Good morning, ladies and gentlemen, to SAF-Holland's conference call on the Q1 2022 results. Please note that this call is being recorded and streamed on SAF-Holland's website. I now hand over to Petra Müller, Vice President, Investor Relations, Corporate, and ESG Communications for introductory remarks.
Thank you, operator, and welcome everybody to our Q1 2022 results presentation. This call is also being broadcasted live over the internet at saf-holland.com. A replay of the call will be available on our website shortly following the conclusion of this call. Joining me today are our CEO, Alexander Geis, and the Vice President, Group Accounting, Controlling, and Tax, Jörg Wahl. Alexander will start with the development of our regions. Jörg will provide some more details on our key financials, followed by Alexander again, updating you on our guidance and current developments. After the introductions, we will be happy to take your questions. Please note that management comments during this call will include forward-looking statements which involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the safe harbor statement contained in today's press release and presentation, and in our annual report.
All documents relating to our Q1 2022 reporting are available on our website. Now without further ado, over to Alexander.
Thank you, Petra, and good morning, everybody. Thanks for joining our call today, and let's start with a short summary of KPIs for Q1 2022. We started well into Q1 2022, and indeed with EUR 370 million of sales, it was a record quarter for us. As already indicated in our call in March, we saw quite some headwind due to the high cost inflation, especially in Europe. Nevertheless, our adjusted EBIT margin reached a solid 6.4%. CapEx ratio was 1.4%, and based on the strong business development, our net working capital ratio increased to 15.7%. Now let's have a look on the EMEA business development. The demand for our products was very pleasing and our production sites were fully utilized and still are. We are running under full steam, both in Germany and Turkey.
We have seen a very strong trailer OE business, followed by a strong aftermarket and strong truck OE business. Regional sales increased by 24% to EUR 208 million, and FX did not play a major role. High steel prices as well as high freight and energy costs, which are passed on with a time lag, had a very strong impact on the cost of sales ratio, while our SG&A and R&D cost ratios declined significantly. In total, this led to an adjusted EBIT margin of 4.9% compared to 9.6% in Q1 2021. However, based on a more dynamic pricing as of Q2, we expect a margin improvement over the remainder of the year. Our Americas region performed extremely well, driven by a very strong trailer OE business, supported by further market share gains in ADES Trax.
Also, the aftermarket business and the truck OE business showed strong sales growth. Our truck and bus suspension business in Brazil performed strongly. Our production is fully booked, and we won some major LTAs with key customers. The launch of the fifth wheel assembly line in Mexico for our North American aftermarket business was successful, and we started production already beginning of Q1. This was a major cornerstone to increase our aftermarket business in North America further. Regional sales grew by 41% to EUR 127 million, and taking FX effects into account, sales grew by 31%. We were able to pass on price increases faster in the Americas since that inflation already happened in 2021, and the teams could act faster than expected.
Also, our FORWARD 2.0 program continued to contribute to the good margin development, which was also supported by the successful product portfolio, complexity reduction, and a positive product mix. Our adjusted EBIT margin reached a good 7.8% in Q1 2022, and we clearly see that our Americas region is on a good way to get back to old margin levels in the 8%-9% region. Now let's speak about another good development. APAC sales increased by 26% to EUR 34 million. Growth was driven by a very strong trailer OE business in India and Australia, as well as a strong aftermarket business in the whole region. Worth mentioning is also that we have successfully launched new trailer products in India, for example, our heavy duty air suspension and tripled the sale of axles fitted with ADB brakes.
China market still struggles with strict zero COVID-19 lockdowns. Nevertheless, our APAC sales increase, adjusted for FX, was 23%. Compared to the strong increase in turnover, the cost of sales went down significantly. The lower sales and admin cost ratio also had a margin-enhancing effect. In total, this led to an adjusted EBIT margin of 10.1% compared to 1.4% in Q1 2021. This was the first time ever we reached a double-digit adjusted EBIT number in the APAC region. Now let me hand over to Jörg for a detailed walkthrough of our financials on group level.
