Dürr Aktiengesellschaft (DUE) Earnings Call Transcript & Summary

Welcome to Dürr Conference Call. Before participating, please pay attention to our disclaimer mentioned in the call's presentation on Page 2. [Operator Instructions] Please be aware that this conference will be recorded. [Operator Instructions] Welcome to the Dürr Conference Call. Ralf Dieter, CEO; Dr. Jochen Weyrauch, Deputy CEO; and Dietmar Heinrich, CFO of Dürr AG will present the Dürr Group's figures for the first 9 months of 2021, followed by a Q&A session. I will now hand over to Andreas Schaller, Head of Investor Relations of Dürr AG.

Thank you, Alexandra. Ladies and gentlemen, good afternoon or Good morning to those of you in the U.S. Welcome to the Dürr's Third Quarter Earnings Call. As always, our earnings presentation is available on our Investor Relations web pages, and we assume that you have it in front of you. Please be aware of our disclaimer regarding forward-looking statements on Slide 2. After this short introduction, I directly hand over to our CEO, Ralf Dieter.

Yes. Thank you, Andreas, and a warm welcome also from my side. With me on the call today are my colleague Dietmar Heinrich, our CFO; and my successor as CEO, Jochen Weyrauch. Jochen has dialed in from Eastern Europe, where he had an important customer meeting today. After being now 19 years at Dürr and 16 years as CEO, I decided it's time now for a change in our 125th anniversary year. This change I've prepared carefully for a longer period of time. Jochen Weyrauch and I have known each other since now 19 years from our time at Schenck in 2003 to 2005. In 2016, I recommended to the Supervisory Board to ask Jochen to come back to Dürr as a Board member. Since January 2017, he has now been on board again, and he could proof in the last 5 years to the Supervisory Board, the management team and the employees that he is the right successor. The timing to hand over the CEO position to Jochen at the end of this year, I think is right. First, we have managed well to get the challenges of the COVID crisis, and we have done our homework to make the company fitter for the future. Dürr is at the beginning of a new profitable growth cycle over the upcoming years. And second, we have an excellent management team in place on corporate, but also on divisional level to steer the company into a successful future. But it's not yet time to say goodbye. We still have 2 months to go. And I'm looking forward to meeting some of you in person and others virtually at the upcoming Analyst Meeting, we will have on November 16 in Frankfurt. So now let me start with a review of our performance in Q3 and the first 9 months. And after that, Jochen, Dietmar and I will comment on the performance of our divisions before Dietmar will go into more detail regarding the financials. And at the end, we will present to you the updated outlook of our markets -- of all our markets, and the guidance is unchanged. On Slide 4, we see the summary of the highlights. Order intake remained strong also in the third quarter. The main driver was HOMAG once again, and we received a EUR 40 million order in the HOMAG business unit, solid Wood, which includes our activities in the field of timber house production technology. On top, we are very happy to record our first double-digit million order for automotive battery coating equipment in the Clean Technology Systems division. This is an important milestone and marks the entrance into large-scale automotive battery cell production with our own dual sided simultaneous coating technology. Jochen will talk about this in a minute. Another very positive news is that our order intake margin has improved strongly since last year when we had some pressure due to the pandemic. At HOMAG, the order intake is above all historic levels. The order backlog has further grown to a new record level of EUR 3.3 billion. In order to reduce risk in the backlog, we decided to remove some EV start-up related projects with unclear timing about the execution start in China, amounting to about EUR 190 million. Out of that, EUR 160 million were booked in 2020 and EUR 30 million in the first quarter of this year. Overall for the group, the effect was more than compensated by the strong order intake in Q3. Just to make this clear, it was a decision by Management to remove the project because we are cautious, but there were no order cancellations, and the pipeline for EV projects continues to be strong. There are also no meaningful outstanding payments related to any projects we do with start-ups as we manage project progress and payments by the customers very closely, particularly in China. Sales revenues improved sequentially in Q3, driven by all divisions. The recovery speed is still impacted by the weak order intake in the first half of last year and also by some delays in the supply chain. However, we expect an acceleration in Q4. We recorded a high gross margin and EBIT margin in Q3, driven by our cost savings and efficiency improvements and the higher service share in revenues. The EBIT margin before extraordinary effects reached a level of 6.4% in the quarter, which is above the guidance range for the full year as updated in July. We are not regularly commenting on our interest result, but in Q3, we recorded a one-time expense of EUR 14 million, which is not cash effective and relates to the extension of the pooling agreement with the Schuler/Klessmann shareholder group regarding HOMAG. Dietmar will give you more details in the finance section about that. Free cash flow remained positive even though the business recovery led to increasing inventory and contract asset levels. Main drivers are the positive earnings development as well as the high order intake and related prepayments. Finally, we confirm our guidance for 2021, and we believe that we are well on track to reach a level in 2022 that is higher than before the pandemic in 2019. On Slide 9, we see an overview of the 9 months key financial indicators. Order intake increased by 39%, and this includes about EUR 170 million from companies that we have acquired since Q3 last year. Sales revenues grew by 4% and included about EUR 145 million from acquired companies. EBIT before extraordinary effects saw strong increase and reached a margin of 5.4%, which is already well within our guidance for the year-end. Net income improved, but includes the minus EUR 14 million non-cash one-time effect, as mentioned before. And finally, free cash flow is close to last year's level. However, the drivers are quite different. This year, earnings are the main contributor to free cash flow. Last year, it was a reduction in loan capital. Overall, the cash flow development is better than expected. Slide #6 shows the order intake on a quarterly level. And the positive trend continued in Q3 and is an important indicator for the revenue growth that we can expect in the coming quarters. I already mentioned HOMAG as the main driver, but also the demand from the automotive business continued to be strong. Now let's turn to Slide 7 and have a look at the regional split of our order intake. All geographies show a double-digit growth rate compared to last year. And China continued on a high level. And in addition, we saw a strong recovery in the Americas and in Europe. All divisions contributed to the positive development in the Americas and in Europe outside of Germany. The region Asia, Africa and Australia without China also recorded stronger orders. So now I would like to hand over to Jochen to comment on our latest customer success in the field of adequate coating and sustainability, and I hope that the line is working. Jochen.

