Elringklinger AG

XETRA:ZIL2

Earnings Call Transcript 2022-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining the ElringKlinger Group Q2 2022 Earnings Call. At our customers' request, this conference will be recorded. [Operator Instructions]

I would now like to turn the conference over to Mr. Dr. Stefan Wolf, CEO. Please go ahead, sir.

[Stefan Wolf, executive]

Yes. Thank you very much, ladies and gentlemen. I warmly welcome you to our conference call on the results of the second quarter of 2022. We have already published preliminary figures on the 8th of July. With today's publication of the full figures, we confirm them.

As always, I will start with some headlines on the second quarter. After that, my colleague, Thomas Jessulat, the Group CFO, will discuss financial figures on the second quarter of 2022. I will then close with a few remarks on the current year. As usual, you will have the opportunity to ask questions at the end, and we are pleased to answer.

Let me start with the current market environment, which is affected by a number of factors. First of all, supply chain bottlenecks remains to influence the market. In the second quarter, there were regional lockdowns as part of Zero-COVID policies in China, especially in the month of April. This also had a hampering effect on the automotive production in the region.

According to IHS data, the light vehicle production in China was down by 5.9% in Q2 2022 compared to last year's second quarter -- last year in 2021. In April 2022, production even plunged by 42% compared to April last year, or 45% compared to March 2022. At the same time, the war in Ukraine went on with an uncertain outcome. Western countries have imposed sanctions on Russia. As a consequence, distortions on world markets have intensified.

Continuing from the first quarter, the war has contributed to the supply chain disruptions, take the cable harnesses coming from Ukraine, for example. And on the horizon, the next crisis in Europe is looming with gas shortages. Generally, the global economic conditions in the second quarter were subject to slower growth across major economies like the U.S. or the Eurozone, GDP growth slowed down in Q2, and macroeconomic development always affects the automotive sector as well. Prices for raw materials, energy as well as transportation have increased. On the other hand, the semiconductor shortage has slowed down, but still exists.

The second quarter had to deal with this environment of many critical factors. Despite the fact that the global light vehicle production showed no growth in Q2, ElringKlinger could increase sales by 9.4% to over EUR 430 million. Organically, the group revenue grew by 5.6%. This means we have outperformed the market once again. Earnings are influenced by impairments totaling EUR 95.4 million, which were mainly due to rising interest levels. Mr. Jessulat is explaining that later. Our operating EBIT, which excludes these exceptional items, stood at minus EUR 1.6 million, stated EBIT at minus EUR 97.1 million.

We continued to manage working capital efficiency in the last quarter to counteract supply chain shortages. As a result, net working capital came in slightly higher at around 28% of sales. The group generated a positive operating free cash flow of EUR 3.9 million. Net financial debt stood at low level of EUR 390 million, after EUR 387 million at the end of Q1, resulting in a net debt-to-EBITDA ratio increased of 2.5. Finally, the outlook for fiscal year 2022 remains subject to a persistently high degree of uncertainty.

While having now provided some of the headlines of ElringKlinger's second quarter 2022, I will now hand over to our CFO, Mr. Thomas Jessulat. He will present the financials of the period under revenue.

[Thomas Jessulat, executive]

Yes. Dr. Wolf, thank you. Ladies and gentlemen, also a warm welcome from my side. Over the next couple of minutes, I would like to comment on the financial results of Q2, starting with the order situation on the Slide #4.

Also in the second quarter of 2022, ElringKlinger's order situation is very good, very pleasing. Order intake reported in Q2 was at EUR 453 million, up by 5.5% compared to the second quarter of last year. Secondly, and as a result, the group's order backlog was at a record level once again. Order backlog rose to EUR 1.55 billion as of June 30, 2022, corresponding a further increase of 27.1% or EUR 331 million compared to the end of the second quarter of 2021.

Despite the current environment as outlined by Dr. Wolf, ElringKlinger's revenues expanded by EUR 37 million or 9.4% to EUR 430.6 million. Without exchange rate effects, revenue increased organically by EUR 21.9 million. Considering this organic growth of 5.6%, the group outperformed the global automotive production, which showed no growth in Q2 of 2022 according to latest IHS data.

