Burckhardt Compression Holding AG (BCHN) Earnings Call Transcript & Summary

[Foreign Language] Good morning, ladies and gentlemen. Welcome to the presentation to our annual results here this morning, either here in Winterthur, thank you for coming, or online. Hopefully, you hear us and see as well. To start with, let's have shortly look at this picture. It has been taken by one of our employees before embarking this ship for a service intervention. And in this ship, there is enough energy for 35,000 people during 1 year, and the ship can carry this energy anywhere in the world. And this is why we selected this picture because it represents the transition towards cleaner and more secure energy sources. And this is really happening now and really broke out as part of it. We already see it happening in three ways in our company. First, you see it in our order intake for financial year '21, and I'll come back to it. Second, internally, we can really see this new perspective that we give to employees, and also for myself. I mean, it gives you a new mission, a new vision, where do we want to go as a company, and that creates a lot of positive energy. And third, it gives us really confidence for our future growth for our next mid-range plan. So today, we'll share in this presentation, our results financial year '21, also how they relate to this picture. and we'll explain about '22, what we plan there and how we plan to deliver our targets for the mid-range plan. Let me start first with an introduction talking about the foundations of the company, talking about our future priorities. And as this is the first time that we interact since I took over the position in April, let me say a few words about me. You see here a few milestones of my career. What I'd like to summarize and what's the most important for me, the 5 years at Boston Consulting Group to build up strategic capabilities and then the last 18 years in the industry to implement strategies and deal with day-to-day challenges. Coming to the more important, our company and the strong foundations, there are really a number of them. I'd like to highlight three. First, for me, the most important, these are really our people, our culture. We really have a fantastic pragmatic culture. People are extremely engaged, and we could see that again in the new employee engagement survey, which we've done this year, which showed further improvement. The second one I'd like to highlight is the integrated business model of systems and services. If you think about the order intake of last year, all these compressors that we have sold, we will install them in the next couple of years. But in 2050, they will still be running for most of them. They will still be needing spare parts and services. And this is why we really have to see that in the long term and look at both divisions together. The last one I'd like to highlight here, and that has something to do with the picture, we're really well positioned to benefit from the energy transition. We have products, we have technologies where we can differentiate ourselves, and we have a global footprint, including in China, where a lot is happening. Moving on to the future priorities. I also would like to highlight three of them. First, again, our people. We are growing strongly with our order intake. So we need to attract people. We need to retain the good people we have, and we will continue to work on our branding as employer. The second one I'd like to highlight is the fact that we want to continue to expand and to invest in new applications. And here, hydrogen mobility and energy is really one key application where we do invest, what you also see, by the way, in our R&D figures for this year. And the last one, last bullet, but not least, sustainability. Sustainability has always been actually in the DNA of the company in 170 years of history. I think we always took care well of our people of the environment, et cetera. But really in the last 18 months, it has taken a new dimension, and we really accelerated and we formalized the way we go about sustainability. I'll come back to it a bit later. So in the next, let's say, half hour or so, I'll go first through the key highlights, also some challenges, talk about the market developments, then dig deeper in the 2 divisions for an operational review before handing over to Rolf for digging deeper in the figures, and I'll come back in the end for a strategic update and the outlook. Starting with the highlights. Let's look at a few figures. Financial highlights. I think we had a very good year, 2021. We had really an exceptional order intake. It's for me to read the highlight of the year. And it really gives us confidence that we are on track in terms of strategy and gives us a very good backlog to deliver in the next couple of years. Group sales, as expected, were stable. EBIT could be increased by almost 16%, and that brings us back to a double-digit profitability of 10.8%, and as you see, net income by 6.8%, earnings per share, almost 14%. And that led to the proposal of the Board for [ out ] our next general assembly of an increase of the dividend to CHF 7.5, which is an increase of 15%. Here, I'd like to take the opportunity to say a big thank you to again our employees and all our partners, which made that happen in the context, which was quite challenging at some point, with supply chain ,with raw material increases ,with the war in Ukraine. And here, a very big thank you to everyone who contributed to this. And now if we look at not only the figures, but they also contributed to progress on the strategic side. And here are a few milestone, a few highlights, which I'd like to mention. First, on digital services. For us, digitalization is an important part to deliver services to customers, especially in an efficient way. And in last year, we've developed -- together with Microsoft, we are a development partner for Microsoft, this up frame-out solutions, which enables customer with the tablets, with the whole lens, with the headsets to really bring the Burckhardt experts really in the machine. I've really seen it working, bringing the machine. It shows what's happening. The experts can tell him what to do, and that was very helpful, especially in the COVID time because then, we don't need to travel so much. Second one, very important for our service division, the acquisition for Mark van Schaick, gives us some new capabilities for very complex repairs, especially for crankshafts and especially for the Marine business globally. Then hydrogen mobility and energy. You see here some of the milestones. We've launched a brand-new product, a breakthrough product for the ramp-up of the infrastructure of hydrogen. And we've won the project for the largest liquefaction plants in the world, which is now being built in Korea. And in the end, this momentum led us -- maybe you've noticed, led us to take hydrogen mobility and energy as a separate segment, which it was not until last year because it's really becoming relevant. Last highlights on the LNG side. For the ones who were at the Capital Market Day, you may remember, we mentioned the launch of smaller compressors for typically LNG merchant ships, which now use LNG as a fuel instead of oil because it's much cleaner. And we've sold 60 of these smaller compressors in the last year, which shows that these compressors really were well accepted by the market. And second -- last highlight here, the 1.5 million hours of operations is relevant for us because it shows the reliability of this larger compressor. Here, we talk about the large compressors for the LNG carriers, which you may remember rather than negative side a few years ago, now they're really working, and we have a lot of experience here. One of the highlights I'd like to mention as well -- hopefully, the next slide is coming. Yes, thank you. Sustainability, I mentioned it was one of the priorities, and we're really working on embedding sustainability in our strategy into our operations, and we really accelerated our journey here. We have defined like what everything we do in the company quite a pragmatic but also impactful framework, strategic framework, which is fully aligned with the United Nations Sustainable Development Goals. We have made clear progress on our 8 materiality topics, and they are allocated to top managers in the company. We have, for the first time, collected global KPIs on a number of sustainability topics, and you see that -- these KPIs in the sustainability report. And something really interesting, which is also in the report, we've analyzed the carbon footprints of 4 of our typical compressors. And you'll see that in the report. We -- and the conclusion is amazing. We see that more than 99% of the carbon emissions of a compressor doesn't happen in our factories. It happens at our customers during the lifetime of our compressors because they are driven by electric engine, which have quite some power. And while we'll, of course, work on Scope 1 and Scope 2 to reduce the emissions, we sell our energy with -- for instance, we've moved to completely renewable energies here in Switzerland. That, we will continue, but we have to focus on what happens with our compressors at customers, gives us some business opportunities as well to help customers reduce emissions on the installed base with revamps, upgrades and all these topics. So that will become relevant for the strategy. Finally, we've established a clear governance from the Board, where now we have a strategy and sustainability committee to the management team, to the groups working globally on all these topics. So you will find a lot more in our sustainability report, which is about 35 pages published this morning. Now we've also had challenges, and we are not the only one. And the achievements of this year have to be seen also in this context. We had several corona-related travel restrictions and lockdowns, especially in China, which we could mitigate, thanks to our outstanding commitment for employees. I mean they've done things. We never ask them, we never thought were possible just to serve customers, making sure that we deliver what we have to deliver. And again, a big thank you to them. Our digital workplace is also working, and I mentioned the Up! Remote support was one way to go around these limitations. Supply Chain, Global Logistics, material prices were also clearly disrupted. And here, our global supply chain, which really benefits from the footprints, the people in different places in the world, when they were missing something for the project, they were in constant exchange and finding ways to buy what we needed for our projects. I think the big advantage we have, maybe to compare to some other industries, we have projects which are -- where we need, for 1 project, a few components. We don't need 1,000, 2,000 things. We need 1 component, and we always found a way to find it. Finally, we had a disciplined approach to material price increases, on the one hand, with frame agreements with suppliers. And on the other hand, by passing on this, increases to our customers, which was most of the time, possible. Finally, the Ukraine war has been a hit, and we decided mid-March not to take any new orders. That was at that time I think really the right decision, not only morally but also because 6 weeks later, end of April, new sanctions came, which prevent us from delivering our backlog