Good morning, ladies and gentlemen, and welcome to Zumtobel's Conference Call on the Results for the First Quarter of Our 2022-2023 Financial Year. With me on the call are Alfred Felder, our CEO, and Thomas Erath, our CFO. Alfred Felder will walk you through the highlights of the quarter, while Thomas Erath will discuss the financial performance. After the presentation, both gentlemen will be available to answer your questions. In case you have not a copy of the report and the presentation, you may find both documents for download on our webpage. After the call, a playback of this conference call will be available on our webpage as well. With this, I hand over to Alfred.
Ladies and gentlemen, good morning, and thank you for joining us for the Q1 2022-2023 call. Despite the current geopolitical and economic situation with constant upward trends in prices, especially for energy, raw materials, transportation, still the continuously disrupted supply chains and availability of certain components for our drivers, we have been able to manage the Q1 relatively well despite all these challenges. Before we take a look into our results, I just wanted to share with you again a few highlights where we made some inroads with our product innovations and the applications that we defined a couple of quarters ago. One, as I've mentioned already in the past calls, we are making constant inroads on our sports outdoor applications with our key products.
As one of the highlights what we completed in Q1 was a stadium in France, the Stade Geoffroy-Guichard, which is a rugby stadium. Despite of many other small training camps what we have. We have here a product what is called Altis, which is currently already in our third generation, both offering white and full color applications. Secondly, in our bread and butter business in the industry segment, our customer, Bleckmann, which is a big U.K. logistics provider, has designed in our TECTON product, where obviously also as those of you who are familiar with our product portfolio a little bit, we are now having facelift of this product with improved performance. We are also seeing that we are making further inroads with this product in a couple of projects.
Just representative here, one in logistics sector here in France. If we look into our activities both on the components level as well as on the lighting level, we are very proud that Tridonic, as the first component supplier, has achieved and received the Cradle to Cradle certificate in Bronze, which obviously is a milestone as this is fully recyclable and minimizes the negative impact on the environment. As you know, in drivers, we have PCBs, we have semiconductors, and that's the most challenging product portfolio one can imagine that is part of our luminaires. This is the first achievement and the first step implementing the sustainability program of Tridonic, and our goal is to have the entire premium portfolio Cradle to Cradle certificate by 2030.
Last but not least, we were informed in June that Zumtobel Group will remain a member of the Austrian Sustainability Index called VÖNIX, as one of the only 20 listed companies that are leaders in terms of environment and social actions. We have been a member now in this consortium for 14 years in a row, demonstrating that our efforts, what we have started two and a half years ago, are noticed and very well rewarded. Let me just turn now to the first quarter highlights. The Zumtobel Group, as a group, has recorded a stable growth in revenue during the first quarter of our current fiscal year.
As you see here, the revenue rose by 8.4% year-on-year to EUR 314 million, up from EUR 289 million. In both segments contributed to that growth. One of the reasons for the success was that we are able to pass the higher prices to our customers, but also this has certain limits, but also that we are able to ship out of our high backlog what we have received due to the shortage of the components. In Q1, we experienced a further sharp rise of prices in raw materials, energy, transportation. Thomas will highlight this a little bit more in detail, as well as higher personnel cost, and quite recently intensified by a higher U.S. dollar exchange rate.
As you know, more or less all the components what we are buying are purchased in U.S. dollars. All these developments had a negative impact on our EBIT, which amounted to EUR [19] million in the first quarter on a year-on-year decline of roughly EUR 1 million. Nevertheless, this performance can still be considered quite good in view of the upward trends in prices, disrupted supply chains and the negative impact what we are currently facing on the development in the global economies. Now I would like to hand over to Thomas, who gives you the details on the Q1 results.
Good morning, ladies and gentlemen. Let me start with the lighting segment.
The revenues in the lighting segment rose by 6.6% to EUR 226.5 million, mainly as a result of price increases and positive foreign currency exchange effects. EBIT in the lighting segment increased from EUR 15.9 million to EUR 16.7 million. The increase in revenues was able to offset the higher material and fixed costs. Due to the high cost pressure, our EBIT margin declined slightly by 10 basis points from 7.5% to 7.4%. Going to the component segment. The component segment recorded an increase of nearly 12% in revenues to EUR 103.2 million. Although we were able to increase our sales and selling prices, Q1 EBIT was negatively impacted by higher material and transportation costs, as well as higher personnel costs.
