Basler Aktiengesellschaft (BSL) Earnings Call Transcript & Summary

So it looks like we are complete. Again, welcome to the 6-month earning report from Basler. For those of you who don't know me, I'm Hardy, CFO, COO of the company. I'm happy to present you today very dynamic and very interesting first 6 months, and run you on it. So after showing the disclaimer and make you aware that we are talking here about future statements also based on the current know-how knowledge, I will immediately go to the agenda. It's an agenda that most of you are aware of. We start with executive summary, combining, or summarizing the main results, then we dig deeper into the financials. We have a quick lens at the share performance over this first 6 months, and then we go into the outlook, giving you an understanding of the remainder of this year, but also looking into our midterm guidance and give you some highlights here. After this formal presentation, we have, I guess, enough time today also to do a Q&A session. So we'll start with that after the outlook. Yes, starting with the executive summary and with our market environment and what could have been realized over the first 6 months of this year that the German industry for vision components was kind of cooling down from compared to last year from the growth perspective. Billings and bookings according to VDMA, were up 5%. Here also, maybe stressing the point that the bookings and billings were up 5% gross, the net value is closer to 0 because there was also higher inflation than normal. So what we see is that the whole industry is not significantly growing compared to the first half of last year. The main reason behind that, and you will see this later on also in the Basler figures is that the chip supply is still constrained, and it slows down the potential higher sales. The whole industry is also sitting on higher order backlogs, and it's demonstrating long lead times, long order horizons. So this all needs to be, let's say, looked at or considered when thinking about the industry and also the development of the industry. And last but not least, also the consolidation trend is ongoing. There were some competitors also striking some deals, but -- and I'm coming now to Basler and our highlights, we were also pretty active in the consolidation of the industry. As you know, we are looking in order to get more direct market access. And by that, we have over the course of the last 6 months, roughly closed 4 deals, M&A deals where we acquired or in the France example it's for the -- at the moment, it's just a minority stake acquisition, but where we did transaction in order to acquire the businesses of our distribution partners and also to enter into a direct sales approach. This kept us obviously very busy. You will see later on also a lot of distortions in the numbers, especially on the cash flow side. And that also needs to be considered in the context that there are extraordinary situations or developments. Bookings were down 3%. I mean I have to say that the bookings in first of half year -- last year were already very high. We look at the absolute numbers. And so we are still on a very high level of bookings in the first 6 months. What happened is we have seen the expected normalization in the order behavior. I come to this later during the presentation. Billings, up 14%. We created a new sales record for 6 months, EUR 130.8 million. We are pretty proud to have this achieved, and I can tell you that we even looked at a little bit higher revenue, but we had a glitch also in mid of June, we were missing parts. So our production slowed down, and this is why we do not utilize the full potential or the goal we wanted to shoot at. But having this said, we are on a sales record, and we are proud to be -- to have shown this -- to be showing this. On the earnings margin, the earnings margin is at the upper end of our guidance, not at the upper end, but in the upper arena of our guidance with 11.3%. We have demonstrated relatively weak gross margins, especially in Q2. I come to this later also, giving you some further explanation -- we have significant order backlog still. Also this needs to put in context here, EUR 145 million were still in our books by end of the reporting season. And very proud also we achieved or exceeded more than 1,000 full-time equivalent employees. And I show you on the next slide, the split as we have also certain inorganic growth and the transaction were in the field of distribution. What you can see is that the sales and marketing personnel proportional-wise is increasing, production at 22%, overall staff admin at 15% and R&D continues to be strong at 25%. We invested approximately -- or we invested, not approximately, we invested EUR 16.1 million in R&D in the first half year, which means around 12.3% from sales. So we are a little bit below our steering point, but we have also to consider that we acquired some distribution business from third parties with the transaction in Korea that we have -- with the transactions we have done. So also here, we are close to our steering point of investing, roughly 13% from sales in R&D. So in total, 1,020 employees by end of the reporting season, and 50 of that were from inorganic growth by the acquisition from Korea, both acquisitions from Korea. With regard to the acquisition, we recently announced also from Italy. We have closed the deal. The consolidation of this deal will be in the second half of this year. It's not consolidated yet since we closed the beginning of July. Yes. Some other highlights. We were also very active on physical shows again. Also very happy to get an interaction again with customers. We have been in Q2, also on 2 shows, three shows in Germany, an analytical show embedded world and on the automatica. Just a mark also here, we have also -- we are proud to be third time in a row that we got the Best Managed Companies award. Also, this happened during the course of Q2. And we