DEUTZ Aktiengesellschaft (DEZ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome, and thank you for joining the DEUTZ AG First Quarter 2022 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Christian Ludwig, Senior Vice President, Corporate Communications and Investor Relations. Please go ahead.

Thank you very much, Stuart. Welcome to you all in Cologne. Before we start, please note that this call is being recorded and a replay will be available on our website at deutz.com later today. Your participation in the call implies your consent with this. Joining me today is our CEO, Sebastian Schulte as well as our Head of Finance, Oliver Nord. As usual, Sebastian Schulte will walk you through the highlights of the performance of the group and then hand over to me as I will provide some more details of our financial performance. Sebastian will close the presentation with our current market outlook and our guidance. After this introduction, we will be happy to answer your questions. Please note that management comments during this call will include forward-looking statements, which involve risks and uncertainties. For a discussion of risk factors, I encourage you to review the disclaimer contained in our annual report and this presentation. All documents relating to our Q1 2022 reporting are available on our website. And without much further ado, I hand over to Sebastian Schulte.

Thank you, Christian, and good morning to all of you for our Q1 earnings call, DEUTZ. And let me start to go through our key operational and strategic developments that have occurred in the first quarter. A few things also beyond that first quarter. New orders increased 10% as we compare to Q1 '21 to now EUR 510 million and still a high run rate of more than EUR 500 million. So the trend is still intact here. And you can also see that in the book-to-bill, which now closed off the first quarter with 1.14. We had observed slightly higher numbers in the past year, obviously, but still promising that we are -- the number's higher than 1 still at this point. Unit sales, when we talk about our DEUTZ classic engines, went up 35% to almost 44,000 units. And while Q1 normally is a little bit of a seasonally challenging one due to January. But again, that was quite a good start. All the production levels have been all right, particularly given the challenges on supply chain, which we'll come to later. We produced 46,000 units in the first quarter, so slightly higher than the unit sales. That's due to transit times, that's the difference, in particular, March was actually quite positive, 18,000 units in March. So that -- we were quite happy with that. And how does that translate in revenue? 30% up to almost EUR 450 million, all inclusive here. So also a positive trend. When we come to bottom line adjusted EBIT, yes, we were -- last year, Q1 was pretty much breakeven with EUR 0.8 million. So now we close to EUR 15.8 million, which is a margin of 3.5%. So we are up 3.3 percentage points on the overall business. And as you know, we incorporated the new segment reporting beginning of this fiscal year where we are showing our classic business, mainly the diesel engines and the related service but also the green segment, and we focus here in this number reporting, we'll come to more details on the segment later, but classic profitability, almost 6%, up 4.4%. So we're quite pleased with that we are on the right track, to say it like that. Beyond the numbers, some highlights, developments. We started -- we kicked off a multiphase strategy process in the February internally with a new setup in management and Supervisory Board. And we define first targets on that process. I'll come to that later. Where we'll focus a lot of service, on pricing for the time being, but more to come. Service acquisitions, and that's the other right keyword. We continued our buy-and-build strategy when it comes to our global service footprint. So we have closing of minor acquisitions, but fairly relevant acquisition for our footprint increase here in Ireland and the Netherlands. One of the closing was yesterday. So just in time for today's call here. On the funding side, we restructured our group's funding, but we'll come to some more details later. So we are in short to advance already well pretty -- in a good position now into 2027 with that new [ term loan ], which we also closed a couple of days ago. And obviously, that's one of the challenges we're currently facing, the supply chain due to this geopolitical situation, there's one we need to mention the war in the Ukraine, but also the development in China. So that is one of the focus points for our day-to-day work. But we can say we have so far managed to control it fairly well, and we are now able as an organization to adapt fairly quickly. It doesn't mean it's easy, not at all, every day new surprises. But so far, so good. And this is why I mentioned earlier also the production levels in March, in particular, so that shows that we have learned as an organization here. Let me move on to give you a bit first snapshot for this outlook where we start in our multiphase strategy process. You will remember from our annual result conference a couple of months ago that what we are doing here is we have implemented a 3-phase strategy process. We're looking to these 3 horizons: one, firstly, the '22 to '25, very