Kardex Holding AG (KARN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the publication of the half year results 2021 conference call and live webcast. I am Alice, the Chorus Call operator.[Operator Instructions] This conference is being recorded.[Operator Instructions] At this time, it's my pleasure to hand over to Edwin van der Geest, Investor Relations. Please go ahead, sir.

Yes. Thank you very much. So welcome, ladies and gentlemen, to our call. I'm very sorry that we picked such a wonderful day as today. It's the first day not raining since days, and now you have to stay in your office and listen to us, but I hope some of you are already somewhere on holidays and listening from the beach or wherever. So we start our call as usual with Thomas, our CFO, who will go through the figures. And then Jens, our CEO, will go in details into the divisions and give you an outlook of where we are after this very, very interesting and demanding half year. That was this third half year that is influenced by the pandemic. So Thomas, please, may I ask you to start.

Yes, sure. Welcome, everybody, to this conference call from my side. We look back to a very positive first half year 2021, with very positive and good market condition. This was also affected by our customers investing in automation because of their learnings and experience during the pandemic. Last year, we mentioned that we expect a rebound in order intake and also net revenues. And this is what is happening and materializing right now. We see a rebound in order intakes, and this is really boosting our order intakes in the first half year 2021.Unfortunately, this is not resulting in higher revenues for the time being. But for this, I will comment on later. Profitability has been increased on all levels and in both divisions. We continued with our strategic investments and pushed the programs further down the road. So let's see -- let's have a look at the key figures over the last cycle of the last 5 years. This becomes more and more important, especially based on the pandemic, because we don't want to look back only one year, we want to see how the performance is compared to the pre-pandemic period. Looking at the net revenues, we see that net revenues amount on the same level as past year. So there is only a slight decrease compared to 2020. But if we compare net revenues to 2019, so the pre-pandemic period, we see a decline of 10%. If you look at the CAGR, the CAGR from last year was 5.1%. And this year it amounts to 3.8%, so a slight decrease based on non-increase of the net revenues. If you have a look at the EBIT, there we see an increase of 12% compared to last year. But, again, if you compare it to the pre-pandemic period, there, it is a decline of 5%. So we're 5% below half year 2029. On the other side, if you look at the EBIT margin, the EBIT margin went up to 13%, so it's very strong. Again, looking at the CAGR. The CAGR went up from last year's 7.5% to this year's 7.7%. The net cash flow from operating activities amounts to around EUR 25 million. This is the second best result, looking at the cycle here of 5 years, and it was only beaten by 2020, EUR 26.3 million. Also, equity and the equity ratio are very strong and remained strong and confirm a healthy and solid company. Now, let's look into the details of the income statement of this year. There, on the bookings level, we see the increase of a bit more than 50% compared to the last year. This EUR 302.5 million bookings represent a book-to-bill ratio of 1.46. The order backlog of EUR 313.4 million also represent almost an increase of 50% and are also representing a visibility of around 9 months. Net revenues, as explained before, remained on the previous year's level. Looking at the gross profit, the gross profit went up by around 5%. The gross profit margin was further increased from past year's 34.6% to now 36.3%. Main reason behind this increase is the sales split, so we have a higher share of LCS business compared to the share of new business. And as you know, LCS business is likely higher margins than new business. The operating expenses, they are under control. You see an up of only 1%. Then the EBIT, EBIT of EUR 26.9 million, representing an up of 12.1%. The EBIT and also the EBIT margin of 13% were never achieved before by Kardex. The 26.9% -- million -- sorry, EUR 26.9 million EBIT, there is also close to EUR 1 million extra cost for the new kids Robomotive and AutoStore. Looking further down the income statement, the financial result is 400,000 better than last year. The main impact there are the positive exchange rate impacts or less negative impact than last year to be more precise. The tax rate remains on 24.3%, this despite the guidance of around 26%. But this year, we had exactly the same geographical splits of revenues and therefore, also the profit. And this is the reason why the tax rate travels below the guidance of 26%. Looking at the cash flow statement, there I want to explain beforehand one topic. This is that we have started to reallocate cash into financial assets, mainly to avoid negative interest, and this has impacted the cash flow statement. If you look at the net cash flow from operating activities there, the displayed amount is around EUR 25 million. But there, we have a shift of cash to financial assets of EUR 21 million. So, neutralized, we look at the net cash flow from operating activities of around EUR 46 million compared to the EUR 26 million of last year. The net cash flow from investing activities is -- travel is around EUR 45 million. This is a high increase compared to the last year, but also here, impact of around EUR 40 million of reallocated cash to financial assets. If we neutralize this amount, then we see that the CapEx are lower than previous year. The reason behind this is that last year, we invested around EUR 10 million into our U.S. manufacturing building. The resulting free cash flow, EUR 26 million compared to EUR 10 million last year, so up by EUR 16 million. This was driven by the CapEx and also by net working capital. The net cash flow from financing activities is below last year. It's around EUR 28 million. We will hear is that we paid lower dividend this year than last year. Looking at the balance sheet. There, I want to highlight all 3 lines. One is the current assets, which went down by roughly 13% or EUR 27 million. The reason there is, again, the reallocation of cash into noncurrent financial assets, which is exactly the reason why the noncurrent assets went up accordingly. Then on the passive side of the balance sheet, liabilities also here, this went up quite heavily compared to last year. Here is that the business picked up. Last year, we had the negative impact on the business. Therefore, slight positive impact on the net working capital, which went down last year because of reduced operation. And this year, we have exactly the contrary effect in the net working capital. And this is the reason why the liabilities went up. With this, thanks a lot for your interest. I would like to hand over to Jens for the next slides.