are also very busy with other projects. I have no specific slide, but we are still very actively working, obviously, on our S/4HANA integration I reported earlier in other presentation. We are in the midst of finalizing our headquarters extension, creating spaces for 300 new employees. So I can tell you there is a lot going on, and we are very busy. We were also very active in the field of new product introductions. Just some highlights here. We extended our 3D offering with stereo technology. You see at the upper end 2 images here, or pictures of products. So we offer now the supply time-of-flight technology and additional technology, which is stereo, to expand our 3D offering. In the field of medical, we launched new product versions with new feature sets. For example, medical feature set when it comes to dust protection, so very clean cameras that in, for example, lab automation applications are required. In the field of embedded vision, we are happy to have entered into a lead partnership with NVIDIA, so one of the most famous embedded processor companies in the world. And by that, we are also starting to more deeply integrate and work together with NVIDIA customer projects where Basler vision technology is combined with NVIDIA processor technology. Yes. And the highlight, and I really want to stress this point, is the recent release of pylon 7. Pylon, for those of you who are not so familiar with that, is our central software development kit that enables the customer to parametrize and to connect all the different components we offer in their systems. So please recall our customers are typically OEM customers who have vision experience, engineers on their side, and we enable them with the software development kits to work with our products, to connect our products in their systems. And what is new also now with pylon visuals to offer imaging processing functions. So this is definitely one of our highest investment in the -- R&D investments in the company over proportional investments to make this product the central, software development gets stronger and create differentiation for the customer for us against competition and to enable our customers to design their systems much quicker, much easier than with competition products, hardware and so. Yes. This is another demonstration here. So you see a pylon on top of every -- different components from left to right that we offer, lighting, lenses, cameras, cable, processing cards, PC also processing units. And then there is also obviously some switches and power cables. And pylon is connecting all active parts. For example, lighting with the camera and the frame grabber, and you can synchronize and work seamlessly with 1 software as a customer. So we are expanding in this full line provider. This is also what you see in the next picture here on the y-axis. And on the x-axis, we are also expanding in different market fields from factory automation to medical, to ITS, or intelligent traffic systems, logistics and also retail, agriculture is also a very nice future application. So we are moving further down, and we have done this in the first 6 months of this year. Our strategic path from a single component factory automation company to a full-line provider attacking computer vision to the whole landscape, and putting in the center of our offering pylon software and also in order to bring this positioning really to the customer entering in the important markets, regional markets of the world entering into a direct sales. Yes. Coming now to the financials of the first half year, and starting with bookings and billings. So starting with the top line numbers. So looking at this picture, you can see what's happening. And it's exactly happening what we have guided. So for us, it's not a surprise. Even beginning of the year, we have said we see a normalization of order entries happening over the course of the year. This is what we now see. The reason behind that is the market lift off already back. You can't see it even here in 2020, and in the fourth quarter coming originally from a, let's say, order entry level of approximately 50,000 -- EUR 50 million per quarter, then towards EUR 67 million already very strong in Q1. And then we had 4 consecutive quarters in a row a really high level of order entries of EUR 85 million. Unfortunately, and you know all the story, we were not able to catch up with these higher order entries because of the supply constraints of -- in the beginning many chips. Now it's becoming only part of a limited number of chips that are short, but the net effect were that we created a gap of bookings and billings over the last couple of quarters. And our order backlog grew. And the order backlog is stable also by end of the -- second quarter was stable at around EUR 145 million. What we are seeing is now that the order entries per quarter are approaching more or less the level of deliveries we could supply over the course of the last quarters. It's even a bit higher. So what we see is that demand and supply is starting to get back in balance but we have still a very high backlog. And this kind of phenomena that's the highest level of bookings per quarter are in the past, we also expect in the future, but we come to this in the outlook. Our revenue in the second quarter was stable. I mentioned in the beginning, we shoot it for a little bit higher revenue. Unfortunately, we had a missing part that stopped down production lines in right, mid of June. So we see or have seen the impact when we closed the books for the second quarter. So -- but I am confident that we can catch up for this in the third quarter. Yes. These EUR 130.8 million in total revenue for the first 6 months. You can see here the regional distribution. Because of our Korean acquisition that was starting -- the consolidation started beginning of January, the Asian portion even grew further to 58%, EMEA 25% and America 17%, but it also needs to be mentioned that the China