Koenig & Bauer AG (SKB) Earnings Call Transcript & Summary

Good afternoon to everybody. Welcome to our H1 conference for Koenig & Bauer. In a summary, it was not a boring half year. I assume the same applies to your business, but it certainly does for our business. After we thought we are through many of the things that we have been dealing with last year, we have put new issues on the table. But non-borrowing is one side. The other side is we are very glad and confident about the future because our order intake is excellent. If I ask office, please to move to Page 2 because we cannot remote control the presentation at this time. So I'm letting office know, I hope that works. So turn to Page 2, please. We see the first half year at a glance. First of all, as you point out here, we are well positioned in many respects. We are in our pipeline as full as we have ever been. We have had a strong order intake, not only in Q1, which we informed you about, but also in Q2. And I -- well, to put it this way, it's a solid situation. And we are where we are, and we hadn't expected the further increase of order intake in the way it worked. The business performance on the other side is still heavily impacted by all the factors which we have had and which occasionally become even more dramatic, which is still the pandemic. The pandemic, both as in what the Chinese do to shut off their economy, but also as in the amount of sickness due to quarantine, which we have in our production facilities, supply bottlenecks, I don't think I have to talk about that at all. I think you hear that every time you have a conference. We are affected as everybody else is affected. And of course, we have material and energy cost increases which are, let's say, on an increasing path. In the first half of the year, our order backlog and our order intake were very high. We have achieved a very small profit improvement as compared to the first half of last year. If you leave away the special effect which we had this year, which I'll talk about a little later. Our main issue today is we have inefficient production, and therefore, the cost for this inefficient production increase. Our order intake would have -- or our order situation would have been so good that we could have produced substantially better results if we had a good just in time, just in sequence delivery even taking inflation into account, but the non just in time, just in sequence delivery of parts is really a very hard thing to digest. And you can imagine if you have complicated machine tools, if a part is missing halfway down the assembly, then you have to stop with that machine until you have that part, you cannot continue elsewhere. So it is production inefficiencies, which really bite us. Otherwise, if we look at our backlog and also at the price at which we have sold, we would have expected something way more positive. About 22% was the order intake increase in Sheetfed compared this year to the previous year and 46% in Digital & Webfed. In Digital % Webfed is a comparison, which is a bit, let's say, of balance because this is a comparison between the business model, which is just a takeoff. It has a lot to do with our corrugated installation and also with the RotaJET, which are increasing. So this is not an ongoing business. It is that the new products are now well established in the market, and we have an increase in sales. The segments reacted differently to the pandemic situations and energy cost increases, those which are heavily dependent on, let's say, melted steel, heavy metal, have a different direction to those which are more relying on a higher part of their assembly costs or a higher part in electronic equipment. But all in all, they are all affected. The P24 efficiency program is on track. The achievement in the first half year was EUR 22 million. That's just about what we have internally forecasted. It had a positive effect. But as we said, it was -- on the other hand, it was overturned by price increases and production inefficiency, which we had from the outside. Fundamentally, the end markets are what we're happy about. It's all about food, beverages, consumer goods, it's packaging. They are intact. And I think the reason that they're intact is also the reason why our customers keep ordering. So we are delivering into a situation which is of end markets, which is not as heavily affected as other end markets may be in these circumstances. Our forecast for '22 will be detailed by my colleague, Stephen Kimmich but it's about the same which we had in the last quarter. We still wrestle with all of these uncertainties, but we are still confident that we will be better in revenue and in operating and in margin than we have been last year. Office, please turn to Page 3. You see here in a diagram, what I've just talked about, order backlog and order intake. If you compare Q2 '21 to Q2 '22, you see on the line, which is order intake -- well, it's hard to see, but it's a slight increase of 4% and order backlog is obviously a high increase. We have an order backlog of more than EUR 1 billion. I think it's the first time in our company that we had an order backlog of EUR 1 billion, and that is half good news, half semi good news. The half which is good news is the order keeps piling up because we have a good order intake. The other half, which is nongood news is the orders do not keep flowing out as quickly as they could. So therefore, these 2 effects accumulated to EUR 1 billion order backlog. The revenue in the first -- in Q2 '22 as compared to Q2 '21 is slightly better than 1.5%. The operating EBIT in Q2 '21 was minus EUR 6 million. This year is minus EUR 5 million around about. So it's just about the same as in last year due to the fact that we had -- mostly due to the fact that we had these production inefficiencies. All in all, I think we're in a good situation in our part of the market, the VDMA figures, which are always given in this time of the year for the month, January to May, show that the whole industry sector has an order intake increase of 8.7%, whereas Koenig & Bauer had 12.6%. And the revenue change, Koenig & Bauer is just about 0 and the whole business had a revenue decrease of 12% as compared to the last year. Now office, please to turn to Page 4. Before I hand over to Stephen Kimmich, I said in -- already in the last meeting or at least something between the lines that we are also looking actively at M&A as an active tool to increase our fields of businesses know-how and turnover. We have done that in the past 30 years. All of our predecessors in the first tender and the supervisory board have gone through many of those steps. So it is in the DNA of Koenig & Bauer to grow and expand those turnover, but also know-how and also markets and fields of business through active M&A. And I decided as the CEO of the group and a full agreement with all of my colleagues that in the future, there should be one person who is heading that path, and that is Stephen Kimmich. So he will be not only responsible for the, let's say, the delivery if we have an M&A target, but also for an active process of in which areas we go and how we identify targets and where we go from here. So having said that, and the first step of that new process has been achieved, Stephen Kimmich his colleagues, and I hand over to him, and he can explain to you a little bit about our corrugated M&A situation. Please, Mr. Kimmich.

