Good morning, ladies and gentlemen. Very warm welcome to our Q3 2022 Analysts and Investors Conference Call. I do have the pleasure to report a very strong quarter. We can report improved sales over all regions, increasing to a level of EUR 74 million, which is an increase of 18.8%. Order intake was again even stronger. We ended at EUR 80.1 million. This is an increase to the last year of 26.7%. Our EBITDA pre almost doubled to a level of EUR 9.7 million and an EBITDA pre-margin of 13.1%. Net profit came out with EUR 5.2 million, mainly driven by higher sales volumes and very much improved financial results.
For those who follow us for a longer period of time, this is actually the strongest quarter since 2014 we can report for the company. Earnings per share came out at a level of EUR 0.80 per share. The outlook we will discuss later, we virtually, or we mainly confirm. The only change we foresee in our outlook is a slightly lower free cash flow, reason for that we will discuss during the call. If we look in our sales, we now see strongly improved sales over all regions. Germany remains very strong with a growth of 10.1%. We have to have in mind that Germany was strong through the whole crisis. We ensured growth, little growth in Germany, even in the pandemic phase.
What we see right now with another increase of 10.1% is a continuous increase of market share. In the central region, we are benefiting from our LNG strategy. Again, those who follow us since quite some time may remember that we always said LNG is the bridging technology to a hydrogen economy. This is what we see right now. We see an accelerated development in LNG. We see a very nice development in the Nordic region, Norway, but also in other parts. What we also see in the central region is very good business from our ongoing focus on the chemical and pharmaceutical industry. In the Americas, very strong growth from a low level. We have to admit.
It's probably the only region where we have a significant dependence on the oil business. Now we are benefiting from that. We see very strong demand from oil service companies, but we also see very strong demand from LNG. We see that after a couple of years of investing, we see that we can create a much better foothold in the chemical and pharmaceutical industry with our automation division. Asia Pacific is the only region where on a nine-month basis, we still have a negative growth rate in sales, but the Q3 was significantly positive now. The reason for that is that Asia Pacific is probably the region in the world where the COVID restrictions were held up pretty consistently until the middle of the year.
What we see now is that we see the restrictions go back, business is coming back and this is turning into sales now in all segments of the business. Looking in our financial statement, besides strong increase in sales, we also see a good or strong development on the total operating performance. We have to report slightly improved or increased material cost ratios. Last year, we were on a level of 34.9%. Now we're on a level of 35.4%. The reason is not that we can't cover inflation with price increases. What we see here is mainly the development of raw component purchases of electronics.
Electronics markets are not working. Right now, deliveries are unstable and unpredictable, from time to time we have the problem that we have to buy quantities via different channels, and then you pay sometimes 5x , 10x . This is not a general development, this is something which will be over maybe in one or two quarters, and then this material ratio will normalize to the levels we know. We see some increased personnel cost influenced by salary adjustments and selective recruiting, where we improve the quality of our organization. What we also see here is a very strong financial result. Actually our financial result is positive. This is driven by a very, very strong performance of our Russian subsidiary, ZAO R. STAHL.
This is somewhat unexpected when we all recall the development at the beginning of the year, where we had a ruble exchange rate of 150 rubles to one euro. Now we are down to 60. What we also have is a booming business in Russia, driven by the fact that the Russian customers cannot go abroad anymore, so they have to buy locally. Looking at our cash flow statement, this is probably the only piece which is creating some worries at this point of time. We see a positive influence of the net profit, clearly. Depreciation is on a normal level, which brings cash flow up. But then we have the effect of still broken supply chains. That's mainly for electronic parts.
All the rest is, let's say, recovering at this point of time, but we have to build higher inventories in order to keep customer service up, because we never know what we get and what we don't get, and that is driving negative cash flow numbers. Cash flow from operating activities comes out negative with EUR -6.5 million. Investing is under control, then free cash flow is negative, driven by operating cash flow. The effect of that we can see in our financing activities. Cash flow from financing is up to EUR 7 million. That's a mistake in the presentation. That minus shouldn't be there. We will correct that after this call, so that should be no minus. Then we see a higher net debt of EUR 33.7 million in comparison to EUR 17 million last year.
