Bystronic AG (BYS) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Full Year 2023 Results Conference Call and live webcast. I am Sandra, the Chorus Call operator. [Operator Instructions] At this time, it's my pleasure to hand over to Alex Waser, CEO of Bystronic Group. Please go ahead, sir.

Thank you very much, Sandra. Good morning, ladies and gentlemen, and welcome to our full-year results 2023. I'm here with our CFO, Beat Neukom, and we are pleased to walk you through our performance of the last year. Before we start, kindly take a note of our disclaimer. Let me take you through our agenda for today. I will kick off with the business update and the progress we made in line with our strategy. Then Beat will explain our financial performance in more detail. To wrap up, I will elaborate on our outlook, and we will then take your questions from the conference here as well as from the call. 2023 was characterized by a challenging market environment. We have nevertheless delivered a reasonable performance. Our sales declined by 8% and were substantially impacted by the strong Swiss franc. Despite approximately CHF 80 million lower sales, we grew EBIT by CHF 6 million to CHF 54 million. I've mentioned the challenging market environment. This is also visible in our lower order intake of CHF 794 million, and we also will elaborate on that a bit later. Our RONOA, as you can see, remained stable at 14%. And the Board proposes an unchanged dividend of CHF 12 per Class A share. Thanks to a solid cash generation, our balance sheet remained strong with nearly CHF 350 million of liquid assets. As we are moving to become a global full service provider, we are facing a soft market environment currently, in which our teams did an outstanding job last year. Let me share some of the examples from various markets. I will start with Europe. Being close to our customers is key for us. We conducted many customer journeys, visits and open days in the past year. Sometimes, we do this instead of attending an exhibition, and we have received quite positive feedback about this approach. Customers can feel much better the Bystronic spirit, when they are on site with us in our Experience Centers. We are also very mindful about spending. This even helps us to reduce some cost. The same also applies for China. After several years of restricted customer interaction, we conducted our first Competence Days, again, in person. That has become a challenging market for us. Hence, face-to-face meetings are very important for us for us [ to meet ] prospective and existing customers. India is one of our fastest growing economies. It is still a very small market for us, but we see large potential Therefore, we opened a new facility and an Experience Center. We want to be present locally to benefit from infrastructure expansion and grow -- the growth of the local manufacturing industry. Switzerland is our main hub for innovation. At the heart of our business, it's basically laser cutting systems. Our R&D department has been very successful, and we launched several new features. As the last example, you can see here on the very left, let me highlight the U.S. I'm proud of our development there. In the last 5 years, we have increased our sales in Americas region by more than 60%. As you might recall, we have invested into local production in the last years and have started the assembly of laser cutting systems in the silver segment. Last year, we have, for the first time, assembled a system from the gold segment locally. This is a major milestone and is in line with our strategy to strengthen our local production. This helps us to deliver faster at lower cost and on top, strengthens our local supply chain. Our strategy centers around the three pillars: systems, software and service. Let me also take a few highlights here. In our bending portfolio, we have launched a new ByBend Star 120. It is a system of choice to bend small or midsized pieces of sheet metal. It can process different materials at different thicknesses. And despite its speed and premium class, it comes as a very compact and small system that virtually fits in every production. Let's move to service then. Our investment over the past years are paying off. Despite the economic situation, we grew sales by 12% at constant rate, while the number of service technicians remained flat. This proves what we have been saying in the past, once the technicians are trained, they will become more effective and they can strongly grow the business. In software, we have closed many projects. Of course, the sales number from these projects are still small, but the discussions about digitalization is very important for our customers. And we see a growing pipeline. We also strengthened our 3 main hubs on the software side, and we now employ around 120 software engineers in this development side. As mentioned before that we are developing ourselves to become a full service provider, let me elaborate what this means and how our business evolved over the past years. 5 years ago, we had a very limited automation offering. However, today, around 2/3 of the laser machines in gold and about 50% in the silver segment will sell with automation and software. The same is true for the service business. It used to be only about 19% of our sales. Today, it's actually 26%, which actually is exactly on business plan. The Americas region in our growth is really our growth engine. We used to make slightly more than CHF 200 million in sales. Today, we generate CHF 335 million of sales in this region, a testimony of our strategy. Until a few years ago, our software offering was very limited. We only offered machine software, but had no integrated software approach to digitize factories of the future. This has changed with our acquisition of Kurago and the following release of our BySoft software suite. We also built up our sustainability approach. In the past, our business was also more centrally managed. The regions had less responsibility, and much of our products came from Switzerland. Today, for example, the Americas have their own production. This shows how our strategy of regionalization is paying off, both in terms of local production, but also in local responsibility for sales and customer relationships. But also, let me mention one aspect of our business that has become a real challenge. Until a few years ago, our China business generated high margins and a substantial EBIT contribution. Today, the market is characterized by high overcapacities and price pressure. This, of course, has negatively affected our margins. We have talked about our digital offerings before. Let me show you one example, actually a great example. [ VD ] Leegte Metaal, as you can see here, is an important customer in the Netherlands. In their factory, they work with both Bystronic systems but also third-party systems. They have rebuilt their factory to expand capacity and chose Bystronic software suite as their main core to drive the production, digitize their processes. They have actually learned a lot during the setup and installation process, and we're very proud that this is really our first large, true digitalized Smart Factory. Together, we have opened their Smart Factory last November. And as you can see in the picture here, this is the opening ceremony, on the top right side here, together with the VDL leadership team. One more remark in why such projects are important to us. They are an entry point for us to discuss productivity and expansion plans with customers. They help us to position us as a partner of choice, no matter what they stand in terms of digitalization. We are actually very excited for more such projects, and we can see that the pipeline is filling up of such projects. Before I hand over to Beat for the financial review, let me share some ESG highlights. In 2023, we have committed 5 specific midterm ESG targets, 3 of them relate to the environment, with a reduction in emissions and waste. They are also in line with the science-based targets. We'll publish our 2023 data later this year. But I can tell you already now that we have achieved a strong reduction from 2021 to 2022 already. The fourth target is about females in our leadership teams and the fifth about safety in workplace. With this, I would like to hand over to our CFO, Beat Neukom.

