Kion Group AG

XETRA:KGX

Earnings Call Transcript 2023-Q1

[Operator]

Wonderful. Good afternoon, ladies and gentlemen. Thank you for standing by. I am Frenzy, your Chorus Call operator. Welcome, and thank you for joining KION Group's Q1 2023 Update Call. Today's presenter will be Rob Smith, CEO of KION Group. [Operator Instructions] It's my pleasure, and I would now like to turn the conference over to Rob Smith, CEO of KION Group. Please go ahead, sir.

[Richard Smith, executive]

Thank you very much, Frenzy. Good afternoon, ladies and gentlemen. For today's call, please refer to our Q1 presentation on the KION Group IR website. I'm going to start out with a Q1 summary and some operational and sustainability highlights, and then Marcus is going to take you through our Q1 results and our updated guidance for the full year. I'll come back and conclude with some key takeaways and then we'll be getting into the questions and answers together. I'll start with our key financial figures on Page 3. Q1 was a strong start in the year for the KION Group. And particularly, the development in our industrial truck and Service segment was better off than expected, mainly driven by the improving supply chain situation and some pull-forward benefits from operational and commercial agility measures. This had a positive impact on our major KPIs and was the basis for raising our full year outlook. Q1 group order intake at EUR 2.4 billion was down 16% year-on-year and down 4% sequentially. Our group revenue was EUR 2.8 billion, up 2% year-on-year and down 4% sequentially. Adjusted EBIT of EUR 156 million was down 8% year-on-year, was up 91% from the fourth quarter last year and the adjusted EBIT margin in Q1 was 5.6%. At EUR 105 million, free cash flow was clearly positive in addition to the operating profit and stable net working capital development from the end of last year was a major contributing factor to that favorable development and allowed us to slightly decrease our net financial debt in the first quarter. And our earnings per share in the quarter were EUR 0.55. On Page 4, I'll share some Q1 business highlights. Last month, we entered into a strategic partnership with [ LeCycle ] an industry leader in the lithium-ion battery resource recovery and we'll be starting environmentally friendly recycling of lithium-ion batteries in the second half of this year. With this partnership, we're taking an important step in our sustainability journey in the circular economy, ensuring the recovery of up to 95% of the key materials in lithium-ion batteries with new supply. This makes us a pioneer in the industry and in the field of recovery and recycling of modern lithium-ion batteries in our products. The second step and an important step in Q1 is the production of our own fuel cell systems. We're investing EUR 11 million in our Humbug site to produce 24-volt fuel cell systems for our warehouse truck equipment. The advantages over other energy sources from this technology are not only lower emissions, but also were rapid refueling capabilities on the truck. We also use this technology ourselves in the Aschaffenburg where we've installed our own hydrogen production when we operate a fleet of our own hybrid fuel cell trucks in our factor. And finally, we're progressing well with the launch of our new value platform counterbalanced trucks. Following the market introduction last year in APAC, we've now started the global rollout. We'll launch some 30 new product lines. There's 30 new models of this new value platform, of which more than 25 are for export, making that value platform a true global player. Let's go to Page 5. In addition to announcing our Q1 financials this morning, we also published our 2022 sustainability report. We're proud to report that in 2022, we already achieved our 2027 greenhouse gas emissions reduction target of reducing our carbon emissions by 30% compared to the base year of 2017. We also outperformed our annual CO2 emissions reduction targets for Scope 1, 2 and 3 emissions. Progress is on track to surpass 90% electrification in our trust by 2025. Last year, 88% of our industrial trucks sold had electric revs in the previous 2 quarters this year exceeded 90%. We have a target to certify all our sites to as environmental and health and safety standards by the end of 2024. And in 2022, we made good progress, reaching a certification rate of a level of 80%, up from 70% the year before. We're focused on improving safety in our work environment and made a 25% reduction in lost time injury frequency rate versus 2021. And we continued work on our climate strategy last year, establishing strategic targets that are fully aligned with SBTI criteria in advance of making a formal commitment. And finally, we're pleased to share that our brand still received the Platinum sustainability recognition level for microbes. I'm going to now hand over to Marcus to take you through our financials for the first quarter and our updated guidance. Marcus?

