Heidelberger Druckmaschinen Aktiengesellschaft (HDD) Earnings Call Transcript & Summary

Good day, and welcome to Heidelberger Druckmaschinen Conference Call for the publication of the Q2 results. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Rainer Hundsdorfer, Chief Executive Officer. Please go ahead, sir.

Thank you. Ladies and gentlemen, I'd like to welcome you to our call about half year results 2021, '22. Together with my colleague, Marcus Wassenberg, I'll present to you Heidelberg's most important development and key financial figures as usual. Afterwards, we'll be happy to answer any questions you may have. Heidelberg was able to continue its positive trend during the second quarter. It is particularly worth noting that we have significantly improved the quality of our operating earnings year-over-year. This was due to a further increase in sales volumes during the second quarter and significant structural saving effects from the corporate transformation. After 6 months, the order book reached a higher level than even before the pandemic. In this respect, we are confident today to achieve the sales targets for the current financial year. The increase in orders is also a consequence of the successful trade fair in China during the first quarter, in addition to a general global market recovery. Another highlight, although only announced 2 days ago, is our strategic partnership with Munich Re how to better exploit the market potential of our subscription offering together. Seeing unrelenting growth in the area of electromobility in the first half of the year, we again expanded our production capacity by adding a fourth line earlier than planned. In addition, we are already looking at the business models of tomorrow in which we want to increase -- which we want to increasingly also act as an operator of charging systems. These new prospects for further profitability are complemented by a greatly reduced balance sheet risk today. Our net financial position has turned slightly positive. All in all, we are therefore confirming the recently raised forecast for the current financial year despite the fact that the VDMA Industry Association recently highlighted that the global production environment is affected by noticeable uncertainties within the supply chains. Increasingly, our efforts and success appears to have been noticed by the capital market. By the end of the second quarter, our share price has risen by more than 50% since the end of the previous fiscal year. After a general weakness of the capital market due to increasing exogenous risk around end of September, the share price trended positively again, quoting around 93% above the end of the past financial year. The increase in the share price probably reflects our operational improvements, but also our growth initiatives, which I would like now to discuss briefly. Our optimism for the coming years is based on the one hand on further increasing cost efficiency, but also on continued progress in the group's growth areas in packaging printing, in digital business models, in China and with new technology applications. In China, its largest single market, Heidelberg recorded particularly strong growth during the first half of the year, especially in packaging printing. The upturn in orders is also owed to product innovations such as the new Speedmaster CX 104, universal press, which met with a very positive response not only at China Print in June, but also at the Innovation Days in Wiesloch in October this year. Our e-mobility business, which accounts for the majority of our new Technology Solutions segment, continues to show strong growth. For example, we tripled quarterly revenues with our Wallbox-based charging technology offerings. Growth continued dynamically despite noticeable supply chain complications. Our business model with reoccurring sales also met with increasing demand. As a result, the share of reoccurring sales rose to 13%. We expect an additional boost from the landmark financial partnership concluded with Munich Re on November 8, which my colleague, Marcus Wassenberg will go into details in a moment. We are only at the beginning of the development, but the future likely belongs to Equipment-as-a-Service, and we should be able to significantly grow the business volume in this area through the cooperation. And with that, I will hand over to my colleague on the Management Board, Marcus Wassenberg, who will also go into details about our increased free cash flow, which has been truly remarkable. Marcus, please.