much focusing on the classic business because that's where currently our heavy load of top line is but we'll also define our target objectives for the period '26 till '30 and then the vision and targets for how DEUTZ is going to look like 2030 and beyond. And when we come to the first target, it's very important that we further increase the profitability of our classic business by '23 in particular. And the first thing we now clearly defined here in our team is our new service target. Last year, we closed with the top line in the service business of exceeding EUR 400 million. That's been a big milestone for DEUTZ because particular profitability is quite high. And we still believe there's a lot of potential going forward. So now we define the next milestone, EUR 500 million revenue by '25. So that's the target, and we are here in the course of defining and implementing measures how to get there. As mentioned earlier, that's going to be done organically as well as via acquisitions and 2 minor acquisitions. But again, relevant. We just concluded 1 in the Netherlands, AUSMA Motorenrevisie B.V. As well as in Ireland, South Diesels, which closing, as I said, have taken place. And now we are in the integration. More details on that strategy process to be presented in the course of the fiscal year as part of our regular capital market communication points. One important aspect this year for us is probably the majority of other players that are also beyond our industry is the whole situation of inflation, how we deal with cost increases, how we deal with price increases resulting out of that. And we have defined and also partially already implemented here our road map. So we see that for the last 8 months already, rising energy prices, rising raw material prices, energy prices and raw materials are not necessarily directly on our side, partially yes, but mainly also on the supplier side, and we have important and tough discussions with them. Logistics is a challenge as you all know and then certain components. Obviously, that's also reflected. So what we defined now is that we're going to increase the prices of the new engine business in the range of 8% to 12% on an annual basis. And there is obviously a challenge for us that we have this high order backlog as we will see later, with Christian will go through the details. So it's even more challenging to ensure that those increases pass through to the P&L very, very quickly, but we have significantly increased the pace here, significantly, we have significantly increased the internal cooperation between the procurement department, sales and the Board and the management in order that we really are faster than before when it comes to these restructuring of pricing and this passing on. The first round of price rises in the new engine business, we implemented already. They are effective January 1, '22, already. And we are now -- we have now initiated a second round. We had good conversations with the customers, and we feel comfortable, confident that this route is to be implemented by the end of the second quarter. But again, it's not a complaint. It's merely stating the facts with all these targets here in mind, we can see already becomes more and more possible to pass on those costs for raw materials, logistics and other factors to our customers because that's really what will make us more stable, more resilient and, in the end, better in the course of this year. The next highlight from around the past month is the restructuring of our funding. We negotiated here our syndicated loan. Before that renegotiation, the situation was that we had in place, EUR 160 million synd. loan with the duration until June '24. And on top of that, we had 3 bilateral credit lines of EUR 25 million each, rather short term, ending in February '23. You might remember that in 2020, DEUTZ secured a so-called corona credit line, which was backed by the KfW, the German development bank, we were able to return that line last year. And in place of that, we implemented those just mentioned 3 bilateral lines. But obviously, we want to think here long term -- longer term and also ensure that we have the right headroom going forward. So what we did if now we adjusted the synd. loan here just a few days ago, we closed [ old apps to reterminate ] company, those lateral credit lines. And to the end now, we are in the situation that we have to use the loan in place, increased to EUR 160 million to EUR 250 million volume. Terms and conditions have been improved. Details were not disclosed here, but again, have been improved. And we also did integrate here in the ESG component where we are looking on 2 items. One is the recordable incident rate, so like open safety KPI where we will link here that loan to that KPI. The other is related to the carbon emissions per manufactured engine. And very importantly, term now extended for another 3 years to 2027 with an extension option. So cut a long story short with that new setup, we do have sufficient financial headroom to master our day-to-day business, but also including for the organic growth going forward. And that has highlights to start with, and now pass on to Christian again who will go -- who will lead you through the numbers. At the end of Christian's part, I will take over again to give an outlook going forward. So Christian, your turn.

