Kardex Holding AG (KARN) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the publication of Half Year 2023 Results Conference Call and Live Webcast. I am Alice, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The presentation will be followed by Q&A session. [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, Alice. Hello, and good afternoon. I welcome you to our conference call regarding our half year results. I'm very happy to be here in the room, Mr. Thomas and Mr. Felix and for the first time, Ms. Jens, the new [ Jens ], you will hear him at the end of the presentation, we will give a short welcome. Let me start with the figures and the highlights, and I hope you have found all the information on the website presentation, press release and semiannual report. So I hope you're all fine, and then I hand over to Felix. Felix?

Good afternoon also from my side. I would like to start our presentation of the group's half year results, with the main highlights and key achievements. In a nutshell, we can report a successful start into the year. Demand for automated intralogistics solutions remained strong in all regions. Bookings were up by 6% against the previous year. Only with larger projects, we experienced that customers are starting not to cancel, but to postpone projects. Here, of course, mainly Mlog and, to a lesser degree, also AutoStore are affected. Due to our strong backlog and the improved availability of electronic components, we can report a strong growth in revenue. Revenues were up by 30%, especially supported by U.S. sales. Gross profit and gross profit margins were positively influenced by the previously mentioned volume effect, but also due to the improved efficiencies in the factories. This led to a strong EBIT. And here, I can say this is the best EBIT result of Kardex ever, and we are back in the communicated target range. During this time, we have also appointed a new CEO, who is now onboard since nearly 2 months. Now I would like to hand over to our CFO, Thomas Reist, for the detailed financials.