Thank you, Alex, and welcome everybody. As Alex showed earlier, Group sales grew significantly by 29% year-over-year to EUR 370 million. This strong performance was especially driven by a very strong trailer OE and a strong aftermarket business in all three regions. EMEA and Americas account for more than 90% of our sales. Against the backdrop of the very strong sales performance in the Americas, EMEA sales share went down by 250 basis points year-over-year, while the share of the Americas sales increased by 270 basis points compared to Q1 2021. APAC sales share was more or less stable. While adjusted gross profit increased by 4.5% year-over-year, adjusted gross profit margin came down to 15.8%. Cost of sales were impacted by high cost inflation.
Alex already mentioned high steel prices as well as high freight rates and high energy costs. Price increases at our customers and efficiency improvements could not offset the particular high cost increases, especially in EMEA. We implemented price increases at all our customers and will implement a more dynamic pricing as of Q2 2022, which will provide some offsetting of inflationary costs. Our adjusted EBIT increased by 7% to EUR 23.5 million. The adjusted EBIT margin went down to 6.4% compared to 7.7% in Q1 2021. Our adjusted net profit went up by 1.8% year-over-year. Financial results increased to -EUR 2.8 million, driven by unrealized FX losses.
The operational adjustment on EBIT level came down slightly year-over-year from EUR 2.5 million in Q1 2021 to EUR 2.4 million this year. Restructuring expenses of EUR 200 thousand were on the previous year level. Adjusted net profit increased by 3.3% to EUR 15 million. The undiluted adjusted earnings per share was EUR 0.33. Reported earnings per share increased from EUR 0.24 in Q1 2021 to EUR 0.29 this year. Let me shortly remind you that we will propose a dividend of EUR 0.35 per share to the AGM in May 2022. This corresponds to a payout ratio of 43% and is in line with our general dividend policy.
Based on a seasonally higher net debt of EUR 210 million, leverage was 1.66 compared to 1.58 at end of 2021, which is a very solid financial profile. Equity was up to 390.5 million euros, driven by the net profit for the period as well as FX differences from the translation of foreign operations. Equity ratio was slightly higher compared to December 2021. Net working capital went up to EUR 209 million, which corresponds to a net working capital ratio of 15.7%. This was driven by higher inventory to secure our delivery performance, as well as higher trade receivables due to high demand. ROCE improved by 390 basis points compared to Q1 2021, mainly driven by higher adjusted EBIT.
CapEx of EUR 5.3 million was on the same level as in Q1 2021. CapEx ratio came to 1.4%. With our disciplined and focused investment policy, we'll further improve the efficiency of our plants in Germany and the United States. Capacity enhancing projects in India, Mexico and Turkey are running according to plan. Net cash flow from operating activity was negative at EUR 5.2 million in Q1. Net cash flow from investing activities came to -EUR 4.8 million. Thus, our operating free cash flow was down to -EUR 10 million. We expect cash flow to improve over the upcoming quarters. With that, I would like to hand over to Alex again.
Thank you, Jörg. Now let's have a look on the market expectations for the full year, 2022. In the commercial vehicle markets relevant for SAF-Holland, the outlook remains favorable in 2022, although the somewhat slower growth dynamics of the global economy could have a dampening effect on the global trailer and truck markets in the further course of the year. The trailer markets in Europe and the U.S., which are important for SAF-Holland, are expected to remain robust according to external industry experts and based on our own market intelligence. We have not seen any major order cancellations in EMEA. As I pointed out in our March call, our fab in Germany and Turkey are currently fully loaded into Q3. The Indian trailer market should grow by 41% according to estimates by SIAM, and also here we are booked nicely.
For the North American truck market, which is important for SAF-Holland, ACT Research expects a growth rate of Class 8 trucks of around 12% for the full year, 2022. Based on Q1 2022 quarterly figures in our global order intake, we have decided to raise the forecast for group sales for the financial year 2022 and to specify the forecast for the adjusted EBIT margin. Based on the expected macroeconomic and industry-specific framework conditions and weighing up the potential risks and opportunities, we now expect group sales for 2022 in a range of EUR 1.2 billion-EUR 1.35 billion. As pointed out, we increase prices at our customers beginning of the year and will see more dynamic pricing becoming effective from Q2 onwards, especially in the EMEA region.