Good afternoon, everybody, also for myself. Very shortly on Kardex Remstar, the first division we want to talk about today. Kardex Remstar, had a pretty healthy booking in the first half of 2021 with EUR 228 million compared to EUR 156 million, last year or up by 46%. And which mostly comes from new business, but we've also been able to drive our service business further. So in the targeted mix between new business and service, we've been able to increase our bookings accordingly. Order backlog as a resultant of net revenues and bookings went up to EUR 204 million, which you can see is substantially up on previous year's levels, 42%. Which means we are really looking with a healthy and good order backlog into the, let's say, at least 6 months, if not 9 months ahead of ourselves. Net revenues been trailing. We call that trailing, mostly because of ongoing site restrictions on customer side. We've been reporting this about these restrictions already with the full year closing. And that partially continued, it was eased up towards the middle of the year. And therefore, it had not the full effect like last year, but still we've not been able to fully access customer sites for either new installations or for service works. And we also, like many other companies have seen shortages in our global supply chains from delayed deliveries to us up to non-deliveries, which actually put a bit of a stop on our manufacturing from time to time, and that resulted in lower than expected net revenues of EUR 167 million, which is down by 4%, which is something we carefully monitor. I will get back to this in our outlook. The EBIT itself, EUR 26.7 million, 16% on EBIT margin improved over last year. Revenues mix is one of the elements that contributed to it. Economies of scale, we've been talking about certain volume cost in our factories, but also good cost management. Some of them being a continued saving on travel and marketing costs or exhibition costs, but also in other parts of the company, we've been able to manage the costs reasonably well. We continued with our investments in our strategic program to prepare ourselves for the future. And they're pretty proud of what Remstar, has achieved despite these investments to actually create a margin of 16% on lower-than-expected net revenues. Over to the next page, you see the development over the years. 16% at half year is also something new for Remstar, in terms of EBIT margin. We see the revenue mix on the lower left, where we see that service business for Remstar has increased to 34% compared to the 30% we have seen in 2020 half year, something which I consider a little temporary because we expect that net revenues in new business will pick up again, and we will get back to ratios more like the 30-70 compared to what we are seeing now, 34% and 64% that we are showing here. Over to Mlog. Mlog, a little bit of a surprise also to all of us in terms of order intake. I think we already, with the full year started seeing some upturn in bookings for Mlog in the last fall of last year. And that continued. We had a very strong bookings semester, I would say, with EUR 73 million. That is above, I believe, 2019 total numbers and also substantially higher than in the first half of 2020, 66% increase, something this organization has delivered, and I'm very happy about that. Net revenues, not quite the same pace. It's mostly driven again also by projects in new business where projects are in-house. They are safe. However, they have their ramp-up period, and they have their percentage of completion and therefore, net revenue is not yet in line with the bookings levels. Order backlog, as a result, also increased by 60% to EUR 108 million. I think that's a number that Mlog has not seen in the years, at least that I've been part into this company and something that this organization now has to manage in the months and years to come. EBIT margin, EBIT and EBIT margin due to the strict cost control and risk management in Mlog, would, I would say, back on track. If we keep in mind that we had a minor hiccup last year in 2020. So we are back to, I would say, minimum expected numbers with the 5.2% in EBIT margin for Mlog. Over to the next page, you see the development over the -- the annual comparison between net revenues development, on the right-hand side, EBIT development, EBIT and EBIT margin. So, you see we are slightly behind in comparison not to 2020 but to 2019, on the same level of revenues, something to look at. Specifically, as we have a new revenue mix of service 50% compared to 48% in the last year half -- first