market was relatively weak in the first 6 months of this year, especially in the second quarter due to the lockdown situation. So what you could read in the news regarding the macroeconomic situation of China. We can also see this in our booking -- saw this in our bookings and billings in China, especially in Q2. Yes. Further down in the P&L sheet, let's have a look at the gross margin. And here, you can see that we had a decline in gross margin from Q1 to Q2, and I would like to give some -- shed some light on it in order to interpret the numbers. Maybe, first of all, the 54% gross margin that we have seen or that we realized in the first half of 2021 are exceptionally high. Our gross margins are typically in the range of 50% to 52%. This is also our long-term steering point. But you can also see that we are below that. We started roughly in that range in Q1, but we were below in Q2. And there are multiple effects. One effect is that there is a product change mix -- or was in Q2. Because as mentioned earlier, we had a production line down in June that created lower numbers of production output for Q2. So then also this means that our production costs were a bit higher because all the fixed costs are still there, even that -- because we produce or even that will produce lower numbers. We have weaker -- also, as mentioned earlier, we had weaker revenues and business in China. China is a 100% direct region, with relatively high gross margins. So that was missing in the mix. We had also a better business in Korea, as mentioned earlier, but most of this business was third party. So it was kind of distribution business with third-party products with relatively low margin. Then we had some M&A effects. So extraordinary effects like stock clearance in Korea. So we acquired also Basler cameras in that deal. This needs to be turned around. And we are continuing -- or having the burden of increasing material costs. I was emphasizing on this in further calls. So we have structural increased material costs but we have also spot buys where we go into the gray market and we buy up for higher prices. We also adjusted our prices beginning of the year, but the effect will be -- mostly be seen in the second half of this year because we have so high order books, and also we need to turn around the order book before our price increase become effective. So this mentioned, our expectation is that this is not a trend that it's further going down. We believe that sooner or later, we get back on track and get back in the area of 50% to 52% of our gross margin. Yes. With this lower gross margin, and I'm also flipping back with also 3% -- EUR 3 million in absolute terms, roughly, EUR 3 million less in gross profit, and higher costs because of expanding organization, you see the result on the earnings. We are EUR 4 million roughly below -- a little bit less than EUR 4 million below the Q1. Our earnings margin, 9%, roughly in the second quarter. We started the year with a relatively high 13.9%, almost 14%. We will see how this will continue. But in total, for the first half year will be 11.3% accumulated earnings margin. We are satisfied, and we are in line with our guidance. So looking at the whole, let's say -- or the main P&L parameters also here in half year, half year comparison, order entry, more or less stable, as I mentioned earlier, sales plus 14%. Main growth in the first 6 months coming from acquisition. I have to stress this point. The total production output was less -- approximately 8% to 10% less than in the half year 1 of last year. So hopefully, we can catch up here. So we have a positive M&A effect, but the own production, let's say, is still suffering a lot from missing material. Gross profits in absolute terms, more or less stable, but the gross profit margin significantly lower compared to the very high number in the first half year of last year. EBITDA -- let's combine them all the earnings parameter are more or less in between 25% to 30% less compared to the first half year. But again, I want to stress the point, we had a very -- tremendously high first half year. The second half year of last year was -- there the business slowed down top line and also bottom line. And we need to see, but we are we are optimistic at this point in time that we can continue more or less the cost that we are currently demonstrating. Yes. The cash flow parameters are very much distorted by the M&A transactions, especially the M&A transactions in Korea. We have, as you can see -- we had negative operational cash flows in Q1 and Q2. This is mainly due to the reason that we increased our stock. Also here, the stock increase of -- due to the purchase payroll, but also the raw material increase -- because the majority of the parts that were showed last year, we now get, but some parts of the are missing. So we have an uneven part supplier at the moment, leading to higher raw material levels by end of the first 6 months, we are roughly at 2.5x normal raw material stock. So we have high raw material stocks. Unfortunately, not for all parts, some parts they're missing, but we are seeing continuously an improvement in the situation, even though the production output is still limited by the part supply. On the investment cash flow, there is huge distortions or you can see the M&A transactions. And this is why that you see so much negative numbers. In Q2 and Q3, just to give you an outlook, you will also see some extraordinary effects because some payments for France and for Italy will also be done in Q3. But after that, we will see again a picture that is, let's say, more clearly demonstrating the normal behavior or the normal operational and investing cash flow. But you are also -- when you look at 2021, this is a normal pattern. There were no significant impact from M&A transactions. Yes. Looking at the liquidity situation, we started the period with 50 -- almost EUR 55 million cash. We have negative, so EUR 6.1 million negative