Very good. Thank you very much, and also good afternoon from me. And it's a pleasure to present the successful transaction to acquire 49% in the corrugated board. But before I talk about the details of the transaction. I think the most important message is this is the result of an active process so that we look at our strategy that is hopefully well known to all of you, where do we want to grow the business and which fields do we want to invest capital in through M&A. And very much corrugated board has been one of our strategic growth sectors that we started several years ago. And last year organically, with the CorruCUT and CorruFLEX machines had a great first step and market introduction. Corrugated segment is a very attractive segment. It's a growing segment. It's -- corrugated board is not just the Amazon box on your doorstep. It's everything from high-end product packaging, to display trays, to supermarkets of course, also shipping packaging, et cetera. And the market itself is predicted from nearly every study you can look at shows the next 10 years, significant growth in the corrugated board market worldwide. And because we were always active -- are already active in corrugated with a small product portfolio, we looked at possibilities to expand our exposure to the corrugated market through an M&A transaction. If you look on Page 5, we found a strategic partner for the corrugated board market in Celmacch Group S.r.l.. Celmacch Group is a 40-year-old equipment maker focused entirely on the corrugated market located in Desenzano, Italy on Lake Garda, family-owned and has had a incredibly successful last few years. It's a smaller company when you compare it to Koenig & Bauer with EUR 20 million of turnover in 2021 and 50 employees. But what they have is fantastic growth potential. They in 2019, introduced a new equipment generation. And since they introduced it, have been able to gain massively in market share, not just in Italy but throughout with international companies such as Smurfit Kappa or Saica or DS Smith. So they have a great starting point with a great product but are limited by their own capacity and limited by their global footprint in order to leverage their fine products and find organization into the global corrugated market. So Celmacch was looking for a partner for helping them in both capacity expansion and in developing further markets. And together, Koenig & Bauer and Celmacch will now have a full product portfolio for high board printing and finishing not just with our HP products, as you can see on Page 6 that we supply for preprint and corrugated. We also have digital printers for corrugated board together with Koenig & Bauer DURST, our CorruJET and SPC. And now between our own CorruCUT, CorruFLEX machines and the Chroma family from Celmacch, we will cover the entire range from the bottom right of that packaging slide that I showed you a few seconds ago for simple Amazon boxes all the way up to luxury goods in corrugated. So we have a full product portfolio together with Celmacch that we will brand and market together. And that, combined with our Iberica subsidiary and our Duran subsidiary for post-press with new products and pushing corrugated post-press Koenig & Bauer-Celmacch as it will be called when the transaction is closed, will cover a significant part of the market. And that on Page 7, I think, summarizes the charm and the attractiveness of this transaction is that the overlap is perfect. Celmacch brings this fantastic product portfolio and a great reputation at leading international customers and Koenig & Bauer brings the worldwide sales and service organization and the ability to help Celmacch grow. It will immediately start as Koenig & Bauer-Celmacch S.r.l.. The product range will be commonized worldwide under the Chroma name and address, as mentioned, the entire high board market. Celmacch with its strong customer base will take the lead in managing the coordinated sales activities, building on its already established sales structure, together with our global sales structure, we intend to look at using Koenig & Bauer Würzburg for potential capacity expansion and Koenig & Bauer will support in worldwide service for all the products. Overall, we are convinced this is a fantastic strategic step for us and immediately gives us a broader footprint. As you can read in our fully detailed report and in the press release, this first initial stake is in for 49% of the shares with additional call options in the future for Koenig & Bauer to gain the majority, but we're also very happy that Celmacch and the family remains in the lead in the coming years to run the business and use their knowledge for the market to help growth. So that being said, I hope you understand the strategic rationale behind this acquisition in one of the strategic fields we're looking at. And I then hand back over to Andreas Plebke.

Yes. Office, please turn to Page 8. Natural gas, very shortly after Putin attacked Ukraine, we sat together and said, what could that mean for us, not only in terms of cost but in terms of availability. I think generally, if there is any red line in our type of industry, it is not so much the cost. It is the availability of something of material, which is in our world, which is -- which we will call the new goal, the new goal is availability. Cost is a difficult thing. We have to push that onwards to the customers as much as we can, but availability is it. So we said we need a plan B for this Putin situation. We looked at our whole energy supply. One of the solid things about the Koenig & Bauer company, we started out as a German company, if we look at production. These days, we are a European company. But we are in terms of production facilities, we are a purely European company. All of our 10 factories are in Europe, which for many geostrategic reasons, in these days makes a hell of a lot of sense. So we looked them through how much is the -- how much production gas do we need and how much heating gas do we need. You have to differentiate that. And how is the gas supply in each individual country and each individual factory. And we came up as a -- with a general Plan B, which we have published some days ago in the press release, and we are now fairly confident that as much as we can be as a company, we're highly independent from natural gas supply interruptions. And we are also highly independent from electricity shortages. Let me explain you a little bit about electricity shortages. That is something which we already thought about in March. I think last week, the German government said, oh, maybe the company should think about that electricity shortage might apply because a large part of the natural gas is used in electricity producing gas plants. And if they are not supplied, then there might be disruptions in the net. So we look at both electricity and production gas and heating gas. And we started a long list of things. In some areas, we are independent anyhow because it's not connected to Putin gas, in some of our newer facilities like Kammann, we have the [Foreign Language] I don't the English. We have the...