after July 10. And that creates the fact that we will not deliver this 2% to 5% of revenues this year. And that also creates a potential EBIT impact of CHF 5 million to CHF 7 million to stop these projects basically, and Rolf will say more about it. So overall, I can say we've been quite resilient in this context. And this is really, thanks to our employees and the broad footprint, the broad business diversification. Let's look now at the market developments, which have been really interesting in the past 18 months. And I'd like to start with the big picture, coming back to the picture of the Board and the fact that really we are at the crossroad of major energy trends. First, the energy transition, and was here since we could feel it accelerating since 18 months, really. And it has an impact. I mean, having wanted a greener energy has an impact on 4 of our key applications. First, LNG. You've seen that LNG-fueled ship because the fuel is much cleaner. We can see it here. We see it as well for distributed power production. You can use LNG, one of these boats. You bring it to a small power plant in Ireland, in Indonesia, all the things. And when you start having LNG, then you need to -- Burckhardt, it's kind of a fuel station, fuel stations for LNG, then it also compresses. So that's one here. Then energy transition, we all know this transitional energy, natural gas, much cleaner than coal, much clear than oil, and we see that happening as well. More new and really relevant for us now, hydrogen mobility and energy. This is more for the so-called hard-to-abate segments. Steel production, ammonia production and for us, even more relevant, a heavy-duty transportation. Then the last one, pretty obvious, solar panels have been growing fast. And we've not communicated so much in the past about it, but solar panels need two things, which require compressors. They need a thin plastic film of EVA, which require our hyper compressors, where we have 80% global market share. And the [ net ] polysilicon, of course, the core of it. And polysilicon requires also compressors where we are also leaders with our Shenyang Yuanda subsidiary. And that was already happening. But really, what's been happening in the past 6 months, again accelerated by the Russian war or the Ukraine war, is the energy security becomes a topic. And it also pushes -- I mean, LNG in Europe becomes a huge topic because it's, of course, much more comfortable to get LNG from aboard that you can buy from Australia or the U.S. than from the Russian pipeline. Also to mention Solar is also a way to produce energy locally, having independents rather than depending again on the pipeline. So we see this acceleration happening. And this explains a big part of our order intake. Knowing that in our order intake, there are also some special effect. The fact that we have so many large projects happening this year, and we won so many of them. That might not happen every year, but the trend is here and should continue. Now moving to our usual segment view, to which we have added hydrogen mobility and energy. The column in the middle, you probably remember that these are the midterm trends, which we communicated at the Capital Market Day. I would rather focus on the right side, highlighting what came in financial year '21. Some restart of investment in the U.S. for gas gathering and production. We see that as well in the Arkos activity. I mentioned already the LNG-fueled merchant ships, the sense of [indiscernible] LNG terminals in Europe, for instance. We received a new refinery sector, a couple of very interesting projects, not large but interesting for the future for biorefineries. Then on petrochemical, this is the story about solar panels for the hyper compressors. The polysilicon application is -- in industrial gas, that's also here ,the key trend. And energy mobility, I mentioned the fuel stations. We entered the European market for fuel stations. You may have noticed yesterday some further progress on for France. We will provide compressors for the new taxi fleet, hydrogen taxi fleet in Paris with our partner, HRS, that's one of them, plus these liquefaction plants, which were rather large projects. Here, to mention, I mean all segments have been growing significantly. But I have to say our two usual pillars, gas transportation and storage petrochemical, have even gained an importance compared to the rest, a relative importance. Now what we see, and this is new, as third comes industrial gas is the polysilicon. And then what comes are -- at the same level almost, is refinery and hydrogen mobility and energy. And finally, gas gathering and processing remains quite marginal for the Systems Division, is more relevant for the Services Division at Arkos. Now moving to the operational review of the two divisions. Here, I'd like to highlight the key figures per division and show how we delivered on the promises given at the Capital Market Day and what we see coming. First, the Systems Division, which, of course, I know a bit better. We really had an excellent year, '21, starting with this exceptional order intake of more than 60% growth coming from what I mentioned before. First, the recovery of the pandemic, this LDPE/EVA solar panel-related orders, and this is where we have this exceptional amount CHF 150 million will not happen every year, really big project happened this year, and we won them. Then hydrogen came and then LNG-related applications were part of this exceptional order intake. Then despite the decrease in sales, which we knew was coming because of the first half of 2020, where we received very few orders due to COVID, despite the 9% decrease of sales, we could increase EBIT by 30%. And that's led us to a return on sales of 5.7%, which is clearly above the higher band of the mid-range plan range. Some of it is due to more favorable product mix, but this remains an excellent performance and clearly above the mid-range plan, and we can build on these numbers. Now moving to the more -- the strategic review. You remember here on the left was presented differently, our three strategic directions for the Systems Division, which we presented at the Capital Market Day, together with the strategic initiatives, which are also not new. Just want to highlight in the last column, the progress -- or some progress in financial year '21. When we talk about new markets to reduce cyclicality, I think the first bullet point was right on, new marine applications. These were the 60 new compressors for LNG. Fuel ships were coming. We entered the European market for hydrogen, which was also a topic at the Capital Market Day, and this bio-refinery orders also come here in this topic. As for building stronger differentiating capabilities, here, I'd like to mention the unique solutions we have developed for larger ,high-pressure compressors for hydrogen. And I'll just spend 1 minute on this because that's important. The hydrogen infrastructure in Europe and the U.S. has to be developed by a factor of 10 or factor of 100s. And when you go there, hydrogen always have to be compressed. It will need much larger compressors. And this large compressor has to compress hydrogen for mobility at a quite high pressure. 550 bar is very high pressure. And it has to be compressed without lubricants. Why? Because fuel cells can't have any lubricants in them. That just destroy them. And when you think about hydrogen, which is a very small molecule, you want to compress it with high-flow, high-pressure without lubricants. This is really the high tech of a compression technology. And here, we have a breakthrough with these compressors, which explains why Shell is working with us, and maybe we'll announce some other partnerships in the next few months here. That's really a breakthrough in the market. Then Digital Solutions. On the system side, we have cloud connected compressors currently on the test of customer, which will enable later on the Service Division to build digital services. Important, our people, again, we did -- we do every 2 years quite a in-detail employee engagement survey. And again, we saw employee engagements rising, employee satisfaction rising. Some of this is presented in the sustainability report. Then operational excellence will always remain a key topic for the division. Here also for hydrogen mobility and energy, we talk about a larger number of compressors. And we've had our first standard compressor, which is for you kind of new, new kind of business model with standard compressors, and we have our first one. Then talking about material price and the ramp-up of production capacity, which we can do within our existing factory footprint, but we need to hire many more people. We need to outsource some activities to absorb the volume in the next couple of years with our existing footprint. Moving now to the Services Division. Also a strong year, starting with the growth of order intake of almost 20%, which is linked to the strong demand for Engineering Solutions, which was really our strategy. And all regions here have contributed. Then you can see the growth of sales and order intake by 11.6% -- 11.8% (sic) [ 11.8% and 19.6% ], a slight leverage, bringing EBIT at a growth of 14% almost, increasing the return on sales to 21% in financial year '21. So contributing to these good numbers are also the progress on our acquisitions. Arkos has made [indiscernible] progress growing and also improving profitability. The acquisition of the JSW compressor activities are completed. That brings us 700,000 new compressors in the world that we can take care of. And finally, the integration of Mark van Schaick, our latest acquisition from last December is really progressing well and is already contributing -- already contributed to these numbers. So the performance here is in line with our mid-range plan targets for 2022, on the profitability side. However, not on the sales side that we indicated already at the Capital Market Day, the stretch is quite big to close before the end of the period, meaning we'll have a slightly different mix at the end of the mid-range plan. Now moving to the last slide from my presentation, the review of the strategic progress from Service Division. Here again, the topics presented at the Capital Market Day. And looking at developing our local business, we have established new setups or new partnerships in Vietnam, in Brunei, in Sweden. We've also launched new service solutions. Here, I mentioned the 1.5 million of operating hours of our compressors for LNG carriers, meaning now we really know what -- how these compressors work. We really know what our customers want, and we are able to cost and to offer total care packages, which is new for us and was part of the service solutions. Launch of digital products, I mentioned this Up! Remote solutions, some others are coming. And the acquisition of Mark van Schaick brings us again some additional service capabilities globally for the Marine segment. Finally, in terms of strategic partnerships, we could address a larger share of non-Burckhardt compressors, especially with the partnership with KB Delta, which is specialist globally for our valves for any kinds of compressors. And now we have, with this partner, access to even more compressors. With this, I would like to close this first part of the presentation, and I will hand over to Rolf Brändli, who will tell us more about the financials.

