Heidelberger Druckmaschinen Aktiengesellschaft (HDD) Earnings Call Transcript & Summary

Good day, and welcome to the Heidelberger Druckmaschinen Publication of the Financial Figures Full year 2021/2022. Today's conference is being recorded. At this time, I would like to turn the conference over to Dr. Ludwin Monz, Chief Executive Officer. Please go ahead, sir.

Yes. Good afternoon, ladies and gentlemen. Welcome to our earnings call for fiscal year 2021/2022. Welcome also in the name of my colleague, Marcus Wassenberg, who is sitting right next to me. We are looking forward to presenting you some details of our financials and also some background and an outlook for the just started new fiscal years. And after our presentation, we are happy to take your questions. Yes. Most of you hear my voice for the first time. So please allow me to introduce myself. My name is Ludwin Monz. I am the new CEO of Heidelberg. I started here 1st of April this year. My professional background is actually physics or I'm a physicist. I'm an MBA by training. In the past 25 years of my professional life, I managed various businesses, mainly in the field of medical devices, so somewhat different from Heidelberg's industry. Most of the time I worked with one company called Zeiss. That's a group of companies. I was a member of the Board of Management of Carl Zeiss AG -- in German we say [Foreign Language] -- for the last 7 years. The last 11 years, at the same time, I was the CEO of Carl Zeiss Meditec AG. That's another public company, which is listed in the German MDAX. Yes, so much about myself. I can only say that I'm very glad to be here at Heidelberg now because the company, Heidelberg, is one of the icons of Germany's engineering and technology companies. And I've always known the Heidelberg brand, and I believe it stands for excellence in mechanical engineering, but certainly also excellence in related fields like power and control electronics but also software. So I'm looking forward to developing this brand and of course, through developing the business further. I'm happy to be at Heidelberg and to lead this impressive company. Yes. It is very fortunate indeed that my start at Heidelberg coincides with the announcement of a very strong fiscal year, which we present today. It's probably fair to say that Heidelberg has finished the restructuring phase very successfully. So let's have a look at the numbers. You see the slide, which shows the overview, and I'll go through that and then hand over to Marcus, who will discuss the details of our financials. So while the previous year, which was the year 2021, still had been impacted heavily by the corona pandemic, the year '21, '22 was much better one and the markets recovered really nicely. So we saw a growth of the orders by 23% and reached EUR 2.45 billion, but also sales reached a level of EUR 2.18 billion, which is a plus of 14%. As you can see, there's a discrepancy between the orders and sales growth numbers, which speaks of some challenges. And we'll come back to that. It was mainly supply shortages, which we saw in the second half of the fiscal year. They are still around, and they will certainly remain also for the new fiscal year, we'll come back to that. Yes, in last fiscal year, the EBITDA margin was up by 230 basis points. We reached 7.3%. Given the cost increases of materials, I believe this is really a remarkable result. It was clearly driven by a systematic reduction of operational costs, but of course, also by the higher sales volume. The improvement of the financial results moved also our earnings after tax now to plus EUR 33 million. Just looking at these results, I really would conclude that the past fiscal year was very successful for Heidelberg, and it was successful, particularly in face of the many global crisis. And the company has become, as a conclusion, really financially stable by now. But it was also a successful year because Heidelberg was realigned strategically. And both together, the financial strength and the strategic realignment have made Heidelberg much more resilient, which I believe is a very good starting point for developing Heidelberg further. Having said that, now I would like to hand over to Marcus for more details on the financials.

