Presentation, which has been approved by the board this morning. I leave the floor right now to Paul, and I will take on the last part and obviously all the Q&A. Please, Paul.
Yes. Thank you, Federico, and good afternoon, everybody. Just the time to share my screen and put it in full screen. Good. I think I can start. Highlights of the Q1 , our sales and revenues reached EUR 93.8 million. It's 1.2% increase versus last year at this time. Divisional sales have a different trend. Heating accounts nearly 8% increase, touching EUR 76.1 million. The metering accounts EUR 16.5 million, which overall is -22%, but we know that there is a trend of the gas metering that is higher in this period, which is -37%, while the water metering does a +30%. Consolidated EBITDA of EUR 14.7 million means 15.6%.
It was 15.1, meaning 16.2% the Q1 of 2021. Net income at 13.2% of revenues. We have net debt of nearly EUR 125 million. The beginning of the year it was EUR 107 million. At the Q1 of 2021, it was EUR 110.6 million. We will go into further details on this trend. Cash flow from operations was -EUR 19.4 million, mainly for working capital. It was +EUR 6.9 million last year this period. I just wanted to highlight, as many of you were participated to the presentation of our sustainability plan. It's called Made to Matter.
I think we want to highlight that the company is very much committed to the change that is behind this plan. We do have over 50 projects and initiatives. Many invest in product development, many invest in our operations, our organization, invest in carbon footprint emissions, and also how we manage our people. We want to address 11 Sustainable Development Goals, and we have allocated in the plan EUR 8 million, referring to overall CapEx and OpEx, that will be focused on sustainability. We want to commit and follow up on the plan as we go ahead. Highlights. Let's go to the key financial results. Some more details. Some I already commented. I just touch on EBIT at EUR 8 million. It was 8.9, the Q1 of 2021. As I...
Earnings before tax was EUR 14.1 against EUR 7.4. Net income, as I said, was at 13.2%, but we have to highlight that in this item, we have the effect of the fair value accounting of the warrant, which in the period is an income of EUR 7.1 million. If we take that out, the net income adjusted is EUR 5.3. It's 5.6%, and it was 7.7% the Q1 of 2021. Cash flow from operations, as I already mentioned, we see the increase in net trade working capital. It's nearly EUR 70 million, and debt is EUR 124.8. It was EUR 110, and it was EUR 107 at the year-end. We will go, of course, into details as we go ahead.
Top-line revenues at consolidated level. I think the numbers we already mentioned them on the tables. We see them by business, and we see them by geography. I think that the graph, on the other hand, on the right-hand side of the table, gives us a walkthrough between the last year and this year's Q1 results, where we see the volume and mix effect, the price increase, and the Forex effect on the top line. The EUR 5.9 million, of course, is very much impacted by the gas metering business. That, of course, also affects that -15% at consolidated level that you see on the left-hand table, where we see the -15% on the Italian market.
Prices, well, you know, we did put in place a policy, a price increase, and we are bringing home the results as we were planning mainly. Breaking down by division, I could say that all geographies increased in the heating business. This is a helicopter view, meaning 7.9% increase. We see the good impact, the confirmed impact of Asia-Pacific. That is going well. It's +30%. In the specific geographies, we have some increases that, in some cases, for example, Italy, we see, I say, the material increase of 35% of applications that are not really related to gas, some other different types of applications that are growing.
The catering is a segment that is picking up after the, you know, the break, the slowdown of the previous quarters that were still impacted in this sector. Europe. This is our serving geographies, of course, where we have our customer plans. Turkey, I would say, is in line. Some big customers there are basically a bit flat in this period, in this quarter. U.K. is down 10% year-on-year, quarter-on-quarter. That is because of delays in suppliers, but not our suppliers, from other suppliers to our final assemblies, so that we actually slowed down with respect to the Q1 .
Central Europe, you might recall that we have a platform of a new product that has been growing quarter by quarter, and again has been confirmed +30%. Here, for the first time, but of course we can understand why, we give disclosure of Russia. It's still 4.1% of the divisional sales, and it is -10% quarter-on-quarter in the two years. As for America, we have an important impact of the FX, so it's +9% at nominal value. It's nearly 3% at the same Forex. We have the direct heating, which are the fireplaces. They are going strong. It could be even better with more electronic components. Storage water heater is slightly down. It's nearly EUR 1 million down, which is 11%.
We have some shipping issues here as well. As I said, Asia Pacific is a good performance, and we confirm the fundamental trend that we see in China in the last quarters. I go ahead to the metering. Here, we must highlight the -37% of the gas metering. You see the residential part is -40%. The commercial and industrial is going better because we have the effect of the new product line. We are following the trend, the reduction in Italian market. We are not able to compensate with the foreign market, which anyway is 9% of the sales in countries like Greece, Central Europe, UK, India.