Thank you, Fabrice. Good morning, and welcome also from my side to our annual conference 2021. I will now guide you through the financials, starting with Slide #18. With an amount close to CHF 980 million total order intake in 2021 was indeed exceptionally high. As you can also see especially with the comparison of the last couple of years, net of currency translation and acquisition effects, we have received 43% more orders than in the prior year period. This exceptional growth was mainly driven by the Systems Division with a plus of 59%, net of currency translation effects. As mentioned before by Fabrice, we had a lot of tailwind from the energy transition, especially for LDPE/EVA applications, driven by the solar panel production in China. And also the demand for hydrogen application for mobility and energy solutions was growing clearly faster than we had expected. Order intake at the Service Division rose by close to 20% to CHF 325.5 million or 18.3% net of currency translation and acquisition effects. Worth to be mentioned is that in the prior year, we still had a long-term service contract over 10 years, close to a double-digit million amount included, which did not happen this year. Then as shown as on this next slide, total sales for 2021 closed at CHF 650.7 million, which is the upper range of our Investor Relations guidance that we have given at the beginning of the fiscal year. That's 1.2% below the prior year, respectively 2.6% if we exclude currency translation and acquisition effects. Due to the corona-related lower order intake in the first half of fiscal year 2020, System sales was with kind of a time lag with a turnover of CHF 373 million, 9.1% below the last year. Towards the end of the fiscal year, we then also had to shift some projects in Russia due to the sanctions that were imposed at that time into 2022. On the Service side, we have increased sales by 12%, respectively, 10.9% net of acquisitions. Growth was mainly generated in spare parts, but also field service and engineering, revamp and repair. Then how did the overall profitability develop over the last fiscal year down to the level of net income, despite the lower sales, total gross profit increased by 14.9% to CHF 190.8 million, which resulted in a gross margin of 29.3%. That's 4.1 percentage points above prior year. Main reason for this increase was the more favorable product mix, on the one hand, especially in the System side, as well as the higher share of Systems business overall, which accounted for 43% of total sales compared to 38% in 2020. SGA expenses were at 16.4% of sales and did not include any corona-related subsidies anymore as it was the case in the prior year. The selling expenses also carried already some investments into sales activities for hydrogen applications and some other solutions in the marine applications. Total spend in research and development was up by CHF 4.3 million, closing at CHF 19.7 million. And that was especially in context with new and improved marine solutions; the enhancing of compressor solutions for hydrogen; as Fabrice mentioned before, quite complex applications; and the development of digital solutions. In the mid-range plan, by the way, we had foreseen about CHF 10 million to CHF 12 million R&D. And as you can see here, we are investing also into the future. So with 19.7, we are clearly above the MRP level. The higher level of other operating income was a result of some nonrecurring effects, and it's including also the contribution from the real estate gain that we have from the real estate company here in Switzerland. Then on the proportional increase of earnings before taxes is the result of higher financial expenses, which were mainly caused by negative foreign exchange effects on intercompany loans and very specific on the euro, where the euro dropped from 110 to 103, and that correction or FX effect then goes into the financial expenses. The tax rate was at 23.2%. That compares to 20.3% in the prior year and was driven by the higher share of profit in countries with above-average tax rates as well as nonrefundable withholding tax whenever we withdraw dividends, internal dividends from our subsidiaries. In some countries, there are nonrefundable taxes. And the Group net income closed 6.8% above the prior year at CHF 50.4 million, and earnings per share attributable to the shareholders of worked compression increased by 14% to CHF 14.82 per share. That's also, of course, thanks to the exclusion of the 40% minority stake, which is no longer the shareholder of the Group. Then the Board of Directors, as you have heard before, is, based on this result, proposing a dividend of CHF 7.5 per share, which would then be an increase of 14% and represents a payout ratio of 50.6%. Let's have a quick look at the balance sheet. A few comments ,balance sheet total increased by 10.5% to CHF 837 million. Property, Plant and Equipment remains at prior year level. There was no major investment there. Both inventories and advanced payments from customers, they have increased considerably following this steep increase in order intake that we have seen before. The equity increased by [ CHF 23.3 million ], while the equity ratio as a percentage of the total balance sheet remained stable at 29%. And that is mainly for two reasons. Our target level would be at least 30%. We did not reach that in this year. The reasons are, on the one hand, the over financing of work in progress by customer advanced payments, which possessed a positive effect, but it has an inflating effect on the overall balance sheet and thus also impacting the equity ratio. And secondly, the offsetting of goodwill from the acquisition of Mark van Schaick. That was an amount of CHF 9.3 million based on Swiss GAAP FER, which is our reporting standard. We have offset that directly against the equity. Trade accounts receivables ended the fiscal year at a similar level as in the year before. Within the overdue ARs ,accounts receivables, the focus clearly remains on China, where we still have a very high but at least renewing volume in positions overdue for more than 90 days. About 70% of the overdues over 90 days is related to China. And corona did not help in this respect to be added. The net debt position has improved by CHF 25.6 million to minus CHF 56.8 million, and we also have the adequate liquidity to secure the operations with bank lines whenever we will need that. On the CapEx side, you can see here in 2021, we had an amount of CHF 23 million that we added to our property, plant and equipment. We are expecting an investment in a similar range, maybe slightly higher of CHF 25 million for the running fiscal year 2022. And that is similar to the level of depreciation and amortization. Investments are mainly from machinery equipment, tools and hard and software. Then last but not least, the net financial position and the cash flow. Total cash generated from operating activities increased marginally to CHF 135 million, which is already -- or was at the high level the year before. Cash outflow from investing activities, including a payment of CHF 9.4 million for the acquisition of Mark van Schaick, our latest acquisition, and besides regular CapEx investments, that is also added on this position. Prior year 2020, worth to be mentioned, had a cash out of CHF 21 million on the investing activities that was for the JSW compressor business, as you remember. And the cash outflow from financing activities includes the last installment that was an amount of CHF 51.5 million for the Shenyang Yuanda acquisition. You might remember in the last fiscal year, the year before 2020, we closed the transaction, but we had a staggered payment, CHF 51 million in 2020, and this last installment, CHF 51 million is now paid in February 2022. With that, the 40% stake is gone. So as you have seen before, on the earnings per share, there is no more minority worth to be mentioned. As per the balance sheet date, total cash closed at CHF 101 million; borrowings in the amount of CHF 157 million or on the other side, and that includes the CHF 100 million bonds with a term until 2024. So we have an improved net debt position of CHF 56.8 million. With this, I hand back to Fabrice. Thank you very much for your attention.