On Slide #5, we see the revenue development of our different segments and business units. In the second quarter, the Original Equipment segment continued a strong performance seen in the first quarter of the previous year, with EUR 338 million of the OE segment increased by 9.9% compared to the second quarter of 2021. Revenue was also slightly up on the figure posted in the previous quarter, the first quarter of 2022.

In navy blue on the chart, you see the business units within the OE segment. Revenue of the Lightweighting/Elastomer Technology business unit are up by EUR 15.8 million or 13%, with EUR 133.4 million or 31% Lightweighting/Elastomer Technology accounts for the largest share of group revenue. The Metal Sealing Systems & Drivetrain Components as well as the Shielding Technology business units grew by EUR 5.3 million or EUR 11.9 million, respectively. The E-Mobility business unit increased its revenues to EUR 14.1 million compared to the first 3 months of this year, which was at EUR 5.3 million, but recorded a slight decline in revenue compared to the second quarter of 2021 with EUR 16.5 million.

When looking at the sales split by region, sales revenue increased in all regions in the second quarter. The Rest of Europe, which is the region generating the highest revenue within the group, showed growth of 4.2%. Revenues in this region increased by EUR 5.2 million to EUR 129 million. The revenue in Germany was stable at EUR 88.4 million, up by 1% compared to the same quarter of last year.

North America accounted for about 1/4 of group revenue in Q2, with revenue of about EUR 110.7 million, making it the group's second largest region. Revenue in this region was up by EUR 21.7 million or 24.4%, which is well above the group's considerable growth rate of 9.4%. The exchange rates development also contributed to this performance, of course.

In the Asia Pacific region, revenue expanded by 5.3% compared to the previous -- to the prior year figure totaling EUR 79.4 million in the second quarter despite the recent resurgence of the coronavirus pandemic and respective lockdowns in several Chinese regions. Also in this region, revenue had some tailwind by exchange rates. Assuming constant exchange rates, the region came close to matching the level recorded in the previous year.

Let us now have a look at the earnings on Slide #7. The price development of commodities exerted pressure on earnings. Due to the war in Ukraine, raw material, transportation and energy prices rose, and supply chain bottlenecks continued and intensified over the first half of this year. In particular, the group was faced with continuously high cost for aluminum, steel and plastic granules. And as we consider that the raw material impact shown here is a net position and also includes, for instance, compensation payments by customers.

HR-related costs also increased partly due to additional obligations in the context of planned discontinuation of production activities at one of the German facilities as well as due to adjustments to semi-retirement.

The group's operating EBIT, which means excluding the impairments, came out at EUR 1.6 million. Even against the backdrop of consistent cost discipline, the increase in revenue compared to Q2 2021 did not yet offset the increase in raw material costs. Taking the impairments of goodwill and fixed assets into account, stated EBIT in the second quarter was at minus EUR 97 million after EUR 23 million in the same quarter of the previous year. Fixed assets included various assembly and handling issues.

On Slide #8, I'll provide an overview on the impairment of goodwill. Triggered by the significant rise in interest rates in Q2, the group conducted an impairment test, and this led to an impairment loss relating to goodwill totaling EUR 86.1 million in the OE segment recognized in other operating expenses. The intangible assets went down by EUR 75.9 million to EUR 139.7 million compared with year-end 2021, which is mainly due to the adjustment equivalent.

The effect of the remeasurement of pension liabilities changes the carrying amount on the balance sheet, while it does not touch the P&L. A large portion of the reduction amount of the pension liabilities is recognized directly in equity.

The exceptional items influenced earnings before tax, net income and earnings per share as well. The net finance results in the quarter under revenue was EUR 6.3 million, up by EUR 10.9 million compared to minus EUR 4.6 million in the second quarter of 2021. Higher unrealized foreign exchange losses and significantly higher unrealized foreign exchange gains translated into a net foreign exchange gain. And in addition, net interest result was minus EUR 3.2 million compared to minus EUR 2 million in the second quarter of 2021 despite the significant rise in interest rates, and that illustrates the group's solid finance position.