As you see in our current portfolio, again, it is slightly less than 10% in our backlog, in our order portfolio. We are in delay. Timing to come into these foreign markets is longer than planned. The water metering is confirming this is organic growth. It's as you see each quarter, it's in this range of growth. Even in the first quarter of 2022, we see good performance in all geographies with some growth in the Americas and the Asia Pacific in particular. Anyway, the business is on track with our plans. Let's come to the margin, EBITDA. As we mentioned, we went from EUR 15.1 million to EUR 14.7 million. Slight increase in margin as well.
The volume effect is overall let's say -0.5%. Prices net, meaning difference between sales and product and purchasing, is positive for 1.9%. We are delivering to the market the inflation that we have on our production, on our direct purchasing. As for operations, the EUR 3.2 million increase of these costs are I would say for nearly 50% due to extra cost regarding transport and logistics. Some actually even higher than expected, other more in plan with our budget. That's. We have an increase in our in our SG&A, R&D, and manufacturing overhead for another 30%-40%. Those are the main issues.
There are some plus and minus, but these are the two main items to comment on this increase in operating cost. The net effect of Forex is positive of EUR 1.1 million, and that brings us to EUR 14.7 million. Under the EBITDA, we see the impact of D&A. It's slightly increased in terms of percentage terms. EBIT, as I said, EUR 8 million at 8.6%. We have the accounting of the net financial income and charges of EUR 6.1 million. I won't go through that again, but there is a comment on the table. Let's go directly to the underlying items. Net financial income and charges is EUR 1.1 million adjusted. It's lower in both absolute terms and in percentage terms. The net income adjusted, as I reported before, is EUR 5.3 million against EUR 7.2 million.
Here we have one of the items that we already anticipated when we commented the full year results of last year, because the trend was already in place, let's say in the final months of last year. Because already in that period, we were actually addressing shortage issues with a procurement strategy which requires additional investment. Here you see the impact in the first 3 months of the year, inventory increase of EUR 16. There is some seasonality. In fact, if you look at the Q1 of 2021 increase, it is EUR 5.5, but the increase is much higher. The reason for this is that we are doing opportunistic purchasing. We are buying quantities when they are available.
We are, of course, doing this many times with agreements with the customers, and extra cost of this strategy will be reflected, paid by them sometimes, most of the times. Of course, from a financial perspective, we see the investment in working capital that you see here in this Q1 . This is translated into cash flow. From the current cash flow of EUR 14.8, change in working capital of trade working capital, other working capital items are more of a VAT balance and other tax issues that are minor. We have a CapEx of EUR 5.4 million. It was EUR 3.9 million. I would say we are slightly behind our budget, but anyway, the trend is confirmed for full year.
This brings us to cash flow from operations of EUR -19.4, change in debt for EUR 80 million. How the debt is made by the different types of debt, you see it in the table here, where we still have cash for EUR 40 million and gross debt for the remaining part. The leverage at the end of the period is 2.4. It was 2.1 at the end of 2021, and it was 2.2 at the end of the Q1 of 2021. I at this stage leave the floor to Federico for the final comments and outlook, and I'm available after for the Q&A. Thank you.
Thank you, Paul. The general environment with the, as we all know, difficult geopolitical situation, SIT has been progressing absolutely in line with our targets. We have, as announced, started to implement our plan of moving production from our supplier base in Ukraine a few miles, a few kilometers from the border with Hungary and, sorry, with Slovakia. That plan has been progressing. On the other side, we have been also dealing with logistics issues. We all know about the worldwide situation as far as deliveries and as far as shortage of components. Despite that, I think we have minimized the disruption to the market.
We plan, as stated, growth for the 2022 full year between 4% and 5% compared to 2021, which has been, as we know, also a year of consistent growth. We give guidance also on the EBITDA margin expected around 13%. I think that from an operational point of view and from a strategic point of view, we have been performing well. So far we have not been seriously affected by the worldwide situation, and we are confident to continue so.
We have seen in our forecast we have put a significant reduction in our sales to Russia and the Ukraine, where basically we have estimated zero sales from the Q2 onwards till the end of the year, despite the fact that we're still able to supply those countries. I'm now, like, everybody here available for Q&A. Who wants to start, please?
Uh.
If you-
Okay
Moderator. Okay, Marco and Adam.