Thank you, Felix. Hello, everyone. As always, I would like to start with moving back to the key figures of the last 5 years. And here, as Felix said before, we can look back at a very successful first half year 2023, with three new record levels. So it's not only EBIT, it's also bookings and net revenues and EBIT, as explained before, which set new record levels. While on the volume side, so bookings and net revenues, we achieved to surpass the record levels of last year. On the EBIT level, it is not 2022, which set the last record level, but it was the year 2019. So the last half year before the COVID crisis hit this. On the other hand, looking at the EBIT margin, with 12.9%, we were not able to set a new record level. The last record was set in the year 2021 with 13%. So very close, but not fully achieved. The EBIT -- coming back to the EBIT level again, with the EUR 43.1 million EBIT result, we surpassed the best result from 2019 by 52%, so up by 52%. Looking on the free cash flow. There, we have now a positive free cash flow achieved. So it turned positive again. It's not the best free cash flow, but that's a solid one, affected by net working capital and the investments we did during the first half '23. Now looking at the details of the income statement. The bookings went up by roughly 6%. We achieved a book-to-bill ratio of neutralized 1.01%. So this is more or less the level we had before the COVID crisis. This led to a further increased order backlog of EUR 510 million. The order backlog went up by 17% and represents now a net revenues volume of around 9 months. The net revenues themselves, they went up by 30% to a very strong EUR 334.5 million, and this volume increase was mainly pushed by Kardex Remstar and the AutoStore business. On the gross profit level, especially the gross profit margin, there, we are on the very positive side with the 33.2% gross profit margin we achieved. In the first half '23, this is up by 1.5 percentage points compared to the previous year. And there, we have several effects. Also to put it in a historical background, the 33.2% are still below the pre-COVID levels. If I look at the gross profit margins we achieved between 2016 and 2019, here, on average, we have around 35%. So there you see that the 33% are very strong, but not back to the same levels we have before COVID. These are two main reasons. One is that Kardex Remstar did not yet achieve the same profitability levels they had before. And secondly, per share of Kardex Remstar, or the contribution of Kardex Remstar to the overall result of the group has decreased. Earlier, they had a share of around 80% and now the share dropped to 73%. This goes back to the increase in volume of the AutoStore business. Looking now at the OpEx. There, we see an increase of EUR 10 million, or 17.5%, compared to last year. So quite a significant increase. This is mainly based on sales and marketing costs, which went up because of the increased sales force and the variable pay. Then we also increased the cost for our IT, and R&D was also a main part of the OpEx increase. Looking at the efficiency of our OpEx, this increased heavily. So while in '22, OpEx represented 22.4% of net revenues, it went down now to 20.3%. The result in EBIT of EUR 43.1 million, represents an up of 81.1%. So very strong increase. This year, the EBIT margin of 12.9%, I commented before, and this is well in the upper range of our target level of 10% to 14% on group level. Here, side effect, looking at the currency effect in the income statement there on the bookings level, we were negatively affected by EUR 1.3 million, net revenue negatively affected by EUR 0.5 million, and on the EBIT level, very slight -- very small positive effect of EUR 100,000. So not very significant currency effect. The financial result was positively affected by our financial assets, leading to positive EUR 200,000 and the tax rate dropped by 200 basis points to a tax rate of 24.5%. This is mainly due to tax losses carryforward in the U.S., which we could use to and have a positive impact on tax rate. Balance sheet has extended, mainly based on two reasons. One is that we continue to invest mainly in property, plant and equipment in our two factories, Bellheim and Neuburg. We also increased the net working capital, mainly based on the increased volumes. This I will comment further in the cash flow statement. The equity, despite the dividend paid, the dividend of [indiscernible] by EUR 1.4 million to EUR 206 million. We achieved the equity ratio went south slightly to 54.1%, but is still very strong. Now the cash flow statement. The cash flow statement was positively affected by the very strong results for the period, which has more than doubled to EUR 32.4 million, very positively affected the cash flow. Here you see the impact of the net working capital. So the net working capital compared to last year went up by EUR 21.7 million, mainly based on the accounts receivable, because of the business volume, but also because of the accounts payable there EUR 7.7 million. There is the increase of the overfinanced POC projects. Then as mentioned before, the CapEx went up, mainly Bellheim and Neuburg, where we invested in machines. So we had the replacement investments there, and we also did building extensions in our Bellheim factory. This is all leading to the free cash flow of EUR 12.2 million. Now looking at divisions, starting with the big one, the Kardex Remstar division where we have a positive effect, positive bookings increase of 7%. Here, the main contributors are European region as well as the LCS business unit. But here, we also have to admit that the main factor of the increase comes from the price increases we have introduced last year. So this is the main contributor