Taking net finance costs into account, earnings before taxes for the second quarter of 2022 amounted to minus EUR 90.7 million. After deducting tax expenses, which fell by EUR 8.6 million to EUR 3.3 million, and taking also into account noncontrolling interest, the share of net income attributable to our shareholders added up to minus EUR 94.1 million. Therefore, earnings per share amounted to minus EUR 1.49.

On Slide 10, we take a look at CapEx, net working capital and operating free cash flow. At EUR 13.8 million, CapEx, so capital expenditure in property, plant and equipment, was at a higher level than in the same quarter of the previous year. The investment ratio stood at 3.2% in the second quarter of 2022, up from 2.8% in the first quarter of the previous year.

Regarding net working capital, higher inventory amounts reflect the difficult situation within the procurement markets, and this approach was continued in the second quarter of 2022 and resulted in higher inventory on our balance sheet. Net working capital to sales increased slightly to 27.9% in relation to group sales after 27.5% in the first quarter of 2022.

Totaling EUR 413.3 million at the 30th of June 2022, inventory was up by EUR 24.5 million compared to 31st of March 2022. Irrespective of this, inventory levels also expanded a view of the group's solid order books, of course. Against the backdrop of one of the factors outlined before, ElringKlinger Group recorded operating free cash flow of EUR 3.9 million in the second quarter of 2022.

Now coming to Slide #11. Net financial debt increased slightly by EUR 27 million year-on-year to EUR 390 million. It slightly increased over the reporting period as a result of the higher funding requirements for the group's operating business.

The net debt-to-EBITDA ratio was at 2.5% as 30th of June 2022, up from 1.4% a year earlier. It is a reminder to the previous year's figure. The ratio as per the second quarter of 2021 included, of course, the transactions in the fuel cell business.

Let me now turn to Slide #12, showing the performance of our segments. As mentioned above, the Original Equipment segment was able to expand its revenue by 9.9% compared to the second quarter of 2021. And in terms of earnings, this segment was affected by 2 main factors. First, more substantial material-related costs; and second, the impairments described before. And therefore, the EBIT was down on the prior year.

The Aftermarket segment generated sales between April and June 2022 amounting to EUR 59.7 million, which is an increase of 12% compared to previous year's quarter. And regarding earnings, this segment benefited from a consistent approach to cost efficiency. EBIT increased by 14.5% to EUR 11.4 million. And overall, the EBIT margin was 19.2% compared to 18.8% in the same quarter last year.

The Engineered Plastics segment slightly increased its revenue year-on-year by 0.3% to EUR 31.9 million. In concerning earnings, higher costs for raw materials are reflected in the figures for the second quarter. EBIT was down slightly from EUR 6 million in the second quarter of 2021 to EUR 4.7 million from April to June in the year 2022.

Having said this, I now turn back to Dr. Wolf.

[Stefan Wolf, executive]

Yes. Thank you very much, Mr. Jessulat.

Ladies and gentlemen, the current environment is difficult, complex and uncertain. First of all, the ongoing war between Russia and Ukraine has no real foreseeable outcome. The economic consequences heavily strained supply chains. The tense situation on procurement market exerts pressure on the commodity markets and might reinforce the volatility.

In addition, and depending on the further course of the conflict, the uncertainty regarding energy supply in several advanced economies may rise further. And from the news this week, we have learned that tensions are also increasing in other regions of the world. Further, the price increase across most goods and services have brought several central banks to the arena. The Fed Bank of England and ECB have already increased base rates or announced to further raise the rates in order to bring down inflation.

And this means global economic growth may slow down. The International Monetary Fund global economy forecast now expects growth of 3.2% for 2022, for example, 0.4 percentage points less than the April projection. In addition, the regional coronavirus lockdowns in China as well as the potential emergencies of new variants has shown that the coronavirus pandemic is imponderable. The possible repercussion of the pandemic may have an impact on revenues and earnings.

I have already outlined the current market environment in my introductory remarks. Given these challenging underlying conditions, markets continue to be exposed to a high level of uncertainty. Key factors such as bottlenecks within the semiconductor industry, issues surrounding supply chains and ongoing distortion on raw material markets are placing considerable constraints on the recovery anticipated.