The EBIT in the component segment declined from EUR 8.6 million to EUR 7.6 million, and the EBIT margin, although still at a healthy level, fell from very strong 9.3% to 7.4%. Going to the group. As Alfred mentioned in the beginning, we generated an 8.4% quarter-on-quarter increase in revenues to EUR 313.7 million. Looking at the profitability, higher sales volume and increase in selling prices were unable to offset the sharp rise in material, energy, transportation, personnel costs, as well as higher SG&A costs. As a result, our EBIT declined from EUR 20.1 million to EUR 19 million. The EBIT margin was at 6.1%. Going to slide eight. Let me now explain the building blocks of our EBIT bridge.
We start with the EBIT of EUR 20.1 million of last year, and then we see a positive effect of higher turnover price and effects on sales with nearly EUR 23 million. On the other side, we see also a high increase in costs, EUR 18 million, and this is mainly due to material, energy prices, transportation costs, as well as labor costs, direct and indirect. One effect which is also significant, especially in the component segment, is the higher U.S. dollars. We have also higher SG&A costs of EUR 5.8 million. Especially higher activity, higher wages were triggering this cost increase. In total, we achieved a Q1 result of EUR 19 million. Slide nine.
Going to our income statement, let me focus on our financial results, which amount to - EUR 5.1 million. The main effects are - EUR 2.5 million hedge effects, EUR 1 million in net interest payments to financial institutions, and about EUR 900,000 interest for employment benefits. After deduction of the income taxes, our net profit totaled EUR 10.9 million in the first quarter. Earnings per share stood at EUR 0.25. Going to the cash flow statement. Cash flow from operating results declined slightly year-on-year from EUR 33.7 million to EUR 32.8 million. Cash outflows from the changes in other operating positions amounted to - EUR 14.2 million and resulted mainly from an increase in bonus and holiday allowance payments.
Cash flow from operating activities therefore declined to -EUR 1.4 million. Cash flow from investing activities totaled EUR 14.4 million compared to EUR 8.6 million in the prior year first quarter. In addition to investments in property, plant and equipment, this position also includes cash outflows of EUR 1.8 million for capitalized development costs. As a result, free cash flow declined to -EUR 15.8 million in the reporting period. Coming to our balance sheet. We are very happy that we have a very solid balance sheet and a very solid cash position. The balance sheet structure has remained nearly unchanged since the end of April. Equity ratio improved to 39.2%.
Net debt rose to EUR 114.1 million, and the debt coverage ratio is at a very healthy level of 0.95. With this, I would like to hand over to Alfred.
Let's now have a look on page 12 on the development of the sales for the group. Here you can see that we are continuously delivering encouraging results with Q1 sales up 8.4% above the previous year. We deliver the next positive quarter in a row, so now already six quarters in a row where we are showing solid growth based on our implemented strategy. We have achieved this result despite having the price increases, as we have mentioned already many times. One parameter what is still bothering us a little bit, what we have not addressed yet is the availability of semiconductors. The shortage of certain semiconductors still exists. It has improved, but it still exists for certain ICs. We don't always get those semiconductor quantities what we need for our high-end drivers.
This causes still uncertainty since we are not always able to deliver what the customer requests or the customer timeline requests. If you have a look at the revenue per regions, then you'll see that all regions have significantly contributed to the growth in Q1. In the DACH region, we have a strong growth recorded, especially in Switzerland and Germany, with a flat development in Austria. As you remember, Austria was having a record high growth over the last year. Also, in the northern and in the southern countries, we have been able to grow, especially in Great Britain and Sweden in the northern and western side, and in Italy and Spain in the eastern side.
Interestingly, when it comes to the Eastern Europe, we are still having a solid growth in the countries where we are active in the eastern part. Also, where we suffered last years in the Americas and the Middle East, we have a bounce back in Q1 with solid project structure coming in. One thing what I wanted to mention in specific, the drive here was from a couple of key projects, some of them in the Hong Kong territory on hospital and infrastructure project, what materialized in Q1. Now I would like to conclude on page 14, the presentations, with a few words on the outlook. We continue to see the current geopolitical and economic situation as stressed, with the consequences that is for us as an industry, and not only for us, I guess, difficult to estimate.