So thank you very much, Alex, and good morning also from my side, and thank you very much for joining us today. Let me first elaborate when we talk about the financials on our order intake and the trends and developments we are seeing overall and then also by region. Well, in general, the strong Swiss franc has left clearly its mark on the performance. We lost about CHF 55 million or about 1/3 of the decline of order intake due to the strong Swiss franc and due to the foreign exchange rates. In organic terms, the orders declined by about CHF 160 million or 16%, respectively. Our market environment is and has been challenging due to geopolitical uncertainties, high inflation and increased interest rates. Therefore, many customers wait to make a decision for better financing conditions and better interest rates. And therefore, we had the discussion with these customers when they will invest. And we clearly see that many of these customers are waiting. In EMEA, order intake has declined by 23% on a constant currency basis, but has been stabilizing, albeit on a lower level, in the second half of 2023. In Americas, order intake has been reached almost last year's level, so 2022 level. However, we saw some cooldown in the fourth quarter of last year due to the soft economy. And in China, our order intake remains at the low level, even though it has been stabilizing throughout the year. And Alex has mentioned already that this market is really, really challenging for us. We're focusing on keeping costs under control and going after larger customers, where we can differentiate with our automation solutions, where we have invested into a local production and local competence center to go after local competition. In Asia Pacific, the order intake has been declining over the past quarters, and we haven't seen a pickup in demand overall yet. However, if you drill down into the Asia Pacific market, the performance is twofold. The more mature markets like Australia, for example, performed much better as we could benefit from a high demand for automation solutions. Now let's have a look at the P&L. Our net sales reached CHF 930 million, nearly CHF 90 million below last year. However, about CHF 63 million of this is pure FX related. So thanks to our high order backlog of over CHF 400 million at the beginning of last year, the organic decline was only CHF 23 million. And we ended the year with a backlog of CHF 250 million. The sales performance here is twofold, if we look at the systems versus our service business. The service business continued to grow strongly with 12%, Alex mentioned it, at constant currency exchange rates and shows that our investments in the last years in this area are demonstrating success. Today, our service business accounts for about 26% of total net sales. The systems business, on the other hand, declined by 6.3% on a constant currency basis amidst the weak macroeconomic environment. Our gross margin improved. This is mainly driven by the implemented price increases as well as a better mix with over proportional growth in the United States and the service business. And in both these areas, we can realize better prices. And also, we experienced some better sourcing conditions for components and parts. Our personnel expenses declined in line with the number of employees because of lower capacities needed and the strict headcount management process. We reduced the number of FTEs by about 3% or about 100 in absolute value. Our total tax also declined 3% on a group level. So we have overcompensated the inflation adjustments for salaries, which was also around 3%. And then thanks to strict cost control, our operating expenses declined by nearly 9%, hence, a bit more than sales. There is also a sizable FX impact on our EBIT. Thanks to our successful hedging, both natural hedging, mainly for the euros; and through financial hedging instruments, we could limit the negative impact to a mid-single-digit million on the EBIT level. Nevertheless, with a CHF 60 million FX impact on net sales and a mid-single-digit EBIT impact, this impacted our margin negatively. So eventually, EBIT increased by 13% to CHF 54 million in 2023. Given the higher interest rates and our cash balance, our financial results improved, as you can see on the chart. And then with regard to the taxes, our taxes are slightly higher because of an unfavorable country mix. For example, with higher profits in the United States. In addition, we generated lower profits in China, where our companies are benefiting from lower tax rates because they're classified with a high tax -- sorry, with the high-tech status. This results in an effective tax rate of 24%, and slightly higher than what we expect for the mid-term. And eventually, our net result amounts to CHF 42 million. We're pleased to operate with a strong balance sheet, and let me highlight the most important items here. Despite the reduction of advanced payments from our customers and our dividend payment of CHF 25 million last year, cash is slightly higher at the end of 2023 compared to the level on the 31st of December 2022. To drive our cash flow, we have successfully reduced inventory levels. This is true for finished products as well as work in progress. On the other hand, parts and components closed at similar levels last year. So despite the lower order intake and backlog, we slightly increased some safety stocks. As the positive impact from our focused working capital management could offset the negative impact from the lower advanced payments, net operating assets remained stable. Therefore, also the return on net operating assets is at similar level as last year. Now with regards to the cash flow. Our working capital management is therefore also visible on the cash flow. We focused on cash collection and reduced our trade payables. Inventory and accounts receivable reduced by almost [ CHF 70 million ], over proportional compared to the sales and order intake. Advanced payments from customers decreased by CHF 54 million due to the decline in order intake and lower backlog. Our CapEx to sales ratio was slightly lower than what we planned midterm. However, this helped to improve our operating free cash flow from CHF 34 million compared to a minus CHF 41 million in the previous period. Now Alex was talking about the dividend, and let me give you some perspective to that. With CHF 12 per share, it is unchanged versus the dividend last year. It rewards shareholders for our performance in 2023. And after the dividend payout of about CHF 25 million, our liquid asset will be and continue to be at a high level. Our dividend policy for 2024 will remain in place, which is with a payout of about 1/3 to 50% of net profit, while taking into account the company's liquidity situation and future needs. And this concludes the financial review, and I'm happy to hand back to Alex.

