Good morning and afternoon, ladies and gentlemen, and welcome to today's Iveco Group 2022 first quarter results conference call and webcast. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. At this time, I would like to turn the call over to Federico Donati, Head of Investor Relations. Please go ahead, sir.
Thank you, Sandra. Good afternoon, everyone. We would like to welcome you to the webcast and conference call for Iveco Group's first quarter financial results for the period ending 31st March 2022. This call is being broadcast live on our website and is copyrighted by Iveco Group. Any other use, recording or transmission of any portion of this broadcast without the express written consent of Iveco Group is strictly forbidden. Hosting today's call are Iveco Group CEO Gerrit Marx and the Group CFO Francesco Tanzi. They will use the material available for download from the Iveco Group website. Please note that any forward-looking statement we might be making during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement, including the presentation material.
Additional information pertaining to factors that could cause actual results to differ materially is contained in the company prospectus published on the eleventh November 2021, as well as other recent reports and filings with the authorities in the Netherlands and Italy. The company presentation may include certain non-IFRS financial measures. Additional information including reconciliation to the most directly comparable IFRS financial measures is included in the presentation material. I will now turn the call over to Gerrit.
Thanks, Federico, and welcome to all of you joining our call today. To start, I would like to re-emphasize our deepest concerns and detestation about Russia's war in Ukraine and the terrible consequences for so many families. Iveco Group immediately stopped the import of goods to Russia and initiated focused support in Ukraine and in its borders wherever we could make a difference. Today is our first quarter earnings release, in the first year of independent operations, and I'm pleased to report solid profitability performances, notwithstanding persistent pressure on the supply chain from continuous component shortages that have caused delays, lowered our output, and affected our inventory levels, with some unfinished products remaining to be shipped to our final customers in the second quarter.
I would like to praise the entire Iveco Group team for the highly conscientious management of our cash, which resulted in a better seasonal cash flow absorption actually from industrial activities compared to the first quarter of last year, of which a large amount sits in those mentioned inventories, which we will deplete over the course of the next months. Looking at our financial results, the consolidated net revenues were up almost 2% versus prior year, with the adjusted EBIT margin at 3.3%. Adjusted diluted EPS was EUR 0.15 per common share.
We ended the quarter with a solid net industrial cash position at EUR 765 million, a figure that includes an expected one-off negative cash impact of EUR 141 million related to our line-by-line consolidated Chinese engine joint venture that will be largely offset by year-end. Francesco will provide more granularity around this later in the presentation. Seasonal free cash flow absorption was EUR 166 million, EUR 137 million better than Q1 2021, mainly driven by lower working capital outflow.
Available liquidity was at EUR 3.4 billion at the end of March 2022, including additional EUR 200 million committed revolving credit facilities signed in February and March 2022, in addition to the EUR 1.9 billion syndicated facility signed in January 2022, which we commented in our last earnings call on the full year results of 2021. Finally, our reported net loss of EUR 50 million includes a negative after-tax impact of EUR 51 million in connection with our Russian and Ukrainian operations, primarily due to the impairment of certain assets, specifically receivables and inventories. In summary, the Iveco Group team achieved a good first quarter in our first year of independence with record high order books, which we unfortunately could not turn into higher revenues and vehicle registrations as scheduled due to the well-known component shortages.
On the next slide is a summary of some of the main events that occurred during the quarter. On March 4, 2022, we signed an MoU with Hyundai Motor Company to explore possible collaborations on shared vehicle technology, joint sourcing and mutual supply. We are absolutely delighted by this collaboration with one of the most innovative and competitive players in the automotive industry. We are making good progress in our joint effort with our shared goal of translating this initial MoU into several win-win collaborations across various areas of mutual interest from light commercial vans to heavy buses. During the quarter, we also communicated a new investment plan of BRL 1 billion to promote sustainable growth in South America, an investment that would further reinforce our commitment to increase and improve our traditional presence in the region.