The further development with the conflict in Ukraine, the prices of energy, the raw materials, what seem to be stabilizing at a high level, and the availability of the semiconductors will have a major impact on the course of the global economy and the inflation, and therefore also on our Zumtobel Group. The major concerns are focused on the uncertainties connected with the secure gas supplies and the development of the energy prices. Nevertheless, we as the management board of the Zumtobel Group confirmed the previous outlook, where we expect a revenue increase between 3% and 6%, and an EBIT margin between 4% and 5% for the entire financial year 2022.
This outlook is, however, dependent on the continuous sufficient gas supply for Europe, the leveling off of the energy prices, and hopefully no further deterioration in the availability of the imported input products for the production of luminaires and for our drivers. On the guidance on CapEx, we plan to spend roughly EUR 70 million, higher than the average EUR 55 million for 2022, 2023 remains unchanged as we believe we need to invest into our future, both on product innovations as well as on the digitalization of the entire company. With that, I would like to conclude and thank you for your attention. Now Thomas and myself will be happy to take your questions. Thank you for listening.
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 touchtone 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. One moment for the first question, please. We have the first question from Markus Remis from Raiffeisen Bank International. Please go ahead.
Yeah. Good morning, gents. Couple of questions, please. The first one would relate to your order intake. If you can shed some light on how that developed in the first quarter. Maybe you can give us an indication as regards to book-to-bill ratio, and where the backlog stands at the end of Q1 compared to the end of fiscal 2021, 2022, please.
Right. Thank you, Markus, for your questions. In Q1, we are still having an all-time high order intake, both on our segments for Tridonic as well as for the lighting brands in both segments, far above EUR 200 million. Result of that is that we are still on one side not able to deliver everything. On the other hand, we are still seeing a quite solid order intake here on both of the businesses.
However, after this all time high, let me say, all the intakes what we had during the key allocation last year at this time in component segment, we believe that now, the business in our customer base is basically having enough components and we are back to a, let me say, normal or slightly below normal level of order intake on the component segment.
Right. Okay. That would have been my second question. To what extent then we might see some destocking in the coming quarters given the slightly
Exactly. We do see on the component level, Markus, that customers are starting to destock a little bit. Obviously, as we mentioned it already, we have a non-cancellation policy which automatically means that we see some movement of shifting orders and postponing orders that we see on the components level.
All right. Yeah.
Yeah. We clearly have year to date. We have an order book which is close to EUR 400 million for the group.
Okay. On the cost side, I mean some raw materials have partially declined strongly from their peak levels. Also when I look at say transportation, say the Baltic Dry Index for instance, that has come off quite markedly from its highs. I mean maybe you can shed some light on your logistics cost and on the raw material side. I mean, is that phasing in already, say in the next one or two quarters? Or will it take longer for you to see some relief here?
Yeah, we are also, you know, noticing that copper prices, aluminum goes down. Nevertheless, you know, we have stocks also on hand, and we have quite significant stock levels with higher prices. These levels we can achieve maybe one quarter, a quarter later, maybe from third quarter onwards we would see this. Nevertheless, I have also to admit that energy prices are eating up these savings in raw material. There are two effects counteracting.
Sure. Yeah. Next question would be, maybe also a bit cost related then on your FX exposure to the U.S. dollar. I mean, anything you can tell us with regards to the impact in the first quarter and maybe also some granularity, how that will kind of develop in the next quarters? Maybe if you could give us also some indication of the realized FX rate as a U.S. dollar euro rate in the last year, so that we kind of can do a bit of a bridge in our models as regards to the impact. I understood remembering comments from, I think one of the latest calls that you were pretty unhedged entering, basically 2022, 2023.
Is that correct? How has this developed in a while?
This is correct. We have some minor hedges. The entity which is mostly affected by the U.S. dollar is Tridonic. As their electronic components are traded in U.S. dollar. For your model, you know, take for $0.01 up or down, this will have an effect of about EUR 800,000 in Tridonic. The thing is, you know, the dollar came up significantly from EUR 1.15, EUR 1.16 to now parity. The issue is, it hits everyone trading components. We expect price increases also from our competitors, and we will do the same. We will also increase prices.
Okay. Is that already communicated kind of to the market or something that is expected to kick in in the short term?