Yes, I'm still here. Thank you, Ralf, and welcome to all of you also from my side. On Slide 8, I would like to talk, as Ralf already introduced about an important order that we received in Q3. It's not so much the size of the order, which amounts to a low double-digit million euro amount. The order from Cellforce, however, for our simultaneous dual side encoding technology marks our entrance into the large-scale equipment market for battery cell production for electric cars. Cellforce with Porsche and German sales specialists Custom Cells, are shareholders, plans an initial prototype development of high-performance battery cells using our technology in 2022, followed by series production in 2024. Battery cell production is a significant growth market as the share of battery electric vehicles is expected to grow from 3% in 2020 to around 30% or even more in 2030. We're currently in the bidding process for a couple of battery cell projects, including larger ones with a size of more than EUR 100 million each, and we're excited about this new opportunity. We will talk more about this during our upcoming Analyst Meeting in Frankfurt. E-mobility is an important milestone on the way of our society towards carbon neutrality. On Slide 9, I would like to give you some preview on our climate strategy that we plan to publish on November 16. We commit ourselves to the Paris Agreement and align our climate strategy with a 1.5 degrees Centigrade. We are validating our CO2 reduction road map with the science-based target initiative and focus on carbon reduction rather than compensation. In addition, we already became a member of the global Race To Zero campaign. All in all, we see ourselves as an enabler for carbon neutral society based on the high resource efficiency of our products and the supply of products to industries that play an important role in the transformation like e-mobility and solid wood construction. We look forward to presenting the full strategy, including data, as I said before, on November 16. Now let's have a look at the divisional development. We start with Paint and Final Assembly Systems on Slide 11. Order intake in Q3 was impacted by 2 factors. First, the decision to remove about EUR 30 million from an order booked in Q1, as there is currently a high degree of uncertainty, whether it will materialize. In addition, a mid- double-digit order was delayed into the fourth quarter. Without these effects, order intake would have been well above the EUR 300 million level. The order pipeline continues to look solid, and we are confident that we can replace the removed orders with new projects. Order intake in Q4 is expected to be strong. Sales revenues are recovering sequentially but are still impacted by the lower order intake in 2020 and some project delays. We expect an acceleration in Q4 for both sales revenue and EBIT. Let's turn to Application Technology on Slide 12. Order intake was solid, thanks to strong order momentum from the Americas, Europe, with the exception of Germany and China. Sales revenues recovery is clearly on track. Once again, we recorded a remarkable service and spare parts business that contributes to the significant EBIT margin improvement, together with the implemented cost-reduction measures. Next is Clean Technology Systems on Slide 13. The high order intake in Q3 includes the order from Cellforce that I've talked about. The sales revenues development was slowed down by project delays and capacity shortages. Delays in project finalization impacted the margin in Q3. Overall, the order backlog is very high at CTS, and we're working on lifting the capacity shortages and expect a very solid business development in 2022. Now I hand over to Dietmar for the comments on Measuring and Process Systems.