[Marcus Wassenberg, executive]

Thank you, Rob, and good afternoon from us. Let's now jump to Slide 7 and the key financials for the KION segment. With respect to order intake, where, as you remember, Q4 '22 was rather soft with 41,000 units. Now we saw a rebound in Q1 at nearly 60,000 units. Quarter-on-quarter, the value increase is lower than the unit decreased due to a flattish development in series and a slightly higher share of sales equipment. Year-on-year, the value declined slower than the unit decline due to the price increases that conducted in '22 and the continued growth in services in absolute terms. The order book increased substantially from EUR 3.2 billion to EUR 3.8 billion year-on-year and approximately 1 year of new business revenue. The back of margin is more resilient due to the price increases of 22% and the incremental price adjustment clauses covering now roughly 75% of the outlook. Revenue at roughly EUR 2 billion is close to the quarterly record level and driven by 24% year-on-year growth in new business revenue. Both revenue and the adjusted EBIT of EUR 177 million benefited from the improving supply chain situation and pull-forward effects from operational and commercial agility measures. i.e., we broadened our supplier base, reduced their critical suppliers to ensure better materials and component availability, pull forward higher port trucks that were initially scheduled for later this year. And for a backlog repricing effect amounting to EUR 25 million, which we expected in the course of first half year, but is already effective in Q1. For bottling purposes, we suggest to exclude that backlog repricing effect and adjust the underlying EBIT margin to 7.7% in Q1. Let's turn to Page 8, which summarizes the key financials for SCS. In SCS, we see a low order intake, substantially impacted by continued order postponements and slower decision-making due to the macroeconomic uncertainty and higher interest rates, and that goes across pretty much all verticals. The share of fuel e-commerce increased again to 29% but remains on low absolute levels equaling EUR 65 million in order intake. Order book amounting to EUR 3 billion continues to provide visibility for the next quarters. Revenue declined year-on-year by minus 23% and quarter-on-quarter by minus 6% due to lower order intake of pure-play e-commerce players in past quarters. Anyway, the strong growth in service business, plus 20% year-on-year could not compensate for the decline in project business representing minus 35% year-on-year. The adjusted EBIT of EUR 7 million continues to be impacted by the execution of lower margin legacy projects. Page 9 summarizes the key financials for the group. Order intake of EUR 2.4 billion reflects the sequential rebound of demand ITS, and we already described continued postponements on new order decisions in SCS. The order book of EUR 6.2 billion continues to be at high levels, providing good workload for the next quarters. Revenue at EUR 2.8 billion benefited from strong ITS performance and growing service business in both segments with a share of 44%. Drastic EBIT and adjusted EBIT margin improved due to the very good performance of ITS, we continue to be impacted by lower margin legacy projects in SCS.Page 10 shows the reconciliation from adjusted EBITDA to group net income. Reported EBIT of EUR 129 million in Q1 increased 10% year-on-year, but nearly doubled quarter-on-quarter. We see an increase of net financial expenses, EUR 36 million year-on-year, the increase is EUR 33 million and quarter-on-quarter, which is basically EUR 18 million due to higher interest rates and decreased fair value of derivatives. Pretax earnings of EUR 94 million decreased by 9% year-on-year but doubled quarter-on-quarter. While taxes amounting to EUR 20 million, this results in a net income to shareholders of EUR 72 million, which we cited EPS of EUR 55 in the quarter. Let's move to the free cash flow statement on Page 11. Free cash flow reached EUR 105 million, driven by the reported EBIT and almost flattish net working capital as the buildup was only EUR 11 million, a positive cash flow of EUR 105 million compared to minus EUR 434 million year-on-year, represents a positive swing of EUR 539 million and allows us to slightly reduce our net financial [Indiscernible]. As stated before, reduced net working capital, enhanced that financial debt is a key focus area of 23. On Page 12, you see that our net financial debt decreased by EUR 57 million during Q1 to less than EUR 1.7 billion, resulting in slightly improved leverage of 1.3x. RCF relevant leverage on industrial net debt excluding pension liabilities stabilized for the second quarter in euro and continue to stand at 2.3x at the end of the quarter. There is still plenty of headroom under the covenant, which, as you know, clinically is not tested as we have 2 investment grade ratings. I'm very pleased that S&P confirmed our investment-grade ratio just is Tuesday. Our focus is more on improving metrics further to the center side. Including pension liabilities, the leverage on industrial net debt remained unchanged to 2.8x at the end of the quarter. Let us now move to our updated outlook for '23. Slide 14 lays out our updated guidance for 2023. As outlined in our communication to the capital markets last week, the first quarter developed better than expected in ITS. Due to this higher starting point, we increased our full year guidance for ITS and also for KION Group, while the guidance for SCS remains unchanged. For the full year, we guide group revenues of at least EUR 11.2 billion based on ITS revenues of at least 8 billion units. The group adjusted EBIT is at least EUR 65 million, up by EUR 65 million, driven by ITS an increased our guidance to EUR 665 million, up against EUR 65 million compared to the [Indiscernible]. We started out the year thinking that ITS would have a weaker H1 and a stronger H2. But Q1 already saw some benefits of improving supply chain and put forward efforts on operational and commercial agility measures. This is why we now assume H1 is more balanced with H2 at ITS. At ITS, we expect a stronger H2 when compared to H1 as the execution of lower margin food legacy projects waiting on margin primarily in H1 23. The improved EBIT expectation is still one-on-one increase in free cash flow guidance to at least EUR 560 million, up EUR 65 million and the full year ROCE of 1.5%. And now I'll hand it back to Rob for our key takeaways.