On the other hand, according to IHS data, despite price dynamics and general uncertainty among consumers, demand of new vehicles is strong in many regions, especially concerning the second half year of 2022, global automobile production is expected to increase by 11.5% compared to the same period of the previous year, or 4.7% on a year-on-year basis. Looking at the forecast for different regions, the recovery in North America and in Europe is expected to grow more than 20% in the second half of 2022 compared to the last 6 months of 2021.

Coming to Slide #16, illustrating the new revenue and EBIT outlook. Given our favorable order situation as well as the forecast regarding global demand for light vehicles, we expect sales to grow in fiscal year 2022. As just shown on the previous slide, IHS expects lower production market to grow by 4.7%. Against this background, the group expects to exceed this level of expansion with organic sales growth slightly above market levels.

Earnings continue to be influenced by a wide range of factors. The associated risks remain significant, and the degree of uncertainty is still considerable. Based on these conditions, the group anticipates an operating EBIT margin of around 2% to 3% in relation to sales for 2022, excluding the exceptional effect of impairments. This corresponds to an EBIT margin for the group of around minus 2% to minus 3%.

The new outlook is, of course, based on the assumption that there will be no disruptive impact on markets or macroeconomic environments like, for instance, a further impact on the Russian-Ukraine conflict or the increasing tensions in the far east.

This last slide now summarizes the outlook of the key indicators for both the fiscal year 2022 and the mid-term perspectives. Regarding the cash flow, the group expects to generate a slightly positive operating free cash flow in 2022. As a result of the earnings situation, we expect ROCE to be significantly below the prior year's level. The ratio of net debt to EBITDA is anticipated to be between 2.0 and 3.0 by the end of fiscal year 2022. We expect net working capital in relation to group sales to be slightly above the prior year's level as a result of prudent inventory management.

With regard to CapEx, the group will continue to focus on strategic future areas and maintain its disciplined approach. CapEx is expected to be approximately at the previous year's level of 4.3% in related to group sales.

For fiscal year 2022, the group expects that R&D costs, including capitalization, will account for around 5% to 6% of sales. Finally, the group expects the equity ratio to remain within the long-term target range of 40% to 50% of total capital. The group can also confirm its other medium-term targets.

Well, ladies and gentlemen, thank you for your attention. Things are tough. The world is in disorder. And on July 1, I was 25 years with this company, I've been 15 years as CEO, and I have never experienced in those 25 years' time as we have them right now. So really tough, but of course, we take those challenges and we will bring this company group in a good future. So thank you for your attention. And Mr. Jessulat and myself are, of course, now happy to take your questions as always.

[Operator]

[Operator Instructions] The first question is from the line of Christoph Laskawi from Deutsche Bank.

[Christoph Laskawi, analyst]

The first one would be on the guidance on raw materials. If we look at the net impact of raw mats and additional energy and logistics costs, it has been quite a negative in Q2. When we consider the margin bump in H2 which is factored in the guidance, is it fair to assume that these 2 buckets needed to become neutral to positive at least in H2? And is this already covered with customer negotiations?

And then a bit of a follow-up to the guidance, but also the question with regards to the gas shortage or to the potential gas rationing later in the year. Elaborate a bit on how you are currently looking at fallback plans? Could you source energy in alternative ways, and would there be extra cost associated to that? And in case, yes, is that already covered to some degree by the guidance? That will be the start. I'll have a follow-up questions later.

[Thomas Jessulat, executive]

Yes, Mr. Laskawi. Thank you for your question.

To your first question, when we look at the situation, we have seen now, for almost a year, will be an upswing in raw material costs, which we have shown is the net amount, yes. And this net amount has been really been significant on the negative side. We have, in fact, parts of the portfolio with prices that are indexed to some raw material indices. And what we have seen, and of course, this is a sort of trailing because the update is happening in a period 3 to 6 months after, in fact, those indices have changed. Then we have here, of course, this delay that we have to factor in if we look forward because the highest amount that we have seen here in raw material increases happened, in fact, now in Q2. And the effects on the other side on the sales prices, we have not seen as of yet, but we will see with a little bit of delayed, yes.