cash flow from operations, EUR 28.3 million negative cash flow from investments. So free cash flow, EUR 34.4 million. So high investments, especially due to raw material stock increase and M&A transactions. We had some additional financing. We took EUR 11.6 million. We also paid out dividends in this period of time of a little bit over EUR 6 million. So that by end of this season here, our cash account was at around EUR 32 million. Yes. So looking at the share price development, the share price went, I would say, with the market but a little bit weaker than the market, as you can see. So you see the TecDax development, the slowdown from beginning of the year until end of June. We started the season with EUR 160.6, share price at the end of the first 6 months, we were at EUR 76.5. So significant decline. I mean, EUR 160 was a pretty high valuation. EUR 76, I mean, as we already increased a bit since then. So, quite a week for us perceived as a weak share price. So what we have also done, we have implemented a share split or we brought out 2 bonus shares for each share. So that is why the share price recently was divided by 3 because our share -- or people that hold shares got 2 additional owner shares for 1 Basler share. Yes. This brings me already to the outlook and what are our assumptions for the second half of this year. So we expect that the order entries and all the horizons will further normalize. So the pattern that we have seen that the orders -- when order entry went down. We see that this will continue in order to bring back the market in balance. And unfortunately, there is also the structural problem that supply is not meeting demand, and for so long time. So demand is starting to adjust. All our customers are also not able to supply what they want to supply, so they now start to adjust their order behavior. We see a relatively sound -- to give you also information here sound demand on the backlog. However, nobody knows how long this will be. I mean also the backlog can be influenced by cancellations. At the moment, it's very limited shifts in cancellation -- but we will keep you posted. We are looking on this situation. The production output and revenue will still be limited by supply shortages. As mentioned earlier, the vast majority of semiconductor components, raw materials, we now get -- and we now get in high volume. So there is a positive news. The bad news is some parts are still missing, and these parts have still structural problems. So the production capacity is very limited, and this is why some of those common parts are not coming, and this is slowing our production down. But you can also see because these are the similar parts, you can see it across our whole industry. It's not a Basler issue, it's an industry problem, and you can also see it in other industries like medical, like automotive, that the output numbers are constrained, significantly constrained. Gross margins. We see slightly -- then slightly increasing step by step in the second half of the year when the extraordinary effects go down, when our price increase will materialize and also the product mix between third-party products that we more or less buy and sell and own Basler products will again spring back a bit more towards Basler products, with an increased number of product output. Our organizational costs and also the OpEx cost that are closely related to HR costs or personnel costs will increase over the course of the second half of the year as we are in the hiring program. We have already closed contracts for another 50 people that start in the second half of the year, and we continue to hire in order to prepare the company for our midterm long-term goals. For the -- I mentioned earlier that the Italy acquisition will be consolidated in the second half of the year. Just to set up the right expectation, this is not a significant gain we are talking about approximately half year gain, revenue gain of EUR 3 million to give you also a reference for it. Yes. Under these assumptions, we confirm our guidance with a double-digit growth and a sound profitability. So we confirm a revenue corridor of EUR 235 million to EUR 265 million at an earnings margin between 9% to 12%. Obviously, in the first half, we are more at the upper ends, not the upper end, but in the upper arena of this guidance. We also feel confident for the third quarter. However, there are still significant suppliers. And the transparency that we have for the critical parts is only 3 months in advance. So this is why we need to keep the corridor wide in order to reflect this risk. It's not a demand risk here in the short term because the backlogs are very high. You have seen that the order entry levels are also still high, but it's a supply risk and this needs to be considered appropriately. And you know that we are very transparent with that. And we are confirming our guidance, and feel good about the guidance and also about the development for the second half. For the midterm outlook, this stands also here in concrete, our 2025 goal. This is also why we are expanding the organization. We want to achieve EUR 400 million, and an earnings steering point and earnings before tax margin of around 12% and a sound cash conversion rate of 70%. So we need to see along the way. Everyone knows that the general economic outlook gets more and more fuzzy. But on the track record that we have at the moment on the things that we have in the pipeline, we feel very comfortable to achieve our midterm plan here, and we continue to invest. We continue to move on with high speed in order to realize this. Having this said, I come to the end of my presentation. I thank you very much for the attention of this slide show here. And we'll now open the Q&A session. And there are two ways, actually. If you are not able to switch on your mic, you can also put your questions in the chat. And my colleague will also read the questions. So please go ahead with your questions.

