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

Good day to everybody. Another year that we look at. We have made our preliminary numbers public in February. So many things we hear today will be a confirmation of what we have already published. Some things will be new. As usual, I start with an overview of what we are going to explain to you today, Koenig & Bauer at a glance. We have, as a whole business and not only as the printing business, but the whole machine and machine tool business, quite a challenging year. So after the COVID pandemic, we first had a kind of a swing back of the pendulum and say, "Oops, do go in the sunshine sailing now," but, unfortunately, the sunshine was a bit limited and we had a challenging year again. Despite that our order intake and our revenue is better than the industry average, so we dealt with the situation. News and highlights. I'll come later on to the so-called Spotlight initiative or program. We will talk about a new split of responsibilities between myself and Stephen Kimmich. The annual report, a few words on drupa. It's the first drupa this year after an 8-year break and since I'm also the drupa President, I'm very close to where we are. We just had a big drupa press conference this day on Monday and Tuesday in Düsseldorf. So I have some insights on how the reaction of the industry is going and what the drupa will likely look at. And we will speak about our own technology days, which we had. And one of those examples, which we always give you, what has happened is something which can turn to be something quite nice and exciting. It's a partnership with Mitsubishi Electric, again, in the world of battery manufacturing. The full year figures will be presented in detail by Stephen Kimmich as well as the segments. Let me just give an overview. We had a good order intake in Banknote as you know, and that's normal in Banknote -- but Banknote is not normal and order intakes have high fluctuations, so we had a good fourth quarter. We'll come to that in detail. The segment Sheetfed improved sequential over the year, but it had, as you all know, a very weak order intake in Q3, which is slowly turning in the right direction in Q4. And the outlook for 2024, we will also reiterate what we have already said and also explain our further dividend policy with a payout ratio between 15% and 35%. So let me just give you the overview of the numbers. Last year, we aimed for an EBIT rate of about 3%. Because of all these challenges which we had. Unfortunately, we didn't meet 3%. Therefore, we reset and precised our targets in November. And whatever we set there, we met about in the middle of it. So we now have an EBIT of EUR 29.9 million in the last year, which is 2.3% EBIT as compared to the above 3%, which we had announced. Previous year, the number was 1.9%, so despite that these numbers as total are not satisfactory, we are in -- on that growth path that we had envisioned, though slower than we had envisioned, but we are moving in the right direction. The revenue grew by 11.9% that is definitely way above the VDMA average, which we have in our industry. And the order intake dropped slightly. But again, the numbers of VDMA for printing presses are way below where we stand. So basically, that we are a group which stands on 3 different feet is in these days, a more solid strategic proposal than to stand on one foot only. News and highlights, the Spotlight program. In 2018, we announced a growth initiative, and we announced investments in R&D to turn the company from a printing press manufacturer in what we called in those days, a technology company. We call that 2023 Growth Offensive. So 2023 is now over. And therefore, we want to switch from the area of sowing to the area of harvesting. And having said that, since the EBIT rate is not where we want it to be, we said we need to support this by a call it supporting project or program, which we call Spotlight. We called it Spotlight for a reason because what we did in the past is, we had an enormous amount of R&D activities as well as M&A activities to reshape the company with new products and also enter new markets. And now we need to put all of the effort which we have into bringing these products successfully into the market, in getting the last bugs fixed, in getting start-up costs or ramp-up costs, as quickly as we can, reduced. And whilst we do that, we need to refocus the strength of our people, of our team on these things. So we will probably then know more or slowdown on real new R&D programs, which we hadn't envisaged at large scale, but we will redirect our resources into what we said here. That's why we call it Spotlight. We want to shine a spotlight into something which creates EBIT as well as cash as quickly as possible. So it's a transformation process. This is not a comparison to a P24 or anything else, which we did. We will go through this transformation process during this year. So the effects will be seen over the next years and it's mainly also a method to achieve our midterm targets, which we have announced. If we go one page further, what you see there is also, it doesn't have to do with Spotlight, but we say it here, is in doing all of that, the Supervisory Board had enacted me as the [indiscernible], the CEO and not the speaker, and Stephen Kimmich here as the Deputy CEO and that was for a reason. And the reason being that we now look at things on how we can also focus ourselves and bring a bit more, let's say, speed and weight into it. Therefore, there's a lot more decision making now concentrated. And between ourselves, we will also share the work in a certain way that means in essence that, of course, I and Stephen will collaborate closely on Spotlight. That's