets. I don't see big investments in the U.K., I don't see big investments anywhere in Europe. I definitely -- we will definitely see investments in Russia, in gas, but those we have today also, we will see investments in the Middle East, and I have no clue what's going to happen in the U.S. But Europe, I'm not very optimistic.
Then another point is that you can see in the headlines discussions regarding nuclear energy. That more and more countries are starting to thinking about building a new generation of nuclear power stations. Is that a business where you could benefit from? I mean, it is very -- it's 10 years down the road, but -- or 5 years, I don't know, but is it a potential business for you?
No. First of all, yes, and no. Yes, it is a potential business. We are right now working on a very, very big project -- a EUR 20 billion investment in Europe, and we...
That's U.K., isn't it? Is this U.K.?
It's U.K., yes. And there are -- we are discussing our lighting equipment with them. And it looks like that we are the only supplier who would fulfill stability in an area with high valuation. So that can be a business, and it's not 10 years down the road, it might be one or 2 years down the road, when first supplies will come. But this is not our current core business, but it's an interesting opportunity we are working on. Because the expectations towards stability and reliability of product in these environments is extreme. And we are right now working ourselves into that industry. So it is an opportunity. What it means at the end of the day, we don't know.
I've got a question regarding the profitability, the earnings per share that was close to 0 in Q3. What can we expect for Q4? Is there seasonality in favor of earnings in Q4?
It's extremely difficult at this point of time, because we don't know how our deliveries will be affected from the supply issues. I would expect a difficult quarter, because as I said, we have increasing raw material costs, which we will -- which we now see in our cost structure. We have huge internal efforts in order to guarantee supplies. And we see very many broken processes in our production, because we very often start projects which we can't finish as planned and then we have to stop, we have to make sure that we get the materials and we restart again.And that makes planning extremely difficult. So there is a divided world. We have a good order intake. We have a good order intake, but we have definitely huge significant work load from -- and cost from this supply side. And I would expect that there were no -- positive surprises. We will rather see some influence of that, which drives us on -- a little bit on the other side. I can't predict the number at this point of time. We will stay in the range of our forecast. And this is what we expect.
[Operator Instructions] We will now take our next question from Ulrich Sachse.
Ulrich Sachse from UniCredit. Dr. Hallmann, could you please give us a little more details in order to the order -- the incoming order, the order intake? Are there a lot of orders postponed or are they canceled? That's the first question. And the second question would be, did you see any effect on the pitched pipeline or your open offer, you tried to acquire for R. STAHL?
First of all, the standard business is very healthy at this point of time. It also means that the structure -- the margin structure of the business we acquire is healthy. What we just don't have is the project. In the past, we typically had every 2, 3 months, we had a project in a magnitude of EUR 2 million, EUR 3 million, EUR 4 million, EUR 5 million, whether -- from somewhere in the world, and these projects are not released at this point of time. So the day-to-day business, is developing nicely, as I explained, but the projects are missing.And the projects are not killed or dead. Sometimes you just don't hear what's going to happen, sometimes they are on hold. But in many cases, we have ongoing discussions, and we just don't get decisions. We do have projects where we would expect decisions since 1.5 years and they might come or they might be delayed another one or 2 years, because everything is discussed, everything is ready. It's just the purchase order, which is not coming. So a divided world, the standard business is running well. We -- everywhere, where we have chemical business, gas, where we have pharmaceuticals, shipbuilding, that's all nice. What you don't get is big orders from oil and petrochemicals and that will continue the next months, I'm sure.
[Operator Instructions] As there are no further questions at this time, I would like to turn the call back to your speakers for any additional or closing remarks.
Ladies and gentlemen, thank you for joining our today's conference call. Have a great day, and goodbye.