Thank you very much, Rainer, and a warm welcome from my side as well. Ladies and gentlemen, if you look at the KPIs at the end of the half year, kind of statements actually can be clearly substantiated. At the end of the half year, we achieved a comfortable high order backlog of EUR 886 million, which actually exceeds the pre-pandemic level. Among other things, the first quarter trade fair in China made particular contribution to this. In the second quarter, we also recorded a good level of incoming orders which were up by 14% over previous year. At EUR 1.245 billion, total order intake for the first half of the year was 45% up over previous year with China, Germany and the U.S. standing out in particular. We look at sales, earnings and cash flow at the half year point of fiscal '21, '22 also clearly shows improvement. In sales, sales increased significantly over previous year, with the second quarter showing around EUR 100 million more than first quarter. With EUR 983 million after 6 months, we are absolutely on track to achieve a full year target of at least EUR 2 billion. First problems with global supply chains become noticeable. In particular, deliveries of machines by sea are occasionally postponed to the following months. EBITDA. EBITDA at EUR 75 million, we also see a positive development, even though the absolute increase over the previous year amounted to only EUR 8 million, the underlying operating improvement -- as I shall explain in more detail in a moment -- which presents an increase by more than EUR 80 million. Free cash flow. A look at the free cash flow makes this progress especially visible. Again, I would like to note that we are putting a special focus on cash and not having high outflows at the half year as we have had in the past. Free cash flow at the end of the first half of the year was from minus EUR 52 million to plus EUR 74 million within a year, even though part of it was explained by M&A activities. This was due to not only significant improvement, but also to tighten net working capital management. And as much as we controlled inventories and receivables [indiscernible]. We write off the tax. All in all, our efforts enabled us to report positive earnings after tax for the first half year. Significant year-on-year reduction in interest expenses contributed to this improvement amounting to around about EUR 10 million. Last year, we still posted a net loss of EUR 9 million. That now turned into a net profit of EUR 13 million. With the year-on-year variance in reported EBITDA broken down, it becomes apparent how much the quality of operating earnings could be improved. Changes in EBITDA can essentially be summarized by 5 factors. First, from the first half of the previous year, we were able to implement the reorganization of a company pension scheme in Germany which was aimed at curbing pension growth. This major milestone will sustainably reduce cash outflows for pensions in the future. In the first half of last year, however, this reorganization has also led to an income of EUR 73 million which has significantly improved EBITDA and strengthened equity. Second, due to corona, we made extensive use of short-term work in the first half of last year to compensate for the underutilization of capacity. This effect is no longer applicable to a large extent due to increased capacity utilization at the factory among other things. So that we were able to reduce this instrument by around EUR 50 million in costs last year compared with the same period of the previous year. Third, on the other hand, it should be mentioned that in the first half of last year, we still had to satisfy restructuring expenses of around EUR 30 million, resulting from the transformation. Compared with the prior year period, savings from the transformation increased by a further EUR 14 million and thus made a significant contribution to the improvement in earnings. Fourth, we were also able to post an improvement of around EUR 42 million due to the significant increase of sales and the resulting contribution margin. Fifth, the other changes mainly related to the sale of DOCUFY in the last half year, whereby a small positive effect from the sale of CERM last year was included in previous half -- in the previous half of the previous year. Looking at the segments, we also see encouraging progress, although the dynamics drive the progress -- the dynamics that drive the progress are different. Print Solutions. We see the strongest recovery from COVID in the Print Solutions segment. Customers in this segment were particularly affected by the corona-related restrictions due to the sharp drop in production volumes. Order intake, for example, increased by 48% in the first half of the year, reaching a strong figure of EUR 689 million at the half year mark. The second quarter, at 22%, it continued to be significantly higher than previous year figure, which has already a bit recovered. In the Packaging segment, we recorded a 37% increase in incoming orders to EUR 535 million at the end of the first half of the year, thanks to a particular successful China penetration. Following a particularly strong first quarter -- the second quarter was only slightly up on previous year here as expected because on the 1 hand, customers in Packaging segments were affected to a much lesser extent by COVID last year. And on the other hand, the trade show also led to a [indiscernible]. Sales in both segments were equally higher than in previous year: Print, plus 24%. Packaging, plus 16%. EBITDA. Accordingly, we were also able to make significant operational improvements in EBITDA, as shown in the bridge due to an increase in sales volume and savings from the transformation. To better understand the progress we need to adjust for the proceeds from last year's pension realignment and sale of CERM. In the Packaging segment, for example, an increase of 5.8 percentage points was achieved compared with previous year. Print Solutions segment, it should be noted that the sale of the subsidiary DOCUFY fully reflected here. Even if the income of around EUR 20 million is eliminated, there is significant increase in the operating result of 6.1 percentage points compared with the previous year. Noteworthy is the development in the Technology Solutions segment, where we can report a sustained high growth rate, and particularly coming from the area of e-mobility, we saw tripling revenue to EUR 21 million with a clear positive margin in the first half. Thanks to the improved profitability, we also have been able to further improve the balance sheet structure of the company. Following the repayment of the high-yield bond last year, we were able to further reduce the credit line utilization, thanks to significantly improved cash generation, including the release of funds from net working capital as well as asset sales. At the end of half year, only 25% of the credit facility were utilized, which is a total of EUR 60 million from a facility of EUR 250 million. At September 30, we had no more net debt. In addition to improving the balance sheet structure, these steps also enabled us to improve the financial result by more than EUR 12 million annually. In addition, equity was strengthened at the end of first half of the year. In addition to the positive after tax, we arrived at a slight increase in the discount rate for pensions. That also contributed to it. Despite the supply chain uncertainties mentioned by Rainer already and the effects of the COVID-19 pandemic still being felt, we would like to confirm the full year '21/'22 guidance as most recently raised at the end of August. In order to achieve our sales forecast of at least EUR 2 billion for the full year, we already have -- we already have the necessary order backlog of new machines in our books. For the second half of the year, we anticipate increasing burdens from a further tightening of material prices. In terms of earnings, we will also replace the high nonoperating earnings effect from the previous year with operating and thus sustainable earnings improvements as announced. The Heidelberg will end up in the EBITDA range of 7% to 7.5% -- depends above all on the level of charges for material and logistics costs. The event developments in this area must be monitored very closely so that they can be managed and, if necessary, mitigated in good time. In the long term, we want to continue delivering value to help the share price increase further. To this end, our strategy focuses on the future viability of the company. Following the successful stabilization of Heidelberg as the first major step, we are focusing on the one hand on strengthening profitability of the core business in the areas outlined at the beginning, and on the other hand, on the developing business areas related to the core business. Part of this long-term value creation entails entering markets outside the print media industry. As you may have read in our press release 2 days ago, we agreed a strategic partnership with the insurance group Munich Re for a subscription model as part of the strategy to further expand our core business with digital usage-based offering. Up to now, Heidelberg's balance sheet capacities have been the main limiting factor in scaling up this model. In this new constellation, Munich Re is to invest into Heidelberg equipment, not unlike [indiscernible]. Heidelberg's subscription offering then enables customers to use the capacity of the printing machine in a flexible and risk minimized [ upfront ] model. Customers pay a fixed monthly rate for an agreed basic print volume, pay it per month, as well as a fixed price per additional printed sheet paper output. The subscription also includes consumables, consulting services, software, IoT and technical service. It becomes particularly profitable for Heidelberg [ when it sees an ] increasing output for the customers beyond the monthly base allowance. It is significant for Heidelberg for several aspects. On the one hand, it's less cyclical than the new printing machinery business. Also print output of the market, which is ultimately driving Heidelberg's long-term revenues with an additional customer, is much more stable. Third, low overall equipment efficiency in the print media industry offers great potential for increasing the output quantity per print shop and thus increase the subscription fee. Fourth, access to the customer for service offering is also secured beyond the manufacturer's warranty period. More recurring sales are thus generated by the installed base even longer than before. And last but not least, with Munich Re as financing partner, Heidelberg needs to employ no own capital to support the subscription offer. And with that, I hand it back to Rainer.

