Ladies and gentlemen, a welcome also from my side, and thank you for joining our today's conference call. Our prepared slides are also available under the Investor Relations section of our website, www.r-stahl.com. A replay of the entire conference will be at the same place shortly after we will have finished. Please be aware of our safe harbor statement, which you find at the beginning of the slide deck. Now I pass on to Dr. Mathias Hallmann, our Group CEO, who will walk you through our presentation.
Thank you, Ms. Schäuble. Welcome, ladies and gentlemen, to our Q1 2022 Analysts and Investors Conference Call. Let me start with a summary. Our sales are up 4.8% to EUR 61 million, and we benefited from the good orders we had in the second half of 2021. EBITDA increased by EUR 400,000, roughly to EUR 3 million, resulting in an EBITDA pre exceptionals rate of 5%. A negative impact we had from an impairment in our investment in ZAVOD Goreltex in Russia of EUR 3.1 million, which we had to correct. We had to correct the book value due to Russia's credit rating, which was lowered by several steps from international rating agencies. That net profit was then heavily impacted by this impairment.
It resulted in a decrease overall of EUR 2.9 million to final net profit of EUR -5.4 million, which results in earnings per share of -0.48 EUR per share. We see ongoing strong order intake in Q1 2022, resulting in an increase of 17.5% year-on-year to EUR 75.1 million. If you look at the difference between the sales increase and the increase we see in our order intake, that's indicating exactly the problems we have in the business right now, which are mainly resulting from a shortage in material supplies, and that's again mainly coming from electronics. Nevertheless, our outlook we gave April 13 in our annual call for 2021 remains unchanged.
We do expect sales and EBITDA pre to show low double-digit growth by the end of the year. If we look at the distribution of our sales, we see a strong increase in Germany and America. Germany is up 15%, America is up 34%. The Central Region is about stable, and Asia Pacific has a decline of 10%. Nevertheless, when we look at the incoming orders, our expectation clearly is that at the end of the year, we should see significant growth in all of the regions. If we look at our key data in the income statement, you see the total operating performance of EUR 66.5 million against EUR 61.3 million in the Q1 of 2021, which is an increase of 8.5%.
This also gives an indication that in the coming quarters, we should see stronger sales. Even more important, if you compare with the cost of materials, which go up 10%, and you consider the sales margin in this total operating performance of those EUR 4 million of finished and unfinished product which we haven't sold right now, then we would expect that the cost of material ratio remains almost unchanged. Which is important also for us because it indicates that we are able to compensate strong increases in raw material prices with our ongoing price increases, which we have to pass over to our customers. The financial result you see it's EUR -3.5 million, again EUR -0.5 million last year.
We could compensate a little of this impairment in Russia with a relatively good financial result in the other areas. Nevertheless, we see a decline of the financial result of EUR 3 million. Other operating income is down due to lower foreign exchange gains, which we had last year. The overall result is then heavily impacted by this impairment of ZAVOD Goreltex. Those effects you also see in our cash flow statement. The net profit again strongly impacted by this depreciation or impairment. That's corrected then in the depreciation and amortization line, so that the cash flow itself is improved to EUR 2.7 million versus EUR 1.8 million against last year.
What's heavily impacting the free cash flow then are changes in working capital, where we had to build buffer stocks or safety stocks in many parts of the business in order to be able to serve our customers in these difficult conditions we have in our raw materials market. It cannot be expected that this will quickly improve when we all look at this what we right now see in China, especially in the harbor of Shanghai, which is responsible for roughly 50% of all exports from China. We will probably see more investments in working capital in order to safeguard deliveries in the coming months.
Cash flow from investing activities looks positive, but that's mainly, looks not positive, it's slower, but that's impacted by a reversal of long-term financial investments we had in India, and that led to that decrease in investing activities. Then we have the cash flow from financing activities, which is up and finally driving net debt to a level of EUR 27.1 million. The strategy we explained in detail in our call one month ago on the 13th of April. I think we don't go back to this today. What we nevertheless discussed also in that call was the chart we see on page 10, which shows the trend in the orders and order backlog.
