WashTec AG

XETRA:WSU

Earnings Call Transcript 2018-Q3

[Operator]

Dear ladies and gentlemen, welcome to the Investors and Analysts Conference Call of WashTec AG. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Karoline Kalb, who will lead you through this conference. Please go ahead, madam.

[Karoline Kalb]

Thank you for the introduction, and good afternoon, ladies and gentlemen. Thank you for joining this call. I'm here with my colleagues, Volker Zimmermann, [ Sergei Volodin ] and Axel Jaeger. And I will guide you through the presentation, which is available on our website, www.washtec.de. As you have seen, the WashTec Group has reported its Q3 report today, and this third quarter of the year has been the strongest third quarter that the WashTec Group has ever reported, mainly driven by a very good performance of Europe, not only revenue but also EBIT performance wise. Bringing me to the operational highlights of the third quarter on Slide #2. One of the highlights in the life of WashTec is always the participation in big trade fairs. And in September, the Automechanika trade fair in Frankfurt has taken place. This used to be the biggest trade fair for the industry, that has changed slightly. Today the Unity Trade Fair, which has taken place in June of this year, has already taken place. In September, at the Automechanika, we have presented this strong focus on car dealers, because the Automechanika is a trade fair which is focused on the automobile aftermarket. And we again presented digital solutions as a focus point of our innovations and EasyCarWash as one highlight at this fair. Also at the important car dealers segment, we have perceived this innovation as a very important innovation on the way forward to how will the carwash of the future look like. Another important message for us in September was that our finance team successfully completed the refinancing of the WashTec Group. Our new bilateral financing agreements with our established house banks ensure a solid and long-term financing for WashTec at very competitive interest rates, so all-in-all, very good news.Looking at the business development, we see an ongoing positive trend in order intake and our order backlog after 9 months was on a double-digit level above the prior year. This does apply to all regions, but especially North America that our order backlog has almost doubled. And this is a very good news, because we will come to the guidance for WashTec later. But as you know from previous conference calls, North America as a region had the most ambitious targets for 2018, because they were the ones who benefited the most from backorders received in the year before. And as it looks now, they will be able to overcompensate the backorder effects of the last year with an increased business, especially in direct sales, but also key account business is performing well, so we are very optimistic for North America as a region. This brings me to the 9-month performance of the WashTec Group on Slide #3. As already said at the publication of our half-year results, our Q3 development was somehow in line with expectations, which means we needed to catch up the missing revenues of the first quarter in the third quarter, because the first quarter was below the exceptional first quarter of 2017, which had this benefit effect of the backorders of key accounts. And in the third quarter, we were able to grow our revenues compared to the previous year by EUR 10 million and ended the 9 months with revenue on the level of the previous year.If you take a long-term comparison, the average Q3 growth between 2014 and 2018 amounts to 11%, which is quite an impressive number. In Q3, the EBIT amounted to EUR 14.9 million. This resulted in an EBIT of EUR 33.2 million after 9 months compared to EUR 37.6 million in 2017. And that is again resulting from the lower profitability of the first quarter. And I will come to the quarter-by-quarter comparison later, but the Q3 quarter, as a standalone quarter, showed an extraordinary performance also profit wise. Our free cash flow in the third quarter was lower than last year. Our free cash flow after 9 months was at EUR 2.2 million, and that was driven by the already described effects of a lower operating income in combination the special effects of the tax prepayments, but we expect the free cash flow to recover in the last quarter, and we expect to end this year with a higher free cash flow than last year, including receiving the tax prepayments back until the end of the year. We are also continuously working on working capital optimization in order to further optimize the free cash flow, and that's one of the main focus area that Axel Jaeger is working on. If you look at the Q1 to 3 results by products, you can see that over the course of the third quarter, our most important product segment, Equipment sales and service, catched up. Equipment sales and service in Q3 only were almost 11% higher than in 2017. After 2 quarters, Equipment & Service sales were still below prior year also on a quarter-by-quarter base and that gives you an impression on how strong this quarter development was. After 9 months, Equipment & Service sales were EUR 268.1 million after EUR 268.8 million in 2017, thus meaning almost on the same level as the previous year. If you look at Chemicals, you may remember that they showed a tremendous growth in the second quarter of this year of 20-something percent. That went a little bit back in