Ladies and gentlemen, thank you for standing by. I'm Stuart Yakort, call operator. Welcome, and thank you for KION Group's Q3 2021 update call. Today's presenters will be Gordon Riske, CEO KION Group, and Anke Groth, CFO KION Group. throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you'd like to ask a question, you may press star followed by one on your touch-tone telephone. Please press the star key followed by zero for operator assistance. I would now like to turn the conference over to Mr. Gordon Riske, CEO KION Group. please go ahead, sir.
Yes. Welcome to our updates call for the Q3 2021, and as a basis for the call, we'd like to use our Q3 2021 presentation. It's available on KIONgroup.com under investor relations on the publication section. We will, as usual, be presenting in four parts today, and then we'll open up to the discussion for your questions. I'll begin with the key financial figures for the nine-month period 2021 and then present some strategic highlights from the past quarter for you. Anke will then provide you with a financial update, and we'll close with a confirmation of our outlook for the full year 2021. Let's get started with our key financial figures on page three. Overall, during the nine-month period, we're seeing very strong KION results, substantially surpassing pre-pandemic levels.
Supported by a very strong growth in both segments, our order intake for the group grew by around 34% to EUR 9 billion. Revenue reached EUR 7.5 billion, up 26%, and adjusted EBIT almost doubled, reaching EUR 691 million, representing a margin of 9.2%. Free cash flow for the group ended up at a positive EUR 135 million. In summary, we saw very strong growth across all metrics, which makes us feel well positioned within our guidance ranges that we have confirmed. A very, very good Q3. Moving on to page four. One important field of action, and we always talk about these strategic highlights within the framework of KION 2027, is energy and energy efficiency.
We decided to purchase a 20% stake in ifesca, which developed software for energy management. Ifesca's software is an innovative forecasting software that uses artificial intelligence to predict how much energy will be consumed and generated, particularly from renewable sources, nearly in real time. This will allow customers to plan the optimum operating times for their fleets of industrial trucks to avoid peaks in loading and unloading, and in doing so, significantly reducing their energy costs. Another important aspect of our long-term strategy is innovation, and the LoadRunner fits perfectly into this category. LoadRunner from Fraunhofer Institute for Material Flow and Logistics, IML, represents a new generation of AGVs with substantial sorting capacity. Its distributed intelligent vehicle coordination is designed to lift the high-speed AGVs to a new level of swarm robotics.
The common goal of KION and Fraunhofer IML is to optimize the AI-assisted swarm technology from basic sensor to overarching platform and launch it into the market by around 2025. KION will license the LoadRunner technology from Fraunhofer for use in its international group of companies. Performance is also shown by using synergies from our multi-group approach and multi-brand group approach and jointly selling solutions, and also an important aspect of the KION 2027 strategy. In Q3, our brands STILL and Dematic joined and won a tender, or jointly won a tender for Beiersdorf's state-of-the-art production center for cosmetic products near Leipzig. Beiersdorf's new plant is a multimillion EUR project and actually one of the largest investment projects in Europe.
The task was to combine all intralogistics steps from goods received, quality control, internal transport, and storage of incoming materials, up to making them available for production. For goods receipt and dispatch, manual STILL electric trucks and warehouse technology are used. Conveyor technology from Dematic provides the link between the goods in area and the narrow aisle warehouse, where six fully automated trucks from STILL are in operation, so autonomous trucks. In addition, the conveyor system ensures onward transport from warehouse to production, where six fully automated high-lift stackers from STILL provide the fully automated transport of Beiersdorf facilities. A nice project together with STILL and Dematic. Let's move on to the market update. On page six, the industrial truck market, again, showing strong growth across the regions.
The Q3 was shown a very robust development with some normalizing rates across, coming after a very strong Q2, and was predominantly driven by core markets in EMEA and Americas. Western Europe was up by 38% during Q3, particularly driven by Germany, Italy, and France. Eastern Europe grew even faster with around 57%, warehouse trucks having contributed in a large part to this growth. In North America, the strong market demand continued and thus reached a growth of 68%, supported by good development of warehouse trucks. With 67%, the growth rate in South America normalized as well, and is still acting on a very high level, particularly driven by warehouse and IC trucks. In China, unit order intake with the market decreased slightly by -4%, predominantly based on weaker IC truck environment.
Overall, the global market for industrial trucks started to normalize. Certainly, the comps will become more difficult as we go, since already last year we had stronger growth, but still with 25% at a very high base level, a very robust market, so our market does remain solid. On page seven, the breakdown of KION's unit growth by region. Our unit order intake after an outstanding Q2 reached a very solid, 63,100 units globally. In EMEA, we saw demand levels normalizing after a very strong Q2 record results in Western Europe. Orders grew by 25%, while Eastern Europe recorded growth of around 54%. Both regions especially benefited from good development of warehouse trucks.