half of the year. Outlook, as cautious and as always, we believe that we are looking ahead into a good future with some disclaimers. I would say, but one cannot ignore that during this pandemic, the automation demand of our customers has substantially increased. Customers who previously did not want to invest in automation, have now decided to look into automation, reason being mostly availability or rather to say, non-availability of people. During specifically these pandemic situations, people, social distancing played a factor in there, so we see a healthy increase in demand for automated solutions. And you also see that efficiency in intralogistics becoming more and more important and key success factors for our customers. So all in all, we consider that healthy market trends, which should support Kardex's development in the future quite well. Looking forward into the second half of the year, we expect that Kardex Remstar, will turn the very strong order backlog into an increased net revenues level in the second half of the year, compared to the previous year -- previous half. The new manufacturing plant in the U.S. that we've been talking about quite a bit already should start operation in Q4 2021. We will do the final touch up installation, ramp up work starting in August, when we can send people over again, and that should help us to secure the opening of the factory in Q4 as we wrote down here. And with that opening of the factory and the first machines to be delivered to the market, Kardex Remstar will then ultimately move closer to its customers in the very important North American market, and that should help us defend and hopefully increase our market position in the U.S. forecasted Remstar. Similarly, Kardex Mlog should profit from the continued positive market conditions. We do not necessarily expect the same bookings levels for the second half that would be extraordinary, but we should expect a continued strong bookings levels for Kardex Mlog. And also the revenues should increase substantially based on what they're having in the books already, knowing that certain projects will have to close by the end of the year based on customer requirements. So we are pretty confident that we are -- that we will be able to increase net sales and also profitability in Kardex Mlog up to where we are at half year. We continue with our strategic investments into our supply chain. The U.S. operation is one thing. We're also investing into the Remstar facilities in Norberg and in Bellheim to get them more competitive, but also prepare them for capacity demand of the future. We continue to develop into technology, added elements, added features to our solution portfolio and products. And last not least, also into the digitalization of Kardex, partly, let's say, across all our processes and tools. We believe that with the start-up of our new kids, we call them the new kids, Robomotive and Rocket Solution and AutoStore that you should have a good support to our image in the market as a total solution provider. It was for the first time this year that we could actually present a digital exhibition booth. It's available from our website as well. And there, people can see our customers, but also you guys can see the total offering of the Kardex Group as a total. And I believe if we compare that to 5 years ago, that picture has substantially changed. And that, in itself, does not provide a good story, but what it does is it gives our customers more choice in terms of fulfilling their needs in terms of intralogistics or coming from their intralogistics solutions. I cannot close without the disclaimer at the end, our short-term concerns. I think you hear that in almost every call that the uncertainties in the market, and this is twofold. One being what is coming towards us in terms of maybe a fourth wave of the pandemic. That's one of the elements and the related restrictions that would be imposed on us. And second, also the continued shortages in the global supply chain. We tried to actually alleviate that, but we have no visibility at this stage. How long it will last, how severe it will continue to be? We hope it will ease over the autumn and then ultimately in Q4, but that's something that may impact our short-term outlook. Having said that, I would say once we master these challenges, I would say Kardex itself is pretty well prepared for a good future, and we should actually continue delivering to our promises. And with that, I would like to close and hand back for, I believe, what's going to follow the question and answers. Thank you very much.