[Richard Smith, executive]

I'll summarize my key takeaways on Slide 15. KION Group had a strong start to the year in our Industrial Trucks & Services segment, which benefited from improving supply chains and pull-forward effects from the operational and commercial agility measures we have underway. The better-than-expected Q1 in ITS allowed us to increase our full year outlook and our measures to increase agility, resilience and profitability are starting to show effect and put us on track to achieve long-term profitable growth. This concludes our presentation. It's time to get into the Q&A. Frenzy, please open the line.

[Operator]

Ladies and gentlemen, at this time, we will begin the question-and-answer session. [Operator Instructions] And the first question comes from Sven from UBS.

[Sven Weier, analyst]

The first one is on SCS, please. I mean your comments didn't necessarily sound like the soft orders were lumpiness or some bigger orders might have slipped into the second quarter. So I was just wondering if you could give us some more details around the pipeline and what you probably see for the next quarters. Is this kind of a new run rate? Or is there still an element of lumpiness year that we should keep in mind or Q1.

[Richard Smith, executive]

So we don't guide on order intake, but I would comment the $450 million to $497 million that we got in the first quarter. It is lumpy, and we're -- our pipeline is a good solid pipeline. We think people are taking a longer time, customers in all verticals and in all regions in this macroeconomic environment are taking a longer time to make their decisions, especially on very large projects and the projects that we described in previous quarters are meeting larger in the industry. So yes, there is lumpiness and [Indiscernible] environment indeed, that's what we're seeing.

[Sven Weier, analyst]

And if I may just follow up on what you just said. To what extent is it also that you guys are also taking longer to sign the contracts? And how important is that for the timing?

[Richard Smith, executive]

Well, there's probably some element to that, too, as we talked about last year, in the process of commercial and operational agility, we made sure we put in prorate clauses in our contracts that work in volatile environments. And I think that everybody is working through those. And that's part of the overall situation, too. I think the macroeconomic environment and the lumpiness go hand in hand. And clearly, everybody will use commercial contracts very carefully on $100 million, EUR 20 million, EUR 30 million projects.