Thank you very much, Beat. So let's talk about the recent years. So due to various external effects and market disruptions, our profitability has declined over the past years. Back in 2017 to '19, our China business had generated substantial profits. Since then, the market has significantly deteriorated. In addition, while we experienced COVID and supply chain disruptions, we deliberately invested in our service and software business. This has led to a gradual decline in our profitability despite some of the countermeasures already taken in 2023. As we continue to be faced with a weak economy, we need to take further measures to stabilize and improve our EBIT margin. Therefore, we are planning to structurally improve our profitability. Hence, we are launching a cost optimization program. Let me provide you with some more details about this program. The program actually is twofold. It's got a structural piece and the volume-related piece. First of all, we want to reduce structural costs. This means we take out a portion of cost that won't come back, even if our volumes are rising again. This relates to organizational adjustments as well as efficiency gains. To give you some indications on what we are working on, we are actually flattening our organizational structures by reducing management layers and increase the span of controls. We are looking at overhead functions, and we want to establish readiness for the next economic upswing to become future fit. In terms of efficiency, there are various work streams. Some of them have already started, and some of them are already implemented. Secondly, we take out further volume-related costs for 2024. This mainly relates to personnel cost and capacities. Once our orders bounce back, we would expect that the majority of this cost of the capacity will come back as well. In total, we expect an impact of around CHF 50 million. These measures also come with a reduction of FTE. We estimate about 210 headcounts. Actually about half on the volume-related side and half on the structural side. Before we move on to the Q&A, let's take a look at specifics about our outlook for 2024. And as we all know, outlook for 2024 is very difficult to make, but for now, we expect the market environment to remain challenging, with an order intake on the level of the previous quarters. We estimate that our order backlog is now on a normalized level, with about CHF 250 million. And while we expect a weaker machine business, we are confident that our business -- our service business will continue to grow slightly, on a somewhat lower rate but will grow. In sum, also given the strong Swiss francs, our sales will be lower in 2024 than in the past year. As a result, we will experience a negative operating leverage. And in addition, we expect some wage inflation. To mitigate these impacts, we launched a cost optimization program, as just mentioned before. To conclude, an outlook 2024 is very hard to make, but we expect a decline in sales and also lower profitability, which we'll counteract with our cost optimization program. Those of you who follow us closely, certainly know that our business is somewhat seasonal, with usually a stronger second half of the year. As volumes will be higher in the second half, we anticipate a weaker profitability in the first half and the catch-up later in the second half of the year. Also, the effects from the cost optimization program will gradually have an effect on our profitability. With this, I will move on to the Q&A session, and we'll take the first question here from the room.

[Operator Instructions].

Walter Bamert from Zürcher Kantonalbank. Almost half of your market capitalization is now in cash and securities and loans. Is there something useful you can do with that money?

Yes, we -- I have mentioned this in here in the slides, but we have been looking into M&A, of course, that was the initial idea to have enough [ power ] to do M&A. We also did that in 2024. We didn't got to the conclusion to have a perfect fit, that's why we haven't really mentioned it. But there is a second part to that, where Mr. Heinz Baumgartner, I think, mentioned it last year that there is, of course, a point when we need to decide what you're going to do with our liquid assets.

Is there a need to invest in external growth? Because if you look at your own valuation, it's really a question mark. If you find anything that comes close to that?

Well, I can answer the technical part of that question. As we have always said, at the core of our growth strategy is expanding the applications. And that's still a need in there, we feel. We feel we are solid on the service side and we're solid on the software and on the solutions side.

Last question in the same direction. Can you give an update on the [ vendor ] Mammut? When will that become due? And what do you plan to do with that?

So according to the contract we have with Mammut, the payback is [Audio Gap].