Geothermal.

Geothermal heating. So we're independent of that. So we have -- in many factories, we have a situation which is not under pressure, but in others we had. So in areas where we still had old possible oil heaters, we reactivated them, which was the quickest solution. Then we are purchasing or have purchased LPG tanks and connect them. LPG, for those of you who are not familiar with these energy issues, pipeline gas from Putin is natural gas, which comes from -- well, from underground. And LPG is a product which comes from oil refineries. So the origin of LPG is the availability of oil and having oil refineries, which we do have in our country and then also in other European countries, and the oil supply is less critical than the pipeline gas supply. So switching to LPG means to switch from one gas to another gas, which is easy for any gas heating and also for production gas and LPG is higher available. Electricity, we have purchased or leased depending on what was possible. NEAs, that means emergency electricity power plants. Call that 40-foot container, which includes 2 or 3 MTU diesels with 1,000 horsepowers each, and you run them both diesel fuel and the output is electricity, which is sufficient to run our production equipment, and we are working on that. There is a chance that it might even help in our foundry. So having done all that, we are fairly independent from that risk. On the other hand, I must say we live in a world of suppliers, and we speak with our suppliers and tell them what have you done and what you are doing. But we are not -- we don't know exactly where they all stand. But as much as we could do that, we have done that. We get an enormous amount of reactions of other companies after our press release and asking why do we do it? How did we do it? And how long did it take? And our answer is we started in March. That's why we could communicate that now, so this is a bit of a plan B situation. If we don't need it, we have wasted a bit of money. But if we need it, we have a good backup. And the biggest problem would be if production and assembly stops for a day or 2 or 3, which would by far exceed the cost of such a backup plan. If you turn to Page 9, please, office, talking about a little bit about ESG. There is a nice story about Koenig & Bauer. You see that in the green box on the photo that is Fanny Koenig. Fanny Koenig is the -- or was the wife of our founder, Mr. Koenig. And Mr. Koenig died at a fairly short period of time after he started the company and his widow Fanny Koenig took over. And the sons, which later took over the family was still very small. They were 5 or 6 years old. So Fanny Koenig effectively ran Koenig & Bauer for about 20 or 30 years in the 1800s. Having -- so she was the first real manager of heavy metal manufacturing and production plants for more than 2 decades. And therefore, we use her as a role model for young children, for women, for girls and also there are many things around her, we have a Fanny Koenig award and so forth. What you see there in the picture is a school in Würzburg has now been renamed Fanny Koenig school, and you see my predecessor, Mr. Bolza-Schünemann and his son, who gave over a picture of Fanny Koenig. And also another element of our ESG, just to highlight that is what we do for kids. We have a holiday care program in Koenig & Bauer, that means families which have children, we offer for them in the summer holidays, 1, 2, 3 days or even 2 or 3 weeks of vacation where we have professional people who do that so they can kind of hand over their kids into a trusted group in those days when they still work and the kids have 6 weeks of summer vacation. That is a very well-accepted project, especially for women who have a job. Also, our U.S. subsidiary supports the ticket initiative, which is a U.S. sustainability initiative. This is just giving you a few examples of what we are actually doing. We will keep doing that in the next quarters. There will always be little bits and nuggets in ESG on what we're doing besides producing machines. Office, please turn to Page 10. What we have also explained in the quarterly report is that the contracts for Mr. Müller and Mr. Sammeck were extended for a, let's say, overseeable period of time, the contract of Mr. Müller was extended by, I think, a little more than 1.5 years and the contract of Mr. Sammeck was extended by about 1 year. The reason for that is that Mr. Müller, he runs the Digital & Web part of our group segment and the Digital & Web segment includes the corrugated strategy, which Stephen Kimmich talked about. So we wanted to have him onboard for a sufficient period of time until the integration with Celmacch and the further sale of the -- of our corrugated machines and the entry into the market is well underway. For Ralf Sammeck, we wanted to have him just about 1 year longer onboard because Koenig & Bauer is fairly prominent in drupa, as you may -- as I think we told you, I am the new drupa President following Claus Bolza-Schünemann. So this is a show which -- a trade show, which we have a large impact on and there's usually a lot of activities following that show if we show new products and new technologies. And Mr. Sammeck is both the leader of the largest segment, which is Sheetfed also the largest segment, which we have drupa, but he's also the CDO, Chief Digital Officer, and many of the things which we will show at drupa will have a digital background. So we wanted to have him also a little while longer onboard to have this well in a good shape. This is all in line with our policy that the retirement age for us is 65. If office, if you turn to Page 11. Now if we go into more details of the figures, I turn to Stephen Kimmich.