Yes, Jens and Thomas, thank you very much. May I ask now the operator to start the Q&A session.

[Operator Instructions] Our first question comes from the line of Walter Bamert with ZKB.

You mentioned the booking level that you don't expect at the same level in the second half of the year. Do you have any evidence in the order book that you think, for example, that July wasn't that strong or towards of the first 6 months, you experienced a declining order intake? Or do you have the impression that the delivery times that the clients are asking for are getting longer? Or could we even speculate that H2 could be as strong as the first half?

I take the question. This is Jens. Thanks for the question. That's many in one. It's a little flat. But I try to answer them as good as I can. First one, you can speculate as much as you want. And we hopefully deliver to your speculation in the end because that would be the good news for all of us. Second, more serious. Currently, our sales funnels, you know that we monitor all our sales activities from a very early stage that we call the leads, early intent of our customers to do something where they don't exactly know what they want to do, up to the very large stage in the funnel just before we receive a signed order. We monitor this on a weekly base, not just on a monthly base. And these do not indicate a decline in the market, I have to say that. And I need to probably be a little more specific with my qualification or my statement when it comes to my expectation that half 2 may not be as strong as half 1, that's mostly related to Mlog. Because Mlog had quite a few projects booked that go beyond those, so partially our expected average order volumes, booking volume. So beyond the EUR 10 million mark. And of these, we do not necessarily see endless numbers of orders coming in. That is -- so for Remstar, however, I would expect, if nothing else changes in the market, a continuation of their booking pattern for now, I have no evidence otherwise. What's the potential delivery times will do lead times in our factories? That remains to be seen. We are off the record, sometimes also talking to the other people in the market, you call them peers, I call them contenders. They seem to have similar type of challenges. So at least, this is one of the good -- better news, I would say, that we are almost fighting with same weapon. So at the end of the day, it's not us with maybe 12 or 13 weeks delivery times against somebody who can deliver in 4 weeks, not to alone knowledge, at least. Did I manage to answer your question?

That was a very good answer to these questions. I will later come back with follow-up questions.

The next question comes from the line of Constantin Hesse with Jefferies.

Just a few questions on the margin momentum from me please. So if we could elaborate a little bit on what the impact was from higher raw material prices in H1? And what do you expect to see in H2? How much pricing have you taken? And has competition followed? That's my first one.

Yes, this is a question for me. Here is Thomas. If we look at Kardex Remstar there, COGS went up and were affected by price increases by around 5% to 7%. You might remember that in last call, we mentioned that we increased prices in the market, but this will not -- this is not affected or this does not positively affect our margins for the first half 2021, this impact will follow.

So you expect potentially then the higher prices to have a more positive impact in H2 than in H1?

To some extent -- to some extent, because you asked the other question that the competition follows suit, they partially do. They partially don't. So I know this is a weak answer, but that's a reality out there. You find projects where they fight like hell and some projects we win with our expected or above margin. So for now, we managed to defend our -- we call that the commerce margin. So the margin, we measure in different ways. We measure, on one hand, what we generate in the sales and service entities out there. That is fairly stable despite increased cost for the sales organizations as well. On the other hand, we have a second contribution to margin from our factories, from the manufacturing. And that has been suffering due to these increases in COGS, raw material costs and so on. We can partially hand that on and transfer. So I would say, of every price increase, we believe that some 20% or something like this ends up in the margins that we can book.

Okay. And the -- in the second half, is it fair to say that COGS could be even more negatively impacted because you're basically taking a whole half of higher raw material prices, whereas the first half, I think only the back end was mainly impacted by higher raw materials.

That could happen. We are currently in COGS. I'm less concerned about the pricing. It's a margin issue, I'm with you, but I'm much more concerned about capability to deliver when it comes to shortages or non-delivery, that is our bigger problem right now because we've managed to actually to even to satisfy our customer needs, we even managed to buy stuff or we had to buy stuff on the spot market in the, let's say, Q2. That was going that far. Never seen it before. We seem to have some easing with some of the suppliers and some seem to continue to be a challenge. So did we see the peak of prices that was more of your question? I don't know yet. We are having intense discussions with our steel trade companies, the guys who provide us with the one of the most important raw materials, and we try to fix something for the next 6 to 9 months based on best projections, but if you look at [ MEPs ], for instance, which is a fairly strong indicator, that varies almost by week as far as I can remember, going up, going down, going up, going down and I don't know what's going on there, but this is absolutely unpredictable. Hi. I'm sorry, I cannot be more specific because I don't know better, not that I don't want to.