10 levels to 6 in their organization, how about Bystronic? And can you please maybe give us some comment, I mean did you clearly overexpand in the past personnel-wise, something which now needs to be rectified? And can you be -- please elaborate on where these jobs will go, especially in Switzerland, those who have already gone this year, we learned 100, and I see now another 210? So where are you cutting?

Actually, I understand your question, there is exactly -- as we put on here, we have 2 groups where we reduce cost. One is structural, structural part, that's probably what you're referring to; and the other one is capacity related. The capacity related will be where the plants are, and the plants are in Germany, in Switzerland, in Italy, in China and in U.S. So we basically look at every capacity planning of every plant. So that's where the location is. When it comes to the structural part of it, we are in an organization where we can reduce layers of management, and that's what we are doing as well. And that's exactly what I said as well. I think we haven't over -- I tried to explain that. It's -- we expanded our service organization by well over 200 headcounts, and we expanded our software organization probably by 80-ish headcount, in a time where it was actually not logic to do that. But the result of what we have done 3 years ago, results in a significant growth of our business in service, which we are completely on track, actually, but not only on sales, but also on the contribution margin, doing a very good job there. It results in a software suite that is allowing us to generate significant rally to customers by digitalizing their process steps, and we have seen an example here. So yes, we have invested with a long-term view in mind. And we personally feel while it was sort of counterintuitive to do it at the time, we feel that the results are coming on that. That part that we are actually attacking right now is really why service and the software part are doing actually quite good. It is the machine part of it that has high cycles. And in these high cycles, we need to react and basically work on the structures. But at the same time, we want to make sure we are ready when we start again. You have seen our order entry of nearly CHF 800 here. Not too long ago, 18-24 months ago, we had an order intake of 1.2 billion. So we need -- in our business, you need to sort of be ready. And when you look, for instance, on different charts, one of them is the PMI industrial that you can have a look at. You can see that we are in red areas in 18 months. So it's not really the price that we are where we are. So we think we are at the bottom of that. And sometime in the future, we will see that changing again. And we see that with customers actually that are holding back projects, they're holding, actively, back projects. Sorry, it's already a long answer to a long question. I'm not sure if I've answered everything.

Now still, I mean, you have to tell me how many layers of management do you then have and will you have at the moment and will you have in the future? And again, Switzerland, how much will it be affected, especially Netherlands? I mean you have many people there. So if you could give -- if you could elaborate a bit on that?

We are quite smaller compared with [ Clariant ]. Obviously, we don't have 10 layers. We're looking -- we don't have that much. No, we're actually in the different programs being finalized right now. And therefore, I can't give you the really exact number. But one of the levels we are looking at is to reduce one layer of organization, and that probably would be three layer instead of four in some of the areas. But we are a relatively flat organized business, to be -- I have 14 direct reports, 12 plus 2. So we have -- we don't file. I don't want to mention anything about Netherlands because we really -- that wouldn't be fair. We're going to communicate all of that just in 2 hours to the rest of the organization, while the plants haven't completely be finished. We know pretty much what it is, but it would be unfair to do this right now. There will be, in fact, 200 headcounts globally for us, 100 in the plant, means 100 basically for the rest of organization and 100 headcounts for an organization that have 3,500 headcounts that basically means 3%, right? And we have a fluctuation rate that is much higher than that. Maybe that helps you to put that into perspective. Did I answer your question halfway?

In contrary to other companies, you made an asset for sales and EBIT margin. It looks a bit defensive. How much -- to what extent is it due to the difficult market environment and to what extent maybe to leave some room for the new CEO, Mr. Iacovelli, for a positive surprise?

I'm not sure I understand the second part of the question, but I can answer you the first part of your question. So yes, we will have a successor. That successor has been announced. The change was discussed for -- we are long-term oriented. We have had a succession planning that goes over a long time. So are in the opinion, and we've discussed this with the Board and -- in turn, of course, that if we have a need to make changes, we make that constantly. We are not waiting for certain changes. That would just result in waiting times and things that we'd need to do. So we feel we have a very clear strategy. We know exactly want to, go and we saw the need to make corrections, and we're doing this now. And yes, there will be a change in the middle of this year. And that will be around anyway. So there is no surprise or different -- the Board has clearly confirmed the strategy that we are on. So I don't expect significant surprises on July 1.

So you're not extra cautious to leave some room for Mr. Iacovelli?

I'm not sure what the answer to this question is, to be honest, no. We are transparent about what we're doing, and we are not playing games. That's probably true.

Well, let me quickly take that, Alex, if you'll allow. So if you look at the development from 2023 to 2024, your point is about 2024 that is overly cautious. The assumption that we put into the outlook for 2024 is that the order intake will remain flat compared to what we have experienced in the last quarters. If you look at 2023, we benefited strongly from our high order backlog of over CHF 400 million at the beginning of last year, right? That has been used up, and now we're at a level of about [ CHF 250 million ], which is still probably higher than what we will have in the long term, right, kind of over the cycles. But it's not going to be CHF 100 million, right, over the cycles because of longer delivery times and installation times due to the complexity of our systems. In the past, we had single machines and had an average of about CHF 150 million, CHF 120 million, CHF 150 million of backlog. Now, it's going to be slightly higher. So what we're saying is because of the decline in order intake, I don't think it's overly cautious, right?

