Bucher Industries AG (BUCN) Earnings Call Transcript & Summary

Welcome, everybody. Thank you for joining us. I understand that we are in fierce competition with other media reports and other half year results that have been explained. So we really appreciate that you have joined us for this session here. We think we should be able to make our comments within an hour, after so the Q&A. But did I say we, let me quickly welcome Manuela on my side as well to this meeting. And then we have [ Verinata Halter ], who is doing the whole video coordination in the background as well as [ Saskia Wish ] from Corporate Communications in this office and somewhere in the background, there is also [indiscernible], who most of you know. I will first make some comments on the market situation. Afterwards, Manuela will be getting into more details on the financials. But before that, I'd like to quickly explain some organizational aspects. The interim reports, the press release, the Investor Relations handout have been published this morning on our website at 6:00, should be available to you overall. This video conference will be recorded as you have been informed right up to the moment where we'll do the Q&A session after that. We won't record anymore. We have put you all on mute. We would ask you to stay that way. I think it will help us to be clear in the communication. If there are any problems with the system or you have delays, then maybe you try to turn off your video system, if it hasn't been turned off already, first of all, and then Mr. Foletti, welcome. We just ask everybody to turn off the videos. It makes it a bit easier. And then afterwards, if you continue to have problems, there's a phone number in the invitation and you can dial in on that one, you should at least hear our voice again so that you can continue with this session. If there would be any technical issues from our side, we would lose the communication. We would do exactly the same. We'll join you by phone conference and then continue with our explanations on the phone. The first half year of 2023 was significant in a sense of a very solid sales, but a decline in our order intake for products and for the services, albeit from a very high level in the year before. This is in line with the general economic slowdown that we see. The divisions managed to increase their output, which was due to improvements in the supply chain, parts became availability. Also, they had production capacity that they increased over time. We were still impacted somewhat by recruiting skilled staff, especially in North America. And then the geopolitical and macroeconomic uncertainties obviously didn't help. So it was a bit of a mixed picture material prices stayed high in that respect. Also interest rates continue to rise. And because of all these challenges, I must say, and I'm very pleased with the results that we have achieved and we have surpassed our expectations. Compared to the prior year, our key figures are as follows. Order intake has declined by 16% to CHF 1.6 billion affected by particularly Kool, Municipal and BuhHydraulics. Sales grew again significantly by 9% to CHF 1.9 billion, particularly due to price increases, but also to expansion of our production capacities. Both figures were impacted by the strengthening of the Swiss franc. Sales reached 13% of growth corrected for acquisitions and foreign exchange effects. All divisions contributed to the sales increase, but especially Booker MR Glass should be mentioned. They had a remarkable growth of 24%, if adjusted for FX. Some of the sales consumed part of the order book, which declined by 12% to CHF 1.7 billion from an extremely high level in 2022. The operating profit increased by a strong 21% to CHF 246 million. And as a result, the operating profit margin rose again compared with already good prior year figures to 12.7%. That has to do mainly with the strong capacity utilization and then the passing on of our cost increases. The group's net profit for the period reached CHF 199 million, an increase of 21% overall. On this chart, you can see the evolution of the previous 12 months up to midyear. The blue line depicts the order intake that has been declining in the past 12 months. The red line shows how we have been ramping up sales in the past 12 months also to reduce our record high order book that has peaked at CHF 2.1 billion at the end of last year and now is slowly coming down to the CHF 1.7 billion that we had mentioned. Today, the order book is at about 5 months of sales, which provides valuable visibility, obviously, in an increasingly uncertain environment. The demand is declining, but is still overall at a solid level at a good level. Keep in mind, last year, the demand was extraordinarily high, it's not a sustainable level. I will now comment the results of the divisions. I'll start with Ken Group. Demand for agricultural machinery has decreased in the first half of 2023 after 2 very strong agricultural years. Order intake declined significantly by 27%, especially in the second quarter, which is a low season quarter, albeit I will comment on reasons for this decrease in the first half here. First of all, I'd like to mention Brazilian market that has been cooling off from, I would almost say, a hyper-cycle that was to be expected. They are now seeing record harvests, full grain stocks and declining grain prices. That's one element. The second element is that subsidy programs are weak despite high inflation. If we look at the overall grain price development, you can see that in Europe, that is the orange dotted line, the wheat price has been declining in the past couple of months. Here you see the past 1.5 years in the dotted line. But importantly, the past couple of months, the grain price has been decreasing in Europe. Stock levels are rising here in Europe, and yield expectations are up again, which has obviously an impact on the price. Crop prices in the U.S. that would be the green dotted line for soy or the blue dotted line for corn are holding up better, and we can see this in our orders for tillage tools over in our U.S. facilities. If we look at the right chart, you'll see the milk prices, which is another important element for us in the key markets in the European markets, but as well the same also in the U.S. market, you can now see a decline of the milk price to a, what I would call a more normal pre-pandemic level. So that had an impact on our Anfarge tool demand. And there's one other element that I would like to mention that is weighing in more and more now. Those are the interest rates. Many farmers bought their farms with credits or they also buy their machinery with credits and the interest rates are now putting pressure on farm income, and they are discouraged somewhat to do new investments into machinery that has become pretty expensive in the meanwhile. So overall, our dealers can see less retail sales. A matter of fact, the machinery that we are delivering is rebuilding the inventory of the dealer network that was completely depleted last year. Possibly, farmers are also holding off a bit was buying from dealers as they might expect more rebates to be offered as supplies are becoming available. Remember, last year, they were just buying what they could get. Now it is a bit of a different situation. You can choose again. And this correction is happening, I would say, to a more normal level as we had anticipated a bit more quicker as well, but we should not forget the base effects that we're looking at here. Well, I have a small technical issue, please give me a minute. Thank you very much, excuse us for the delay. So all in all, and in contradiction continuing with Kun Group to the decline in orders, our sales still increased by 7% in the first half of the year due to its continued strong order book and the improved production conditions. The expected sales decline in Brazil was more than offset by sales increases in Europe and North America, thanks to improved production efficiency parts did become more available. It's not yet completely resolved, but also due to price increases. The shortage of skilled labor continues to be an issue, especially in North America. I mentioned that before. Overall, the operating profit margin exceeded the good results achieved in the prior year and achieved 13.4% of sales. The outlook for the whole Kun Group is more mixed, I would say, the division expects sales volumes in agricultural machinery to weaken, but at a high level in the second half of the year. In Brazil, a significant market adjustment is in progress after the period of the record highs. In North America, we should see stable development or eventually even an improvement in Europe, lower agricultural commodity prices, the reduced producer