That's for me is perfect. Can I ask -- so fundamentally, so the margins, obviously, this time around, they were supported by the higher share of services, which is core, a positive thing. I'm just wondering if you can provide some color on the actual hardware, meaning the new business segment in terms of, number one, the mix and scale within Remstar, as well as, Mlog? Have you seen an improvement there.

Did you understand the question? Sorry. I did not understand the question.

So, at Remstar, if you exclude the service business only looking at hardware specifically, has there been an improvement in mix -- a fundamental improvement in mix there as well.

Yes. Okay. I believe I understood your question. You were asking whether it's only the mix between LCS business and new business or if the margin itself in new business and LCS has improved. Is this your question?

Exactly. Yes. Within -- only hit new business exactly.

Yes. We can confirm that also this margin at Kardex Remstar has improved.

And then just lastly, and I'll come back later, I'll go back to the queue. Any margin headwinds from -- and the opening of the plant in the U.S. in Q4?

Margin winds?

Is it ramp-up -- headwinds, yes. Any negative impact on margins because of the ramp-up?

Negative, negative. Yes. He asked for headwinds. That is to be expected, yes. Because of the less than -- or that's less than needed, loading of the factory. We will do whatever we have -- we can do with a slow ramp-up of the people. To follow in line with the machines to be manufactured and distributed to the market. But there is some, as you know, capacity costs like some -- like fixed cost, like the factory itself, which will go into depreciation, these type of things. So we expect that to actually provide you called it some headwinds. I called it some dampening on the productivity of the overall supply chain. On the other hand, I also expect that the 2 factories in Europe should actually work on a better utilization, subject to material being available. So that should possibly compensate. If I look into the entire supply chain, the effects of a ramping up factory in the U.S.

Understood. That's actually great. Perfect.

And as I said, this is my expectation. We will see -- was it really done.

Absolutely.

[Operator Instructions] The next question comes from the line of Alexander Koller with Stifel.

In your cash flow statement, we see that you reallocate cash to avoid negative interest, what type of financial instruments you bought and why you still don't return this capital to shareholders? This is my first question. And then the second one about AutoStore, this product category applies to both to Remstar and Mlog? Or is it just for Remstar? That's my question. And how big do you estimate the cannibalization effect to the current product portfolio?

Okay. Thomas takes number one. Alex, I take #2.

I expected this question, to be honest. It is only fixed-term deposits. For the biggest of the portion, we reallocated from cash into financial assets. And this is really to avoid negative interest. So fixed-term deposits lasting more to 12 months or lasting 6 months and this is -- this has in the end no speculative corrector. This is just parking money. We have a smaller portion, which we invested mid to long term, and this is dedicated to cover pension liabilities, which sits already on our balance sheet. So does answer your question?

Yes.

Yes, there is one additional Alex, so why not return it to the shareholders? Is this a question that you should put to the Board. That's not -- I mean, the operational management, it's not the right to ask them. But anyway, this is still -- I think the Board still feels very fine with a solid balance sheet and maybe shareholders should just stand at we keep that stable balance sheet for the moment.

Okay. I don't think he is happy with the answer, but I quickly jump the question to reach the guest out of store, and Alex, I think the question was, do we do it via Remstar and Mlog. Or else? And how much is the cannibalization effect. Is that correctly reflected?

That's correct.