Thank you, Rolf. So let us now wrap up first with a strategic update and then moving to the guidance for 2022. As for strategic updates, you here also may recognize the 5 key strategic messages and takeaways on the left from the Capital Market Day. And I will again focus on the right side and the progress made in the past year. Clearly, we benefited from our broad geographical positioning and our broad customer base to mitigate the various effects of COVID and to distribute now the load -- the high loads between our different factories in the Systems Division. The benefits of the system service integrated service model -- integrated business model, sorry, is already seen or is seen in the strong growth of Service, almost 20%, and especially in the Marine area for the service business, where all these compressors now needs to be serviced. Also, this integrated business model is important for the development of new services, digital services because you first need to have a connected compressor on which you can build digital services. On the third point, our order intake composition shows clearly that we could benefit from new applications, the changing energy mix, against these three keywords: Solar panels, LNG and hydrogen mobility and energy. And we are well positioned to continue to benefit from it. Fourth point, we certainly remain very committed to reach our mid-range plan targets, and we are on track to reach them, even if we will have a slightly different mix than initially planned between the two divisions. In terms of capital discipline, you've seen the CapEx, which -- for 2022, which remains very reasonable. We see the payback from our acquisitions and our RONOA is, this year, close to 20%. So overall, I would say we are on track from a strategic perspective, from an operational perspective and from the financial perspective. Now moving to the priorities for this year, 2022. I mean for me, there is one clear priority. We want to deliver on the mid-range plan targets. That's clear. That's number one, and everything else comes behind. And in parallel, what we are doing currently is defining our new mid-range plan, which we plan to communicate together with our half year results on November 1. For the Group -- on the Group side, what we also are focusing on is people. Attracting, training people, topic sustainability, as mentioned, go further. And you can expect there are some concrete commitments from us at the Capital Market Day. We have to work a bit in the background on our IT infrastructure data management so that we can later on ramp up our digital services. And we have to continue to mitigate all the supply chain issues, these raw material topics, the Russian backlog, et cetera, that will keep us busy in this year. From the Systems Division perspective, it's rather a continuity with a strong focus on delivering the backlog, which means continuing to mitigate the sanctions, the supply chain topics ,also further investing and pushing these new solutions, solar panels, LNG, hydrogen mobility. And like always, in the Systems Division, Operational excellence remains a key topic, developing this new standard compressors, for instance, working on the procurement and all these nice operational excellence topics. For the Services Division, this is also a continuity to focus on ,continuing with the positive dynamics of the order intake based on the recent acquisitions as well, continuing the progress in growth and profitability at Arkos. And finally, developing this new digital services, this new total care packages and other new services. So this has bring us to our guidance for the year. Here, overall, we are aiming at a significant increase of revenue to a range of CHF 720 million to CHF 760 million. And as mentioned during the presentation, this range of this growth is coming from three factors: first, the strong conversion of our backlog, especially in the Systems Division; the continued progress of our Services Division, including revenues from acquisitions; and on the negative side, the fact that 2% to 5% of our revenues linked to the Russian market will not be delivered. This guidance clearly indicates that we will land ahead of the MRP revenue ambition, which was CHF 700 million. But already, as already mentioned during the Capital Market Day, we'll have a different sales mix between the 2 divisions because Systems is growing so fast. In terms of profitability, we expect a significant increase in absolute terms of our EBIT, actually increase in line with the increase of sales. That means that we will yield a similar EBIT margin than in financial year 2021. And the stability of this EBIT margin is coming from three factors. First is Russian impact or potential impact of CHF 5 million to CHF 7 million to stop the project that we cannot deliver due to the new sanctions. The fact that we continue to invest in these new applications ,in digital products, et cetera, and the fact that the current business mix is more geared towards the systems division, which has a lower profitability. So overall, that means that our EBIT margin will land in the target range for the mid-range plan, which was 10% to 15%. Regarding our new set of financial ambitions, we will publish them together with the mid-range plan in November and also together with our new mid-range plan strategic framework. I hope both of us, Rolf and I, could provide you a good overview about our numbers, about the strategic progress, and we are here to answer your questions. We'll answer first the question from the room and then answer the questions, which are coming online in the second phase.

[Operator Instructions] [ Morgan? ]

[Foreign Language] You raised the operating margin last year to a little bit, but it's lower than 6%, still quite low for the Systems Division. Where do you see a realistic ambition go there with the margin? And the second question, [indiscernible], how did you start in the first 2 months in the current year compared to the last year?

So concerning the Systems Division, this 5.7% has to be seen versus the target that we had set ourselves 5 years ago. At that time, we were negative. And the target was 0% to 5%. So we're clearly above our targets. And it's too early to talk about the next target for the next mid-range plan, but it's more than we expected 5 years ago, clearly. Concerning the start of the year, I think these topics of energy transition, energy security are here. And we had a good start of the year in that respect in terms of orders.