On the component level, yes. Obviously, as you know, Markus, we are monitoring daily. It's nice to see that at least some of the materials are now stabilizing at a high cost level, but the energy prices are going still through the roof. Obviously that is something what is underway right now also for the luminaire segment. Again, a price increase after those what we did in the past. With your question to transportation costs, you're right. You know, container costs came down, but they are still far away from the $2,000 for a standard container, which were $2,000 1.5 years ago. We still have prices 4x or 5x.
Yeah. Okay. All right. Thanks. I'll get back in the line.
The next question comes from Michael Marschallinger from Erste Group. Please go ahead.
Yes, good morning. Thanks for taking my questions. The first one would be on the guidance. Now in the first quarter you saw solid growth in all geographies. Also give me your statements now that you could even deliver more, if you would get all the semiconductors and also the statement that you have strong order intake now in the first quarter. How should we think about the sweep to 6% revenue guidance? It seems, given the statements, especially the lower bound is rather conservative.
Yeah, you're absolutely right. The lower bound is conservative. We believe that the Q2 despite. With the high order book, what we have with the demand out in the market, it's still very solid. We do see the signs that the economies in the various countries are slowing down. As I mentioned, we are seeing quite a significant slowdown in order intake on the component level typically six-eight months ahead of that of the luminaire level. We are also over the last 10 weeks seeing a slight slowdown in the order intake for the lighting segment. Given the circumstances we are in, for now we decided to keep the guidance as it is. Obviously, after the Q2 we will have a much better visibility.
Just to state, yes, the IC, the component is still an issue. It's not anymore as strong as it was, but still it's not really helping us.
Okay, understood. The second question, this, 8% revenue growth in the first quarter, is that more, volume, driven or a pricing effect?
It's mainly pricing driven, but also we are happy that we also have been able to show a volume growth, which indicates that still the business is intact.
Okay, understood. One last question on the-
It's price driven.
Yeah.
It's price driven.
Good. Last question, back to this material costs. On your slide eight on this EBIT bridge, you see on the one hand side you still see increasing raw material prices, but on the other hand, some write downs of the material inventories. Could you be a bit more specific what material you had to write down here?
Well, you know, we have formulas for our inventory valuation, and if we have high stock levels, the coverage ratio of our inventory will determine the valuation of the inventory. This is not handmade, this is done with formulas. The main reason is not that it's not sellable or we can't be used anymore, but it's a valuation effect out of automatic formula.
Okay. Could you also disclose the amounts here?
I would say with a ±EUR 1 million, it's EUR 4.5 million-EUR 5 million effect from valuation in the first quarter.
Okay, understood. Thank you very much.
Thank you.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by one on your telephone. The next question is from Charlotte Friedrichs from Berenberg. Please go ahead.
Hello. Thank you for taking my questions. Two follow-ups, please. The first one on the development of the cost base. Can you give us a bit of an idea of what the dynamics are, what you expect, for example, on labor? Have you already seen significant increases here, or when do you expect that to come through? Equally on energy costs, I'd say it's probably high single digits to low teens amount that you spent here in 2021. Is that roughly correct, and where do you think you're trending at the moment? Secondly on the order intake or customer sentiment, you did mention some push-outs or delays, particularly on the component segment. Can you give us a bit of an idea of what the magnitude is here? Thank you.
Okay. Labor. Your first question was on labor costs. Well, labor costs are already in our P&L because collective bargaining agreements are done. You know, we have the levels and expect even more increases only in the next calendar year, not this year anymore. The second question was on energy prices. Here, it's very difficult to judge how energy prices will affect us as they are so volatile. I don't tell you any news, you know, they have a huge fluctuation. One day it's EUR 1,000 a megawatt electricity, next day it's EUR 500. We think, or we believe, it could be up to EUR 15 million-EUR 60 million in price increases compared to last year.
This is all dependent on the daily rates. We have hedged in some countries, but we are not hedged in Austria. Also our hedge in the U.K. will expire beginning of October. It's difficult to say, but we expect cost increases in magnitude between EUR 7 million and maximum EUR 15-16 million.
Charlotte, your second question is on the order intake. Maybe I was not crystal clear in my formulation. As obviously the components business has a non-cancellation policy. We do not see cancellations, but what we do see is that customers are partly switching the products from category one, let me say, dimming products into fixed output products, and partly asking for postponement.