Thank you very much, Ludwin. Good afternoon, ladies and gentlemen. I'd actually like to start with the development of the fourth quarter. And let's first take a look at net orders, which were roughly at the level of prior year quarter, as the project pipeline is already largely covered for next fiscal year. And the monthly distribution order intake in March was by far the best in the quarter. In regional terms, we saw that demand from the U.S. was strong, while Eastern Europe obviously turned a bit lower because of the war in Ukraine in the fourth quarter. All in all, with more than EUR 2.4 billion order intake, this was a very pleasing result in the first fiscal year. Thereby, book-to-bill ratio rose to 1.12 this year after 1.04 during prior financial year, signaling positive outlook for coming fiscal year. From a regional perspective, order intake in all major markets increased over previous year with EMEA being by far the biggest region for Heidelberg. Coming now to the sales development in the fourth quarter, which amounted to EUR 618 million, we see that they were mainly on last year's level when the fourth quarter represented actually 1/3 of the full year's revenues. So this time, quarterly sales were more evenly distributed. Coming finally to the EBITDA in Q4 compared to the Q4 and financial year '21, it increased by more than EUR 40 million also as a result of our transformation. If actually we would adjust the write-off on our Russian assets, the EBITDA increase would actually be EUR 50 million. And that actually is the only number where we didn't over exceed our KPIs. If it would not have with North Russia, we actually would have delivered above expectations even on EBITDA margin. Moving on now to the next chart. With sales of almost EUR 2.2 billion, the previous fiscal year was exceeded by around 14%. As orders are outperforming sales by far, backlog rose to EUR 901 million, which is the highest amount in over 10 years and gives us really great comfort for the running fiscal year now. When we look into the past years, the starting backlog in relation to the realized net sales of each year was around about 20% to 30%. This year, we're looking at a ratio of 40%, which is really, really good. Need to mention that net sales also include service and consumer business, rather intake generally corresponds with the time of the sales recording. However, this does not apply for recurring revenue contracts. Here, we already have a bit more than EUR 250 million in backlog, which secures off already a favorable level for our life cycle offerings. Would we actually look in our machinery backlog, only the coverage ratio would be even better than the 40%. Moving on to the next chart, I will show you now the main changes in EBITDA year-on-year. Let me say something before we actually go into it. Despite all the headwinds that we had last year, we have achieved the targets that we have communicated and actually even raised throughout the year. That just underlines that we are on the right way. Starting now with last year's EBITDA of EUR 95 million, which included several nonoperating effects of altogether EUR 140 million. As you know, because we had it on all the conference calls before, we had the pension scheme, which led to a relevant reduction of pension liabilities by EUR 73 million, the intense utilization of short-term work to compensate for underutilization of a German factory last year and the divestment of 2 companies in the coatings business, which gives us a book profit of around EUR 20 million. On the other hand, the negative influence of prior year EBITDA were the expenses for restructuring plants outside of Germany of EUR 50 million. All in all, the clean prior year EBITDA comparable amount to minus EUR 48 million, and that's basically. Based on that, we were able to increase sales by EUR 270 million, resulting in a higher volume and margin contribution of more than EUR 110 million. While on the other hand, material prices increased and impacted EBITDA by EUR 22 million year-on-year. In addition, our multiyear transformation program has set to increase capacity utilization in all our factories and reduce cost base, which led to improvements of around EUR 75 million. In terms of nonoperating profit, we recorded an income of EUR 48 million: for the sales of property in Branford, EUR 28 million; and the sales of a document management company called DOCUFY of EUR 20 million. The last remark is that we recorded a EUR 7 