So thank you very much again, and I will spend the next few minutes now walking you through the figures themselves. As already mentioned in the introduction by Dr. Plebke. Order intake is simply fantastic. It's up again by 4% year-on-year in Q2 from an already extremely high level in Q2 of last year. So again, a quarter with EUR 343 million of order intake at a fantastic level for our business. Year-on-year for the first half, it's 12.6% up from also a high -- we had a great Q1, Q2 last year as well, but still we're up 12.6%. That order intake has not, however, turned into higher revenue. As already mentioned, revenue is roughly flat year-on-year and also roughly flat quarter-on-quarter at EUR 492 million in the first half. So you can see already in the figures, the order -- the great order level is not turning into higher sales because of all the difficult and challenging production issues in our business environment. So those 2 things combined, extremely high order intake and the difficulties in production and in the supply chain have now driven us to an order backlog for the first time above EUR 1 billion, a 33.7% higher than this time 1 year ago. So an unbelievable development on the top line, it shows the strength of the markets that we're in. It shows the strength of our customers, but also the strength of Koenig & Bauer's equipment, and it's been well received by the market. If we move to Page 12, it's a -- as you can expect from our sales figure and revenue figure being roughly in line with the prior year, we're not turning our order backlog into EBIT. If we walk through the figures, please remember, in 2021, we had a one-off EBIT adjustment from the P24x accruals that we released last year after efficiently finishing the -- or finalizing the details of the program for severance packages. So the operating EBIT last year was negative EUR 14.9 million. And also here, similar to sales, slightly better, so EUR 1.1 million, but still at a similarly negative level as last year at minus 13.8%. So why is this? As mentioned, volume and mix is nearly nothing. And we have, however, generated EUR 22 million of additional savings this year compared to last year. So what is happening to these EUR 22 million in savings. There's a lot of different topics. The first is, of course, inflation. We see an increase in material and energy costs of roughly EUR 13 million in the first 6 months. But this is again in the second quarter in a row, we have been able to compensate with price increases. So this is a very good news for the quarter. The issue in our EBIT is that we also had to compensate EUR 7 million of short-time work that we had in the first half of the year last year. P24x, of course, helps us with that. And the real challenge is in the other effects of roughly EUR 13 million, which we similarly, I think, can only explain as these production inefficiencies and the difficulties in our business environment. And it's not just one topic. It's, of course, disrupted supply chains. It's higher logistics issues. It's closures of ports, it's travel restrictions. It's COVID, sicknesses and illness rates. It's the disruptions in the business in general. Also some small level of FX effects, particularly in Swiss francs, but a combination of issues, including also the weak euro, have combined to have a negative impact in our EBIT of roughly EUR 13 million. But again, the main positive message here is in an incredibly difficult environment, our top line or our order book is developing in a great -- in a spectacular way. And we're at least able to slightly improve our operating EBIT year-on-year despite these difficult challenges. Of course, we all hope for a more normal business environment, but in these challenging times, being able to maintain or slightly improve our operating performance, it still shows that we're heading in the right direction. If we move into more details on Page 13 in the figures, many of these topics are already mentioned. So revenue at EUR 492 million, slightly down over the prior year and gross profit down as well. Again, the reasons as mentioned. R&D costs have increased by roughly EUR 5 million year-on-year as we started to, as was expected in previous calls, to also depreciate some of our -- from our capitalized engineering costs as we bring our new products completely into the market. Distribution costs roughly in line, slightly increased due to outbound freight and, of course, higher provisions to our sales force through the order backlog and order intake as well as increased travel costs. Administration cost is relatively flat year-on-year, and we did have negative EUR 2 million special effects, particularly on -- due to FX. This all led to an EBIT of minus EUR 13.8 million and a net profit or loss of minus 15.8%. So red figures, yes, but slightly better than the prior year from an operation perspective, and then I move on to Page 14 in the cash flow statement. Cash flow is also, again, a similar picture that we showed you in Q1. So we had negative cash flow also in Q1. Q2, it was less negative cash out than in Q1. But for the full year -- or for the first 6 months, now at minus EUR 46 million. This is driven primarily by 2 or 3 topics. Of course, the losses, so where we are showing red figures in the first half. We're investing roughly still in line with depreciation, but slightly increased compared to prior year. We're also, of course, executing our P24x program. So we -- although the accrual was adjusted last year, the remaining amount has to now be paid out as the program is executed and we have the cash out for P24x. And finally, of course, we have a massive increase in inventories, as you can see in our balance. But on the other side, we also have a massive increase in customer advance payments due to the order intake. So working capital and inventory is, of course, a burden. But the main reasons for our cash out are not working capital management instead the losses on the P24x program and the remaining into just normal operating business. That being said, looking into the second half of the year, when we get to our guidance for the rest of the year, as you saw last year, the general business environment is expected to improve in the second half. For Page 15 on the balance sheet. There's no major items to highlight. I think most of it has been discussed. I will only point out a few topics. Yes, inventories have increased dramatically from EUR 331 million to EUR 406 million. But on the other side, under other liabilities, you see also the corresponding increase in advanced payments that give us some support on the cash side. The main topic on the balance sheet, which, as we mentioned, is the reevaluation of pension liabilities. The interest rate has now increased to over 3%. This is -- from a pure finance and balance sheet perspective, a great development as the liabilities were adjusted downwards. This led that despite our losses, equity increased from EUR 369 million up to EUR 388 million, so that the overall also our equity ratio has now improved to be above 29%. And our financing position remains very strong with our strong consortium of banks. So a mixed picture on the EBIT and cash side, but on the balance sheet, Koenig & Bauer remains very healthy with a strong financial position. If we move into the details on the 3 segments, Sheetfed is showing the largest decrease in revenue, down 7.9% compared to H1 of last year. Sheetfed is our most global business, our most vertically integrated business and is, in fact, having the largest difficulties in this turning order into revenue, causing this drop despite the enormous increase in order backlog, up 52% year-on-year. Order intake, up 22%. We have a drop in revenue to EUR 270.1 million. Despite all of this, the operating EBIT remained roughly at the same level as in prior year at minus EUR 1.1, roughly EUR 900,000 lower but still in a very difficult environment, roughly maintaining the levels think sheetfed clearly having from an order backlog perspective, a lot of tailwind moving into the coming quarters. If we move to Page 17 on segment Digital & Web. Digital & Web, we've reported the last 2 quarters that the order intake and order backlog was growing. That's still the picture in Q2. We have a much stronger order backlog compared to prior year at EUR 93 million compared to EUR 45 million last year. Order intake also up by 45%, EUR 61 million. Revenue, however, also here remains slightly down as these programs are now more in these books businesses the last 3 quarters are more in the engineering phase and in the start of their execution so that the -- turning these into revenue will come in the future quarters. But overall, the order backlog and top line situation of Digital & Webfed is heading in the right direction, even if it doesn't show up yet in Q2. The operating EBIT also at minus EUR 12.7 million, slightly down compared to prior year and as a result of the lower revenue. Segment special is the opposite picture of sheetfed. So here we see a strong increase in revenue from EUR 148 million, up to EUR 183 million. So a strong increase in segment special. Also in the operating EBIT, last year, at this time, we were at minus EUR 9 million, now at minus EUR 2.5 million. So here from the 3 segments, the strongest improvement in special. But with that being said, also here, the EUR 287 million order backlog gives us good tailwind moving into the second half of the year, similar to what we saw at this time last year. That's the brief overview on the 3 segments, and I would hand back over to Andreas Plebke.

