WashTec AG (WSU) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of WashTec AG, at our customer's request this conference will be recorded. [Operator Instructions] May I now hand you over to Dr. Ralf Koeppe, who will lead you for this conference. Please go ahead.

Thank you very much, ladies and gentlemen. On behalf of WashTec Board, I would like to welcome you to the Q2 and half year presentation of 2023. My colleague, CSO, Stephan Weber; Head of Finance and Controlling, Sergej Wolodin are attending the call. Dr. Kerstin Reden, CFO, is on vacation. As you know, in Bavaria the summer school vacation starts tomorrow, and WashTec will also be closing some parts or most parts of the production during the first 2 weeks in August, as the years before. Slide -- next slide, please. Some short news update on Waste before I will present the financial figures. Slide 3. Let me summarize our business model to take everybody on board. WashTec is the leading provider of innovative solutions for carwash worldwide. Our product range comprises all types of vehicle wash equipment as well as the associated peripheral devices, wash chemicals and water reclaim systems. As specialists in environmental-friendly vehicle wash systems, we work continuously on innovations that contribute to sustainable mobility for today and tomorrow. WashTec also offers comprehensive servicing packages and digital smart service solutions, spanning the entire product life cycle, including equipment maintenance, chemicals, equipment take-back, financing arrangements and operator management. We go to next slide. Furthermore, let me provide you with an update on impact of the supply chain situation. The situation remains tense as already indicated at our last earning calls. So things are pretty unchanged. The situation requires constant efforts to secure supply chain with highest priority, and we process high volumes in the production and our efficiency is reduced and some machines get the one or other final part just before shipping. The upcoming closing weeks are helping us to increase the efficiency. And of course, we are using this time and continue to complete and ship machines. Our customers have acceptable delivery times for most of the products, but often battle themselves with the difficulty to complete the preparation of the site for the installation. With our supply and demand planning system, we produce the machine only when the installation site is planned to be ready, when we have the information available. In summary, the coordination effort is very high. Slide 5. As announced, we have published our sustainability report 2021. WashTec aims to provide full transparency on its sustainable business activities contributing towards addressing the challenges facing society today. We have adopted sustainability strategy encompassing economic, environmental and social sustainability, which is presented for the first time in a comprehensive report. Proceeding beyond prior success with environment, frankly, carwash equipment, we have published now targets and measures for our sustainable business activities. Furthermore, the report delivers insights into our corporate culture embracing agility and diversity. As already presented at the last earnings call, our goal is a 30% reduction in CO2 emissions per tonne per million euro turnover in our business activities by 2025 on the base of year 2019. Our recommendations, please have a look at the report. It provides a lot more nonfinancial details about our company. We are looking forward to discussing our ESG program with you. Slide 6. We have redesigned our Investor Relations homepage to have a look with the goal to speed up navigation and access to important information about WashTec. We appreciate your feedback and further suggestion. Let me now start with some details on performance in the second quarter before I then turn to the half year results. We are now at Page 8. For the second quarter, group revenue was EUR 119 million, up 8% year-on-year, especially key account business and double-digit growth in chemical sales contribute to the revenue growth. Direct sales remain on the solid prior year level. As a result of the time lag between the material price rises and our own price increases, second quarter result was significantly impacted by increase of material costs. As mentioned, WashTec made price adjustments already in the last year based on the expected cost increase. Ukraine war and lockdowns in China led to further price rises. The company reacted on it with additional price increase for our products, but due to the fact that the revenue recognition from order backlog takes 4 to 6 months, the latest price adjustments are still recognized to the P&L yet. Due to challenges in regard to the availability of materials, we can't perform our production process in a high efficient way, so this creates additional costs. Furthermore, it has to consider that the business in the first 6 months, last year, were still impacted by COVID-19 restriction. This year, WashTec attended several trade shows and travel activities are also back to a normal level. All those effects lead to a decrease in the second quarter results. Q2 EBIT was at EUR 8.3 million. EBIT margin was 7%. Considering all the impact, we are at least pleased that the company was able to fulfill all the delivery obligations over the last 6 months. For the second quarter, free cash flow after lease payments was negative with EUR 1 million. The situation is the material shortage requires higher safety stocks to make sure that we can perform our business also in the next months. This fact and lower result of the quarter impact our cash flow compared to the last year. Looking now at the development by product category on the next page, Page 9. Revenue from machines and service was EUR 101.5 million, up 6.4% versus prior year. As already mentioned, mainly business with our key accounts contribute to the revenue growth in this area. Revenue from Chemicals in Q2 was EUR 15.9 million, up 21.4% year-on-year. We were, thus, able to achieve clear double-digit growth in this area in the two consecutive quarters. Moving to the performance by region in the second quarter. This is now Page 10. In the second quarter, we saw a moderate growth in Europe. Equipment and Service revenue was broadly level versus the prior year, while Chemicals revenue once again saw double-digit growth. EBIT