Looking on to China, KION again outperformed the market based on strong development of all truck types and reached a plus of around 26%, mainly driven by new product additions and further progress in expanding our sales and service network. During Q3, North America benefited from the improved footprint, and thus unit orders more than doubled. Hence, KION outperformed the market, which was predominantly driven by warehouse trucks. In South and Central America, unit order intake grew by 5% compared to a very, very strong Q3 2020, based on good performance on warehouse trucks. In total, we did see a very strong, solid Q3. I particularly like the numbers on the world level. It's not so often that we do outperform in a quarter across the globe and for the year to date so far.
This is truly despite all of the challenges that we have and the availability of supplies and logistics bottlenecks that we continue to face. With this, I'd like to hand it over to Anke, who will present the financial update.
Yeah. Thanks a lot, Gordon, and hello to everybody from my side. If you turn to page nine, you will see the key financials for the ITS segment. During the quarter, we saw an ongoing strong demand for industrial trucks and a growth rate of around 20% for order intake, despite the noticeable pre-buy effect we saw in Q2 already. At the end of September, the order book for the ITS segment stood at almost EUR 2.4 billion, significantly up with 67% versus December 2020. As you can see by the numbers, we had a very solid Q3, with sales growing 60% to EUR 1.6 billion. Higher volumes in new business and a strong service business were a major contributor to our improved adjusted EBIT, up 53% to EUR 144 million, lifting the adjusted EBIT margin to 8.9%.
However, as you know, higher raw material expenses and tight supply chains and with that inefficiencies in production remained a challenge in Q3. In addition, higher personal expenses compared to prior crisis year also impacted our profitability. A positive price assertion and further savings from our structural program partially offset the negatives. Very importantly, do not forget, if components were available sufficiently, we could have shown higher revenues and EBIT in the Q3, as well as in our year to date. During the first nine months of 2021, ITS recorded an order intake of EUR 5.7 billion, revenues of more than EUR 4.7 billion, and an adjusted EBIT margin of 8.9%. Overall, ITS is showing a strong performance also especially in the service business. Turning to page 10, I want to give you an update on our capacity and structural program.
As stated with our Q2 results, we are currently only focusing on the structural optimizations rather than on capacity needs, quite obvious looking at order intake. We confirm the targeted EUR 80 million-EUR 100 million cumulated cost savings by 2023. We expect EUR 35 million-EUR 45 million to flow through this year after EUR 11 million savings in Q3 and EUR 29 million in the first nine months. You can see we are very well on track here. Page 11 summarizes the key financials for the segment Supply Chain Solutions. SCS developed very strongly, reaching a new record high order intake of EUR 1.4 billion. Regionally, demand increased substantially in North America and APAC but slowing somewhat down in Europe. Overall, the order intake was driven by projects for the e-commerce, general merchandise, and grocery vertical.
The order backlog at the end of September increased to roughly EUR 3.7 billion, of which around 22% remains to be converted into revenue during the Q4. Of course, provided sufficient availability of intermediate products, but with that covering more than 85% of our targeted revenue in Q4. Revenue grew significantly, reaching EUR 937 million in Q3, clearly fueled by business solutions up by 53% and customer services growing around 10%. Higher volumes were the main margin driver during the quarter, lifting the adjusted EBIT margin to 11.7%. Despite the ongoing negative shift in the sales mix caused by the strong project business, clearly outpacing currently the service business. Material cost increases are a slight headwind in addition to the buildup of our workforce in order to prepare for the further growth of our business.
While we hardly had any inefficiencies yet from tight supply chains, this might impact us more during the Q4 in the SCS segment. For the nine-month period, SCS recorded an order intake of around EUR 3.3 billion and revenues of EUR 2.8 billion, with an adjusted EBIT margin of 12%. Overall, demand for warehouse automation solutions remained very strong, and we have continued building up resources, ensuring the execution of our strong order book also in the future. Moving to page twelve, the summary for the key financials for the group. During the Q3, KION saw an order intake of EUR 3.1 billion, up 34% versus prior year, benefiting from the strong demand for material handling solutions. With this, the total order book grew 35% to almost EUR 6 billion by the end of September, driven by both segments.
Based on the strong performance of our businesses, revenue increased by 24% to EUR 2.6 billion in the Q3. The adjusted EBIT for the group increased to EUR 229 million for a margin of 8.9%, which is stronger than the level seen in 2020, somewhat lower than in Q2, mainly impacted by the rising material costs and ongoing tight supply chains, causing cost inefficiencies, as you know, and limiting revenues and EBIT generation. For the first nine months of 2021, KION saw an order intake of close to EUR 9 billion, revenues of EUR 7.5 billion, and an adjusted EBIT margin of 9.2%. Page 13 shows the reconciliation from adjusted EBITDA to the net income for the group. Reported EBIT included positive non-recurring items of EUR 1 million in the past quarter.
Net financial expenses decreased substantially to only -EUR 6 million, supported by a positive interest result from our leasing business, lower expenses for pensions, and a lower FX impact from financing. Taxes, of course, increased nominally, reaching -EUR 64 million in Q3, equal to a tax rate of 31.5%. The tax rate for the nine-month period, however, was 28%, and that was in line with the corridor we anticipate for full year 2021 of 26%-31%. Overall, we ended the Q3 with a net income of EUR 140 million and an EPS of EUR 1.04, while we saw a net income of EUR 431 million and earnings per share of EUR 3.26 in the nine-month period. Moving to the free cash flow statement on page 14.