Thank you, Jochen, and also welcome to everybody from my side. On Slide 14, you can see the summary of development at Measuring and Process Systems division. The business continues to recover, and we actually see a strong improvement of margins. Order intake and sales revenues increased year-on-year and also quarter-on-quarter. We see a solid demand from North America and China and further recovery potential in Europe. The margin improvement that you can see is driven by the cost-saving measures that we implemented last year and also improved project execution. We are very happy with the turnaround that we started to see since the beginning of the year. And with this, I hand over to Ralf for the HOMAG business.

Thank you, Dietmar and Jochen. And let's take a look at HOMAG on Slide 15. In Q3, we recorded for the first time a quarterly order intake of more than EUR 500 million. In the first 9 months, we are close to EUR 1.4 billion, which is an increase by more than 80% and a higher order intake that we achieved for the full year 2019. All geographies experienced strong demand, and the Single Machine business continued at a high level and the System business grew further, and we received our largest order so far in the Solid Wood business, as I already mentioned. Sales revenues improved at a high pace, driven by the strong order intake, although we are facing many supply chain shortages that prevent us from growing even faster. The EBIT margin remained at the high level of the second quarter, driven by the sales growth, our optimization program and the strong service business. All in all, we see a strong revenue and earnings momentum at HOMAG. Finally, we come to the Service business on Slide 16. Service sales improved even further, driven by a stronger modification business during the summer months in the automotive space and by strong spare parts business in nearly all divisions. The share of Service sales reached 33% of revenues in Q3, which is well above our target of 13%, and Service margins remained at high levels. So now Dietmar, I hand over to you again for a deeper look in our financials.

Yes. Thank you, Ralf. I will start with Slide 18. All in all, the earnings recovery is on track with improving margins and a strong free cash flow generation. There is 1 extraordinary effect in Q3 that was already mentioned by Ralf in the summary. And I would like to give you more color on the next slide. On Slide 19, we can see the development of the interest result over the past quarters. In Q3, there was this strong increase in the other interest expenses. This is due to the one-time effect of EUR 14 million that is non-cash in nature. The background is as follows: the pooling agreement with the Schuler/ Klessmann shareholder group on HOMAG was up for renewal in the third quarter, and we have extended it now until 2029. The new pooling agreement now includes put and call options, and we have adjusted the reference price from EUR 25 per share to EUR 31.56 per share, which is the price that we are offering to pay to all shareholders who want to sell shares or format to us. This revaluation resulted in an increase in other liabilities by dimension of EUR 14 million, and this is reflected in the interest expenses. On Slide 20, we can see that sales revenues grew sequentially by about 7%. All divisions reported higher revenues in Q3 than in Q2, especially in Automotive and Clean Technologies as the revenue generation has decelerated quarter-on-quarter. From a geographic perspective, Europe gained share in the first 9 months, mainly driven by the improved business at HOMAG. Asia without China lost share as large projects in South Korea were completed. China and the Americas were about stable. Let's move now to EBIT on Slide 21. The EBIT margin before extraordinary effects further improved to 6.4% in third quarter. And you can see on the EBIT bridge for the first 9 months, that the gross profit was the main driver for the EBIT improvement. Overhead costs increased year-on-year, but about 60% of the increase was driven by our acquisitions that we did during the last 12 months. Extraordinary expenses were EUR 8 million lower compared to last year. And the EBIT margin level for the first 9 months of 5.4% is already well within our guidance range. On Slide 22, we can see the free cash flow development. And you can see that in the third quarter, we recorded a positive free cash flow of EUR 21 million, which added to the achievement of the first 6 months so that now after 9 months, this sums up to EUR 94 million, which is on a similar level than last year. However, this year, earnings are the main driver for the free cash flow, whereas last year, it was the reduction in net working capital. Cash generation is bolstered by continued strong cash inflows from prepayments that limits the increase in net working capital. For more details in that regard, let's look at the next slide. On Slide 23, we can see that net working capital increased in the third quarter by EUR 47 million compared to the second quarter. Main driver is the growing business that leads to an increase in inventories, receivables and contract assets. As just mentioned, the cash inflow from customer payments continues to be strong, and the increase in contract liabilities is limiting the net working capital growth. Days working capital rose to about 46 days, which is well in the middle of our target range of 40 to 50 days. Now let's look with the next slide, Slide 24 to our net financial status. Net debt increased slightly compared to the midyear mark due to the acquisition of Hekuma, but this was partially compensated by the solid free cash flow generation. Despite the various acquisitions already done this year, the leverage remained well below 1. All in all, we continue to carefully manage our net debt levels. Finally, now let's have a look at the liquidity headroom on Slide 25. Nothing new here. We feel very comfortable with available funds of EUR 1.3 billion and debt maturity only coming up in the year 2023. As such, we can fully focus on developing our business as we exit the pandemic. With this view, from the financial side, I hand back to Ralf for the outlook.

