Bossard Holding AG (BOSN) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the Conference Call of Bossard Holding AG. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Dr. Daniel Bossard, CEO, who will lead you through this conference. Please go ahead.

Thank you for the introduction, and welcome to our semiannual results conference call. Stephan Zehnder, our CFO, and I would like to guide you through the following agenda. I will start with some highlights for the first half year 2022. Stephan Zehnder will then navigate through the financials before I will close with a strategic focus and outlook 2022. So let me start with the highlights. As reported this morning, the Bossard Group reached new heights on sales, EBIT, and net income. The economic tailwind throughout the year helped us to achieve these numbers, despite the ongoing pandemic, global supply disruptions and cost inflation. Our proven productivity -- our proven supply chain resilience through double sourcing of key products from different sources and regions and safety stock up to 8 months helped us to respond to increasing customer demand without significant shortages. Our proven productivity services, namely Smart Factory Logistics and Smart Factory Assembly were in high demand to reduce total cost for our customers. They opened opportunities for new business and for creating customer loyalty. And then, we introduced a new global digital platform in June with the first successful implementations in Denmark and Sweden. We are proud of that. Stephan Zehnder, our CFO, will now give you a closer view on the financial results. Stephan, please.

Thank you, Dan, and thank you, and good afternoon, ladies and gentlemen. Geopolitical tensions on Europe store set and energy crisis, China's zero COVID strategy, the turning on the tide on interest rates and the strong rise in inflation and the fear that central banks will hit the brakes too hard were just some of the topics which made its news around the globe in the first half of 2022. Regardless of this environment, Bossard experienced also in the first 6 months of 2022, a strong demand in all 3 market regions, despite the continuing supplied market challenges and capacity restrictions, which resulted in longer delivery times, coupled with price increases and higher rate costs. The Bossard Group achieved sales of CHF 586 million in the first half of 2022, an increase of 18.4% compared to the prior year, whereby the currency impacted the sales development negatively by 1.5%. Organically, sales grew by 15.8% compared to the prior year. The acquisition of Jeveka consolidated since October 2021, contributed 4.1% to the group's sales increase. Thanks to our consistently high delivery capability, we benefited from the continuing strong demand. As a result, Bossard was able to report double-digit growth rates not only in all 3 market regions, but also in the majority of all business units. Our central [ importance is ] crucial to our success in the first 6 months was again the delivery capability to our customers, that we have succeeded to do so is shown in the increase of sales, EBIT and net income, which reached new heights in the first half of 2022. The EBIT amounted to CHF 77.2 million, representing an increase of 14.9%. Despite the volatile market conditions paired with significant cost increases, both in raw material prices as well as in operating expenses, we managed to keep the EBIT margin with 13.2% on a high level. Compared to prior year, net income increased from CHF 52.6 million to CHF 59.9 million. The return on sales amounted to 10.2% and remained above the double-digit percentage level. A look at our P&L in more detail, shows that our gross profit margin of 31.5% in 2022 was slightly lower compared to prior year, which is due to the challenging procurement market, the regional product and margin mix as well as higher operating costs for purchasing, warehousing and quality, which are part of the gross profit margin. In total, sales and administrative expenses increased by CHF 15 million compared to last year. Out of that, CHF 4.6 million is due to the change in scope, meaning the acquisition of Jeveka. In the same period, the number of full-time equivalents increased by 291 FTEs, thereof, 120 FTEs are related to the acquisition of Jeveka, but also higher travel and marketing activities were a driver for higher costs as well as the costs associated with the successful rollout of our new digital platform in Denmark and Sweden. And part of the cost increase are also our initiatives as part of the Strategy 200. The financial results mainly increased due to the negative currency impact in the first 6 months. Despite these impacts, the results reported are underscoring our earning power also in a difficult environment. As already mentioned, all 3 market regions did contribute to the market growth with double-digit growth rates. In America, sales increased of all beverage by 32.8% to CHF 147.1 million or 27.8% in local currency and was broad-based. The competencies built up over the past years in the field of