[Sven Weier, analyst]

Second question was on IPS, if I may. Of course, a nice sequential increase in the unit order intake. And I was just wondering if you could share some more detail on what's been driving that of Q4, just a bit of an understated number. And maybe to what degree did you already benefit from a comeback of the Chinese market in this.

[Richard Smith, executive]

So I think it's important to look at the whole year when we look at last year, a real strong first half and market normalized more and more over the course of the second half of last year. We're pleased with the start in this year. The market development this year is in line with our expectations. We have shared that we see the ITS market down pearly high single digits on a worldwide basis this year. And as I said, the first quarter developed in line with our expectations.

[Sven Weier, analyst]

So Q4 was the outlier and not Q1, in this regard?

[Richard Smith, executive]

As I say, Q4 is 1 quarter of the full year last year. It started with a real strong start and normalized towards the back end of the year in the second half. And we're pleased with the start this year, and we'll be commending order intake when we get to Q2.

[Operator]

The next question comes from Sebastian Growe from BNP.

[Sebastian Growe, analyst]

The first one would be around China and the ITS segment. The peer supermarket was very strongly quarter-on-quarter. And rather, I think, at the last quarter 1 level, so 300,000 units or so. And the same goes for your volumes, which apparently are also moving into the direction again. And at the same time, you obviously implemented the value segment strategy in China. So I would have expected that you are taking eventually some incremental share in that market. So along those lines, I would be interested if you could remind us of what you see in terms of the incremental volumes over the next year, so say, by 2025, what the sort of target is on voicing terms, especially in China? And maybe we start then the next one on ISCS.

[Richard Smith, executive]

Well, let's talk about it in general terms, Sebastian. Good to hear you on the call. China's a very, very important market in our industry and a very important market in our business. And we're real pleased with the success of the introduction of our new value segment counterbalanced truck in China last year. You'll recall, we built the factory in record time in the middle of COVID ended on, and we're in operation is out of 15 months had a good production last year, primarily for the China and APAC market. So I see China is 35% of the global market in 2022. So a very important market in our industry. And the value segment truck gained good market share in China last year. And as I talked earlier in the call, we're now rolling out 29, 30 new models this year, 25 of which will be for exports, and we expect that will be incremental good market share and good business for our company on a global basis.

[Sebastian Growe, analyst]

And then in terms of the units, I recall that you-- I think, before time, there were numbers of around incremental revenues of about EUR 300 million in China. Can you just remind us of where in terms of still achievable because the market has changed to a certain extent, your thoughts would be much appreciated.

[Marcus Wassenberg, executive]

Sebastian, I will be more than happy to have our team get back to you to connect some dots between the previous statements on this one. As I say, we've kind that factory on last year at bits production targets last year. We expect to ramp them up very strong this year. We put in the capacity, the fact you'll have a capacity of about 40,000 units for the market in China as well as APAC and for export on a global basis. And we see all that as incremental business for KION and we're really pleased with the -- especially with the introduction of this new platform. And so being very well received in the market very well last year. And you know that right now this week, we've got the LogiMAT show in [Indiscernible] and the Turkestan display on our stand there and seems to be getting -- it seems to be well appreciated by customers and people on with the show.

[Sebastian Growe, analyst]

And if I just may ban on the market and maybe following on towards [Indiscernible] asked before. So looks at the start of the year was much better than everybody would have expected a decent end. So it seems that the global margin was probably at about 550,000 units or so. So that was trend that they would suggest that the market is eventually rather flat and not down high single digits but then also look at other trends in the industrial space, it all looks like are just better than everybody would have expected a couple of weeks ago. So what do you make out of this? And obviously, your guidance is still implying and also not that much of an impetus over the first quarter. So yes, any thoughts would be much appreciated on the points I made.