Thank you, Marcus. I'd like now to elaborate a little bit about our new ventures in the area of the technology solutions. Last year, Heidelberg launched a new open and manufactured independent digital platform for the printing industry under the brand name Zaikio, and we're now expanding the functionality step by step. The business model is to reach critical mass quickly as a first mover and earn fee on all transactions. Thanks to standardized interfaces, integrated and fully automated process across company boundaries, it will drastically simplify transactions between printer software providers, machine manufacturers and suppliers. It is a central industry platform for the entire printing industry for user-friendly, automated supplier and customer management based on modern cloud technology. It's a kind of an automated Amazon of the print media industry. Among the new technology offerings, the rapid growth of e-mobility continues to be outstanding. In the past quarter, we were able to triple sales to EUR 12 million compared to previous year's second quarter. At the half year point, we are now reporting sales of EUR 21 million after EUR 7 million last year despite significant difficulties also in the supply of semiconductors. As of today, we already have a very comfortable order backlog for doubling our annual sales for this fiscal year. We are also confident that the growth story will continue in the long term for several reasons. In the long term, demand is subject to the trend of newly registered hybrid or battery electric vehicles, which is growing at an annual rate of around 30%. Here, we see significant growth rates which will drive the demand for the charging points. In this respect, we don't have concerns about ending of the public funding: as measured against the ratio of electric car vehicles registered today to the numbers expected by 2030, the smallest portion of the charging infrastructure has been delivered so far. As regional expansion into new sales market is another growth driver, entry into Austria, Switzerland has been made; France, Poland, Hungary in preparation; and as you know, Heidelberg is present all over the world. So the world could be ours. In addition, we want to position our portfolio of products and services as competitive also for the future. And there, we have 3 business models for the future in view. First, micro grids. We see the Wallbox as part of a smart home energy management system. The grid capacity in energy becomes increasingly tight resource, decentralization of energy production is a logical conclusion to be drawn from this, especially when cars are recharged in the evening and at night, bottlenecks in the supply and in the [ net ] could occur and energy availability will be reduced. Wallboxes can therefore be combined with battery storage and photovoltaic systems on the roof of a house and maybe even with hydrogen long-term storage as part of a home ecosystem. The second business model goes to fleet management. Today's corporate fleets are still largely made up of vehicles with combustion engines. The changeover to battery electrical vehicles will also require solutions that, for example, charge electrode fuel into a company vehicle at home directly to the company in their ERP or SAP systems. This requires software-based billing systems. Therefore, we want to offer our Wallbox be offered as a standardized and smart solution for entire company fleet. And the third area is fast charging in semipublic areas with DC technology. DC technology, as you know, allows faster charging, for example, during shopping in the mall. We see fast charging as the only added value that can be offered in the public space for an extra charge. And I don't mean the high-performance charger on the motorway. For slow charging that can mostly be done at anybody's home, hardly more than the price of the energy can be charged in public spaces. Following on this, further business models are conical conceivable that shifts revenues from transactional models into the installed base of the long term and brings us in the position of an operator of charging systems. Let me summarize. Ladies and gentlemen, Heidelberg is on the rise and exactly as we promised. What you should take with you today: a sharp increase in operating profitability. The further development of the supply chain must be closely monitored, but we have it under control so far. We have promising potential in the core business -- for example, through subscription -- and we're pursuing several approaches in new but related business areas to generate profitable growth [ at less value. ] Thank you for your attention. Now we are looking forward to your questions.