electromobility were particularly successful, translating into new customer relationships and business. In the field of electronics, existing customer relationships were significantly expanded. America also recorded strong growth in the [ united ] mechanical engineering sector. Also in Europe, the group recorded broad-based growth in the first half of the year. Sales increased by 12.9% in local currency by 17.6% to CHF 331.7 million. Organic growth amounted to 10.4% in local currency. On the one hand, this was due to Bossard's consistently high delivery capability and on the other hand, also to the strong economic environment. The Mechanical Engineering and Electronics segments developed here in this region particularly well. The Aerospace segment was also able to continue the above average sales growth over the previous quarters. In Asia, sales increased by 18.7% whereas in local currency by 17.2% to CHF 107.2 million. This led to double-digit growth in local currency for the seventh month in a quarter in a row, with support from all regional companies. The growth segments Railway, Electronics and Electromobility developed in this part of the world, particularly well. Looking at our balance sheet, it shows that the above average growth of the operating net working capital, but also the investment activities of the Group, led to a market increase in total assets. Compared to prior year, total assets increased almost 22% to CHF 905 million. In comparison, the equity ratio decreased from 47.6% in the prior year to 40.8%. It was mainly driven by offsetting the goodwill from the acquisition of Jeveka, against the equity in October 2021. An option on the Swiss GAAP FER, which Bossard applies. And by the disproportionate increase of the operating net working capital, which led to a strong expansion of the balance sheet. We expect that the equity ratio will increase towards the end of this year, staying well above the 40% ratio. Compared to last year, the operating net working capital increased by almost 1/3, whereas in relation to sales it grew from 43.5% to 48.5%. While the increase in receivable was in line with the sales growth, the increase in inventories was above average. In addition to more volume, the increase was due to higher raw material prices and freight costs. Furthermore, inventories were deliberately increased to ensure the best possible delivery capabilities to our customers in view of the continuing market uncertainties, and long delivery times. Last but not least, the acquisition of Jeveka also contributed to the increase in total assets by around CHF 19 million. As a result of the strong growth, the market increase in operating net working capital, the higher investment activities, and the acquisition of Jeveka last October, net debt increased from CHF 153 million in the prior year to CHF 293 million. The gearing net debt measured against equity recorded an increase from 0.4 last year to 0.8, whereas net debt in relation to EBITDA increased from 1.1x to 1.9x. Thereby, Bossard continues to have a solid balance sheet ratios, which are within the long-term balance sheet funding targets of a gearing of less than 1.3x, and the net EBITDA ratio of less than 2x. We also invested quite a bit in the first half of 2022, totally CHF 20.4 million. Thereof, CHF 4.3 million relates to 2 ongoing infrastructure projects in France and Taiwan. The project in France [ showed be ] completed by the end of the year, whereas in Taiwan, we expect next year in spring, next year [ in 2023 ] in spring. We invested CHF 8.7 million in digitalization. The biggest share of this investment was dedicated to our new global digital platform, which we [ interview as I ] already mentioned. In total, we will invest about CHF 70 million into the new digital platform, and the global rollout of it over the next 6 years. So far we have spent some CHF 16 million. CHF 4.5 million was spent for the replacement -- for replacement investments in ongoing operations and CHF 2.9 million we invested in smart things and electronic labels. [indiscernible] the business growth and the investments made in the first half [indiscernible] had an impact on our cash flow too. Cash flow from operating activities before changes in net working capital increased from CHF 65.4 million to CHF 77.4 million, or by 18% compared to the prior year. By contrast, the cash flow from operating activities of the changes in net working capital fell from CHF 46.6 million in the prior year, to minus CHF 15.6 million. As already mentioned, this is mainly due to the higher accounts receivables and inventory levels. Cash flow from investing activities increased CHF 11.4 million in 2021 to CHF 20.4 million in 2022, as just explained. While the group reported a positive free cash flow of CHF 35.2 million in the prior year, a negative free cash flow of CHF 36 million resulted in the first 6 months of 2022. With this last remark, I hand over again to Daniel. He will comment now on the business focus, the current environments, and what to expect in the second half of this year. Daniel, please.