[Richard Smith, executive]

I think a good way to look at that is, as we all recall, '21 was an all-time high '22 was down a bit. And our expectation for the global market this year is down from there, probably high single digits. As I said, the first quarter was in line with our expectations. However, you'll remember that the Vista is coming out on a 3-month time delay. And so overall official statistics for the market for the first quarter are still forthcoming, and we'll obviously comment on those when we come at first quarter actual market debt as we bring on to our second quarter actual results.

[Marcus Wassenberg, executive]

Let me be very quick one just on SCS. The e-commerce segments is still hovering around [ 140], I think in the first quarter. So still in a raging what is your assessment? How long it might take really until this vertical might come back up again. So there's obviously still a lot of oversupply in the system at the PSC at least. So any thoughts around that and then probably making reference to our pipeline would be much appreciated.

[Sebastian Growe, analyst]

I did refer to the first line. It is a very healthy pipeline, and it's taking longer to convert the pipeline as people are taking longer to make decisions on that. You let point out that the e-commerce, we all recall just really with strong during the golden period and it's still in a recovery phase right now. So it's going to take a while longer for e-commerce to come back. But as I pointed out before, there is an element of e-commerce and just about every vertical out there. And our long-term expectations is about 9% CAGR for our supply chain. So we consigned e-commerce will continue to play a very important role in that in the strategic planning period. So we'll be coming back. It's not gone. It's just going to be coming back and we'll take some time to get there.

[Operator]

The next question comes from George Featherstone for Bank of America.

[George Featherstone, analyst]

So first one would just be on the IPS backlog as you see it now. I just wondered if you could tell us how much of it now is for delivery in 2024? And given the pull forward that you had in Q1, is there a possibility that we'll see in subsequent quarters ahead that you'll be faster conversion to revenues or another way, are you running at a stage where you've got some capacity that is free to actually increase utilization?

[Marcus Wassenberg, executive]

We said basically the ITS backlog represents like EUR 3.7 billion, that decals almost a year of new equipment business. So 11 to 12 months. Yes, in price quality is a good price quality given that we have seen further price increases in the course of last year. And now the question is how are we able to convert this into revenues? It's obviously a function of stability in supply chain, and that is what we're working on. So we feel confident with that outlook and give a good representation, as I say, for the next 12 months, and this is what we're looking at.

[George Featherstone, analyst]

Maybe I didn't phrase the question correctly, but I just want to try to understand, you clearly over performed in terms of deliveries in the third quarter and you were able to pull forward some benefits from trucks, you probably thought you could live in the second quarter and actually deliver them in the first. So another way, is there scope for that in subsequent quarters. So that 1 year worth of forecast could they be delivered within this calendar year? Or is some of it still definitely for 2024?

[Marcus Wassenberg, executive]

So don't get confused by the order backlog repricing effect that we saw basically in Q1, we were referring to the EUR 25 million. And that is an effect that we anticipated to happen in H1. So we're not converting faster than anticipated. It's basically price quality that kicked in a bit faster than we anticipated the further effect coming, obviously, but we were able to convert it quicker. So that, I think, answers your question maybe more precisely.

[George Featherstone, analyst]

And then on the working capital side of things, in Q1, you didn't seem to have much of an unwind. So when through this year, should we see a big reduction in those inventory levels, do you think?

[Marcus Wassenberg, executive]

Again, George, I mean the effect on the-- the free cash flow, that was driven much more EBIT than by net working capital, as you rightly say, I mean, on the other hand, we're reducing net working capital is the cost of this year, basically quarter-over-quarter, and you will see an improvement is a key focus area of mine. Obviously, bringing down net working capital, bringing down debt as a consequence. As I said, I'm more increase with the S&P rating, but I have to defend this way. And this means that I'm very heavily working on bringing down net working capital. Having said that though, I mean they're still living in volatile times. And they're still trying to sort of bringing down the order book quarter-by-quarter tournament into revenue, as we just said. And that implies that you have to do a bit of a balancing act, provide enough level of security at the one hand, while at the same time, driving the networking capital increasing, bringing down the cons. That's what we're working on. But now it's very difficult to give you exact and precise number for the quarters to follow. But I promise you that you will see a significant downturn in that and has net working capital and an increase of free cash flow.