to the bookings increase. Order backlog went up to EUR 344 million, which represents 8 months of net revenues and a book-to-bill ratio of 1.11. Net revenues went stronger by 22.5%. This is mainly due to the supply chain bottlenecks, we -- which were not affecting so much anymore. So the availability of components has improved. It is -- this does not mean that it is fully sold, so we still have problems getting all the relevant components, but we have the process better under control. Net revenues amounted to EUR 245 million. There, all the regions contributed to this positive increase. Main contributors for our North American market and also European, mainly Switzerland and Germany. Gross profit went up by 35%. And the gross profit margin of 38.5%, very strong increase, a plus of 3.5 points compared to last year. And here, we have three main contributors. This is the volume increase. This is, as mentioned before, the price increase, and also the reduced negative effect of the U.S. factory. We have also neutralized the effects. I will comment on the next slide. The result in EBIT of EUR 41.2 million is very strong. This is an up of 73.1%. So very strong increase resulting in a very strong EBIT margin of 16.8%, which is well in the upper range of our financial target of 14% to 17%. On this slide here, I would like to highlight two neutralizing effects I mentioned before. So on one hand, looking at the net revenues mix, there, we see a decrease of the share of the Life Cycle Service business. So the Life Cycle Service business share dropped from 32% to 29%, minus 300 basis points. But on the other hand, we also see on the geographical split that the share of the American business has increased from 23% to 27%. You all know that the aftersales business comes along with slightly better margins than the new business. So this would expect a higher margin effect, while the share dropped. So this would reflect a negative effect on the margin levels, which is neutralized on the higher margin -- or higher share, sorry. The higher share of the U.S. market where we also achieved higher profitability levels. So these two effects are neutralizing themselves. Now to the Mlog division. Here on the bookings level, we could repeat the very positive bookings of last year with EUR 52.5 million, so approximately on the same level. The order backlog amounts to roughly EUR 130 million, representing net revenues of 15 months. And the net revenues themselves, they increased by roughly 6%. The gross profit margin, with 18.6% or slightly below previous year's levels. There are two effects. This was a bit stronger in terms of absolute figures and new business, as you know very well, comes along with slightly lower margins than the aftersales business. And in addition, we have bigger projects in very early stages, where we assume a positive effect in the second half of the year. So the EBIT of EUR 2.1 million, representing south of minus 25%. EBIT margin of 3.9% is slightly below the financial target of 5% to 8%, but we expect that the margin will regain momentum in the second half of the year, so in H2 2023. And in addition, we wanted to mention that the market position of the Mlog division has strengthened especially in the lightgoods business. This is because of the market approach with the AutoStore and the Rocket Solution portfolio. So here, the perception in the market is that Mlog can not only provide high-class pallet solutions, but also high-class lightgoods solutions. Here, again, main focus on the net revenues mix. So we see that there has almost no movement in Life Cycle Service, here has gained momentum slightly, and up from 27% to 28%. The more obvious change in the geographical mix is that the share of the German business has increased heavily. So from 83% to 92%. This is mainly due to the -- that the share of the rest of Europe has decreased from 16% to 8%. And here, last year, we had two big projects in Poland and Slovenia, which are now finalized. Now coming to the last business unit, the Kardex AutoStore business. And on the bookings level, we have a very strong up of 24%. But you will remember well, the EUR 14.1 million are below what we achieved in the second half of '22. This was expected and also communicated in the last call we had. So there, we had a very, very strong December order intake, and this affected the bookings in the first half of the year '23. The EUR 14.1 million represent roughly five projects. So on average, we have a project volume of around EUR 3 million. And the projects we achieved, they were assigned from customers from North America and Europe. And from the Asian market, we expect, a first project, the first booking in the second half of '23. The order backlog went up very strongly, so a plus of 60% to EUR 36 million. Net revenues also went up 4x to a volume of EUR 36 million. Gross profit was up 5x to a gross profit of EUR 6.5 million, and the gross profit amounted to 18.1% -- gross profit margin to 18.1%. This also here, due to the early stage of the project, a slight down compared to last year. You can see very well in the number of employees that we are still -- we'll continue to invest in our infrastructure, so we are strengthening our teams in Europe, North America and especially, also in the Asian market, to profit from the positive momentum of the AutoStore business. And we achieved also a positive EBIT contribution from the AutoStore business. Here also a side comment, good news to share. We learned yesterday that the patent litigation between Ocado and AutoStore has been settled yesterday. So this is also positive news that there is no turbulence to be expected from that side. Thanks a lot for your attention. With this, I would like to hand back to Felix for the outlook.