Thank you, Stephan. I would now like to elaborate on our strategic focus 2022, and what we expect for the rest of the year. We have been and will be focusing on Sunrise Industries, businesses that are outgrowing the market average. Namely, we look into Railway with Alstom as a prominent example for companies that benefit from broad-based government infrastructure programs globally, particularly in U.S.A. and Asia, and there in China and India. Then we look into Electronics with ASML, the global leader in the development and production of semiconductor equipment as an example. Health care is another market segment outgrowing the market, with Roche Diagnostics as a customer, which is one on the forefront of serving the global market with health diagnostics devices. And last but not least, we serve electric vehicle sectors and its ecosystem, and what you see here is Lucid Motors, a customer where Bossard has become a strategic supplier for fasteners and where we have been participating in the production ramp up this year. Besides, we are serving a broader range of global EV companies; manufacturers of cars, scooters, trucks, buses; but also producers of batteries and charging stations. We also work with tier suppliers to the EV OEMs, which is electronics manufacturing service providers. This helps us to reduce our dependency on single EV OEMs. Another strategic focus in 2022 is our proven productivity promise to our customers. Our product solutions, assembly technology expert and smart factory solutions are key enablers to make our customers more competitive and productive, particularly now in times of inflation and higher cost where everybody looks for cost reduction. But also because international customers are nearshoring and moving production from low-cost countries like China back to higher-cost countries in Europe or America, where our solutions enable customers to reduce their total costs in C-parts management and assembly significantly. That leads me to our service model. By far, the majority of our sales volume is driven by product sales. The services are creating value, customer trust and loyalty. While we sell product solutions to purchasing, we sell smart factory to production and logistics specialists. Instead of a low product price, they want a smooth and lean production and logistics flow. Likewise, we sell assembly technology expert services to the designers and developers who need innovative and safe products instead of a cheap price. And finally, we aspire to sell our complete service package to P&L owners usually to C level to demonstrate the full potential for total cost savings. In summary, our strategic focus for 2022 is to run the business and ensure we achieve profitable growth by focusing on Sunrise Industries, retain and penetrate existing customers but also win new business through our strategic services, especially now. We will sharpen our view on sustainability, both socially and environmentally and for the latter, collect data and set realistic short-, mid- and long-term targets. Besides running the business, we are implementing new strategic initiatives, one of them being our operations engine, where we will prepare the next global rollout of our digital platform. The sales engine will help provide us with a joint structure, processes and systems to acquire new customers, while together we create [ an issue if ] -- is the foundation of our cultural transformation journey for better and more efficient internal collaboration through the application of our new guiding principles, leadership development and talent management. As communicated earlier, our midterm financial targets are organic sales growth beyond 5%, and operating profit margin, EBIT in the range of 12% to 15%, an equity ratio beyond 40% and the dividend payout ratio of 40% of net income. As far as the outlook 2022 goes, we are still facing a few challenges. Global supply chain shortages still exist, but seem to relax. Lead times for fasteners are still high, but trending downwards. Raw material and fastener prices as well as freight costs are still at high levels, but are slightly trending down. On the other side, wages have been increasing globally. And unlike raw material prices will not relax in the near future. The same is true for energy costs, particularly in light of the recent energy shortage discussions in Europe and globally. This means we'll face rather high price levels for our products also in the second half of 2022. Another challenge is the geopolitical tensions in Europe. Overall, it may impact the European and global economy due to war scenarios or energy shortages. But by how much, of course, we don't know, what we can do is to continue to focus on growth industries and certain customers globally not being dependent on 1 or 2 regions or countries. The overall [ insecurity ] leads to our customers to do more nearshoring and to reduce dependency on third countries for production. This plays into our hands as mentioned before. The geopolitical tensions may amplify the supply chain challenges mentioned above, which we address with our supplier risk mitigation strategy, buying key products from multiple regions and manufacturers. The Chinese COVID policy may lead to further lockdowns in the country. This mostly puts pressure on our local market development and may impact the supply chain further. On the other side, the global PMIs continuously indicates strong global demand, so customers' order books still seem to be full. In summary, we are still facing a volatile environment, which the challenges -- with the challenges mentioned before. Our sourcing strategy will help us to maintain product availability. We see these as a key success factors in our business. The Strategy 200 initiatives will support us to continue our profitable growth path, namely through the focus on Sunrise Industries and promoting smart solutions to achieve proven productivity goals with our customers. Combining the above factors with the full customer order books leaves us with an optimistic outlook for the rest of 2022. So with this, I'd like to thank you for your attention, and Stephan Zehnder and I will now happily answer your questions.

[Operator Instructions] And the first question is from Christian Obst, Baader Helvea.

First, I have a question concerning growth split. You stated that 15.8% is organic. How much of that is volume and how much is price related? And then can you give us some kind of a detailed effect of the shutdowns in China and how the current development is emerging with further shutdowns that how you are affected. And then concerning the rollout of your new digital platform, can you give us some kind of a first impact what you have seen with the integration? Or is it far too early at that stage?