the third quarter. So after 9 months, they arrived at a growth of 3.6%. That is driven by the loss of a major chemical customer in North America. But if I look into our budgeting at the midterm planning and strategy, we aim to continue the sustained growth in our Chemical segment and North America is expected to play a major role in the growth strategy. Operations business is, as you know, only a small part of our group revenue and EBIT. It declined slightly from EUR 10.2 million to EUR 10 million. Looking at customer segments, business with independent customers continues to develop very positively, but also our key accounts are not to forget. They are investing according to the regular investment schemes. For the full year, we expect still growth in all product segments and this is also reflected in our order funnel and intake. Also as of today, the order backlog for the group is on a double-digit level above the prior year. Coming to the 9 months results by regions on Slide #5. You again see that the group revenue in the first 9 months amounted to EUR 312.7 million, which is the same level as the prior year. In Q3 only, the revenues increased by almost 10% or, in absolute terms, EUR 10 million. Driven by the revenues, the EBIT performance in Q3 with an EBIT margin of 13.2% was good, while in absolute terms the EBIT with EUR 33.2 million was still below the last year. In Q3 only, our EBIT was at almost EUR 15 million after EUR 12.7 million last year. And as I just said, this is the strongest third quarter that WashTec ever reported. This was mainly driven by Europe showing a very good performance and growing the revenues by more than 5% to EUR 259.1 million after 9 months. In Q3 only, the European revenues grew by 13%. A good performance was driven by multiple countries such as, inter alia, the Mediterranean countries, but also France or Austria, and [ Indian ]. The overall great revenue performance resulted in an EBIT ratio of 16.1% in Q3 in Europe, which is a great profitability and again proving that Europe is the main profit and revenue contributor and engine for the WashTec Group. As you know, North America, and as I already told you before, had the biggest challenge or struggle to catch up and compensate the stellar revenue growth of 2017. They are really on a very good track. The third quarter revenues were on the same level as the year before and the outlook is very positive. The order backlog of North America has almost doubled, mainly driven by more direct sales orders but also by a good performance in business's key accounts, and I will come to this later. Thinking about the change guidance that we gave for North America and said also impacting the group guidance, this is not changing the very positive outlook. The outlook today is maybe even better than it has been end of August or end of September. This is rather a problem of a shift after the due date of 31st of December. Coming to Asia Pacific. Asia Pacific continued to perform well revenue wise. We were able to achieve a revenue increase of 17.1% in Q3. And especially in China, we see a continuously positive trend. As I told you in the last call, we will be able to double the number of units sold in China in the year 2018. Great performance of this small subsidiary. EBIT, on the other side, was impacted by the already described restructuring costs in Australia and in combination with the higher share of the more basics machine that we sell in China, which do not have the same profitability as the premier machines in Europe have. Coming to the profit and loss statement. Gross margin slightly improved from 57.6% to 57.8%, so almost at the same level. And that is driven by the product and region mix. Personnel expenses are expenses that we are extremely focused on. They increased by EUR 4.6 million to EUR 102.3 million due to a higher number of employees compared to the previous year period and the already described wage increases that we have always after the first quarter of the year. As of September, we had 1,875 employees, meaning 63 more headcount on our payroll than the year before. Headcount especially increased in the areas of service, R&D, sales and product. Other operating expenses grew only slightly by EUR 1 million to EUR 43.7 million, despite the expenses for trade fairs, higher mobility costs and consulting costs. And as you know, we try to be very cautious with spending money in 2018. As we knew from the beginning of the year that this year will not show the same growth that 2017 showed.Net profit was at EUR 21.3 million compared to EUR 26.2 million last year and EPS was accordingly below last year. For the full year, we still expect a tax rate of 30% for the group. Some highlights regarding the balance sheet. The balance sheet total was almost EUR 254 million, increased by almost EUR 20 million, mainly driven by higher inventories due to the expected busy Q4. And I had some phone calls in the morning asking for the change in the forecast for the year-end. Despite we now expect a revenue growth of 1% to 3%, we are still in the middle of a very busy quarter and want to produce the maximum output until the end of the year and do the maximum number of installations that we can do until the year-end. Account receivables decreased slightly from EUR 69.5 million to EUR 67.7 million. The equity ratio decreased still because of the dividend payments that happened in Q2. Our net financial debt increased from EUR 7.1 million at the end