Barbora Blaha from UBS. Linked to this energy transition, how do you expect the U.S. business to develop? When do you expect a double-digit margin level for Arkos? And also do you intend to increase your -- or to broaden your System Division or to start System Division business in the U.S.?

So the first question is about -- sorry if I missed the first one.

When we will achieve the double-digit EBIT level at Arkos. That was the second one.

Maybe you can answer this one, yes?

Well, for Arkos, indeed, we said when we acquired this company, we see the potential to arrive at a double-digit EBIT margin. We made progress, as it was mentioned during the presentation, with our cost. We are not yet there. And I would not promise that we get there in 2022, but we can certainly get closer, so a median to offer, let's say, single-digit EBIT margin is possible. The target remains clear. The ambition is to achieve this double-digit EBIT margin, and we will also look into combining the 2 operations that we have in the U.S. I think that goes also into the second part of the question about the Systems business in the U.S.

Yes, we actually already have an assembly and test facility in the U.S. which has not been very much loaded in the past few years. Now we see with the hydrogen mobility and energy, that gives us new perspective for the U.S. operations. There, we see many H2 hydrogen liquefaction plants being built. And currently, we're negotiating some contracts, which would really fuel this factory for the next 12 to 24 months. Still not one, but that gives you certainly now perspective. Then I think you asked about the different segments. That was your first question. How the different segments developed?

No. What do you expect from the U.S. business in the future?

Oh, the U.S. Okay. So it's really the -- for us, it's the hydrogen business that gives us new perspective. The refinery business is not so active at the moment. And we also have to say, overall, we had to give priority to some segments. And this is also why the mix is evolving a bit. We have a bit less of refinery because we had such a demand on petrochemicals, solar, all these new topics that we could not deal with all the other customers and we had to make some selection, explaining a bit why our refinery is actually not higher than hydrogen almost this year. It was also a matter of setting priorities.

[ Dominik Feldges ] from [indiscernible]. I was wondering about these problems with trade receivables you're overdue in China, you have, I mean, -- how big is this really a problem for you? Could this become even worse as we go on? I mean what's happening there? Second question, if you allow -- you've mentioned that you will need more people in the future to manage the growth. So where will you add these people? And how many of them? And the last question, if you may allow about this Russian backlog. I mean can you elaborate a bit on what you are still working there on? What has been -- what you have still been able to deliver and what you cannot deliver now?

So I propose, Rolf, you can answer the question on China [ current receivables ], and Russia and I'll answer the question about people.

Okay. Let's start with the China one. currently, we have on the balance sheet about CHF 260 million receivables overall. And out of that, 25% is overdue for more than 90 days, 9-0. And out of that portion, about 70% is based in China or is located in China. It's the local Chinese business. It's not what we export into China, like the hyper compressors, for example, there we work with [ LCs ], advanced payments and everything. But local to local is different in China. And unfortunately, it's going on for years after since we acquired this local company that we have a high level of these overdue positions. And as I mentioned earlier, they are evolving. I mean we get paid, but then some new positions get overdue. We have about CHF 15 million, 1-5, bad debt provisions on permanent level that -- or sometimes a bit up, a bit down. There's nothing we are too worried about in individual positions to loosen. It's really the question when you get paid. And Corona did not help in that context. China also spent a lot of money with this corona crisis and what they tend to do. That's clearly visible. They first pay locals and then the international companies. They ultimately pay, but you have to be very patient and not just being patient. We have a lot of interaction with the government. Most of these companies are government-owned. So yes, you have to run behind that money. Then the other question on the Russian backlog, actually, we invoiced something. We had a shift of invoicing about CHF 15 million to CHF 17 million sales that was actually planned towards the end of the last fiscal year '21. That has shifted now into April. That's already invoiced and shipped. And the remaining part, Fabrice mentioned it, there is a hard card deadline, 10th of July, by when and also the other, the increase sanctions get into force. So where we have to see how to wind down those projects. And it's a potential loss, this CHF 5 million to CHF 7 million, we made an assessment. Maybe we can still invoice part of it, maybe not, but we have not considered anything so far in this guidance, and this CHF 5 million to CHF 7 million is out of the guidance.

Sorry, the first figure you mentioned, which was still in -- which you could [ state ] invoiced?

A shift of about CHF 15 million to CHF 17 million.

But before you have invoiced -- you mentioned the figure before.

Accounts receivables?

No, no. With the Russian, what did they...

No, the deadline, 10th of July, but the CHF 17 million were moved from financial year [ '21 ].

Exactly, yes. How many? 17, 1-7.

Yes. Yes. CHF 15 million to CHF 17 million, 1-7.

CHF 15 million to CHF 17 million. Okay.

Maybe I'll answer the last question, talking about your question about the number of people. And indeed, we need to add many people, and we will add them actually in most of our systems locations because we could spread the load pretty much globally. We talk about maybe 200 to 300 people ,we need to add this year, and they will be first in the largest factories in China, in India, in Switzerland as well. In Korea, we also need to ramp up, also in Italy, which is an important center for project management and project engineering for us. And if the orders for this hydrogen projects in U.S. are confirmed, we also need to ramp up in the U.S. So it's globally, and that's also where we're happy to have this footprint and being able to move the loads where we have capacity.

My name is Serge Rotzer from Credit Suisse. First question is on orders, which is very impressive, to be honest. Now on this CHF 1 billion order intake, what can you tell us about that? How much is pent-up demand -- is coming from pent-up demand? And what is more an operational structure level of this CHF 1 billion?

So pent-up demand, we mean...

From the recovery out of the pandemic. So -- or also double orders. So the part which will disappear soon, let's say it that way.

Interesting. I would answer this. Last year, in the Systems Division, where I think we already had 16% growth, which was part of this pent-up demand. I think if I look at the profile of the orders, first half year, second half year, the pent-up demand will probably be more in the first half year, but actually, the second half year was also very strong. So it seems to be not that much of a topic. I think customers are investing here. I don't see a big -- I didn't see -- over a couple of months, not such a bigger effect, I would say. And sorry, and the second part of your question was?

Well, let's switch then directly to Page #10 of your slide, where you showed this energy transition security. You have the structural driver like LNG, natural gas, H2, so hydrogen and solar. How much of this -- how much is coming from these businesses in the order book? Is it -- can you give us a few more flavor?

Yes, let me count quickly. We talk about 40-ish percent, if I can count quickly, of the total company order intake coming from the Systems Division on these applications. Yes.

Okay. So then it is then 2/3 of total and 40% of these 2/3?

No, no, 40% of the total of Group. That's why it's very relevant and...

Got it. And what should we expect now going forward on the order intake now from the demand side, the growth level, this is CHF 1 billion, how sustainable is this CHF 1 billion? Or do we going back to a level more to CHF 700 million, like you had in the past? So between CHF 400 million to CHF 700 million? What is your expectation there given pent-up demand will go away, fade away, then you have the normal recurring demand. And then you have the structural demand of these businesses. So what is the best guess? I know you don't have a crystal ball, and we have to wait for a Capital Market Day in November. But first...