not all me. It's the two of us. And also Stephen will take over more operational responsibilities, especially in the segment Special. And I will very much focus even more focus on other segments that we have, especially on those segments, which have at least a high growth perspective and the most innovative products in them. So a lot of the Spotlight work, which I will do, will be around Digital & Web. We published the annual report under the slogan, Universal. Now there's always a nice slogan and I think that's part of the game. And we try to get this slogan always connected to what the reality is and what we look at. Universal means a few things. There are requirements from our customers and from the brand owners and they vary, and they vary greatly. And there is no such thing as a concentration on one substrate or one printing procedure or one technology. The world is getting more diverse. So what we have to give is answers to this, which are mostly universal answers, our whole concept of modularity should allow us to enable us to do that, to give these answers and not overstretch our own R&D abilities. It's also a question of how will the package of the future look like? We've shown that not to you, but maybe we do it on the next day, but we've shown it internally. There's the big buzz with KI. Now there are ideas around that actually can ask a KI and we've done that as a trial. There are ideas around KIs like design me a package of some super food, which is very much liked by women between 25 and 35, design me the package, design me the marketing campaign and design me a PDF, which we can put in our companies and print and we've had -- we tried that out so that we can come from an idea from a KI approach to a readymade package in days. That is a bit of a fiction, but it's also the question of universal approach and that's something, which we do in our world of digital metamorphosis. A few words on drupa. Drupa, I believe, is one of the 3 largest trade fairs in Düsseldorf. It is the largest and unique trade fair of our business. There is only one world trade fair. The whole of the Düsseldorf trade show areas is covered. That's the same as 2016, 8 years ago. I think they're way over 90% of coverage now. The exhibitors will mostly be the same so far. I only know of one exhibitor who doesn't come, who has come in 2016, everybody else will come and come in force. Two things, which are maybe noteworthy is there will be many exhibitors also coming from China this year, also dragging along a lot of Chinese customers. So it will really be a world show despite it being in Germany. It will turn more and more into a world show. On the exhibitor side, it's still -- Europe is the strongest origin of exhibitors still more than China. And Germany itself being the strongest, but also that show will shift a bit to an Asian emphasis. But as in attention of people who come and I can say that because I made the so-called drupa tour last week through many countries. We believe the number of participants will be very high. There are some changes. Commercial printing is in a kind of a regular decline and there are less exhibitors and also less customers, but packaging printing is growing. So all in all, I see it more international, more Asian and more packaging and a lot of digital. So I think that's what I can summarize. The press attention is high. We had 74 people in the press conference coming from as far as New Zealand. So it's truly an international event. And we hope and that was the case of the past that also drupa, despite it not being exactly a show where people out of a spontaneous reaction by something 4, 5 million, but it will inspire innovation. It will inspire a bullish view into the future and it hopefully inspires some people who say, "Oh, wait a minute, I think we have to upgrade our equipment" and, therefore, also give it an initiative to us also to the whole group of companies who exhibit there. Besides that, we had a Digital & Webfed technology at Koenig & Bauer that is already something which you could summarize under Spotlight because what we did there is we put in the middle of all of invitation, the CI-flexo machines, which are selling quite well at the moment and also the RotaJET print presses and the digital department for digital products. That was the 3 products which we put in the middle of it, and we invited mostly deciders of international brands, also of converters, but also international brands. And we had an extremely high level audience there. I think it was quite a successful event. One more thing about Mitsubishi industry, we published that we are going into a partnership with Mitsubishi Electric. They are a world leader of contact image sensors. And we work a lot on authentication but also quality control, which is done through cameras and lenses and other devices. And this part of Koenig & Bauer is led by a young colleague of ours and he put this partnership together. Basically, we jointly approach now especially the world of battery manufacturers for in-line inspection systems for car batteries. So it's something which is a core know-how that we have. Again, it's a core know-how which comes from Banknote in the same way as we had said that we are in a project together with Volkswagen. And again, that core know-how came from Banknote. Here, again, the core know-how of precise inspection in line is a requirement, which Banknote production has more than the production of corrugated cornflakes boxes. And so the high-tech approach is also, let's say, a spin-off of the Banknote know-how. So that was the exciting part. And now I come to the exciting part for our analysts, that's the exciting part that Steve will present to you, the numbers.