Thank you. I would like to end our presentation with an outlook for the end of this year. The megatrends in which Kardex business model is based on -- remains intact and strong. Near shoring, skilled labor shortage and optimizing of space are the main factors for our customers to continue to invest in automated intralogistics products and solutions. This despite the fact of worldwide cooling of growth expectations. The strong backlog of both Remstar, Mlog and AutoStore is a solid foundation for a successful second half of the year. But one must also say that despite the fact that the reliability of electronic components is improving, but the whole situation remains still fragile. Due to these overall positive signs, Kardex is well positioned to develop in line with the communicated financial targets for the whole year. Before now starting our Q&A session, I would like to give our new CEO, Jens Hardenacke, a chance to introduce himself. I, for my part, will now resume my duties as the Chairman of the Board exclusively and hand over these types of presentation for the future back to the management. Thank you for your support during this time. Jens, please.

Thank you, Felix. Yes, good afternoon from my side for the first time. I would like to introduce myself. My name is Jens Hardenacke. I'm 51 years old. And since June this year, I am the new CEO of the Kardex Group. Before I joined Kardex, I worked for only two companies before. I've started to work for the Gildemeister group for almost 12 years. Gildemeister manufactures sales and services, sophisticated machine tools, so products, milling machines, turning machines. And afterwards, in the year 2017, I changed the industry and started to work for the American intralogistics company, Dematic, where I worked for 4 years in China. China was a very strategic market for Dematic because the shareholder of the KION Group was Chinese. And then afterwards, the last 2 years, I worked in Europe, in the headquarter of [ Rosenstein ] in Germany. So all in all, I worked in the product business, which is very close to Remstar, and I worked in the system business, where -- what we do for AutoStore and for Mlog. When I started to look for a new challenge, for me, it was very important to work for a company who is the industry leader, who sells premium products and services and who has a lot of potential to develop and a company with a very solid and good, open down-to-earth culture. So I found this with Kardex. When Kardex was looking for a new CEO, one of the main topics was to look for somebody who has experience in the product and in the system business and who also has experience in the key markets, America and Asia. I think I bring all this to the table. And so I think it's a perfect match. And my experiences for the first 2 months show that this indication is quite right. So I'm looking forward to work with Kardex, to be part of the Kardex success story, to have a good exchange with you in the future, and I hand over to Edwin.

Yes. Thank you very much, Jens. Thank you very much, Felix. Thank you very much, Thomas. So for the ones who would like to know more about Jens, I would like to mention that we will send and save the date for our site visit day on November 7, tomorrow or on Monday. So then, there will the day for all of you to meet with Jens in person. Now first of all, I would like to thank the two presenters of our results, and I give back to the operator to start the Q&A session.

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

I want to refer in my first question to the outlook you gave. In line with the communicated financial targets, I assume you're referring to the midterm targets, but I think this is kind of a misleading message when it comes to sales growth. Can you say what you mean with this outlook?

Yes. Felix Thoni. The outlook is on the basis of EBIT. We have -- you are right. In regard to revenue, it will be above the, I think, 7% we are -- have. 7% is on a medium-term basis. I mean this is what we are now showing this year, this is exceptional, and one cannot -- and I'll put this figure into the future. I mean this has something to do with our problems we had with electronic components last year.

And you're referring to the EBIT margin at group level, mainly being the -- what you confirm for the full year?

We actually confirmed it also on the divisional levels.

Yes. Can you help me with the speed of the backlog execution that you expect? Because it can be anything between the same sales level as you had in first half? Or it could even be that you execute almost the entire backlog of EUR 510 million in the second half. So what do you expect with regard to timing?

This is Thomas. We had a very positive momentum now in the first half year, and we expect to have the same pace. So this means you cannot expect that in the second half of the year, the full EUR 510 million are being executed. So this will also lead into 2024.

So you would say it's rather at the lower end of the EUR 334 million to the EUR 510 million range, but perhaps slightly above the first half? That's still -- there is no reason it should be below.

Yes, very well assumption.

Okay. And my last question for the time being is, can you remind me of the price effect you had for the entire last year? And how much was the price effect as your guess in the first half of this year?

If I can answer this as well. So we had last year two price increases, maybe price by 10%, then in [indiscernible] and with around 4%, depending a bit from the products. Talking about the Kardex Remstar. And so this leads to a price effect of around 8% in the figures we have presented.

The next question comes from the line of Stefanie Scholtysik with Mirabaud Securities.

Congratulations to the good EBIT result. And Jens, I wish you a nice start in your new role. Maybe coming to that price effect and volume effect. So volumes in -- auto volumes at Remstar don't look that brilliant anymore taking out the price effect. Do you think that volume, almost negative momentum, would continue into the second half? And how much pricing effect would you still have in the second half? Is it still 8%? Or I would assume it's rather going down? So that's my first question.

Stefanie, this is Thomas. The assumption is absolutely right. So in the second half of the year, you cannot assume that there is an additional price effect. You remember that we always talk about this lack of when we increase prices until they get effective. So this is a lack -- a gap of around 6 months, and this clearly shows that there should not be a price effect. In regards to the question...

In regards to volume?

To the volume, what can we expect in the bookings. It is difficult to say. What we can confirm is that our sales funnels are full. So we have a very healthy and strong demand. This demand continues in all our three business units. So there is no sign currently that there is any direction downwards. So any recession, which would affect our business model, there are no such signs. Well, at Kardex Mlog, as we explained in our letter to the shareholder, we have a certain effect that decision can take a bit longer for larger projects. But this is the only sign we have currently. Again, the demand is strong. Our sales funnel is strong. And so we still assume that we can base our future on a strong demand and continued growth.