So maybe I can start from the back, if that's okay, with rollout of the ERP system. So basically, we have started with 2 countries. And of course, now we have introduced the first global template, and we're continuing with the other countries to come. Always when you start introducing a new system, people have to get used to that and it's kind of a process to make sure that people get used to it and finally use it in the best possible way and reach significant savings. The global impact we will only see when we rolled the system out globally. So we have global transparency, et cetera. So it will take some time for us to get there. But the good news is really that we introduced a system now, which works. There was no customer negative customer impact. And we have already seen some efficiencies, but obviously, we still need to learn the system and then roll it out globally. So it has the full global impact. I don't know if that answers your question.

Yes, makes sense.

Then the second one, China. China makes about -- yes, what's that 10%, maybe out of our total sales, approximately altogether, we didn't have a major negative impact from the lockdowns. There was some sales slowdown. The good news was that we could deliver from different locations out of China. So it was not only out of China, but we could deliver out of Tianjin and some other warehouses in the country. So that made us also a bit resilient. And that will probably be the same for the future. I think the biggest impact is more on the morale of the people that they -- I mean, they continued working. They slept in the warehouse, they stayed there. And it's more pretty difficult to keep up the morale, I would say, if this lockdown situation continues, which it does. Now we don't know how strong our people in our regions will be impacted. But for sure, we cannot travel right now. People cannot travel out. And so it goes more to the morale. And hopefully, like in the last lockdowns, we will not see a major drawback on our sales and profitability. Obviously, there will be some if there is some new lockdowns. Maybe that's part on China. I don't know if that answered your question. And last one, I'll start and then Stephan, maybe you can jump in on the prices and the volume. Obviously, we have had price increases over the last 2 years, and they make a good amount also of our sales increase by how much, we don't know because we have quite a lot of products and customers, and we cannot track that individually. So there was a significant impact. I cannot give you a number of how much volume growth and price growth we had, but also not what we would expect to the future. But for sure, prices had a significant impact on the sales growth and will still have in the future. Stephan, to you, maybe more details.

No, nothing to add. So I think that's just the complexity of the business which we have. I mean we have [ 30,000 ] customers, 1 million items. There's many customers buying the same items. And right now, we still have 11 different ERP system, and that's creating a certain complexity. That's why we cannot determine the exact number from that perspective.

Okay. Does that -- so this all -- does that implies that you don't count your volume, right?

We, of course, we have.

[ Will be calling the price ] in the end, is only the data to the organic growth.

Yes. Of course, we have to add some on the regional level, but we don't have a consolidated number due to the complexity out there. It's too complex. But for sure, I mean what Daniel mentioned before, the majority of the price increases happened last year. So on an annual basis, so the impact was, for sure, more this year than it was last year, just from a rational point of view.

Maybe I can give you another view on that, just the reality that today, we're selling approximately 2/3 on special parts, which is like 66% to 70% we sell on customer dedicated demand or customer-specific demand. That means that when prices go up, we automatically also buy new volumes at a certain level, which then we passing forward on to customers. Likewise, when prices will go down, we will buy at lower cost. So we're not buying on stock for customers and have to sell at the lower price because customers demand for a price decrease, but rather for those parts, for 70% of our business, the prices swing along with the customer demand. So it's not that we will sit on high cost inventory for specials. And then when price goes down, there's a pressure on pricing we cannot sell at a high price. So that will not happen for those 66%, 70% of our business. For the rest of the standard parts, this can happen. But for us, that's actually good news and create some resilience on the price and the cost development.

And maybe some additional on that. You have inventories increased about more than CHF 40 million on a year-on-year basis. I think you say you have up to 8 months of safety stocks. Do you expect some kind of a release in the second half? Or do you -- will stay with that higher level of safety stocks. That is my last question.

Well, we will still receive parts -- excuse me, still fighting with Corona. We will still receive parts that we ordered some 12 months ago. So the inventory levels and values will still rather be high in the next months to come. But obviously, we also see full order books of our customers. And for now and at least the next 6 months, we don't see reduction in demand in that -- on that side. So maybe net will be a little growth to come.

The next question is from Marta Bruska, Berenberg.

So I just wanted to follow up, firstly, on the question with regard to inventories. So you think that the second half, the inventory in the second half in absolute terms will increase over first half in absolute term? Is that right?

Stephan, do you want to?

Yes, I still expect that we will see an increase on the inventory. And just, the [ thoughts ] we're getting are still on a higher level in that perspective. So even if the tonnage would stay the same, we still would see an inflation on the price. So I'm expecting, it's still going up. On the other side, that's just if everything stays the same. But this depends also how the economy goes. So basically, what we see certain goods, it's going out because firstly, we have a certain backlog from that perspective. So I would assume or expect it's still going up, but not to the same magnitude, but also depends what's going out of the warehouses.