This contribution targets the development of products and services, the expansion of the dealer network, the localization of parts and components, improved process productivity and increased hiring. On the 25th of February, IVECO BUS signed three framework agreements with DPP, the Prague Public Transit Company, for the supply of up to 253 buses between 2022 and 2027 to the Czech Republic's capital. The agreement covers the purchase of three different IVECO Bus models to meet the needs of DPP. Up to 10 CROSSWAY low-entry 14.5-meter, up to 100 STREETWAY 12-meter, and up to 143 STREETWAY 18-meter buses. All the buses will be equipped with the latest Cursor 9 engine developed by FPT Industrial, ensuring that the vehicles comply with Euro 6 standards and achieve over 95% NOx conversion efficiency.
Finally, on March 30th, we signed a memorandum of understanding with Enel X, the Enel group company dedicated to developing and selling innovative energy services and solutions for the electrification of mobility. Under the terms of the non-binding MoU, Iveco and Enel X will explore possible collaboration that will unlock the potential of e-mobility for commercial vehicles in Europe, with a focus on light commercial vehicles, heavy-duty trucks and buses. The two companies will assess how Iveco's electric vans, trucks and buses can support the transition of Enel's fleet to zero-emission vehicles while examining new joint opportunities in other transport segments. The collaboration also aims to develop a joint offer addressing the e-mobility of commercial fleets.
Iveco and Enel X will leverage on their research and development and technical expertise to evaluate the interoperability of the Enel X charging infrastructure with Iveco's e-vehicles and the potential joint development of advanced services, such as smart charging and vehicle-to-grid. Moving to the next slide, number 5, you can see the industry volume performance for Q1 2022, with a change in % versus previous year. I will not go through number by number here, but just let me say that this change occurred notwithstanding some negative % numbers on a year-over-year basis, mainly driven by the continued supply chain issues and with more evidence on component shortages that are affecting the entire industry. When we look at the performances of the industry by segment in light-duty trucks on a worldwide basis, the market was down double digit, with only South America positive on a year-over-year basis.
The European market was down 20%, with all European countries down year-over-year. Industry volumes in the medium and heavy-duty trucks were flat on a worldwide basis, and down slightly about 1% in Europe, with medium down 14% and heavy almost flat year-over-year. In buses, the European market was down 3% and up 2% on a worldwide basis. This clearly does not reflect the actual demand with record high order books. However, the market is entirely determined by the weakest link in the collective sum of supply chains of all OEMs. On slide 6, we show our usual channel inventory statistics. Trucks channel inventory was up 9% year-over-year on a worldwide basis, up 10% and 6% in light and medium and heavy-duty trucks respectively.
Looking at the company inventory, light commercial vehicles alone was up 21% and medium heavy was up 3% versus last year. In the quarter, we overproduced retail by 12% in trucks, with an overproduction of 14% in light, 8% in medium and heavy on a worldwide basis. If we look at Europe only, medium and heavy retail sales were down 12% with production versus flat retail. For trucks, our expectation for the full year is for a low single digit overproduction versus retail on a worldwide basis. Moving on, I'm on slide 7 now. We have introduced an additional disclosure on our deliveries and order intake level. You can find a table in the appendix with all the figures, but let me just provide you with some color on the quarterly performance shown on this slide.
Starting from light commercial vehicle trucks, deliveries were up 10% on a worldwide basis, with all the regions contributing positively, and in particular in Europe, they were up 11% versus last year. Order intake was down 38% on a worldwide basis and down 40% in Europe. Book-to-bill was 1.05 on a worldwide basis and 1.08 for Europe alone. Moving to medium and heavy-duty trucks, deliveries were down 2% on a worldwide basis, with Europe down 21%, mainly due to component shortage, negative impacts, and South America up 49% versus last year. Order intake was down 9% on a worldwide basis and down 30% in Europe versus the same period last year.
This year-over-year contraction in order levels needs to be seen as a consequence of the managerial decisions we took to restrict the order slotting to counter large order books and delivery times, and to foster pricing discipline throughout the entire distribution chain to preempt midterm material cost volatility. Book-to-bill was at 1.39 on a worldwide basis, with Europe at 1.51, and South America and rest of the world at 1.51 and 1.21 respectively. Currently, for light and medium and heavy trucks, 30+ weeks and 40+ weeks of production are already sold respectively. Bus deliveries were up 14% on a worldwide basis, with Europe up 44% versus Q1 2021. Order intake was down 20% on a worldwide basis, with book-to-bill at 0.98.
