Dear ladies and gentlemen, welcome to the conference call of WashTec AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand all you over to Dr. Ralf Koeppe, who will lead you through this conference. Please go ahead.
Thank you. Ladies and gentlemen, on behalf of the WashTec board, I would like to welcome you to the Q3 presentation 2022. Attending the call with me is my new colleague, Andreas Pabst, CFO of WashTec, who joined the board on October 1, and my colleague, Stephan Weber, Chief Sales Officer. As you know, Kerstin Reden, former CFO of WashTec, has left the company due to personal reasons, what we fully understand and support. We wish Kerstin all the best and thank her for her valuable contributions. Next slide, please. I will now hand over to Andreas for a personal introduction.
Thank you, Ralf. Yeah. Hello. Welcome, everybody, also from my side. My name is Andreas Pabst. I'm 49 years old. I live in a small town close here to Augsburg, together with my wife. We both have four children. A little bit about my professional background. I started management and administration, then started my professional career at KPMG, where I made the tax advisor exam. Then over different public listed companies, I...
The conference is now being recorded.
On this slide, we show our ESG program for economic sustainability, leadership in sustainable car wash. We released an energy-saving product offer for our JetWash product, addressing the installed base of our customers. This contributes to our goal of resource efficient operation and offers great value to equipment operators. JetWash sites are commonly operated with heated water. By changing the setup from warm to cold wash, our customers can save up to EUR 2,000 per year. Our chemicals are already optimized for cold water use, and we can offer a product upgrade, including chemicals, to help our customer to achieve energy savings. Slide eight, please. A final slide in the WashTec update section, we have two first installations of new products in the US.
It is the SmartCare US as a full specification machine with a key account customer and the AquaPur Modular as a version for North America. AquaPur Modular water treatment system is now available as a UL approved version. WashTec increases the product range and can now offer its own water treatment system in North America, contributing to a better customer outcome. Slide nine, please. I now will hand over to Andreas for the presentation of Q results 2022.
Thank you, Ralf. Please move to page 10. On this slide, you see our main KPIs for the Q3 . For the Q3 , group revenue was EUR 118.6 million, up by 6.6% year-on-year. This is a new all-time high for a Q3 . This growth was supported by good key account business, our price increases, and our growth in the US accompanied by the tailwind we got from the US dollar FX rates. On an FX like-for-like basis, our revenue growth in Q3 2022 was 2.7%. Now let's look at the EBIT. In Q3 2022, our EBIT comes in at EUR 9.7 million, which is clearly below last year's number. EBIT margin is 8.2%.
As explained in calls before, it is true that this is mainly a result of the timing gap between material, logistics, and energy price rises on the one hand side, and our own price increases, which we did in the first half year and further to come. Ukraine war following energy crisis and continued lockdowns in China leads to further shortage on purchase market, followed by significant price rise. We react on it with additional price increases for our products. Due to the fact that WashTec's conversion to cash cycle, meaning the time between order intake and revenue recognition takes 4-6 months, the latest price adjustments are not fully recognized through the P&L yet. We see in Q3 here already some impact. EBIT margin Q3 is 1.2% above EBIT margin in Q2.
As in all the months ago, we at WashTec take high priority on our delivery capabilities, and we were successful in doing so. We were able to fill all the delivery obligations also in this quarter. What this causes, on the one hand, higher safety stock and on the other hand, more flexibility in the production process is needed, which for sure leads to some inefficiencies and creates additional costs. Our customers are facing similar problems, too. For example, when they do not get necessary materials or craftsmen to do the installations in their facilities so that we can bring our products in. Once again, we on our side manage our delivery obligations quite well and fulfilled every single order.
For the Q3 , free cash flow after lease payment was positive with EUR 7.6 million, after a negative EUR 1.0 million in Q2 2022. Looking now at the development by product category on the next page, that is page 11. Our machine and service business increased by 8% in Q3 . This is the strongest quarter for this segment in the last five years. Especially key account business contributes to the revenue growth. Direct sales remain on a solid prior year level. Revenue from chemicals in Q3 was EUR 12.0 million, a drop by 3% year-over-year. After a strong first half year, chemicals revenue was slightly down on the prior year.
Long heat waves through July and August in Southern Europe, summer droughts in France with car washing bans and unfavorable car wash weather in September led to a fall in wash numbers with a corresponding effect on chemical revenues. Moving on to the performance by region in the Q3 on page 12. In the Q3 , we saw a moderate revenue growth by 2.7% in Europe. We saw the continuation of the slight weakening in the direct sales business we know from Q2, whereas revenue in key account business remained strong. The weather-related decline in chemicals, which I already mentioned, slowed down the growth in the Q3 . EBIT with EUR 9.8 million was below prior year by EUR 1.7 million, but it was on the same level as in Q2 2022, where we had lower revenues.