was EUR 9.9 million was below prior year. This was a result of all the effects we already mentioned for the group EBIT development. The region nevertheless showed a double-digit EBIT margin of 10.6% in the second quarter. Let me just have a break until the police has gone by. Okay. Looking at North America. Revenue in North America was EUR 25.5 million, up 44%. All product and customer segments contributed to the positive trend. In line with the trend across the group as a whole, this region was also negatively impacted by cost increases, especially in the second quarter because of the significantly larger share relating to key accounts, for which a price adjustment would only be implemented starting from June 2022. In conjunction with the high material cost share. It was not fully possible to offset these effects with the increase in revenue. Looking at Asia Pacific, second quarter revenue development in this region was negatively impacted in particular by the prolonged lockdowns in China and result in a 15% fall in revenue and lower results. Next slide, #11. You can see the performance of the second quarter over the last years despite all the negative effects I described above, WashTec outperformed the revenue result of the precrisis year 2019. Coming now to the half year results. On Page 12, you can see the development of revenue, EBIT and free cash flow from 2019 to 2022 for the first 6 months of the year. For the first half year 2022, group revenue was EUR 220 million, up 12.8% year-on-year. At a constant exchange rate, the revenue growth in the first 6 months was 10.3%. The growth is mainly attributable to the sharp increase in business with major customers and the extremely positive development of the Chemicals business. Direct sales business also developed positively in the first 6 months. Looking at EBIT development. EBIT was EUR 12.9 million, down 28.3% compared to last year. As already mentioned for the development in the second quarter was mainly caused by the time lag between material price rises and own price increases as well as by normalization of the business activities like trade fares and travel after years impacted by COVID-19 pandemic. EBIT margin was 5.9%. Cash flow development was impacted by a significant increase in inventory, future safety stocks in regard to uncertainties on the material markets. Next slide, this is #13, shows some more details to explain the EBIT development compared to the prior year. As you can see, the main impact is coming from the gap between recognized price increase and rise to material-related costs. Selling expenses increased is mainly driven by volume-related increase of freight costs. In addition, there was an increase in trade fare, which were not incurred in the prior year due to the pandemic situation to secure the company's long-term growth, WashTec invented as planned -- invested, sorry, as planned in expanding capacity in this area during the first half year, I have to say that most of the fares have been in Q2, and there's only one left. So this will then also show in the next upcoming quarters. Let's have a look at revenue by product category. This is then Page 14. Revenue from Machines & Services reached EUR 185.4 million, up 11.7%. year-on-year, the growth in this area was mainly driven by a significant increase in the North American region, but also our relations developed positive compared to prior year. Revenue from chemicals was EUR 31.6 million, up 22.5% versus prior year, especially development in Europe was significant above prior year. Now we are moving on to the performance by region. This will be Page 15. Revenue from Europe was EUR 174.8 million, up 7.2% year-on-year, mainly driven by key account business and chemicals growth. EBIT development was impacted by already described FX in regard to material price and availability as well as additional cost in regards with normalization of business activities. For the year '22, we expect the revenue growth of 5% to 6% and EBIT slightly below prior year. Continuing with North America, this is Page 16. Revenue was EUR 43.8 million, up 50%. In U.S. dollar terms, revenue increased by 35%. Both product and customer segments contributed to the positive development. Generated loss of EUR 1.3 million is mainly caused by the lag between material price rise and own price increases, especially for key account business. In addition, earnings were negatively affected in the amount of EUR 0.9 million by a significant increase in health insurance premiums. For the year '22, we expected further growth in this region, EBIT increase compared to the adjusted results from the prior year. You may remember last year, EBIT was positively impacted by nonrecurring items in the amount of EUR 2.7 million coming from government subsidies. Asia-Pacific, this is now Page 17. Revenue was on the prior year level. Positive development in Australian market leads to a slight increase in revenue development in China was impacted by the lockdowns in this region. EBIT is stable, mainly due to a solid performance in Australian market. Coming now to our main balance sheet KPIs. This is Page 18. Net working capital went up due to increase in inventory with regard to the safety stocks. Upper KPIs, like DSO and DPO, were improved, but not able to compensate the inventory impact. This fact impacts also our cash flow development. And in the consequence, together with the dividend payment and increase in the net bank liabilities. Equity ratio decreased to a ratio of 24.7% due to dividends payout. Closing with our guidance. This is the next slide. We adjust our guidance about -- we adjusted our guidance about 1 week ago. We now expect revenue to increase between 10% to 12% prior 5% to 9% and an EBIT ratio of 8% to 9% prior double digits. Like many companies, we are currently facing supply chain challenges due to a shortage of raw materials. In addition, a situation in regard with the gas deliveries in the remaining months of the year, increases the uncertainty in the general outlook. Our top priorities continues to be to maintain lead times and avoid business interruptions. We have managed this wide growth so far. Our guidance assumes that we do not face significant business interruption due to a shortage of materials as well as no material impact from a potential gas restriction. With that, I'd like to open the floor to our Q&A session. Thank you for your attention.