[Operator Instructions] We will now take our first question from Stefan Maichl of LBBW.

Yes, Stefan Maichl from LBBW. I have actually 3 questions, if I may. The first 1 is on material costs. Could you quantify this maybe for the first half? And which level do you expect for the second half of the fiscal year?

Hi, Mr. Mitchell (sic) [ Maichl ]. Yes, indeed, we have seen quite a lot of increase, particularly on steel and iron. We actually saw basically prices rising to the degree of -- on about EUR 6 million in metals. And we anticipate this at least to be the case for the financial 2 -- for half year 2 of financial '22. That would amount to around about maybe up to EUR 20 million, I would say.

Okay. And that's a net figure, including maybe passing through to your clients, some, some part of that?

Partly, partly. Only partly.

Yes, Mr. Maichl, what we have done is already very early, we started to increase our prices to our customers already in early summer, and we are quite successful on passing on these cost increases at this point.

So the second one is on your subscription model. Have you -- can you give a figure or a level of financing support from Munich Re? I mean in the past, you said you will have about EUR 50 million in your balance sheet. Is this a similar figure or is it more?

It's basically unlimited. I cannot give you all the details in this contract. But basically, this is an unlimited quantity that we can sort of generate here. We are expecting, as we said, to raise the level of revenues from EUR 200 million to [ EUR 450 million, ] which basically means that this amounts to 250 additional running contracts.

Mr. Maichl, I'd like to add, remember, we have been quite successful in the beginning with the subscription contract. We actually could win some market share with that because we are the only ones who is able to offer that. Due to the balance sheet issues, we had to stop, and we now can push this model again, and we will so.

Okay. And the last one is on e-Mobility. The public KfW Funding, has stopped at least some -- just some weeks ago in Germany. Do you expect any negative order intake impact from that? And could you provide the order backlog of your e-mobility business at the moment?

No, we don't expect any drawback due to the end of the public funding because the demand is just going crazy with 30% growth of electric or hybrid cars on the one hand. And then we just started to expand outside of Germany into the market left and right from Germany and the world is still not covered. So the growth there will be significant for the next years to come. The order backlog, we have a significant already -- this year is already covered. To double our sales, we have already in our books. And I think if we could produce more, we could sell more. That's the lucky situation in where we are at the moment.