million write-off of our assets in relation to sanctions against Russia in the fourth quarter. Moving on to the next slide and the details on the segments. Starting with order intake, we saw that Packaging Solutions grew by 80%, while Print suffered more dip in fiscal year '21, but also experienced more of a rebound this year with 25%. Sales development moved slowly in both segments, in Print with 18% and Packaging of 7%. Basically, what we saw was that Packaging suffered a bit from missing part in production in the fourth quarter. In terms of EBITDA, both segments improved year-on-year, especially when it comes to operative improvements measured on gross margins. Packaging Solutions showing roughly improvements of EUR 58 million, mainly driven by gross margin improvements by volume and pricing, slightly diluted by Gallus, which started restructuring a bit later than all the other areas in our core business. On the other hand, Print Solutions shows improvement of EUR 102 million that comes from many extent from gross margin gain. Reason for the significant improvement is basically that sales volume in Print Solutions grew by more than 18%, as I already mentioned. Last remark on this is that the operating improvements are overlaid by nonoperating items in financial year '21 and financial year '22. Financial year '21, we mentioned one of the mainly distributed according to the sales ratio. In financial year '22, the sale of DOCUFY was fully assigned to Print Solutions, while the book gain from the property in U.K. was split according to the sales actually again. Moving on to the next chart with some details on technologies. Here, net sales grew by 123% year-on-year to EUR 50 million and continue to grow quarter-by-quarter mainly driven by electromobility. Thereby, supply shortages were the limiting factor in this segment throughout the whole year. All in all, higher volume from Wallbox sale pushed segment across profit by EUR 14 million. On the other hand, EBITDA was up only by EUR 4 million due to ramp-up costs in electromobility and losses from Zaikio in a mid-single-digit area. Considering the competitive development, the positive earnings contribution is really good. Moving to the next chart, which is the balance sheet. The owners' equity increased by EUR 133 million year-over-year, basically EUR 100 million coming from other comprehensive income, which mainly reflects the discount rate for the pension scheme and EUR 33 million from net profit. We're also happy that net working capital has been further reduced by EUR 44 million to EUR 440 million, which corresponds to 20% of last year's revenue, thereby buildup in inventories was mainly overcompensated by an increase in payables and collection of more down payments. But the most important highlight to me is that we have turned into a net cash position after EUR 69 million net debt in the previous year, mainly due to positive free cash flow. These resources have been used to reduce the net financial liabilities to EUR 135 million at the end of the fiscal year. A bit more than 2 years ago, they amounted to almost EUR 500 million. The last remark to the financing side. The remaining part of the convertible bond was paid back by the end of March as scheduled. Overall, our financing situation is now in a pretty solid food. Coming to the next chart. Finally, to the free cash flow, which amounted to EUR 88 million after EUR 40 million last year. The main driver was an increase in the operating cash flow by EUR 51 million, mainly due to the higher net profit and improved earnings quality. Earnings after taxes were not only up by EUR 70 million, but also came on improved earnings quality. As last year included the not immediate cash relevant income effect from the reorganization of the pension score. This year, that effect was replaced by operating profit. Moreover, net working capital relief contributed to the cash flow of around EUR 70 million, while some EUR 50 million cash also restructuring and around EUR 30 million for pensions shown in Other are also included. Coming to investment cash flow. This provision included around about EUR 90 million from asset management projects, of which EUR 50 million were reclassified from operating cash flow into investment cash flow. All in all, free cash flow includes some positive and negative one-offs, but also an operating improvement that is EUR 100 million higher as compared to last year. And with that, I'll hand it back to you, Ludwin.