[Operator Instructions] And the first question is from Alexander Galitsa from Hauck Aufhäuser.

I'd like to start with the outlook for 2022. The new outlook, basically, the midpoint suggests that $6 million less EBIT than you previously had expected, even without sort of adding anything from the higher top line you now guide for. I guess what you say the cost -- input cost inflation, selling -- mismatch between selling prices and input costs. It all does make sense, but I guess it's not entirely new, is it? So evidently, the magnitude of the mismatch, I guess, came to -- came as a surprise to you. So I would be interesting in sort of knowing what came as the biggest surprise to you? Is it really the magnitude of the input costs? Or is it really about your ability to realize higher realization prices? So to speak.

So first of all, no material shortage and price increases have been also in 2021, yes? The price increase is due to Ukraine war, which has been also significantly in the market, but not on our risk chart, yes? That was a surprise to us. We reacted, of course. And one topic is, of course, that we have a huge order backlog from which we work and this order backlog, of course, is filled up with direct customers that have a shorter turnover time where price increases can be realized faster. The tenders with the key account customers, of course, have to be negotiated and were negotiated step-by-step, but come in a little bit later. And that, altogether, gets this display and mismatch, but I can hand over to maybe Stephan to give you some ideas what it means to put the price increases through and how successful we are there.

Yes. I mean, one factor is definitely the price increases and as Ralf outlined very clearly. I mean the Ukraine crisis was by no means known, nor budgeted. Hence, when it came, we had another hike that we didn't see coming. In other words, I think we have uncertain articles, we had a massive explosion again, which we can see now normalizing to a certain extent. However, currently, we are really hit by these situation shortages. And we also should not forget something that really when you say what is the mismatch? The mismatch also is that the inefficiency that the nonavailability of these parts create not only in the plant, they also go out in the market, in other words, it becomes very difficult to plan installations these sites, not only from our side, also from customer side. They cannot get the material. They cannot get the people in place. Hence, the projects are delayed. We have sometimes multiple reasons why we have to visit a site where we usually would go once. And plus also in the factory, we have clear inefficiencies due to the fact that we cannot finish the machine in assembly as we plan to. And the majority of these, let's say, mismatches came basically with this new impact of the Ukraine crisis, which really created another level of, let's say, inefficiency all around the supply chain until the final customer. To add one more comment. And immediately after we saw this we already decided again to have another price increases, we might have another one in autumn, the way it looks like. I mean because we are always listening behind, but we have no Glasgow holiday that we know where it's heading. But currently, we know the negotiations we are having here with the unions and everything that is coming is changing to us that we cannot avoid another price increase in the autumn to also be prepared then for whatever might come.

What Stephan is saying, adding this as a hint, of course, that the price increase, and we don't want to give details on this because this is, of course, competitive knowledge, which we do not want to here put on the table. But our increases and those doing this step by step, we still have a high order intake. So on that point of view, we have not destroyed the dynamics in our incoming orders. And that basically tells us we have to run a high volume with a little bit less efficiency, and that's causing also a contribution to that end.

Just to confirm on that last point, so you're also saying that your price increases, they are in line with what you see across the market from other players or not necessarily?

In general, what we see from other players, I mean usually, we are the ones acting first. But then since we are the biggest deal also monitor closely, so many are following. So I would say the chicken and egg question is difficult, but I think we are laying the eggs and then the chickens come in other words, this is the dynamic of the market. And we have not seen anybody putting harder, let's say, harsher measures than us. So in other words, we are riding this really at the level that I said that we are like this is also backed by the [indiscernible] we stay whether in competitive in the market by yet being most of the time anyway, the most expensive in the market. And trying to measure this and put it in a way that we still have sufficient order intake. So we are specific about that.

Okay. This is understood. And then maybe another question on the sort of gross margin dynamics. So in H1, you mentioned that the mismatch between input costs and prices cost you round about EUR 4 million. Now when one looks into Q -- sorry, H2, how strongly is the pricing in your backlog detached currently from the prevailing cost environment. So what would you -- what would be your expectation for the second half? And maybe based on that in terms of what margin would you expect?