Then maybe a second one, also on Remstar. You're saying that you have two effects that are leveling out each other. One is from servicing, the other one that your operation in the U.S. has improved. Maybe can you quantify a little bit how much the negative effect was from you -- how much was the negative effect coming from the U.S. operation? And maybe also share with us how many machines are you producing currently per week? So are you on the output you are -- you would like to be? Or do you expect further improvements in your U.S. operations?

I see that I was not clear in my explanation. So the neutralizing effect there, I explained two things. One is the LCS business share has gone down. So as a consequence, normally, then you have to -- the effect is that the gross profit margin profitability goes also down for the division. But we had an increase of the North American market. So talking about the sales business. So selling machines to the market. This has increased. And the North American market has a higher profitability than other regions. So this is why I said this has a neutralizing effect. There's nothing in common, but there are two different effects neutralizing themselves. New question referred to the U.S. factory and...

I thought this was like this effect, so they would neutralize each other.

Yes, exactly. I learned it now that it was not clear in my explanation. Talking about the U.S. factory there, yes, we could improve the output. It is not to 100% at the level we wanted to have it, but we are happy with the current setup, with the current level, and we continue to improve the setup of the U.S. factory. But currently, we are in a situation where it becomes an operational task to improve continuously the output of the factory. So it's not a major freight anymore.

And where do you stand currently in terms of output, like in terms of machines per week?

Well, we were able to achieve 20 machines per week. So we have the possibility to go up to 20 machines per week. But currently, the average level is a bit lower.

The next question comes from the line of Benjamin [indiscernible].

I would like to directly connect to the previous point regarding North America. You mentioned in the press release you see some demand related to near shoring. And I was wondering if you could please add a bit of color to that? What is driving the demand in the U.S.? How much is associated to support programs by the U.S. government? And how sustainable do you think is this demand in the U.S.? How long will it last?

Ben, this is Edwin speaking. I mean we -- a couple of weeks ago, we read in the [indiscernible], what is the reason, a very good article, what is the effect of the Inflation Reduction Act, and this is actually a very important part. But it's very difficult to say how long this will last, but we see it not only in the U.S, also in Europe, near shoring has really become an issue and is really taking place now. I mean, 2 years ago, we were -- I mean, during COVID, we were saying, "We expect this to come." And then nothing happened. But now, this is really happening. And in U.S., in addition -- there is an additional driver through the Inflation Reduction Act.

Benjamin, I think here to your question in regards to the U.S. government. There, we especially in the first half of the year, we did not have any major order from the U.S. government. We have the usual business, but not really inflated demand from the U.S. government.

Okay. Maybe just a quick follow-up. How important do you expect the North American market, the U.S. market, to be in the future for Kardex? I mean we've seen some growing shares. Now in the first half, do you expect this trend to continue? Will North America be more important in the future for you?

Felix speaking. Yes, the American market is important for us. As you have seen, we are now kind of close to 30%. If our revenues would be evenly distributed all over the world, our aim is to have 40% U.S., 40% Europe and 20% Asia. That would be our long-term aim for the revenue distribution.

And one can also add me to this last point. There is the -- in U.S., there is still a heavy underpenetration of intralogistics if you compare it to Europe. Europe is still far ahead in terms of penetration of these technologies. In the U.S., far behind. That's why it's not -- it's also the market itself that's not developing and that's helping to increase our U.S. market share.

And of course the situation. I mean if U.S. and China go on like they're doing now, I'm sure this is a trend which will not just end in the near future. They want to become more less dependent on the production of China for sure.

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

I have three questions. I would ask them one by one. The first one would be on Remstar and the margins there. How sustainable you see the current level going forward?

