Dear ladies and gentlemen, welcome to the analyst conference call of Fuchs Petrolub SE. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties during the conference, please press star key followed by the zero to find operator assistance. I now hand you over to Lutz Ackermann, who will lead you through this meeting. Please go ahead.
Yeah, good afternoon, ladies and gentlemen. This is Lutz Ackermann speaking. On behalf of Fuchs Petrolub, I wish you a very warm welcome to today's conference call on the Q1 figures. As always, all the relevant documents has been uploaded at 7:00 A.M. this morning on the IR section of our homepage. With me on the call today is Dagmar Steinert, CFO of Fuchs Petrolub, and as always, Dagmar will run you through the presentation in a second, which will then be followed by a Q&A session. Having said that, I wanted also to highlight our capital markets day, which we have on 28th of June this year, and the re-registration is already open, and we are happy for your participation and are looking forward to that event. Having said that, I would like to hand over to Dagmar. Dagmar, please go ahead.
Thank you, Lutz, and a very warm welcome from my side as well. I would like to start with chart number 2, our highlights for the first quarter 2022. We had quite a good start into the year, even in this continued challenging environment. We report EUR 808 million sales. That's 16% more than last year. Our earnings, our EBIT, is EUR 93 million, and that's EUR 8 million or 8% below previous year. Previous, the first quarter 2021 was an extraordinary strong quarter. What have we seen in the first quarter 2022? Our sales growth is mainly price-driven, and we had a strong focus on increasing our sales prices. We have higher gross profits year on year, but we see as well a strong cost inflation, especially for freight costs, for energy costs, and of course, salary and wages.
In this challenging environment, anyhow, we updated our outlook, but I will come to that later. Let's turn to page number 3, where we see our sales development for the last two years. Just to remember you, in the second quarter in 2020, we've seen the deep decrease due to the COVID pandemic. In the second half of that year, there was a recovery and of course, we had a very strong quarter in the fourth quarter 2020, and we had a very strong first quarter 2021. Of course, there are some catch-up effects included. Year-over-year, I already mentioned it, our sales increased by 16%. If we compare the first quarter 2022 with the fourth quarter 2021, the sales increased by 9%.
Coming now to the quarterly EBIT development on page 4, there you can see the, like, volatility of the last two years. The decrease in the second quarter 2020, the strong recovery by the year-end 2020, the very strong quarter in the first quarter 2021, where we had the tailwinds in raw material prices. During the year 2021, earnings came down. Now in the first quarter 2022, we see again better earnings and, there our earnings and our performance as well is more price-driven. I would like to turn to page 5, where we have an overview of the group sales. We see a 12% organic growth and all regions contributed to that, but with a different magnitude. Our region EMEA and Americas grew organic 15% and 18%.
In Asia Pacific, the organic growth rate was just 5%, and that is mainly driven by China with a difficult start into the year. We have some currency gains for the whole group. They amount up to EUR 25 million or 4%. I'm turning now to page 6, our earnings summary for the first quarter. With this 16% sales increase, we managed to increase our gross profit by 3%. This is disproportionately, but that reflects the steep increase of raw material costs. Looking at the other functional costs, they went up by 10% and that is driven by inflation, of course, driven by higher freight costs and significantly higher personnel costs. Our gross margin improved by 1.4 percentage points in the first quarter 2022 compared to the fourth quarter 2021.
Year-over-year, our gross margin is down 4.2 percentage points. The EBIT, I already mentioned, EUR 93 million in the first quarter 2022. That is, it is below year-over-year below the first quarter 2021. Looking a bit broader on that figure, it is at the level of the, of our, peak year in 2018. Coming now to the CapEx. That was EUR 11 million, slightly below the previous year's figure. Our net operating working capital in absolute numbers increased by 33% year-over-year and that is due to the sharp increase in raw materials costs and disrupted supply chains. Of course, that affects our free cash flow before acquisitions, which came in with EUR 13 million compared to EUR 31 million in the previous year.
With that, I would like to come to the regions, starting with EMEA region on page 7. There we see a sales increase by 15%, which is mainly price driven as well. Our EBIT before at equity counts to EUR 42 million, which is below previous year's figure. The earnings of the at equity companies are the same. We have a decline, especially in Germany and in Southern Europe. On page 8, Asia Pacific. You can see that our sales are up by 11%. That is mainly price driven as well, but the development of sales, of course, reflects the difficult start of China, which dominates that region. We have positive currency effects, which account to 6% as the Chinese renminbi is a very strong currency.