Thank you, Sebastian. Yes, I will walk you through our numbers in a little bit more detail, taking it off of the new orders. As already mentioned, after a very strong start already in 2021, we were able to pass that strong number again in the first quarter of this year, with number of almost EUR 510 million, a growth of close to 10%. It was mainly driven by material handling, which grew by 55% and also the agriculture segment with a growth of 46% was the main growth driver for the order intake. We also had a very positive development in our unit sales, growth of 30% and mainly driven in this case by the classic DEUTZ diesel engines. Our Torqeedo engine only grew by roughly 5% There was a seasonal effect included here. I'll come to that a little bit later. The unit sales are basically 1:1 also reflected in our revenue growth, which was also up by 30% to EUR 447 million. As a nice side effect of this development, our orders on hand climbed to almost EUR 750 million at the end of March when you deduct the nonengine related business, this still leaves us with almost EUR 675 million, which roughly equates to order backlog of 90,000 engines for the remainder of the year, which, of course, gives us some confidence that also for the rest of the year, we will have some solid business. If you look a little bit more into detail on the regional and application segment breakdown, you can see that the strongest region that we had in Q1 was the Americas with a growth of almost 60%. And this is very much linked to the strong growth of our material handling business because this is mainly a U.S.-dominated business. Also very solid was the growth in construction and agriculture machinery with both above 30% which is also reflected in the growth in our Germany, but also in the rest of Europe, which were in similar ranges. And last but not least, not to forget, the service business grew again strongly by 15%. Service business, of course, in good times does not grow as strongly as the new engine business, but the number above 10% is always a very solid development for service. So this business is especially a margin positive for us is, of course, key for us to continue to grow that part of the business as well. On the next slide, you can see our EBIT margin development. And I think the key message here is that we were able to improve the margin only significantly versus Q1 last year by 3.3 percentage points, but also we were able to buck the trend that we had seen in the last couple of quarters. As you can see from Q2 to Q4 last year, our margins slightly declined, but we were able to reverse the trend due to the increase of volume business, our cost savings, but also, of course, we were able to pass on the rising cost of raw materials and logistics to our customers. So the EBIT margin before exceptional items of 3.5% is at the lower end of our initially predicted guidance for the full year. We'll come to that a little bit later. A strong start in the year for us. Net income amounted to EUR 12.5 million and the earnings per share came in at EUR 0.10. After -- admit though that our EBIT was only at EUR 9 million. So there is a difference between adjusted EBIT and EBIT as we had some severance payments from management changes as well included in the numbers. Then let's have a quick look at some other balance sheet items. Our R&D spending increased by 16% as we continue to invest, especially in the green segment but the overall R&D ratio came down due to the strong growth in sales. So we're at 5.3% R&D ratio, which is something that we believe will remain going forward around that rate. On the capital expenditure side, you see a strong increase. The reason is that we have invested in new test rigs, especially also here in new test rigs for the hydrogen engine. And also, we have started our first investments in the establishment of a new assembly line, a so-called assembly line 6 for the Cologne plant. This is for the larger engines above 4 liter. And last but not least, on the working capital, you see more than EUR 20 million increase since the end of last year. So a growth of 8.8% as we are basically preparing for further growth, but also due to the issues on the supply chain, we want to be prepared and are building up some more safety stock in order to be called out cold. This had some effect on our cash flow development, of course. So despite the strong growth in EBIT due to the build of working capital, our cash flow from operating activities declined by EUR 7.4 million year-over-year to EUR 9.7 million. And this is also reflected in our free cash flow development, which also was slightly down year-over-year. And that also, of course, then is reflected in the net debt, which also grew slightly to EUR 86.7 million. But still, if you look at our equity and equity ratio with 45% equity ratio. We are at a very comfortable level and well above our target figure of 40%. At the end of the quarter, we had unused credit lines totaling EUR 185 million. And as Sebastian Schulte already elaborated, we actually increased that amount with the new syndicated loan in May. So we have a very healthy level of credit lines available to us at the moment. Now finally, a quick look at the segment breakdown. As you may recall, we have started since the beginning of the year to report in our classic and our green segment. The classic segment comprises all the diesel engines, while the green segment includes all the alternative drive chains that we are selling and which are under development. The classic segment benefited strongly from high demand across all application segments. So order intake here up also more than 10%. Unit sales up 35%, revenue growth only 30%. The reason is that, of course, also in the revenue, we have included the service part. And as I said before, service grew by 15% which is normal in times of the strong growth of new engine business, the service business does not grow as strongly. So nothing to be worried about. We were actually able to increase our average selling price [indiscernible] last year to EUR 7,470 roughly [indiscernible]. And especially for us, is the development of our adjusted EBIT. This grew by more than EUR 20 million to EUR 25.4 million and the adjusted EBIT margin at 5.8% is already inline for what we had expected would be our guided range for the full year. So very positive development in Q1. And finally, a quick look at our green segment. Here the situation is slightly different. As here, we still have a high invest, new order actually were down. This is due to a seasonal development. We had a very strong Q1 last year due to some [ both ] the engine sales from Torqeedo which were driven by still by corona crisis. Unit sales actually were up by 5% and revenues were up strongly by 30%. No surprise that we still have a loss-making adjusted EBIT, as we already told you before, this segment will still be -- we're investing heavily in this segment. We have upfront investments and high R&D costs. So as a result, at minus EUR 9.6 million is nothing that we're worried about. You have to expect that we'll also -- at full year-end, will have a negative result in this segment. With that, I hand back to Sebastian.