Therefore, we expect a gradual recovery of the margin profile in the EMEA region over the upcoming quarters. The margin in the Americas region is on the right way to achieve old margin levels of 8%-9%, and the loss of the Russian business is also incorporated in the full year, 2022 guidance. Having said that, we currently expect our adjusted EBIT margin for the full year, 2022, to be in a corridor of 6.5%-7%. CapEx ratio should be between 2%-2.5% of sales. With this, we close our presentation. Thank you very much. Operator, please open the Q&A session. Thank you.
Thank you. We will now begin the question and answer session. If you have a question for our speakers, please dial zero 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 is answered before it's your turn to speak, you can dial zero two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question comes from Philippe Lorrain, Berenberg. Please go ahead. Your line is now open.
Good morning, everybody. Philippe Lorrain here from Berenberg. A question around the top line guidance. I take from this that you assume that there's gonna be really stable demand for your products for the remainder of the year. You mentioned as well in the slide dedicated to the guidance that you take into account the loss of the Russian business in your guidance now of EUR 1.2 billion-EUR 1.35 billion for the full year sales. I was just wondering how does it come together with the fact that you are probably gonna benefit from FX rates as well and the appreciating dollar which means that you could register a tailwind of about 3% if I do some correct calculations on the basis of last year's adjusted sales.
This should basically provide a tailwind of EUR 30-40 million perhaps to your sales. The low end of the new guidance range seems to be very low. What do you pencil in there in terms of volume versus price, taking into account the fact that you raise prices as well? The high end seems to be more reasonable and perhaps, like, slightly even conservative.
Good morning, Philippe. This is Alex speaking. Thank you very much for your question. If you take everything into account, which what you just said, I would like to divide the answer to your question into three different regions. Okay? In the APAC regions, there should be a very stable sales coming in specifically because we are driven by India as number one contributor to our sales in Australia, or the Pacific is very stable. Here for the remainder of the year, I'm quite optimistic that we see very strong sales increase. This is the smallest region we have with only roughly 10% of total sales. If you then go to the Americas, I'm very happy that our restructuring over the last couple of years pay out now.
We are gaining more market share, specifically in the trailer. We are ramping up or further ramping up a shift for the disc brake trailer axles in Americas. Also here of course, as you said rightfully, FX should help a little bit to increase the sales converted to euros. For EMEA, we remain a little bit cautious because we see a very high cost inflation coming in, not only from steel, but also freight inbound, outbound. Now with the COVID lockdowns in China, the supply chain could be interrupted a little bit in our industry. Not so much for us because we changed a lot of suppliers already some years ago from China back to East Europe or to Turkey and India.
We are relatively independent from the supply chain from coming from China, but others might be. Other components which the truck and trailer manufacturers use to build their vehicles also rise prices significantly. We stay a little bit cautious for the remainder of the year. The demand could slow down a little bit, specifically in the EMEA regions. We discussed our guidance, and we want to be on the safe side to also make sure that we're gonna reach that guidance.
Yeah. Okay. I understand the cautious stance, especially in EMEA, but to me it sounded like there might be more than the EUR 1.35 billion actually due to the price increases, of course.
Well, our next update is in summer then, hopefully, we can speak about this one. For now and seeing the quarter one, we are fully booked for Q2 into Q3. Specifically for EMEA, we would like to remain cautious.
Yep. Okay. Thank you.
Mm-hmm.
The next question comes from Nicolai Kempf, Deutsche Bank. Please go ahead. Your line is now open.
Yeah, good morning, and thank you for taking my question. I want to bring up the APAC region, which actually had a very good start in the year. Can you just highlight how sustainable this figure is and whether you think that this can come down over next quarter or these earnings levels become stable until the end of the year?
Good morning, Nicolai. Alex again. Basically what we did in the last two years, we did our homework. We closed a lot of smaller subsidiary which were loss-making. For instance, Thailand, Malaysia, and some others. We still have some legal entities in liquidation, so they will be closed by end of the year or middle of next year. We basically did our homework, and we have now four remaining operating legal entities, which is Australia. I'm very happy with this performance, and this should go on for the remainder of the year. This is the second biggest one. The biggest one we have is India. Very happy with the infrastructure projects which are now started or underway with the big ring roads being built.