Our EBIT in this region is EUR 29 million, so EUR 5 million below previous year, and that's due to the performance in China mainly. On the next chart, number 9, our regions North and South America. There you can see that sales are up 27% and a strong organic growth is 18%. Of course, as well, we have quite some significant positive currency effects. Our earnings, our EBIT is slightly up, of course, due to positive business development in South America and currency effects play a role as well. With that, I would like to turn to page number 10, our development of the net operating working capital. As you can see, in the first quarter 2022, our net operating working capital in absolute numbers is EUR 748 million and, as a percentage of sales, 23.1%.
In the first quarter 2021, this number was EUR 561 million in absolute figures and 20.1% of sales. That reflects the massive raw material price inflation and disruptions in supply chain. Therefore, I would like to draw your attention to chart 11, where we expressed our uncertainties which we see. We have the Russian invasion into Ukraine, with the sanctions against Russia, which have quite some effects on supply chains, availability of raw material and of course, the prices. We see the Zero-COVID strategy in China, which has a high risk potential, not only for the local economy in China, but as well for the global economy, because there are global supply chains or a lot of global supplies which need supplies from China.
Therefore, we see the further ongoing strong increase in raw material prices and the significant cost inflation, mainly in freight, energy costs and of course, wages and salaries, but everything is getting more expensive. This all ends up in really tightening supply chain situation and of course, in problems with raw material availability. We experience significant shortages in raw materials and our customers as well. That are the, you know, things which give us a really high uncertainty about the, you know. It's very difficult to estimate how the full year will perform. On the next chart number 12, you see just an overview about the development of raw material prices. The red curve is the crude oil and the other ones are the lines for the SN 150 in the regions in Europe, U.S., and Asia.
As you can see, the starting point is January 2022. There's a massive increase already in the first quarter. Of course, we expect our, you know, base chemical and additive prices as well as base oil to further increase in the running year. With that, I would like to come to the outlook for 2022, which reflects all these mentioned, you know, uncertain environments. We keep our expectations for the sales development in a range between EUR 3 billion and EUR 3.3 billion. That reflects organic growth and of course, our global set up and our ability to increase our sales prices. On the EBIT, we stick to our range of EUR 360 million to EUR 390 million, but adjusted that we expected at the lower end of this range and more on prior years level.
We still have a strict cost management, but of course, we see a strong increase in raw material prices. We see the inflation as already mentioned, and therefore we adjust our expectations to the lower end of that range. Of course, that has an impact in our FUCHS Value Added expectations. It will be below previous year. As we originally said, we see it on previous years level. Our free cash flow before acquisition, there our outlook in March this year was around EUR 220 million.
Due to the strong increase in raw material prices and the supply chain disruption, we expect that we need a much higher or a significantly higher number for our net operating working capital, and therefore our expectations today, looking at the free cash flow before acquisitions for the full year will be significantly below EUR 220 million. So far, a short overview about our performance of the first quarter, and now I'm happy to answer your questions.
Thank you. We will now begin our question and answer session for analysts and folks. If you have a question for our speakers, please dial zero and one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question has been asked before it's your turn to speak, you can dial zero and two to cancel your question. If you're using speaker equipment today, please lift to answer before making your selection. One moment please for the first question. We have a first question. It's from Markus Mayer of Baader Bank. The line is now open for you.
Good morning, Dagmar. Good morning, Lutz. I have three questions, if I may. First of all, you said the volumes in Germany and also the earnings have been quite down in Q1. Was this mainly automotive related, or was this across all industries? This would be my first question. Second question in relation to this, what are the demand trends in the different end customer industries? I guess automotive in Europe is down, might be up in the US and in other Asia. But what about the other industries? Also how does this go into the second quarter? Then the last question is on the shortage in raw materials you said.
In what regions do you have what kind of raw material shortages and what raw materials are in particular short, and how is your supply situation now in this situation with war in Ukraine? Are any suppliers you sourced recently or previously now not anymore able to deliver, or is this more related to the logistical issues which are obviously in different markets, in particular in Asia I guess?
Yeah. Thank you, Markus, for your question. Regarding the first question about the performance in Germany. In Germany, our specialty business had quite a good performance. I mean, overall, looking at the development of the first quarter of the group, our growth in sales is price-driven, and overall, we have slightly less volume. Coming now to Germany, we have the performance besides the specialty business is not that good. We have a volume decrease. As Germany has quite a chunk of business of automotive industry, that's one main reason. You asked about performance of all industries in all regions.
Overall, the automotive industry remained difficult, but we've seen as well, coming to Asia Pacific, we've seen the difficulties in China, and there we have less volume as well. That goes across, let me say, all industries. It goes across all industries in Europe, in Asia Pacific, and Americas has less volume decrease and had a somehow weaker performance compared with the other regions in the year 2021. Your third question regarding shortage in raw materials. We see raw materials shortage across the board in all regions and in all sorts of raw materials. It changed day by day. There is no shortage in just some special materials like semiconductors or chips. It changes, and it goes really across the board.