Looking at Europe only, order intake was down 12% and book-to-bill was 1.06. Moving on to slide 8. With our European preliminary market share in our LCV segment, we have been able to conquer market shares in a declining industry, further demonstrating the strength of our brand and the unique positioning of our products. Looking at the upper end of the segment, we have further consolidated our leadership with 63.4% of the market, up from 60.9% in Q4 2021. We registered strong performance in the professional cab chassis segment as well, ending the quarter up 450 bps versus Q1 2021 to 31.6%. Looking at the entire LCV segment, we ended the quarter at 15.5%, 360 bps up versus Q1 2021.
When looking at the performance of our medium and heavy-duty truck, it is important to notice that these were the segments most severely affected by component shortages, particularly semiconductors, resulting in delays to ship our products to final customers. Based on future component availability, we are confident we will recover from the current market share levels, thanks to our solid order intake. The demand for our heavy-duty truck line has continued its strong momentum from prior quarters. Yet most likely we will see market share swings in the coming quarters, which will be entirely driven by an OEM's ability and plan to deliver, not by the order book itself. On slide nine is a recap of our operational excellence program DRIVE, which we already described during our Investor Day on November eighteenth last year. We are planning to provide updates during the year as the work progresses.
As disclosed during the Investor Day and included in our strategic business plan, we expect the program to generate about EUR 1 billion of profitability improvements by 2026, of which half a billion by 2024 and an additional EUR 500 million run rate in the remaining years by leveraging basically four key areas. Commercial, with the goal of increasing the customer base, especially with FPT's non-captive engine and optimizing pricing and mix. Innovation of the business model with the aim of moving towards low- to zero-CV mobility and facilitating customer transition to alternative propulsion. Product cost and quality, where the goal is redesigning the extended logistics systems, simplifying the manufacturing process, optimizing the direct material costs, and substantially improving product quality.
Cash by increasing the cash conversion rate and being resilient to business cyclicality, including best practices in reporting and planning processes for better and more timely optimization of our cash and funding position. Moving on to the next slide. As a global partner for the planet and people, last week on Friday, April 22, which was Earth Day, we published the Iveco Group 2022 Sustainability Essentials, a summary of our company's sustainability strategy, commitment, and actions. We have a long history of investing in environmentally friendly processes and products and fostering a circular economy, and we also aim to create an engaging, inclusive, and safe working environment within the company and among our stakeholders. We have identified four sustainability priorities. First, carbon footprint. Second, workplace and product safety. Third, lifecycle thinking. Fourth, inclusion and engagement.
We intend to achieve our four strategic priorities by setting clear objectives along our entire value chain, with specific reference to our people, our direct operations, our products and services, and our value partners as included in our strategic business plan. We have added a disclosure according to the Sustainability Accounting Standards, SASB, the recommendations of the Task Force on Climate-related Financial Disclosures, TCFD, and the assurance statement by an independent certification body, giving considerable added value for our stakeholders. As this is Iveco Group's first year, this document gives you an overview of our sustainability governance, key KPIs in some of our projects. Our first full sustainability report will follow in 2023. I will then now hand over the call to Francesco to take you through the full year financial highlights, after which I will then conclude with final remarks and guidance.
Thank you, Gerrit, and good afternoon also from my side to all participants on this call. I'm on slide 12, with our first quarter 2022 financial highlights. We ended the quarter with consolidated revenues at EUR 3.05 billion, up 1.7% versus the previous year. Financial services net revenue were at EUR 49 million, almost in line with the previous year. The net revenues from industrial activities were at EUR 3 billion, up 1.5% versus the previous year, mainly due to the positive price realization and a better mix. Consolidated adjusted EBIT was down EUR 32 million to EUR 102 million, with the margin at 3.3%. Adjusted net income was EUR 42 million.