You have new legislation which popped in that if you have on your trailer air suspension, then you are allowed as a fleet owner to load 10% more than normal suspensions, which is good for us because we are one of the few companies offering a heavy duty air suspension for that market. With our very high market share of, like, 55% in axles for India, we have a really good base, and as I said, we are fully loaded in India and also started exporting again from India, which is a good thing. Also here, I would tick the box for the remainder of the year. Another smaller subsidiary we have is in Singapore, which is taking care of Southeast Asia. This is a quite stable business.
China is the big question mark. Our industry already went down significantly in the second half of 2021 due to the construction drop and also now with all the COVID shutdowns internally in China, the demand is slowing down further. The good thing is here that we don't have a lot of market shares in China, but of course we are still not happy with our performance in China. All overall, I have good faith that the sales will stay like in Q1 for 2022, and if we can manage to keep the double digit margin up, I would love to see that. I have high hopes that we will be in that ballpark.
Okay. Sounds good. Maybe just to follow up on China. I know it's not that important to you in terms of the market, but I think you already said that the risk is probably here that further lockdowns could impact the supply chain for EMEA. Is there also risk for supply chain impacts within the APAC region or is very local by local each market by now?
It's relatively local by local. Let's start with EMEA. As I said before, we already started to shift sourcing activities from China to other areas, specifically in our European region. The reason is that China, in my point of view at that time, was not really competitive if you add the really high outbound freight on top of the sourcing costs of our components and the relatively long way until the components find their way to Europe. You know, before we talked about five-six weeks lead time from door to door using sea freight. Now we're in the ballpark of like 12, 15, 16 weeks. We cannot really count on that sourcing activities. We shifted back to East Europe, Baltic states, Turkey and India, shorter ways and good supply.
From this perspective, check mark on the European facilities, and we didn't see that much impact on our shifts, so we managed somehow. The teams, congrats to them, to their performance. They really managed to get all the components in so that we could produce everything in time or relatively in time. For APAC, China does export, but not much to the APAC region. Basically our plant in India, Pune, is for local needs. For the Indian market, we do a little bit of exports, nowadays, but we would like to fulfill all the demands for India. Australia gets mainly the parts from the U.S. and from Europe since it's a European and a U.S. manufacturers driven.
Basically China for us is mainly for China, and we do a little bit of export to the U.S. but also to Mexico.
Okay, understood. Maybe just my last question. The main pushback we get from investors from the markets, and let's call German cap goods names, is the fear of recession next year, either in Europe or the U.S. Do you see any signs of a slowdown or potentially from customers being more cautious on orders?
No. For sure for North America, I don't see that at all. I was some weeks ago at the TMC, the trailer show in the U.S. All the trailer manufacturers I met, all the big CEOs, all the Big Ten guys, Big Ten trailer manufacturers and truck manufacturers, they're really optimistic, positive. In the truck build, they still lack the semiconductors. So they wanna build all their trucks, but they cannot because of missing semiconductors. The trailer manufacturers, they now start to open up the windows, the order windows for Q1 and Q2 next year. They are now trying to further increase the capacity, the capacities they have, with a lot of, let's say, activities being shifted to Mexico since the workforce is available there. So they're really good mood.
Freight volume increased significantly due to the online ordering after COVID, also in the US. In EMEA, we also see a strong increase in transportation volumes. But here we have to see how the market reacts after this big inflation push, specifically after the invasion of Ukraine. Everybody was shaken. You know, metal prices up, flat steel up, everything is basically going up. Energy costs, you all know this. We wanna stay cautious for, let's say, the last quarter of this year and how 2023 will be. I honestly don't know. But even if the market would be dropping by 15%-20%, we still would be at a very normal good year because this year is exceptionally good year for our industry so far.
Understood. Thank you, and, congrats to a very good quarter.
Thank you.
As a reminder, if you would like to ask a question, please press zero-one on your telephone keypad. The next question comes from Jorge González Sadornil, Hauck & Aufhäuser. Please go ahead. Your line is now open.