You asked about the impact of suppliers regarding Ukraine and I add Russia. As we have no direct supply from Ukraine or Russia, there is no direct impact. Of course, there might be an indirect impact, but of course, it's difficult to say.
Okay. Thank you.
You're welcome.
The next question is by Matthew Yates of Bank of America. The line is now open for you.
Good afternoon, everyone. A couple of questions. I was wondering if you could go into a bit more detail about the volume performance through Q1. You're suggesting that volumes were slightly down in aggregate. Could you separate that between auto and industrial to give us a sense of just how tough the auto environment has been? Any sense from your customers what the sort of inventory levels look like and whether they are preparing for a second half pickup in production rates. The second question is around the top-line guidance. The sales guidance has been left unchanged. Presumably, you're now working on a scenario of lower volumes but higher prices than you may have thought originally.
In terms of prices, if you've put through roughly a 15% increase in Q1, with that move, continued move higher in base oils and additives that you showed in the presentation, how much additional price increases should we be thinking about for the coming quarters to catch up on that cost inflation? Thank you.
Yeah. Thank you, Matthew, for your question. Regarding the volume development in the first quarter, sorry, but we don't provide figures for like to separate automotive industry and industrial as both customer groups buy both yeah kind of products. Maybe I can give you another deeper insight in the volume development of the first quarter, first breaking it down to the regions. Overall, we had a slight volume decrease in the first quarter compared to the first quarter 2021. In Americas, it's yeah nearly nothing. It has the volume decline has the biggest impact in the region Asia Pacific, which is due to China. You asked about if we have any sense of the inventory levels for our customers.
Not really, but our order books are filled, and we don't have the feeling that there are like stock picking from our customers that they want to build up their inventory, for you know, for whatever reason. It's just somehow, I guess, as we try to see what are we able to get and what do we need, that we take it if it's available and not wait. You are absolutely right. Our adjusted outlook somehow reflects due to the inflation and higher prices are somehow a bit lower volumes than originally expected and of course, higher prices. The price development or how is it going on, maybe I can give you. I think I didn't mention it in the presentation.
If you look at our first quarter 2022 compared with previous year's quarter, we see just around 30% raw material price increases in that time. We managed to increase our sales prices around 20%. Of course, this always goes along with a delay, with a time delay between 3-6 months until we see it. I hope that answers somehow your question.
Thanks, Dagmar. Look forward to seeing you all at the CMD in a few months.
The next question is by Isha Sharma of Stifel Europe. The line is now open for you.
Hi. Thank you for taking my questions. Good afternoon to both of you. Could you help us understanding how sticky are these prices? You have been very successful in passing on the costs. There's these kind of costs we haven't seen in the past. Could you help us to what proportion of this could be a bit sticky? I assume in the specialties business, it might be that some of these pricing is sticky, especially when the raw material costs come down eventually. My second question is on net working capital. You had probably assumed an inflow for 2022 when you gave the guidance at the end of last year. Is that the correct assumption, or you did expect an outflow and now you just expect a higher outflow? Thank you.
Thank you for your question, Isha. I will start with the last one. Our NOWC and cash flow. In our original guidance, we expected outflow for net operating working capital as well because we guide for, we guided and we still guide for organic growth. Then, of course, you need at least a bit more net operating working capital. Now, due to the inflation or high inflation still going, we expect a higher outflow. About the question, our pricing and how sticky these prices are, of course, that's different from country to country, from customer to customer, from industry to industry. So there is no, like, general view, and I can't give you now some, like, expectations or figures or anything because every calculation would be wrong to estimate this proportion of prices.
If raw material prices come down, we'll stay at a high level for that time. The fact is, as we have this time lag in passing it through, of course, the same counts for a time lag if we decrease our sales prices and our customers benefit, that goes along with the time lag as well. Of course, some prices stay as they are and never go down. There is no general rule, sorry for that.
Thank you very much.
The next question is by Oliver Schwarz of Warburg Research. The line is now open for you.
Hello, ladies and gentlemen. Thank you for taking my questions. The first one would be on the outlook. Ms. Steinert, if I got you correctly in regards to firstly, first and foremost, cost increases that are still ongoing. I think I might be right to assume that we'll see more margin pressure in Q2 than in Q1, as the Russian invasion of Ukraine was only by the end of February, and the sanctions came into place somewhere in March. Q2 basically will feel the full impact of all those headwinds that we are currently facing and hence, the margin might be more under pressure than in Q1.
If I look at the quarterly run rate, EUR 93 million in EBIT for the first quarter, or maybe at least according to my assumption, a bit less in Q2, might I be correct to assume that you are, let's say, banking on a V-shaped recovery? Basically, a recovery of the margin in H2 to achieve your full year guidance? That would be my first question.