It was EUR 69 million in Q1 2021 and excludes a negative after-tax impact of EUR 51 million in connection with our Russian and Ukrainian operations, primarily due to the impairment of inventories and receivables, as mentioned before. Adjusted diluted earnings per share was EUR 0.15, compared to EUR 0.21 in Q1 2021. The reported income tax expense of EUR 22 million with adjusted effective tax rate of 38% in Q1 2022 comes with a reasonable expectation of further decrease looking forward. The adjusted effective tax rate reflects the different tax rates applied in jurisdictions where the group operates, the unbenefited losses in certain countries and other discrete items. Industrial free cash flow, as already mentioned by Gerrit in his opening remarks, was -EUR 166 million, an improvement of EUR 137 million over the same period of the last year.
I will provide more granularity on both figures later in the presentation. Net industrial cash remains solid at EUR 765 million, and includes one hundred and forty-one million already expected cash out from the restructuring of the Chinese joint venture performed in 2021. It is important to highlight that such amount would be largely offset by a cash in of approximately 80% of the total one hundred and forty-one million within the end of the year. Our available liquidity, cash and undrawn committed lines, was up almost EUR 2 billion from the end of 2021 to EUR 3.4 billion. Moving to the next slide, and almost slide 13, we show our net revenues from industrial activities split by region and segment. I will not go through each single number, but let me just point out a few relevant ones.
Looking at the split by region and percentage change on a year-over-year basis, you can see that net revenues were up 68% in South America, continuing the strong performance registered in full year 2021, mainly driven by trucks and powertrain. In Europe, net revenues were slightly down at 2% and were down 11% in the rest of the world. Looking at the split by business unit, Buses was significantly up versus last year at 21%, mainly driven by Europe. Trucks grew by 6%, mainly driven by South America and rest of the world. Specialty Vehicles net revenues were up 4% versus last year. Powertrain net revenues were down 5% versus last year. On powertrain, I will comment on the next slide.
Now we are moving to slide number 14, shows our industrial activities adjusted EBIT walk by segment and driver. Industrial activities adjusted EBIT was at EUR 82 million, with a margin at 2.7%, down from 3.9% last year. Net pricing almost offset production cost in the quarter at industrial activity level, with volume and mix almost flat year-over-year and slightly higher SG&A for calendarization. The commercial and specialty vehicle adjusted EBIT margin was at 3.7%, up 120 bps from Q1 2021. The EUR 34 million increase in adjusted EBIT was mainly driven by positive price realization, more than offsetting the raw material cost increase and positive volume in light-duty trucks and buses in Europe and in trucks in South America.
Powertrain adjusted EBIT was EUR 45 million with a margin at 4.6%. Our progress in replacing the supply agreement with Stellantis with new third-party clients is proceeding apace, allowing us to confirm that we will be able to completely offset the last unit by, at latest, mid-2023, as already disclosed. Positive price realization and lower quality cost only partially offset negative volume driven by component shortage and by the discontinuation of the agreement with Stellantis, which was still in place in Q1 last year. Higher raw material and freight cost also affected profitability. Moving on to the next slide with our financial services performance, and now I'm in slide 15. Adjusted EBIT increased EUR 2 million to EUR 20 million, primarily due to a higher wholesale and retail portfolio from financing activities.
The managed portfolio, including unconsolidated joint venture, was EUR 5.5 billion at the end of the quarter, of which retail was 50% and wholesale 50%, up EUR 374 million compared to the same period of last year. The receivable balance greater than 30 days past due as a percentage of portfolio was 3.6%, down from 5.2% in Q1 2021, and sequentially down 30 basis points from Q4 2021. Financial services equity was slightly down from year-end at EUR 723 million, primarily due to the impairment of certain assets in connection with our Russian and Ukrainian operations. Moving on slide 16, we have highlighted our net industrial cash walk, including a snapshot of working capital behaviors.
Our seasonal free cash flow absorption improved significantly, allowing us to end the quarter with a solid net industrial cash at EUR 765 million. As already disclosed before, it includes a EUR 141 million cash out from the restructuring of the Chinese joint venture that will be largely offset by a cash in of approximately 80% of the amount at a later point this year. As you can see in the walk, we keep investing in our new energy future with investment up EUR 23 million versus the same period of last year. The working capital absorption was EUR 127 million, an improvement of EUR 267 million versus Q1 2021, mainly driven by higher payables. The higher inventory level mainly driven by component shortage, resulting in unfinished product remaining in our inventory.