Well, we see two trends. One is a positive trend because we still are not 100% efficient in our factories. We still have inflated transportation cost because of these inefficiencies. So this is a positive potential. On the other hand, we also see a certain headwind in regards to the market. So -- I mean the competition is getting stronger. Price pressure is there in the market and depending on what the demand is doing. So this might cause an additional headwind.

Got it. The second question would be related to the AutoStore business...

Don't forget the staff cost in Germany. The tariffs are only going up in the -- so in May, June. So these are factors in the second half year, that we have quite substantial staff cost increases in Germany.

Yes, makes total sense. And the second one is on the comment that you made on the AutoStore business and the orders there. Would it be then a better idea to sort of average second half of last year of order intake and the first half of this year to sort of have a better jumping off point for the second half of this year? If that would be a fair thinking there to sort of balance out the strong December?

Yes. From a technical point of view, yes, this will be very verified. To give you a little bit of flavor there, I mean, the sales fund as well as the backlog is very, very full. So we have a lot of opportunities. The market is very bullish currently with the AutoStore business. So it could go in both directions, so based on a positive growth rate or on a very strong growth rate.

One additional thing, Sebastian, this is Jens. There was also a strong effect last year with the price increase of the AutoStore in December. So we have to be a little bit cautious to compare it. We -- most likely there won't be this price increase this year. So I would be cautious to assume the same December order intake than last year.

Yes. Got it. The third question, last question would be on CapEx plans and net working capital for the second half of this year. Can you add some -- would expense will be, of course, into the second half and for the full year? What are your plans there? And how do you see net working capital developing in the second half?

Yes, sure. So for the full year, we expect CapEx around EUR 18 million, could go up to EUR 20 million. So a stronger CapEx activities in the second half of the year. Looking forward, depending on a bit the possibilities, and we have to spend the money, to invest the money, but the plan is that we have higher CapEx in 2024.

Got it. And net working capital?

Very difficult. Very difficult question because net working capital is also affected on increased inventories. This was my intention, that we increased our inventory levels, especially the -- for the critical components to have higher stock levels. Please expect that we reduced very cautiously the inventory levels again. But does this have a positive impact on the net working capital? Not really sure. Because whenever the volume increases, then you have the counter effect. So I would rather calculate with a neutralized net working capital situation rather than go south or north.

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

Alexander speaking from Stifel's rights. A question for the new CEO. What are your initial strategic directions? And is there an increased focus on Asia since you are very experienced in that area?

Thanks for your question, Alexander, but I have to disappoint you. I'm with Kardex only for 2 months now. So if I would have a strategy now, I would either be a genius or a fool. So I think I'm neither the first nor the second one. Give me some time to discuss this also with the group management. I have some ideas and also with the Board, but I will discuss these ideas first and get also the real impressions from the regions, what we can do here. And then, at a certain point of time, I come back to you.

The next question comes from Remo Rosenau with Helvetische Bank.

I would like to come back to the AutoStore business, which we've seen a very impressive development. Basically, is there any kind of seasonality in this business normally? Or is it just hopefully growing steadily depending on demand? That would be my first question.

Remo, here is Thomas. There is no seasonality.

Okay. And what is actually possible in that business? I mean you went from EUR 7 million to EUR 36 million compared to last year. How much sales could you deal with the current setup?

Well, we did not change our position. We -- currently, we do not disclose any targets in regards to the AutoStore business. We will have our Capital Markets Day in November. So there, we'll shed a bit more light on this business. But currently, we do not provide any guidance in this regard. What I can do is I can refer to what -- at least a few or are expecting few steps that they say that it could go up to around 100 million.

Remo, to add. This is also not a capacity here. It's not a capacity issue because we are very asset-light, and it's more -- I mean the team can further grow and further get business. And then it's a question you would put to AutoStore how much capacity they can handle.

Yes, exactly. And personally, I like [indiscernible].

And personally, yes, because of our team force.

Which seems to be hard to get well these days, right?

Well, we were -- to be honest, we were lucky. So we have a very strong team at hand. We were able to fill the key positions we wanted to with very strong colleagues. We are very proud of our team, of our AutoStore team. Very experienced people, a very good reputation in the market. So far, we did not have difficulties to find the talent, probably also because the positive momentum we at Kardex have.