If you look at it to the next quarters and the margin development of it, we expect to increase compared to the second quarter. The revenue recognition, especially from the direct sales in combination with, let's say, additional price increases we made in last month will lead to the situation that we will cover, let's say, price increases compared to the prior year situation, except to say, the possibility of further increases, especially in the fourth quarter, we will be above such increases. The plan at the moment is what we've seen or the other and yes, let's see [indiscernible] large, but it's actually the best knowledge we have.

Okay. And maybe lastly then on the digitalization initiatives. If one looks in the past, maybe almost 3 years now, 2022 being the third year, you've been consistently investing more into R&D I think over these 3 years, you would cumulatively invest EUR 15 million sort of more than you used to historically, which is basically EUR 5 million less EBIT in the last 3 years in other words, but you don't really mention much in the report about the digital initiatives and what it means going forward. Is there anything relevant you could share and provide more color at this stage? Any successes, wins, et cetera, that you would like to mention?

Yes, maybe we didn't focus too much on that for the supply chain crisis and so on. But of course, digitalization goes on very well also in the -- how many machines are connected and also we are increasing efficiency in the services and operator platform, now is available for the customer. So we have the premium package. But of course, then there's the question how do we get the revenue from that? Or what is the strategy on this? And we're working on a better, let's say, presentation of benefits of the digitalization. We have not prepared yet, but I understand your questions. But the positive sense is that with high dynamics, of course, we have increased the R&D budget in terms of pushing the SmartCare, but also pushing digitalization with both topics. We go on in a nice speed, but still physically in the R&D department, we have a lot of R&D people helping to secure the supply chain and changing parts, especially on the electrical side, whereas the digital teams are nicely going forward because they are not in this game, they cannot materialize. And we have successfully deployed other service functionalities, which drive the efficiency. So from that, I'm satisfied. But the question, of course, Stephan can also tell you a little bit about the competitiveness of our digital solutions. But that's the current statement. Yes, Stephan?

To a certain extent, to answer your question, the way I look at it for the time being, we have also displayed this on all the shows that we have in Europe this year in Italy, Spain, in particular, also on the UNITI show in Germany that the digitalization and sustainability is what WashTec has to offer to the operators. And I would say the larger order intake that you see, particularly also the larger customers who are the ones are also benefiting from the current energy prices, also has to do that they see that we have a partner to deal with for the future, in other words. So we will -- all this more business that we are getting also the larger market share out of this, let's say, part of the wallet. We'll, first of all, start with installation and supply and in the long run in service contracts where we can play them pretty smartly and with less efforts once these machines are installed than we used to have in the past. And as such, also then we -- I would anticipate a significant impact also in the P&L. We're onboarding issues is always a question in the service CapEx. What is the effort that you have to spend for the money you get and this is the help of digitalization. I think we are far better off now than we were like 2, 3 years ago. The efforts are less, and we can handle these duties better. And then I would also expect an impact here in the P&L. Whereas I'm seeing it already in the order intake because it makes an impact that we offer something that the market considers as important at this point in time.

And maybe just one follow-up. If you would be able to provide sort of a ballpark guidance for R&D expenses going forward 2023, '24. Are you expecting them to sort of normalize towards the more historical levels of EUR 8 million, maybe EUR 10 million? Or do you expect them to really sustainably stay above EUR 12 million to, EUR 13 million, EUR 15-plus million?

I think, first of all, with the innovation ideas to drive the market, we would stay flat in the R&D. Of course, if we have considerable possibilities to activate, we can make use of this. But that is, of course, now a question of how we guide the company into the year 2023. And as you know, this is a good order backlog. 2023 is somehow working, but we have to see how order intake in the next months, Q3 and Q4 is coming up. And you know all the discussions about inflation and possible recession, which I -- from our perspective, is not visible, then we'll give us a clear indication to the planning of the budget of 2023, which we are currently also, let's say, working on the framework, yes.

The next question is from Stefan Augustin, Warburg Research.

Actually, my first question goes a little bit into the same direction as the predecessor. I'm looking actually at Slide 13, and I have opened the same slide from the last quarter. And so my question is, let me go back on the end of April, the Ukraine crisis was out for 2 months already, and we have seen steel prices on the spot market jumping up and reaching actually the top somewhere in March. So my question is exactly to understand what in that quarter created the delta versus your original budget to adjust the guidance? Because my thinking is like you would have seen or you could have expected a bit of the price increases by end of April already. And you have the pricing seen as well and you know actually what kind of your backlog you were able to negotiate. So the question is, what has been the delta versus the original budget in Q2 that made you come up with the profit volume?