So the chat -- comment from the chat. Hello, from the backside. So we have no questions so far. Maybe we'll wait another minute. So the first one, Mr. [indiscernible] would like to talk to us. I will unmute him and he can talk to us now.

Just two questions. First of all, in terms of sales, the integration of the three companies or the four acquisitions, how shall we quantify this in terms of sales for this year around? And second thing is you make a comment on Italy. I don't really get it. What are you trying to tell us that we should not have high expectation for the time being, it's just a starting up? That's all.

Okay. Okay. I will answer the question company by company. So maybe the first company, France because it's the easiest one. No consolidation, no gain because this is a 2-step approach. We first acquired 25.1% of the company and we have the intention to acquire 100% in 2 years down the road. So there is no P&L consolidation. It's just a stake in our balance sheet, yes. So no impact. Italy. Italy, we closed the deal formally in beginning of July, and that was the starting point when the consolidation started. So for the second half of the year, there will be a revenue gain. So an additional revenue that comes from the deal. Obviously, what is not so easy in all this consolidation because we buy a distribution company that carries Basler products and carries third-party products. For the third-party products, the revenue gain is the same number than the revenue of the company. For the Basler products, the revenue gain is only the extra margin, which is typically 25% that the distributor is making on the Basler products or made in the past. And doing this calculation and the blended mix, and this is what I wanted to say is the extra revenue that comes from the Italy deal in the second half of this year will be around EUR 3 million. So it's not -- in the total light of the corporation, it's not substantial, just that you -- it will be around EUR 3 million. The additional earnings is around 10% of it, so EUR 300,000 also here, no substantial contribution. So coming now to Korea, this is a bit more -- this is definitely more substantial. In Korea, we acquired a larger organization, actually two organizations with total employees and the consolidation already started in January. So we have already the first 6 months in the numbers that I have presented, you have already the consolidation. And what I can tell you is that the Korea acquisition at the moment is running better than our expectation. So it's a positive surprise, so to give you a feeling, the gain -- so the revenue gain of the first 6 months were more in the range of almost EUR 50 million. So this means the majority of our revenue growth that we created in the first 6 months came from this deal, and we expect kind of similar revenue gain in the second half of this year. So we are talking -- for the overall year, we are talking at the moment more in the range of EUR 25 million, which is even maybe a bit more that needs to be seen. You know that in those deals, there are also risks involved but that is definitely more what we have expected. Our expectation was more in the range of EUR 15 million to EUR 20 million. Earnings margin, also with that revenue for those companies in the range of 10%. Hopefully, this is clarifying a bit more.

So the next question is coming from [indiscernible]. He's asking if you have any update on China business? How is the demand developing in recent weeks? And his second question is, how have spot market purchase developed versus last quarter? Do you have any figures?

Okay. Yes. So starting with China. The China business is the weakest at the moment in our regional mix, which is not typical. I mean normally, China is a growth engine. So China was down in the second half of this -- in the second quarter of the period here because it slowed down approximately in the range of 25% to 30%. So significant slowdown. We are still looking at it closely, as you can imagine. So but it looks like that the majority of this drop is really at the end, an issue of, on the one hand, lockdown situation. On the other hand, also certain products where we have supply limitations in parts that also China is needing a lot. So it's kind of a combination, but the majority is the lockdown. And compared to the very strong first half year last year or the second quarter last year, it's cooling off by approximately 25%. So that's definitely significant. The spot market. On the spot market side, the situation is that we see that we do much less spot buys. So it's a positive sign. The original supply chain for many parts can now deliver enough. But what I need to mention is over the course of the last 6 or 8 months, we have hired up significant raw material and part of this raw material were spot buys. So this means we are sitting now on material that were acquired for spot prices. And even if we start to buy from the original source for cheaper prices, there will be a slack effect. So this means for this year, we will still continue to see, as we have seen last year, in the first 6 months, the P&L effect of the spot price. For next year, I'm hopeful that the spot price impact that was -- that is around EUR 6 million per year will be moving out step by step. And this is also something that needs to be considered in the margin development that I have presented.

So he is also asking if there are any developments in the retail market, so what are technologies brought just are competing with each other? Has our visibility increased?

No, not significantly, to be honest. The retail market is still -- and this is now for a couple of years. There are a lot of research projects ongoing and pilot projects, but it's not mass deployed yet. So this means that the revenue gain or the revenue from the retail sector is still very low because we are not earning money with pilot projects. We are earning money when it's mass deployed. And then when the shipment of camera volume or other vision components volume starts. It's not a question of substitution of different technologies. It's more a question of when the retail market really flips the switch and automate the shops because what -- I mean you can also read a lot of those press releases in the newspaper, Roberts on the shelves. Like Amazon Go concepts, there are multiple companies having cameras in the ceiling. These are all real, but they are all pilot projects, no mass deployment. And we need to wait until this happens. And then obviously, we also need to win those pitches as in other areas as well. But the market itself is still at a very early stage. I wish that it would develop faster but it is what it is. We need to live with this market speed on the retail side.