This was a result of all the effects we already mentioned for the group EBIT development. Europe, nevertheless, showed a double-digit EBIT margin of 10.8% in the Q3 . What in North America? Revenue in North America was EUR 27.6 million, up by 24%. All product segments contributed to the positive trend. The machine and service segment, the direct sales business made a particularly large contribution, while key account business was slightly down. One second, please. Thank you. In line with the trend across the group as a whole, this region was also negatively impacted by cost increases. Because of the significantly larger share relating to key accounts, for which a price adjustment could only be implemented from June 2022, in conjunction with a higher material cost share, it was not fully possible to offset these effects with the increase in revenue.
The EBIT comes in at breakeven, whereas we have negative EBIT in Q2 2022. In APAC region, the Q3 revenue of EUR 4.7 million was equal to prior year. Revenue was impacted, in particular, by the prolonged lockdowns in China, and resulting in a lower result. Coming now to the results for the first nine months. On page 13, you can see the development of revenue, EBIT, and free cash flow from 2019 to 2022 for the first nine months of the year. For nine months, 2022, group revenue was EUR 338.6 million, up 10.5% year-on-year. A new all-time high for nine months. Even at constant exchange rates, the revenue growth in the first nine months was 7.6%.
All product segments contributed to this revenue growth, partly due to the implemented price increases. The equipment and service segment improved significantly compared with the first nine months of prior years. Looking now at EBIT development. EBIT was EUR 22.6 million, down by EUR 10.4 million compared to last year. As already mentioned for the development in the Q3 , it was mainly caused by time lag between material price rises and our own price increases, as well as by normalization of the business activities like trade fairs and travel after years impacted by COVID-19 pandemic. EBIT margin was 6.7%, down from 10.8% last year. Compared to Q2, the company could increase EBIT by 1.2%. Cash flow development was impacted by a significant increase in inventory due to safety stock in regards to uncertainties on the materials markets.
The next slide shows more details to explain the EBIT development compared to prior year. As you can see, the main impact is coming from the gap between recognized price increases and the rise of material-related costs. Selling expense increase is mainly driven by volume-related increase of freight costs. In addition, there was an increase in trade fairs, which were not incurred in the prior year due to the pandemic situation. For example, WashTec was this year presenting its products at fairs in the U.S., in Stuttgart, in Bologna, and in Madrid. Let's have a look at revenue by product category on page 15. Revenue from equipment and service reached EUR 219.9 million, up 11% year-on-year.
The growth in this area was mainly driven by the significant increase in the North American region, but also other regions developed positive compared to prior year. Revenue from chemicals was EUR 43.5 million, up 14% versus prior year. This came mainly from first six months of the year. As I already mentioned, Q3 for the chemicals was a weak quarter due to weather conditions. Moving on to the performance by regions on page 16. Revenue from Europe was EUR 265.4 million, up 5.6% year-on-year, mainly driven by key account business. EBIT is at EUR 24.1 million, which is a 9% EBIT margin. Compared to last year, the development was impacted by already described effects. Material prices and availability, as well as additional costs in regards to securing our delivery capabilities.
Higher sales volume and the ability for fairs led to an increase in selling expenses. As mentioned, Europe, we were at fairs in Stuttgart, Bologna, and in Madrid. In October, we presented our products with good response in Paris. On the next page, North America. North American revenue was EUR 71.4 million, up 38.4%. In US dollar terms, revenue increased by 22.4%. All product and customer segments contributed with a double-digit growth. Region generated a loss of EUR 1.2 million, which is mainly caused by the lag between material price rises and own price increases, especially for key account business. In addition, earnings were negatively affected by a significant increase in health insurance premiums. Next slide. APAC, our smallest region. Revenue in that region is overall quite stable.
Positive development in Australian market is counteracted by poor development in China, where we have been impacted by the continuous lockdowns. EBIT is slightly positive. Coming now to our main balance sheet KPIs on page 19. Net working capital went up due to increase in inventory with regard to the safety stock. As for cash cycle, KPIs like DSO and DPO were mainly stable. This fact impacts also our cash flow development and in the consequence, together with the dividend payment, an increase in the net bank liabilities. Equity decreased mainly due to the EUR 38.8 million dividend payouts. Compared with the 2021 year-end, the equity ratio decreased from 36.9% to 27.0%. Coming now to our guidance. As you know, we adjusted our guidance in the middle of the year. Let me make it short.