of December 2017 to EUR 40.2 million, also mainly as a consequence of the dividend payment in Q2, which was, as you may remember, EUR 33 million. As I already said, in Q3, we continued and completed the negotiations with our bank successfully and concluded our new financing agreements at improved conditions. The net operating working capital increased to EUR 109.9 million after EUR 86.7 million, driven by the higher inventory and the changed inflow of prepayments described in the second quarter call already. Cash outflow from investing activities amounted to EUR 3.7 million. And as already said in the second quarter call, we expect our investment level in the full year of 2018 to be below 2017. This brings me to the shares. After many periods of share price growth, we finished the quarter with a share price of EUR 75.60, and that's outperformed the SDAX, and I'm not exactly aware of the share price at the moment. I think it's below EUR 70, which means the news have somehow impacted the share price. On the other hand, the indices of today didn't perform very well and thus, we even outperformed the indices to date. Regarding our shareholder structure, we received the notification of a very well-known investor, Fidelity Investment Trust from Boston in the U.S., exceeding the 3% threshold on September 12, 2018. So as of now and today, we have 2 investors from the world of Fidelity, Fidelity Investment Trust and Fidelity Management & Research, completely separate entity but both named Fidelity. On October 22, Ellington Management Group notified us that their voting rights fell below the 3% threshold. As far as we know, they didn't really sell their stake, they just reduced their stake a little bit and fell, therefore, below the threshold of 3%. All-in-all, we still see a very high interested from the investor side. We had a lot of participants at our presentations held at the Investor Conference in Munich in September. And we are looking forward to seeing a lot of you on the big conference at the Equity Forum, where Volker Zimmermann will be presenting at the group presentation. So we remain confident that WashTec is a very interesting investment for shareholders and investors and look forward to meeting a few of you in Frankfurt or somewhere else. Which brings me to the outlook for the full year 2018. And as already mentioned a couple of times, also today in this call, North America has the biggest challenge to execute their ambitious targets. After 9 months and even more today, we see that they are on the right track intensifying their sales activities. This is reflected in an extraordinarily high order backlog, the highest order backlog they ever had, and this has almost doubled in comparison to the previous year. On the other hand, they will not be able to realize all orders in-house before year-end due to delays on civil works at customer site. On some of the calls that I received this morning, I received questions, what does that mean? And a delay on civil works at the customer site means that this key account in order is an order in our order backlog, that means that the financing is secured and that there is an installation date in the system. Nevertheless, we are still depending on the customer getting his site ready and completed to be able to start our installation and have the machine on site. So if the customer has a problem with 1 of his construction lots, like electricity is not at the site at the agreed time, this affects our installation schedule. So if the site is not ready for the installation of the car wash equipment, we cannot ship the machine and start our installation. And therefore, in this busy fourth quarter, this [ inlet ] in the kind of shift of some installations behind the due date of 31st of December. This doesn't mean that this will only happen in 2019 some time. This only means that there is a few weeks shift maybe of a couple of installations and that affects the top, and in the case of North America, also especially the bottom line of North America, because North America has high economy of scale effect when they exceed a certain revenue line. And therefore, we changed the guidance for North America into slight decrease in revenues compared to the last year and a significant decrease in earnings. This also impacts the group guidance. Therefore, the group guidance is now up to 3% revenue growth at a stable EBIT level in absolute terms. If you look at Asia Pacific, you can see that we still expect substantial increase in revenues, while we expect earnings to be at a balanced level, driven by the effects that I already described to you at the results of the third quarter. So all-in-all -- and not to forget the KPIs of ROCE and free cash flow, the guidance for these 2 KPIs is unchanged. And all-in-all looking at the order backlog and order intake, the sales activities and additional initiatives that we have in plan to streamline our working capital to optimize the flow of order to installation. The customer feedback that we get showing them our products and our premises is very, very promising. So I'm very confident that we will have quite a good start into 2019, and that we will continue to work on our WashTec success story. And Volker Zimmermann, as I already mentioned, will tell you more about our strategy at the Equity Forum in Frankfurt on the 26th of November, and we look forward to seeing a lot of you then. And now I look forward to receiving your questions. Thank you.