Thank you, Andreas, and also good afternoon or good morning, good evening to all of you on the call. I'll spend the next few minutes walking you through the financial figures, which, of course, are also very exciting, but perhaps in a different way. And as mentioned already in the top line and EBIT figures, we can basically completely confirm our preliminary figures that we announced at the end of February. So there were no unexpected surprises in the closing weeks of our books. Order intake, as already mentioned, due to a strong Q4, primarily in the Banknote business and segment Special at EUR 1.29 billion per December 31, down 3.1%, but again, compared to the VDMA industry average, a very strong finish to the year. And as mentioned already by Andreas, also in our mind, proof that not relying on a single market and standing on several pillars in the company has again proven to be a value asset of the company. And now with EUR 1.29 billion of order intake, some tailwind moving into 2024. Revenue side, up 12%, as mentioned, EUR 1.327 billion. Also here, the typical quarterly run rate that you've seen in the past. So we had a very, very strong Q4, so EUR 435.7 million of turnover, not just driven by Special, but also in a strong Sheetfed quarter. This is the typical seasonality that we've seen in past years, and it was again very strong in 2023. Order backlog with EUR 911 million, down 4% compared to last year, but again, due to the strong Q4 and despite, which I will show in a few slides, despite the strong Q4 in revenue, we still managed to have a book-to-bill above 1 in Q4 and maintain a strong order backlog. If we move to Page 11. On the EBIT side, also we confirm our EUR 29.9 million of profitability that was published in February, up EUR 7.9 million compared to prior year. As already mentioned, of course, we were initially targeting 3% at the beginning of the year, but in a very difficult year, we only achieved the 2.3%. The 2.3% is still an improvement, and it's the fourth year in a row with continuous improvements. Looking back to 2020, 2021, '22, '23, we now have 4 years in a row with improved profitability. And looking at why or where the EUR 29.9 million come from? We, of course, have positive effects from volume and price increases that were able to compensate the inflationary effects from material energy and personnel costs. The main challenge we had in 2023 were the start-up and follow-on costs for Digital & Webfed, which, as you've already heard, will also be a strong point of focus in our Spotlight project that these products get launched successfully into the market at cost and these EUR 9.3 million to eliminate them going forward. Otherwise, as also typical for us, and as you've seen in the past years on the EBIT side, a very strong Q4 with EUR 32 million of profit, basically generating all the profit for the year in Q4. If we move into a little bit more detail on Page 12 in the P&L. On the revenue side, EUR 1.327 billion, as mentioned, led to a gross profit improvement to EUR 347.5 million, so gross profit was slightly down 26.2% compared to 26.8% in last year, again, primarily driven by the follow-on costs and ramp-up costs in the Digital & Web segment. Below gross profit, R&D costs roughly flat, a slight increase in depreciation and distribution costs slightly increased also across all 3 lines, distribution, administrative and research development, of course, higher salaries, but also in distributor costs driven by the variable components for logistic costs and provisions. And on the administrative costs, salary as well as increased depreciation due to our IT projects that are now fully being run through the P&L. If we look at our interest results below EBIT of EUR 29.9 million, of course, and we'll see this on the cash side in a second, with the higher use of our credit lines and the increase in interest rates. We had a higher interest result of EUR 16.9 million maybe, but still at bottom line, despite also a higher income tax expense EUR 2.8 million in positive bottom line net profit for the company. Of course, not in line with our expectations and where we expect Koenig & Bauer to be in the future. But at the end of the day, a profitable year also at the net profit level. On Page 13, and this is the new information today, our negative cash flow that you saw already in Q1, Q2, Q3 that continued in Q4, primarily driven by working capital, but also, of course, driven to the losses in our Digital & Web segment at minus EUR 93.4 million. This will also be one of our core topics