margins and continuously high interest rates in some key regions are having an adverse effect. Thanks to the strong first half, Kun Group expected sales and operating profit margins to be in line with 2022, which was a pleasing year by on. I'm changing over to [indiscernible] in the first half of 2023, demand for municipal vehicles was characterized by a decline at a high level. Municipals order intake fell by 21% compared to the prior year period, which included several large orders like the City of Barcelona or the German Air Force. Fewer orders were recorded for sweepers and who are cleaning vehicles. The financial difficulties of England's privatized utility companies. [ Teams Waters ] was in the news just recently are also affecting demand or creating uncertainty. However, demand for refuse collection vehicles in Australia has picked up again compared to prior Soliris level and demand for winter maintenance, equipment as well as maintenance service and spare parts has also developed positively. Situation in the supply chain eased somewhat, and sales significantly exceeded the prior year's period by 12%. The order book consequently decreased at a high level and still has a range of more than 7 months. Preparation for the gradual introduction of a new ERP solution are progressing well. The operating profit margin recovered from the low prior year period and achieved 5.3% of sales. This was due in part to improved production efficiency and strong growth in sweepers and maintenance services as well as price increases. The outlook for Book Municipal for the whole year is as follows: we expect demand to decline at a high level in the financial year 2023 overall. It procurement-related challenges. Remember, they need chassis and they're still a bit scarce in some areas are likely to persist to some degree, thanks to the division's exceptionally strong order book, I'd expect sales to grow slightly with electrified products contributing to this growth. The operating profit margin is likely to recover as a result of production efficiency. I'm switching over to Booker Hydraulics. The hydraulic market declined at a high level during the first half of 2023. Boe Hydraulics order intake did not escape this general trend and fell by 10% compared to the prior year period. Demand in the agriculture machinery market segment remained at a high level as the demand in the mobile electric drive technology business. The latter is related to an acquisition we made in 2021. This unit provides inverters and converters and inverters are used to invert the DC power that comes from a battery into AC power that is needed by the consumers, and at the moment, it's mainly sold to bus suppliers and there's a strong trend going on in electrifying buses. So this boom, we are profiting from. We almost sold as much in the first half year this year than we sold last year in the segment. The business unit will also provide solutions to trucks in the future as soon as that boom kicks in probably in 1 or 2 years from now. So we're pretty happy and bullish about that segment. The decrease in order intake overall for Bucher Hydraulics was mainly due to China and North America. Demand varied in Europe but remained satisfactory overall. And the division's capacity utilization remained very high, a very high order book at the end of 2022 fell somewhat in the first half of the year but remained high at the end of the reporting period. The shortages in staff machine hours still caused some delays for some products. Despite this deviation increased its sales by 3%. This was driven in particular by significant growth in Europe and India. The division's operating profit margins rose compared to the prior year period and achieved amazingly 14.9%, thanks to higher sales and good cost structure and its ability to pass on the material price increases to the customers. The outlook for [indiscernible] hydraulics for the full year 2023 are as follows: It expects China to recover only slowly. Demand in Europe is likely going to remain at a high level while the situation in North America should stabilize in the second half of the year. Total annual sales should be on par with those of 2022, the good operating profit margin achieved in the prior year should be achieved again despite significant increase in personnel costs. Next, I'll give you some details about [indiscernible] in part glass. The demand for glass containers remained very high in the first half of 2023, not least due to the environmental considerations. Order intake remained on par with the prior year's level despite a slight easing in recent months, global capacity for glass container manufacturing remains tight and this prompted customers of [indiscernible] to modernize and to expand their existing plants. New production facilities were also planned, especially in South America and obviously also energy is cheaper and available. Energy efficiency considerations and the shortage of skilled labor are relevant factors in this industry that encourage plant operators to equip their glass container forming plant with innovative technologies that come from Bucher Glass. Sales again increased significantly for [indiscernible] Glass by 18%. The order book remained at the prior year's high level. The operating profit margin exceeded the prior year's already very high level and achieved 20.0%. This was driven by the high capacity utilization by the favorable product mix and thinking of also sufficient spare part supply and then a positive currency effect, particularly from the Swedish crown. The encouraging business results in China also contributed to this. The outlook for [indiscernible] glass for the full year 2023 is as follows, we expect the demand for glass container manufacturing equipment to normalize, but at a high level despite macroeconomic uncertainties and rising interest rates. Now luckily, the energy prices are coming back down again, that helps our customers. Capacity utilization should remain very good, but there are some risks due to the persistent difficulties in procuring electronic components on our side. The division anticipates a slight increase in sales and operating profit margin compared to 2022 at a very high level. Bucher Glass has a strong market position and has consistently improved EBIT margins in the past 5 years. We have, therefore, increased our long-term over-the-cycle target for this division from 10% to 12% EBIT margin. I will now turn to Bucher Specials. Bucher Specials markets presented a mixed picture in the first half of 2023, but remain at a good level overall. Bucher [indiscernible] presses. Bucher order intake remained at the prior year's high level. We had a good trend in the Northern Hemisphere. Sales grew significantly once again, also because some of the deliveries happened earlier. [indiscernible] make mainly presses for apples, but also freeze drying equipment and so on recorded a positive result for the first half year. This was mainly due to its good order book at the beginning of the year and its consolidation of the Polish company that was acquired right in the last week of 2022. The integration is going in line with our plans. Order intake and sales overall increased significantly for this business unit. For Bucher [ land ] technique, the market was down overall, farmers' willingness to invest here in Switzerland remained low in the first half of the year. This was due to the high investment volumes in recent years and the uncertainty caused by significantly increased prices for machinery at a time of mounting pressure on foreign income. As of 1st of July, Jeter was renamed to Bucher Automation in order to benefit from the strong Bruker brand. The positive trend from the prior year remained intact in this business unit. This continued to be driven by the dynamic development of Bucher glass and a cooperation with Bucher hydraulics for these inverters that I explained to you before. Overall, for Bucher Specials for these 4 business units altogether, an increase in the order intake was recorded on a par was the prior year's period. Its sales and operating profit margin showed encouraging growth over the prior year. The outlook for 2023 for Bucher Specials is as follows: The market environment for [indiscernible] Bucher automation is expected to remain favorable in the second half of the year. For [indiscernible] Technique however is likely to remain rather cautious. The division expects its sales to increase partly as a result of this consolidation of Bucher [indiscernible] in Poland, that acquisition that I mentioned before. And its operating profit margin should be in line with the 2022 figures. I would like to hand over to Manuela Suter, she will present the financial situations and the results and [indiscernible].