Good afternoon, everybody, and congratulations for the result. Few questions, if I may. The first one, I remember you stated that Q1 2022 should be the worst of the year due to the delays in passing through higher selling price to clients. Is still the case or you expect some slowdown in the coming quarter? Second question, if I may, is if you can add some colors maybe on your development in smart meters, gas meters outside Italy, abroad, which seems is having some difficulties. Finally, in Q1, there was EUR 1 million of other income, unexpected on my side. Just to understand if it's something non-recurring or I don't know, what does it refer? Thank you.
Thank you, Marco. I will take the first two questions and leave to Paul the third one. You are correct. Q1 2022 is still expected to be the worst quarter of the year with regard to price increases and mainly for the gas metering business, where we also experienced some shortages. This has also affected partially the performance of the first quarter of gas meters. We have also good visibility on the heating side for the remainder of the year, where demand continues to be strong as in the previous quarters. With regard to gas meters abroad, UK continues to be our target and continues to be our most important market where we continue to see sales expected this year with some customers.
We're not focusing on only one customers, but we are talking to more than one. As we said, we do continue to see sales this year for the UK. We do see opportunities in India mainly for the C&I, for the commercial and industrial, this year. We also continue to see sales in minor countries like Greece and Croatia to be at least same level as last year. The third question?
Yeah. I check the other revenue that you are looking at that, I would say that is a, you know, an accounting rule. It's a part of a
No, no.
... of a-
Paul, sorry. In after the sales, in the EBITDA, you have EUR 1 million of other income. That last year was-
Yeah.
... a loss of EUR 0.3 million, something like that.
You're speaking of the sales table. Yeah, it's slightly higher than statistics, but I would plan it at 2% at the end of the year, full year effect with respect to the total business sales. Is that what you're referring to, Marco?
Correct.
What is this here?
Not business sales. The other non-core sales.
No, no, no. Sorry. Sorry, Paul. If you go in your press release at the income statement, you have
Mm
... before the EBIT, other charges, income for EUR 0.93 million.
Yeah. That's what I was looking for. Yes.
Okay.
It will not be a recurring. It is an accounting policy to put it there. It won't be something that we will multiply by four.
Okay.
It's part of a contract that we have that reverts to the customer, and it is classified there.
It's something non-recurring. Okay.
That's correct.
Thank you.
Okay. Yeah. Okay. Yeah. Okay.
Now Adam.
Good afternoon. Two questions from me, one just on the movement in inventory. Can you give us a feel for how much of that is volume and how much of that is pricing? Are you seeing much inflation, actual inflation in unit costs of what you're putting in inventory? Just noticing, you know, you said that, I think CapEx was slightly lower in Q1, but you think it'll round up in full year. Just really wondering if you can give us an update on Tunisian, how the general Tunisian project is going, both in terms of CapEx, but just also actually the physicality of delivery and how that might affect margins going forward in terms of your underlying operating costs as well. Thanks.
No problem.
Sorry, I will repeat the question because the audio was not perfect.
Yeah.
How much inflation is in our stock?
Yeah. Yeah.
Yeah. I would say that, in terms of, I would say about between EUR 2 million and EUR 3 million.
We are a bit late in a sense that if we look at cash flow of the first quarter in terms of CapEx and we multiply by 4, I think we will do a slightly higher amount of CapEx. Because we have the building that is going on time and that is one of the on top of CapEx that makes a difference and will be on time. Slightly higher than EUR 5.6 multiplied by 4, and it's more or less the EUR 24-EUR 25 that we were saying a couple of months ago.
Yeah. My question really was partly about, not so much about the CapEx, but just how progress was going in terms of the Tunisian project.
Oh, I'm sorry.
Yeah.
Okay. Sorry.
which obviously is part of the CapEx.
I'm so sorry. You should speak slowly, please, because we can't hear very, you know.
Sorry.
We can't hear you.
Okay. Sorry.
Not clear.
I'm in a hotel on a laptop. Yeah, just really if you can give us an update on the progress in Tunisia. There's obviously a CapEx relationship, but also just wondering where you are in terms of the impact of that project, particularly on costs and margin going forward.
I think the Tunisia project, from one perspective, will be accelerated by the Ukrainian project because as Federico was saying, how are we addressing the Ukrainian supplier risk? How do we de-risk the supply chain from the perspective of the Ukrainian manufacturer? How we do that, we accelerate the insourcing to Tunisia. That sounds good, but of course, we have to take into account that it will take some time, but we also have to put it in a time schedule of the high cost European manufacturing sites that we have. We won't be able to do everything in parallel. Let's say, the reduction in product manufacturing that was established for the high cost European will probably be in a delay of some months.