[Operator]

[Operator Instructions] Question is from Aliaksandr Halitsa, Hauck & Aufhäuser.

[Aliaksandr Halitsa, Equity Analyst]

Could you maybe confirm or not confirm, but roughly quantify the revenue that you see potentially shifting into 2019? You used to expect stable revenue from North America. Now you say a slight decline. So would EUR 2 million to EUR 5 million decline in revenues sound reasonable?

[Karoline Kalb]

Aliaksandr, and thank you for your question. So I can tell you that until yesterday afternoon, we tried to verify the installation completion, especially in North America, for every single order. Up to now, we think that they will be below prior year. But they still think that if everything goes in line, this is what they want to do, they can maybe reach a little bit of higher level. But all-in-all, it could be that they will be around EUR 4 million below the prior year level if Murphy's Law worst comes to worst.

[Aliaksandr Halitsa, Equity Analyst]

Okay, excellent. And then if you could confirm that the guidance -- the initial guidance of around approximately 3% year-over-year sales growth was meant on the reported basis not on the FX adjusted. Is it correct?

[Karoline Kalb]

Correct.

[Aliaksandr Halitsa, Equity Analyst]

I think you still have some headwinds, the half year was EUR 4.5 million in FX headwinds. So essentially, we're looking at the 1 percentage point higher margin -- higher growth rate than what you would report basically. Is that the case here?

[Karoline Kalb]

Yes, exactly. So our guidance for the revenues is, the reported revenues, and we just add the FX adjusted revenues for convenience purposes for you.

[Operator]

The next question is from Eggert Kuls, Warburg Research.

[Eggert Kuls, Senior Analyst]

Also on the guidance, I would like to ask or could you confirm that there were really no cancellations, which are responsible at least for the part of the reduction in the top line guidance? And if yes, what I expect, then the growth in 2018 should be substantially higher, because you have this effect EUR 4 million lower in '18 and this additional EUR 4 million in 2019. This alone brings 2 percentage points growth in 2019. Would you agree with this calculation?

[Karoline Kalb]

Mr. Kuls, thank you for your question. And I can confirm that there was no cancellation of orders. If that's the case that sometimes the site is not finished, and then we cannot add the installation. But that doesn't mean that an order is canceled by a customer. What you also need to have in mind, you know that we made some nice progress not only in rollovers but also in the tunnels and check washes, and these projects normally take longer than the typical rollover project does. So there, in general, we have longer project times, but there has not been a cancellation. And you are right that we are currently expecting a good start into the next year 2019. On the other hand, if I would already have the visibility until year-end 2019, I would apply for a completely different job. So as you know, our order backlog has a visibility of 3 to 5, maximum 6 months. And from what we see today, we will have a good start into 2019. Last, in general, we do not see that the investment climate has changed to worst conditions compared to 3 months ago. So all-in-all, we are expecting another good year for WashTec with a better start into the year in 2019.

[Eggert Kuls, Senior Analyst]

Okay. Can I have the clarification on the order backlog, you said you have in double-digit term, what does that mean? Is that EUR 1 million? Or is that percent? Or what is double-digit?

[Karoline Kalb]

All that in percent, percentage.

[Eggert Kuls, Senior Analyst]

Okay. Then regarding the Chemicals business, you mentioned that you have lost a major customer in North America, which was responsible for the slow growth we have seen in the third quarter. I think this will probably continue in Q4. But going forward, in the past, you always spoke your low double-digit percentage growth in Chemicals. If this effect from the major customer in U.S. has gone, do you expect this growth rate to occur again?

[Karoline Kalb]

No. Of course, we expect Chemicals to be a major part of the overall growth story of WashTec. And if you think about North America, you may have in mind that we are not having our own chemicals there up to now, owning the recipes as we do in Europe. And we are currently working on a strategy for the North American market. And midterm, we also want to own the recipes of the chemicals that we distribute in Europe. So step number one was that we started a white label, Mark VII total care concept label chemicals. In the midterm, we want to have our own chemicals in order to first better serve the customers and also benefit from the high margins that you can earn in the chemical business.