Okay. AutoStore is set up as a separate unit. So not in the organization of Remstar and not in the organization of Mlog. It's a separate unit you will see that also in the holding reporting, they're seeing some other costs now that are related to these type of investments. We have set up a small team that actually drives the AutoStore business into the market. This team has 2 parts. One is an independent AutoStore business direct with customers as a team. Second, it has the hard to actually leverage on Kardex Remstar and also Kardex Mlog, existing customer base and present solutions like AutoStore to these customers who we never were able to offer AutoStore solutions before. Cannibalization, very limited, not in Mlog at all because Mlog has no competing product. There is no overlap, there's no nothing. So for Mlog really, for their existing customers, it's an added benefit is actually an extension of Mlogs solution portfolio, which puts Mlog into a better position compared to, say, a year ago. For Remstar, the overlap is fairly limited. It is there. We should not ignore that we do have some overlap in the solution portfolios, mostly with our vertical buffer modules, the LR 35 that you've heard of. And there, when we move up in the solution complexity with Remstar and AutoStore moves down. We start seeing some form of overlap, but to a very minor extent. Typical AutoStore projects, to give you an indication, EUR 1.5 million and above investments, total investments. Remstar typically in their systems business with vertical buffer modules, 400,000, 500,000, 700,000. So normally, the requirements from the customers that are to be fulfilled in terms of capacity and throughput do not see much overlap. With AutoStore wanting to grow, they're coming a little towards that range. So into the EUR 1 million or even less than that range and Remstar also has plans to move up. However, I don't think there is a lot of cannibalization. It's more of a distinct decision in our own company, which solution we actually position at which customer in order to have the best chances of winning the project. And there, I see the benefit rather than the challenge because if it wasn't in-house, Remstar would compete with other AutoStore integrators. And if that's the better solution, Kardex Remstar would lose the deal. Now we are in the position to evaluate the lead, evaluate the opportunity and position ourselves with the correct solution, something that we should always aim for. Question answered?

Yes.

May I add here something, Alex, and for the others. But we also hear that with AutoStore in the market, the Kardex as a group is really -- and we mentioned that in the presentation, is more recognized as a solution provider for a lot of inter logistics questions. And that's really helping to build the image of the whole group. So there is a certain extra effect. It is one plus one plus one, is more than 3 rather than one plus one plus one is less than 3.

The next question comes from the line of Michal Lichvar with Vontobel.

I just have 2 questions. One is on Mlog. I noticed they made EUR 1 million or a bit more than EUR 1 billion sales outside Europe with Asia Pacific. Was that kind of a one-off? Or can we expect more of Mlog becoming more kind of international? And was this EUR 1 million actually profitable? And the second one is, can you quantify the extra costs you mentioned for the new kids in the first half and what you expected in the second half?

These 2 questions belong to me. First one, yes, this is sort of a one-off. This is one project. We delivered most of the solution as a next works solution and some consulting in addition. And yes, profitable. You asked the question in regards to the new kids, there I mentioned in my speech that in the first half year, there is cost included of close to EUR 1 million. And for the full year, we expect to increase this cost to around EUR 3 million. Did this answer your question?

Very much.

The next question comes from the line of Sebastian Vogel with UBS.

I have a couple of questions. The first one would be on the FX impact on Remstar's top line, if you can remind me what the number is there. The second one, in the press release, you mentioned the e-commerce exposure of Remstar that seems to be getting more in focus. Can you remind me how much of Remstar's top line is exposed to e-commerce? And the last one would be on -- when you mentioned earlier on about the mix services versus new equipment, and you said like the normal average mix should be rather 70-30 compared to the one that you have at the moment. If you would assume you would had 70-30 in the first half of this year, but what sort of operating margin we would be looking at?

Yes. I take the first 2 question. FX impact is very minor always. There is -- on the top line, there is around EUR 5 million FX impact, but this is reversed in the cost more or less. So the impact of FX on the EBIT level is very minor, not really relevant. I've forgot the second question, sorry. What was it?

The second one was -- the second one was the on e-commerce exposure at Remstar.

E-commerce. The e-commerce represents around 20% of total net revenues at Kardex Remstar. This is an up compared to last year, which was around 17%. So we grew quite heavily in the e-commerce and retail business.