Yes. As you know, when we look at the April, yes, of course, the Ukraine war was then, but we had secured steel prices until the summer. And of course, the realization and the contracts to negotiate that has been some part in May and so on in June. That's where a lot of activities there. China lockdown has been okay with us, but still, we see a lot of products on the electrical side. I'm not talking about semiconductors, but on the electrical side coming in, and it's still not -- when you look at the material prices, which, in steel, aluminum are now going down, but this effect is raw material market pricing is not shown in the products that we use to build the machine. And from that, this dynamic increased significantly. And also the efficiencies, let's say, that we have to complete the machine. This is -- has increased in Q2. And also our customers, we don't get any people to finish the sites. So we see actually a higher dynamic in these problems as the years before and also as Q1 and this reflects our guidance change.

So if I sum that one up, is it roughly correct to calculate like this, the inefficiencies is something that we would expect to stay roughly in that kind of amount for the next quarters as well versus your original budget. And then you see it's a little bit of a time lag. So there is still some material prices coming through, but that will be, let's say, over by the end of the year. And then we would be back and all the rest is, let's say, a wish-wash left and right side, nothing really of importance. So that's the two items we could concentrate on?

That's the plan, yes? Given that the market somehow are intact and still work. But to -- let's say, to make a calculation of these effects, these calculations is quite difficult to make. That's why we took a long time also to get the forecast and see you how EBIT will then be planned in Q3, Q4, considering that we can deliver and on. It's not a effect that we can calculate on one piece of paper by some linear combinations of things. So there are too many factors playing that in, and we really had to go through all the orders and do the summation of the calculation to come up with forecasts.

From the market point of view, it is -- I have honestly not seen this before ever in my career that we have here a situation where sometimes we would be able to deliver, but the customer can receive the machine and vice versa. I mean this is such a mix up that we are planning more or less we have not a planning horizon more than a week in other words, that but also we have work in progress at a level that we have never had before because things are just not plannable to a certain extent. And coming back to your initial question, I would say, until early part of this year, we always were able to deliver more or less at the time and the customers were able to receive at the time that we had foreseen in the time line of the project management. However, in the meantime, we have -- the exception has become the rule. At the end of the day, we have to question every order that has to leave the factory here and coordinate with the customer, whether on both ends, it was wise to send the machine and staff to install it, to a magnitude that I personally have never seen in the past. I mean we, of course -- we hope that this will improve. I would say it hasn't gotten worse since, let's say, March, April, but it is nowhere near to a normal level, to be very clear on that.

And the idea, just to mention, we are working on the highest volume ever at WashTec. So it's not that we have just to do that so we can meet in volume. So we are looking at record highs at processes under the circumstances. So this creates some challenges. But however, I think compared to other industries, we are doing okay, I would say. And I expect that we do this also in Q3 and Q4, but we -- it's a week-by-week thing.

Okay. Understood. This -- the guidance is actually -- has the exempt of gas shortage. And I think it's at least clear that the prices for gas will go up. Could you put, let's say, something like a value at risk for higher gas prices on your business? Or What do you currently, let's say, calculate on the usage? I mean we do not know if something in the supply chain breaks down, that's for sure, just your own business.

Yes. First of all, we don't heat with gas here in Germany. In the Czech plant, we have gas. So we're looking currently towards the landlord there, how we secure that, but that's only heating. We have one process step that is reflected with gas affected this in the paint shop. And we currently started planning to go alternatives on liquid gas. So that means every 3, 4 days a van comes and fills up the tank, but the tank has to be built. And in addition, we plan to reproduce stuff, which is reflected in the net working capital with some stuff. So it's a double kind of secure approach on that side. So -- with that, we are okay, but I had discussions also with the other [indiscernible] and other companies' CEOs and so on -- with the gas shortage the impact I would expect would come from the supply chain that other parts have a problem is also the plastic industry, the canola and stuff like that. So this is a factor, but I think we cannot solve that in this call. I think we should ask politics and economics and the broad majority of companies assuring that I have not a special detail for you besides what I just told you on that.

All right. Understood. To the more positive elements, the green line and the possibility to get equipment under the taxonomy. Can you give us an update? And if that something that would be, let's say, especially interesting for your key accounts.