That trend has been confirmed in April, and I would expect that it will be confirmed in May and June when we look what's going on in the market. It indicates that we are on the right track with the implementation of our strategy. It indicates, but also it has some pieces of, let's say, a nervous market where some customers try to buy as much as they can as early as possible in order to avoid delivery issues on their side. We do have strong orders, mainly in the range of modern LED lighting and automation equipment, but turning these orders into sales is very much dependent on ongoing shortages, which we discussed several times, and particularly for electronic supplies.
Nevertheless, with the strong orders we have, with the increasing operational performance, we still expect to show low double-digit growth year-over-year, with increasing momentum in the second half. We also do expect our EBITDA pre to show low double-digit growth as we manage to keep our cost structure under control or at least hand over increasing costs to our customers. We do expect a moderate negative free cash flow, mainly driven by high investment levels and the buildup of working capital and slightly higher net debt by the end of the year.
The risks we have are clearly the Russia-Ukraine crisis, which might generate further impairment in our Goreltex investment and also the ongoing supply chain issues, which might see another peak somewhere during the year, driven by the ongoing COVID measures which we see now in China. Impact from all that cannot be predicted at this point of time. This is it from my side. Overall, we remain positive for the development of our business. Our strategy is clearly showing impact. The orders are coming. What we now have to do is turning those orders into sales. The obstacles we discussed, but nevertheless, we stay positive. Thank you. We are happy to take questions.
Thank you very much, Dr. Hallmann. Ladies and gentlemen, if you'd like to ask an audio question, please press star one on your telephone keypad. Please also ensure your mute function is not activated once you're able to reach your equipment. Once again, if you have any questions, please press star one. We'll pause just a moment to give you a chance to signal. We do have our first question. It's coming from Mr. Klaus Schlote, coming from Solventis. Please go ahead.
Yes, thank you for taking my question. Regarding your Russian investment, Goreltex, did this generate a positive operating result in the Q1?
Yeah. Surprisingly, the business was very strong. Operating result was, I think it was up by 50% against the Q1 of last year, showing a double-digit net profit rate. I'm in continuous talks with the management there and what they say also they don't get deliveries from Europe. They can compensate a lot of deliveries from India and China, and customers surprisingly accept that, what they never accepted before. He also indicate ongoing strong investments in Russia in the oil and gas sector.
Regarding your forecast on free cash flow, you are writing moderate negative free cash flow for 2022. If for Q1 we had free cash flow of EUR -7.something.
Yes.
What does moderate negative free cash flow mean? Is that more than? You should say less. Is this less than 7 point, or is it more in the sense coming to zero?
We would expect first positive results in the coming quarters. Secondly, we still hope that towards the end of the year, we can reduce working capital again. Because we should see some improvements in the supply chain issues. That would overall lead to improved free cash flow in comparison to Q1.
Okay. I guess the same is you would say about net debt, which is now EUR 27.1.
That would then go along with net debt, yes.
Yeah. Okay. Is net debt at any level which could hurt your governance?
No. No. We still have enough headroom. With the profitability levels we expect and the net debt ratio we have right now, we should not see any problems with governance.
Asia Pacific was minus in the Q1 in terms of sales. You said for the whole year you expect all regions to show growth.
Yeah.
Where would that come from in Asia Pacific? Or what is the reason why it's -10% in the Q1?
We do have strongly increasing order intake in all regions, also in Southeast Asia. That's the indicator and it's actually accelerating in April. It started to accelerate in March, and it's further accelerating in April. So that's the strongest indicator. The decline in sales can be mainly explained by a stronger project deliveries in the Q1 of 2021. We are positive that that will be compensated.
Okay. Thank you.
Thank you much, sir. Ladies and gentlemen, once again, if you have any questions, please press star one. Dr. Hallmann. Oh, just one second, sir. We have another question coming in. It's coming in from Richard Schramm, calling from HSBC. Please go ahead. Your line is open.