And his next question is, do we see any benefits of pylon 7 already in our order intake? Or when do we expect this?

Yes. We definitely see and differentiate through pylon already for years because the pylon development has started 15 or 20 years ago, and it grew and grew and grew. And now it's becoming a central part. No longer a part of our offering, it becomes the central part of our offering. So we are not able to tell what -- let's say, what revenue and what impact on the P&L pylon has because we are not charging for it. Pylon is for free, and the customer is paying for the hardware. So we have a combined model, not -- pylon is not a single component that we sell. So with the release that I was presenting, we are offering, as mentioned, in pylon as well imaging functions. Some of them are for free and some of them we charge for. But this is -- we just released it. So there is no impact in orders, no impact in revenue. It will take some time.

So then we have [indiscernible]. He wants to talk to us.

Maybe just a few follow-ups as well. Just quickly on the third-party product gross margin effect in Korea, how long is that going to take to phase out? You already mentioned it will start phasing out in the second half already. So should we expect sort of the 18-month period we saw in China a few years ago? Or how long is that going to take?

So here, the situation that we have two overlaying effects. We have, on the one hand, the effect of the stock clearance of Basler product or turning them around once. This should be -- I mean, this should be mostly done now because we have relatively -- because of the market situation, relatively short stocking periods. But we have another effect, and this is -- Korea is tremendously strong or were tremendously strong in the first 6 months and were mainly strong with the sale of third-party products, which putting in the light that also we were not able to produce as much as we wanted to [ minus 10% ] production output in the first half year, year-to-year comparison, this shifted our product mix. And this is the main effect that you are seeing. And this was also -- I'm candid there, a bit of a surprise that this will happen in the Q2 because it -- I mean, this shift, they are very dynamic. If you have a missing part, this happened in the second half of June. Emerging, we would have realized EUR 3 million or EUR 4 million more in sales with Basler products, then it would shift everything around. And this effect was much stronger, the product mix effect than the stocking effect.

Okay. Understood. And maybe could you give some more detail on, you mentioned it briefly but what conditions are in China through July and now the first week of August. Has that kind of improved from the conditions you saw from I guess, March and April were the worst months? But how that...

No improvement so far. Still -- the lockdowns are still impacting. Also, when you look at -- also I see it in our books, but also on the macro side, recent purchase manager index numbers.

Okay. And then maybe just a final one. Are you seeing any -- you mentioned the normalization in order intake. Are you seeing any sort of hesitancy amongst your customers in terms of order intake just based on -- everyone's talking about a weakening macro outlook? I'm wondering if you're seeing any hesitancy on CapEx behavior from your customers?

Yes. Yes, we are starting to see this. As mentioned earlier, I mean, this is especially with -- I mean we see it in the normalization behavior of new orders, obviously. But we also see it when it comes to the backlog. We see first tenancies that customers want to shift. We see first tenancy that some customers want to cancel, but on the basis, I mean we talk here about maybe, I mean, very low single-digit percentages of the overall backlog. But we are starting to see this, and we also need to see along the line and how this process is ongoing and what's in macro-wise ongoing. Either we see only a normalization because of the supply is not meeting the demand and now the demand is pushing back and things are getting back to balance or we see here signs of recession, but I cannot give an answer. But what I can tell you is that we see also signs that customers -- some customers want to shift orders. Some customers want to also cancel orders, but on a very limited scale at the moment.

Okay. And maybe just one follow-up on working capital for the second half? I assume that will normalize slightly, assuming you have some -- given the normalization order intake and production output coming through?

Yes. Definitely, more in the range of site move or it going down. So not going further up. Besides I mean, if, for example, if we get surprisingly nice supply, then it could be that because we are ready to produce. It's not a matter of capacity. We are ready to produce. We just need their critical supply. In such a scenario, the accounts receivable would rise sharply, obviously. But we are also here talking about a scenario that then would be outside our guidance. If we are in the guidance, I expect working capital to be -- to make a side loop or even go further down, so that we can start to improve. After all the spot price the hot supply market and also after obviously need some time to digest.

So the next questions are coming from Van Der Horst. He would like to talk to us as well.