And with regards to the proportion to say, so basically, do you expect the proportion versus sales to increase as well, right? So that's the kind of the logic behind it.

Well, again, it depends on the demand. I would say if the demand remains what we have seen, it's probably stay about the same. If suddenly, I mean, we know there is incoming goods over the next 6 to 9 months, which is quite sizable if there is the economy would slow down a bit. That would mean that just the percentage would still go up. But of course, we try to monitor that, but our best as we always state. But I think at the end of the day, it's all about availability and being able to supply our customers, and that's the focus #1.

That's clear. And then, if I may ask, the demand was so broadly really strong, and in particularly in the U.S. Could you tell us a little bit more what drove this fantastic second quarter in the Americas region?

Yes, I can also comment on that one. So as mentioned, one, for sure, is the electromobility sector. And as we had mentioned in the past, we have quite a few projects there. And of course, revolving 2 customers going on production, although despite being the same topics with the bottlenecks of the supply chain. But those added to these volumes in that sector. And of course, there was also some contribution from Tesla. The other part is the Electronics segment, which we were able with one of the bigger customers we have, also our relationship. And of course, electronics sector is still running well. So that [ little bit ] contributed with one of the drivers by the segment itself. And the other major part is the machine building in general. And we also have the sizeable profit in that what the call machine building and that one definitely contributed as well. But it was -- if I look overall, the business unit was broad-based, and all contributed with the double-digit growth rates. And I think that's also to do a bit with the refocus [ and then into ] focus, going forward. And of course, the economy was still well. And, yes, the backdrop is also there. So the demand was high. So that's what's driving the growth in North America.

And lastly, if I may, please. So are there any areas at all in which you see any signs of weakening demand from the very high level, but any sort of areas you monitor more at the moment?

I would say if you just compare one-on-one, I would say which -- the sector which was a little bit lagging was the medical. But there is a certain logic, because the ease of [indiscernible] I mean, last year, I mean, there was a lot of production to -- when it comes to analytic machines, let's say, and there was the inflation and inflators, so there was lot of equipment produced to [ cope with COVID ]. And this was easily not. So that's why that factor was about stats compared to the other ones. But there is a certain occur. I mean we benefited a lot in 2021, and now we have to reverse a bit in that segment.

So basically it's a stabilization, what you're saying with regard to the situation, the lead times and pricing more stabilization on a high level than any signs of weakness at all in the Medical could probably still catch up later on because of the delays that they've seen.

Maybe I can add to that, that the aerospace actually resumed quite nicely in 2022. So that's actually also a segment we could mention on the growth side again. And of course, we had a major turndown some 2 years, 1.5 years ago, and that resumed quite nicely. Yes, and it's maybe more the consumer-related segments, which maybe are more -- you would think they're rather flat. But actually, we see, for example, coffee machine producers, they still have full order books. So maybe this is going to come, but for now, we don't see a slowdown even in this segment, which is interesting. Of course, they also have industrial applications of coffee machines. But we don't see -- yes, it's more flattening in some industries than really a downturn.

The next question is from Stefanie Scholtysik, Mirabaud.

I have a question, I'm not sure if you've answered it, but sometimes your line was really bad and it's on the ERP system. Maybe can you share with us how much you spent on your ERP system in the first half year. And then I mean you said you implemented it in 2 countries. Have you experienced any issues and which are the next very crucial countries coming on stream? I mean I think those you have implemented need to -- I would assume more easy ones, but which ones are the next steps are you causing some headaches? And then on wage inflation, sorry, on wage inflation, the second one, how much is this impacting you in the second half? So what can we expect that there will be a margin hit because of that? And then a last question on this nearshoring, event, it's very interesting. Maybe can you quantify how much of your growth is coming from this? And which industries are doing that? And what do you believe, what's the potential of this trend? I hope that was not so much.