looking into 2024. This was a similar picture to what we saw in the previous quarters, driven primarily due to a decrease in customer down payments. If you look at -- and when I get to the balance sheet under other liabilities, you can clearly see that the customer down payment side is dropping. And the single order in Special was not able to compensate the overall group reduction in down payments. This is something that as order intake recovers in Q4, Q1, Q2 and moving into post-drupa, we expect that picture to change and we're working very hard in the meantime on reducing working capital by other means. But at the end of the day, for the last 2 calendar years, a negative free cash flow driven primarily by working capital and higher interest expenses. Equity ratio, however, still remains strong, 28.7%, roughly unchanged, slightly down to last year. On Page 14, you see the details of the free cash flow. Here also the good news, and I'd like to focus on the good news. The gross cash flow coming purely from operations, we were able to improve from EUR 58 million in 2022 to EUR 71 million in 2023. So this is really the call it, top line gross cash flow coming from earnings from operations, pre-net working capital change and pre-investment, and we're able to continue to show improvement in that manner. Where we're not showing enough improvement is on working capital under difficult market conditions. And otherwise, I think I've mentioned all the topics, overall, the minus EUR 93.4 million, something that we're looking forward to changing in future quarters. On Page 15, looking at the balance sheet, there's not too many highlights to focus on. Inventories, of course, at EUR 426.8 million, it's a coincidence, but basically unchanged compared to 1 year ago. We still have a high order backlog and inventories have been unable to drop in the rate in which we would have hoped in line with the customer down payments. If you look at the other liabilities, as already mentioned, the EUR 299 million has dropped to EUR 270 million. This is within that account, there's a EUR 50 million, 5-0, drop in customer down payments. and that's the main challenge we've had in free cash flow, and we're not able to compensate it yet on reduced inventories. This is, however, certainly a project that's up and running. Otherwise, on the balance sheet, no major highlights to point out. Intangible assets slightly up from EUR 145 million to EUR 155 million. This is driven primarily from our investments in IT. Particularly our go-live for our S/4HANA that we're targeting for 2025, but otherwise, no major topics to point out. Page 16 to close out the group level before I move to the segments. You see the quarterly look at our results. If you look on the top right, revenue, it was the strongest Q4 we've had in many, many years, EUR 435.7 million. Book-to-bill in Q4 despite higher revenue at 1.05, you see on the bottom left of this page, again driven by the strong order intake. On Page 17, you see the glance on the 3 segments. There's a lot of information on this slide, but I really think it gives you a good picture for the overall individual segments. Starting with Sheetfed in the red columns, you see the drop off in order backlog that has happened over the last 5 quarters from a peak of EUR 639 million in Q3 2022 to an order backlog moving into 2024 of EUR 409 million. So this is a reduction that we have been -- a trend we have seen in previous quarters. However, in the blue columns, you see a very good news that Sheetfed in Q3 at a very low EUR 112 million, already showed clear recovery in Q4 at EUR 152 million. So we do see a pre-drupa improvement in order intake compared to the lows we saw in Q3. So despite the EUR 409 million and the book-to-bill under 1, there is some good news on the order intake front for Sheetfed and clearly a trend moving in the right direction that transitions into a strong quarter close out the year with EUR 17.7 million of EBIT on EUR 248.4 million of revenue, a solid finish and at EUR 30 million of profit, a very strong year for Sheetfed compared to where we have been in the past. And now with some momentum on the order intake side, where we think the worst is behind us with Q3. Special, if I move to the right and be Digital & Web to the last. Special is -- had a fantastic order intake. And maybe on that front, I can also mention that I'm very, very happy and looking forward to taking over the Special segment responsibility for the Special segment starting on April 1. It's going to be a fun addition to my