The figures in Q3 2022 give us confidence to believe in our adjusted guidance. We see a revenue increase for full year between 10%-12% and an EBIT ratio of 8%-9%. Let me remind you what has also been said at half year's call. Like many companies, we currently face supply chain challenges on supplier and on customer side. In addition, the situation in regard with the gas deliveries in the remaining months of the years increase the uncertainty for the outlook. Our top priority continues to maintain lead times and avoid business interruptions. We have managed this quite well so far, and we will do our utmost to do in future. Our guidance assumes that we do not face any significant business interruptions. Just hello?
Just finish. That's fine, and we do it if this is.
Maybe finally, let me guide your eyes to our financial calendar, which is on page 22. You see our next event is the Deutsches Eigenkapitalforum in Frankfurt. We, Ralf and myself, hope to see you there. This was it from the finance side. Thank you. Now we are pleased to answer your questions.
Thank you. We will now begin our 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 are using speaker equipment today, please leave the handset before making your selection. One moment please for the first question. The first question comes from Alexander Galitsa. Please announce your company name before asking your question. Thank you. Please go ahead.
Yes, good afternoon. It's Hauck & Aufhäuser. I have a couple of questions, maybe starting with Q3 and then implications for the full year guidance. Could you somehow quantify how much is the revenue effect you're having from the delayed or potential delays in installations that you have seen in Q3? That's number one. With regards to the full year guidance, earlier you upgraded the sales guidance target, which now requires you acceleration in Q4 after we have seen some weakness with chemicals. We hear about construction delays that potentially impact the revenue recognition or the timing of revenue recognition. Could you just provide some more color from today's standpoint how the situation looks like?
What gives you really confidence that this acceleration that you need in Q4 is actually within reach?
Thank you. Galitsa. Just a question before, was the call transmitted rightly or because I got some emails?
Yes.
from participants that
Mm-hmm. In the beginning, I was like in the first couple of minutes, I was put on standby, so I heard music playing.
Uh-huh.
I had to really redial in, and then it went all right.
Okay. To all, I apologize for that. We will clear that with the service provider. I will now start giving first indications to your question then hand over to Andreas. First of all, the guidance, as we said, has a range in the revenue. As you remember, the revenue range
It has a lower and upper bound, and especially that has been chosen because we always have threats in supply chain issues which we manage actually quite well. We have now an increased problem at the customer sites that those customer sites don't get the facilities finished, and we literally have to go manually through our production book to see whether the sites can be completed and installations can be made. Those delays can be sometimes one week, two weeks, or could be then two months. That depends. We see some shift and we of course are working hard to have a good closing at the end of the year. We know that in the last years we had good runs in November and December. We're very confident about this.
It's additional work we have to invest to do the installation planning, to get the revenue recognition as planned. Also the production program is adjusted to that. At the end, the last two weeks, we will have prepayment. We have to produce prepaid machines, like the last year. We have a sufficient gap for the installation teams to react. That's the current situation, yes.
Thank you. Maybe a question on if you could say a little bit more broader, maybe. If you could discuss sort of the customer dynamics that you're currently seeing, particularly in the context of the revenue decline in Q3. You have noticed in key accounts in North America, I believe. Is there kind of a seasonality to it or is this really sort of a trend of sorts? Maybe building up on that also, if you could give any color from today's standpoint, how do you see really individual regions developing going into next year?
For the individual regions, and let's say somehow the impression of how where the market is leading, I can hand over to Stephan Weber. First of all, we're talking about revenue recognition and the delays generated are due to these problems in the installation on the installation side. They are the same, which is coming back from North America. They're the same in North America as in Europe. We see the similar problems or let's say then similar management activities to get this revenue recognition. Now, Stephan.
The question was regarding the order intake. Sorry, I didn't get the question.
Yeah. The question was.
The order issue or the order intake issue?
What are the customer trends?
The customer trends. Okay. Yeah. When we look at the customer trends on a global scale, that is easy to be described. I mean, the current situation whereby prices are rising everywhere has of course created some uncertainty, I would say, with the direct customers. That's very obvious. Whereby the key accounts, largely those that are exploring. In other words, the upstream customers do have a very good revenue streams at this point in time and also a good cash situations. They invest more than we have anticipated, we have to say. Also we are increasingly increasing our share in key account at this point in time. We have on one hand a little bit of hesitance. We have a very good funnel. It's been this way in direct sales, not even declining.