Thank you, Jacques, and good morning. A tour of our production facilities is always a great pleasure. But in recent months, it was even more exciting. With a very strong team, all divisions managed high utilization, and we were able to fulfill the customer needs with our high-quality products. So we had high utilization, improved production conditions and the ability to pass on high material and other operating costs, but just some of the main drivers of our excellent results, and this leads me to the first slide. We have here the return on net operating assets with an excellent high 30% return on net operating assets above our long-term target of 20% and clearly above our weighted average cost of capital. On this autoroll chart, we have the 3 components. But in summary, the increase around 1 percentage point is due to our strong profitable growth, leading to a high EBIT, partly compensated with a higher [indiscernible] I will come to that. And third, the tax rate or the tax impact was not significant. The first part, the performance, overall capacity utilization remained very strong. So once again, we were able to increase our sales by 9% as a result of mid- to high single-digit price increases and an expansion of our production capacity. As you know, we're aware of roughly 60% of our sales is in euros. So therefore, the currency impact of minus 5 percentage points was mainly a result of the weaker euro. The operating profit margin of 12.7% was 1.3 percentage points above prior year. This was the result of good capacity utilization, higher production efficiency, thanks to an improvement in our supply chain and the consequent management, price management. The strong operating results of the agricultural machinery business, and as Jack also mentioned, the glass container industry also helped. Compared with the first half of 2022, the net profit for the period increased by 10% to CHF 200 million. The financial result was mainly influenced by higher interest rate and a positive result of our short-term financial investments in Brazil. And the effective tax rate was more or less in line with full year 2022. For this year, for the full 2023, we expect the tax rate in the same range. The second part, our net operating assets. As you can see, on the right side of this graph, the level of net operating assets on average decreased by 19%. The volume-related increase in net working capital was amplified by investments in internal also external growth. Compared with year-end 2022, the net operating assets per closing increased by roughly CHF 270 million, mainly due to seasonal factors and higher investments. Additionally, the exceptional high level of advanced payments at year-end were reduced over the last months in connection with the deliveries of our machines. So the seasonal increase in our net working capital had also a negative impact on our free cash flow, which can clearly be seen on the next slide. [indiscernible] chart of our free cash flow on the right side, a negative free cash flow of CHF 218 million. As mentioned before, the high outflow of cash is mainly due to the seasonal increase in net working capital, CHF 259 million, higher investments, CHF 59 million and the dividend payment, CHF 134 million. The cash used for the investing or in other words, our capital expenditure amounted to CHF 59 million. So the main focus besides several machines with a construction project of Bucher Hydraulics and of Bucher Automation in Germany as well as Bucher MR Glass in Malaysia. Depending on the ability of our supplier to deliver the machines, the delivery on time, we expect investments for the full year of around CHF 150 million. The net cash situation, at the beginning of the year, we started with around CHF 450 million. And with the negative free cash flow, just explained before, we ended up with net cash [indiscernible] million at the end of June. And our outlook and the seasonal pattern, we expect the net cash level at year-end of around CHF 500 million. Yes. to summarize, we achieved a high return on net operating assets of 30% due to a strong profitable growth, it goes hand-in-hand also with our high utilization. And with the solid financial position, we can ensure financial stability and with [indiscernible] a very solid financial position, which continues to secure our flexibility which is all the more important in times of a weakening demand. And with that, I would like to hand over to Jacques to say a bit more about our outlook.