Yes. Thank you, Dietmar. And now let's turn to the outlook and start with the market development on Slide 27, with the latest forecast of LMC Automotive for light vehicle production in '21 and until '28. The outlook for '21 has been lowered quite significantly during the past few months due to the ongoing semiconductor shortage, as we all know. The remaining growth rate for '21 only amounts to roughly 1%. But the recovery has shifted to next year. And the open question is when the strains on the automotive supply chain will ease? So far, we did not see an effect on the CapEx decisions of our customers out of this supply chain problems. And to long term, LMC continues to see a growth potential to do above 100 million vehicles per year, again, as already in the last year. On Slide 28, you see an update of the markets relevant for HOMAG, and the market data for furniture production has been revised quite significantly. This is a consequence of the dynamic order intake development that we have seen since the beginning of the year. The new forecast model shows that the trough in 2020 was not as deep as previously expected and that the recovery was much faster, almost reaching the pre-crisis levels already in '21. Going forward, we expect a relatively stable market size of somewhat above EUR 4 billion, which is characterized by the ongoing consolidation among furniture producers. As you now compare the expected order intake in '21 with the market size, you will come up with a very high market share for HOMAG. Here, you need to be careful. The backlog is currently very high and the larger share of the orders that we received this year will only be delivered in '22 or even '23. And as such, there is a certain pull-in effect of orders into '21. On the right side, you see the updated model for the Solid Wood Construction Machinery market. For simplicity reasons, we are only showing the addressable market, which makes up about 70% of the total market. Compared to the assumptions in spring, the market sizes were the increase for the next year, and the growth rate per year has risen to more than 6% from more than 5% previously. But again, this market is very difficult to forecast, and it's further development can be even more dynamic. We are very well positioned to grow the HOMAG business over the next years by expanding our market share and growing our service offerings to the customers. The market outlook for Production Systems for medical technology on Slide 29 is unchanged. We expect a high single-digit percentage growth rate over the next years and continue to look for acquisitions in order to further strengthen our portfolio. On Slide 30, we show the guidance for '21. There is no change since we upgraded the guidance in July. We believe we are well on track with order intake, EBIT margins and cash flow. The only parameter where we see some shifts into next year is potentially sales revenues. Slide 31 shows the guidance by division, which is also unchanged. And on Slide 32, we see, again, our strategy and midterm targets. And based on the positive business dynamics and the strong order backlog end of this year, we are confident that we will reach our midterm targets in '23 or '24 in. So let's summarize on Slide 34. First, order intake is on track to get a new record level at the end of '21. Backlog is already on a record level, which is a solid base for further revenue growth in '22. And sales revenues are on a recovery path. Margins improved further in Q3, driven by efficiency, cost-saving measures from last year and the strong service business. Free cash flow generation has been stronger than expected, driven by solid customer payments, which we expect to continue with the high order intake. And based on the performance in Q3, we confirm our guidance for '21 as well. Overall, we are very well positioned to grow the business in 2022, profitably to above the pre-crisis level of 2019, and we are on track to reach our midterm profitability targets in '23 or '24 latest. So thank you very much for your attention. And now we are happy to answer any questions you might have. And I would like to ask you to ask questions only 1 by 1 because we have to manage this. Jochen in Eastern Europe and us here, then it's easier for us. Thank you. And I hand back to Alexandra.

[Operator Instructions] The first question is from Lucie Carrier of Morgan Stanley.

I have 3 questions, and we'll go 1 at a time as indicated. First, starting with the backlog. Can you maybe help us understand out of the EUR 3.3 billion that you've reported, first of all, how do you think this is now a clean number, i.e., have you removed all of the risk? Do you -- how do you expect or how much of that backlog do you expect to materialize in 2022? And I've noted during the comments earlier that you were mentioning, the order intake margin was up year-on-year, which I think is good news, considering what kind of maybe margin was last year. But when you think about the order intake margin right now versus the current profitability you are doing, how does that compare? Because obviously, I'm conscious that you are targeting higher profitability going into 2022?