Yes. Thank you, Marcus. Thank you for the presentation of the financial figures of last year. So at this point, I now would like to look into the future. So we close our presentation on the last year and now I'll start talking about the just started new fiscal year '22, '23. And as you know, we are already 2 months -- more than 2 months into this new fiscal year. I can say that we had a solid start, and we are quite confident for the entire year also going forward, although we are certainly aware of the really difficult environment. On the positive side, we have a strong order backlog, as Marcus explained. This order backlog obviously will materialize going forward in this fiscal year. There will be a further reduction of structural costs by another EUR 30 million. This will be due to cost reduction measures, which are already in place. They were put in place during the last 2 years, and we will now benefit in this fiscal year. So with these cost reductions, Heidelberg will at least achieve the savings goal of EUR 170 million, which was promised 2 years ago, if you remember. In face of the cost increases of production materials, we were forced to increase also our prices to our customers already. We will certainly also going forward, do so if necessary. But we are very glad that these price increases have been accepted by large by our customers. On the risk side, on the right-hand side of the slide, I would like to start with the ongoing corona pandemic in China. This pandemic impacts both our end customer business in China as well as our manufacturing site in Shanghai. I would like to note that this factory in Shanghai was closed temporarily due to the lockdown by the Chinese government in this area. But fortunately, it has been reopened by now. Another risk are the partly massive cost increases for materials but also for energy, as mentioned before. And related to this and in view of the high inflation, there might also be a noticeable increase of personnel costs going forward. Nevertheless, as mentioned before, we are confident that we can pass on part of these cost increases at least to our customers. When it comes to supply shortages, we are impacted, but possibly not to the extent like other companies. And the reason is a rather large vertical integration of Heidelberg. In other words, many of our parts are made in-house, which helps us right now, and we are not dependent on others, but certainly not all our parts. Now let's move to the next slide, which is our guidance and our forecast for the fiscal year '22, '23. Unfortunately, the uncertainty, as I was just explaining, the uncertainty has never been so high before. We don't know when the war in Russia against Ukraine -- the war of Russia against Ukraine will end and what the consequences will be. As our direct exposure to the region is limited, our major concern is a potential collateral damage. There's quite some uncertainty regarding China. We can only speculate about the economic consequences of the 0 incidence COVID policy in China and what adds to the uncertainty further is the high inflation, which we need to manage. So as we say in German, best we can do is driving on site. Our forecast is based on the economic growth that is currently predicted by the economic institutes. In other words, we do not assume a further slowdown of economy. Our outlook for the year takes into account both risks and opportunities, as mentioned before and also listed in this slide before. With that in mind, we expect sales to increase to around EUR 2.3 billion. Just to compare last fiscal year '21, '22, we were at EUR 2.18 billion. Profitability will be positively impacted by the further reduction of structural cost. And on the other hand, we assume that the nonrecurring income in the forecast will be low. As you might recall, it was EUR 50 million in the past fiscal year. Marcus talked about that. Overall, from today's perspective, we expect an improvement of the EBITDA margin from the previous 7.3% to at least 8% in fiscal year '22, '23. Earnings after taxes are also expected to come in slightly higher year-on-year. Yes, so much about our guidance. So let's move to the next chart, which talks a little bit about our strategy going forward. And as you can see on this slide, we see opportunities, both in our core markets and also beyond. And that's very important. So let's start with printing. The packaging market is growing while the commercial print market is stagnating. That is not new. That's known. However, we see opportunities in both printing segments. So customers are faced with cost increases, and they simply need to boost their productivity. And here is our strategy, and it's really that simple. So Heidelberg will focus on productivity and printing. That's the core of our strategy. We focus on productivity and printing because that is a customer need. We not only will further improve our printing machine portfolio -- and the printing machine is the core of productivity in the print shop -- we will provide highly efficient end-to-end solutions that address the challenges of our customers. So we'll take into account all the other steps of the value chain within a print shop. With our subscription approach, we offer also consultancy on productivity to our customers. That's actually a very important element and has turned out to be very effective. Furthermore, we will address a second challenge of our customers, which is the significant shortage of qualified personnel for printing. And we see that not only here in Central Europe, we see it all over the world. There's not enough experts on printing. So how -- what can we do to address this? We will basically further expand and build on what we call the push-to-stop approach. And what is that about? Well, basically, it's about the automation of the -- of printing. It simply means that all parameters of the printing machine are set automatically by the software and not by an expert. And with that strategy, we really expect to improve overall our strategic position and simply because we meet the expectations and requirements of our customers and help them in their challenges. So much about printing. So we'll really try to strengthen our position in printing. But we will, at the same time, also go beyond Print. And Heidelberg has done a really good job in the last years to develop new business, and Heidelberg has demonstrated with the charging station for electric vehicles that it actually can enter new markets and establish a remarkable business position within a very short time. I believe, and that's an interesting finding, which I had here the first week being in this company. I believe the strength is not only the technology phase. I mean that's also there. And of course, it's very important. But there's something else, and that is the capability to scale production within a very short time. Heidelberg knows how to commercialize technology. That's a unique strength. And that will help us with our e-mobility business going forward. We will further invest into e-mobility. We will expand our product portfolio -- you will hear about that very shortly in the next couple of days, there will be new products coming out, and we'll also go beyond. So that will remain to be a focus of our new businesses. But we will not stop there. And we've started to also look at other new fields for further expansion. Please understand after 8 weeks being in this company, I'm not in a position today to name these new fields explicitly, but I can only tell you that it's very high on my agenda, and we'll come back to you as soon as we have something specific. So my message to you is we'll do both printing and we'll go beyond. And I believe that we need to do both because without our -- the strength in our core business, we cannot afford to invest into new fields, and both is very important. Now that brings me to my very last slide, and that actually is a very brief summary of our core messages today. Our first message was Heidelberg had a tremendously successful fiscal year '21-'22. Our second message was that there are risks and challenges ahead. However, overall, we are optimistic, and I hope that our guidance reflects that. And our third message was that we will go for growth opportunities, both within the core markets which are printing but also beyond. Yes. Ladies and gentlemen, that concludes our presentation of our financial numbers and our guidance for next fiscal year. I will now hand back to the moderator, who will explain the procedure for questions and answers.