I can try to. I will try to follow. So I'm starting with the invest. It was the CHF 8.7 million that we invested in 2022 for the digitalization. And in total, we're going to invest around CHF 70 million, until we rolled out the whole system. So this is about the figure. I hope that answers the question. And the next rollouts, well, those were, I would say, 2 units in Denmark and Sweden, which represent quite a bit what we have in the group. We have Denmark, a large business unit with quite a lot of complexity and interfaces. And we have Sweden a smaller business unit, which depends on some other business units, which we -- if we manage those 2, we're probably quite good to lay a foundation for the next rollout. Now the next rollouts will be planned for America, Switzerland and Singapore. And for that, we will do an analysis this year about what's missing compared to the global template and then we will start with the next rollouts sometime next year. We have a detailed rollout plan in that but this is planned. So it will take us another 3 years overall to roll out the systems in all our business units, 32 locations globally. So that's a bit to the rollout strategy. Did we have major hiccups, not major hiccups, but obviously, we did have hiccups like every ERP system implementation has some smaller things like suddenly the invoice comes too late or an order in the warehouse is not printed because the printer was not added or things like that or user training related things. But I wouldn't say -- I mean there was no impact on the -- no major impact on the customer side. So we could always deliver. We monitor the amounts we pick, pack and ship the sales volumes, and they were on the same or even higher level than the month before for Denmark and Sweden. So in that sense, there was no impact, no business-related impact whatsoever. But obviously, there are in day-to-day operational details, there are things that people forgot which button do I have to press. But I can say there that we have invested a lot of money and people. We have 35 people on site for an organization of imagine 80 people in Denmark to do so-called floor walking. So if somebody had an issue, they had different color of panels raising their flag and say, red color, okay, that's purchasing, then some purchasing expert would come and say, what's your problem? Can I help you? Is it a trading issue? Is it the process issue? Is it a system issue. They would address it and then fix it, obviously, if possible, most quickly, but as possible, but then also address it to the super desk where they superuser desk, where they try to fix the problem in the system or then it had to be [ read programmed ]. So we had a quite intense phase, call it, hypercare phase, which is still going on. We started early June, and this is running until end of well, now beginning of August now, and then there will be kind of a reduced support structure. Did we have hiccups? Yes, did it impact our business significantly, no. So that's maybe the part on this one. Then -- I hope that answered your question on that one. And then the wage inflation, what will we see? I think what it does actually, it helps us to further justify the price levels because you could imagine maybe for standard products, prices could be under pressure in the next, I don't know, 12, 18 months because of -- there could be economic slowdown because of war or anything. But the wage inflation kind of sticks, and that means we will also continuously ask for higher prices at our customers. So we will not see many reasons to reduce prices in the next 12 to 18 months. So that rather helps us to justify price increases and keep up the price level. I think that's more the case. Do we see higher personnel costs? Yes, we do. And it does impact our P&L in 1 way. But on the other side, it helps us to justify higher prices. Maybe Stephan can add to that in a second. And then now I forgot your last question. Sorry for that. What was that…

That was on the onshoring or nearshoring.

Nearshoring. Nearshoring.

Yes, like how much contributed to growth and also industries and potential going forward?

It's -- we cannot give you a number here. It is -- I can just give you an example. Mexico, we have seen significant sales growth and a good part of it is because of American customers move back from China to Mexico. And that helped us also to win new business and to add projects to that country, for example. But to quantify that now on a group level, that's pretty difficult. Some of those companies also came and asked for smart factory solutions because they want to automate, they want to make sure they're leaner, and that added some [ smart devices ]. But how much still, how many of those were, honestly, I cannot tell you. Maybe Stephan, you have the number.