task, and I'm looking forward to being more operational on that front. That being said, I'm also very happy that before handing it over, that the Special segment will have a fantastic order intake. So I'm taking over with some clear tailwinds, which makes my job easier on that front. Special had a weak last couple of years. We've talked about that on this call many times in the past that it's the stochastic order intake and the Banknote business was stochastically low for a very long time. And now we had a stochastically high order intake in Q4, which gives us some momentum moving into the next years and is great news for the company at EUR 23 million of EBIT in 2023, a reasonable result, but certainly nowhere near in line with previous profitability that we've had in the segment, but we've mentioned in the past that we had some headwind in that segment, primarily from some large orders in Sudan and in Argentina that really hit our top line and EBIT in the calendar year 2023. But also there, those negative results are mostly behind us and we're looking forward to improvements going forward in the coming years. So we look at just Sheetfed and Special, a EUR 30 million and a EUR 23 million profit. So EUR 53 million of EBIT coming from those 2 segments and a reasonably good picture in overall order intake, fantastic in Special and good momentum in Sheetfed. On the Digital & Web front, I think it's a similar picture of what you've seen in the past. We were not able to significantly improve the results in Q4. We're still suffering under some start-up and ramp-up costs that you can see in the EBIT bridge compared to Q3; however, this is one of our core focuses in the group now to manage the growth and get these new products into the market at cost. EUR 172 million of revenue and EUR 24 million of losses then pulling down the overall results in the group. And that rounds out the summary for the segments. A mixed picture, but in a company of our complexity and our broad portfolio, I think, it's important to understand that we have 2 very, very healthy pillars that are generating EBIT and moving forward, we have good momentum. Digital & Webfed, however, requiring more focus. On Page 18, looking at our outlook and forecast, so we've announced now for 2024 that at the bottom line, we're expecting an EBIT of between EUR 15 million and EUR 30 million for the group with revenues of around EUR 1.3 billion. Adjusted for the roughly EUR 10 million in drupa costs, this would be apples-to-apples around EUR 25 million to EUR 40 million. This is -- we would basically call it a sidewards movement compared to last year where we ended the year at EUR 29.9 million and expecting a similar picture for 2024 for the group. That being said, within the group, the picture will look slightly different. We are expecting that Special and Digital & Web will improve disproportionately. So we'll have a higher contribution where Sheetfed has certainly the most headwind moving into 2024 due to the low order backlog. Our guidance for 2024 is -- seized this headwind in the first half of the year in the Sheetfed segment, but it's based on a recovery in incoming orders in the group, which we have already started to see since the fourth quarter of 2023 and, therefore, gives us confidence that our guidance is accurate despite the headwinds at the beginning of the year. Midterm, we remain with our two-step approach. We still see ourselves also supported by the Spotlight project and the focus that we need in our new products on path to achieve EUR 1.5 billion of revenue and an EBIT margin of between 6% and 7%, no later than 2026 and still see ourselves with further improvement in digital printing and our other business models on path to be a EUR 1.8 billion company and an 8.8% to 9% EBIT margin in the midterm, unchanged with a maximum working capital ratio of 25%. And targeting a 30% contribution from service revenue for the group. And as Dr. Pleßke mentioned in his opening remarks, we've announced also our dividend policy targeting to distribute between 15% and 35% of those earnings to shareholders going forward if minimum EBIT thresholds are met. So that's all from my side. I hope that gives you a brief summary. It's a mixed picture of the financial figures within the segments, also within cash flow versus EBIT, but many things are heading in the right direction, but it's clearly still a lot of work to be done. And that being said, I will hand back over to the operator for a Q&A session and look forward to any questions or comments. Thank you.