Yes, good afternoon. I have a quick question on your project pipeline and your visibility there. What is your judgment on this? Has there been a change in the number of projects you're dealing with and making proposals for? What is the period of decision until customer really says yeah, we are going to execute this and places an order? Has there been any change also in the last couple of months in behavior on the customer side? Thank you.
It's a very interesting question, because you would expect that project order intake carries some project business, and the opposite is true. Project activities, when we talk about major projects, are still on a low level, especially when it comes to greenfield investments. There is significant activity when it comes to smaller upgrades and typical repair and maintenance activities. What you see there is that decisions are made much quicker than in earlier days that the time between the first discussion and the order intake is significantly shorter than it has been in the past.
Project activities are still on a softer level, and we see that mainly in the regions where we have a lot of project business, like in the Middle East or also in parts of Asia.
Yeah. Thank you. That's very interesting to hear, because this suggests that customers are mainly doing a kind of, yeah, let's say, firefighting to secure short-term capacity. Isn't it a bit worrisome that obviously the longer-term view is not in so much focus at the moment and that projects are scarce in the market, which means that in a couple of months the business could dry up here to some extent.
Yeah. The question is also always a little bit what would you define as a project? What you see, for example, in the oil and gas industry, and especially in the oil industry, is that almost nobody is investing in new oil fields. But all players are investing in safety, and all the players are investing in getting their people off the platforms, meaning in automation, and sometimes also kind of more predictive maintenance activities in order to lower the HR load of their platforms. I wouldn't expect that this is calming down quickly because everybody tries to produce as much as he can in the current market phase. That's not only true for oil and gas.
It's also true, for example, the chemical industry. Bigger investments, there's probably too much uncertainty in the market for many players to really trigger them.
Yeah, very interesting. Thank you very much.
Thank you, sir. Ladies and gentlemen, as a final reminder, if you have any questions, please press star one at this time. We do have a question now coming from Ulrich Sachse from UniCredit. Please go ahead.
Hello, everyone. Ulrich Sachse from UniCredit. I do have two questions. First, could you tell us a little more about your current sales price increases, and what impact do you see on your gross margin? The first one and the second one is how much order backlog do you think you can reduce by the end of the year by delivery? Thank you.
First question is price increases. We applied two different things or measures. We did, let's say, kind of moderate list price increases. We did one in Q3 last year and one towards the end of the year, which was also something we never did before, that we made two list price increases in such a short period of time. The other thing we implemented is material surcharges. What does it mean? We have defined material surcharges up to a level of 12.2% on certain product lines.
This is something we can lower again if the market is cooling down and, for example, electronic markets normalize. This is something also and I know that from my former experiences, customers typically accept much easier than list price increases where they say they never go away even if the market is normalizing. Yeah, this is what we do. That's enough at this point of time to compensate for the price increases we have in material supplies and in energy and other areas. How much of the order backlog do we think we can reduce?
Honestly, in the Q2, I would expect order backlog increasing again, and that we then reduce it from Q3 onwards. Also we expect increasing sales already in Q2, but our order situation is still surprisingly strong, especially under the condition what we just discussed, that we have no big projects. It's all day-to-day business, or a lot of day-to-day business. It's very good margin structure. It's still increasing. Yeah.
The mechanism behind we discussed. I tried to describe at least from our understanding, and we will start reducing the order backlog in the moment we have relaxation on the raw material markets, and that should be Q3, hopefully. Hard to predict. Very hard to predict. I wouldn't be surprised if order levels increase further, and we will see probably order backlogs we haven't seen before in this business.
Thank you.
Thank you, sir. Dr. Hallmann, we do not appear to have anybody else queuing you this time, sir. Going to turn the call back over to you for any closing remarks. Thank you, sir.
Yes. Thank you to everybody for your attention and your questions in this Q1 2022 conference call. We talk to each other maybe in two weeks in the spring conference we will be attending in Frankfurt or later in our Q2 conference call. Thank you very much.