It's very difficult to say precisely how much of the EUR 3.3 billion will material next year. But I would say if we can judge 60%, 70% that would take because we have some long-term projects in which -- will not have an SOP before '23 -- mid of '23. So I would say 60%, 70%, which would be a very comfortable situation. That's why we are also confident for '22. Regarding your question regarding the margin and order intake, we are also happy about this improvement, and we also have improvements in order execution. It's not only the margin when we get the order, but when we execute. And here, we are also on the good track. We make strong improvements in HOMAG, out of the efficiency programs and also in the Automotive business. So we are also positive about that.

And my second question is on supply chain. You did mention a few times that some of the sales maybe were a bit slow on the back of capacity constrained or perhaps supply chain. I guess my question is, did it have also any impact on your EBIT aside the top line impact? And how do you think of managing this into next year? What's your biggest area of concern? Is it logistic or energy cost or labor or availability of components? Just for us to have a bit of a sense where we should focus kind of a part of the analysis.

Yes. Yes, that's a complex question. I'll try to answer. First of all, from the supply side, we see in many component shortages, perhaps with the sheet metal and we have sunny drives, and we also have electric drives and God knows what. I think we're managing very well because in many cases, we use our R&D departments to find alternative components to be able to finish the machines. But, to be honest with you, we would have more sales revenue without that constraints. Difficult to judge. But in the HOMAG side, I can tell you, it could be about 10%. We also have cost impact, which affects our EBIT. And for the total group, this year, we judged about EUR 20 million, we have to swallow, which we did, and even in our guidance. So that gives you the second part of the answer. Going to next year, we -- as I said, we -- in some areas, we've found alternative materials, but it will follow -- it will be for maybe the first half next year, still a very intensive task to work on and Jochen, who is responsible for purchasing, can maybe add something to that?

Yes. I can do that. As Ralf mentioned, we -- I mean, the fight is probably stronger internally than it appears to be outside, and that's good because it confirms that so far we well manage things. But apart from availability of parts, also, as you know, the logistic chains are vulnerable, things that we typically would have brought over from China to Europe, we have to reallocate them to Europe. So -- but all in all, we manage the situation quite well. And as Ralf predicted, I believe this will accompany us pretty much, to some extent, the first half of next year. And then talking to customers, like I'm doing a lot these days, they basically confirm this.

And just maybe my last question on slightly more longer term. You mentioned you expect to be at 8% margin by 2024, possibly even 2023. It's still a bit of a jump, I would say, from nearly the 6% you plan to be at in 2021. Which division do you expect to be the most contributing to this step-up, which is not small? And if it is good working, how -- what gives you the confidence that the business will continue at the current level of strength that we have seen since the beginning of the year for the next, let's say, 2 to 3 years possibly?

Lucie, I think all the divisions will contribute. One more, one less for sure. HOMAG is one of -- is a division which will have maybe the strongest increase in that perspective, as you know, and you know very well. And now in this '23, we said 9%, should be achievable. I think, that's -- from today's perspective, absolutely given. And -- but we also will improve in Automotive business. On the Schenck, NPL side, with lower impact. But overall, it will be happening in all. But the major drivers are, I would say, the PFS and the HOMAG business from the volume alone, yes.

So the next question is from Philippe Lorrain of Berenberg.

A couple of questions from my side. So first, to bounce back on Lucie's question on the derisking of the backlog. So can you confirm that with the current state of the backlog beaten PFS or across the remainder of the group as well, you're feeling perfectly safe with what you have in terms of the customer's risk profile?

Philippe, first of all, we are never saying never. But we feel confident that we took all the -- and I have to say, it's a very conservative action we take here just to make sure that we are -- next year, not facing potentially and deep booking of an order which doesn't materialize yet. So we feel pretty safe. We could have done more if it had been needed because our order intake allows that. But we feel pretty safe about that, yes. But we never are sure, but safe.

Okay, perfect. And then I've got a couple more technical questions with regard to that. So do I understand that correctly that actually, your order intake number, the real one, should have been EUR 30 million higher in Q3, but EUR 30 million lower in Q1, hadn't you booked that order in the first place so that the 9-month figure we are looking at is actually clean.

Correct.