What we can do, first, I mean, we don't give guidance on order intake because we have large projects. They come maybe this year or next year. It's -- that's why we don't give guidance. What I can say and what we've highlighted is that this -- from this 4 -- let's say, this 40%, there is CHF 150 million which are exceptional. I mean, the really big projects coming all at the same time, and we were successful. And this CHF 150 million, you should not expect them to be here in a regular year or during this year. But the trends that it grows and all this application growth, that will remain. So maybe that helps in making a quick calculation here, what we could expect.

Okay. Then the last one to the order. Mr. Brändli always told us that lead time is about 1.5 years up to 2 years. What is the lead time today? And is there a big deviation between the different markets?

Yes. When you look at especially solar again, these are the hyper compressors. And with the exceptional CHF 150 million, these are really long delivery times. We talk about 16 months, 24 months, especially now also longer due to the supply chains. We integrate the tensions in the supply chain in our delivery and our promise to customers. So it tends to get longer and longer. And that's why this backlog will be delivered over the next couple of years and maybe even some of them in '24. That's a long backlog here, especially on the solar panels. The other ones, I would say, on average, 12 to 16 months, the other applications.

Arben Hasanaj from Vontobel. I was wondering on the trends you see in the market. So you mentioned this energy transition themes are still strong. But are you seeing any headwinds that customers have become more cautious and also maybe an impact of Chinese lockdowns. Is there anything in your markets that you are seeing?

Yes, indeed, we see some customers and [ Catagals ], we spoke, I think a lot about [ Catagals ], and this one example, waiting that prices go down. Say, hey, it cannot be. I will not buy a ship of CHF 200 million now because it's just too expensive. It used to be CHF 180 million. Now it's CHF 220 million. So customers -- some customers wait and think that we will get a better deal maybe in a couple of years. An example of [ Catagals ], What happened is actually that other customers Gaslock and Marin Gas, just stepped in and booked the slots at the yard. So there is no spot anymore for [ Catagals ]. So I'm not sure it was the right calculation. But we see that a bit. And also, customers are very busy finishing existing projects because of the supply chain topics. And they soon may not have enough capacity to start a lot of new projects. I mean all the engineers that everyone needs for all these applications, it's not only us, it's also our customers that might become, in the next 18 months, a limiting factor for starting new projects for customers.

And the question on LNG in Marine, I mean, what is kind of the situation there? Have you gained market share again? Or can you elaborate?

Yes. I mean, the auto market again on LNG, they are the small merchant chips where we clearly gain market share. That's a new market for us. We sold these 60 compressors. Now I think your question was probably more on the carriers, the large compressors. There, we see two things. First, the fact that the customers are moving back to the high-pressure technology, the ME-GI technology, moving away from [ ECF ] because the ME-GI technology seems to be more efficient and has much less methane slippages. So there are slippages when you -- in these carriers of methane. And the ME-GI technology is much less, and that becomes very important. When the Shell is renting these ships, they don't want to have this method. That's why we see that. And within this ME-GI, we see that we've gained back the market share. I mean we have the one Japanese competitor. The past 6 months, we have completely gained back our share or even more than that. Also because our compressors compared to the Japanese version has no -- absolutely no methane slippages. So we have one argument on the technology side, which makes us confident that in the next few months, we will win a lot of this market share.

And maybe a final question on hydrogen. So you mentioned before that you expect orders in hydrogen to be around 5% to 7%. Can you maybe say was it rather on the high end now in the end or can you elaborate?

The rest was so strong. That was rather on the low side for hydrogen.

[ Michael Schulz ] from [ Denison West ]. I have one question. If I were to look for a hair in the soup over the last couple of years, you were always below the -- with the gross margin in the Service business below your midterm guidance. Now you -- we had this corona, all the issues with accessibility of ships and so on. But is this 45% to 50% gross margin range, is this still achievable with the current setup? Now you were around 42, 43-ish over the last 3 years.

I mean, one effect is definitely we have an increasing share of what we call OBC or the brand compressor business. That accounts for about 30% of the total service business or even lower. That has grown substantially. And then let's not forget Arkos. Arkos is still dilutive here. And that also is carried in this 43% gross margin. But to answer your question, the 45% level is certainly something we are aiming for. It's too early now to set a new range for the next mid-range plan. We will certainly do that when we're ready with this for the Capital Market Day, but the 45% level is definitely something within reach.

Okay. A follow-up question to the guidance. I mean you say basically EBIT is growing -- should be growing in line with the top line. So same margin as this year. And that includes the CHF 5 million to CHF 7 million extraordinary basically Russian write-offs.

Yes. Yes.

The tax rate. Tax rate is now a bit higher than the -- you usually guide to 20%. Is this..

This is 23%. Last year, we had 20%. Mid-range plan was actually 25%. It's the mix of the profit generation throughout the countries, the whole footprint that we have. So for the next year, I would also assume something around 23%.

[indiscernible], a couple for me as well, if possible. Maybe on the pricing situation. if I hear what other companies are saying, it seems that Q4 -- calendar Q4 was a situation where output prices were sort of favorable compared to input prices, and that started to revert a little bit in calendar Q1. That would be the first part of your half year and the second part of your half year. Can you comment on how it is with you, the input/output situation?

Maybe because our backlog is longer, we've not noticed this, but what we do is that on a monthly basis, we have a raw material internal index, which reflects what material we have in compressors. And we adapt our prices on a monthly basis to follow this. Plus in the last 3 months, we've added closes in our offers that we can change the price of a compressor when the customer orders and if there are significant change in some parameters. So we have protected ourselves on the side. Indeed, we also see that this index tends to go flat the index of raw materials for our compressors. We see that. But that's okay, I can confirm that trend.

So also these very long orders, the CHF 150 million, should the prices go up again, be it energy or whatever? I understand it's fully speculative. But should that happen, you would be able to protect your gross margin?

Most of it, we have -- when we do an offer when we start the project, there are two parts. I mean the compressor itself, all the metals, there, we have, for most of it, frame agreements with suppliers. And then for all the auxiliaries, the motor and the cooler, et cetera, there we get offers from suppliers before we start the project. So we protect ourselves. Still can happen that suppliers come and say, "Hey, I can't do it," and then we discuss a bit. So we are mostly protected, but still that's really a day-to-day task of all the supply chain people to keep that under control and to manage it. So with 80% is protected, there is 20% of the cost, which we really have to manage on a very active basis.

Right. And do you have an idea how much your prices went up, plus Minus?

Yes, for this raw material index, went up about 20%, 21%, 22% in 1 year, last 12 months.

So do I have to assume you were able to increase the prices?

We have given averages.

By about 20% or it's less because it's only 50% of your sales is...

Exactly. It's on -- in the range of 10%, 12%, maybe what we've increased.

So is it fair to assume that in your huge backlog that you have now, which is the last for many years, the gross margin inside there -- I'm talking more on the systems, probably as you might understand, but that gross margin is sort of consistent with the level we are now and the plans you may have in the future?

Yes, I can -- that's the intent for sure. We've put some mechanism in place, as I said, with frame agreements. What we've seen, I can just see the example of last year. Last year, in the Systems Division, the margin that we delivered was within 1% points of the margin calculated. So it's really worked last year, all the mitigation actions. Now we have a slightly different backlog. Again, we're really working ,very heavy on that. That's a big topic. I think we are overall well protected, but still, we have to manage that, and that remains one of the challenges, which I mentioned before. And the guidance also is taking into accounts this challenge that we are managing.