In the nine-month period, free cash flow amounted to EUR 135 million. The main driver for the free cash flow development was the increase in net working capital, driven by significantly higher inventory levels in ITS. In our SCS segment, the tight supply chains triggered some delays in certain project milestones, resulting in delayed milestone invoicing and therefore later cash in. In Q3, we recorded a negative free cash flow of EUR -167 million. This is, of course, also impacted by the higher net working capital needs. As illustrated in the graph at the bottom, this year's free cash flow development does not follow the typical seasonal pattern. However, based on the unchanged outlook for free cash flow as well as for the other KPIs, we expect a strong cash in in Q4.
Page 15 shows our net debt as well as the corresponding leverage ratios of the business. At the end of September, net financial debt increased by EUR 51 million- EUR 931 million, mainly driven by the buildup of net working capital particularly in the Q3. However, our leverage ratio based on net financial debt improved to 0.5 versus 0.6 at the end of 2020, as the only slight increase in the debt was more than compensated by our sound operating performance. Our net pension liabilities decreased further during Q3, falling below EUR 1.2 billion at the end of September, mainly due to higher discount rates. Leverage on industrial net debt decreased substantially to 2.2, down from 3.1 December 2020. Yeah, with this, back to you, Gordon, for the outlook 2021.
Yes. Thank you, Anke. I'm on page 17. Based on our positive business situation and financial performance year to date, which we just explained, KION Group, we anticipate that we will achieve the already raised targets of 2021. Remember, we upgraded our targets some time ago, Q2. Given the current order situation that is very healthy in both segments, we do expect that order intake at both the group level and at the individual segment level to be at the upper end of the target range. Despite the current situation in the procurement markets, and all the logistics problems and material costs, et cetera, we do believe that we are still well-positioned to reach the targets for all the key performance indicators, including revenue, adjusted EBIT, free cash flow, and return on capital employed.
Even though the outlook remains positive, there is always uncertainty in the economic environment, particularly the risk of further increases in commodity prices and the availability of intermediate products. Looking onto page 19, you see our financial calendar. We will meet again soon in a virtual format. You are all invited to attend our virtual analyst and investor event, which will take place on November 3, 2021 at 2:30 P.M. CET.
On a personal note, as this is my last update call as CEO of KION Group, for those of you that are on this call but will not participate in the November third event, I'd like to personally thank all of you for the dialogue and the great questions and inputs that you've given to us in your coverage of a very special company KION Group, and wish you all continued success in the future. With that, we'd like to close the formal part of this update call and hand it over to the operator so that we can answer your questions.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. If you're using speaker equipment today, please lift the handset before making your selections. Anyone who has a question may press star followed by one at this time. In the interest of time, please limit yourself to two questions. One moment for the first question, please. First question is from the line of Sven Weier from UBS. Please go ahead.
Yeah, good afternoon, Anke. Good afternoon, Gordon. Thanks for taking my two questions. The first one is actually a follow-up on your guidance that you've just talked about. I was just wondering, what is the rationale for not taking the adjusted EBIT guidance also towards the higher end of the range, like you did on the order intake? Because if we look at the implications for Q4, let's say at the midpoint of the guidance, that would be quite a drastic sequential decline on the EBIT side. We also had, obviously, one of your biggest peers last night raising guidance by 10%. I was just wondering what's different in your case. That's the first one. Thank you.
Yeah. Maybe not so much difference. The fact is, you know, the material supply, the cost of raw material, is quite uncertain at this moment and has not really recovered. I mean, just, you know, one small example, a EUR 0.24 rubber gasket prevents you from delivering a EUR 25,000 forklift truck. You know, if you look at the whole thing, yes, we have a great quarter. We have great momentum and order intake. Who knows how the, you know, the next couple of weeks will pan out, but we definitely know we are missing material. We are having some issues getting the stuff out the door. That's the reason, you know, we took a somewhat cautious outlook. Anke, maybe you wanna add a couple of comments to that?
No, you are fully right, Gordon. I would say material cost headwinds that is not too difficult to predict that now we are end of October, and I think we gave a very decent estimate to the market. The whole point of supply chain inefficiencies that will, as I said, cause some additional costs in SCS in the Q4. The predictability is somewhat more difficult with respect to material costs. That's the reason why on SCS, we do not give a more narrow guidance range. For ITS as well, we have supply chain inefficiencies as Gordon has just described.
Can I just follow up on that regarding the raw mats? Because I think you're obviously expecting for the full year high double digits and low triple digits. How much of that did you have so far this year? What's left for Q4 on that side?
Yeah. We can definitely first of all give the good message that for the full year I would rather say it will not be hitting triple digits but it will hit high double digits%. If we look into the ITS segment the peak was reached in Q3 for material cost headwinds. That is based on the fact that we had some negotiations with suppliers ongoing throughout the year. In Q3 we also had some one-offs in our numbers. In Q4 it will still be a low double digits% for ITS. On SCS it will be somehow mid- to high single digits%. In total for the full year we will reach a high double-digit% margin impact.