However, we should also see that decisions have been made on the direct business side, that is car dealers and civic accounts or civic gas station operators or carbon operators. We do see, let's say, a very good movement on the key account side. That is already. We've seen this already throughout the year. In the meantime, we can also see that the revenue recognition whereby we saw it before in the order intake, which is not shared. In other words, we now see what we already indicated in the Q1 and Q2 call, that there is a tendency more towards key account. That's also, by the way, something that we consider to be going forward 100% a similar situation. Does that answer your question?
Understood. Yes. Maybe you could also kind of give a color, how should we read the slight decline in incoming orders in Q3 , if there is a seasonality or do you see trends building up there?
I mean, I can give you an answer. I think we were, let's say to a certain extent, we had a far higher order intake in Q2. Usually due to our very well managed funnel system, where we have all the quotations, everything that we have in the system, in our CRM system. We are usually very precise in forecasting order intakes per quarter. In this Q2 this year, which was for the first time since many, many quarters, where we had far more order intake than we anticipated. We read it this way. If we count Q2 and Q3 together, then we are where we actually saw it. In other words, we had implemented a price increase for Q3, or that means just before Q3.
We assume that some of the customers have decided to purchase before the next price increase because we have, I mean, ongoing price increases every now and then. We had some orders in Q2 that we expected in Q3 in the-
Key account side. Overall Q2 and Q3 are excellent, and a little bit lower Q3. It's a new model train that we stand now, and it is more, let's say, the sum of two quarters.
Understood. That's helpful. Thank you. Maybe briefly on R&D and digital offering. In terms of R&D expenses, could you roughly provide a guidance, what do you expect to spend in the coming years, so 2023, 2024? Secondly, I believe with your digital offering, the first machines that were equipped with those features are rolling off warranty in September. I was just wondering if you can provide any color on the sort of adoption or renewal rates you're seeing there and how this is developing in general.
Maybe I take the question about R&D spend in 2023 and 2024. I think we on the board are fully aligned that we need to invest in R&D, and we do it, yeah. What for sure is important for them for the next or coming years is growth. Now it's profitability. We are investing further in R&D, but with a very sharp eye on the ROI on it. For very exact data, it's too early to answer that question because we are setting up the budget currently. For what we are currently doing in R&D, maybe Ralf Koeppe can add some words.
Yeah, we had a deep dive in R&D this morning, so we have the figures quite well. First of all, when we look into 2023, probably we have to address more in operational excellence and savings, cost savings in the product, that's in preparation, you know. We told you that we have to invest a lot in R&D to keep to be able to deliver. We will shape the R&D program; we will put that into the scope and are doing this right now. During the digital offerings, yes, the digital platform is now two years underway, but not to be misunderstood, the digital platform works with all our machines that are connected. That is to say it doesn't require the SmartCare.
Also, the Software Platform and even other gadgets are able to be connected by this IoT approach. Especially what we are now working is the change program in the digital office in the back offices of the digital service, so that we get this efficiency increases that we know that helps us to become more efficient and to run the service more efficiently. That's the main focus currently. Also, from the development part. So, we also, let's say, have this platform in the US, especially in the US, we see a chance to make the service more profitable and to get, let's say a much leaner approach to the customer fulfilling our service contracts.
Okay. Just to clarify, there is no sort of thoughts of really direct monetization of the offering with the various revenue models?
Yeah, yeah. Sure. Let's say the focus currently in 2022 is really in the change program of the service side. Of course, we have some developments where we have a car wash broker function, where car washes are activated via the cloud. These first activities also will give us the possibility to have a revenue recognition on that side. I know that the desire to know what these digital offers will bring us as a revenue and profitability recognition is in the room, and we're working on a picture on that. For the moment, I see it's still too early to come up with a full P&L on the digitalization side.
Understood. Thank you.
Thank you very much. Once again, ladies and gentlemen, if you wish to ask a question, please press zero one. Thank you. There are no further questions at this time. Dear speakers, back to you.
Ladies and gentlemen, thank you very much for attending our call. My colleague, Andreas Pabst, and I will attend the Eigenkapitalforum in Frankfurt. As I know from our assistant, we have already scheduled quite a few, actually it's a full program. We're looking forward to meet you. Just get in contact with us and looking forward to discuss further with you. Thank you very much, and bye-bye from Augsburg.
Thank you. Bye-bye.
Ladies and gentlemen, thank you for your attendance. The call has been concluded. You may now disconnect.
Thank you.