Thank you, Oliver, for the difficult question regarding the outlook, because to be honest, nobody really will know what's going to happen the next month in this environment. Of course, you are totally right. Looking at Q2, there we will see the impact at least or the full impact of the Chinese lockdown because it started in mid-March. It happened to stay in place the whole April and a lot of people expect or hope that it gets a bit released in May and June. Of course, nobody knows. Looking at Ukraine and Russia, as the invasion was on the twenty-fourth of February, the first quarter has not a significant impact out of that or direct impact.
Of course, indirect, immediately prices went up. You know that better than we do. Of course, we see or we will see in the second quarter more the direct impact out of that. Our business in Ukraine and Russia is 2%-3% of group sales. That's not such a big number. The indirect impact regarding supply chain disruptions, that's the question. That's the question as well, looking at the situation in China, what will be the impact on supply chains from these lockdowns and the disruptions in logistics. Of course, you mentioned margin pressure.
Looking at percentage margin, of course, with having in mind or bearing in mind the high inflation, the percentage margin of course will come even more under pressure. Does that somehow answer your question or?
It does. Thank you. That was very clear. Thank you. May I assume that at least from the numbers you already have of April you saw, let's say the volume decline, especially in Asia because of China to become even more, let's say pronounced than you have seen in the, let's say in the aggregate, which was Q1?
Yeah.
Okay, cool. Thank you for that one. Lastly, looking at net working capital development, I guess, things are standing and so on. It's not really moving that much. However, due to the cost inflation, obviously, net working capital, sorry for that, net working capital requirements have increased in Q1 and are bound to increase even further in the oncoming quarters. At least that's what I'm taking from your guidance of significantly below the originally, let's say, provided number of EUR 220 million. Looking at those numbers, would you agree that the free cash flow number that you are likely to achieve in 2022 will be above last year's levels despite the envisaged decline?
Yes, it will be definitely above last year's number of EUR 90 million. First of all, in the last year, there was the impact from OECD tax payments, which we of course don't see in the running year. As we already built up our net operating working capital in the year of 2021, due to the inflationary environment, as you know, I can't tell you it will be the same number, but it won't be more, it will be less. It's very difficult at that early stage in the year to really get a reliable number for that. We will conclude that as soon as we are able to do it. I can assure you our free cash flow before acquisitions will be above last year's number.
Very helpful. Thank you. My last question in that role would be, your neighbor over the fence, BASF, decided to shut down all its operations in Russia and Belarus. Similar to your company, their direct involvement in these countries are not really significant in comparison to the overall sales generation. However, they cited the implementation of the EU's.
Our railway here across the street.
All sirens are going off at Fuchs Petrolub at the moment. Sorry about that. Coming back to the topic. Your neighbor across the fence, BASF, decided to shut down permanently their Belarusian and Russian activities due to the implementation of the next round of sanctions by the EU. Do you feel compelled to follow suit, so basically to shut down your operations in Russia as well by the end of July due to the sanctions? Are you, for whatever reasons, exempt from the necessity of shutting down?
Well, we are not, as of today, planning to shut down completely our Russian activities. Of course, we comply with all the sanctions, with all sanctions which are given from the E.U., from U.K., from U.S., even the Russian sanctions, of course. We carefully comply with all the sanctions. We cut our supply business with Russia because, in the past we used to deliver our some raw materials and finished products to Russia, to our Russian companies. That of course, we cut and we don't support them anymore in any aspect. They work by themselves and just on a local basis and just for the local market. Of course, that ends up in less business. There is no.
For us, there is no reason to totally close that business, because with our products, we provide food industry and everything, and I think, that's an important industry for the people living there.
Understood. Thank you.
The next question is by Lars Vom Cleff, Deutsche Bank. The line is now open for you.
Yeah, thank you very much. Thanks for taking my question. I've got just one last, and I'm trying to get a better qualitative feeling for your guidance. It is well noted that you have decided not yet to lower your EBIT guidance range, but only state that we should expect the full year results to rather come in at the lower end. How confident are you to at least reach the lower end of your guidance range? Or to put it differently, based on what you know as of today, and I admit that there are lots of variables included, do you think it's a stretch or does it still include a buffer?
Well, thank you, Lars, for your question. It's a difficult question, but as you see, we kept our range in place. As of today, with all these uncertainties, the really weak start, of course, looking across the ocean to Asia-Pacific, to China, in April and everything, we expect full year EBIT to be more on the lower end on prior years' level. As we kept the range in place, if things would turn out to be not as bad as something might be seen today, we might even be on another level of that range.
Okay. Understood. Thanks.
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If there are no further questions, I think we can close the call at this stage. We're happy for your participation in this conference call, and if there are any further questions, don't hesitate to contact us. We're happy to help. Having said that, we would close this call. Thanks.
Thank you very much and enjoy your weekend.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.