We'll take our next question from Stefan Augustin of Warburg Research.

Yes, I directly go more to the subscription contract. I understand that there is many things you most likely cannot tell directly, but can you outline a little bit how it exactly works? So in the past, it was the idea that there is the equipment sale, and you sell the service and the consumables bound to the machine to the client. And you can -- will be paid by one piece. And nowadays to the understanding with Munich Re, you have a joint venture. And could you outline a little bit how economically the transaction of a subscription model will work?

Yes, of course. Basically, the model works like this. Munich Re has a daughter company in the U.S. which then again has a daughter company, which basically then found several entities work over wherever we need to go. Those entities basically are the ones we deliver our product to. They are the ones that basically has the contract with the customers. And in order to fulfill those -- to honor those contracts, they again request our services in our local SSU and local subsidiaries, rendering all the necessary services, depending on our data, depending on our knowledge. And basically, revenue split is more or less 50/50 depending on what basically is generated. So we deliver the product to -- 100% to this entity. So that is a complete sale to 100% with a certain discount. But from there on, all the services are being split and even the sale of the product ultimately when the customers give it back to us -- we're basically recording to this level.

For the customer, it's the same model than before. The customer basically don't buy the equipment anymore. He pays for the service. And as you remember, the same, he pays a certain base fee where certain volume is included. And from there on, he paints by the sheet. And now we have the same situation, we're kind of in the same boat. If we increase the productivity, it will be a true win-win situation, the fixed cost for the customer will go down and the revenues for Heidelberg at the end will go up. Of course, we have now a third party in also benefiting from this. But it allows us to push this I think, very promising business model again, and I'm sure we can gain a lot of customers who wouldn't have bought a Heidelberg otherwise up to date, as we've seen it 2 years ago when we started with this concept.

May I phrase some add-ons here. So basically, the first one is Munich Re puts the money into that joint venture or the SPV. Is that an equity contribution? Or is it a debt contribution?

It's equity.

Equity. Okay. So instead of having the credit risk of your customer, normally, you would now have for the payments of the contracts and everything else, the credit risk of Munich Re against it?

Yes. Technically, yes. I mean, on the other hand, Munich Re is in a position to sort of validate the customer credit rating. So they will obviously look at this as well.

And you can put any machine you want into this? Or is it -- or can you do it yourself? Or how does it work?

So basically, we have a certain product range that we start with. That is not to exclude our products, but just to provide for a safe and faster track start. We have agreed on additional products, but we start with a range of 4 product or -- 4 products. Additionally, we will concentrate basically on the U.S. and the countries in the European Union. Additionally, Great Britain, if I remember correctly. So there are -- in order to ramp this up, we have concentrated on a range of very good product and basically certain countries.

But this is the product which we have used for subscription anyhow is typically the top of the line product. [indiscernible] most of the time.

All right. And then as you said, you pass on the product with some discount. When we look at that, let's say, basically, I have the idea that you sell machines for EUR 100 million next year. And I have that currently in my model. And now I would assume that this goes into subscription. There could be the case that, let's say, I don't -- as it is sold with a discount, I don't earn the same amount of margin than before. So I have initially a small dip until I get the feedback from the SPV later on via the service and the consumables business.

Well, that is not completely wrong. On the other hand, I would have a cost of capital and that basically equals the discount.

All right. And then the last question here would be prior, I understood that the very beauty of this model is that you have certain points of scalabilities or scalability as the customer pays always a constant price. Now you share obviously that. But the question is when you sign the contract and put the contract to the SPV also, do you have the, let's say, fixed consumables and service prices for the call up of the customer into the SPV? Or can the SPV or Munich Re change the prices you need to -- you receive from the SPV?

So we have agreed upon prices.

Sorry?

We have agreed upon prices.

We'll take our next question from Daniel Gleim of Stifel.