Maybe if I can have a second one. The margin will go down again this year. You have, in midterm targets, defined 12% for the EBIT. Is this still reasonable when -- could this be reachable maybe in [ that ] way?

So we know and we have described this several times in our growth strategy that has three legs. We know that we need to grow on the system side of it. And that, of course, is now at the very lowest of the cycle that we have seen. On the other side, we have the software side and the service side, it's actually on track. So as what we said at the very beginning of this, we need about CHF 1.3 billion, CHF 1.25 billion to get with that point, and we want to make ourselves future fit, so that when the upswing comes, we become double digit. The question is when that upswing comes that we are confident with the program we have now, with the progress we have done on the service side, on the software side that, that is the way we want to go.

I have a question. My name is Daniel Koenig from Mirabaud Securities. I, first, have an easy one. The power prices used to be a problem. Now, you probably get a little bit help in '24. How much could that be? And then a second question on the competition. Does it make sense to be in China? When I hear your description of the Chinese market, I feel depressed a little bit, high overcapacity, lousy economy and the Chinese behavior -- competitive behavior is normally doesn't change so quickly. So why be there? And then I have the third question is, I looked at AMADA, they came out with 9 months numbers in early February, and they always get a Bloomberg message that AMADA is making a new high. So I'm wondering what are they doing better or different? Or is there something to learn from AMADA because the share price is -- every day, I get the message, new high from AMADA?

So which one is the difficult question? So let me talk about China. As a western company, you could think like exactly what you said. But you need to know, and of course, you know, that we have made an acquisition about 6, 7 years ago with D&E. And D&E Is a local producer, a local OEM of laser systems and press brakes, which means a part of us is actually locally in the China market. No difference. There is overcapacity, and there is an issue there. What we are doing with D&E actually is quite interesting. We are expanding D&E globally right now. We have opened a new distributor in the Americas, we're going into Europe, and we see significant growth of that Chinese -- our Chinese OEM part to outside of Europe. And that's working actually very well. So the Chinese OEMs, since they have significant overcapacity, they basically buy -- not sure buy is the right word, but they buy -- they create volume by lowering the prices in China and then get the margin basically outside of China. And our D&E business is somewhat okay, still. But with the additional business outside of China, especially the U.S. is developing very nice right now, U.S. is very strong, still; that's actually helping us. So I don't see just negativity, but there is a lot of negativity. But in our business, we have learned that that's one part that will be [ good ]. The second part that we are seeing, which is really interesting for us on the Bystronic side of it, is that we see more [Audio Gap] typically are not with western machines, they're done with Chinese machines. Maybe a little bit has to do with patriotism and things like that. And we can offer that because we have a softer side of that business, and we do have the harder side of that business. So very challenging, China. But there are two areas where I think it is actually going quite okay in the circumstances. Now there were more questions. Beat, why don't you take one?

I'll take the easy one, I guess, right? It's the power. So I think from an energy consumption perspective -- we need to put this into the perspective of what we're doing. The majority of our production is assembly. So we are not significantly dependent on energy prices. So even when energy prices went through the roof and we kind of looked at what the impact would be for us, it was a low single-digit million. Now with energy prices coming down, we're also going to not overproportionately benefit from that. And in addition, we invested into solar panels at our facility in Netherlands, first, in 2022, into one roof of our production hall and now even into the second roof of our production hall. So we are becoming, also there, less dependent on energy prices. I think the last one is then AMADA, right?

Well, I -- we all read the numbers of our friends from Japan. The benefit -- we actually have a small office in Japan as well. Japan is a very patriotic market, when it comes to what they're buying. It's actually a very good market and a very large market for AMADA as well. We need to look at what percentage of sales is there. But they're doing a good job. They have done a very good service part of it. So I think they do a lot of things really, really good. One of them that we think they are excellent in is the service side of the business, I think a couple of years ahead of us, to be honest, you're absolutely right. We are in this aggressively now since 3 years. I think they -- you could argue on the systems side, whether they can really build complete Smart Factories. So I won't comment on that one. But yes, we know them quite well, and we think they're doing a good job.

[ Andreas Meyer ] with [indiscernible]. Again, about competition, would you still describe yourself as a leader in automation? And then my second question is about the development of sales. How much is pricing here?