[Operator]

The next question comes from De-Bray Gael from Deutsche Bank.

[Gael de-Bray, analyst]

Well, can I start with the EUR 11 million CapEx if you sell production? Generally, could you elaborate on the benefits of being integrated with in-house battery and fuel cell systems production? And how do you assess the risk of eventually remaining subscale in the manufacturing of these same batteries and fuel cells. So we'll start with that one.

[Richard Smith, executive]

I think that that's a good opportunity to talk about the beauty of being the OEM and having the system responsibility for the entire machine, including the powertrain. And it's very important to us to have the spectrum of powertrain options, the full spectrum of [Indiscernible]. In addition, if one we're going to simply buy out that entire piece of technology, then we will not be in a position to be able to harmonize and optimize interferes between the powertrain and the overall machine. Joy is a result of doing that and having that capability in house, we're able to give an optimal performance and an optimal layout and interaction within the old machine. That's an important element of being the OEM, an important element of being able to do the fuel cell. We're excited about that. It's going well for us. We operate that-- we're operating that technology in our own fleets, and we've got several customers with larger fleets in operation there. They appreciate the advantage of that basically for customers working 24/7 on their fleet is very quickly being able to refuel the truck and have it keep going without a or a longer charging cycle. So it's an advantage for us on a system capability basis and that advantage turns into a performance advantage for our customers.

[Gael de-Bray, analyst]

Could you also provide some color on the intra-quarter or the [Indiscernible]. Have orders gradually recovered throughout the quarter from the lows in Q4? Or what would actually the opposite? I'm interested in the shape of the old pattern during Q1. And obviously, if you could provide a bit of color on how April has been looking it so far versus Q1, I mean that would be super useful.

[Richard Smith, executive]

Maybe what I do [Indiscernible]. It seems to me the bigger effect might be the fact that the customers knew in the fourth quarter of there was going to be a price increase in '22. And some customers that leads to a bit of a pull-forward effect into the fourth quarter. Customers knew in the fourth quarter of '22 that we did not envision a first quarter price increase or at least the January price increase in the first quarter in the first month, the quarter of this year. And so potentially, there was not a pull-forward effect into the fourth quarter last year. Basically, we've had a good start in the year with the 60,000. It's been in line with our expectations. April will continue to in line with those expectations. I'll give you the update on OE when we get to the second quarter results. But so far, so good.

[Gael de-Bray, analyst]

Maybe a first small question for Marcus. What was the impact of the change in derivatives on the net financial result this quarter.

[Marcus Wassenberg, executive]

And I think we have to take this offline with the IR team. It's a bit of a more detailed calculation. So we get back to you.

[Operator]

The next question comes from Martin Wilkie from Citi.

[Martin Wilkie, analyst]

Just going back to the demand environment, particularly in North America, there is a huge investment going into 7 industry out of the U.S. sort of new tools as part of the inflation reduction entry believes in North America in Supply-side case in IT&S. New exposure to the most [Indiscernible] e-commerce, grocery, food [Indiscernible] the much investment happening in perhaps automotive bacteremia update on these kind of areas. Given the need to rebuild supply chain, is that something that you can participate in? And is your product line up ruble and addressable for those markets? Or how should we think about the opportunity of what happened in North America on supply chain reasons?

[Richard Smith, executive]

Martin, what I would [Indiscernible] is, our current range is very applicable in the North American market and that, but we're investing significantly to increase our local content and our local production. That was an initiative we started earlier last year. That factory, the capacity is going into the factory. We expect it to be building additional trucks next year. And we expect to rag with that market. It's a very important market for us, and that's why we're investing locally to service it with their shorter lead times. And indeed, as you point out, drugs that are very relevant and appropriate for the different verticals in the market there.