[Operator Instructions] We will take our first question from Daniel Gleim from Stifel.

Actually 3 topics that I would like to briefly touch upon. The first one is around the EBITDA margin guidance for next fiscal. If I look into your other presentations, you previously had a midterm target for more than 10% for the coming fiscal year. And the actual guidance is now 8%. And I would like to understand a little bit better what the drivers are behind the 200 basis points lower guidance. You said the EUR 170 million structural savings will be reached next year. So I'm thinking about the impact of the supply chain inefficiencies and cost inflation, net of price increases to explain this 200 basis points. Is this the right way to think about it? Or is there something else in there that we should consider?

Okay. Thank you very much. Maybe let me start by a general answer and then move into more specifics. We basically had a 3-year restructuring program. And in that, as Ludwin explained, we had a target of 10% EBITDA margin. We haven't given up on that. And I think I talked to many of you before, and I said, I've never had a planning so clean, so without any wild fears. So I was really, really confident we would actually get to the 10% margin target. The issue is now we have a war here in Germany, we have a war in the Ukraine. Thereof, we have rising material and energy costs. We have a shock of a global economy. We have a lockdown situation in China. Ludwin has, I think, explained all of that. And the problem is, of course, that sort of boosts us in security. And therefore, even though we have a great order situation, we have a great order book, we have to be extra careful. And when I look into this year's EBITDA, it's EUR 160 million and we had like EUR 40 million of one-offs, basically DOCUFY and Brentford, as I explained, that sort of levels it to EUR 120 million. On the other hand, we have actually a great order book, we've seen increased or we will see I think increases in revenues and therefore, utilization which brings us EUR 25 million more. We see price increases that -- actually we have already factored in, in our backlog which amount to roundabout EUR 40 million. We've announced another EUR 20 million additional price increases compensating for cost inflation that we see on the other hand. We see further reduction of FTE of roundabout EUR 50 million, 450 FTE. And on the other hand, we see cost inflation when it comes to personnel cost here in Germany, worldwide. You see on the other hand, that we're building FTEs here for electromobility and service which basically give us roundabout EUR 40 million and we have some income out of asset management which I think will boost our EBITDA roundabout EUR 207 million, roundabout about EUR 200 million, EUR 207 million, something like this. This is basically the bridge to the 8%. So we can do better, but that really, really can only be when the war in Ukraine will stop at a certain point in time, when insecurity moves out of our planning, when there is more confidence in the economy world over and we have different politics concerning COVID in China. And since we don't know, as Ludwin rightly said, we have to be extra careful, which is basically what we agree to you right now, which is actually in line with consensus, I have to say Daniel.

So my short version, if I may. My short version would be on the 10% goal was set in a time when these prices which we are faced with now simply were not there. So we've not given up on the 10%, but we have to take into account realities of today.

Very clear. Speaking about pricing, could you give us the percentage numbers in terms of price increases that you implemented as of recent? And I understand you were only talking about the end of March. Was the major price increase at the beginning of April similar to what we see with other companies in the sector, if you could comment on that, please?

We have actually introduced price increases roundabout 5% until the end of last year, which basically is what you see now in our backlog when it comes to new orders that we generated last year. When it now comes to price increases this year obviously, there is lot of work in process, as I said. So roundabout what we will suffer in material cost inflation, we will hopefully pass onto the markets which could be roundabout EUR 30 million, something like that.

And that is being implemented or already has been implemented?

The 5% has already been implemented and we're in the process of implementing the further price increases of roundabout EUR 30 million, hoping that we drive that, can compensate material cost inflation.

We are afraid it's not over yet. The price increases will go on unfortunately.

Understood. And the last topic is the electromobility and more general question I would be keen on learning what your impression or your gut feelings are with regards to the market developments. I'm thinking about especially if I look at -- so one of your larger competitors, actually quite large competitor that is thinking about IPO-ing the business to raise further capital to further accelerate their growth trajectory. I'm just wondering how you think about the market environment, where you see your capital base? Does this concern you what the other competitors are doing and what are your sense with regards to a potential IPO?

Yes, I'll start off and then hand it over to Ludwin. Basically , what we've seen is I think we outperformed the market by actually more than doubling up our revenue for, as Ludwin mentioned, it's 123%, which is quite an increase and its profitable as we all know. We actually plan with a CAGR of 30%. Having said that, as we have explained, we see shortages in supply of microchips, which I think will sort of then be increased. So for this year, we have to be very, very careful and moderate and really watch out what's happening in the marketplace. Obviously as you rightly said, we always consider whether or not to bring in a strategic investor or actually god bless the company, but not at this point in time, I think the market is just not the right. At this point in time, we don't see the markets being there and actually as you know, ABB has just postponed their IPO for their segment. So I think we are being extra careful, give electromobility bit of time. It's actually quite a good strategy and this is what we're doing concentrating and expanding our product portfolio, concentrating on the regions that we want to explore additionally and I think building it slowly but steadily is the right opportunity for this moment in time. With that, I'll hand it over to Ludwin.