[Eggert Kuls, Senior Analyst]

Okay, good. And lastly, you meant that the tax rate for the full year is like 30%, you are far away from that level after 9 months. And I'm a little bit surprised. So this means that in the fourth quarter, the tax rate will be only around 20%. And when keeping in mind that you pay taxes again since 2018 in North America, looks a little bit optimistic to me. But you know it better, of course, maybe you can explain that a little bit more in detail.

[Karoline Kalb]

I hope I know it better. We are still expecting a positive contribution from North America. In the last quarter, as North America is, of course, benefiting from lower tax rates and that's in a nutshell, it so -- if it's going to be 31%, don't kill me, please. But we are, in general, calculating this tax rate of 30% for the group on a full year base.

[Eggert Kuls, Senior Analyst]

Yes, 31% was my calculation so far. So when assuming that the North American profitability will become better in the coming years, this would mean in the future that you could again come below 30%. Is that true?

[Karoline Kalb]

Yes or no, so I'm not the tax expert in this group. But North America doesn't have too many tax losses carried forward that they can use. So they will also come to a kind of normal run rate with regard to the tax ratio.

[Eggert Kuls, Senior Analyst]

Yes, this is clear. You have a tax rate of 21% as far as I know. And -- but this is clearly below what you pay in some other markets.

[Karoline Kalb]

That's true. But on the other hand, we still expect Europe to continue to grow. So North America shall grow disproportionately, and therefore I agree with you with the tax rate. On the other hand, I don't expect North America to reach a 50% contribution from WashTec revenues in the next year.

[Operator]

The next question is from Richard Schramm, HSBC.

[Richard Schramm, Analyst]

So first allow me a little remark on your press release. I think, the guidance adjustment downward was really an important news and should have well deserved to appear in the headline of your release. So I understand that you are proud of the strong Q3, but nevertheless, I think from the current market perspective, the guidance increase was a more important message in first instance here. Okay, now to my question. First, I still have not gotten the background of the shift in North America, because -- that customers are not ready with their sites should be relatively normal, so what was that cumulative -- obviously, cumulative effect this time? Or is it really a very big project, which is pending here and waiting for the customer to prepare his site? And second, you mentioned the successful development in Europe across a lot of markets. Can you shed a bit more light on what exactly has driven here the better performance? Was it new equipment business or was it replacement of services? And were you able to gain market share by a certain marketing measure? So what was behind this quite impressive performance?

[Karoline Kalb]

Mr. Schramm, and thank you for the feedback. We will consider your feedback again when we are preparing our next releases. Regarding the shift in installations, this is really only a volume effect issue. You have to have in mind that you have a lot of installations scheduled for the fourth quarter, despite the fourth quarter is not a full quarter, because December is not a full year. So you have that combination of high, high, high output, really a need to take care of your installation schedule and having the capacities in place. And then you have only 1 delay in installations, because one customer site is not ready, and then in addition, you have maybe a weather effect. Then you get into a mess, because you cannot do every installation in parallel at the same time in the last 3 weeks of the year. I agree with you that we always have an effect of a very busy fourth quarter and we try to prepare the organization for that. But if you do more business with direct customers, they may be not as well organized as if you get a bulk order of 1 big customer, which has a whole organization taking care only of construction site. And as you may remember, we had a very busy last quarter in North America 2 years ago, but that very busy last quarter in North America was driven by a large bulk order of a big key account. And there you have more security with regard to fixed installation dates. What happens now is a little bit the price that we pay for a very successful increase in direct sales activities. Agree with you, maybe we could have foreseen that a little bit better. On the other hand, I think we checked the orders. The orders had fixed installation dates. The customers got calls and received calls, if these installation dates are confirmed. So yes, that's a little bit of bad luck that we have these shifts. On the other hand, I do not think that we really -- it is an adjustment of guidance, and we also called it an adjustment of guidance and didn't say it's to concretize the guidance. On the other side, it's rather an effect of the due date than really an effect of a change in business. With regard to your question regarding Europe, we are quite happy that we were able to grow not only equipment but also service business. And if you look at the equipment, as I already said in the course of the call, we are quite happy that we are also growing in product segments, where WashTec historically was not that strong. Like the tunnels, there we really see a nice progress but also check washes, which is, if you start to focus on, one of the examples then you -- that you can get more successful if you put more focus on a certain business segment or product segment. And that is driven by multiple elements. One element, for sure, is increased marketing activities. Another element increased sales activities, driven by more training, driven by more management of the salespeople, driven by more reporting. And so it's really a number of elements. You also asked about if we think that we were able to increase our market share. We still believe that the car wash market, in general, is performing positively. But from all what we hear, from what we record in our CRM systems, what we hear from market, newspapers in the end, we think that we are outperforming the market and, thus, catching market shares from the other competitors.