[Operator Instructions] The first question comes from Jorge González from Hauck Aufhäuser.

If you don't mind, I would make one by one. The first one is regarding the net financial position and the outlook for '24, I was wondering if you have a view on how the payments from clients for the order intake that you are foreseeing for the year, could help you to improve this picture at the end of '23? That would be my one -- my first one, please.

Absolutely. I think from our side, we see recovery in the market already. As mentioned in Q4, we already saw it to start, and we're confident that the markets -- we have no worries about the market in general in the midterm, whether it happens in the first half or the second half of '24, if it happens in '24, none of us know, but the markets we're addressing, the customers we're addressing are fundamentally healthy and fundamentally intact, which gives us the confidence that, yes, these customer down payments will return to normal levels. And we're simply in a market downturn in many parts of the globe, particularly here in Europe and in Germany. And we see the effects of it with the down payment behavior of our customers. We're not giving guidance on cash flow, so that we're not going to give you a specific number, but do we expect the trend of continuing to reduce? Absolutely, not. So we don't expect this negative cash flow to continue because we bought -- in our -- what I mentioned, we basically see our worst is behind us on the market side. We see uptick since Q3 and, therefore, the statement that we think the worst is behind us on that front. What I can't predict is the speed at which the market will continue to recover, whether it be pre-drupa, whether it be post-drupa, we already see, as mentioned, pre-drupa, Q4 was already showing a recovery. And that trend will hopefully continue. The question is just how fast. But what we are confident on is that the market will come back. It is just a question of...

Yes, Stephen, allow me a follow-up on this. So you are mentioning that you already see an improvement in the trend for order intake for Sheetfed. This means that you see sequential improvement in Q1 compared to Q4? Because in the press release that you published with the preliminaries that was already a month ago, you were mentioning that it was likely to see some restriction in the order behavior of clients pre-drupa. So this means that it's not the case that you see -- you are now more convinced that the order intake in Q1 will improve for specifically Sheetfed.

Yes, I think, I mean the statement in the preliminary figures was that it could lead to a drop. We didn't say it will lead to a drop pre-drupa. We said, it could. And we're clearly not making a comment on Q1. That's something we'll do in May. I think the way to understand is that our guidance for 2024 assumes a recovery in orders, which we already saw in Q4 that it was happening. And we didn't mention a recovery followed by a dip, followed by a recovery. I hope that makes sense, but I'm explicitly not going to comment on Q1. That's something we can do in May.

Okay. And regarding my final question -- regarding the outlook, I was wondering why you are offering us such a wide range, but not in sales. So in sales, you are talking about stable, but I imagine that the range in EBIT is also linked to the fact now only second part of the year is still to be -- I mean, to be seen now what happens with the order intake. Is there any explanation for this wide range in EBIT margin that can help us to better model our figures for the year.

Yes. I mean, I think, two-part answer. First of all, I would argue it's not a wide range. It's just because of the small figures that it looks like a wide range. If we were making EUR 70 million of EBIT and had a plus or minus EUR 7.5 million range, that wouldn't be considered large for a company of our size. So I would fundamentally argue that EUR 7.5 million up or down from the midpoint is not a big range for a EUR 1.3 billion company. But in the past, we have had EUR 10 million ranges, so plus or minus EUR 5 million, and this time, we chose the plus or minus EUR 7.5 million. And that's basically, as you mentioned, it's because we don't know how fast and in what quarter for what products the market will recover. If it happens faster or slower and depending on the product mix, is it in time to get it into revenue in 2024. So the timing of order intake is very important. And will it happen that we can generate revenue in Q4 or not until Q1 '25? These are simply things we don't know yet. And therefore, a little bit wider range than usual mainly because the visibility into Q4 is simply not clear yet. What will we bring into sales and EBIT in Q4 is a little bit more uncertain than in a normal year because we're in a market downturn. And that's the answer to your question. But again, I think the real answer is I don't think the EUR 7.5 million up or down is a big spread.