Hello, Alex. Thank you for taking my questions. I was also going to ask a little bit on your view for next year, but maybe as you have just answered, can you give us a little bit of insight regarding the end clients that you have at this point? We have seen that transport between Italy and Germany have decreased for industrial goods. Is this something that worry you or are the rest of end clients still strong and it is not a concern at this point?
That's a heavy question, Jorge. Good morning. Let's speak about APAC India. I just did that. India, I see a check mark also for next year because of the huge infrastructure programs going on, and everybody's investing in trucks and trailers. In North America, I also said I'm quite optimistic that it doesn't drop next year because you have so many projects also in the US or North America going on, that I'm quite confident that it will stay on a high level. In Europe, please reconsider, we are in a market with a very high demand, okay? In the first quarter, we had not only the highest sales we ever did, we also had the highest numbers of axles being produced in one quarter. This is absolutely a record quarter for us.
Despite the first week of January, nobody was working because we had still the plants closed. Also the Q2 will be another good quarter for us in terms of quantities. We are running all the shifts, both in Germany and in Turkey. Specifically in Turkey, we are further ramping up the capacity with the installation of some more fully automated welding robots. We have now installed and in operation a friction welding machine, which was brought back from China to India. It was a used one. We did remanufacture this one, and now we are able to also friction weld in Turkey, which is a big step to a fully autonomous plant we have in Turkey. Well, we have a relatively high demand now.
As I said, we are in extraordinary inflationary times after this Ukraine invasion. Everybody really. The prices went up dramatically, and I think that the industry now has to swallow that, and this combined with a relatively high diesel prices. Well, some weeks ago, diesel was at EUR 2.30-EUR 2.40. Now it's around EUR 2. It's still very high for all the freight forwarders. I would assume that some of them are also remaining cautious and maybe they wait what's going on. We already see a plateauing of the, let's say, prices for flat steel, for scrap steel, rubber and all the other materials. It's not further going up, which is, first of all, a good sign.
Maybe in the next couple of weeks, months, it's stabilizing and going back a little bit, which would give the market even higher confidence to reinvest and buy trailers and trucks. Also from a truck build perspective in Europe, please keep in mind that they are not producing under full steam since they also don't have all the semiconductors for their production. They have a lot of orders on hand, but they cannot produce and cannot ship out to the fleets because they have missing parts. We say, as I said before and repeat myself now, we stay cautious for EMEA. For the other regions, APAC and North America, we are quite optimistic, also for South America. Hello? I think I cannot hear you.
I think we lost. Yeah.
We lost him.
We lost the participant. Would you like to continue with the next question?
Yes, please go ahead.
Yeah. The next question comes from Roland Könen, Value-Holdings. Please go ahead. Your line is now open.
Yes. Good morning from my side. Also, congrats to the Q1 figures in these times. Just an add-on question on your Q1. Is sales adjusted on FX? Could you split the sales increase in volume and price effect? Thanks a lot.
Well, in FX we can split that. Jörg?
Yeah. I think for FX, we do have this. The FX effect for this quarter was the FX adjusted sales growth was 24.5%. So roughly, EUR 9 million. This is the FX effect on our sales performance.
Yeah. Okay. FX, as Jörg mentioned, it's EUR 9 million. Basically, we don't talk about our price increases because we wanna display the conditions. Bear with us that we are not displaying that. Giving my speech before, in Q1, we did some price increases. Some more are coming or adjusting the coming in Q2, and I hope this answer helps you somehow.
Okay. More volume driven than price driven, and in the next quarters, maybe even more price driven than volume driven.
No, it will remain volume driven. We are a volume company. We are fully booked. We're happy about this. It's volume driven.
Okay. That sounds great. Thanks a lot.
Of course the pricing will have an impact, so, but we are not talking more than it's volume driven.
Okay. Thanks a lot.
Mm-hmm.
It looks like we haven't received further questions at this point. I will hand back to Petra Müller.
Thank you, operator. Thank you, everybody for joining our today's call. This concludes our Q&A session. The next SAF-Holland call will be on the Q2 results and is on August the eleventh. Thank you for joining us today, and goodbye.
Thanks, everybody.
Thank you.
Thank you very much for participating in this call today. We wish you a great rest of the day. Until the next time, goodbye.