Again, the low triple-digit we can rule out, but it will be high double-digit.
Okay, thanks for that clarity. The second question is more of a strategic question I have. Obviously, you had another very strong performance on SCS orders, and yet when I look at the share price, when I look at the implied valuation multiples, there is not much of a big difference between the truck and the SCS business. Now, you have a pure play listed peer with AutoStore, and obviously the valuation is quite punchy there. I was just wondering, what is your strategy to crystallize the value of SCS more tangibly? Is it that you would like to make the synergies between the two businesses clearer, or is it also an option for you in the long term to be open-minded towards listing and minority stake in the business?
Yeah. We don't wanna jump ahead, and that's certainly a task for the next CEO and team coming up. You know, that's a clear invitation to come to the virtual analyst and investor event where you get a little bit more flavor on what we're doing and what measures we're undertaking to increase our great performance and kind of the perspective of the coming years of our KION 2027 strategy. I do believe that at some point, logic does win and the high, you call it, punchy valuations may not always be the true underlying value.
I think we still have a lot of potential in our shares, as that becomes more evident of what capabilities and what kind of real results we deliver, not only in revenues but in true profitability.
Okay. Thank you both.
Next question is from the line of George Featherstone from Bank of America. Please go ahead.
Hi. Good afternoon, Anke. Good afternoon, Gordon. Thanks for taking my questions. My first one would be, clearly seeing good order momentum, so far in Q3 and also in Q2. Just wanted to talk maybe about the margin quality of the backlog in both of the businesses. Could you give us some color there? Is it accretive to where you see current margins?
Yeah, thanks for the question. Margin quality of the backlog, I would say, in ITS, it's rather in line. But what we have seen is a positive price assertion for our products, in the market environment we are in. You know that we had a second price increase for ITS, which we have put in place, beginning of July. With the long lead times, it takes a little bit of time until that will be visible, but that will definitely impact our business, in 2022. You know that beginning of the year, we will also always consider another price step.
In SCS, I would also say that's very much in line, so no noticeable difference in the backlog margin we are seeing. You know, the mix, if we are selling more product in North America versus Europe, that's always somewhat an important factor as there is a margin differential between the two regions, and then what kind of revenue conversion we have in that region. But from an overall margin, no major differences visible.
Great. Thanks for that. Second question would be on the truck market. The data suggests that you've had a solid outperformance of the global truck market. I wonder if you could provide some color on what exactly is driving this. Are there any particular end markets where demand has been strong? Also, if you could elaborate on the dynamics in some of the regions like China and North America, where you've materially outperformed, but also in Europe, where performance appears to have lagged the wider market.
Well, you know, as you see, recovery. You know, we were hard hit last year in IC trucks and in general counterbalance trucks and all of those heavier industries have come back. You know, that's been one of the cornerstones of our improved performance. In China, we have introduced new products, and that is also helping outperform in China. I, you know, I would say mainly in the world, looking at it, this whole topic of electrification. Electric trucks and warehouse trucks are perhaps the biggest driver. You know, we're able to deliver that. I think, looking forward to this year and next year, I mean, we ramped up three factories this year. That can't be forgotten.
You know, Poland, Stryków three, and Jinan is being ramped up, which goes into full swing next year. That capacity will be in place to continue the good drive that we have in the growth of the forklift business.
Great. Thank you very much.
Next question is from the line of Katie Self from Morgan Stanley. Please go ahead.
Hi, good afternoon. Thanks for taking my questions. Just a couple. Firstly, just on the cash, I was wondering if you could give us a kind of breakdown of the key drivers into Q4. I think it's gonna require quite a substantial cash inflow to get to the sort of midpoint of the guidance, something around EUR 300 million-EUR 400 million just in the quarter. Could you just elaborate a bit on, you know, how much of that is inventory unwind, how much is down payments from SCS, those different factors? Then secondly, Gordon, probably just a bigger picture one for you. We're hearing a lot of mixed messages around the issues in the supply chains, not just for the industrial trucks manufacturers, but, you know, for broader industrials.
I wonder if we get your view on A, when do you expect those to normalize? I appreciate that's a crystal ball question, but just from the conversations you're having with customers on the ground, have you noticed any changes already, or is that still seeming a way off? Then B, for KION, how quickly can production and shipping to customers ramp back to full speed once that supply chain normalizes?
I'll start with the second question while we look at the cash flow calculation. We had at the beginning of the Q1 2021, a scenario where that would start to get better towards the end of 2021 and the Q1 of 2022. I would say that's out six months. I do expect that because demand is simply higher and supply logistics paths are probably not to be so greatly improved until somewhere mid-2022 or beyond. That's something that we're going to have to deal with and live with. I am a little bit more upbeat about our own ability to recover somewhat. We do have a high inventory level. We have a huge order book. You know, the forklifts alone are 67% bigger order book than December 2020.