Thank you, Manuela. So I talked about the divisions, and I also mentioned basically the outlook for each of the divisions. I would now summarize once more for the whole group. The group expects the demand, we call to normalize further over the second half of the year, starting from a good level and increasingly uncertain environment. The high order book means that capacities will remain strongly utilized in this year, although weaker than in the strong prior year period, especially the second half of last year. Difficulties in procurement are likely to persist for specific items, we're talking mainly about electronics, increased personnel and other operating costs will increase pressure on the margins in the second half of the year, some salary negotiations are only effective for the second half then. So negative currency translation effects should be offset by price increases in our assumptions. Overall, the group expects sales in the range of 2022 as well as a slightly higher operating profit margin. Accordingly, the group's profit for the year should be slightly higher than the prior year's periods high level. This would be our explanations for the divisions and the situation that we have and our outlook as well. I would now hand over to the Q&A situation.

[Operator Instructions] We'll start right away with Tobias Fahrenholz.

So first on the glass business, I mean, quite strong performance here. And thanks to these good results, you have quite a big gap to your 12% target level. Are there any kind of special components in there at the moment, which could fall away next year? Or could we expect to see it at a quite high level for the time being. That would be my first one. And the second one, maybe you could comment a little bit more on pricing. What have you seen here, especially on group level and division by division? And has this been kind of margin neutral? Is it going to stay the same until year-end make some thoughts here.

I will leave the pricing question to Manuela but okay, I think we have some data there. And maybe on the glass side, at the moment, what is nice for our production is we have a production planning that lasts almost like 12 months in advance, and we have these what we call production slots. Once you start assembling these new machinery, that space is blocked. And what can happen and what has happened is the fastest suddenly a customer says, I don't need it right away. I have 3 months delay for the factory building and now please hold with that order. And that kind of buys down capacity that is running basically at idle, and we can only deliver later. And these are the risks that we have in a neutralized market. At the moment, we didn't have that customers were extremely happy to get the machine as quick as possible. So that allowed us really to have a perfect capacity utilization. So is that really going to happen in 2024 that we start seeing a shift some of these assemblies happening? Maybe I cannot exclude it, and that would probably be a main factor that would bring down profit margins from the very high levels that we have at the moment. And that will be, I think, the explanation and the 2024 outlook. So we see a little bit of tightening in the market. And if that will start canceling or delaying orders, then we will get into a less efficient mode, which will bring down the margins. That will be the explanation.