On the other hand, we will be accelerating an insourcing from a third party, a third party supplier. All in all, we included this in our expected margin for 2022. I hope I gave you the correct overall answer.
No, that's very helpful. Thank you.
Now Emanuele Negri.
Yes. Good afternoon, everyone, and thanks for taking my question. Yeah, let's say four questions, I think. The first one is about the demand side. Some producers we have heard that are taking steps to shift their production from gas boilers to heat pumps in some of their production. I believe that this might affect somehow the demand side for the next year. What do you see in terms of trends for this year and for the next years? Then in the gas metering about the rollout in Italy, do you expect it to restart in a few years? We talked about, let's say six months ago, it was expected to restart in two or three years. It is still the case, or it will be delayed for some reason?
About the guidance, you have told 4.4% to 5% increase year-over-year on sales. How much of this is expected to be price and how much volumes? Just in terms of strategy, do you expect to diversify somehow from gas and hydrogen or through M&A or internal development of products, you know, for example, on heat pumps or other type of product?
Great. Thank you, Emanuele. I will take 1, 2, and 4. The demand on towards heat pumps, you are absolutely right, is increasing. This year, we do see growth for boilers, standalone boilers, and let's say volume-wise mid-single-digit% at the European level, while heat pumps are expected and already had the Q1 double-digit%. This trend is expected to continue also from 2023 onwards. Heat pumps is obviously a market that we are carefully reviewing in terms of identifying opportunities for us. Customers tend to be the same, but let's say not only. All our customers tend to have also a heat pump line, product line, but we know that other dedicated players are also active.
This is definitely an area of interest for us. Also, this question is also related to the 4th question, diversification versus gas.
At this, let's say based on 2021 numbers, 1/6 to 1/5 from almost 20% of our turnover is not related to gas. We want to increase this percentage. This is a very important, absolutely key point. When I say revenues unrelated from gas, I mean I don't include hydrogen because I'm basing it on the 2021 output numbers. I'm referring to markets which we consider to be niches. Paul mentioned a couple of them during the presentation. Pellet stoves, heat recovery units, meaning mechanical ventilation. We also are active in the supply of cooker hoods, so fans for cooker hoods. Obviously water is absolutely a priority.
We have seen that is progressing as planned with a good double-digit growth expected also for this year. We're obviously aiming at diversifying. On top of that, of course, the big opportunity in hydrogen, where we expect from 2025 onwards, hydrogen-ready boilers to be made mandatory. Rollout of Italian gas meters is confirmed that there will be a second rollout. In fact, we are already talking to the most important utilities in Italy. This is absolutely part of our midterm strategy with MeteRSit. Not only selling into other markets, we mentioned UK, for example, but the second rollout is also important target for us.
We're talking to the most important players, like, for example, Italgas, with regard to their new, their plans for the new rollout, which is expected as planned, let's say, first real beginning, in terms of, volume, so will probably be end of 2023, beginning of 2024. Yes, that's confirmed. That's an opportunity. There will be a difference between the 1st and the 2nd rollout, because the first rollout was based on a very clear, directive from, the authority. Now, some years later, you know, the players are, let's say, more, clear and well known, and also the utilities have, more knowledge of the technologies and of all the possibilities that smart meters can bring, to the, to the, to them, to the, gas utilities.
It will be a different rollout, but it will be, let's say, in the time that I just mentioned, when we are already talking to all the most important and the most advanced utilities in this, for this part of Europe.
Yeah. Thank you for that question, Emanuele. It's interesting you say the increase, that 4% to 5% increase versus last year, if it is more volumes or price. Well, first of all, it's a consolidated number. Okay? It's the answer is different in the different divisions. Okay? I would say that it would be given that in the heating, we actually adjusted for the, you know, the new situation that has derived from the Russia situation and a better understanding of supplier issues on the components and so on. That is more, I would say, the decrease is more of a volume effect coming from these markets, okay?
On average, as the increase was based on both volumes and prices. This is the same for the water division. While the gas meter is pure volume that is going down, by the way, the price increase there was lower. Overall, I would say that the decrease from our initial guidance and this number is basically volumes. The increase is, I would say, a price effect, net price effect at consolidated level. It's a complex way. It's a bit difficult for me to answer given that it is the recap of three different situations. I hope I gave you the flavor of this view.
Yes. Thanks. Just to recap, it should be volume down on gas metering, price up on water metering and heating.
Correct.
volumes a bit up on heating and water.
Correct. Correct.
Okay.
Exactly.
Thanks. Thanks.
Thanks. Correct.
I think Christopher?
Christopher.
Yeah.
Yeah.
Can you hear me?
Yeah.
Yes.