We have been preparing for that and we have also upgraded our supply chain management, so back to our key suppliers and kind of planning the volumes of 2022 and 2023. I think, you know, once things start to clear out, we will be able to recover fairly quickly. You know, normally a forklift you can get in 8-12 weeks, and, you know, we're at a half year and beyond right now. That can turn around fairly quickly. With the, you know, the capacity, as I said, we have a new plant in Poland ramping up. We have, you know, we upgraded another one in Stříbro and Jinan starting next year.
We will also have some capacity constraints lifted that have hurt us in the past years when markets develop quickly. I'm pretty bullish on when we can recover. On the market generally, that's certainly going to stick with us for a few more quarters.
Yeah, the cash flow. First of all, Katie, I would say we have given a guidance within range, and it's a EUR 100 million range. That is because there are always some, I would not say uncertainties, but it depends a little bit also on the project milestones, the billing, when customers are paying prepayments and so on. Generally, of course, our inventories will go down, especially in the ITS segment. There we have the highest inventory built up in Q3 now. We will also see a positive impact on the cash assets and liabilities, which is driving SCS, because we will get into more milestone billing. Once parts are there, retrofits can be done on the projects, we can also build the milestones.
It's depending a little bit because we are already at the end of October. It's depending a little bit on the payment term of the respective customer, if that still can come in until the end of this year or if there are longer payment terms. In general, inventory will go down on the ITS side and therefore freeing up cash as well as on the contract asset, contract liability side. In total, we stick to the guidance we have given with, I know, quite a broad range. That's because of the situation we are in.
That's great. Thank you very much.
Next question is from the line of Martin Wilkie from Citi. Please go ahead.
Yeah. Thank you. Good afternoon. It's Martin from Citi. I have a couple of questions. The first one on Supply Chain Solutions. You talked about the backlog conversion. Just to clarify, if we look at your revenue guidance for the year, which imply at the low end that less than the 22% conversion that you talk about on slide 11, would actually happen. Just to understand, you have talked obviously about some supply chain friction in components. Is that also site access risks? Just to understand what would drive the lower end of that revenue range in SCS given the strength of your backlog. That's the first question. Thanks.
Quite frankly, could you repeat the question for the 22% of the
Yeah.
It was.
Yeah.
It will somehow be 85% of the midpoint guidance. That is quite comfortable because, you know, we always have in every quarter also ad hoc service. The service revenues are coming in, and therefore the level for reaching the midpoint of the guidance is quite comfortable with the conversion of the backlog into revenues. It's not only, you know, the project revenues which are then bringing or the backlog of the projects which is bringing the revenues, but also ad hoc smaller projects plus services.
That's why I was wondering why the lower end of the range was still there, because it would look like you'd have to have quite a negative effect for the low end of the revenue guidance range in Supply Chain Solutions, were that to come to fruition. I was wondering if you had concerns over site access to be able to access projects, just to understand what would drive the lower end of the range if it were to happen.
Potentially the availability of components. We have said that for order intake, we will reach the upper level of the guidance. For all other KPIs, we have said we deem us well-positioned within the guidance ranges we have given, so we have not further specified it for one or the other KPI.
Okay. No, that's helpful. If I could just ask an unrelated question on Supply Chain Solutions. Just to understand what the impact is of some of these shortages and perhaps customers keeping older trucks for longer if they can't get a new truck, and what that effect has on your leasing business and trucks returned to you and rental. I mean, are you seeing tightness in the rental market? Or is the sort of end of lease conversion of trucks back into rental?
Mm-hmm.
Is that sort of fairly unaffected? Thank you.
No, we see much higher utilization rates of our short-term rental fleet and so forth, of course, because we are purposely, at this point, putting the priority on delivery of new trucks rather than backfilling, as maybe some other competitors have done, backfilling into and renewing the rental fleet. Also the rental fleet is getting a little bit older than it should be, because we are sacrificing all that capacity and putting it into the new truck because of the delivery situation. We have a good, you know, great utilization rate now, but that's perhaps an opportunity, next year when things get a little bit more normal to refresh the short-term rental fleet a little bit.
Let me add, Gordon. If you look at our service business and the split we are giving, you can also see that, and potentially it's also based on the situation we are seeing in the new business, our service business is progressing very well. The rental business is substantially up as well as the used truck business. One or the other customer might also tend to buy a used truck and not only renting a truck.
Great. Thank you very much.
As a reminder, if you'd like to ask a question, please press star followed by one on your touchtone telephone. Next question is from the line of Gael De Bray from Deutsche Bank. Please go ahead.
Oh, good afternoon. Thanks very much. Could you talk a bit about the potential lessons you might have learned from the current supply challenges? Do you see a need to change the supply chain organization in one way or the other, in the near to longer term? Do you think you might have to structurally build up higher levels of inventories, maybe of certain components? You mentioned gaskets, for example. Could that be something you will have to do in the future?