[Richard Schramm, Analyst]

Yes. And just to sum up what you said to the guidance adjustment in North America. So if I understand you correctly, you want to tell us that this is really only a temporary issue and should be corrected with the corresponding deliveries in 2019, right? So then it would have been more important to put a few more words in your press release on this topic, which has avoided a lot of trouble, I think, for the shares in the opening when they were down somewhere about 10%, I think. Now things have come down a bit as the real truth comes out here of your comments.

[Karoline Kalb]

Yes. We try to explain it as well as possible. But obviously, we maybe should have spent a few more words also in the press release. We try to highlight that this is just a shift. But maybe we should have added a little bit more of explanation to that.

[Richard Schramm, Analyst]

Okay. Now it's going to be fixed quite obviously.

[Karoline Kalb]

Good. Also thanks to the analysts, I hope.

[Operator]

The next question is from [ Oliver Kaubloh, Flixley ].

[Unknown Analyst]

The last question concerning these delays in the U.S. So if I understand you correctly, you never -- when the customer orders or individual customer orders equipment, you are not playing the general contractor for the whole project, you're just taking the order for the WashTec equipment. Is this correct? So you don't have the financial -- financially reliable for the delays?

[Karoline Kalb]

Exactly. So you know, being a constructor is not our core competence. Our core competence is to be a machine supplier. And therefore, we just want to arrive on site when the site is ready for installation.

[Unknown Analyst]

During the presentation, you mentioned in the U.S., you had the highest backlog ever. This includes even when you got this huge order, huge bulk order in 2017. Can you confirm this?

[Karoline Kalb]

Yes.

[Unknown Analyst]

Okay. This means in -- even in the U.S., you think you have, if we just take the order and not the sale taking again a little bit market share from your 2 major customers, not only in Europe but also in the U.S.?

[Karoline Kalb]

Yes. I think that we are really -- if we look at the level of activities that we see in the U.S. and also the execution of activities not only getting a higher order funnel but also real orders with a confirmed installation date, we are very, very happy with our organization in North America, because we knew from the beginning of this year that they would have a tough year this year. So number one, doing the service for a much larger installed base than the years before. And number 2, to continue a success story. And I think I'm not really upset about them that they are now missing this deadline. It's, of course, also for us, nothing that we are happy about because we also prefer to release press releases confirming guidance or even increasing guidance. But on the other hand, if I look at the business development in North America, it clearly shows that they are on the right track.

[Unknown Analyst]

I was just a little bit scared because when I looked at the trade shows in Las Vegas, for example, what kind of products the local competitors are now able to offer, it's not my taste really, but apparently with very funky colors and lights they have and they are offering is very much admired by the U.S. car wash operators. So that's why I was scared that you'll lose a little bit of ground, and we saw also that NCS has made acquisition exactly in this field, and apparently this is very much in demand. So another question there was, I saw this -- there was a tender from Repsol, I just was wondering were you competing against ISTOBAL? And why ISTOBAL won this tender? Was it because Repsol was deciding to have really low-end equipment? Or was it the case that ISTOBAL was simply very aggressive in pricing?

[Karoline Kalb]

No. You know that Repsol is an oil company based in -- on the Iberian Peninsula. And there, ISTOBAL is the #1 in the market and they will do a lot to keep their leading position also with local key accounts. So we know that they have quite aggressive pricing. They have a good market share with these local players and they are defending their market share and plus, you have to have in mind that in Spain, they do have a decent service network with own services and subcontractors. But in Spain, they are still really the #1 in the market.