If I might add on that, if we have a satisfactory order intake a quarter earlier or a quarter later, it has very little effect on the health of the company, but it has a high effect on the year-end results, which are on the 31st of December. So if some things happen 3 months earlier or 3 months later, that could also mean that the date when we recognize turnover switches on or before the 31st of December. So that's, I think, probably the summary.

Okay. I understand. And maybe last one also in this regard. So the Spotlight project is including any relevant one-off cost that is included in the guidance for this year? Or it's not the case?

No, the primary goal of Spotlight is simply focusing our resources on go-to-market and stabilizing the businesses that we spent so much hard-earned money in the last 6 years investing and developing and getting market ready. We're convinced we are now market ready and now we just have to push these products with all our resources into the market and focus the company on that and not on more projects and more variations and more new ideas. It's primarily about focus. And at this time, we can't anticipate any kind of one-off costs or anything like that.

The next question comes from Patrick Speck from Montega.

I would also do them one by one if that's possible. So firstly, what behind the surprisingly high income tax expense you had? I assume it's a one-off effect, but maybe you can elaborate a bit on that. And also, maybe tell us what tax rate is to expect for 2024.

Sure. I mean if you look in the -- I mean, obviously, we just published our results this morning. So I assume you haven't read the, I think, 300 pages yet. But I'm sure you will. And on Page 97 of the notes, you can see the details for the taxes. Our effective tax expenses are unchanged. It was -- I don't have anything in my head, but something like EUR 7.9 million last year and EUR 8.1 million this year. So the effective tax expense is unchanged. It's as you mentioned, it's all one-off due to movements in deferred tax assets and balance sheet items. It's not cash out. So that's the first answer to your question. Effective tax rate, I don't know what you're modeling. It's -- in the past, I think most of the models have been around between 20% and 25% for effective tax rate on earnings. It depends a lot at the lower our figures, the harder it is to predict effective tax rate, frankly, the better our EBIT, the more it normalizes because we still have to make a minimum amount of tax -- of profit in our subsidiaries due to transfer pricing restrictions. So that will continue. And the real question is when do we earn money in Germany and in our larger entities? So it's really hard to predict what will be the tax rate in '24, even for me because it depends a lot on the final earnings and in what country, we have to guarantee what margins for transfer pricing. As we stabilize the business, which will happen and move into higher EBIT than I expect the tax rate to stabilize also around that max 20% to 25%.

Okay. I've read the part in the annual report already on that, but just to make sure. Secondly, the order you received from the Fed in the Banknote Solutions business, is this already contributing significantly to the current year? Or do you expect a higher impact for 2025?

The order intake, which we had in the last quarter was not entirely from one customer. It was a mix. But these orders, and we had already received orders over the year. But the orders, which we received at the end of the year, they will contribute in this year and thereafter.

And will this be, yes, distributed more or less equally for the next 3 years? Or because this -- I assume it's a very profitable order?

I think we're not going to give you a figure on that today. It will contribute some in 2024, but I mean the orders we just received in December, so more towards the second half of the year because we have to take time to order the material and ramp up the production, and it will certainly spread into '25 and '26. And how that distributes that is something we're not going to publish in that detail. It will contribute over second half of '24, '25 and '26. So that's typical for the business, frankly. We have bank -- it's not just this U.S. business, Banknote orders have this character. They often take between order intake and full revenue recognition, 1.5, 2, 2.5 years, it's very typical for this type of government project.

My next question is on the Spotlight program because you mentioned you're going to focus a lot with that program. Does this have any implications for the cooperation with VW, you published last year because this is not your focus business, I assume?

It is. The first question, it doesn't have an effect. And secondly, it is part of the focus. Focus does not mean that it is focused on a certain type of printing machine. Focus means it's focused on these things, which have, let's say, a very good chance to be something very profitable in a very foreseeable future. That's, I think, the general thing. But there are also projects in there, which are internal projects on getting IT to a certain, let's say, depth of KPIs. So it's not only customer projects. But if you mention the Volkswagen project, it is untouched by that. It remains in the focus of the company.