Moving on to my last slide before turning over to Gerrit with the debt maturity profile as of end of March 2022, and our available liquidity. As already mentioned, we ended the quarter with EUR 3.4 billion of available liquidity, of which EUR 1.7 billion in cash and cash equivalent and EUR 1.6 billion in undrawn committed facilities. Our available liquidity more than covers all the debt maturities of EUR 1.1 billion for the upcoming years. This basically concludes my prepared remarks on the financials, and I will now turn over to Gerrit for his final remarks.
Thank you, Francesco. I'm on slide 19, in which we have highlighted our preliminary industry outlook. As outlined in the takeaway message at the bottom of the slide, this industry forecast is based on current visibility and needs to be seen together with the near-term uncertainties related to our supply chain, the evolution of COVID-19, and the Russia-Ukraine conflict development. Our preliminary expectation is for the European market, excluding United Kingdom and Ireland, to be almost flat across the truck segment. It was up 5%-10% in our previous outlook, though. South America is now expected to be down in light-duty trucks and up 10% in medium and heavy. On a worldwide basis, the truck industry is expected to decline by approximately 5%.
In Bus, we continue to see good momentum with all regions up year-over-year, resulting in an expectation for the worldwide industry to grow by 10% versus full year 2021. Moving on with our preliminary financial outlook. The company expects the global supply chain to continue to represent the main challenge for the year, including raw material price increases and component availability. COVID-19 and the development of the conflict in Ukraine are also elements with increasing uncertainties, which we do monitor very closely. As already mentioned in my opening remarks, we expect that the second quarter will be the quarter most severely impacted by all of the above, with the most recent highlight of severe challenges around the Port of Shanghai.
Considering all these uncertainties and based on the preliminary industry outlook we have just gone through, our preliminary expectations are for consolidated adjusted EBIT to be between EUR 350 million and EUR 370 million, in line with current consensus, with substantial supply chain risks in the second quarter and potentially the third quarter as well. Net revenues of industrial activities shall increase up to 3%, SG&A to remain well below 6.5% as a percentage of industrial activities net revenues. Net industrial cash to end the year above 31st December 2021 levels. Finally, our expectation is to substantially offset product costs with pricing on a full year basis. Although in the second quarter, we see difficulties to do that. In conclusion, before opening up for questions, let me just provide you some final remarks.
We are maintaining tight control of our working capital and inventory level, actively managing our order book to preserve healthier profitability. The available liquidity is solid and allows us to navigate through this challenging environment with a good level of confidence and to keep investing in our new energy future. During this year and beyond, we will continue to pursue our Iveco Way, adding new partnerships and collaborations while making substantial progress in the memorandums of understanding already signed and the various identified areas of collaboration. That concludes our prepared remarks, and we can now open it up for questions. Sandra, please go ahead with questions.
Thank you. We will take our first question from the line of Mic hael Jacks from Bank of America. Please go ahead. Michael Jacks , Bank of America, your line is open.
Hi. Good afternoon. Thanks for taking my questions. I have three. I hope that's okay. My first one is just with regards to your comment on market share swings in the coming quarters that you expect in the medium and heavy truck segment, driven by OEM's ability to deliver. Which side of the spectrum do you expect Iveco to be, gaining or losing share? That's my first question. The second question is somewhat tied to that, on volumes. I'm just trying to reconcile the revenue growth guide of 0%-3% with the price realization of around 5% that we saw in the commercial and special vehicle unit, in Q1. So any sort of comments on volume or more granular detail on volumes would be great.
My final question is just on order book mix in the commercial and specialty vehicle segment. Have you seen any customers switching out of gas trucks into diesel? If so, what are the implications for margins and mix for the latter part of the year? Thank you.