When I look at the guidance outside the sort of operating EBIT. And here, we say it's 2% to 3%, the 2% to 3% is including additional amounts that need to be covered by customers that are not part of the automated price adjustments. When I look at that and I look at the current information that I have, then with the 2% to 3% that I have in there despite the fact that we have to include additional payments here, I feel pretty confident.

And this is what I can say at this point in time. But of course, we need to update you as long as more information becomes available.

On the second item, there is the short term and the long term because we have energy, we have electricity and heat and cooling in the plans which is not necessarily part of the processes. And on the other side, of course, we have [ ovens ], to a large extent, that are gas-driven in operations. And the first one is the short-term measure where we see opportunity to save gas consumption in the area of electricity as well as heating and cooling. But we see in process, so to say, in regard to [ ovens ] that we operate here as part of our production operations on the longer-term opportunity here to substitute with equipment that is driven not by gas, but by electricity, no? So this is the status.

[Christoph Laskawi, analyst]

A follow-up to the raw mats answer. Do you already have the agreements with the [ unions ] to cover that? Or is it still in negotiation currently?

[Thomas Jessulat, executive]

Yes, sorry.

[Christoph Laskawi, analyst]

The second question will be just on employee cost into '23. I think the negotiations with the units have kicked off. Are you confident that we can move down from the 8% [ ask that unions ] have overall, or very tough stance currently in negotiation from you? That will be another...

[Stefan Wolf, executive]

Well, let me answer that because I'm pretty close involved in those negotiations. I think the whole thing depends on the situation that we are going to have in the second half year, yes. I think the 8% is just out of the way, and we had to make the union to be clear that those burdens by additional personnel costs, it's just a big problem for a lot of companies. With regard to raw material, some of the contracts are finalized and some are still under negotiation.

[Operator]

Next question comes from the line of Akshat from JPMorgan.

[Akshat Kacker, analyst]

Akshat from JPMorgan. Three from my side as well, please. The first one on the quarterly bridge, you show a net raw material impact of EUR 19 million in the quarter. Can you share with us what was the gross headwind please, in the quarter? That's the first question.

The second question is on the full year margin. You're talking about an adjusted EBIT margin of 2% to 3% for the full year. It probably implicitly assumed 0% to 1% for the auto OE business in the second half of the year. And do you think it's the new normal in terms of margin for this business division in this new inflationary environment as we look into 2023? Or do you think it can be realistic for you to target again levels closer to that 3% that you achieved in 2021?

The final question is on free cash flow. You're guiding for a slightly positive free cash flow for the full year. Can you just talk about the risks to that guidance? Given the production uncertainty, we talked about the gas shortage and the energy risks going into the second half. A lot of suppliers are talking about safety stock on the balance sheet and also rising working capital levels. Does the guidance include any financing or working capital or any buildup of safety stock?

[Thomas Jessulat, executive]

Yes. To your first question, the share of price impacts across the impact here is somewhere around 30%. So the difference between gross and net would be a 30% roughly increase in terms of the growth impact would be, also relative to what the price adjustments would be to come up with a net effect, yes.

As a rough order, we're going to give you. What you say with the 2% to 3% guidance and the conclusion in regard to the OE segment, yes, number one, it needs to improve in the second half of the year. As, of course, you know, that's very clear, and that includes more compensation here for the impact that we have seen here in the past quarters. That is very clear.

But as the new normal, I don't see it like that because the longer term needs to be significantly different relative to what we see right now. So when we talk about target setting here and talk about negotiations, and clearly, the reference as a new starting point is when we stood at from an operations perspective at the end of 2021 at the end of our efficiency program. So this is really the new starting point where we have to work our way up to start again at that point. So it's not what we have as a target here to stay on that level what we see in 2012.

On the free cash flow, I do not really see so much more risk from the inventory side. And the inventories have been affected, of course, by higher quantities based on inefficiencies here in the supply chain process, but also foreign exchange. And of course, prices for raw materials, those 3 factors all go into inventory. But I see this as more like an opportunity and not a fact. So out of working capital, I don't see much more threat the way we operate it.