Yeah. I mean, what we have right now is certainly quite an unusual situation. I don't think there's any time that at least I can recall that automotive factories and other factories building homes with wood and you name it, what material is missing, truck drivers, you know, everything at the same time. I think that's not something that should be assumed as the basis for a business plan. Having said that, as technology changes and all of our trucks become more electrified, and with the lithium-ion or fuel cell technology, it changes a bit of our vertical integration. You know, we announced our joint venture with BMZ for assembling lithium, that we make our own electric motors.
Our value add or the level of vertical integration where we make it ourselves or have a much bigger influence on the delivery of these components, that will certainly increase with the change in the technology. I think that will help us deliver better and have it more in grip. It's more of a result of the change in technology and the need to secure the spare parts business after that. The other question, the inventory levels, I mean, they're quite high right now. I mean, a good working capital company has to be an efficient use of capital. We're getting money from investors, so we don't want to solve the problems with building up our inventories.
We want to solve the problems with doing the right things and being more efficient where we can. That's, to me, not really a strategy just to make your warehouses bigger. It's nice if our customers make bigger warehouses, so they have more need to buy forklifts, but we should stay away from trying to solve that problem just by increasing our level of inventory.
Given these same delivery constraints during the quarter, what sort of inventory excess did you have for ITS at the end of September?
The inventory in excess, it's a little bit difficult. If we look at the level in prior year, we had EUR 277 net working capital, but we also had lower orders. Now we are at EUR 448, and as I said, the build-up in inventories came mainly is predominantly ITS. The EUR 448 you are seeing out of that, I think, EUR 368 is inventory build-up. Again, it's predominantly ITS. At the normalized level, quite frankly, it's depending a lot on the level of business activity we do have. Supply chains do affect it, and so on. I would refrain here.
I'm really sorry, but I don't think it would be appropriate to give you a normalized level somehow.
Okay. I understand. Just to be clear, there was no impact on, you know, from this inventory build-up on the margin this quarter for ITS.
No, let me say it like this. If we, as we said, if we would have been able to get all the components for the trucks, we would have seen higher revenues and also higher EBIT and margin, definitely.
Okay. Very clear.
Yeah.
Thanks very much.
Next question is from the line of William Turner from Goldman Sachs. Please go ahead.
Hi. I have a couple of questions on the order developments during the quarter. The first one's on Supply Chain Solutions. Obviously a very strong number for the quarter, but how much of it was made up of large orders? How come you decided not to increase the overall full-year guidance for the order intake? Is there an element of look at the timing of orders just falling in at the end of Q3, which would have otherwise fallen into Q4? The second one is on the industrial trucks order book. It's probably somewhere near an all-time high, I can imagine. Do you think within that order book, are there any customers that are potentially double booking orders?
Have you done anything to kind of like increase screening or possibly require deposits on orders given obviously such strong demand that you're seeing?
Yeah. Let me start with the second one. Then the first one, we have no evidence of double booking. We know most of our customers pretty well and our dealers and so forth. You know, a dealer might order an extra forklift at this point, but you know, with the market, these just have perhaps a small safety cushion in there, but really double booking as a general theme, that's not the case. We do, as you say, you know, screen those things and to make sure that that's not getting messed up. So no, we don't see that right now. It is at an all-time high. That's right.
Yeah. With respect to the other point, you ask for the large orders and the proportion we have seen in Q3, so 65% of the order intake in Q3 have been large orders. So that's following the trend we have seen already in Q2, that we are somehow back to large orders. From only 8% are medium-sized, so EUR 20 million-EUR 40 million, and the remainder are small orders. Again, it's nearly the same pattern as in Q2. I just think when you ask the question why we haven't raised the guidance for order intake, instead have chosen that we are at the upper end of the guidance level. First of all, raising the guidance only for one KPI might be one factor which we discussed.
SCS, it's not very long behind us that we have spoken about or heard from you. It's a lumpy business. You know that one significant large order can make a huge difference if it comes in Q4 or if there is a slippage into Q1. We have very large orders. We have orders above EUR 100 million, and that makes a difference. Therefore, we have chosen to tell you that we are at the upper end of the guidance, but we have not changed our guidance range.
Okay. Thank you.
Next question is from the line of Akash Gupta from J.P. Morgan. Please go ahead.
Yes. Hi. Good afternoon, everybody. I have just one question, and that is on Supply Chain Solutions. If we look at Q3 and also year to date, we have seen very strong growth. You have highlighted before that this is in part driven by COVID-19, which is accelerating demand. The question I have is, if you look at your market share, do you see any evidence whether you are gaining market share, which may be meaning that you are growing faster than the market? Like when you look at your hit rate in your pipeline, what is your sense of your market share compared to where it was, let's say, 12, 18 months ago?
Yeah. I mean, overall, the market has been very strong, but we do have some evidence. You know, I don't have enough independents. Unfortunately, not like the forklift business where you have independent statistics. We do have some evidence that we have gained market share in distribution centers and with the Dematic SCS business in general in the past two quarters.
Thank you. A follow-up to that is what are the KPIs that needs to fulfill before you book an order? Is getting down payment also one of the KPIs that needs to happen before you book any firm order in SCS business.