Yeah, good. Now, if I could take you to Portugal for a few seconds and ask you about Janz and water metering, because this is a division where the growth is really quite impressive, 29.5%. If I remember correctly, EBITDA margins here was above 20%. I mean, correct me if I don't remember if you've published recent data on it, but when you acquired it, I think I remember the margins, EBITDA margin was 21.5%. I was wondering if you could perhaps circumscribe your thinking to this business and what kind of growth do you expect for the full year. Perhaps you can talk, say something about margins. Maybe what's happening in the sector.
I mean, if you're noticing more inquiries from customers. I saw a piece of news that a company not far from you, Pietro Fiorentini, bought a business in Turkey, a water metering business. I think mechanical, but they already have ultrasonic meters, which is also something you're developing. I think you're planning some product launches for early 2023. If you could tell us a little bit about how you see it in 2022, but also perhaps give us an idea of the dynamics, you know, Q4 and maybe into the Q1, Q2 ,of 2023. That'd be great. Thank you.
Yes, we are expecting this growth for the year with Janz in terms of revenue. We can easily calculate the target of EUR 25 million, more or less, you know it. In terms of profitability, you're right. The profitability of Janz at time of acquisition was in the 20% area and we are continuing to target this percentage, this margin. Obviously, this significant growth is supported by market growth and also by market share increase. We do expect a little bit of aggressive pricing in certain areas, which in my opinion will be necessary to consolidate Janz presence worldwide, which might have an impact on the marginality. I don't think it's going to.
We don't expect it to be significant. In order to increase market share, obviously we need to be aggressive. We also have some opportunities for efficiency by integrating the company in the group. We do expect the Janz profitability to be, let's say more or less in line with the time of the acquisition. With regard to new product development, we confirm that mainly for the Italian market ultrasonic technology is necessary. It's becoming a standard and we're working in order to come to the market with a new product in 2023. That's definitely an area for opportunity based on the ultrasonic technology, yes.
Yeah. Just to remind, at the end of this year, we are presenting the Enlit, the hybrid smart technology, because Federico is referring to the ultrasonic, which will be of course a completely new technology. We will introduce at the end of this year the electronic features that will make a traditional meter more smart and able to communicate. That will be presented at Milan, I think, in November or something like that.
Yeah. That's something obviously confidential, but under development, yeah.
This is something. I mean, this is a product where you expect also to gather quite a lot of orders, presumably. Any color on 2023, 2024? I mean, I'm trying to maybe, let's say, dream a little bit here, what could this business be like in, say, 3 years time or even 4 or 5 years time? I mean, are you looking at maybe doubling the size of the business over 3 years, 4 years? What sort of dynamics have you got in mind in terms of the growth, given also the market is growing fast?
Christopher, when Janz acquisition, we said that we wanted to double in five years. That's obviously still a target based on ordinary growth. I think we need to find a good opportunity for acquisition, I would say, consolidation in that area because the market is absolutely interesting. Big players are moving from mere, let's say, development, production and selling of water meters to complete solutions. Meter data management and so on. I think we live in the short and midterm, in my opinion, opportunity for the smaller players to grow in terms of products. In the long, let's say, medium, longer term, we also want to go to data management and data providing.
First, we need to consolidate our position with regard to products, and with regard to our presence worldwide. We're still very, very small in terms of the number of meters provided. As you say, there are significant opportunities of growth, but also we're looking for potential consolidation, and also on both sides, both geographies and technology. That's an area where I think you know without any major investment we could and we will reasonably double compared to the time of the acquisition. We're aiming at more than that.
Understood. Basically you need to also add or buy a software company to complete the offering?
Yes. This will be part of our strategy after, let's say, the 1st phase, which is consolidating our position in products.
Understood.
We already have an initial product which is providing data management based on the Janz products. Needs to be fully developed and as I said, another priority is in developing ultrasonic and taking market share in emerging markets. You mentioned South America. Italy is going to be an important opportunity. There's an important number of markets we address.
Thank you.
Any additional question? I don't see all of you. No. Okay.
As you can hear.
Thank you very much indeed for participating to this call. Tomorrow we will be in Milan with the management in our first face-to-face roadshow after COVID. We've gone down, let's say. We are starting again to set up our marketing activities. For any additional whatever meeting, question, we are always available, of course, either through the web and meeting you in person. Of course, everyone is welcome to see us also in Padua and Rovigo, where we have our plant facility that really makes a difference in if you visit it. Thank you again, and speak to you soon. Bye.
Thank you all.
Thank you. Bye.
Bye. Bye, everybody.
Ciao tutti.
Thank you. Thanks.