No, I don't have the number. But I mean, just in general, I mean, there is a lot of talks about this nearshoring. Yes, we have seen some, which was more driven at the time because of this economic growth between the U.S. and China and then [ humpty dumping ]. But in general, I mean, if you look what's happening right now, we have the cost inflation, we have the salary inflation. There is the energy inflation and by the discussions with the supply chain and interruptions, I think on mid- and long-term companies will rethink and one of the rethinking is the nearshoring. So I would say it's creating opportunities, how much these opportunities, which will create going forward, at least, we will see how it will materialize. And again, there is different topics, which drives the total cost of ownership and having a reliable supply chain. That's as much as I can say at the moment. Coming back to maybe quickly on the -- I can add on the new digital platform. Daniel mentioned, we're going to spend from CHF 70 million over 6 years. What we spent so far is CHF 16 million in total, whereas about CHF 8 million we spent in the first half of this year, just to ramp up that number. Now coming back to the wage inflation, David -- Daniel commented on that one. I think in general, and some of you know [ my quote ] is that we have a certain business seasonality. That means because of summer months, summer vacation and also in Europe, which is still the bigger part of our sales, also due to, let's say, December, we see lower -- usually, it's like [ 51 to 49 ] something in that relation, we have lower sales in the second half, driven by season. The other part is, yes, the inflation has some impact on the second half in a sense that, as I explained before, we have almost 300 employees more compared to last year. And out of that 300, we added in the first half of the year. So the annualized impact of these hires, we will only have the full impact in the second half. So that's why I -- just by default, we will have higher cost. Then what we do in general, as we also did in the past, and commented on that is that we do general salary increases first of May, like other companies 1st of January. So the impact we have on the second half. And yes, we have some rising costs and probably there will be more hires also in the second half. And so that's why -- if you look at Bossard, there is a seasonality, there's lower sales, higher cost, and that's why also the profitability, it's always lower in the second half versus the first half. But I can mention also a bit from that perspective in terms of cost is that with the first implementation of the digital platform in Sweden and Denmark, we start to depreciate that platform. So the depreciation in the second half, we expect there's some additional 800,000 to 900,000. Of course, there is no cash out, but it will impact the EBIT. So overall, that in a nutshell is on different players now, just explaining why the profitability also is lower in the second half. So that was maybe some [ exclusion ] in -- on the bigger picture.

The next question is from Andreas Muller, [ Zurcher ].

Also on the inventory levels, I was wondering at your clients place is your inventories at the same kind of elevated level? And also, I mean, the interest rates has changed is the propensity to hold this inventory not getting a bit weaker, given that you have opportunity cost with this in the inventories? And then I have on the order book, also a question about double ordering, if you see something. And if not or on what indicator do you sense that? Is it the absence of cancellations or other factors? And then I was wondering and the last question on if you can give an update on the scaling of your Smart Factory Assembly Services are clients going from the private phase into the production phase already?

Maybe I can, Stephan, if it's okay, I'll take that from the back again. Smart Factory Assembly Services, yes, definitely, we're moving from prototype to implementation, and we're actually doing that in a number of countries right now, Europe, but also in Asia, we have started out of Singapore. And yes, we see a number of companies now turning that into actual production. So this is now, I cannot give you an exact number. But this is definitely happening. And we're now -- we have staffed more people in all regions moving forward, and we see actually a big window of opportunity for this kind of service because exactly people want to save money, they want to make sure people learn fast how to assemble something. It's still man-machine related. So wherever it doesn't pay off to buy a robot, they will use this service. So maybe that's [ a bit to ] the SFA services. We're now ramping up people and see more implementations and more to come. I hope that answers your question on that one. The next one is order books forecasts. I mean one reason also why we haven't -- where we say we have a high availabilities, sometimes we see that there is some parts sometimes that we cannot deliver. There is a few parts that we cannot. But we have to say in most cases or actually, in all cases, we haven't seen -- we haven't stopped the customers' production because of a lacking part. Occasionally, there are some parts, but the reason then is mostly because, as you say, some customers, they just order longer ahead and they order more than they actually need. So this is happening somehow. And -- but on the other hand, we also see like in the railway sector that they have long year contracts, also, by the way, in aerospace. And we know approximately what they need to build a train, and we can estimate a bit, okay, what they buy now? Is that just a 3-year consumption? Or is that just a [ 3-month ] consumption? And looking at this, I would say the order books are full, and there is still a lot of volumes that we can still deliver into the future. The same we see with EV. So I would say it's, of course, a mix. And always, it's not 1 size fits all. Everybody is just buffering most companies to be on the safe side, of course, they order longer before they order more. They may have some buffer for some items, but it's not that, that they would sit on a 3-year stock. And then, okay, maybe from next year, we would not be able to deliver because they just use up all of their inventory. It's not -- it's mixed, but I would say, in general, we still see a good potential for fulfilling backlogs and for making sure that our customers can continue production. So bottom line, I think it still looks positive that we can also deliver next year. So that's maybe to the order book question. I hope that answer your question or I can answer…

Yes, that was clear.

And then the inventory -- now help me again. What was the question there?

Yes. One question was really, and you answered that the inventory levels that your client places, but also you know that the higher interest rates, at some point, you have opportunity costs if that's already hampering inventories.