Before we book an order, there needs to be a contract signed. That's the most important criteria for booking an order. All commercial terms are cleared, all legal terms are cleared, and there is a contract which is signed, and then we can book it.
Is down payment also a KPI? Like, do you need to have down payment before you book, or that can come after you booking the order?
No, that comes after signing a contract, but we get a down payment normally before we start working on an order. That's, as you know, the beauty of the business. It's normally net working capital negative. This quarter looks slightly different, as we spoke about the supply chain inefficiencies and the delayed booking of milestones. In normal times, it's net working capital negative business.
Thank you.
We have a next question from the line of Philippe Lorrain from Berenberg. Please go ahead.
Yeah, thanks. One question only for me. To come back on Will's question on order intake guidance. Is there a specific reason besides your cautious stance and the fact that the visibility might be limited, why you did not increase the order intake guidance for ITS? I mean, kind of the upper end kind of implies about 10% year-on-year and quarter-on-quarter decline, which would appear quite strange as the typical patterns we observe in the segment. Thanks.
Yeah. Philippe, hi. I said before, raising the guidance only then for one particular segment and one KPI, we wouldn't do that, to be honest.
Okay, I get that. Perhaps as a feedback, that gives also an indication perhaps on what to expect in terms of sales for next year already.
Yeah. Might be.
Okay, no further comments. Thanks.
We have a follow-up question from the line of Katie Self from Morgan Stanley. Please go ahead.
Hi. Thanks for taking my follow-up. I just wanted to ask about SCS again. As you were talking about, obviously, the possibility of lumpy contracts going forward, could you give us any indication on how the pipeline looks currently for SCS, either into the next quarter or just generally over the next sort of 12 months? Secondly, given again, we've hit a sort of huge record order intake. I'm curious, how far do you think KION is through its required kind of capacity and headcount increase in SCS? Are you having to turn down any orders at this stage, you know, because you simply don't have the capacity yet to execute on them, or is that not really a problem?
Well, we turn orders down all the time, and I don't mean that to be arrogant. There is a very rigorous process of when we bring orders to what conditions and, you know, otherwise we'd have 100% market share, which we don't. So, you know, we do have, at this point, perhaps more ability to be selective than in the past. But the pipeline is very, you know, long and large and, let's say very well filled. On the capacity situation, we have done an incredible amount. We've hired at KION Group this year, probably over 2,000 people so far year to date. Overall, the biggest part of that is at SCS.
We've upgraded our factories, but, you know, that's an ongoing investment that we will undertake in 2022 and 2023 to make sure we do have enough capacity in the market. You know, SCS in China will start to grow, so what we did for ITS, we'll probably have to do in China. Our European activities have been upgraded significantly. The next place to look at is how we're doing in North America, where that business has also expanded. That will be one of the challenges, getting enough people and the capacities to keep up with the growth.
Gordon, to add to the pipeline. The pipeline is higher than the pipeline has been last year at the same point in time. We are seeing an increase in the pipeline based on the customers' discussions we do have.
Great. That's all for me. Thanks.
Next question is from the line of Denise Molina from Morningstar. Please go ahead.
Hi. Thanks for taking my questions. I have two questions, separate questions. The first one is on, Gordon Riske, you've mentioned fuel cells a couple of times in the call today. I remember that there was a deal announced, I think with Carrefour earlier in the year, to supply some fuel cell forklift. Correct me if I'm wrong, but just wondering how that's going, if you've seen any momentum in terms of demand for fuel cells. How much of that is in the order book currently. The second question was more on competition within SCS and around the material handling robots. It seems like a number of new players are starting to make acquisitions in that space.
I'm just wondering if you see any change in sort of the competitive landscape for you there.
Well, on the fuel cells, that's still a very small part of the business. We think there's a lot of promise, that's why we have spent quite a bit of effort, and we do get orders every once in a while for this technology, especially if someone has hydrogen available in their site, which in a warehouse is much easier to do than you know in a passenger car type of industry. We have you know full development program to be able to provide fuel cells, but it's still today a very minor part of our offering. It will continue to grow because it does have quite a promise.
On the SCS material handling or mobile robotics part of the business, you know, we announced last year that our participation in Quicktron. We have massively invested in our own products. Now we have the cooperation on the LoadRunner. You're right, this whole market of autonomous vehicles in a warehouse is continuing to grow. We are observing that very very tightly to see if there are opportunities in that market. Should something arise, of course, we would be one of the first to go after it. It is a competitive market. Others are seeing it. Fact is, the level of growth that we are seeing in this business and the non-availability of labor to work in warehouses, those two things just lead to a higher demand for mobile robotics that will continue.
Great. Thanks. Thanks very much.
Next question is from the line of Jorge González Sadornil from Hauck & Aufhäuser Lampe Privatbank AG. Please go ahead.