Yes, Daniel Gleim. My questions, they're actually all on the e-mobility business, I would like to start with Mr. Hundsdorfer. Thank you very much for elaborations on the new business lines. If I look at the chart on the e-mobility, it looks a little bit like they're more approaching EUR 50 million in sales this fiscal and not so much the EUR 40 million anymore. But it's a little bit beside the point. Maybe you can elaborate a little bit where you want to drive this business in 2 or 3 years out. And tied to that, how big or how large do you think the financing needs that you -- in other words, how much money do you need to scale the business up according to your business plan? That's question number one, please.

Yes. As you see, it is a really fast-growing business. And the beauty is we can manage that to a big extent with Heidelberg's today's capability: developing of electronic and software is a core capability of Heidelberg and we have enough resources to do so. So this doesn't require, if you will, additional resources. And as well -- the manufacturing of the hardware of the boxes as well can be done with relatively small investments because the main product lines, the PCB board production line always existing, makes it very, very easy for us to scale up the business. We are looking, however, into more than that. We're looking into the ecosystem house because it is obvious with the rising number of electric cars, the networks will not do it. It's not only the current, the energy, which is limited. Also, the lines to the houses will not work. If you have any street 5 electric cars, all the others will be not able to charge anymore. And that's why we are following the way to connect the photovoltaic on the roof with a short-term buffer in the basement with maybe a long-term buffer in the yard with hydrogen and the car in the garage and manage these systems. And we will follow the same recipe we've done with the Wallboxes: have easy to install plug-and-play systems. And this could be easily in 5 years, a business of several hundred million euros. It's a question at the end, what we can -- what is the piece of the big cake we can cut out for us. And the other area is just as important or interesting. That's the operation of these lodging stations. Today, most of the hybrid cars at least, are company car. And most are given back with never use the cable to charge the car. Very simple because nobody wants to charge this car at home at his own cost. And in order to overcome this, you need billing systems, automatic billing systems, which allow to charge the car at any charging point and bill it automatically back to the company who owns the car. Also that is another area we are looking into as we're developing software, and we can do that to a big extent with our own capabilities. Of course, we're also looking into acquisitions of start-ups who have already solutions for that. So it will be a mix of organic growth and some M&A activities, which we hopefully will be able to report in the next 6 to 12 months. We are working on this. Does that answer your question, Mr. Gleim?

A little different than I expected, but thank you very much. It was very insightful. Maybe Mr. Wassenberg, I read your further online interview, and I was wondering whether you could provide some incremental color with regards to the timeline of a potential listing. How far are we still away? What kind of financing mix do you envisage between Heidelberg as an anchor investor and potential new investors from the outside? I found it quite interesting, and I would like to learn a little bit more about that.

This is -- try to understand Mr. Gleim, the problem here is that we're just in early days. So I envision a period of at least 12 months before we can actually start this and [ even, ] therefore, honestly haven't given so much home about the possible future structure. But we will be happy to share more details once we are getting there. But right now, it's really early days yet..

And that project would refer not only to the Wallbox, but the entire ecosystem, as Mr. Hundsdorfer pointed out?

Yes, of course, of course. The Wallbox is only the door opener to this business. And the capabilities of Heidelberg go far beyond. Most people don't know Heidelberg is not just a machine builder. Heidelberg is at least to 1/3 an automation company. What most machinery companies buy from Siemens and Beckhoff and B&R and you name it, we develop ourselves, we produce it ourselves and this is very similar from a product structure and from a knowledge need to what we need for this kind of new business of ecosystem house [ range ].

[Operator Instructions] We will take our next question from Peter Rothenaicher of Baader Bank.

For clarification about the material cost burdens, did I understand it right? So for the full year, we expect headwinds of around EUR 20 million, of EUR 6 million have been in the first half of the year?

The EUR 20 million is correct. And I was basically just giving you an indication of the main materials. So I would say it's rather, in terms of -- basically, the EUR 20 million is split half-half.

Okay, okay. Then you benefited in the first half of the year, definitely also from the China Print trade show. Therefore, you had very good order intake. What is your expectation now going on? What do you see in the current quarter? Is this level coming down? And would it be fair to assume that for the full year, order intake could be in the magnitude of EUR 2.25 billion, EUR 2.3 billion?