[Martin Wilkie, analyst]

And do you think that benefit would land more in the IT division than within supply chain in [Indiscernible].

[Richard Smith, executive]

No, I wouldn't say that. The American market is a wonderfully strong market for both ITS and SCS. And as a matter of fact, our global headquarters for SCS is in the North American market that is extremely well represented and the leader in the market there. So I see the investments that people are putting in is a good thing for the entirety on business across both our segments.

[Martin Wilkie, analyst]

And if I could just then on the later question, just on pricing. Obviously, a few begin to roll over many other costs [Indiscernible] any of the price increases that you put to classify as surcharges that might reverse? Or is that not the case you're putting is price increase than -- or should be relatively sticky.

[Richard Smith, executive]

Martin, the pricing adjustments we made last year were in line with our assessments. That was part of our commercial agility to make sure that we're measuring our cost a couple of times a month and being able to make your price adjustments appropriately. And as we find is the right solution we want to take commercially. We did make those changes last year, and we continue to have that ability to get us this year on a go-forward basis. So that's an important element and capability of making our company be able to operate well in the volatile environment.

[Operator]

The next question comes from Christophe Talbourdel from HSBC.

[Christophe Talbourdel, analyst]

I've just got a couple of follow-ups, if I may. One is again on volume estimates for ITS. I mean I understand that you think 2023 is down about, let's say, roughly 10%, which brings us to around about 2 million units. What I would find interesting is whether you see that as the new normal in global orders, so to speak, a base level of EUR 2 million, i.e., are we going to then again go back to a growth trajectory as of 2024? Or is there another down year in 2024, given the fact that, obviously, we had so much higher volumes in '21 and '22. And if you basically do the math, it would still suggest to go back to the 5% CAGR that even '24 would have to come down. Have you got any view on that?

[Richard Smith, executive]

I mean, let's go back to 2021 with the $2.2 million market, world record at 2021 was $2.1 million. We expect that the market is down, so high single digits this year. Overall, we're expecting about 4% compound annual growth over our strategic planning period. I think there's a couple of elements to consider. One is the increasing participation in their market quantification by the small hand trucks, the electrified ones, we call those past 3.1 equipment. So that's tough to compare on a 5-year basis. That's been more and more an element of the last several years, if you will. I think that the better understanding is with an expectation of growth in the market for 4% done on a CAGR basis on the strategic planning period and with the economics next year, looking-- if you look at all the different surveys out there, next year is going to be a bit positive and a good up we would expect from this year. And we'd expect that the market would be generally moving with the GDP. And so let's see how it's developing, and we'll be talking about that as we get closer to the end of this year and have a real good visibility over the planning period, about 4% per annum is a pretty good great expectation. And taking into account the comparative delta of now, we've got quite a few more 3.1 small electrified and trucks in-- so don't roll back 5, 6, 7, 10 years. So compared with reference points. It goes did to show up in the strategic background.

[Christophe Talbourdel, analyst]

[Indiscernible] clarifying that one. I think is also very, very specific to China. There's a lot of Chinese business in there in '21, right?

[Richard Smith, executive]

Indeed, there are a lot of 3.1 small head trucks, electorate are coming out of the China market indeed.

[Christophe Talbourdel, analyst]

So a follow-up on SCS. Obviously, again, the PFA commerce question. I would actually say that positively-- back since, I mean, there was not much revenue in H2 '22. So would you think this EUR 140 million, EUR 150 million is a good proxy for the rest of the year. So they're gradually coming back so that we end up with about, say, EUR 500 million, EUR 600 million? Or is this just a bidding and it's going to accelerate in the rest of the year?