Thank you, Christian. Yes, guidance, quite a challenge at the moment in this environment to provide a stable guidance. And this is why before I mention, I'm explaining here the ranges of where we are at the moment. I'm going to talk about the current challenges in the supply chain. A lot of those aspects we have already briefly mentioned, but let me go through it a bit more in a structure again. So on the parts side, what we see and not only now, that started last year already with an increasing pace. We see increasing issues in terms of allocation arrangements in the global market. One big block is the whole electronics topic, the semiconductors, which do play an important role in our products, most notably in the ECUs, electronic control units where we are on a, let's say, a daily interaction with our customers, but also mainly with suppliers and even sub-suppliers in order to ensure here a steady flow of supplies. We -- these semiconductors are built in a lot of our parts. Let me mention a few temperatures, which is starters, generators, copper balls. So there you will -- sometimes you're surprised in how many products you have these semiconductors installed. And obviously, with that shortages, that's really a process to ensure that we won't interrupt our production here. But also other parts relating to plastics, for example, polymers, steel and even components made of steel, it's a daily challenge. But as I mentioned earlier, Q1 has been -- when you look at the numbers in the end, has been fairly stable, particularly when it comes to output 18,000 units produced in March is a very solid number. but that's sort of on the surface in detail behind that is a lot of firefighting on a daily basis. And it makes me a little more confident going forward now that how we managed to do this in the first quarter. There will be surprises and what has come with the price, you don't know exactly what it's going to be about. But of course, as it become better the management of these issues are becoming better. So that's this one aspect. Second aspect is China. And I don't mean the market. I mean, really the power outages, which were a problem, particularly in the last couple of quarters, but also the lockdowns we see at the moment there. In the news, we read all about Shanghai, but Shanghai is going to be the icing on the cake, so to speak. So we have 85 other big cities in China with lockdowns. And yes, that doesn't go that doesn't go without impact on also our supply landscape here. We have pretty -- there's pretty good visibility when it comes to our direct suppliers, also together with our direct supplier with the monitoring, the visibility is getting better for the second tier. But then at some point, you can't oversee everything. And that's what we see -- what makes it a little still concerned in the outlook of the rest of the year. Mentioned already earlier, the price rises beyond the standard surcharges for metals, which have been implemented and have been good practice in our industry for years. Now this environment is less stable. So it is more about extraordinary negotiations, both with the customers and with the suppliers. So that makes it challenging. But also here, we have implemented quite good process on both sides here of the value chain. Transportation remains an issue, particularly since the outbreak of the war in the Ukraine. Everything is sort of reshuffled. We are -- see freight becomes much more important now. But obviously, capacities are limited. Prices are going up in this sense. So that's another challenge in the supply chain, yes, and the war between Russia and Ukraine, in general, obviously, is also like a reason for these aforementioned issues to get worse. And so what we can say is there are additional challenges for us in a procurement environment that hasn't been easy before. And we don't want to sound too cautious here, but I think it's safe to or it's important to be realistic. And because it is -- what it least does, it limits the visibility. And we can assure you that we are working with all forces on managing the situation and the numbers in Q1 tell that this is successful. But the remainder of the year will become here -- will remain challenging. So this brings me then to the guidance and no change to what we said during the Annual General Meeting as well as the Annual Reports Conference for '21. The guidance for '22, we still have here under review, subject to change, as we say. We developed it in February with the unit sales of 165,000 to 180,000. And if you extrapolate the numbers we've delivered in the first quarter, we see we would be in that range, but it comes all against the uncertainties I just mentioned. That would translate into a revenue range of EUR 1.7 billion to EUR 1.85 billion for the group; classic EUR 1.6 billion to EUR 1.75 billion; Green EUR 75 million to EUR 100 million. That would translate into the range, 3.5% to 5.5% overall. Also here in the first quarter, we were on the lower end of that. But again, Q1 is due to the January effect service business but also new engines normally rather difficult one from a season point of view. Classic 4.5 to 6.5%. Here we are in Q1, as I mentioned earlier, in the middle of the range. That's promising. Free cash flow, low to mid-double-digit million euro amount. Christian mentioned it earlier, we see, obviously, on the -- we see the EBITDA improvement in the free cash flow, but working capital is an important KPI-wise. However, due to that challenges on stability of supply at least the inventories are not in the financial focus right now. The inventories are in the focus of stability of supply. And that's why we are here a little more cautious. But again, this is something which I'm confident that we'll get a better growth in the course of the year. However, having said that, this would be the guidance without those challenges. But as we still have these challenges, we put it still under review. We keep it under review, and we will inform as soon as we have more clarity on the profit development for the rest of the year. Let me conclude after having mentioned all those topics, we remain on track. The first quarter was a solid one. There's still a long way to go to move towards our midterm targets. But we have achieved a lot of important milestones in the operational business, but also beyond the operational business, mentioning our funding, for example, is just another topic out of the way. And that makes us being able to focus even more on the one hand on the day-to-day business, but on the other hand, also on the development and refining of our group strategy that we defined despite all those challenges we have in the short term, but we don't lose sight on the development of DEUTZ in the middle of the long term. So we are here on good track. And to that since I'm thanking you very much for your attention. And as usual, we are open for questions.