And what is, of course, having a high uncertainty is the assumption that we have now in regard to the compensation side from customers. This is uncertainty number one. And the other one is CapEx. We have quite a number of new projects coming online here, in particular, of course, e-mobility, but also lightweight. And here, there is a lot of activity so that means that CapEx, I would expect that it's going to be picking up in the second half relative to what we have seen in the first half. And I factor those in, in regard to, number one, having a positive free cash flow in the second half. But for me, right now, it's a little bit early to say it's more than that. I'm pretty sure we get it done, that it's going to be in a positive free cash flow the way we run and the way we see things right now, but to promise more at that in this journey further, yes?

[Akshat Kacker, analyst]

Just one follow-up on the auto OE margin. I understand it's a more medium-term comment. But as you talk about building your way up from the 0% to 1% margin level, the 3%, what are the main drivers in your view? Is it still volume recovery? Is it product mix with all the lightweighting, battery orders that you have in your pipeline? With all of those ramping up, is it a product mix point? Is it more cost efficiencies? How should we think about the incremental operating leverage, please?

[Thomas Jessulat, executive]

There is -- from short term going more to mid-term, the following items might be. The one is short term, clearly, the compensation from the customer side relative, of course, to the market development of raw material markets. That's clear. Also, other inflationary developments regarding logistics, energy cost and also labor inflation, of course, that factors into that.

On the other side, what we have to remember, we have new business units in the group that are in the development side. They are in the start-up loss-making situation right now, and that is a pretty solid double-digit figure. And step by step, for example, along with the Drivetrain business unit and E-Mobility, we have a factory in the U.K. that now it goes or is in the revenue cycle. We see the same in their OE, and we will see also the same in fuel cell.

So the second factor here in OE is that we move structurally from a start-up situation to the revenue cycle, and that will give us also significant contribution and will help to bring this segment, which is, of course, having the classic products but also the new products in this segment, and that will help this segment structurally willing to improve and to get strong.

[Operator]

The next question comes from the line of Marc-René Tonn from Warburg Research.

[Marc-Rene Tonn, analyst]

Coming back to cost inflation, and you mentioned the energy cost and logistics was a EUR 7 million incremental negative for Q2. I would like to ask whether it's been the kind of hedging still in place? Whether you still secure rather, let's say, favorable energy cost for this year and whether we should expect another big chunk negative from that side in the future, be it in the second half of this year or in 2023 from, let's say, the -- any kind of hedging which might have been still in place in the current year?

Second question would be on the E-Mobility. And I think we're seeing, let's say, revenues improving sequentially already in the second quarter. Maybe you could give us some indication that you would like to be at a center of E-Mobility? Are revenues in terms of a run rate perhaps towards the end of the year be per quarter or, let's say, some kind of indication that this may go next year? As I understood that there's a lot of interesting contracts in the ramp-up phase.

And the third question would be more a bit like kind of housekeeping or technical questions. So when we talk about underlying or operating EBIT margin, they're just basically adjusting for these impairments as we have seen in the second quarter. I think the HR-related costs from Q3, minus EUR 5 million. Could it be some kind of competitive one-off as well? Or is there anything we should expect from that one in Q4 as well? And I think also the first quarter had some negative one-off effect in the amount of EUR 9 million, this will not be adjusted. So just simply the impairments, which we've taken out when looking at the adjusted margin for the full year.

[Thomas Jessulat, executive]

On the cost inflation, we have had and have and will have hedging on different levels, yes. We have, of course, the contracts with our suppliers, which could stretch out over several years, yes, on the one side. And this also, of course, may be the case in regard to electricity, not so much in the logistics area.

And on the second side, of course, we hedge in the market for raw materials. What we have done in the past on the major materials is aluminum and nickel as part of the alloy materials that we use for gaskets. And right now, we have seen that the LME has come down also based on, I think, some worries in regard to the general development of the economies.