The non-cancellation policy includes that the customer can prepone or postpone. Currently, pre-book is difficult because we are not able to deliver, but postpone certain orders. Currently there is no cancellation in itself, but we do see a trend that there is a postponement of certain orders in the components business.
Okay, sorry, I probably didn't ask that question precisely enough. Is it widespread, the postponement trend? Or is it, let's say, a couple of customers here and there that are asking?
A couple of customers. It's not widespread.
Okay, thank you.
You're welcome.
We have a follow-up question from Mr. Marschallinger. Please go ahead.
Yes, one last more general question. We are seeing now in the Eurozone more and more the discussion about energy savings, energy saving initiatives. Do you think you could generate benefit from this trend to this move to more energy efficient lighting systems, and how do you see that?
Yeah, absolutely. So obviously that is also paying off for us because with these rocket high energy prices and with our, let me say, ultimate high efficient lighting solutions, we believe that the investment willingness into refurbishment will increase from the current level. We see it already in a couple of countries, especially in the DACH region, because the payback time is getting shorter and shorter if you do this high energy efficient investments. Nevertheless, I think Thomas mentioned it, if we do see that there are these constant increases of material, certain constructions are either stalled or not even started, and that basically is the negative impact. To answer the question, yes, we do believe that this is helping us moving forward in our business.
Okay, perfect. Thank you.
We have another follow-up from Mr. Remis. Please go ahead.
Yeah, thank you. On the topic of hedging, both regarding your energy and your currency exposure, I mean, I recall that in the past there was always FX hedges in place. I mean, I'm wondering why you stopped that for the current year and also, I mean, hearing that you're not kind of buying forward energy in Austria. Austria might be a regulated market, I'm not sure about that. But why is there no forward buying policy in place that would then give you better visibility on the underlying cost development and also improve the visibility on your kind of required pricing adjustments?
Well, we still have a hedge. We still have hedges, but we were of different opinion where the U.S. dollar would go. We have hedges in the Swiss franc. For example, we have hedges in the pound, but in the U.S. dollar, we thought, you know, the euro would get stronger and not go down more and more. With energy prices, you know, we have also tried to get some hedges with electricity and gas. The level where we had our order was unfortunately not met by some sense. So we could not hedge the energy prices. Also with energy prices, it's difficult, you know.
We are talking not about 20% more, 30% more. We are talking about 20x, 15x, 20x more.
Yeah.
To lock in, you know, high energy prices is a tough decision, because then you also go with the higher energy prices and you're locked in. Of course, in hindsight, everybody is more clever than he was before, I have to admit.
No, that's clear. I mean, kind of saying we had a different opinion on where the euro-dollar rate would go to. I mean, that sounds like a kind of a speculative element, to be honest.
No, it's not a speculative element. You know, we are not doing hedges on an automatic basis because then you also can stop hedging because then you can go with the fluctuation as well. In the long term, you will be on the same level. We of course do some quarterly hedges as normal procedure.
If we believe, you know, one thing goes in this or the other direction, we don't do hedges or do minor hedges.
Thank you. Digitalization kind of initiative in Dornbirn. I understand it meanwhile has been resolved, so no further extra costs will arise. Are there any kind of comparable measures planned at other sites?
Can you repeat your question?
Sorry.
I did not catch it.
In the report, you said that you have incurred some extra costs because of this digitalization initiative at the Dornbirn site. I understand.
Okay.
That there apparently was some hiccups in the implementation. Is that finally resolved?
Yes.
And then, uh, any-
Yes. No.
Any other plans that will follow?
Yeah. That had to do with a software change. We replaced a 15-year-old setup with a modern technology based on SAP for the shop floor automation in our leading factory in Dornbirn. With this change, we had some additional costs because not everything that was expected was running very smooth, and therefore we had some additional costs. We do not expect additional costs once we roll this out into the other factories because we learned everything.
Right.
What needs to be done.
Okay.
That was the situation.
Okay. Thank you.
Ladies and gentlemen, as a reminder, if you would like to ask a question, you may press star followed by one on your telephone. It seems to be no further questions at this time, and I would like to turn the conference over to Alfred Felder for closing comments.
Ladies and gentlemen, thank you very much for listening. Thank you very much for your interesting questions. We hope that we could answer them. Moving forward, we are still carefully positive that we are entering despite the situation into a further growth quarter. We are looking forward to talk to you again after the quarter two. Thank you so much and have a great day.