[Richard Smith, executive]

Yes. I mean percentage-wise, we have seen that pure-play e-commerce is coming back. It represents like 29% of the order intake. But in absolute numbers, it's not really that much. It's a lumpy business. It's a project business, as you know, has been improving the business before. And you can basically rate like 300 days and nothing is happening and then all of a sudden, you get a huge order or maybe even 2. So we have to wait and see. All in all, we're seeing a CAGR of 9% for that business, and it's really a really good business. But every word right now is lumpy e-commerce is lumpy, and we have to benefit.

[Christophe Talbourdel, analyst]

And then one last question, and then I'll go back into the line is rather on the supply chain. What I find interesting is just what every company in the industrial space was pretty cautious, say, around mid-March and March and a month later, everybody has basically been much more positive on the supply chain. So can you elaborate what happened in the second half of March because it seems to me as if the supply chain really is in that period. Probably also regarding different supplying also here that there is a different supply chain availability in Europe versus U.S., so North America versus Europe. Can you also elaborate on that?

[Richard Smith, executive]

I wouldn't speak for other companies. But speaking for ourselves, what I would tell you is that our expectation was there would be a tighter and more difficult material inability in the first part of this year, similar to how it was last year, and it has improved slightly. It's certainly not obvious if it's going to continue on that route. And that's part of our assessment for the rest of this year is you have to be on a commercial or on an operational ability basis, very, very attuned to what the material availability is and our expectations is that it has a good possibility to remain volatile through further periods this year. It did flow better in the first quarter than we expected, and it take that is what you're hearing from other companies too. Whether there's a second half of March effect or not, I guess share the quarter is not over 2 quarters over and you need too material flow throughout the entire quarter to get a good one. So we've volatility going forward, and we're watching that very carefully. And what I'd also do is there's some good [Indiscernible] work from our supply chain and operations teams. There were some bottlenecks in the first quarter. Happily, the parts that were bottlenecked and making some machines unable to build. We didn't lose production less because we were able to get some material for other machines that we're foreseeing in the production plans later in this year, and we've actually pulled some of those forward into the first quarter. So it's not to lose the production slots. But that's an insight into how things operated in KION factories. And I think that's the best decanter.

[Operator]

The next question comes from Daniel Gleim from Stifel.

[Daniel Gleim, analyst]

My questions, actually have 2 of them, both for Marcus. The first one is on ITS. What share of new truck sales did already carry the full cumulative price increases in the first quarter, if you could scale that for us. And tied to that question, by which quarter do you expect the full price increase impact.

[Marcus Wassenberg, executive]

So I would say, actually, given that we have seen 4 price increases quarter-by-quarter last year, the effect overall is rather limited for this quarter and obviously, the full effect we will see in quarter 4.

[Daniel Gleim, analyst]

Very clear. The second one is also on IPS. And now in about the cost side of the equation. If you think about the implied steel price in the first quarter truck deliveries, how that the steel price compared to the current spot prices? And again, by when do you expect the full normalization of steel prices to be present and the idea is EBIT for that quarter.

[Marcus Wassenberg, executive]

So I'm not really that much of an expert in steel pricing, and I have to admit. So the whole environment is still volatile. And we are buying components. So it's not just still a factor that is basically factored in the components. So it's a share of labor. It's a share of more so. We don't have seen normalization so far, and that would be best I can do for you at this point in time. It's more than that. It's much more complicated because we're really buying components.

[Operator]

That was our last question for today, and I hand back to Rob Smith for closing comments.

[Richard Smith, executive]

Thank you, Frenzy. And thanks to each of you for participating in our call today. We appreciate your interest. We appreciate your questions. We appreciate the opportunity to discuss our business with you together like this. And we look forward to important opportunities in the next weeks and the last to come in the road show this quarter. We'll be back with our second quarter results after October. So we look forward to talking to you in the next couple of weeks and months, and we'll be back with the results in Q2 when we got. Thanks so much. Bye-bye.

[Operator]

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