Okay. And you speak as well about derisking the backlog by EUR 190 million in total, and EUR 160 million were booked last year. Yes, if I do the math from the backlog figure as of Q2 into the backlog figure as of Q3 by adding the order intake now that has been reduced by EUR 30 million and reducing that by the sales number. I would get to a delta that is actually less pronounced at EUR 150 million or so. So has there been a huge fluctuation in FX or anything happening as well that will explain the gap?

No.

Okay. And perhaps as well, just like to understand also from a technical point of view. So is it possible to actually book like a negative order intake in 1 quarter just to cancel an order because I would have thought that actually it's just a backlog that is being impacted, and we see a revision of the Q1 number for order intake and that's all?

Yes, we do this from a mathematical point of view, Philippe, exactly in that way.

Okay. Fine. Last question from my side is more on the battery coating. So you mentioned that so far you've won like an order from Cellforce. You also mentioned that it's a relatively small one. So what do you expect in the midterm with regard to the average size of such orders, which order of magnitude could be reached there? So should we be looking at orders in the range of EUR 10 million to EUR 15 million? Or is it possible to reach something more, let's say, sizable?

Jochen, can you answer that, please?

Can you just repeat the question? There was just some noise in the line. Sorry about that.

Yes, no problem. I was asking, as per you mentioned this order that you won from Cellforce that is relatively small in size. What you would expect as being the average order size in the midterm for battery coating and generally like the orders you get from battery manufacturing?

Yes. So if -- it will continue to vary. If you take like a 10-gigawatt facility, which is about the size, all those giga factories are planning, there, for us, it is the range of about EUR 100 million if we get the complete package, the complete package not going too much in detail, of such a project could be the coating itself, then the drying, which is the ovens and the solvent recovery because there is a lot of solvent in the slurry that we coat. And if we get those 3 pieces, we talk for 10-gigawatt factory at about EUR 100 million. So not necessarily we will always get everything. Of course, we shoot for it. And then there will also be smaller-sized projects. There is currently 1 project underway for German -- another German OEM, which could be, again, similar to the size from Cellforce. So we will have a variety, but the standard size would be around 10-gigawatt factory is about EUR 100 million.

Just to make things clear, the EUR 100 million if we get like the full package as for a 10-gigawatt factory, would that be booked only under Clean Technology Systems? Or would be that the spread between different divisions?

Yes, it's a good question. So in the case of the active projects that we plan, it could be a mix of CTS, which is what we're talking about and also PFS in case, we use our project management and construction capabilities from PFS. So there might also be order income shown if we are successful in PFS. And of course, we will explain that transparently.

Okay. That's very interesting. But -- so for me, the takeaway is basically, if we get like 2 of such giga factories starts coming per year, we are looking at an increase of probably between 2% and 5% of the order intake as it is today, let's say, guided by you guys just coming from that opportunity, and that's something that is probably like pretty new to a lot of people here?

Yes. I think that's a good point, Philippe, it's an additional opportunity for us.

The next question is from Daniel Gleim of Stifel.

On the first 1 would be on HOMAG and the record order intake in this quarter. When I look at your market projections, and thank you very much, and we take this stabilization on the furniture side into account. What you think would be the new normal in terms of absolute order intake a quarter for the month that we can realistically expect?

That's a good question, what is the new normal because there was no normal. When you look at, say, last 4, 5 years the normal, it's -- I think, first of all, we have to -- I think we have to accept that the HOMAG business or the market is volatile. And the huge increase we have this year, we did not foresee in the middle of 2020 or even in the third quarter. But in a kind of more steady forward-looking, we see for us -- for our business that we are out of 1.4%, 1.5% level maybe next year. And then we have to see whether the market turns up a little bit or down. But for the total market, I think that's here with the EUR 4 billion. I would say that this is a good number, but it can go up and down a little bit, depends year by year. But the order intake increase, and I think that's also important, we had seen now we have seen in '21 as some catch up effects, some also stimulus effects, which I think is all not repeatable. So we are not planning next year with EUR 1.7 billion or EUR 1.8 billion order intake in HOMAG.

Very clear. On the PFS order that got shifted from the third to the fourth quarter, could you review what the size is, and whether it already was booked in the current quarter?

It was mid double digit, and it was not ready to be booked for some contractual final negotiations.

So yet to be booked in the fourth quarter, I understand.

It will be booked in the fourth quarter, yes. And we have orders more to book in fourth quarter in PFS.

The next question is a follow-up from Philippe Lorrain of Berenberg.