So should I take the automation? So just for definition, how we use what words we use. So we have single machines, and then we have automation modules that are quite old, that are around here since many, many years. And then we have basically the software layers that manage that part. The automation side has developed over the last years. And yes, we are selling, as I mentioned, in the gold segment -- these machines are so fast, you cannot operate them without automation, meaning [ loading ], unloading and the storage system, which is simply humans would be too slow to offload and bring the parts in. So yes, we are one of them out there that offering fully automated systems, as some of our competitors are. Now the next level of automation is how do you actually synchronize the production. One is just load and offload and then do the things, but you have to synchronize a full production of thousands of parts that are being built every day. And that can only be done with the software suite, we call it the Smart Factory suite. That is pretty unique, what we have offered in the market. It's not impossible to do this, but it's very easy to use what you're actually doing. So we feel, yes, we are at the cutting edge with some others, very few others that actually can do this in the sheet metal industry. And we have many customer feedbacks that are telling us that what's happening at the customer basically is that it creates a productivity gain for them. And the problem we're trying to solve is that it's harder and harder for our customers to find operators and keep them. It's not very sexy to work in a cheap metal manufacturing environment. And so the answer to that is automation. And in addition, of course, our customers experienced inflation of those operators, and that basically runs through shift by shift by shift. So it's very clear that our industry is automating. And on top of the automation, there will be software layers that will help to produce parts, productive, even more productive and very productive. That's our opinion. That's what we have seen in the last couple of years.

And then on the pricing, so from a price perspective, I think you need to look at it -- you need to look at the business segments. One is service, right? There, it's around the inflation rate, right, depending on in which markets you're operating. So hourly rates from our service technicians are clearly at the inflationary rates. And then also spare parts, we have looked at an increase in average, because they sometimes they're captive that they can only buy from us, right? Then we took the price increase on others, we have not taken the price increase at the inflation rate because the customer could go and buy them on the open market. On the machine side, we have been more cautious in 2023 with taking price increases because of the economic environment. So that was a little bit lower than the inflation.

I would have a question, [ Marcos VVAG ] or actually two questions, hopefully, two easy ones. Concerning the CHF 50 million costs of the restructuring, just to -- in order to understand, you nicely described natural fluctuation rate. So you have wanted departures and then unwanted departures. Why does it cost CHF 50 million? How do I have to assess those costs or the kind of -- where do they come from? And the second question will be, I assume they're mostly cash relevant. And could you describe over the time axis, how long they will last? When will you take this CHF 50 million cost hit? And maybe then I ask the second question later.

So maybe I have not been very successful in communicating that. It's a CHF 50 million positive impact that this program has generated on run rate within 2 years, basically, full effect will be 2025. In a very small footline, we actually said that we expect the cost of this program to be about CHF 10 million. And that basically will happen in the first half of the year as we go through the changes.

Makes more sense. And then the statement that you said you closed 12 projects in the software and service -- on the software and service side. What is the lead time there, normally? And how many projects shall you still have running? And isn't the visibility increasing now that -- since it's more important projects, where you have to collaborate with the [ clients ]? I mean you should have a higher visibility than just order intake of machines.

Yes, absolutely. So those are basically IT projects. So we have closed 12. We have been very, very mindful on the quality on those because they were the first projects. So we've done this. They run very well. We have basically a capacity of such programs of anywhere between 40 to 50 a year. But that hasn't changed, I've said that in the past. What we're actually seeing is that we're seeing large complex systems that would reduce typically the demand of projects because you have larger projects, and we see very small ones. To give you an example, we have one module in our software suite that's called [ Quotation ]. So basically take a drawing, click it, drag it over, and within seconds you get a full calculation of hundreds of parts that typically takes hours and days to calculate. We've seen a strong demand of things like that as well. So it's almost like we were expecting in the middle more projects. And we see more on the left, very, very simple ones to take a week or a couple of days and under on the other side. But it's in line. And yes, you're absolutely right, we see more demand of that. We see more projects coming. We are actually holding back. We've a much longer list than what we currently put into the pipeline, if that's the right word.

We should ask you whether you make higher order intake this year on in H1, H2 than last year, instead of asking for sales, where there might be cancellations or postponements or any other kind of [ differences ]?

Well, the software projects have typically a size of, I don't know, CHF 150,000, CHF 250,000. So even if we generate 2 of them, it's way -- it's still a small plant, but it's a growing plant. So that one will come up, and we actually see that it's coming up. It has strategically a very big impact. The impact actually of that project that I've shown you here was much, much bigger on the hardware side of it. We would have never won this without the software. But once we won the software, all of the hardware came with it. That's more the effect of it, actually.

Can I just have a last question? So is the gain of software projects that are leading then the hardware sales, is that the KPI in the overall organization?

We actually follow that. We actually follow that. And we have only seen 1 project where that wasn't the case at the beginning. Now, that has changed as well. I think what it is, is people become confident with you and with your products and build trust and the relationship. And that leads them to the rest of it. That's how I would describe that.

I have two questions. Torsten Sauter from Kepler Cheuvreux. The first one would be on, how can I say, the release or the potential release of pent-up demand that is now building in this downturn. Can you give a feel for the, how do you say best, average age maybe of the equipment that's installed in the field and what useful life of the assets normally is so that one can go to where we [ stand ] in the replacement cycle? And then the second question would be, if I look at your track record and what's available in the long term, in Conzzeta's and Bystronic's accounting, I always found V-shaped recoveries after crisis, right, great financial crisis, revenues down, losses. And then you recovered. Corona, one difficult year, and you came back. Now we have this ongoing whatever, what is different this time, please?