[Unknown Analyst]

Okay, and my last question was about the success of EasyCarWash. One can see they have now 24 installations all over in Europe, in some countries there are only one. In Norway, obviously a little bit more. Were these installations of EasyCarWash mainly done with the new equipment? Or was this retrofits which shifted with these customers?

[Karoline Kalb]

No. It has been both, and you have to have in mind that at the UNITI in June, we really only launched that product to the market. So these machines that you can see are really the first machines that are in operation. We are very convinced that this is the way forward with regard to carwash. If you look at China, for example, you can see that in China, carwash is only paid by bar code, and WePay and AliPay and whatever. So I think this is the right way to go. On the other hand, we are also still learning also with these first pilot sites that we are having. And these pilot sites are new machines and also retrofits.

[Unknown Analyst]

And how is the feedback from the customer? Do they achieve the results that people are taking subsistence and coming more often? Or is it still too early to say?

[Karoline Kalb]

Yes. It's a bit early to say. What we learned again is that Germany is quite a traditional market, and German customers are still used to pay cash. And at this -- we made the same experience when we created the so-called wash and pay, and we said why does a car wash customer first have to enter the shop, buy the wash and then after that wash the car while he can fill up his tank and pay afterwards. And we have the first sign, it was like plastered with posters and banners but still the customers -- it took the customers a couple of months to understand that new journey with regard to carwash. And therefore, I believe it's a little bit early to say.

[Operator]

We have a follow-up question from Aliaksandr Halitsa.

[Aliaksandr Halitsa, Equity Analyst]

I was wondering whether you could spare a few words on a few topics, the tunnels -- the premium tunnels in the U.S. How the business is development -- developing? And also on the China, I remember that you mentioned that the business has doubled or you have already achieved the business you made in 2017 as of past year of 2018. So I was wondering if you could spare some words on the ongoing dynamics there.

[Karoline Kalb]

Thank you for the question. First, regarding the tunnel business in North America, we see a lot of interest in the tunnels. On the other hand, you have to have in mind that we just addressed the premium segment of the tunnel market in North America. So these projects that we are talking about are really huge projects. I'm thinking about this AutoSpa carwash in Toronto that we have as a first installation. These are 2 60-meter tunnel chains in parallel. This is a tunnel that you would hardly find in Germany, for example. So we are increasing the tunnel business, but we are not talking about hundreds of tunnels. We are talking about selling more tunnels, but rather think about 5 to maximum 15 tunnels in the next 12 to 15 months than about thinking -- thinking about, I don't know, the numbers that you would calculate when you think about rollover. And with regard to China, we see that this market is coming closer and closer to turn from hand wash to automatic car wash. We see that the Chinese customers are much more advanced with regard to quite smart combinations of the basic machines that we have there with their advanced payment systems, like AliPay. So even these unmanned sites, no container, are equipped with cameras, so number plates are recognized and payments are done with the smartphone. So it looks like the market is coming closer to a tipping point. And we, in 2018, will be able to double the number of units produced compared to 2017, and we expect further growth in 2019. Nevertheless, as you know, China is still a very small part of our group revenue and therefore, the top line impact will still not be major.

[Aliaksandr Halitsa, Equity Analyst]

Maybe just a follow-up on the first one with tunnels. The premium tunnels, what is the average selling price for them? Is it more in the direction of $500,000? Fair to say?

[Karoline Kalb]

Yes. That's really depends on the individual site because depending on the individual customer site, you come to a potential analysis and this brings you to the links of a chain. And this is a market segment where I agree with you, where you would start at maybe $100,000 or euro and then it can go up to $500,000, $600,000. But $500,000 or $600,000 for the equipment only would mean a tunnel comparable to the Canadian tunnel that I just talked about. So these are not the tunnels that you find everywhere.

[Operator]

At the moment, we have no further questions. [Operator Instructions] As there are no further questions, I would like to hand back to you, Ms. Kalb.

[Karoline Kalb]

So thank you for this participation in Friday afternoon call, and I look forward to talk to you and see you in the near future. Have a nice weekend, and goodbye.

[Operator]

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