Those maybe also to add, they benefited from a better [indiscernible]. It was a bit more on the weak side and our costs are [indiscernible] and sales in euro. So I would say that also makes roughly 150 basis points as well. And as also Jacques mentioned before, the mix, the product mix, we have really high services and spare parts. With regard to the pricing, let's start with the sales. And if Kun, I would say Kun was the division with the highest price increase and had an impact on the sales as well. It was around mid to high single digit for Kun in the first half year, whereas for the other divisions, I would say it's more in the mid-single-digit range or [indiscernible] specials, even yes, it was also mid-single digit. So all in all, for the group level, mid- to single digit in the sales, partly compensated by a negative currency impact of the 5 percentage points that I mentioned before. For the full year, I would say it's more the prices are coming down. First of all, what we see in particular for Kun Group, we see already that also some competitors give some rebates in particular, for example, in Brazil. This will have an impact, and it's clearly the high basis impact from last year that also came into the picture, which will lead more to a mid-single-digit price increase in sales. And as we mentioned in our outlook will be part will almost be offset with negative currency impact for the full year. This is with regard to the sales. And I think as we mentioned with regard to the margin, raw material was more than compensated by price increases, and it's also the result in exceptional in a very good EBIT margin. But more and more, what we see is also increasing personnel costs, as Jack mentioned in the outlook, which will have a bit of pressure on the second part. And then we also have the seasonal impact that we see in our March normally, the first half year is stronger than the second half year.

Good. Thank you much, Manuela. I would hand over the question now for the microphone to Mr. Foletti, you are on mute, on your microphone.

I'm seeing you're in good shape there in the office I just had 2 questions, if I may. One on hydraulics. This order intake was still low, but it seems to me that the decline is sort of slowing down. Is that a correct assessment? And does this indicate end of bottoming of the cycle there? Or is it too early to say anything here?

Well, it's always a bit of mixed picture with Bucher Hydraulics. We look at the order intake where we expect further slowing is obviously in agriculture. We were not doing so bad, but we expect that to slow down. On the industrial level, we were proffering from these electrified bus systems there we had growth. There the boom is continuing, but a number quite as steep as we saw now in the past 12 months, which was amazing. And then on the general hydraulic industrial cycle, it's really a mixed picture. The question mark is what is happening in China? Is that going to pick up or not? That's one question. I think we assume that the U.S. could pick up quicker now. but that has been on the slow side. So at the end, it's really a mixed picture. But I would agree, it's not that we're standing in front of a cliff and looking everywhere downwards. It is some elements could still slow down further. Some elements, there is potential for it to improve again. And maybe it's a good sign because it's an early cycle. It's the early cycle part of our business portfolio. But it is really by region to be looked at and applications as well.

And the second would be on a couple here. First of all, you mentioned tight capacities at your clients. Can you maybe give any indication if you can qualitatively quantify how much you think that this undercapacity, has it worsened, has it improved over the last quarters?

No, I have no numbers available, and it probably would be by region as well. So usually, glass has not shipped globally. It is continental probably as a main business. And no, I cannot give you any number as such.

All right. And then the second, I wanted to ask also. You also mentioned that one of the reasons they invest is because of sustainability reasons, I imagine because people say that it is better than plastic. But how is that measured really? Because in terms of energy consumption, it's really not the best.

Yes. I mean it's a matter of priorities. That's true. Energy consumption really depends. If you manage to sell a fleet of bottles that are going to be rotating being refilled then it is the best, even comparing to plastic because a fleet like this can easily do 30 to 35 tours or rounds before it gets remelted again and reused again. So as soon as we have that set up, energy wise, it is absolutely justifiable. Obviously, it's a bit more questionable when you have a beer bottle that is being unkind thrown away right away. That's another story. So the returnable glass is energy-wise, not a problem.

All right. And then very last thing on the new target of 12%. I understand what you have been saying just now regarding the potential reduction next year, but 12% really doesn't seem very ambitious for a company that has been above that for many quarters. So the question would be, are you not too easy on your management in a way to give them a solo target?

Will you really believe that's going to be the budget for next year? It's a planning figure for us in the long term. It is over the cycle. So on high cycles, we clearly expect more, but we also have to be realistic. And we are in a cyclical business, it can also go down. And that's why we said at 12%. I understand your question completely. Obviously, I also said a 20%, what is that going on. But we don't see that really as an ambition, it is more really a planning figure. The ambition is higher, that's for sure, and the budget won't be at 12%. I can assure you that.

I would have more of a follow-up, especially concerning Kun Group. So I think with the turn of the year, you were cautiously optimistic there. I mean you mentioned the drivers that are leading to the current situation, which sounds a bit less optimistic. So I was wondering what it was for you, I mean, the main negative surprise there. And you also mentioned pricing. So competitors are starting to get rebates? Is that also something that you are seeing on your end going forward? That will be kind of the main question. And then just a small question around CapEx, so can you remind us what you are seeing for this year as we've seen that pick up. But yes, what is your current expectation for the full year?