On the customer side, I think I've reiterated on that. On our side, it's more that definitely availability goes over any net working capital, I would say, overall net working capital consideration. Of course, it has to be reasonable, but the essence for Bossard is that we can deliver and availability is the key point. So I think we know that now we're in a cycle where we face, okay, also higher interest rates and the net working capital, and that's not of course, what we like. On the other hand, it also gives us the right availability that we need. And this is a cycle, and it will go the other way again. And in this case, we rather want to make sure we get the parts in that we ordered. We're also not canceling orders. That's also part of our supplier policy that we say whatever we commit to, we commit to. And of course, if we can -- cancel it and it's not a problem for the supplier, we will look into these situations. But normally, we would then get into parts and make sure we can use them and with the downside that obviously, the inventory goes up and the higher interest rate.

Your next question is from Tobias Fahrenholz, Stifel.

Yes. If you can speak a little bit about the cyclicality and your changing business dynamics. So as I understand, you so far do not yet see a lot of cyclical clouds on the horizon, right? And when it comes to the contrary, so you're slightly improving structural growth potential overall. Could you elaborate a little bit more about the drivers we spoke about the nearshoring when it comes to the Sunrise industries, which you're mentioning a lot. Could you quantify your sales share of these industries at the moment and give us some feeling how this developed. So what has been the share, I don't know, 3, 5 years ago? And then on the other structural driver, the rising client focus on supply chain management, where is it really coming from? Are these existing clients that are just ordering more? Or are these completely new clients? Because I mean, in the past, you always indicated that clients do not switch that quickly with thousands of products would say orders without having major problems. So has this structurally changed now? And as a conclusion then -- I mean, the brand financial crisis, looking back at a worst case, you had also a sales decline in the mid-20s. Looking at all these improving surroundings and a little bit more structural growth potential, how would you see your structural growth profile in such a [ weak ] surrounding at the moment. So with today's offering, would it just have been 2%, 3% lower? Or are we speaking about 10%? Or what's your feeling there?

Well, maybe I can start, maybe a lot of questions. I think right now, due to the fact that we can deliver, I think it also happened that we won new business and new customers because of availability. So in some instances, some customers couldn't source at their existing suppliers. So they switched. Also, I would say, it's not factory solutions help customers now to decide to switch because there are some, I would say, unique features that, that we can offer to that as well. So that's 1 element. Again, it's a mix like always. So it's the availability, it's the smart services. Then I would say it's also price increases, which impacted the sales volume increase overall, of course. And then I would like to mention the sales engine as well that we installed a new digital [ lead gen ] system or structure in some of our larger markets that help us to -- I think I mentioned it earlier, help the needle in the haystack to come to us. So instead of having a bunch of outside salespeople knocking doors or customers and finding the right decision maker. We post technical logistics and product-related content and then the specialists, the engineers and the logistics production people would come to us and then we can directly connect and provide solutions. There, we have also seen that some of the leads that we generated really resulted into nice couple of million dollars results in some of our larger markets. So that also added to win some new customers because we were available at the time. They looked for something and then we brought them a solution and then they kind of -- they buy with us. Will they sustainably buy with us, we don't know. It could be a one-timer as well, but it's definitely a way into a new customer relationship, which we can build up on. And again, maybe to remind, we have 3% market share globally, which means 97% is still to go for. And so in that sense, there is potential for new business, knowing that customers don't change that easily. You're right. But I think it changed a bit in the last 2 years because of availability issues. So if you have the part, you get the business. If you have a solution that no one else has, then maybe there is another possibility to win. And then it's also mix and then it's also price increases, which alluded to that. The Sunrise Industries, I think you mentioned how much that is. We cannot give you an exact number, but maybe it's around 1/3 of our business right now. Maybe I'm totally off now, Stephan, but that would be my guess. We don't have an exact number for that. But it's growing significantly. And we know that by focusing on that, there will be more to come. We have also developed product portfolios within the Sunrise industries to make sure we can scale this to other customers, for example, in the EV sector or charging stations and so on. And that helps us also to win new business. So that's about the Sunrise industries. Now the -- it's a package. It's a mix of things. I think it's some strategic initiatives, which help us. It's the availability, it's surprising. Yes, that's what I would say, maybe, Stephan, can you -- do you want to add something?

No, I have nothing to add on that one.

Did that answer your question?

Yes.

We have no further questions. I will hand back to the speakers for some closing remarks.

Thanks a lot. Thank you. It was, for us, also an experiment with a new platform. Apologies for some disruptions that we have. I know at some point, the voices were not great. We even lost voices. I apologize for that. Nevertheless, thanks for joining. Thanks for listening in and for asking questions, and we'll happily answer more questions if you have at a later stage, you know who to contact and where. And thanks again for joining.

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