Right. And maybe another one, if I may. I was surprised to hear that you had, at the time, you set out your MRP also our midterm planning that you plan for CHF 12 million in R&D, and now you'll end at CHF 19 million. Why that big discrepancy?

Well, in the MRP, we had several developments not included. I mean the new Marine applications is certainly something worth that we mentioned. Digitalization, we have a lot of investments in digital products. That was in a very early stage back in 2016, '17 when we developed this mid-range plan and also the hydrogen opportunities that came up, I would say, not as a surprise, the technology is not new, but the speed, it came up was faster than we thought. And we had to start about -- what is it? 16 months ago, we started this strategic project to have a strategic compass and outlook of this hydrogen business. And immediately, we then developed solutions for that.

If you -- indeed in this hydrogen, that's the main domain change. If you look at our Capital Market Day presentation from '18, I think hydrogen was mentioned in -- just in the bullet points talking about mega trends. We thought that something may come, but that was really not planned, certainly not on the R&D side. And I mentioned it before, here, we developed also some standard products for hydrogen because these are large numbers. And when you develop a standard product, you have much higher upfront costs in R&D because you need to do all the detailed engineering, the preparation of the production, et cetera, in advance, which is not the case in our other markets where we develop a product, which is more than the concept, but we've never built it. And then we finalized the engineering on the first customer projects. That's what we did usually. And this has usually less R&D cost. Now against standard products, we expect higher R&D costs, and then we should expect higher gross margin later on. That's a slightly different model.

Understood. May I ask for last one. Your latest announcement, if you forget that of yesterday, was the announcement of the new CEO for the Systems Division. When I look at this curriculum, he has a huge experience in electricity, but not a lot in compressors. So why is he the right person for your business?

No, I mean you had it with compressors at Alstom, other types of compressors. And if I'm not wrong, he has a PhD in mechanical engineering, so he's really a mechanical guy. And he really wanted to come back to some more mechanical products, and that for me is really a perfect fit. He has managed such businesses. He knows our customers from a personality fully fit. So that's a perfect fit, I would say.

[indiscernible] compressor business not the [indiscernible] business.

Then he went later on to ABB where it was more on the electrical side. But before that, it was more on the compressor side at Alstom, the turbines and compressors at Alstom. And again, he is a Mechanical Engineer, and he is himself more mechanical engineer than an electrical engineer, which -- that's why he comes back to the roots. Yes? Some more question we have? So I'll take a question from -- coming from online. Maybe some other questions come from the room. The question is, can you please quantify the extent to which price increases contributed to growth in 2021? And to what extent price growth is in the guidance? So on the first part of the question, I think I mentioned 10%, 12% is probably the average over all business lines, for instance, services, spare parts, that's probably about a 10% impact here. And to what extent the price growth is in the guidance and in the past price? It's all in the guidance. I mean we do always the guidance based on the knowledge of the backlog, which we know. And the service prices have increased, and they will -- we assume they remain what they are. I mean, we don't plan any new increases for the guidance. We just assume that things stay like they are in the markets, raw material prices, and we continue at that level. The second question is, have all cost increase being hedged or passed on to the market? I mentioned, I mean we cannot hedge everything. We pass on to the market a large part of it. Then on the supplier side, we have frame agreements with some suppliers. We have offers for the big ticket items for every project before we give an offer. So probably we are protected for 80% of what we buy, and then we manage the rest on a day-to-day basis. Third question is, what is the over-the-cycle margin potential for the Systems Division? 10%. Again, we'll come back to these numbers in November. What you have to think about always in the margin of the Systems Division is the integrated systems and Service business model. Because every competitor knows that and plays it the same, meaning if you're going to win a compressor, which will bring the Service business for 30 years, you are ready to have a lower gross margin for the new business, and that will remain. So we continue to work on the operational excellence. I think that 10% is a lot viewed from today. Then next question, can you please quantify the revenue breakdown, meaning how much gas catering and processing, refinery revenues has broke out roughly generated? Here, we don't report precisely all the segments. What I said is that there are really the large 2 segments, which are more than -- clearly more than [ 50% ] of the total revenues. This is gas gathering and processing as well as petrochemical. Then again, coming third, that's industrial segments, industrial gas and then refinery and hydrogen coming number four. Gas gathering and processing is marginal. It's really marginal at the moment for the Systems Division. The next question, how big is SYCC in terms of revenues? Is SYCC on the same EBIT margin as the Group or the Systems Division? Do you want to answer? I'm not sure how much we've communicated about that.

We do not disclose it individually, but we always said SYCC, Shenyang Yuanda compressor, they run at an EBIT margin at about 10% plus. We had years -- exceptional years also with close to 20%, but the run rate is about between 10% and 11%, 12% EBIT margin. So it's a Group level definitely. And on the Systems Division side, that's also at about Group level, maybe a slight plus what concerns local business, but it's pretty much in line with the Group level.

With a larger part of Systems Division versus Service in China as in SYCC compared to the Group. Next question, do you expect a major year-on-year decline in the order intake 2022 ,down CHF 150 million? Again, we don't guide on order intake. But we said that last year, there was CHF 150 million, which were really exceptional. So you can -- that goes in that direction. Next question, starting with the statement. Congratulations on the hydrogen progress. It would be appreciated if you could shed some more light on the business potential and financial implication of H2 over the next 3 to 5 years. I think we said since about 3 to 6 months that we see hydrogen mobility becoming a third pillar of our order intake. We have gas gathering and processing in PCI. We see the potential for hydrogen to become the third pillar. The question is exactly when. Is it in 2 years? Is it in 5 years? In 8 years? That's still difficult to say. We'll probably say more at the Capital Market Day. It's difficult to say because the limiting factor is the availability of green hydrogen/the tolerance for gray or blue hydrogen in the market. And that's what we see as a limiting factor. Otherwise, there are investments. There are a lot of funds, a lot of startups ready to invest here. So the market will be here, but it takes time to build this infrastructure. If you start to build hydrogen pipelines in Europe, it takes a couple of years. It's just like an LNG terminal in Europe. You don't get it in 6 months. It needs 18 months, 24 months, and we are linked to that investment cycle, which takes time. But certainly, the ambition and the potential is that it becomes the third pillar of our order intake. Then what's your target for net debt on EBITDA? This one would be for you, Rolf.

Right. Well, thank you for this question, net debt over EBITDA, we're currently at 0.6% as a run rate for fiscal year 2021. And based on the existing contracts and credit lines we have in place with our banks, we could go up to 2.5%, certainly not over that.

Thank you. So we've exhausted the online questions. I'm coming back to the room asking if that generated some further thoughts or questions? Yes, Alessandro.

I take this opportunity then I leave everybody go into the coffee. Just on your new application for LNG, obviously, this is not the LNGM, as we know, the first one that we started. Can you tell me what type of compressors you're selling there? And I don't know if you can tell me how much R&D you have to put into that to develop it, but how sort of innovation-intensive that was and how R&D-intensive that was to develop?