Yeah. Now we switch to positive again. What you see here is the development of our order intake. I already reported 26.7% higher orders quarter-on-quarter. If we calculate that over a period of two years, then it's 45%. This is actually the increase since the, let's say, the worst phase of the COVID crisis, when we came in with EUR 55 million, and now we came out with EUR 80 million. I would expect that this ratio remains on a similar level in Q4. Sales are following on a lower level. Two reasons for that. The first or three reasons for that.
The first you see on the left-hand side, we had a very, very strong Q1 in Q1 in 2020, when we first time thought, "Now we are, we start earning the results of implementing our strategy with very nice order intake." We were hit by COVID. Definitely those orders helped us to survive the crisis, because then we had a phase where our sales were higher than order intake. We moved quickly into a phase where sales couldn't follow orders anymore, and that was due to broken supply chains. You have another effect that typically sales in our business are three to six months behind order intake. We see that we closed the gap.
I said that supply chains are recovering in many areas. Not in electronics, but definitely it's improving and we can foresee and we foresee very solid development for the business in the coming quarter and the order intake we have builds a sound base for that. Summarizing all this, we can confirm our guidance we gave at the beginning of the year. We expect to come in with sales of EUR 270 million to EUR 275 million. EBITDA pre will come in between EUR 18 million and EUR 21 million. Free cash flow, we have to adjust a little. We will come in with a low double-digit negative EUR million amount at year-end, because we will still need higher working capital ratios.
On the other hand, we can report a very significant increase of our equity ratio as the interest rates for the valuation of our pensions are increasing. The risks, we all know, they are not new. We deal with them since quite some time. It's the Russia-Ukraine crisis, it's the supply chain issues, and it's the next COVID-19 wave, whether it's coming or not. We don't know the impact of it, but honestly, we feel well prepared to deal with all these risks because we do it since quite some time. If I draw the line, we are looking extremely positive into the future of our business. Thank you very much. Now I'm happy to take questions.
The first question is from the line of Christian Sänter from Hauck Aufhäuser. Please go ahead.
Hi. Good morning, everyone, and thanks for taking my question. The first one would be on the Q3 growth. Can you, Dr. Hallmann, specify how much of that was driven by volumes, and how much of that was driven by price increases and positive currency effects? Because I would think that the currency effects were one of the larger drivers for your US business, correct?
Yeah. Thank you, Mr. S ä nter, for your question. I cannot do it in the 100% correct numbers. I would say half of it is volume, and the other half is prices and currency. Well, I would maybe even say 60% is volume and 40% is prices and currency. Because our USD exposure isn't that big. The biggest regions are definitely Europe and Germany. Even in Asia, some business is done in euros. So the -
Okay.
The USD exposure isn't that much. I cannot see that it's more than 1% to 2%, the growth driven by the exchange rate. I would definitely expect five, six percentage points in prices. But that's going to increase because we always have this time shift between putting a price increase in the market, having the acceptance of customers, getting the orders, and turning it into sales. This will be increasing in the coming months, and the rest should be volume.
Okay. Would you say the really strong EBITDA margin that you had in the Q3 is sustainable, or were there some, I don't know, special effects, some very positive mix effects when it comes to products that you're working on that were benefiting it? Or would you say if, I don't know, if input prices don't skyrocket significantly, in Q4, that what we've seen in Q3 is somewhat replicable?
We will not see a Q4 like Q3. That's not realistic because we have December, which is normally a weak quarter. Q3 is typically our strongest quarter because we also have the effects of people on vacation, very good provisions, and we have low personnel costs. I don't see that the structure of the business is changing. We have a very healthy pipeline. We didn't take big orders. It's all the standard business. It's mid-sized, engineered projects. There is no fill the factory piece in this. When the markets are normalizing on the electronic side, I could even see better margins. This is the risk in it.
Okay. Interesting, yeah.
This is the risk in it. I can give you an example. In order to not stop our production for luminaires in Weimar, I had to accept to pay a factor of 30 for some electronic parts. Instead of paying EUR 50, I paid EUR 45 per piece.
Yeah, that's crazy.
This is not predictable. This we will see in the numbers, but in general, I see improving margins.
Okay. If I take that into consideration, I would assume that also, you know, orders have been pretty good in the beginning of Q4.
Yes.
Would you not say that your full-year, particularly EBITDA guidance, is rather conservative, particularly lower end? I mean, you basically almost reached the lower end, and Q4 would have to be quite bad to not meet the lower end. But even the upper end, I mean, if you would have a quarter with, I don't know EUR 65 million to EUR 70 million sales and then 8% to 9% EBITDA margin, probably you could almost exceed it. Do you feel comfortable with the upper end?