That's a quick one. Office, please turn to Page 19. P24, which we keep talking about for many quarters now is in its -- now we're starting it, in its eighth quarter of implementation is absolutely on track. I mean we are nowhere behind in time nor in effect. And I think that we announced that, I think, in September 2020 or October, something like or thereabouts. So we are now opening the eighth quarter in a row of implementing it. And our focus of how we do and what the effect will be was just on the spot, and it continues to be on the spot, which means that this organization can is able to push through large corporate-wide projects. I think we've shown that in 2013 and '14, it was a big [ fit it all ] project that the organization has that ability, and that was also the, let's say, that we have implemented all of the tools was obviously very helpful that we had another big project. So that's well on the track. And I hand back to Stephen for the forecast.

Yes. On the market outlook and forecast, we all know that we're operating in a very difficult environment, and we see the second half of 2022, still being marked by major uncertainties. I think they're all known and have been discussed again on this call, but I'm sure also in your other meetings with other companies, we still see the second half to be uncertain for all the reasons, supply chain, pandemic, et cetera. That being said, we still are absolutely committed and see that despite all of these uncertainties and despite the EUR 15 million in EBIT loss that we saw in the first half that we will, by the end of the year, achieve an EBIT for the full year that is better than what we achieved last year. So last year, at 0.5%, and we still give guidance that we are convinced Koenig & Bauer will achieve a slight increase on last year's turnover and a slight increase on last year's EBIT, which means if you put those 2 informations together, our second half is anticipated to show black figures and a significant improvement compared to the first half of 2022. Our medium targets of EUR 1.3 billion and minimum 7% EBIT are also still confirmed. And we're also, again, to repeat ourselves what we said in Q1, even if it's a difficult business environment, Koenig & Bauer will take the next step towards its midterm goal of 7% EBIT in the coming months. And we hope, of course, that as the uncertainties either settle down, whereas the gap to year-end gets shorter that we can give a more concrete guidance on our exact expectations for sales and EBIT. But at this time, we guide for a slight improvement in both of these KPIs and are confident based on that guidance, the second half will show a much different picture than the first half of this year.

Right. So let me wrap that up. I'm now for 22 years in the role of a leading manager in the machine tool and high-tech industry. And I thought I've seen it all. There's always something new. A situation where the world is run by some very question of the figures is not new that these questions of the figure Star Wars in Europe is, in my lifetime something new. We are still battling with a pandemic. We have other very funny leaders who treat this pandemic in a way which is, for us, difficult to understand. We have logistical problems. We have all sorts of things going on. But at the same time, we have the highest demand, the highest order intake, which we've ever seen. And that still looks friendly in the future. So it's a bit of a conundrum. And I'm very optimistic because, in general, we are in the right markets. Obviously, our machines and our equipment is very well liked. And the order for the next half year, we have in the house. Of course, we know the prices of these orders and the quality of these orders. So the whole thing is about all of these productivity disturbances. It's about availability. It's about hopefully not more nonsense from our politicians, may they be in the East or the Far East or where else. But it's a situation where many of the things that we have to tackle with, and we are confident that we will get that sorted. And also this high back order intake gives you a fairly positive outlook for 2023. That is the second thing because such an order backlog, if you look at the EUR 1 billion, that very well covers a large part of '23 already. So therefore, the overall confidence is there. There is the question of how the EBIT will come out. But otherwise, we have, well, full hands to work. And if I speak to the people at our company, and I started this by saying it wasn't a boring half year. And I say to our employees, I promise one thing, the second half year will even be less boring. But you all happily have a good job that you have in the future. And if you want to work over time, you'll make good money too so push on. We'll also get through that crisis, and it isn't a real one, not as we had before and really have a good outlook. That's where we are. That was a bit of a summary where we stand. I think I turn back to the office now.

[Operator Instructions] The first question is from the line of Stefan Augustin from Warburg Research.