Yes, not much to add. Maybe just one though. We'll release a press release on this by tomorrow, which speaks of our product line in e-mobility. We actually have moved all our activities in e-mobility into a separate legal entity and that actually allows us new options and we've not decided by when and what exactly we'll do. That will depend on the further development and we are now prepared to really invest, expand the product portfolio and continue the success that Heidelberg has had in this market and then we have all options to go beyond and also take capital measures of what kind ever. So we'll see what makes sense and we'll find out.

And we will now take the next question from Peter Rothenaicher from Baader Bank. The line dropped, so we will take the next question from Stefan Augustin from Warburg Research.

So the most interesting and first question goes to Mr. Monz, for sure. And it is rather you outlined a little bit already what you found and what you think about Heidelberg. But I mean this is probably the time to ask rather for your visions in the long-term and how you see, let's say, Heidelberg maybe transformed and what would you think where the company could be in 10 years down the road? And possibly also, it is only 2 months, yes, it's a very short time frame. But how did -- what do you see compared to your expectations before arriving? So what will be your general assessment on the situations? Your feelings, learning more about that could be a great idea.

Yes, thank you, Mr. Augustin, for this interesting question. And as you said, it's only 2 months, so don't expect too much. But it's certainly long enough to also talk about surprises and, how should I say, first impressions. So overall, I'm really impressed by the company. I'm impressed because I found a huge depth of knowledge in so many fields, right, enthusiastic people who really live what the company stands for. And that's actually a great asset, right, and of course I expected people to understand printing, but I did not expect that kind of enthusiasm and that depth of knowledge. And that's very encouraging going forward, because it will not only allow us to build on the existing core business, but it will also allow us to go beyond. And talking about my vision, I used the first 2 months of course to get to know the organization, to get to know products and applications, but also -- and that was actually a very important part. I met customers, I really tried to understand what's going on in our markets and what customers expect and how we as a company can help customers. And my vision would be that Heidelberg actually strengthens its efforts to make its customer successful and that's my experience also with my previous company. If we really focus on what matters to our customers, then we will be successful. And look, today, far above 90% of what we are doing is in printing and I believe because that's the case. It's a good idea to really take care of printing. And now by better understanding how we can help our customers, we will try forward our position and we will strengthen our position in printing. And as I were saying, to me the core really is focus on productivity because that's the biggest pain point in printing today. There is a huge cost pressure, and Heidelberg can help customers and help customers to be most efficient, to be more productive and thus overall to lower their costs. So that's clearly the mission in printing and believe me, I'm absolutely sure that Heidelberg can still achieve a lot in printing and can strengthen its position in printing and we will see the result of that effort clearly also in the numbers in the upcoming years. It will certainly take a while. But that's just part of it. And again, I'm stressing this point because I believe that printing really is the majority, by far the majority of our business, so it's a good idea to take care of its strengthening and also strengthen its financial impact. Beyond that and that's the second part, when I say found so much depth of knowledge, that's certainly knowledge and technology but it's also beyond the product development, it's beyond the technology itself. As Heidelberg is a large company and it has really highly developed operational systems, Heidelberg can scale production for example. It can ramp up new products. Just take the e-mobility, example. What is the difference between Heidelberg and some other start-up company that entered the market with the Wallbox? Well, the difference is that Heidelberg actually knows how to ramp up production. The difference is that Heidelberg has some network to service. Heidelberg has some global organization that can sell these products. So there is so much infrastructure, there is so much knowledge that will help in these new businesses that I'm absolutely sure that also beyond e-mobility, Heidelberg can achieve a lot, and this is why I said, well, we look into new things and we've started actually already. So we are working on this today and we'll find new things, I'm absolutely sure. And again, I'm optimistic about that because there is so much more than just the technology knowledge and the vision for what Heidelberg can do. It's really infrastructure, it's systems that we have in the global organization and that is actually very encouraging. So overall, as you can hear, exciting times, and I'm so glad to be here. It's a wonderful resource we can use to develop the business.