The overall order intake stays strong, maybe not anymore at the peak. We see in the summer already saw some catch-up demand, but it's still very strong, and we expect an order entry level in the range of 2.2 to 2.3, even maybe even a bit more. So order is definitely -- order entry is definitely not the challenge these days. The challenge, as we discussed is to get all the materials and to build those machines in time. So far, we've managed this excellent. And I'd like to mention what is normally considered to be a burden, the very high manufacturing debt is now quite a help in this situation because allocation of products can be managed much better if we are our only customer, and we have always the full priority. So I'm very optimistic that despite the challenges, we will be able to meet our sales target this year and probably do a bit better than the average of the industry.

So you could imagine to come closer to EUR 2.1 billion sales this year?

It's hard to say. If everything goes right, yes, but we're still not through the year in regards of getting all the parts and components. And one challenge is definitely the logistics to get the chips. As you know, if we don't get the machine to the customers, we will not be able to put it into our sales in the fiscal year. There is a certain risk that the 1 or other machine might be not at the customer in time. What we have so far, and we are very proud of is, up today, we have finished all the machines' basically parts early on the day it was planned. So we could manage despite all the challenges in the supply chain to build all machines. No machines had to be stopped or standing around unfinished like with many other machine builders. We're working on to keep it that way. It's certainly a challenge. It's a fight, machine per machine. We're doing well so far.

Okay. Then you have for the next fiscal year 2022, '23, ambitious margin target of more than 10% EBITDA margin. Looking at quality of the order intake and the quality of the order backlog, do you feel favorable with this margin targets considering the headwinds we see in material costs? Or is it enough you are able to increase your prices? You mentioned already price increase. I think you are thinking also about further measures.

Mr. Rothenaicher, luckily, we started to increase the prices very early because we were expecting this. And you know, to realize the price increase takes a little time because when you're in final negotiations, you can't come back and say, "Oh, sorry, customer, we need to increase the prices by 5%." That doesn't work. So it was good to start early. But the order backlog looks good in regards of price quality, and we might even consider further price increases as we go. So I think from the backlog price quality, we should be fine. On the other side, we are very closely with our suppliers, finding ways to reduce the cost to reduce the cost increase, let's say it that way. Of course, the raw material costs, which have gone up for raw iron, for copper, for all the raw materials, aluminum -- of course, this will -- the last, even though when the demand goes down, it will go down sooner or later. The cost will come down, probably not to the original level, but it will come down. And in many cases, we have contracts which reflect that if the costs come down, our costs go down as well.

Okay. And then my last question on your margin guidance for the current year, the 7.0% to 7.5%. What is the underlying profit from one-offs from property sales, et cetera, and to calculate it if there might be somewhat more profit than what [ was anticipated ] in that?

So this is Maximilian Beyer speaking from the IR department. So we are expecting at this moment income from asset sales of around EUR 50 million this year.

And do you see here further upside. I don't know if the sale of the property in the U.K. will have an impact there.

The EUR 50 million is already including the property in Brentford. So there are no further upside potential for this moment.

We will take our next question from Jean-Marc Mueller of JMS Invest.

Again, a bit on the guidance. Just the last time we spoke, I felt extremely -- I felt very strong confidence on your side that you can reach EUR 2.1 billion and the EUR 2.3 billion in sales this year and next year, respectively, plus the top end of the margin guidance -- I mean, the EUR 160 million EBITDA basically plus the EUR 230 million EBITDA next year. It was not that long ago. I mean, material prices have gone up since the beginning of the year, et cetera. I'm still a bit confused why there is now this change in tone. I mean, I wonder if you could still elaborate a little bit more. What has happened basically in the last 4 weeks or 6 weeks, et cetera, for this change in tone?

Mr. Mueller, if you receive this as a change of tone, that's definitely not the case. We are very confident. We are very confident that we can reach that if nothing unexpected happens. So what we try to say because otherwise, nobody would believe us, we all have those challenges. We have challenges with the supply chain. But what we do, and that's what I tried to explain, we managed that, I think, much better than the average of the industry. One fact is what usually is a burden when you have no utilization, that's the big manufacturing that Heidelberg has. But it helps us to secure the supply chain so our assembly doesn't run dry like in many other factories. But this is a challenge day per day, machine per machine. And so far, we have managed this without any delays, and I underline that so far today, all machines we produced were on a spot in the time as planned, and we expect that we will be able to manage that throughout the year. We expect by the end of the first quarter of next year, that the situation will improve. That's what all the -- our industry partners tell us as well in regards of semiconductors, also in regards of minerals and metals. But so far, it has not had impact on Heidelberg's capability to turn orders into sales.