Actually, I have at this point, 3 questions. The first one is on special print. So I noticed that you have improved, but you also, let's say, have a negative EBIT. And if we go back into, let's say, a couple of years ago, Special print was consistently even at, let's say, these kind of sales levels, a positive EBIT contributor. If we go into the part of time before COVID and the crisis. So is there anything that has changed a little bit structurally? Or is that simply, let's say, that the inefficiencies are a bit more existed towards the specialty print division?

Well, if we cover that first question, whatever we do is special, and we have good margins, as you can see that our EBIT heavily improved. But we are also subject to exactly the same production inefficiencies as everybody else in the group, sometimes even more so because we make highly specialized equipment, not serious equipment. So all in all, it's -- there's nothing special on special except that we have probably slightly higher margins there. And therefore, you see we a good EBIT, a better EBIT improvement than the rest, but the problems in the production are exactly the same.

And let's say, when you -- when I would ask you to pinpoint a little bit on where or how the inefficiencies actually have increased in the second quarter or the first quarter. Is this as, let's say, there is even more machines on the sideline that needed to be retrofit and its stress at the organization more? Or is there actually a, let's say, new bottleneck that has come up?

I don't know the name of that game, but there is a board game, which has something like 20 holes. And there's somebody sticking out a head out of the hole you throw -- you hit it with a hammer and then it comes out of another hole and you hit it with a hammer. And I think that's a perfect description of these days. So on one day, we are missing some motherboards on controls and we improvise and putting some laptops in there and use that in control. On the second day, we have special gears or we have special surface material, which are missing. On the third day, a containership which needs something can be -- can't be unloaded. On the fourth day, we have that on the fifth day, we have that. So it is a continuous daily struggle, but there is not one thing. It isn't a lack of chips or a lack of metal or a lack of plastic or a lack of something. It is a continuous game of very quickly hitting on the head, which is coming out of a hole. So that is not a red threat except that availability at the right time, at the right position in assembly is the issue. It's not -- at the end, of course, inflation is an issue. And of course, that cost a hell of a lot of money. But the biggest thing that we're hit with is that these things -- sometimes the machine just waits there for a week or 2 or 3 until we can build on it further. And you can imagine that, especially if you're in a world where you pop, if something stands still for a couple of weeks because you can continue to work, that also hits turnover and EBIT.

Understood. So then maybe some, let's say, 2 specialties here. The first one would be on the provisions. I recognize that we have a quite significant reduction of the provisions on the balance sheet. So what is behind that move?

So, if you look at the balance sheet page, the main topic is the reevaluation of the pension provisions. So the pure mechanics, the interest rate at which pension liabilities are calculated has increased significantly since the beginning of the year from 1.5% now up to 3.8% and that drives a significant reevaluation of the pension liabilities. That's reason one. Reason number two is, of course, we're executing P24x. So we released provisions and that cost cash, but it shortens the balance sheet slightly. But the main reason is pension provisions.

Yes. I was just pointing out to the other provisions outside the pensions. So the, let's say, EUR 14 million reduction there quarter-on-quarter is actually a cash out from the resources.

Yes. The other provisions, the EUR 103.7 million down to EUR 85 is primarily -- it's not all, but primarily executing P24x.

Okay. So -- but again, this has been then also a cash out for the quarter. If I would adjust for that, the operating cash flow would look a lot better?

Correct. Yes. Of course, 24x is hitting the cash flow in the first half, for sure.

Right. And the last point will actually be then on the Celmacch acquisition. So the company states on its website that it generated EUR 3 million EBITDA or more than EUR 3 million EBITDA on around EUR 20 million sales. So that would be quite interesting 15% EBITDA margin. Something like that is not for free, and you cannot absolutely pinpoint as what the price has been. So a question would be, if I take this figure and apply somewhere an industry normal EBITDA multiple, and I would arrive somewhere between EUR 15 million and EUR 25 million. So is that something as a ballpark number we could work off for the value of the total company?

So I can only answer indirectly. So we have agreed not to publish the exact price. But of course, we are a responsible company, and we pay market value and don't overpay or underpay. We had a transaction at normal market pricing that we're quite satisfied with and not just at the current EBITDA levels, but we -- as mentioned, is a great company with great growth opportunities. But a market -- a normal market price for a similar company is a good assumption. And I like taking that chance because obviously I mean that -- of course, it's public information that the Celmacch is a very healthy company and a very fine company, and that's another great reason we find it to be attractive.

Wouldn't it be nice if we could just copy that result.

Sure. It's in no way any distressed M&A. It's exactly...

And it is not special this and that and the rest of it, which achieved that result. It's their position in that market. And it's the same customers which we have today. And they just approach part of that customers, which are around, let's say, the circle of where they can actively handle it, but not worldwide. So we think it's a -- don't look at that company as a EUR 20 million business look at that company as a strategy enabler.

Just maybe an add-on here on that question. If I look at the web and digital and, let's say, everything on the structure that we have built up on the cost side for CorruCUT and the other corrugated products. So is -- I mean, if you have 49%, it obviously does not -- you don't fully consolidate. It moves somewhere as a financial result into your lines, but does it also reduce your costs, or your structural costs in web and digital?

It's certainly not any motivation of this M&A is a cost motivation. It's more of a market-driven motivation. So no, I don't see that. And at the end of the day, this is an expansion of our portfolio, the market we're addressing with CorruCUT, CorruFLEX it's a different positioning than what Celmacch offers with their Chroma. So it's not -- there's not -- the overlap between those products is not an issue.