I will leave the CapEx question to Manuela. Yes, I think the element that surprised us more is the speed of the slowdown in the agricultural business and then the effect on especially also the effect on the European market. And these are the 2 elements. So what we did see is it's not the most important quarter of the year, the second quarter, but there, we really saw how the dealers didn't manage to sell through anymore and that they are now collecting the machines into their stock. And that is an element that happened quicker and harder than we had anticipated. We anticipated Brazil, for example, that was not a surprise, but here in Europe, it slowed down quicker than what we had thought. That is, I think, the element. And it happens for different reasons. Now we have to see, is it just kind of a readjusting. Bear in mind, we had some 2 very high cycle years. So a lot of them bought new machinery is kind of a readjustment, is it kind of a readjustment of expectations as well. Sometimes when there's too much uncertainty, people freeze, and then they wait for all the elements to stabilize until they start making buying decisions again. And are we in this kind of a phase of freeze before they continue. That is the element that we have to see, but that came a bit harder than we thought so at the end of last year. Concerning CapEx, I would hand over to Manuela.

Maybe to the question is the pricing debate?

Yes, I forgot that. Yes, we have to expect price increases that can be in all kind of different forms. I mean, first of all, the dealers are handing over price increase, price decreases or rebates to their farmers. The farmers might also request, for example, better financing conditions that will be also in collaboration with banks and so on. Are the payment terms that are different? So they are all kind of different shapes and forms of the way basically the price can come down over time. We expect that there will be more agility by our direct competitors in the second half of the year, and we expect also that we will have to follow here and there. but it's difficult to predict. And we're usually not the initiator of this kind of around. But we have to follow the market to some extent. So they're most likely we'll get into more normal waters again, whereas last year, it was nothing about price decrease. Nothing but rebates was all about can they get the machine.

And with regard to CapEx, as mentioned before, we spent around CHF 60 million in the first half year. And given the last 10 years, normally spend 1/3 in the first half year and [indiscernible] in the second half year. And for the full year this year, we expect around CHF 150 million, but it has also to do with an improvement in the supply chain situation also from our suppliers as we are now getting more machines that we already ordered 2 last year. And then we had some major projects going on. So for example in [indiscernible] Hydraulics, a construction project for Bucher Automation in Marban, Germany, a new building and also started this year the new building construction site for Bujagasin Malaysia. So all in all, for this year, around CHF 150 million, but also it depends a bit on the ability to receive the machines.

Welcome Mr. [indiscernible] welcome.

I have 3 questions. I will ask them one by one. The first one is with regard to the order momentum. Have you seen any of your segments that the average of the quarter was materially different from the exit rates there? That would be great if you can share your thoughts.

Of any of the divisions had a stronger slowdown in Q2? Or what was your question.

The order momentum on a sort of a monthly basis, if I look at and compare versus the quarter average that was sort of going down that June was particularly weak compared to the average of June was particularly strong to the to get a bit of sense of development there?

Yes, nothing alarming. It was no stop, I mean agriculture accelerate the slowdown accelerated in the second quarter of this year. That is true, but it's not like June was that big culprit and it was a bit through the months actually. So yes, I cannot say that there's no sign for joining it.

It's also important to note that the second quarter, particularly in the agricultural business is normally the weakest quarter for Kun, so it's really you're waiting for the third quarter with regard to order intake. But yes, there are no specific movements from May to June.

And then if you stay with Kun in that regard, you mentioned already data inventories. What is your view there on European dealer inventories compared to the sort of the long-term average? Are we sort of on that range? Or are we already beyond that one so that the inventories are already to a bit higher level and therefore, would be a concern for you going forward? Or actually, we're still below and therefore, is there still enough room to put more stuff into stock, so to say.

No, we would anticipate the dealer stocks to be roughly at normal levels now. So kind of rebounded back to what we would call, I don't know, the 2019 level or so as the pre-hypelevel.

The third and last one is on the backlog and the support you get from there. How long do you think the backlog can support your top line? Will it be some further 2 quarters? Or actually lasting in terms of your pipeline management into the first quarter of next year? Or how much sort of what you're thinking there?

No, it should last for this year. I think that should be okay. I think the big question will be about our preorder season, which we usually have in Europe. So that comes Q3 is a strong order quarter just because we have a preorder program where they can order for next year, for the next season. They get rebates by doing so. And that, of course, is going to be the big test as well. Are they willing to now invest money into the future business or not. But I think in the sense of order book that we can work on this year, we're still fine.

Perfect, many thanks, no more questions.

Thank you very much as well. So we continue.

I have questions relating to Kun and 2 Hydraulics. I'll start with Kun. We have the latest results from John Deere, and John Deere still expects industry growth of 5% in Europe, 10% U.S. [indiscernible] in Latin America, and that is on unit terms for this year. So if one includes 5% price, that would imply like industry growth of 10%, maybe 15% for this year. I would like to know what your view is on industry growth and what that means for the market share situation. That would be my first question.