[Operator Instructions] First question is from the line of Jorge González Sadornil from Hauck Aufhäuser Investment Banking.

Three questions from my side, please. The first one will be around China. I have noticed you have not included any reference, but equity income in the quarter was quite positive from a point of view, only EUR 0.8 million negative compared to something around EUR 5 million, I think, in the previous quarter. So I was wondering if this means that you have been able to limit the loss of the joint venture with SANY? Can you elaborate a little bit on this and provide us the volumes for this quarter in China and your expectations for the rest of the year. Then regarding the order evolution, material handling and agriculture are the strongest business units at this point. And I was wondering, especially for the agriculture business, if this strong evolution has something to do with the partnerships that you closed with ASKO and SDF. If you are still seeing some improvement on the business because of these partnerships. And finally, it would be interesting if you can comment again on this better scenario to increase prices? I have not really understood well the driver here for you to be able to pass prices better than before. Is this because the demand remains very strong or because companies now -- your clients are now understanding that -- sorry, your -- yes, your clients are now understanding that you really need to increase prices at this point?

Yes. Sorry, let me start with the last one, and then we'll move backwards on the prices and on the price increases. I think it's a combination of a lot of things. The first thing, as you said, as you implied, is yes, the customers understand as well that the world isn't as it was before. And yes, we see that currently, we still have, as you've seen in our numbers, we have a book-to-bill exceeding 1. So demand is still strong. particular for '22. I mean we have a high order backlog. Our customers have a high order backlog in their end applications, partially even higher order backlog than us, at least that's what we hear from them. So there are shortages on all sites. And then an engine isn't a commodity, which can be easily replaced by a different one, by a comparable one from a competitor sometimes that's an argument from the customers, but it's not the case like that. I mean we have a certain pricing power. We just need to use it. And so we are getting better able to use this in the current situation, where, obviously, the market environment is favorable for that. That's -- so on one hand, mindset change on the customers, but also on our end, it takes the time to teach everyone in the organization that situation has changed. And in the last years, we in Europe, in particular, have been sort of confident or have been had a comfortable environment in terms of stable prices, and that's not the case anymore. And nowadays, there is more room for negotiations. You just need to use this momentum. And what we have done is, as I said, we have launched first round effective 1st of January. And now we put in another round. And obviously, no customer is happy about that. We wouldn't be happy either. But in the end, everyone sees the necessity and using this momentum better and better on a sort of almost daily basis. So that's in terms of the price increases. Coming to your first question, China now, it's correct. The equity growth was minus EUR 0.8 million and Q4 '21 was significantly worse than that. We did have the Q4 '21 few extraordinary items when it comes to some quality issues in China, that's -- we have fairly under control right now. So -- and the volume, the business volume is still fairly low. It's like below 4,000 units, 3,000 4000 units in the joint venture in Q1. And what point makes me positive is that on that whole level, at least, we're almost breakeven. But obviously, we are really hoping and building that volume increase in the course of the year. I think demand is one thing on the truck side, in particular, there, we do see some first positive signs on the horizon. But the question mark is the whole situation on the lockdowns in China. So the visibility in China is fairly difficult. And then there was, I think the next -- the final question was on our corporate actions and the business in the agricultural sector, right? So we have, as you correctly said, entered into those new contracts with such customers. These are mainly propagation of existing contracts where we increase our business. I'll say this is already reflecting in the quarter. This is more or less due to the general market development in the first quarter. And as I said earlier, in the context of price increases, the agricultural sector is still also quite bullish when it comes to the rest of the year. So obviously, we are looking very cautiously on their behavior after this geopolitical changes or challenges. But at the moment, they are still fairly positive. I hope that answered your questions, Jorge.