That sounds promising. Possibly and up here, how do you view your subscription model in that vision, and maybe can we also have an update on -- that's more towards with Brandenburg here on where we stand and do we already, let's say, fill the JVs in North America?

Let me start with the overall look at subscription and then Marcus can add some quantitative insights. Overall, I believe subscription -- I were saying before they are different perspectives you can take on subscription. So the one perspective is, well, that is about financing the business with our customers and converting a one-time investment goods business into a continuous recurring business sale. And that makes a lot of sense because recurring business is much more stable, it's less risky, it's less affected in prices and so on. But we know all these things, and I fully support that and believe that's the right direction. There might also be other ways, by the way, to strengthen recurring business but that's the basic idea behind subscription, so I fully support that. Then there is the other perspective, which is the customer's perspective and why would customers go for subscription. The one is, well, because the -- it makes financing easier and that's particularly true for smaller print shops. But there is also the perspective to say, and I was talking about that before. Subscription is not only financing, subscription is actually helping the customer with the productivity in their print shop. So we help to organize the print shop, we help to set up efficient and productive processes, and that's a big value to our customers, this is what we found, right? So the interest really goes beyond the pure financing, which is of course important, but it's not the only thing. And that part, I believe is also extremely important. So yes, it's about converting our business into a recurring business, but it's also about helping our customers to be more successful. Marcus?

And the good news is basically that we were able to grow our recurring revenue business to the degree of 13% to 14% in financial year '22. The implementation of the cooperation with Munich Re that you mentioned, is in the final stages. So we're really eagerly looking forward to closing it finally. As we have many projects actually for this calculation in the pipeline, we're amounting to roundabout 50. So this will give us another boost and we're really looking forward. And as Ludwin has said, strategically, this is really a cornerstone for us as well as for costumers.

Okay. Just for clarification, the 50 projects you mentioned, so what I think of is to understand that once this is set up, you would have already like more than 50 machines you can put into that from your current negotiations?

I would call it a pipeline. I mean obviously there is scrutiny coming up and so on, but this is like the pipeline that we can do basically a business growth and we will see how many of them will materialize. So one at a time, but it's a good thing to have it in front of the pipeline.

All right. Then I will have 2 more housekeeping like questions. The first one would be on your R&D. Of the EUR 98 million R&D spending you have, how much is currently going into Wallbox? And going forward, would you expect your total R&D rather to grow or to be steady and what would be the portion to the Wallbox business look like?

Right now, we are spending roundabout EUR 100 million, 47% of which are print, equally distributed with packaging. So that leaves like 6% of this EUR 100 million for electromobility mainly. For this coming up year, we would grow R&D spending on technology by 2%. So talking about 8%, we will see basically an increase in packaging and a slight decrease in print, amounting to 42% respectively 50%. So but honestly, the limiting factor is not so much R&D in Wallbox, but it's actually finding good people, which is basically, I think what we're concentrating on. And we're really looking forward to bringing people on board, I think the shift of paradigm for this company again we are hiring people and not reducing people, the building and it's a good story actually.

All right. Great. Sounds good. And the last one is actually on cash flow. So you had a restructuring cash out of EUR 50 million in '22. What do you actually expect for '23 to come? And on that as well you have made -- there is still the money -- parts of the money coming from Brentford and so on. So how much of already closed asset sales will be in the cash effective in '23 and what do you expect on further asset sale to be cash effective in the amount of '23 to the total, let's say, net of asset sales to come in versus restructuring to go out?

Yes. So actually -- just let me start with restructuring. We actually had a provision of roundabout EUR 100 million and then paid off EUR 75 million in '21, EUR 50 million in '22 which leaves basically EUR 125 million as a reduction and then it's basically now EUR 75 million that we have. We will pay off another EUR 30 million in financial year '23. We're working in EUR 45 million that are still in our provision. And this will be equally distributed in the last 4 years because we have some early retirement plans that are paying off later actually, so that is basically on the structure. When it comes to be cash flow, I think actually all the asset sales are closed, I cannot think of one that is basically not closed yet, at least nothing significant coming anymore. So when we look into cash flow, then I'd say that's coming from divestments roundabout EUR 100 million. At the same time, the spending like EUR 50 million in investments, so basically I see as a free cash flow number for you something that is slightly below the number for this year, amounting to EUR 50 million to EUR 60 million in free cash flow.