Maybe, you have to add here that it's not just that in this segment, e-commerce, that is retail, wholesale e-commerce, it's not really what you would mean pure e-commerce. But what we see and that I think is important to add is that whereas in the last couple of years, analysts and investors were always asking us, why isn't your e-commerce share higher? And that was in a time when all the big companies like the Amazon and Zalandos were doing their big investments in fulfillment centers, where we are not active. But what we saw in this half year or what we saw during pandemic is that the small and midsized companies with simple web shops or rep organizations that they really started to pick up and that they learned that they have to start to automate their e-commerce businesses. And this is exactly where Kardex Remstar is in place. And this is what we saw, and that is what we mentioned in the press release that from all over the regions, very strong order income was coming from the small and mid-sized companies, investing in e-commerce solutions to -- I mean -- and this is the next step that and that's really very nice to see this, and these will continue.

Understood. And if I would take out of this EUR 20 million, if I would try to strip out the retail and wholesale, is that possible? And if yes, what number would I get?

It's not possible yet because we only recently installed the CRM system in order to track these. Our e-commerce definition stretches beyond the wholesale and retail because other companies also do e-commerce solutions. Their online sales channels. We've established that now in our CRM systems, but it's very hard to track it backwards. So we should be able in a year from now to see -- to give you some better indication for that. Once we see the bookings and how they categorize.

Understood.

And then maybe your last question seems fast even if it's a question to Thomas, but we don't disclose the exact margins of the LCS and machine business. I mean, you all know that the margins on LCS are higher than on the new machines, new -- new businesses is profitable as the LCS, but we don't disclose the exact difference. So if I would give you the exact figure with this proportion, we will disclose the precise margin, and that's something we here can't.

Sorry, one follow-up question. I'm not sure if I was getting that early on. When you were talking about price increases, you were trying to get through. What sort of number you try you got there?

We mentioned that COGS in Remstar went up by 5% to 7%.

That's the price, what you would -- what you were paying for, right? I mean, what the price you charge to your customers?

I wish it would be as simple as that. The button is more complicated. We do stage price increases. We do some every year anyway. We do some different byproduct or solution category. And only some where we had not done price increases, we try to get something into the market. So it's not an x percent across everything that Kardex Remstar sells. It varies by category. Because we always try when we put new features up to also somehow reflected in the pricing scheme. And somehow, you cannot overstretch it to some extent, even though I wish I could.

The next question comes from the line of Reto Bruehwiler with Entrepreneur Partners.

On Life Cycle Services, the order intake in Remstar was up 30%. I just wonder if -- can you maybe explain the dynamics behind this? Because your revenues were largely flat over -- or not moving that much over the last semesters in that division. Now, I wonder whether this order intake is driven already by the new business in -- in the new machines, although, whether this is a higher result of a higher conversion ratio or some old clients, which -- where you could convert the Life Cycle management into your books. Can you explain that a bit?

Can you help me to understand where you have this 30% from?

No, It's 13%, 13, 1-3 not 3-0.1-3.

Yes. For that, our targeted ranges. It's -- let's say, it's actually a little more than we wanted to have, but you also saw some -- I mean, that is now a half year, half year comparison, we need to be careful. Because these first half years, they always include contract renewals as well, very often at the beginning of the year for Remstar. So that could be simple effect that effectively affect the comparison half year, half year. We expect that to go back to our normal targeted ranges, how to drive the Life Cycle Service. So in other ways, the American idea in order to sudden found new products that would substantially over increase the bookings in Life Cycle Services. It's not like this.

Okay. And would you expect that with new clients, like, for example, e-commerce clients in your order book that -- there were -- that conversion rate, so I don't know how many percentage of your clients or your installed base where you do the Life Cycle Services, but can you maybe elaborate a bit how you see that involving, whether this ratio is going up or stable? Or how do you -- what we expect in terms of the dynamics versus the new business?

I think without disclosing numbers, we are okay with the, I call it, contract coverage of new clients or new installations rather to say because it's not always new clients or new customers, It's a new installation that we account for. So something new is installed, and we measure how many of them are getting a contract coverage right away, where we effectively get a Life Cycle Service contract. That's one of the incentives, a joint incentive for our new business people together with the Life Cycle people in the field. So they are incentivized once they also, together with the new machines, the new installations, sell, Life Cycle service contracts. We're pretty happy with this number that has increased over the years, and we're running internal programs to actually continue with these numbers. And of course, it would be ideal if we could also increase them. But you'll also have a dead end to the overall installed base, where machines are, I call the dying or the aging machines and there we lose contract coverage. So it's really a challenge in itself with every new machine to add to the population, but you lose some at the end and I think with that number that we're currently having, we don't see a decline. We see a gradual inline per year, but very marginal, in terms of how many we can cover because it's so different by region as well. There is more people in Europe who tend to actually go for these coverages, other people in other regions like Asia, they hardly ever go for it. And there the acceptance of Life Cycle Service contracts is not yet fully there. And that's the development of the market for the years to come.