Well, the element that we have seen is we look at tractor matriculations, which is the indicator for us, and we can see that in Europe, it's cooling down. But in the U.S., we still have growth, especially for the big tractors, the big [indiscernible] tractors. And that makes sense on the overall picture where we have stable grain prices in the U.S., so the farmer is seeing less uncertain about the future than in Europe. So they seem to be still investing into bigger machinery from at least what we see the registrations. And that then would maybe be plausible for the 10% growth overall. Bear in mind, they also had problems delivering last year, so the growth is maybe also just fulfilling an order book that they have. In Europe, grain production or crop production is more under pressure that we have seen as well. We are not quite sure and latest CMA indications show actually that one is a lot more pessimistic here in Europe, especially. So I don't know how they would justify the 5% growth. Like you would have to ask John Deere at the end. So here, I would be a bit more skeptical. Maybe it's an order book that they still have and they can deliver, but that would be about it as I would judge it. Now bear in mind, for them, crop production is extremely important. Probably it's about 80% of their business for us. It is about half and half. So we are more into dairy and meat production or just as much into that segment as we are into crop production. In that segment, at least on the dairy side is suffering more than crop production. That's why probably the impact on our side and cooling is a bit more higher than what we would expect for John Deere.

Understood. I stay with Deere for the second question. The John Deere and other OEMs that drive with their telematics to kind of increase the data transfer between tractor and implement between the harvester and then the next seating period and so on. Do you see incremental pressure from the large OEMs that try to squeeze you out in terms of the electronics needed on the implement? Or is that still a very stable market situation. I would like to have some insight there.

Yes. And I don't know if I can generalize it. I must say John Deere is doing a pretty good job in developing electronics. They have quite a team working on it. It's probably the most integrated solution that becomes available. The others, I think, are still lagging, but that's a bit my personal opinion. The other element is though that the whole telematics, the adoption rate is still on the low side. It will come for me, there is no question it must come. Regulations in Europe are pushing a bit in that direction as well. That's helping. But the adoption rate is a lot slower than we had anticipated a couple of years ago. So are they trying to push us out? Well, everybody is trying to provide the best solution, then there are some industry activities going on to ensure interchangeability of data. So it's a fluid area. And John Deere is playing a good game and others are trying to come along, but they will probably more associate themselves was the market standards that are becoming available now for data interaction. Yes, that's as much as I can say. Obviously, we'll have to go into debt for each one of them to [indiscernible].

[indiscernible] market share currently against the implement makers that come from OEMs. So John Deere [indiscernible] dealers, you don't see market share change.

No, I have no indication of that. Matter of fact, we also have an online version called Mikun.com that provides actually good solutions to the farmers. We see the sign on rates, which are continuously rising for these platforms. So somewhere, we are playing along, that's for sure. I have no indication that we're losing because of the game.

Understood. My last question is on Hydraulics. You mentioned, I think, still capacity utilization issues in the U.S. or adding staff in the U.S., I think Kun has a similar situation. I would like to know how much staff you have and how much you would like to have to just have, let's say, Kun's output and good capacity utilization instead of 110% utilization. What's the situation there? Because it has been going on for probably 18 months or maybe even longer.

Yes, that's true, and it's not only us having the same issues. But to be honest, I'm just thinking is there any logical number that I could give you and say, well, it's 10% more 15% or probably in that range. I mean, what you want to do is you want to kind of balance all the production factors that you have. So you have machinery hours. You have basically space, logistical space and so on, and all the supply chain issues that come along and also in the warehouse and then you have man-hours, the man hours is a limiting factor at the moment. But I'm not capable of telling you well in this factory, I would need 15% more employees and then all the other limiting factors would be at par, and we would roll out a maximum capacity. So for me, I'm sorry, and then it would be really by facility as well. I don't have these numbers on hand. We could make calculations, but I don't have it.

Okay. Is there any progress there?

It is getting better. That's for sure, I mean, it was horrible right after corona in the 2021, 2022 kind of released a bit. I mean, obviously, we had to also adapt to the new market conditions, which meant higher salaries and they did so. And so we are finding people again. What was amazing in 2022 was a turnover rate that we had with employees. They came, they worked for a couple of days, and they found a job which paid 0.50 more, and then they left again. that was incredible at an incredible high rate, and that makes our inefficient as well. Once you can get staff, you can stabilize, you train them, you slip them work that obviously also helps for capacity utilization because they're more effective once they are introduced into the job. So Walter Bamert.

Hello, everybody. You mentioned the labor situation in the U.S. and from there for the group overall, how can you guide me on the labor cost inflation with regard to the timing throughout the year and with the margin effect?

Let's put it that way. a lot of employees are working in France for us. And there, the negotiation round is such that you have increases usually in Q2 of the year and then one more in November. That's usually a twofold increase. And so I would say that is the biggest lever that we would see in personnel costs on our side. In other countries, I mean, we talked about Switzerland at the beginning of the year. But here, the inflation wasn't that high and the increase was accordingly. But I would say that was probably the biggest kick in on personnel costs that we would look at the numbers. The American situation is very fluid. I mean you hire, you bring in newer people, they are at a higher market price than you eventually start adjusting in your existing staff. So that is a bit more to within less to the point of the year.