Thank you. Well, on the market shares for the medium- and heavy-duty, when you look at this Q1 number that is on that page that was distributed, we see ourselves on the higher end of that number because it was very difficult for us in Q1 to actually deliver our medium- and heavy-duty trucks due to specific components that were, you know, not available at the scale we needed. We had produced quite a fleet at the end of Q1 with those in this segment. The answer is it shall go back to the levels where it was before and continue from that level to perform well.
On the revenue guidance, you know, reconcile this with pricing and with volumes or order books. I mean, we have in our top-line guidance here, obviously for the full year guidance, obviously factored in that we are going to go through still substantial supply chain disruptions in the second and the third, possibly third quarter. With that, when you look at the price realizations that we have successfully accomplished, and we just recently did another high single-digit price increase and without seeing the orders falling, by the way. You know, these are orders that are basically coming to production in the first quarter next year, yeah. When you look at this full year, the most recent price increases are going to benefit basically the first quarter next year.
You know, on the other side, the three percent revenue increase is in the end—I mean, the guidance for the full year is in the end related to our very prudent view on what we can actually produce in light of the challenges that I mentioned. The order book mix, we have not seen cancellations overall. What we have seen is customers switching from LNG to CNG trucks, so staying methane and LNG. I was gonna say gas tractors because the advantages of the gas tractors are very, very apparent. I mean, this is the only available low emission vehicle that you can use.
For the more regional distribution missions, this is in fact something which can only be countered by an electric truck, which would cost three or four times more. In the end, the CNG shift is there. We have also managed to convert where customers wanted to convert to diesel to do that. That did happen as well. Thanks to the significant pricing efforts and the substantially better S-Way, i.e., our heavy-duty truck that we have launched in 2019, and we have reworked it in 2022 now with the model year 2022, we have managed to substantially increase pricing to levels where the margins that we make, whether it's a gas or a diesel, when you also take into account maintenance and repair contracts, which are sold alongside with these vehicles, are on, let's say, comparable levels more and more.
Hence, you know, that type of shift is not for us a major economic disadvantage if someone wants to shift from gas to diesel. Nevertheless, we see very, you know, very good order book for the gas segment. We see LNG, CNG shifts coming. We also see LNG orders still. Therefore, this is still alive. When someone wants to shift to diesel, that is in the year 2022 for us economically comparable in terms of bottom line. I hope that didn't add any complexity.
Very clear. Yeah, yeah, very clear. Thank you very much.
Thank you. We will take the next question from the line of Monica Bosio from Intesa Sanpaolo. Please go ahead.
Good afternoon, and thanks for taking my question. I hope you can hear me. The first one is on the volume mix. Volumes were up for light-duty and this was not the case for the heavy-duty segment. I was wondering if you can comment a little bit more on trends that we can expect on the heavy-duty segment, and if you can give us some highlights on the duration of the backlog on this side. The second question is on the impairments. Should we expect further impairments over the next quarters related to the current geopolitical context? The third one is on the free cash flow, which was much better than my expectation, to be honest. It was due to the payables.
Can you elaborate a little bit more on the evolution for the next quarters? Thank you very much.
Thank you. I would take the first question, and then Francesco will take the question on impairments and the free cash flow. In terms of order bank or backlog, I think we call it order book. In the heavy-duty truck, we still have more than 40 weeks of production orders from here forward. We are absolutely taking our orders from the first quarter and the second quarter. This is happening as we speak. For the light, we have added a third shift to our plant, and that one runs at full speed if it can, given the component shortages. There we have an order book that is 30-plus weeks in Suzzara and Valladolid. This is where we are.
We can, you know, whatever the supply chain allows us, we will sell and we will get registered in the market. Quite an unusual situation, but we'll cope with it. Francesco, on the-
Thank you. Thank you, Gerrit. For what is concerning impairment, we are not expecting any impairment of asset, or participation looking forward. We do not have, let me say participation in area where we have this kind of issues. On the other side, for what is concerning the cash flows, according to our seasonality, we have normally absorption Q1, barely flat Q2, slightly low Q3, and most of the cash flow is generating in Q4.
Mm-hmm.