Can I ask a third question on the e-commerce side of things. I'm not an industry expert, but it seems like the large players, the large e-commerce players, they also more and more try to build decentralized distribution center in order to have same-day delivery. Can you play a role there?

Possibly we could. If we wanted to. But from a strategy point of view, that's typically the field where the biggest price war is happening. And we need to differentiate again between very centralized distribution centers than the decentralized and then comes to pick up points, where effectively, the customer goes and picks the stuff up themselves. Even these decentralized things, take a metro area like Atlanta, they, I think, have 6 or 7 of these decentralized pickups or distribution centers, centered around Atlanta area, which then deliver into the Urban areas. Each of them is easily in the range of EUR 50 million, EUR 80 million -- each of them. That's not Kardex's playing field from a strategic point of view. Simply for the reasons that this would not meet our risk profile that we would accept as a company. We decided not to enter this market and not fight with the Swiss locks, the thematics and others of this world. Profitability is not so appealing in that area. Difference for the component people, like our friends in interroll, that's a different discussion because they are not having the risk as such. But if you go into the integrated systems element, then you carry a lot of risk, and that typically is not the playing field that we as Kardex decided to target.

Okay. Ladies and Gentlemen is there some last -- or second last question as we are running out of time, may you ask the operator to ask us for a last round?

We have a question coming from the line of Mr. Remo Rosenau with Helvetische Bank.

Yes. I've got a totally different question. Mr. Fankhanel.

Capacity…

I, No, no. That's for a change, not that one.

Sorry.

No, I looked at -- I had a look at the annual report of 2020, and I saw that you have 933 shares of Kardex, which is not a lot, actually.

Are you talking to me?

Yes, personally to you. And I think you own more in the past that you sold some or did you never own more than these? And why? I mean, yes.

Well, I can answer that. That's a question for the round. Yes, I still own them. Yes, I did own more in the past. Yes, I didn't need money for private purposes. And I had to sell some time as a CEO, you're always bound if you're holding on to these shares. On the good news side, Remo, you must have read in the same report that we installed an LCI program, which is share based, which brings us back into a closer connection of the management with the company performance, if that was your question.

No. Just -- no, that's great. That's great. And I mean, by the way, I would like to congratulate you on your job there for 10 years. I mean CEO, since 2016, but before you were CEO of Remstar, which basically also was Kardex, more or less. And since then, the company has made a tremendous way of which you have a big contribution and I mean, are you still foreseeing another 5 to 10 years? Or are you getting a bit tired by now? Or how is your personal situation?

Can I opt to just thank you for the nice words and say that I very much appreciate, but I take it for the team because I have to say, without Thomas, Edwin and all of my team, we would not be where we are. It's not Jens. It's -- I may have had a contribution to it, but it's been a great team that I've been able to work with. Now I'm not talking in the past. I'm here. I'm committed. Am I tired? Maybe I was a little, but we have so many new things that we are currently targeting in terms of also the new kids that you've heard about, which is my personal element that I really much like now in my new role. That from my point of view, I don't see me walk out. I'm not sure what my Board of Directors thinks about that. That the project needs a new fresh blood, which every company needs to be fair also because every CEO has a certain lifespan and I mean, it's not for me to decide only.

Yes. Well, from a shareholders' point of view, I wouldn't see any urge to change a lot in the near term. So thank you.

Thank you.

Ladies and gentlemen, I think we are coming to an end now. I would like to thank you very much for participating. I also would like to address your attention to where we will send out an invitation soon to the next Capital Market Day. That will give you the opportunity to learn more about our new kids we are mentioning and to learn more about what is going on in the market. Now, for today, I would like to thank you, and we are happy to answer your questions individually over the next couple of days. Thank you very much.

Thank you.

Thank you, bye, bye.

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