Yes. One follow-up on the price on the price increases. Can you tell us more or less the range of the price increase in the first quarter. Well, that was implemented and we saw in the P&L in the first quarter and the one that you are planning to do in the second quarter, please?

I won't go into those details because, obviously, now we want to give a range of what we see as a full year basis, but it's a highly sensitive negotiations with each of the customers. So I have to -- I'm only able to tell you on the grand scheme, we are aiming at the range provided.

Next question is from the line of Charlotte Friedrichs from Berenberg.

Three, if I may. The first one would be the feedback from your customers about how your price increases compared to those of peers? Second question would be around changing prices for your order backlog, which is something that we're increasingly seeing now with some of your customers as well that they are adjusting the pricing wherever possible for the backlog? What are your thoughts on this? Is it at all possible? Is it something that you've looked at? And then finally, can you give us an idea of how the order intake has developed now in the weeks of the second quarter that you can see so far? Is it still strong? Or has that been somewhat of a weakening?

Yes, Charlotte, first question on reaction of the customers and yes, as I said, I [indiscernible] understanding, no one is happy with the price increases, but we do have constructive discussions with the vast majority of them because we have good arguments for our points, right? And so that's important. Do they compare us with competitors or other suppliers? Yes, they do, and they feed us back numbers as well. But we need to be careful [indiscernible] development with those feedbacks. So I would rather report [indiscernible] much more aggressive than others. So I think we are here in a fair range in the sort of industry standards. When it comes to order -- when it comes to order, we [ see ] development, we, let's say, at the moment, a slight flattening, but still the tendency is still book-to-bill exceeding 1. But as you -- I mean the reason for your question is we look at that very, very carefully as well. But at the moment, it's still fairly positive. So which is why we keep being confident, at least in the next month. And so the challenge we currently see is not necessarily the market, they're the challenges involved at supply chain.

Okay. And the price changes for backlog, I may have missed this because the line was bit patchy.

Yes. No, of course. [indiscernible], but we are also discussing your models for deliveries in the future regardless of when the order intake was booked. But you can imagine, negotiations they're increasingly difficult. But again, if you have good reasons and good arguments and you have a good long-lasting relationship. As our experience that you find solutions, which in the end are good for both parties. And it's not only about improving our situation. It's also about improving their situation now because our end customers are also participating in price increases. And so in the end, you want to defend to say the least, your relative positioning in the chain and the complete value chain, and that's what we're aiming at.

[Operator Instructions] Next question is from the line of Richard Schramm from HSBC.

Yes. Just a follow-up on this price increases. I mean, looking at your strong record high order book and your remark that there's, of course, a certain delay in pushing through these price increases as obviously customers are hesitant assistant to accept that price adjustments are made for orders already placed. Is it a fair assumption that there is even a widening gap between the price increases becoming effective so that we have to look for maybe about 6, 7 months or so before price increases really become effective you are implementing now?

Well, it's change chain. You're going through a not a change. You're going through waves. And we are benefiting at the moment mainly at the moment in the first quarter, mainly from the wave we kicked off last year in the second half. That's true. And now we have kicked off the next wave. And as I said as a response to Charlotte's question, we need to -- and this is one of our focus points here. We need to also address the order backlog, in order to reduce the length of these waves. And time will tell, I tell, but we remain fairly confident that we are shortening here the time with our new initiatives because we have put quite a big emphasis on it. And that's also the reason why we communicate that here openly.

And then also question on China. What is exactly the current situation there in your own production and also in the joint venture? Are there restrictions currently? Or is production running relatively normal and unaffected from these lockdown measures?.