But of course, we do that. We have done it. And also, we have benefited from it. Also this year is, in particular, in the time where we had the significant increase this year around the beginning of Q2. The target that we have here is to make us less dependent on pricings to the extent possible, but there is always short term what the situation looks like and the assessment if it's a good level or not. But it's part of our active risk management in the group. And of course, we do this as it helps us to secure the margin that we have planned.

Then on the other side, the E-Mobility that is currently in the foreseeable future, there's a little bit an upswing, I think, in the single-digit amount here. But there is more next year coming from start of production here from a project that we have also published in the battery area. And also expectation is from the sales success in the fuel cell business that here, step-by-step, we grow sales.

I cannot and don't want to be more specific now because with those new projects, sometimes there is delays. And as we come close, so I can get a little bit more detail in regard to that. But right now, it's a little bit far away when we talk about the start of next year.

On the third point, you asked the impairment, what we have seen, if there is more to be seen towards Q4, right? Was that your question?

[Marc-Rene Tonn, analyst]

No, it was more, let's say, kind of a technical question about adjusted overall. I think you would only adjust the impairment, right, which you now had in the second quarter? I think you had other one-offs. I don't know whether we should think about this cost to shipments for Q3 where there's a little bit more focus to revenue. More one-off, or let's say, an ongoing issue, and I think you will not adjust for that one just for the impairment.

[Thomas Jessulat, executive]

Yes, what we have reported here from an operating EBIT is the adjustment for the impairment OpEx. Now, we don't have a more complex structure underneath it. Yes, that's right.

[Marc-Rene Tonn, analyst]

Perfect. Good. If I understand it correctly, I mean, the Q2 results or these HR-related costs, is this kind of one-off, isn't it? Or is there something we should also expect for Q3 and Q4?

[Thomas Jessulat, executive]

There is what you mentioned, no? There is one-offs in there, yes, what we have as an operating EBIT. And going forward, we probably will be more specific on what's a one-off and what's not. But right now, in our current reporting, we have only taken up the impairment.

[Stefan Wolf, executive]

The impairment. Only the impairment.

[Operator]

[Operator Instructions] The next question comes from the line of Michael Punzet from DZ Bank.

[Michael Punzet, analyst]

Yes. Michael Punzet. I have 2 questions left. First one is once again on your EBIT guidance. So in a rough case, could that be the case that you came in below this minus 3%, taking into account also the one-offs you have booked in the first quarter?

And the second question is, taking into account your guidance, I think it's fair to assume that we will have a negative net result in 2022. So what will be the base for your dividend proposal for the AGM? Will that be the deposit figure or the adjusted figure? In other words, is there a possibility that we will pay a dividend despite a net loss in 2022?

[Thomas Jessulat, executive]

Yes. On your first question here, like I said initially, there is a lot of discussion and negotiation going on right now in regard to compensation topics, which, by the way, in my opinion, is going to be continuing into 2023. Not on the past amounts, but in particular, the future amounts as well, but what's the risk to arrive below that level? I said in my first statement, I'm pretty comfortable. I see the risk here is fairly low to arrive at a lower level from what I know today, yes.

On the second question?

[Stefan Wolf, executive]

Yes, to the -- it would not be really a good thing to talk about a dividend on August 4 of the ongoing year. We always have a clear view on that, that once we have the full year results, we, as a Board, make a proposal to the Supervisory Board.

[Michael Punzet, analyst]

Okay. But a follow-up question to my first question, I think it's not related to -- things could happen in the second half. I only relate to the already-booked negative impact of EUR 8.7 million. Is that included in your guidance of minus 3% on the lower end? Or is it only adjusted for the EUR 95 million from goodwill impairment?

[Thomas Jessulat, executive]

Essentially, it's factored in. It's part of it. When you run the numbers with a comma, then you see there is a little bit, of course, an offset here. But those roughly is all factored in what we have communicated. Yes.

[Operator]

As there are no more questions at this time. I will hand back to Dr. Stefan Wolf for closing comments.

[Stefan Wolf, executive]

Yes. Thank you very much.

So you have heard rough times. But of course, we deal with that, and I'm pretty sure that we will go successfully through those rough times, and we see also better times to come.

So thank you for your attention and looking forward speaking to you in November. So all the best. Bye-bye.

[Operator]

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