Well, if I knew that, I would tell you. But basically, what you're seeing, you're absolutely right. COVID was a -- you can look at that, it was V shaped. And now we see basically a longer period of that. When you look over 30 years back, let's say, on the PMI industrial, you can actually see similar phases in the past. That's not the first time that you have 18 months of red, let's call it, a red zone. So I think our customers make decisions on capital equipment. And capital equipment is -- has, of course, to do with the financing costs. And they are very careful. And people -- it has a psychological part of it. And with wars and with much higher interest rates, they're holding back, may be similar to like you would hold back on something privately sometimes. We see those effects, not in all the customers, but on medium customers and smaller customers. Large customers tend to have a budget, and that budget tends to get executed basically. I'm not sure if that helps you, but I cannot give you any answer for the future, but it will come back. There are infrastructure is something that is being built everywhere. Our sheet metal is used in so many different industries, you have always seen that is coming back. When it's coming back, we don't know. But we are -- our highest target or what we really is to become future fit for Bystronic. And if this takes a bit longer, well, we'll make the necessary changes to be ready when the bounce-back comes.

So Torsten, when I look at the PMI, it's really a good indicator for us, right? So if I look at the correlation because the global PMI and our order intake, you're getting to a correlation of over 80%. And enhance our strategy to make us more independent of that PMI is [Audio Gap] and into service and into software, of course, because that makes us less vulnerable to this economical prices. As we have shown last year, with service growing 12%, and we're also expecting a growth this year on the service side. And then you had a question on the average age of the -- of the system. So there's still a large number of CO2 lasers in certain markets. right, especially in the upcoming markets. So one market that is also benefiting from reshoring is, for example, Mexico, right? And upgrading these systems from CO2 to fiber laser is a clear strategy that we're following. And when you look at the average -- they're out there a decade or even longer, right? And the average age of a laser system is about 6 to 8 years kind of in average. So there is a constant renewal happening.

I would like to take the occasion to quickly respond to two previously raised questions. The first one was regarding the usage of excess cash. And as you might know, this is a regular topic we also have at the Board level. And at Board level, the view is basically this. As we're operating in a cyclical business, first of all, I think it is of utmost importance that we operate with a healthy balance sheet. And a healthy balance sheet also means a decent level of cash. Now we all agree -- and we have seen many examples of companies also operating in a cyclical business, which are terrible, struggling right now because they are desperately looking for further funds to financing their business. Now I think we all agree that we are in a very comfortable position. And of course, we have an excess cash position. Now regarding this excess cash position, most of you know what my personal view is, either we can make decent investments to the benefit of our shareholders with this cash or we should pay back the excess cash to our shareholders and tell our shareholders "Try to do something reasonable with this money." I think it is wrong to keep excess cash for too long period. And whether we are already in a too long period, where we have not used the cash, we can discuss. We have monitored various acquisition propositions. We have declined all of them, I think, for good reasons. I would, short term, not expect an acquisition as with the incoming CEO. We should also give him some time, let's say, to get familiar with the company, and it would probably not be professional to execute an acquisition right before he fully understands the company. Now regarding the incoming CEO, I'll also comment or respond to a question Charlie raised, whether we are overcautious in preparing the path for the incoming CEO? And here, my feedback to you is we are leading this company on an ongoing concern. And what we are executing on the program we have communicated this morning, we would have executed exactly the same way if there would not have the CEO change. That's part of, let's say, our professional behavior. Of course, it is the ambition of Alex and his team to do a proper housekeeping and to make sure that the incoming CEO gets a company in good shape. I think that's the aspiration, that's the motivation. That's the ambition from all of us, and I'm very much convinced that we will able to achieve that. In that respect, I would also already by now to thank Alex for what he has achieved with his team in more than 10 years, where he was the CEO of this company. This is a long time. And also, we regret very much that he has decided to retire. We do understand, and we were well prepared for this step. Now, it's too early to make, let's say, big [ shout-out ] as we still need you for the next couple of months. And of course, we will do that once it is the right time, but I wanted to express already by now, our sincere thanks for all you have done for this company. And if we succeed with what we are planning for, I can assure you, Charlie, that there are still enough challenges around for a new CEO in the store.

[ Thomas Brody ], [indiscernible]. I have to come back to China. And the answer you gave me didn't convince me. We see a clear trend that companies are moving out of China due to geopolitical reasons, and they go to Vietnam or to India. And also a fact this is your business in China, is doing very poorly. And I have strong doubts that with the China label, you can sell your products over the globe in America or in Europe. And here, my question is, why you didn't consider to close or go out of China and go to India, which you told us, has very high growth rates?