Okay. Understood. So in taxonomy, goal 1 and 2 have been established and now goal 3 and 4, which is water and recycling or [indiscernible] cycle economics have been established. What we can show as revenue that can be -- that falls under the taxonomy we're still working on because also how these things have to be certified and so on is quite difficult. But especially when you look at the big year counts and we had contracts with some of the big ones we have talked about this, our strategy to be able to guarantee a sustainable wash in terms of water volume usage in terms of that the water reclaim system is working well and properly is very well appreciated by these and is also required actually by these key accounts. So we see a match on that. And of course, digitalization helps also on that side. And there is some -- on the technology development part, some stuff that we seriously are trying out on real data, on real sites this year. And strategic wise, I'm very confident that we are pulling the right trigger, but, Stephan, I can also tell you a little bit about maybe the key account view on sustainability and on EU taxonomy. Because this would mean, just to summarize that, let's say, the car wash business that we can prove that it can be sustainable and then we could basically give the key account data that they can put that under EU taxonomy. But what can be -- that would be then the OpEx -- and probably the OpEx side of the key account that can be then used for EU taxonomy. But of course, the clear details, I think, is still not known from the channels now.

We have, overall, very good positive reactions on our Green Car Care offerings, which we were the first one and addressed a very important topic to the key accounts. And I can also tell you to the true medium-sized key accounts in Germany have decided to go exclusively with us on this range, for -- which will happen in the second quarter, which -- and we have more in the pipeline, in other words, more discussions going on with the same intensity. And one of the very convincing arguments that it had was the fact that we're getting this audited and certified by Fresenius, an external supplier or provider of these seals, so to say. And that was an important argument for them to deploy this now on all their wash sites because they say they need this also for our own declaration of sustainability. And so it, in my eyes, it clearly hits the nerve, and we have made a good enroll here and have defined basically also new standards. That's basically what it shows, very clearly.

Lastly, I have actually -- other housekeeping question, the adjusted guidance for region at the end of the presentation. I didn't find that one in the Q1 presentation. So could you remind me what had been the original ones?

There would be the guidance in the Q1 presentation, not, but it would be then in the 2021 annual report.

We have a follow-up question from Alexander, Hauck Aufhäuser.

Just one -- two follow-ups. Maybe firstly, on the I guess if you could share some thoughts around what are you seeing sort of on the ground in terms of customer behavior during this time where inflation is high and rising. And also increasingly, we have a recessionary fears in the market. Can you maybe in this context, address the major accounts and also direct sales?

I mean we have had so far the difference -- different experiences just depending on the background of the customers we're talking about. We've so far, the key accounts were -- I mean, those key accounts were also in the energy business, let's put it this way, mineral oil companies. They tend to invest because they see the opportunities also in car wash and they do have the money and the cash flow to do so. we have had, let's say, so far, no visible impact on the situation in direct business, and mention not, individual investors that was pretty neutral where we did some, let's say, hesitant -- you see some hesitance for the time being, it's on larger projects when it comes to wash tunnels where there's also a lot of civil engineering involved. There are people who become a bit more cautious now because, I mean, as you can imagine, it's not the price of the wash tunnel itself, but it's the whole civil engineering, the whole building, the project itself. There are all these massive price increases that they -- that with that on the market will have an impact where they now at the moment, say, okay, we'll put this on hold and now we are looking into these projects, but we are not going to make a purchase decision now because we don't know how the figures work out. Because at the end of the day, the only way to recover is by wash volume and wash prices. And last but least is my major concern at this point in time, I have to say really is the broad situation that we are seeing in Italy and Spain, for example, also in France, in larger parts of France, where we now see that quite a number of wash sites are closed by the local government because they are not allowed to be operated because they have urgency to use their water in other assets in carwash. Private carwash is not allowed at all. And so in some cases, also automatic carwash is not allowed, it's not overall, but in some really larger districts in the [indiscernible], for example. And this, on a short term has an impact, of course, on our chemical sales. That's clear because where there is no coverage, the [indiscernible] or can also not be sold. And the question is, what will the mood be in terms of the tipping point for the mood for investing into cars was mixed, which is very difficult to predict, but at least let's put it this point, it's a concern to me. I mean I'm looking very closely with the respective managers at the markets, we are exchanging this on a weekly basis, whether we can see a tendency also on the investment behavior into carwash. And I think that very much depends also for how long the period will last until they can start operating. I mean it is for a rather short period of time, I think this will not have a significant impact, but if this lasts longer then I can also see that the whole business cases look very big. At least critical for a shorter period of time, okay. So as you can see, there is a range of things. That's also why we see more order intake on key accounts in the past years, where we have a stable order intake on the direct business, but no increase, let's put it this way, project business, I'm looking at it to a certain point also critical. There is no immediate impact because anything we need for project business, in fact the revenue we already have in the books. But I mean, it's more a long-term question where it is heading because we are also very clear that every price increase that we put in, we try to put this as sensitive as we can, has also an impact on the buying behavior. At the end of the day, sooner or later, the machines that they used to buy from us will be more than 10%, 15% more expensive than they used to be. And then from a certain point onwards the private investors will say, okay, hold on a minute. We'll see whether this still plays off. But this applies to every industry that placed -- the gain of price increases. I mean this will have an impact.