I think sorry, just let me add to that a second. I think what we're trying to say here is we're absolutely confident as Rainer said, to reach our targets, and actually, things are looking good. The issue here is we have to manage those risks. We will manage those with because it's our job. But still, we cannot book totally crazy. So numbers are really great. We're really, really happy about them. We have no indication that this will change completely, but we just wanted to flag other than some months ago, we see a development that we have to sort of manage and we will manage.

Understood. And my second question, I mean, the announcement that you -- that Heidelberg Group managed to appoint Ludwin Monz as the new CEO -- basically, as your replacement once you retire. Can you add a little bit of flavor? I mean, from a pure external point of view, coming from a MDAX, multibillion market cap company, Carl Zeiss Group. Obviously, it's a bit of a surprise. I mean maybe you can just add a little bit of flavor of what the reasoning was, what the drivers are behind this nomination?

First of all, it's a regular handover. I'm turning 65 next year, and that's the regular age for retiring. And I'm very happy that Heidelberg is still attractive enough to a hire capable person like Dr. Monz, who will -- and I had the first conversation with him -- continue the strategy we have we have chosen to strengthen our core business on the one hand, but use the Heidelberg's capabilities to build new businesses to turn Heidelberg from the world's best printing press builder to a technology company who still builds the world's best offset printing presses . So he is well aligned with that, and I believe he brings all the capabilities to drive this process and this strategy forward, which makes me personally very happy that the work we've done in the last years will have a continuation. That's basically all I can tell you at this point. And I guess, in a few months, you will have the opportunity to learn more about Dr. Monz and I'm certain he will confirm what I said right now.

Okay. And any reasons to believe that he might see the target of EUR 230 million EBITDA next year differently?

Not at all.

Definitely not. I think he may be even more aggressive than me. But I can't talk for him. He needs to...

No, no, I understand, I understand. That's good. He's even more aggressive, I like that.

[indiscernible] He's fully in line with us.

[Operator Instructions] We will now take a follow-up from Stefan Augustin of Warburg Research.

Just 2 quick rather housekeeping questions. So if I do a quarterly view on the segment, I noticed that the margin, the EBITDA margin in the second quarter alone of Technology Solutions is quite a bit down versus the first one. This is in absolute numbers, this is small, but my question is here, is that reflecting a profitability of the e-mobility part and the Wallbox segment? Or is it rather on the other endeavors in there?

Mr. Augustin, the situation is more or less like this. We have seen a very stable development in e-mobility. And basically, the EBITDA earnings are more or less constant. We have had some additional costs in printed electronics that basically have hit us in, I think, the second quarter, this is what you're alluding to. And we had additional investments in e-mobility that has to be accounted for, but basically, we're very well on track and basically very constant on track.

And the second one would be on the order intake in the packaging also in the second quarter alone. So there is a drop quarter-on-quarter, and this is for sure, due to the Chinese trade fair. Can we assume that there is also a bit of a negative backlash in that Q2 figure so that if we look forward, we might see everything else equal, let's say, an order intake impacting that is a little bit above the EUR 245 million that you showed in Q2?

Now the China print has had a significant impact. That's no question because the majority machines we sold there or around China Print were packaging, so strong packaging. Then we have also had -- even the packaging industry, our customers didn't have a decline during the COVID-19 crisis. They also held back a bit the investments. So there was a little bit catching up. But I think it will stabilize on a very comfortable level and even grow with a number of activities we've started over the time. In particular, the CX 104 is an additional very successful machine mostly used for packaging that we sold. In the short period of time we presented the machine, more than 1,000 printing units already. And the order intake, in particular, in Asia, in China, is still very, very good.

There are no further questions at this time. I would like to hand the call back to the speakers for any additional or closing remarks.

Okay, if there are no questions anymore, ladies and gentlemen, thank you very much for your interest in Heidelberg. I think you could see clearly message is Heidelberg is back; Heidelberg is on the rise. We are very optimistic to finish this year very well. And even more important, we are creating, laying the foundation for a more successful year next year with a very good order backlog. Thank you very much, and have a great day.

Thank you. Bye.

Thank you. That now concludes the call. Thank you for your participation. You may now disconnect.