I feel more comfortable with the upper end than with the lower end. I mean, we have to be honest. Sometimes in life, you have quarters when everything is going wrong, and then you have quarters when everything is going well. This is one of the quarters when everything went well. We cannot take this as a standard by now. I would dare to say it should be a standard maybe in two years when we continue implementing our strategy successfully. Until we get there, we will see weaker quarters.
Okay. Just for completion, would you mind sharing what was driving the significant increase in other operating income in the Q3 ? It was almost EUR 6 million compared to EUR 1.6 million a year ago.
I have to look at my finance colleague. He's giving me some. Yeah. EUR 2 million was a settlement, now I recall it. You may remember we had this quality issue with our tubular lights two years ago, three years ago.
Mm-hmm.
This was a final settlement for a big, big project in Kazakhstan, where we had to pay EUR 2 million for exchanging the luminaires and got EUR 2 million back from the-
Mm-hmm.
insurance. This is a left pocket, right pocket thing, but you see EUR 2 million in the other income. Then another thing is exchange rate.
Okay.
It's FX gains.
Mm-hmm. Okay. Let me check. Yes, I think that would be it for now. Thank you.
Thank you.
The next question is from the line of Ulrich Saxe from UniCredit Bank AG. Please go ahead.
Hello, Dr. Mathias Hallmann. First of all, congratulations to the very, very strong Q3 figures. From my point of view, one of the most successful quarters you already mentioned.
Yeah.
You could leverage the strong top line performance also into a significant earning flow, which is very fine for us. Two questions from our side. According to our observations, pipeline price pressure is quite high, so it remains intense, both on the input side, you mentioned, the shortage on electronics.
Yeah.
Also on the output prices, could you give us a hint what gross profit do you see or impacts in your existing pipeline you see? Secondly, do you see any cancellations or of existing orders or any decrease in the market?
Thank you, Mr. Saxe. I don't see a change in gross profit in the pipeline, because besides these extreme fluctuations in some minor volumes for semiconductors, and I just gave that example, we can very well cover inflation up to now. We work with two different instruments. We work with general price increases, and we work with material surcharges and logistics surcharges. The last one we can take out if the markets are normalizing. The first one we keep. This is well accepted by our customers. We don't see a general effect on gross margin, which we can't handle. The risk is with spot buys for semiconductors, and there it's just going crazy.
From time to time, I have to make a decision whether I accept a standstill of a line or complete plant, or I pay these ridiculous prices. That's not predictable. Overall, I think we can manage. The second thing, cancellations. Honestly, I don't see a big risk of major cancellations. We haven't seen it right now because when we go through the segments, I think on the luminaire side, we are probably the only one who can guarantee stable deliveries. All other competitors are suffering even more. On the automation side, definitely what we hear from the market is that we are not worse than our biggest competitors, again. On the low voltage side, anyway, definitely no cancellation in the project business and the standard business is turning pretty quick.
Very, very limited risk for cancellation.
Okay. Thank you.
Welcome.
The next question is from the line of Klaus Schlote from Solventis Beteiligungen GmbH. Please go ahead.
Yes. Good morning.
Good morning.
Thank you for taking my question. As you mentioned, Dr. Mathias Hallmann, free cash flow is coming down or is negative so far. What is your expectations? When will that change? What would that trigger?
[crosstalk].
Basically, in the same direction goes the question of financing this negative free cash flow. You mentioned the net debt was going up to EUR 33.7. What is your credit line on top of that? Are you dealing or talking to banks in order to increase that, probably? Or please give us an idea.
I think from our point of view, we should be at the peak, and we would expect that we start bringing working capital down from Q3, Q4 onwards. Because what I said is, the supply chains are stabilizing.
Mm-hmm.
We get much better control from Q2 onwards. We should expect more stable supplies for electronics, and that gives us a much better grip on the supplies. Many things we see in our numbers right now, we made decisions at the end of last year or the beginning of this year when we ordered big volumes in order to remain in the market.
Mm-hmm.
It was a good decision.
Mm-hmm.
It was a good decision even, and this is correct, it brings us at a certain level, debt level, where our, let's say, room is limited. But we still have a low double-digit millions EUR number in free lines.
Mm-hmm.