My last question here. What -- I mean the gross profit of EUR 6.5 million, and could you give any indication of what kind of an EBIT contribution it has?

The gross profit was EUR 6.5 million, but that is [indiscernible].

Yes, right.

So I would say that EBIT in the mi, it's in the mid-single digits now.

Okay. But it seems likely that there is an operating leverage when this business continues to grow, right, in terms of the margins?

I mean now there's a lot of build-up costs. I mean, we went up from 15 to 44 people in a year, and not everybody is still fully effective and contributing. So it's -- they're still in the building up phase. As we have mentioned in other situation, I mean, we expect margins that are somewhere between Mlog's and Remstar's margin once the business is fully built.

[Operator Instructions] We have a question coming from the line of Lasse Stueben with Berenberg.

Just one additional, some general follow-up. Just looking at sort of European PMIs and the overall, I guess, mood in the market, it seems like companies are getting more negative, but your demand funnel seems to be very full. So I'm just wondering, can you shed some light on the conversations that you're having with your customers? And I know they're still willing to invest, but I'm just curious to hear how your customers are thinking about the current environment? And what that means going forward maybe into 2024 for Kardex?

Lasse, Edwin speaking. I mean this is -- I mean we are saying the market is cooling off. We see that all over, but our customers still have the problem that they have to -- I mean, they are facing the same problems we have ourselves. We are lacking some 10% of staff in Bellheim, and that's the problem our customers have as well. And the only solutions investing in automation, so this goes on. Then reshoring goes on. And that's why -- and we are actually, in a way, also helping our customers to overcome difficult market situations by further automate and digitalize their businesses. So we are not -- it's not the first we would start savings if it comes to pressure from the market. That's what we see so far, in particular in the Remstar business.

Okay. So I guess it's more just sort of the bigger projects, as you mentioned, that are being impacted, right? It's the big automated warehouses rather than some of the smaller customers, which you tend to service with Remstar?

Yes. Yes, that is correct. I mean for '24, we really see it more in the large projects, where especially Mlog is currently active. But might also be Autostore, to a lesser extent. What's important is that, especially with the main business, these are not major investments, which the company has to do. I mean usually investments which are not going up to the top management or Board level, which is, at the moment, very cautious. So especially at Remstar, I think we are still in a good position also for '24 to keep our sales going.

The next question is a follow-up from Mr. Vogel, UBS.

The first one is on exit rates. So in that sense, if I look at orders in June, at Mlog and Remstar and compare them to the average that you have been reported. Was there any big gap there? Or was there sort of intra half year development that it worth highlighting? Or was it rather consistent?

We can't understand you properly, Sebastian. You are asking for a special effect in June or...

No, no, it's more like advanced Mlog if the June order growth rate, if I look at on a monthly basis, was that particularly different to the average that you have reported for the first half year. So in that sense, was it particularly strong? Was it particularly weak? Were there any development that was highlighting over the course of H1 that you saw some sort of trajectory going either on a weakening side or on a strengthening side on the other side of things. Was anything worth highlighting?

And we have some volatile months, with the volatile month we're more in the middle of the last reporting season then towards the end.

And one can also say it's a sort of a general picture we have seen since many years. June is always a very good month for us, but it was now not exceptionally good. It has always been strong in the past as is December. So there was no specific event for the June month's results, but it has been a good month for us.

That's good. And then just a quick second follow-up, if I may. On the Remstar side of things, was there any sector, any vertical you would point at that was particularly strong in terms of demand or that was particularly weak in terms of demand in the first half?

In Kardex Remstar, there, we had a very positive momentum in the mechanical engineering and electronics segment. So this was particularly strong in the first half '23. There was positive growth, but not as strong as, for instance, in '21 in the retail and warehousing and e-commerce business.

Anything on the weak side?

Not particularly. So evenly distributed good growth momentum.

I think that the e-commerce sector, which was very strong in the past, is not as bullish anymore as it was 1 or 2 years ago.

We have another follow-up question coming from the line of Mr. Bamert, Zurcher Kantonalbank.