Yes, just 2 quick follow-ups. Just to make sure I understood your answer to Daniel's question. So you are guiding already a little bit for a decline in order intake at HOMAG next year just because we are missing like the catch-up effects that we were seeing this year, plus also the booking of the large orders, no?

Yes. I think that's important, again, to make very clear. The EUR 1.7 billion, EUR 1.8 billion we will achieve this year in order intake will be not repeatable next year. From today's perspective. I mean, as I said, last year, we couldn't see that, but I think it would not happen because very simple, 2 major effects. We had -- in many European countries, we had subsidies from the government to get over the COVID crisis and many investments. So for example, in some countries, the Single Machine business was subsidized up to 100% with the purchasing price, a minimum 50%. And that made many investments maybe already coming in '21, which maybe have been otherwise been executed later. And the second effect is that we have a very strong -- I mean, the furniture industry is moving out of the effect of COVID. I think -- and I talk to our customers in the furniture area, they see a continuous growth because they're all expanding and they're all discussing now with us larger system projects. That's the next thing coming in the next year in HOMAG, that we get more larger system orders for increase of capacity in China, but also in Europe. But everybody in that business makes it a little bit on a short-term decision in terms of how is the market doing. So that's why it's more monetized, more up and down on a short-term notice. But we are very confident for a very good development next year. But not on the level in order intake. But this, by the way, is something we also have to manage because it's much more than we can digest and we are safe.

Okay. A couple of questions related to that so, but we are still on the way probably to reach about EUR 2 billion of order intake on an annual basis by 2025 also?

In HOMAG?

Yes.

I mean, including Solid Wood, I would say, yes, even Jochen has to do it then. But from my perspective, it's possible as long as the markets are not going crazy.

Okay. And then can you comment as well a little bit on China because you spoke about like the European countries with subsidies. So I guess that's going to be a big part of the explanation. But what's your view on China, especially with regard to the uncertainties that we have regarding the real estate sector and construction sector?

Yes. I mean, for the HOMAG business, China is very steady and increasing also investments. What we see in China is very -- it's a similar trend. We saw in Automotive in the last year. The Chinese -- the end customers or the consumer, he is more and more quality oriented, like with cars, you have seen the developments in the last 10, 15 years. And therefore, the larger furniture producers who have higher-quality products are really growing, and they are also investing in further capacity. At the same time, the more midsized, smaller productor, even carpenter shops, they are -- have less business because their technology is not what the customer is demanding for. So we see a shift from more concentration to more towards larger furniture producers, and here's a very good news. And particularly, this customer segment, we have a very high market share and a very good sales penetration. So we are confident. And on the Automotive side, I think, Jochen, do we also have a good pipeline for next year in China? We have positive now.

Yes, we continue to see a strong pipeline despite what we've seen and from both continued demand from the EV side or new players as well as the established players who continue to expand their capacities. Plus, we will see more and more brownfield activity from the strong installed base that we've filled over the last decade and more.

That's a good point, Jochen. It's a good point. Brownfield business in China will become more and more important also.

Okay. Then I've got like another follow-up a little bit on that. So your order intake guidance is unchanged at group level, but you just implied now when you were speaking about EUR 1.7 billion, EUR 1.8 billion of order intake at HOMAG for this year as being achievable, which looks kind of logical after what you've reached after 9 months, you basically imply that something else in the business is going to generate lower order intake in 2021 versus what was expected. So that in total, you're still fine with the guidance or perhaps it's an excess of cautiousness. So how would you qualify that?

Yes, it's conservative. And out of the momentum we see, it could be that we will overachieve -- we will be higher than our top end of the order intake guide. Actually pretty much so.

Okay. Yes, the CT. And what's the view on PFS then because it was a little bit light in Q3. I guess, do you feel still safe with the range as it is provided right now? Or...

Yes. We will have -- we have leveled for the fall.

Yes.

Okay. Perfect. And the last question I have is, again, on this -- the derisking of the order backlog in PFS. Does it mean that actually you stopped completely executing on such orders because the comment you make in the interim report, if not completely clear with regards to that. You say that you don't have a huge exposure in terms of credit risk and these kind of things, but does it just mean that you stop the orders as they have been executed so far? Or how should we understand that?

The ones that we've taken out of the backlog are basically orders we haven't really started yet.

[Operator Instructions] And next question is from Peter Rothenaicher of Baader Bank.