Hello, Gordon and Anke. Thank you very much for taking my question. I have two questions on Supply Chain Solutions unit again. The first one is if you think that the strong growth for the division is coming from the pent-up demand from the basically if your clients are catching up with the strong increase in penetration from online sales. Or if you think that the mega trends are starting to kick in and some of your clients are basically investing looking to the long run. My second question is if you can give us some detail on the percentage of returning customers that you have for these orders. Thank you very much.
I'll have to look to the team on the second question, re percentage of returning customers. The order level pent-up demand is certainly part of that. That's more last year in the Q1. You know, what we're seeing now is more of a mega trend, especially in the automation of the food and beverage industry. Grocery business in general, which, in some of the bigger suppliers around the world are not that automated in their supply chain and delivering the goods to their local stores in the small cities and, you know, micro-fulfillment centers and all these types of things.
This whole mega trend of automating because of the increased competition and the non-availability of labor, that's more based on a mega trend, and that is the bigger part of driving our growth. It's not just pent-up demand as a result of the pandemic. Anke? Go ahead.
Yeah. I don't have a percentage for you with respect to return customers, but I can give you a couple of examples. If we look at what we call pure play e-commerce customers, and we have revealed that we have one major customers who has more than 10% of Group revenues. That's the threshold under IFRS. This customer is a return customer. We have a quite long-standing partnership, I would say. I would say that's especially relevant for the pure play e-commerce segment. But also, if we look into food and beverage, you know, that's also a very strong vertical of KION Group. there we have a grocery as well.
So I would say it's quite a solid percentage within our portfolio of satisfied customers who are returning to us. We also see that customers are placing, for example, first orders in North America, then they are placing orders in Europe with us. It's also our global network which facilitates this.
Thank you very much.
We have a follow-up question from the line of Sven Weier from UBS. Please go ahead.
Yeah. Thanks for taking the follow-up. It's just one on the next price increase that you also mentioned earlier, Anke. I was just wondering now that you said that you got the peak headwind from raw material prices already in Q3. I remember, I think you said that the next price increase could be a little bit more than it usually was. Is that still the plan or are you going with the usual 1%-2% this time around?
Weier, if I look at the headwinds for the full year and you know, we said it's high double-digit. That's still a substantial headwind. Going into 2022, we don't see that this will be somehow significantly lower. Yes, we are discussing a more substantial price increase internally, but there is no decision taken yet. You know that we communicate that in December, and then it will be effective 1st of January.
Is that also because you're planning for more wage inflation than usual? Because, at least for the GM workforce, I could imagine that this could be a topic next year.
We still have a tariff agreement in place. We will see how that then goes in the discussions with works councils. Yes, sure, if inflation goes up and so on, we also will have this discussion then. It's predominantly the material cost increase which will underlie our price increase.
Understood. Thank you.
Next question is from the line of Daniel Gleim from Stifel. Please go ahead.
Yes, good afternoon. Thank you very much for taking my questions. The first one would be on the European industrial truck market in 2022. How do you think about the market development into next year? What kind of environment are you preparing your organization for? In case I push my luck too much at this point, any comments on current trading into October in absolute terms would be highly appreciated. That is my first question.
Yeah. Let's start with October. You know, we don't give somehow information on a monthly basis of what we have seen. We're just coming out of Q3 so, let's please leave it there. Let's see what we can tell you about October once we meet at the Capital Markets D ay, beginning of November. October is not even over yet.
Yeah. You know what, you always, when you say, preparing the organization for 2022, I mean, we always prepare for the worst and hope for the best. That's kind of a good strategy in general. The past year of 2021, if you look at the global numbers per quarter, +24%, +24%, +71%, +73%, +24%, those are pretty high comps. You know, I think we'll stay at a fairly high level in absolute terms. What we do see, or what we do believe, we don't see it yet, what we do believe is that the market will normalize somewhat knowing that we have these mega trends toward automation.
These, you know, astounding 25% or even 50% year-to-year growth rates that we see now in 1, 2, 3, 4, 5 quarters, I don't believe that will be in that range simply because the comps are much, much higher than they will have been now in this year.
All right. Again, maybe one clarification. When you're referring to the pipeline being higher than last year at the same point, that was specifically for SCS?
Correct.
My second question would be on the upcoming analyst day. You already mentioned that maybe we can get some light on the October numbers. Is there anything else we should expect from that event, that you can reveal today?
It will be a great event, of course. It's worthwhile to join and to listen to us and to ask questions. Yeah. What we have said is, you know, that we receive quite often questions about our midterm targets, and we have it KION Group level. We will give more insights into the two segments, what you can expect on the respective development. We have Hassan and Andreas leading the businesses. They will speak about the respective developments. We will speak about China. I think we have a couple of interesting financial topics as well as operational and business markets topics.
Looking forward to that. Thank you very much, both of you.
There are no further questions at this time, and I would like to hand back to Mr. Gordon Riske for closing comments. Please go ahead.
Yes. Again, thank you all for joining us today in this very exciting Q3 2021. We look forward to hearing and seeing you in a virtual conference in November to dig a little bit deeper into all the great opportunities that lie ahead of us. With that, we'd like to close this call.
Ladies and gentlemen, the conference is now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.