I'm also switching for more insights on the industry. With Mlog, you have a good grip on the bigger projects. And I understand that the big system integrators, as there are not that many projects in the size they used to do in the past are now more active in the area, that's the bread and butter part of business of Mlog. Do you experience that pressure there? And is that also an effect that you experience when it comes to the Remstar business? As you mentioned, some increase in price competition? Or is that coming from the smaller competitors that are strong in that area?

Looking at the Mlog business, there, we experienced a bit stronger competition, to be honest, but not from new integrators. So we don't really see that the large integrators are coming down to smaller projects. This is currently not happening. Looking at Kardex Remstar, there is always the same picture we have. And the competition landscape has not changed. So there is another one of the North Italian competitor who is on the market, very strong position. No change from that side.

Mainly to add, Walter, that we're mentioning some more price pressure. It's really -- I mean since the inflation rate is coming down, you will have -- automatically customers trying to put a little bit more pressure on the prices. But here, we -- as we said, we are also still facing increase in costing, in particular, for staff and for electronic components. Whereas -- I mean, not all inflation has gone. The staff inflation is still there. And this is also what our customers would then understand, that there is a bit more price pressure than we saw last year. And we bring -- not everybody was -- when it was really a sales market rather than the biased one.

Is it increasing that it goes with automated picking, what you sell at Remstar? And is that beneficial to your profitability?

It's difficult to say. I also have to come back to that to answer that. Can we -- we don't have proper answer ready.

But I think one can say that on the medium and the long term, it's actually a positive effect. On the short-term, yes, you're right. Price pressure, this could have a negative effect in the short term. But in the long term, it's truly a positive trend for us. If [indiscernible] taken with us, we'll come back to you.

The next question is another follow-up from Ms. Scholtysik with Mirabaud.

Yes. I have a question on reporting. I mean now you're speaking about AutoStore having your own slide in your presentation. But looking at the income statement or segment reporting, you're not handling it as a separate segment. Is that right? And then maybe another one, your auto venture, Rocket Solution, would that also go into like others in the segment reporting? And how is this business doing, by the way.

Stefanie, thanks for the question. Very valid question. Currently, we report the AutoStore business in our division called holding division, holding and others. We initially started that kind of reporting because it is a very small business unit. It is still growing, and we will reflect what is the best approach to report the Autostore business in the future. And we will come up with a solution at our Capital Markets Day. Second question, Rocket Solution. Rocket Solution, this is a minority stake. So we own their 26.47% of this company, meaning that we do not consolidate the Rocket business. It is a financial investment in terms of financial reporting. Therefore from the Rocket business, what we show is the volume. We have as integrators. So Kardex Mlog is in two projects integrator of Rocket solution projects. And there, you see -- well, it's not openly disclosed, but we see in the volumes or net revenues, volume of the Rocket business. So Rocket business is having an effect on the volume side of Kardex Mlog as integrator.

And then maybe two very boring maintenance question. I hope I'm not the last person to ask a question. What was the FX impact, if there was any at all? And I mean the low tax rate due to tax loss carryforward, that can't be repeated in the second half? Or what should we assume in terms of tax rates for the full year?

Yes. Currency FX, this is very minor. I tried to mention it during my speech. It is -- on bookings level, it's minus EUR 1.3 million. Net revenues level, EUR 0.5 million. And EBIT, it is a very minor positive effect of EUR 100,000. So very minor effect from the currency side. In regards to the tax rate, yes, you're absolutely right. This cannot repeat in the second half of the year. This was a positive effect on tax losses carryforward in the U.S.

So we would assume the, what was it, 26% tax rate for the full year?

Yes, 26% is probably a good guess.

We're coming to the end of the call. Are there any further questions, operator?

There are no more questions at this time. Back to you for closing remarks.

Okay. Then thank you very much, everybody, for joining us and for your interest in Kardex. We hope to see and hear you soon later in Arbonne on the 7th of November. Or whenever you have questions, contact me or Alex. We are happy to go further in details. Thank you very much, and have a good day. Bye-bye.

Goodbye.

Bye-bye.

Bye.

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