Two short additional comments. First of all, in Italy and Spain, most of the machines don't have a water reclaim system, and that's why they have to shut down. It's always the same thing. We go into marketing, explain that it's assurance for the time. But of course, with the whole thing coming to a more clear view the decisions to invest into water reclaim system also is pushed by then. And second, when it comes to civil engineering, of course, the civil engineering prices are on the addition, we make good money with the wash tunnel. That's for sure. The business case is excellent, but we know that material is not sometimes available. And from what I heard is that the civil engineering industry counts that this kind of thing eases up into the -- to 9 months. So then when you do a project at least and when you put the money on the table, at least you get us for completion date and, let's say, a progress in your civil engineering project. I think this is an addition, what I wanted to say.

And then the second -- not a follow-up, but another question is, could you remind us how this sort of longer-term framework contracts with major customers work and whether there could have been a situation that larger customers kind of could have taken advantage of knowing that you will be raising prices in order to kind of preemptively place many orders ahead of time to secure beneficial terms and so that's prospectively there will be ordering less and less?

The question is a good question. I can tell you they have tried to, but we also were up to date. So we have avoided it. I mean they have tried to order bigger -- and not only one of them. I mean many of them have tried as we said, hey, you can place as many orders as you want to see for the time being, but we will not accept them because, first of all, we need to have the price increase. Otherwise, we cannot accept it. So with all of them, we have gone to various negotiation steps, although sometimes very difficult in the contracts that we have with them, and we don't -- are not the only ones signing these contracts also, our competitors sometimes have the shares of this contract and we've in all of the cases, have been able to -- on a common understanding [indiscernible] in a partnership approach, we increased prices but we also have been able to convince them that we cannot accept orders and volumes at old prices. And they also oblige, they see where the market is heading. So that is also where we see in Q2, Q3, Q4 was [ 600 ] basis points. And we are also pretty much aware that this is -- this is likely also not the end of the chain yet. We might have to go there again, do the same thing again, there is a certain delay because due to the size of these organizations. But I mean we are aware and believe also our customers are aware this is a not sustainable situation at this point in time, and they might not like it. But you can be aware that we will not allow customers to outsmart us by just ordering bigger volumes. So they know we are threatening with the price increases. This is part of the game.

Your next question is from Richard Schramm, HSBC.

Yes, quick ones also concerning the price issue, and I would be interested in chemicals because that's a fast-turning business here, you should not have big difficulties or time lags in raising prices. So this plus 22% growth we have seen in the first half, how much came from the price side. Could you shed a bit light on this, please?

Let's say that there is a part rising for sure from the price increase, but the major part is, let's say, it's a real operational [indiscernible].

I mean it was partly on our -- let's say, it was also purposely initiated steps that we decided in this strategy that we want to get greater footprint, particularly in the markets that are just French, Spain and Italy, as we show really good impact of our initiatives also by increasing number of people selling chemicals in these countries, there was a strategic move that paid off and that's why we also see growth. On the other hand, we also have to say we also have to be fair and always open about that. It is, to a certain extent, also weather related, let's say, in the [indiscernible] helped, certainly impacts were simply there. As weather helps also but true nice weather is [indiscernible] but it's only dry. It's also not a help. So in other words, it's a mix of both, the targeted initiative, and I also expect this to continue for the time being because the green chemicals can pay that as well. We have the right product, efficiency in power sales, so it's also continuously increasing. So I cannot see a stopping, it will continue to grow in chemicals in accordance to our strategic plans. And of course, price increases do have an impact at the end of the day in terms of top line, but also in terms of bottom line, I would say, to a large extent. So a mix of all.

Okay. And then to North America. Yes, also, I think you had a significant currency impact. Stripping that out, should we still clear volume effect, and I was really amazed to see that, obviously, there is absolutely nothing as a kind of positive scale effect left for you here. Is it so that your customers there are really so tough that they can refuse price increases so far and that you have difficulties in pushing this forward. So what's the picture there for the next quarters here?