A lot of the future strategy that we have will no longer be on the basis that you compare or as we compare ourselves with Heidelberg, a lot of the post-print and cardboard strategy goes, let's say, goes another direction. And our main competitors in that area are not at all Heidelberg there are others, mainly obviously, Bobst.

The next question comes from the line of [ Horo Gonzalez from Hive ].

So I have a couple of questions. The first one is regarding the P24 program. Can you give us some color on what are your expectations for the second part of the year in terms of additional savings? If I understood well, you had EUR 22 million in the first part of the year. And then it will be interesting if you can remind us how the seasonality impacts you? So to achieve well more than EUR 5 million operating EBIT for the year. Obviously, you're going to need to greater volumes in the second part of the year. So it will be interesting to understand well, if you have more working days or not in the second part of the year? Or if you have more machines at a good level of development or almost finished? Just to understand, well, what is -- how well are you positioned to improve volumes compared to the year? And finally, it will be also great if you can give us an update on your end market exposure. I'm especially interested on this because of the corrugated subject of this acquisition. Can you also give us a little bit of a summary of your exposure in a rough way to the different end markets like cardboard, newspaper, glass and corrugated, please?

Sure. So I take the first part and the second part, P24 program. The guidance we've always talked about was this EUR 30 million increase year-on-year. So you see that in the ramp-up on the savings from 60% to 90% installed. And what we had said was that we had a very great acceleration in the second half of last year so that in this year, we don't expect that, that year-on-year is as easy compared to what we saw in '22 versus '21, but that -- the basic message has always been that EUR 30 million, is the minimum target we expect for 2022. To your question on seasonality, so always the second half of Koenig & Bauer has been stronger than the first half forever. And we had mentioned that we were always looking at a 45% of revenue in the first half, 55% in the second half. But this year is an extraordinary year that likely will be even more skewed to the second half of the year, as you can see in our guidance. So to achieve EUR 1.169 billion as we're guiding compared to our EUR 500 million in the first half means we need to achieve close to EUR 700 million in the second half. We're confident we will do it. So we will very much have a skew to the second half. Not necessarily from external factors, seasonality in our industry but more due to the incredible challenges in the first half in executing our orders. And therefore, also a skew on our earnings as well. Regarding end markets, we've talked a little about that a lot in the past, Andreas?

Looking at the time and seeing that can give you a rundown of our whole end markets. If you summarize it, that the products, the end products which our customers print on go in the end markets of food, beverages, consumer bit and pharmaceuticals, then we see no change as to that we see them increase. There is discussion, big discussions. Will plastics slowly replace paper, what about the sustainability of this material against that material, we don't see that in order intake yet. The only thing we are fairly happy with is that whatever these shifts are since we print with every technology on every substrates, we have an answer to any change in substrates, which might slightly come over the next years. Today, we don't see that. It's strong in all demand areas. So it's on bottles and on hardboard and on corrugated and on glass and on metal is sometimes cyclical, but it's always generally is the same. That is a demand driven by the end markets.

So maybe the question I wanted to do that was if you expect some slowdown in parallel with economic slowdown in Europe or in U.S.? Or do you think that there is some pent-up demand because the production issues during the last 2, 3 years?

If we had an efficiently working crystal ball than last year, we would have foreseen what happens in the first half year/this year. So we don't foresee what circumstance is geopolitical circumstances, political circumstances and pandemic that will bring. We don't. Leaving aside that, we look positive at the future.

The next question comes from the line of Clarice Monarcha from Stifel.

This is Clarice Monarcha. So I just wanted to clarify a bit. I heard a part that you said about the cash out for the P24x. I'm not sure if you gave a timing for that, for which quarters? Or if you could help us with that.

Yes. I was only referring to what happened in the first half of this year that I didn't give a number on it, but it's a large part of that reduction of other liabilities of -- yes, I guess I can't give it in this call, but in a high single-digit number on P24x cash out.

Okay. Okay, perfect. And also regarding the situation with suppliers on the date of the availability of parts are you doing something that could improve this in terms of negotiations? Or do you see something that you could still do with suppliers, negotiations with suppliers, anything like that?

What's the question -- if that situation improves?

What can you do or if you are already doing anything changing the contracts with suppliers anything that could help with securing the availability of parts a bit better?

I would put it on -- I would slightly say we don't leave any stone unturned. We do not only change suppliers if that helps. We even change parts so we even look at a motor or a ventilator or some system or both or a screw or nut. And if we can't get it, but if another supplier has something which is similar, then we change the design of our machines, so it fits the part from the other supplier. So all in all, it's this game where you hit with a hammer on the pack, we happily changed suppliers if we find one who delivers. And if we find somebody who has something similar, then we even change design of our machines. So it's availability of parts is priority #1, and we do everything to do that.

Okay. Perfect. And just another question regarding the customer side. So I understand that you have the price increases. Are you changing at all a discount policy recently in the Bobst call they were mentioning this? Or also in terms of down payments, is there any chance or if you're already doing this to increase the percentage of down payments to reduce risk of cancellation, things like that? Anything you could tell us on that?

Obviously, we've increased prices because there is inflation, and we want to push that inflation down onto the customers. Obviously, we do that as good as we can. There are some products where we have such a good position that it can be easier done and some it's more difficult. In some, we have a big transparency in price because we have a direct competitor's product, somewhere we are unique. It's a bit more apart what our pricing policy is and we don't have list prices. But all in all, we definitely increase prices as much as we can. And what we can part is we are still in a competitive world. So there, yes, we do that. Secondly, down payments. We don't see a change in -- well, we don't change our structure of our contracts. And presently, we don't see a change of behavior of customers. As you see today, it's still a market where the demand is high. Maybe Stephen Kimmich can comment on the down payment schedules that we have.