Nothing is unaffected in China at the moment. Our own operations in Tianjin are least -- or have been only affected very, very short times for really lockdowns. Some weeks, the team's workers had pretty much camped in the factory in order to keep the operation running, that's something a lot of companies do at the moment. So the Tianjin's region is not directly affected in terms of lockdown so far. Our headquarter or local headquarter is affected because it's in Shanghai and the Shanghai, majority of the city is locked down. So here, the teams are working in their home offices, which is possible in the headquarters, but it doesn't make it easier. The joint venture with SANY is so far fairly stable. There's no lockdown at least, but also here the impact more from the supply chain, the availability of parts. But as you can imagine, this is -- it's very difficult to make here a stable prediction because these are regional lockdowns or regional developments, they happen also quite sudden. And sometimes you believe, okay, your part is stable. And then from 1 day to the other, it's not. But so far, I would say we managed to get through there without as that impact as one could have had. But again, China is at the moment, low visibility on that aspect.

Yes. Okay. And last point also on China. I mean you just started, I think, 2 years ago, an initiative to source more from China, obviously, due to the attractive pricing levels you could achieve there. But now, quite obviously, it appears that this has turned into a risk and not into an advantage. Are you already scaling back on this? And are you able to offset missing supplies here with other sources?

No, we're not scaling back. And I think it has been the right move to focus also on more sourcing from China, particular also making use of the own organization we have there. But what we need to keep an eye on is, obviously, what kind of -- are the relative cost advantages or disadvantages between the regions, China and Europe, in particular, when we talk about supply landscape, how static are their whole dynamic. And that's part of dual sourcing of the best-cost country sourcing that you always update the assumptions in your business cases. That's what we're doing. But there's one thing that, obviously, we do that for price advantages, for cost advantage. The other thing is also we believe in that business, we are in with the combustion engine and obviously, scale risks on the supplier landscape in Europe also because of that development in those products for the automotive. We need to focus on multiple sources, and that involves countries as China. So we keep a high focus on that. And actually, we are also on track when it comes to delivering, fulfilling the plants we built but we can't rely on that one. We can't rely on that region. So we cannot say, okay, in the future, we're going to source, let's say, all the parts from China because the geopolitical environment is changing. So we need to be really -- we need to keep on these dual sources. We should avoid moving something completely to China. But I believe also the development of the supplier landscape is something which will be very interesting strategically in the next years, not all the players have made up their mind completely on that. So when -- typically, when one door might close or it might be more difficult to go through, another door will open. We have to keep our options open and that's what we're going to do in China. Again, it remains a very important market for us, both for the supply landscape. But also on the customer -- on the revenue side. But an important market doesn't mean the only market. As you saw in the numbers, which Christian presented earlier, we are very strong in the European market. We have a very, very strong footprint there. So we also build on our strength, but not, obviously, neglecting the opportunities in China. We are a global company, with a European core and chances in China, and that's what we're going to keep for the future.

We have a follow-up question from the line of Jorge González Sadornil from Hauck Aufhäuser Investment Banking.

A follow-up on Torqeedo. I have read in the release that you are still not in breakeven in Torqeedo. And I was wondering what are the reasons for this? It is related to the lead times? Or if there is any other reason? And what are your plans to improve the profitability of Torqeedo, taking into account that the demand -- the orders for Torqeedo are starting to going down what are your plans to improve the earnings for this unit? And also, I was wondering if you can give us some feedback on how the orders evolve during April, that would be very useful.

Yes, it's Christian, I'll take this question. Yes, of course, Torqeedo, we had a weaker start into the year. That is correct, but that was expected as we had a very strong Q1 last year, driven by some corona-related purchases. So what we said at [ DEUTZ ] full year figures, we expect Torqeedo to break even this year is unchanged. We will see -- we expect a positive in the remainder of the year.

And I think your question on April was not on Torqeedo. it was around first quarter.

Yes, in general, if you can give us some insight on what has happened this last month in terms of orders for the group. .

Yes. I mean, obviously, these numbers are not yet confirmed, but I think I mentioned earlier already that the [ tender ] base still a fairly sort of positive trend that we have still -- we have -- we don't see a disruption in the demand. We don't see a disruption in demand. As I said earlier, the challenge at the moment is more the supply chain than the market for the current quarters. And what will be the interesting question is obviously '23, '24, but that's far too early to say. But Jorge, we have to defer your question to the next earnings call when we have reliable numbers and audited numbers, which we are willing and allowed to share.

[Operator Instructions] So there are no further questions at this time. I would like to hand back to Christian Ludwig for closing comments. Please go ahead.

Thank you very much, Stuart. Yes, thank you all for participating, and thank you for your questions. If there should be any questions left, please give the Investor Relations department a call. And for rest, we'll talk to you at the latest with our Q2 results in early August. Thank you very much, and goodbye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.