I mean the picture is -- it is like this, that the mix of key account businesses, direct business in the U.S. is much larger than Europe. We have to be very clear about that. The multiple side of operators impact is an impact. And we had also, let's say, yes, tough contracts because you see not so much really is on their side to negotiate the contracts because there was no clauses [indiscernible] for that in the meantime we have. And all of them, we really negotiated the contract, and that's what we expect to see in the third and fourth quarter. That's why we are still, let's say, cautiously positive that we can come to EBIT level like is, let's say, at a reasonable level, where currently we are spending at a minus EBIT, in other words. So that has simply only to do with the fact that we have been able, with the range in the large part of our business is the account business in the U.S. still we're able to raise these prices and we'll see impact then in Q3, in Q4 because the implementation just basically recently happened. With this -- always, like I said, we could release that we see these key accounts. The private customer, we can change the products as to model with the key accounts, we have a sending contract that needs to be mutually let's say, agreed upon, and that also takes a bit more time because I always say, yes, we need to win -- we try to win this battle, but most importantly also with this large key accounts that we have relationship for 10, 20 years spending relationships, we also need to win the war. At the end of the day, a single handed approach here. This is what I needed, this what I want, this not really helpful that we have seen this in the past with us, with our competitors. And so far, so good. We have been able to negotiate prices which we'll see in Q3 and Q4, for sure. And we have been able so far to keep the customers as also it is very important.

And we are running efficiency programs in the U.S. at the same time that improves that situation, yes.

Okay. So just if I answered you correctly, this problem of time lag between higher material prices and price increases, especially for the U.S. because you have so much of key account business there. And here, the time lag is of a major concern. So we have to wait until Q4 to see really an improvement there, right?

We also see in Q3 -- in Q3 we will already see the first improvements for sure and the Q4 as well. Major impact are already starting out in Q3 onwards because then we are now starting to supply those machines that fall under the price increases that we have been able to negotiate.

Okay. And then just in connection with this, are you able with new contracts to build in a kind of automatism price escalation class? Or is this in your industry?

That's now usual, I would say.

Well, unusual or not, we, of course, have an understanding, and we did renegotiate one major contract in the recent past, which was due for renewal or, let's say, for a new tender process or it could be the new tender process. And this includes these slots. That's for sure because I mean, we have had learning now that we haven't had for the history of the company so far. I mean everything answer that we saw before was a 1% or 2% price increase. And then with the volume that was always justifiable by gaining it through efficiency, but what we are seeing now here cannot be continued going forward. So any contract that is for renewal or new tendering, we are -- we need that cost for sure. And we have it so far, one was renewed and that is included.

Okay. So going forward, this should become then the standard in the future for your tender offers here?

Yes.

We have another follow-up from Alexander.

Just lastly to address the U.S. business. Can you just confirm again that what you're seeing there is sort of, yes, sustainable development that really you're reaping benefits and fruits of the reorganization and that it's not just sort of low-hanging fruits being reaped, and then we're likely to keep the stance still in the next years? And then if that's so, then in connection to that, should one look at the second half 2022 EBIT margin that you will be able to reach in the U.S.? I mean based off your guidance, it should be upwards of 6% as sort of the benchmark or sort of high watermark for this region going into 2023, considering that the favorable top line dynamic is resistant.

I mean to be very honest, our internal targets are even as a benchmark going forward, more ambitious, to be very clear. I mean we were, as I say -- I would say, positive that we can manage this year when we did the budget. However, we have to realize that the inflation that we are seeing and the price inflation we've seen in Europe is high, but in the U.S. it's far higher, in other words. So we have the order book for the quarters and were hit by massive price increases, I have to say. So unfortunately, our positive, let's say, expectations were not met. But I mean, that is -- the minimum requirement is anything also 5% EBIT. But midterm, we have to come also the same ambition that we have in Europe also for the U.S. sustainably around the 2-digit EBIT and that's what we are aiming at.

Yes, the goal to 2023, it's interesting. As I said, with the price increase in inflation in the U.S. has been tremendous. And I think I mentioned this in the calls before, but now it is already in process. We are now supplying steel frames to the U.S. from Augsburg, from our Augsburg plant and that leads to, first of all, that we have a material price -- positive impact on the material price and also on the negotiations with our steel frame users in the U.S. So the question to 2023 is, of course, is the inflation going further down in the U.S. Of course, you know that the U.S. has risen the interest rates earlier than in the EU, so this should be an interesting part. But that's what I mentioned that we are also working on cost down projects on the U.S. platform to support that. So we're not only waiting for the prices to come down. that we're working actively on this. Just to add some additional comment.

There are no further questions. I would like to hand back to you gentlemen for some closing remarks.

Yes. Ladies and gentlemen, it was a pleasure. Thank you for attending the call, we are now at least in the barrier entering the vacation area. We're closing down operations for 2 weeks. This also enables us to increase efficiency. And I'm looking forward to hear you and lead you in the occasions, which we indicated on the last slide, where we have presentations of the company at the latest in the Q3 call. I wish you stay healthy and very well. And if you have vacations, have a good vacation. Thank you very much, and greetings from Augsburg.

Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.