So you would say we have about 1/4 of higher salary costs already included in the figures, and there are 2 more to come without being significantly higher than in Q2.

For the full year, as we mentioned, we expect mid-single-digit salary increases for the full year average. And yes, as you mentioned, I would say the first quarter was not yet that affected. The second quarter was already affected a little bit and the pressure is increasing, but the exact number on the EBIT margin, I think that's too difficult to say. But yes, there will be a higher pressure in the second half year.

Okay. And then a follow-up on Kun Group, where everything turns out a little bit more pessimistic. Could that be under the base effect that last year or you do a very strong unusual order intake, does that make you also more pessimistic? Or could we see that order intake is almost balanced again for the last 2 quarters?

Well, that's a bit the question mark that we have. But definitely, the base effect is there. I mean, we had a very strong 2022. There's no doubt. It seems people were still worried about getting enough machinery. So also the preorder season was pretty good. And that's what we're delivering now. As I mentioned before, I think it seems like we're a bit in a state of shock at the moment to see, okay, everything is changing. How is it going to continue. Here in Europe, we have the other element of the wheat deliveries out of Ukraine. Will they be dumped onto the European market? Or will they find a way through the passage to be sold on the global market. These are all question marks that come into this equation. And that's why it's a bit difficult to make predictions.

Okay. Are there any dealers trying to cancel or this?

No, we have not seen that substantially yet, not an issue.

Thank you very much.

Mr. [indiscernible].

I just would like to focus a little bit on Kun and the diary side of the business because what we are seeing in Europe, I think, is increasingly politics getting involved in agriculture because of the environment, i.e., governments have committed to reducing the environment impact of each country, and therefore, they're looking all that agriculture and therefore, diary. So therefore, is the uncertainty that you're seeing in diary is politically driven. And therefore, you don't know how long this could continue and it might continue actually for a very long time because it's very hard to reach an agreement because you have the farmers lobby, obviously, which is very powerful in a number of countries and against the pressure of reducing environmental impact especially of the die side of agriculture. So I mean is there a real risk that is uncertainty and therefore, impact on demand for your equipment is going to continue beyond well into '24 and '25.

The other question does have an impact on our equipment or just on our customers, the dairy farmers. I think the big discussion on the dairy side is also how to bring out the manure and how to take care of that as well. And what technologies will you be using or using injection technology or can you spray it onto the fields, there's a push for more organic fertilizing, which would help the whole thing, but they don't want them to be spread in the open. But we don't have any of this machinery. That machinery is sold by a lot of Dutch actually suppliers or Belgium suppliers. And so there's only an indirect effect on our customers. And then eventually, I don't know have to invest in something else. But the uncertainty, I would say, yes, it's increasing. We also see that some subsidies, and that's an element I didn't mention before is that subsidy programs are being reduced for farmers again. I mean after the corona element, there was a strong push for subsidies into farming. Also in Brazil, I mentioned that, that subsidy program from the Brazilian government was not as high as one had hoped. So that is also weighing into the farmer's decision to surely invest or should not invest. But your point is justified just not for our products but for our customers, yes. Michael Rose has written the question, and I would quickly suggest that we will continue on that side and then we'll come back for further questions. And I think Manuela, you would cover net working capital.

Yes. reducing overall net working capital in the second half in order to improve cash flow. Yes, as I mentioned, I think it's important that the first half is always we have a seasonal pattern. So in the second half year, we clearly expect a decline in net working capital. As I mentioned before, we expect a net cash situation of around CHF 500 million for the full year, that implies a positive cash inflow in the second half year. of around CHF 280 million, and this is clearly coming from net working capital. So we expect improved inventory level, it's still high, but also accounts receivables. But on the other hand, we will have less advanced payment or we expect less advanced payment as it's related to the order intake of Kun Group, which is expected with the order intake coming down as we have seen in the first half year that we will not repeat this excellent extraordinary high level of the once payment that we had at year-end. So it will be a mix, but clearly, an improvement of net working capital in the second half year. Just also from a seasonal point of view, as we have seen in the past over several years.

I hope that answers the question. And the other one was about order cancellations. And as I said, no, we didn't see any order cancellation so far that are was well mentioning. Then it seems like we have one hand up and it's yes, it's [indiscernible] once more.

Yes, thank you for taking the question, it was also on customer advances. So it has been just answered.

Okay. Good. At that moment, I think we're pretty much on time here to at least level 5. I don't see any hands anymore. Thank you for joining us. Again, we are aware that you had a lot of other information that you have to cover as well. We appreciate you being there. We wish you a good summer time. Hopefully, some of you still get some vacation, and we will be in touch at least next year again for the full year results. Thank you much, everybody.