We guide the market to a, let me say, more important recovery from the second part of the year to be slightly positive at the end of the year. This quarter, we manage very carefully the cash flow in relation to the situation of the market, the macroeconomic situation that force us to be vigilant on our spending. Certainly the payables has give us some help. I would say that in general, the attention that we have cash flow will remain there for the remaining part of the year and is really at top of our priority.
Okay. Let's say that a payable trend in the first quarter is a sort of, let's say, one-off. Is it correct?
No, I don't, I don't think it is a one-off. It's more related to the seasonality more than.
Okay.
Our effort special, I mean, especially in this quarter. It's something that it give us the maximum attention also in following quarters.
Okay. Can I add another question, please? Just very quick. Can you just give us an indication of the corporate cost? Because in the first quarter, they increased. Just to model the full year corporate cost at the industrial-adjusted EBIT level.
Okay. In terms of corporate cost on a global, full year basis, we are talking about between EUR 180 million and EUR 200 million.
Thank you very much. Thank you.
You're welcome.
Thank you. We will take the next question from the line of Miguel Borrega from BNP Paribas Exane. Please go ahead.
Hi. Hello, everyone. I've got two questions, if I may. The first one, just on your group-adjusted EBIT guidance for EUR 350 million-EUR 370 million. Can you give us some color on the margin trajectory? You say Q2 is going to be the worst quarter, but at the same time, I believe you also have more pricing kicking in your P&L. Just want to understand how you're thinking about the price-cost spread, given that Q1 is typically a quarter with lower production, as you said. Any reason why margins should be down sequentially from here?
The price cost in Q2 we're targeting, but as I mentioned, it will be tough to offset cost with price in Q2 in light of what we see unfolding in front of us. We do expect that to turn positive in the second half of the year to have an overall positive balance inside the guidance. For the full year, you know, cost will be offset by price. That's our target.
Okay, great. My second question on free cash flow, the -EUR 166 million. I see working capital changes was a -EUR 150 million in Q1, which compares to EUR 400 million last year in Q1. I remember last quarter you talking about the EUR 400 million of receivables from CNH. Is that excluded from the free cash flow number, or does it include the EUR 400 million?
No, it is completely excluded from the cash flow number.
That's great. Thank you.
You're welcome.
Thank you. Next question is from the line of Poppy Boyd-Taylor from Goldman Sachs. Please go ahead.
Hi, good afternoon. It's actually Daniela here. I have a few questions. The first one was regarding your MOU with Hyundai. If you could tell us, like, when you set the medium-term targets, did you have that in mind already, or is this further upside? And how could this collaboration eventually impact your CapEx or your R&D for new technologies, if there's any? Like, what would be the tangible impact from this collaboration in your earnings profile or cash profile going forward? That's the first one, and then I'll ask the other afterwards.
Thanks, Daniela. The MoU with Hyundai was not included in any of our plans. It was not included in the numbers that we presented at the Investor Day or any other projection that we gave before. This partnership has multiple areas we are looking at. It's not just one. I mean, of course, it might entail engine supply from us to them. It might entail electric axle supply from us to Hyundai and their commercial vehicle business, and it certainly implies a component delivery from Hyundai to most probably the fuel cell. These things are under discussion, and we'll further work on optionality around those.
From here, obviously, we can also consider, you know, if things work well, and this would take at least another quarter or two to figure things out in greater detail, that we then also start joint development of platforms further down the road, which eventually and definitely will translate into, you know, synergies on the capital outlay, on the CapEx as well as on the R&D side. This is certainly the case, rather in the back end of the plan than the earlier part, yeah, for sure. We wouldn't start this if there wasn't a, let's say, a quite profound set of, you know, mutually beneficial projects. This is-
Is that something you plan to update us on, like in an event or something in between this year? No, it's we have to wait a little longer.
We plan to update you within this year, rather in the second half of this year. You know, we have a major milestone coming in the second half, which is also IAA for commercial vehicles, I mean, in September. Let's see. We're not rushing. We want to make things right, and we take the time it takes to substantiate it. I think in IAA could be a good window.
Mm-hmm.
to think more clearly about what this means.