We do India, and we've actually opened an Experience Center. I -- part of your question I understand where you are coming from. What is happening since a couple of years is we call this the Chinese tsunami. There's a large number of OEMs in China that are building laser systems, mainly laser systems, 2D laser systems and flooding the markets on a level there they basically don't compete with the Bystronic side of our business, but they're pushing up. What they're doing is they're replacing technologies such as stamping. For instance, waterjet to a big part of it, flame cutting. So basically, what's happening is that the laser cutting technology becomes so affordable for entry level, it's all entry level, customers that before had different technologies such as [indiscernible] water cutting technologies, stamping technologies, flame cutting. That's really what's happened. We didn't know those customers because those are not typically Bystronic customers, achievement. But now with DNE, we can actually see that there is a significant market and technology change. And it makes sense to cover that market. And you can see many Chinese OEMs going outside of China and to go after that market. We are doing that with a dual-brand strategy. So this one is a complete separate sales and service organization. And there is a market to go after that. What you have mentioned is that previously outsourced work to China is going out of China. Yes, absolutely, we can see that. We can see that a lot of work is going into Mexico, some work is going to the U.S. We see Vietnam, we see Bangladesh. We see Australia having a quite a strong trend actually. We have a lot of projects -- several projects in Australia. That's the work of it. But that's a different trend. That's a work that has been out -- produced in China. It's going out. I think China will be different after all of this than it was before. You're absolutely right, and we will adapt to that. But it's not black or white. We see that there is still a significant -- several hundred laser systems in China, is currently what we're doing with the DNE brand. So I don't see it like as digital as you do, but there are large movements going on, absolutely, absolutely.

But you told us before that we -- is the China business -- in China, you don't earn any margin.

I said that China business with [ DNE ] brought significant margins in the past, also on EBIT. And that has reduced, yes. We are still great breakeven or above with the [ DNE ] part of the business. But yes, it has significantly reduced through those challenges. The business in China is probably half of what it was years ago before we went into this crisis, and we have adapted ourselves to that.

And for you, it's necessary that you order in China?

Well, that's a good question. Besides the fact that we have -- that a part of this Chinese and we have those products in the entry level, one effect that we haven't talked in the past is that we learned from Chinese construction concepts. So the current -- the brand new laser generation that we have was basically be reengineered in our Tianjin plant. And that's how we take cost out of our systems. So not only we have the products from our friends in China, we have an R&D center in China that provides us with cost-effective systems. And the new generation of automation that we just discussed a minute ago is based on new concepts that we adapt to Europe, of course, so just as a secondary effect, which I think is very, very valuable for a Swiss company to do. So I would invite you to see is to get -- it's not black or white. It's a little bit more complex. But you're right, it's very challenging.

At the moment, there are no more questions in the room, but we have one in the conference call. Sandra, please go ahead.

The first question from the phone comes from Remo Rosenau from Helvetische Bank.

Yes. Can you hear me?

Yes, loud and clear.

Okay. Great. You talked about a normalization of the order intake. However, if I go back to the last 4 quarters, I mean we had this exaggerated levels in '21 and '22, clear. But in the fourth quarter '22, we had CHF 215 million orders; Q1 '23, CHF 218 million; then CHF 204 million in the third quarter; the second quarter, CHF 203 million, then the CHF 204 million in the third quarter and now CHF 169 million, which is again 17% lower sequentially in the fourth quarter since the third quarter. I mean is there a risk that we go from normalization to below normal in the order intake, going forward now? I mean it's a significant additional drop in orders in the fourth quarter.

So the fourth quarter, if you dive into the details of the fourth quarter, the decline sequentially, mainly came in the Americas region. And did we expect more from the Americas region? Absolutely. There was an effect of [ FabTech ], that large fair that we have towards the end of the third quarter. And there was an increase most likely in the fourth -- in the third quarter of 2023 and then a slowdown in the fourth quarter of 2023. So if you normalize that, we would be a little bit higher.

[ If you ] talk about CHF 35 million less than in the third quarter, I mean that cannot be just from that effect, right?

But there's also a little bit of currency. The strong Swiss franc didn't help, right, especially against the U.S. dollar, from the third quarter into the fourth quarter. That's also an effect.

It caused book-to-bill in the fourth quarter 68% and for the full year, 85%, so I just want to get a feeling. I mean, do you expect, and you already have 2 months in the first quarter, that the order level will kind of stabilize at around CHF 170 million now or should we go back again versus CHF 200 million or go down to CHF 150 million? I mean what is your feeling here?

So what we can say is, well, first of all, January is always a -- and also February is a little bit of a challenging month for us, right? It's usually very slow, right? That has to do with Chinese New Year in China, but also in some Asia Pacific regions, right? But what we can say is that the Americas region continues to be dynamic. So we have seen a better January and a better February than what we have seen in the fourth quarter of 2023.

Okay. So it sounds like it was a bit of an exceptionally weak quarter, the fourth quarter, in terms of what your order intake?

That is fair to say. We will back to 210 levels immediately or most likely not.

There are no more questions in the conference call and also not here in the room. And Alex, you may go ahead to close the conference.

Patrizia, we hope you're going to make it. Thank you. Thank you very much, Patrizia. Thank you very much, and thank you, operator. If there are no more questions in the room and the webcast, we close today's conference and wish you a successful afternoon. For those that here in the [ Marriott ], please join us for standing lunch in Studio 3 downstairs. Thank you very much.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.