We don't talk to banks at this point of time.
Mm-hmm.
We have no need talking to banks, but if necessary, we will.
Could we expect a positive free cash flow number next year?
We have to.
Regarding supply chain, one can hear that many companies are trying to set up supply chains differently from the past, not depending so much on Asia and other regions which might cause trouble. What about your company?
Mm-hmm.
Are you having similar thoughts, or are you acting there already? Is it possible at all, currently to take on changes there, or is that more a longer-term process?
Three times, yes. First, it's a long-term process. Secondly, it's possible, and thirdly, we do it. I can bring a lot of buts.
Mm-hmm.
When you read into market reports for semiconductors, we all know that 75% of the volumes are being produced in Taiwan.
Mm-hmm.
That's Asia, and that will remain to be in Asia in the next couple of years.
Mm-hmm.
It will not be possible to change that quickly, even when companies like Intel invest a fortune. Until these foundries are in the market, we will be three to seven years down the road.
Yeah.
That's one thing. Second thing is those players don't talk to us. We can only buy via traders. Intel will not sell directly to us. Toshiba will not sell directly to us. We are too small.
Mm-hmm.
Yes, we are working on those issues. Yes, we are reducing Asia, but we don't have a big exposure to Asia besides semiconductors.
Mm-hmm.
It's almost nothing. But it's taking time, yeah?
Mm-hmm.
It's not so easy.
Okay. Thank you.
Welcome.
Ladies and gentlemen, to confirm that star followed by one to ask a question. The next question is from the line of Oliver Knobloch from Impact Avenue. Please go ahead.
Good morning. You were talking not too much about the new project in the pipeline. Are there not big projects upcoming despite the high energy price?
Yeah, good question. Right now, I clearly said that our pipeline is very healthy in a way that we don't have big projects in it, because big projects are typically coming with low margin. There's always a but. We foresee more projects. I have to correct me to a certain extent. We just reported in the press that we got a very first order from a nuclear plant, Hinkley Point, for lighting with a volume of EUR 2 million. That doesn't have project margins. That has very solid margins, and that will, over the next years, reach a volume of roughly EUR 10 million.
This is an opportunistic segment we started to deal with last year, and we have that very nice, successful order right now, and that is very promising for the future. The oil and gas landscape completely changed. We see much more mid-size refurbishment projects, but not many greenfield projects. What I can foresee in the future is there are probably 3,000 oil platforms, gas platforms around the world, that they will be all automated and they, then the players want to get their people off the platforms. They want to run operations remotely, and that will drive nice business for us. But that's the business we like. It's very complex. It's with automation competence.
It's an engineered solution, and it's not the big standard project with EUR 3 million, EUR 4 million, EUR 5 million, where many players compete and prices are driven down. Those we don't foresee. Those, I'm not a big fan of investing too much time in it. We only do that when we have a clear way for differentiating.
Okay. Do you see now already more activities on the hydrogen business side?
Yes, we see a lot of activities. Still, the activities in the press are much more than the activities in real life. We're answering the question in a way you didn't ask it. I see an impact of hydrogen in our economies not in the next five to 10 years. I see it in 20 to 40 years. Because the technology isn't there, the financing isn't there, and the infrastructure isn't there. Also, the regulations are not there. This will take a lot of time. We also need to build dramatic resources in renewable energy, otherwise the whole hydrogen thing makes no sense. Producing hydrogen from coal like they sometimes do in China is just nonsense. Yeah, we see activities. We see fuel stations.
We have such stations in Germany, in the Netherlands, in Korea. We work with the existing players in hydrogen anyway. I mean, the Linde and the Air Liquide, they are all our customers. We are in research organizations. We are financing a professorship at a university for safety in hydrogen. We are working at many levels, and there's lots of activities. What I always say, 90% of our portfolio is hydrogen-ready today. The potential in the near term is. It's not driving our numbers.
Okay. Thank you very much.
Welcome.
There are no further questions at this time, and I hand back to Dr. Mathias Hallmann for closing comments.
Thank you, ladies and gentlemen, for listening to this call, for very interesting and good questions. I'm looking at Judith Schäuble. I think we will be releasing the first preliminary numbers for the year on the 16th of February 2023. At the same time, we are planning to come with a strategy update. That's the next time we will be talking to you. Until then, we try our best to keep the good development and wish you good luck. Talk to you then. Thank you. Bye-bye.