I understand. Thank you. Then my second question relates to the EUR 500 million of the Iveco Way that you talked about for the medium term, obviously. But in your 2022, EUR 350 million-EUR 370 million, how much of that is contributing with some structural cost base or change? Or given you say net pricing is kind of flattish for the year, volume up to 3%, that shouldn't be a lot of operating leverage. How should we think about how much contributes from the plan this year?
Well, we kicked it off at the end of last year, this comprehensive plan, so we are working through the different initiatives. There are some minor contributions in the current year. We're expecting most of it to kick in actually next year and the following year, given that this year is rather the year of ramping these things and setting them well up for a run rate entering next year. Bottom line, in that number, there's not too much of the EUR 500.
Okay. Thank you. I'll keep it here. Thanks.
Thank you.
Thank you. Our next question comes from the line of François Robillard from Intermonte SIM. Please go ahead.
Hi, good afternoon. Thank you for taking my question, most of which has been answered already. Just a quick one, trying to bridge between your former guidance on industrial EBIT margin and your new guidance on group EBIT margin. This does, I guess, include the EUR 53 million one-off for the Ukraine and Russia assets. Can you just give us a bit of a bridge of how you went from the former indication to this one? Basically, the former indication was of steady margins. At least steady margins, if I understood it well on the industrial side. If my understanding is correct, this new guidance might imply a slightly lower EBIT on the industrial side.
Is that likely to be seen everything more in the second quarter in your expectations, or can we expect some flatter impact going forward? Thank you very much.
Let me say that for what is concerning the EBIT margin adjusted, certainly the second quarter will be more impacted, as Gerrit mentioned before in his speech. We are looking forward, according to the guidance, in terms of 3.50%-3.70% at the end of the year to land certainly with industrial margin that offset from one side the cost of the production, but are certainly impacted by the other raw material and energy pricing. This one certainly has an effect. For what is concerning the Russian impairment on assets and inventories, this is a one-off and no recurring item, so it's not entering into the EBIT adjusted that we have see as a guidance.
Thank you.
You're welcome.
Thank you. Our final question comes from the line of Martino De Ambroggi from Equita SIM. Please go ahead.
Thank you. Good afternoon, good morning, everybody. The last question is on the recap of the guidance that you provided. First of all, can we say heavy-duty trucks are profitable in your full year guidance? Or if not, what is the improvement, the magnitude of the improvement, this year? If I understand correctly, prices will be positive at the end of the year compared to the production costs. I suppose it's just slightly positive. It's not a major contributor for the guidance this year.
The first question, was it about light commercial vehicles or heavy or all trucks?
Sorry, heavy trucks.
Heavy. Okay, sorry, I didn't catch that word. On the heavy trucks, the entire business segment itself, I mean, medium and heavy, by the way, if that's the way how we look at this. If you take the medium and heavy-duty truck all in, it was positive. Okay. It was not lose. It's projected not to lose, make losses, yeah. On the price-cost, you are exactly right. The price will not be this; it's a marginal and smaller contribution to the full year, given the dynamics that we you know expect to see in the second half. It will be larger, but it will be minor. I mean, larger than cost, but minor in impact.
Okay. Just to follow up on the financial business guidance, can we multiply by 4 the EUR 20 million in Q1 just to have an idea of what could be for the full year?
Yeah. Slightly down versus the four times the Q1, let me say.
Okay. Very last on the memorandum of understanding with Hyundai. It's very clear there will be benefits in terms of costs, in terms of CapEx, technology, and so on. Does it include or maybe in the future could also include combined commercial initiatives or sharing of distribution networks becoming a larger scope of what it seems to be right now?
Look, we have, we've started with the discussions around mutual component supply and possibly joint platform engineering, and I think that's where we focus on at this very moment as our foundational work in the next couple of months, and then we'll see.
Okay, it's not impossible to think about a second step?
Yeah, we are not thinking about this at this point in time. We want to first see what we can do together on the technical and the product side to harvest synergies for us as Iveco Group, who we are and what we do today, and then we'll see.
Okay, thank you.
That will conclude the question and answer session. I would now like to turn the call back over to Federico Donati for any additional or closing remarks.
Thank you, everybody, for being with us today, and have a nice afternoon. Thank you.
That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.