So the applications, just like for the large carriers application, they are the 2 technologies, high-pressure ME-GI and low-pressure X-DF. And here, we have 1 compressor for each, whereas for the large compressors, we only have -- sorry, for the carriers, we only have the high-pressure technology. For the merchant ships, we have developed 2 different compressors, which are indeed quite R&D-intensive also because these are standard compressors. So we need to invest more. In terms of technology for the high-pressure one, we took an existing compressor, and we made it marine relevant or marine -- with marine standards. So the compressor itself, it exists already in terms of technology. But the change to make it ready for marine applications and all the different functioning points, that was quite some R&D. And the compressor for the low-pressure application, this is actually a new generation of Laby. So it's working according to our Laby principles, and it could become also a model for other applications on Laby. It integrates many new innovation that we bring to the Laby, which has been developed in the 1930s. So there are quite some innovation in this low pressure application.

Two follow-ups on that. On the development of the Marine compressor that you made, just to be sure, you took advantage of the experience done with the first.

You can be sure. We took the lessons learned from the first one.

In the first wave of -- okay.

We took the lessons, yes.

And the second one on this new Laby, can you share a little bit what is these great new things that you have implemented?

It is -- I mean it's very technical, but the form of the cylinder is completely different. Instead of having a piston, which is flat and move like this in the cylinder, which is also flat on both sides, if the piston is round, the top of the piston is round and it goes into a cavity, which is also round, and that enables to have a better efficiency of the -- for the compressor. That's the main change that we have here.

Okay. And I wanted to ask you a similar question for this -- for the diaphram compressor. I mean this is also sort of a new product that you have in your portfolio. So can you give me the same type of answer where does it come? Where does it come from? How much sort of development that you have to put in?

Here, the diaphram is produced by SYCC in China. And they've taken some -- let's say, some existing known technologies to build this compressor, which has very little innovations compared to other competitors. So it's more a [ me-too ] product on the diaphragm side, not much new in there.

And the sort of the powers and the volume throughputs and some of these type of compressors?

That's a technical question.

You don't know?

We talk about around a few hundred kilowatts in terms of power intake. 200, 300 kilowatts would typically be the small compressor for LNG fuel and diaphram compressors. This compares to -- I mean, for the solar, the hyper, we talk about 30 megawatts. So it's a factor hundreds compared to a hyper. It's a factor 10 compared to a good-sized refinery compressor, et cetera.

So I assume the volumes are the same, which is why if you are going seriously with that, you must want to sell thousands of them.

Maybe not thousands, but we need to ramp up the numbers indeed. That's the intention for this -- I mean, for the diaphragm, if we have a [ me-too ] product, then we would need to go into the numbers. And now we are testing a bit the market in Europe and see you how much -- what could be the numbers. That's really part of the new mid-range plan.

And when I take this answer and I put together with all we have discussed before with respect to what you mentioned with growing in the U.S.A., moving the capacity there where you have them, et cetera, when will be the point where you have to build a new factory somewhere and really expand capacity?

Not in the next couple of years, next 2 years, we don't need. But it's indeed a key question of the next mid-range plan, if we need to expand our Indian factory, if we need something more in Europe, that's part of the reflection for the -- maybe for the second part of the next mid-range plan.

And for the hypers?

For the hypers, we will continue to build in here.

So you will extend the throughput times to 3 or 4 years? You will not make another hyper...

What we're doing and the teams have already made progress is, first, short term the time it takes to produce the hyper. So that they take less time in the factory so that we can produce more per year. Before we could produce, let's say, 3, 4, 5 per year, but it never happens. Now we're organizing ourselves to produce 7 per year by compressing...

In Winterthur?

In Winterthur, by compressing the time it takes, which makes them also less expensive, of course, more competitive, but also because the market here -- is new this year. we now we start to work with slots. We tell customers, well, we have 1 slot in 18 months. Do you want it because somebody else is asking? And we start -- we really have to work with slots, and we will be full the next couple of years with hypers.

Maybe last financial question. You mentioned that overdue receivables are predominantly in China. And my question is, do you get them repaid anyway despite the long periods? How is your recovery or repayment rate in there?

Well, thank you for that question. Yes, indeed, we get paid. I mentioned earlier, we have about between CHF 10 million and CHF 15 million bad debt provisions over the whole Group. Maybe half of that is dedicated to China, not more than that. We ultimately get paid but we get paid late.

Probably I had one question on production capabilities. Did you experience any negative impact of the lockdowns in China for Shenyang production? Or do you expect a certain delay of that from the Chinese lockdowns in your first 6 months of your fiscal year? So in autumn, what do you expect here so that probably it will be demanding than the first 6 months in regard to production and revenue recognition?

Yes. Actually, it started already in end September, October last year, we had significant power cuts in Shenyang. So the government was calling us at 8:00 at night to tell us if we had electricity the next day ,every day during a few weeks. That was -- that had an impact already on some projects, which were moved or shifted from financial year '21 to financial year '22. So we already felt this. And now we have to catch up on this. Then later on, that was in March, we had the lockdown in Shenyang a few weeks. That's the good thing. It was not as long as in Shanghai. We had a few weeks, and this is where our employees have done things which -- I mean, they've just stayed in the factory ,during the lockdown and decided to isolate themselves and a few -- a couple of hundred of them to isolate themselves. We didn't have the full capacity, but we didn't suffer too much. But you're right, that shifted -- shifts a few projects from maybe the first quarter to the second. We should be able to recover before the end of the half year. So I don't expect at the moment a shift between first half year to second half year due to this. I expect some shift between the first quarter to the second quarter. So we catch up.

Just to understand really correctly, you mentioned these 3 pillars you have for the order intake. Third one, obviously, now the hydrogen business and the first 2 ones, again, if you could just...

Yes, they are -- just come back to make it clear. Okay. Yes. So the first -- the 2 large pillars, which have been even more important this year, gas transportation and storage, where we have all the LNG topics, LNG terminals, et cetera, and the petrochemical and chemical industry, where we have all the Labys for the chemical processes and the hyper compressors for the LDPE and for the EVA for solar panels. So these are the big 2. And again, today, number three is here. At some point, we expect this one to become 1 of the big 3. That's the expectations.

And obviously, the solar panel, that's just a one-off business? That's not going to -- I mean, we have new producers trying their best like [ Maya Parker ] or even here in Germany or -- but obviously, most of it is happening in China and the capacities are now being expanded and that were [ late ] in for a while or...

That will -- that should reach -- that would reach for a while, indeed, but it will not stop. I mean, they will continue, but as high as last year, we don't expect to come back every year, that's for sure. No question anymore from the room? No questions from the chat? Then I would like to thank you very much for coming here this morning with such a nice weather. I mean, you come to the room here. Thank you online for listening to us. It was a pleasure, and I see a lot of interest in your questions. Thank you for this. And we'd like to close this session, saying as well that Rolf and I and the team, we are available for you for questions today, in the next days and the next weeks. We want to continue to enhance the way we interact with each other and certainly come up then in November with a new mid-range plan, new financial framework. And until then, I'm sure we'll discuss about the development in the market. So thank you very much. And for the ones in the room, there is a small apparel, which is waiting outside. Thank you.

Thank you.