[Operator Instructions] And we will take the question from Peter Rothenaicher from Baader Bank.

Yes. You mentioned that you had a solid start to the new fiscal year. Can you little bit comment in order intake what is happening? So in the past, there was always a situation when uncertainty is increasing, this has significant effect on your order intake. So how are you performing so far in the first quarter? And do you see a chance that you might reach in the current year, also is the order intake level of around EUR 2.4 billion in the current year?

Thank you for the question. I think basically, and we've asked us this question quite a lot of. I think honestly one explanation for this situation is that people are expecting price increases. And on the other hand, we're not seeing a recession. So basically, the field -- in all areas of the world, we see moderate growth. People are investing and as they are investing and expecting price increases, they actually order. And you know, for us, order is a relevant number because it comes with down payment, so it's nothing that people just do because they have to pay for it. So whoever actually puts an order with us has to pay and therefore is something weird, it's tangible. So the good news is that we've seen actually great order intake last year, as Ludwin mentioned. We have a good order backlog, almost equally distributed between packaging and print which is good as well. And actually, we kept momentum for orders for Q1 and we see above the Q4 level actually may be lower than Q1 in financial year '22. Please do keep in mind, there was the China trade fair amounting in effect of EUR 50 million. We won't see this EUR 50 million this year, but still we see strong momentum in the U.S. and EMEA, obviously Eastern Europe being hit by the war in Ukraine. China was a bit lower, but now it's picking up. We have seen substantial order still generated in China. So therefore, as I've said, numbers will be higher than in Q4 last financial year, but maybe not as high as in Q1 of financial year '22.

Okay. So a slightly lower order intake might be possible for the current year?

No, that, I wouldn't say. I was just trying to comment on first quarter, trying to tell you that there is still a huge momentum. But we had a huge effect last year, if you remember Q1 last year was EUR 650 million because of the trade fair show in China. So do subtract EUR 50 million and that gives you some idea of where we might land for the first quarter. So when it comes to order intake for the whole year, I would expect at least EUR 2.4 billion that we saw this year. Obviously, if there is not something that's coming up, like recession, like I don't know what's happening in China, as Ludwin said, these obviously can further slowdown the order intake. But from what we can see right now, we don't see that the momentum is not there.

Okay. Then you mentioned that the headwinds we are currently seeing in terms of materials, energy costs and definitely then also in terms of labor. So when we talk about labor, so wage negotiations will come up in fall this year. What have you calculated as an increase for the current year or then starting then for the second half of your fiscal year? And on the other hand, how safe are you in terms of purchasing for the current year that there won't be any further negative surprises in cost increases?

Yes, I mean if I had a crystal ball, but what we've planned I can tell you, in any case. We expect personnel cost inflation here in Germany amounting to 5%. Obviously, It's not being negotiated. We have to monitor things very carefully, but I think we are rather on the safe side with that. On the whole rest of world, we expect an average something of around 4.7%. That's one part of your question. When it comes to material price increases, as I've said, we're expecting roundabout EUR 30 million, but we're monitoring the situation on a weekly basis. It's really, really putting everybody in our supply chain to a lot of stress because we're really trying to monitor every development, we're trying to secure, as you know, we can ship orders. Until so far, we managed in our core business, as I said, electromobility is suffering. But in our core business, we still can ship all the orders until fulfilled.

Are you able with bigger orders here to put in safety clauses if there is something extraordinary that you might pass on these higher prices or is this not possible in your business?

Well, until so far, we haven't done so, just to tell you the truth, we haven't done yet. So we're checking out what we are -- what we can do? Obviously, we're planning on a price increase. Whether or not we put something into a contract has not been decided. It's something for Ludwin and I to discuss in the next weeks.

And there are no further questions at the moment. [Operator Instructions] It appears we have no further questions for today.

Ladies and gentlemen, so thank you very much for your interest in Heidelberg. It was a pleasure for me to meet you first time. I'm looking forward to meeting you all next time, and we all do look forward to this. Stay safe, stay healthy and have a good time. Bye-bye and thank you.

Thank you very much. Bye.

This concludes today's call. Thank you for your participation. You may now disconnect.