A question regarding HOMAG. So you talked about great order intake and the very high order backlog you have. How fast can you ramp up production? And what would be possible in terms of sales volume for HOMAG in 2022 and 2023?

Yes. I mean when we talk about executing this order intake, it's not only production. By the way, that's the easiest part to ramp up, whether we -- we have many factories, we have very modern flow production where we can increase the flow sequence or the tax sequence, we can add people that's relatively manageable, but I will give you 1 example. We have a high roller machine. It's called CARL 375 in shop floor. This machine was planned this year for production of 250. Actually, we will do more than 450, next year, 600 in. That's easy. But the main part is also to ramp up capacity in order engineering, which is the first point when you get order to prepare this order for production. So we have to look at many areas to increase. And here, we have also hire people, but we also work now with more other external resources to be more flexible than the market demand goes down again to be able to better manage those volatile conditions. So that's the answer to the question, but it's a big task at the moment, for sure.

And you did not mention the number. So if we come on the...

So yes, you want our backlog for HOMAG for the next year, which we don't disclose. But what you would expect from the guidance in February for the year, which Jochen and Dietmar will give you, but it will be higher in terms of sales this year.

Another question regarding the order backlog quality and your headwinds in terms of material cost increases. So you did not play high -- the challenges from the material cost increases. But if I think about such an order within PFS, I think there's a lot of steel in, and how are you able to compensate for the strong increase in material costs? And do you not fear that this might have a negative impact then on the margin perhaps not only in 2021, but also in 2022?

Yes. So we're currently confident to continue to manage the situation. Our business model is typically not to buy raw steel, but we buy semi-finished or even finish the structure. So the impact from the cost increase doesn't directly end up with us. Typically, nevertheless, as Ralf has mentioned before, due to measures on the cost side, efficiency and project execution, which we've done extremely well despite Corona this year, we basically manage the biggest part of it, of those -- of this impact. And the assumption is that we continue to do so. And in some cases, we're negotiating with customers. So the bigger variety of measures that we're doing, trying to mitigate as much the impact as possible.

And as -- Jochen, and as I said before, this year, we have an impact of about EUR 20 million on EBIT. So we would have been much better in our performance without that problem, which is a temporary problem. And HOMAG side, for example, we increased now the prices by 6%, which not all will get to the customer, but maybe 3% or 4% to compensate it a little bit. But, I think, overall, I'm very proud how we manage this. People are very inventive, flexible, very fast, finding alternative materials, alternative sources. And here also we have success. Also, I think, purchasing the [indiscernible] is doing a major change in the group. We have found a lot of opportunities, which we have not had before.

Okay. And my last question is on acquisition opportunities. So how do you see currently the situation? You have done some small and mid-sized acquisitions over the recent 2 years. What can we expect here for the fourth quarter or going into 2022?

Not much has happened in the fourth quarter and probably not much will happen. Nevertheless, as we said before, we've -- as you know, we've started this new playing field med tech. Here, we've made the second acquisition, as you noted, Hekuma. Here, the plan is to find ways to participate in the largest domestic market in the world, which is the U.S. This is what we're looking to. It's all -- in the end, you have to have an available target and then get it for the right price. This is what we're looking at. And then, of course, we've been quite successful in the area of Solid Wood. Let's see how this continues, plus, as you also know, we're big players in digitization. So when it comes to that, wherever we find something that would round up our offerings, we would definitely also not say no. That gives a little bit of a flavor, but we don't feel being under pressure in delivering in the next couple of weeks. Again, targets at the same pace. We've been moving in the last, say, 12 to 18 months.

There are no further questions. I hand back to the speakers.

Yes. Thank you very much, Alexandra, and thank you very much for all your questions. And in case of any further question, I think 1 was open about backlog minus order intake divided by revenue. I think Andreas will sort that out with you. And, so please contact Andreas and his team, if anything is left over. Please be reminded that our Analyst Meeting at Frankfurt will take place on Tuesday, the 16th of November. And as Jochen indicated, I think it would be very interesting also to learn some of our new opportunities. The investors can attend only virtually and the analysts can come physically. Is that correct, Andreas?

Correct, yes.

Not because we don't like investors, but it's not possible because of this COVID situation. Yes. Otherwise, you cannot manage the situation -- the safety profile. So -- and we will provide more details about this day in the next days. That's correct. You will receive more details during the next days, yes. So we are all here looking forward to stay in contact with you and see you in Frankfurt. And until then, stay safe, and goodbye for today. Bye-bye.

Bye-bye.

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