I mean I think without giving all, I'm not going tell all the terms of our standard payment terms, but you can see on our down payments on our balance sheet, the advanced payments we're receiving from our customers that it's growing in line with our increase in order backlog. So I think that's the basic message is that customers are still giving us down payments. That's clearly something I as a CFO have a strong focus in ensuring that the contract terms are held as attractive as possible for us. And that we're not demanding more from our customers but also not committing less. We also -- I would add one last comment because our orders are strong, our customers are strong. We don't see any issues with -- really 0 issues with payments not being made to us or with insolvencies of customers or write-offs of receivables is not an issue for us.

I think that's a bit unique about our company. If you look at our customers, I would consider the majority of our customers to be much larger than we are, whereas there are many little mom-and-pop printing shops where we do not consider ourselves to be the #1 supplier.

No, that was really helpful.

We believe really would deliver in that market.

And just a final one, if I may. Regarding the guidance, I just wanted to really understand this. So you say that you see the slight improvement. But regarding the wording, you say that you're assuming no further setbacks or tightened restrictions and so on. So just to understand kind of what you leave out and what you baked into your guidance if you have some directional assumptions or to give some room or if it's really just a picture you see today? Just to understand that.

It's something is basically the world does not get crazier than it is today. So that, of course, can happen. Where basically our assumptions for the rest of the year is that a certain level of difficulty remains, but it doesn't get significantly worse. That's the way to put it. And of course, if we have an expansion of the wars or who knows what may happen in Asia. Those are the -- are extraneous factors that, of course, we don't put in the forecast today. So it's still the best -- our best guess on how we think the difficult times can be managed or how they will continue.

Today's madness continues is the end of it.

The final question comes from the line of Stefan Maichl from LBBW.

Stefan Maichl from LBBW. I have 3 questions, if I may. I would take them one by one. The first one is on your order intake increase we have seen in the first half similar to other mechanical engineering companies. Could you provide some insight concerning the volume, currency and pricing drives probably kicking in, in the first half? That's the first one.

So of course, we have higher pricing than last year. That's a given. FX, we have our FX standard policies and how we manage it and hedge any FX risk that's unchanged. So that's not driving our increase in order intake. It's fundamentally volume that's the short answer to your question is the increase in order intake is primarily driven by more orders. There is a certain level of inflationary effect in there to the higher prices, but it's mostly just volume.

Okay. So you have been able to put full your price increases from last year completely?

I think, as Andreas correctly mentioned, it varies very much by product by product. But in general, we're able to -- across all of our businesses put through price increases at amounts roughly in line with inflation in the first half of this year. And as the order intake shows that will be expected to continue. Whether it's enough to cover all the inflation and all the products, that's something also we'll see in the future.

Okay, fine. Second one, looking at your P&L. I've seen that your R&D expenses expanded in the first half by about 25%. So would you state that R&D is this year more front loaded? Or do you plan a similar growth rate in the second half?

I think the main driver of that is that, as you know, we capitalized quite a bit of R&D costs in the last 4, 5 years developing these new products, particularly the CorruCUT, the CorruFLEX, and other products. And that's now starting to be depreciated. So that's one major impact, but it's still in a very much accessible range for us. But we -- in a pure P&L perspective, we do now have -- starting to have this depreciation of those capitalized R&D.

So can we double that figure we have seen in the first half for the full year? Or is that too aggressive?

We will see.

We will see. Okay. And the last one, how would you assess your current project pipeline in the 3 different business lines? And have you seen a change in your order intake development in June, the last month of Q2 or in July?

I didn't -- I don't think I fully got the question. Could you repeat maybe the first part?

Could you assess your current project pipeline in the different business field lines? And the second part of the question was, have you seen any change in the order intake development in June and in July? So the first one on the pipeline, the second one on order intake.

I think in -- we have so many areas of business. So I can -- I try to accumulate now about the group. But what we see as a pipeline in the second half year as to the length of the pipeline, we are still optimistic. There is a very robust pipeline. All in all, there is a very robust pipeline. That's how I would answer it. Obviously, that is changing from business unit to business unit, but overall, it's a robust pipeline.

Okay. And order intake, you haven't seen a turnaround in client behavior in July, let's say, in Sheetfed.

You see a single month -- we have not seen a turnaround is I think is the right answer. And a single month, I don't have in front of me the single month over the last 12 months, if they vary as compared to another single month. But if you ask, if there is a turnaround then I would answer, no. On a monthly special effects where we have 5 more machines than we have expected and the next month is 5 machines less than we have expected. That happens. But a turnaround, I wouldn't talk about that, no.

Okay. Fine. And maybe the last one your midterm targets, you confirmed are they linked to 2024 still?

We've never given a specific year. It's always just been the midterm targets. We haven't -- sorry, today in 2022, it's the midterm target, and that's, I think, typically interpreted in the next 3 to 5 years. This should be published in 2020 as a midterm target and then 3 to 5 years, but we do not going to put a specific year on it.

There are no more questions at this time. I hand back to Dr. Andreas Plebke for closing comments.

Well, thanks for being interested in us and following us and keep with us, we are not boring. We will keep you busy. Thanks for attending. Have a good day.