Okay. And my last one, if I may, with working capital improving again. And yes, maybe CapEx more or less on the same level. Do you expect positive impact on your free cash flow because this was -- for me, it was surprisingly lower last year because of the high working capital. But yes, with some improvements do you expect at least a positive operating cash flow for the current year? I mean you're not guiding on cash flow? I know, but just a rough indication.

So we're not guiding on cash flow. But I think the short answer is EUR 29 million -- EUR 15 million to EUR 30 million of EBIT. Investments max at depreciation is slightly below and we want to see improvements in working capital. That's another massive task to finally see the improvements in inventories that we're working hard on. Those are all things that will help us to generate positive cash flow. At the end, it's going to be at the low end of EUR 15 million of EBIT minus interest minus tax, it might be difficult. At the high end of the range, it should be positive. It depends a lot on the operating performance and working capital improvement. But I don't want to give a figure. It's one of our major tasks now is to stabilize that part. And I think if you add the components together, I just mentioned, you get to your answer that it's roughly around that 0, perhaps better, perhaps worse.

The next question comes from Peter Rothenaicher from Baader Bank.

Firstly, I want to connect to your last answer. Was your statement reflected to operating or free cash flow? Because you mentioned also the CapEx spending, so can we expect free cash flow, perhaps slightly negatively, but slightly positive.

No. So again, I'm not guiding for cash flow. I guess. But no, it was free cash flow. We're talking about bottom line free cash flow development. The net financial position will improve or get worse. We have an incredible target. We are working hard to ensure that it improves. The environment is still not easy. It depends a lot on what our customer is doing, what our order is doing, how does the order mix match our inventory levels. What we can manage is investments under depreciation. That's something we can manage and influence, and we will do. What we can partly manage is customer down payments, which we're working hard on, but we cannot force our customers to order. This is something we don't have in our control. And again, that mix, how do orders match inventories. That is a huge factor in our ability to decrease or not decrease.

Then on the Banknote business, this order from the U.S., is there more to come from this customer? Or it is now for the time being?

I think we -- I will give you an answer, which is a bit grayish and that has a reason. We have received from that customer orders over the past years. It isn't an absolute one-off, it isn't. And we had a large amount of orders given in one quarter, but that is not it. So yes, we expect that we have a good chance to get more orders from that customer in the foreseeable future.

Okay. Then on the financial results, so is it fair to assume that your financial results will become worse in '24 than in '23 given the higher indebtedness and also the full year effect of higher interest rates?

For interest rates, again, it depends on that where we end. If we can hit the top end of our corridor at the EUR 30 million, which is the same figure we had this year...

No, no, no, financial results. Interest payments.

Pure interest payments. It is a very good question. Of course, I have a figure in my mind, I just don't want to say it. I really assume flat, assume roughly flat, could be more, could be less, depends a lot on will interest rates -- will the central banks reduce interest rates this year because we have an [ order ] war-based financing. So will interest rates drop, yes or no. That has an important component on our interest rates, which is why I was a little bit hesitant to answer your question because I have a personal expectation that is a personal opinion, but it's as good or bad as anybody else's opinion, that we can expect to see lower interest rates in the second half of the year. If that happens, that will be, of course, support us. If it doesn't happen, then it won't. But -- so again, it's maybe a bad answer to your question, but I don't want to give a figure, roughly in line with the previous year. Could be more, could be less, depending on how the year develops.

Then perhaps can you comment on the industry environment in the Sheetfed segment. So we have seen in '23 quarter-by-quarter strong fluctuations. The drupa is ahead that's clear. But from your point of view, do you see already really a market recovery in '24. With clear indications, you have prior to orders always discussions with customers, how is the sentiment there?

I believe it can be summarized that in the 3 big world areas, which I would call Europe and then let's take NAFTA and then let's take Asia. There is an expectation of growth of a CAGR in that industry of growth. The expectation in Asia is that growth in that region will be way higher than in Europe and the U.S. is somewhere in the middle of it. So the sentiment of the customers ranges between more or less fixed steps. The next -- so the most answer we get from the customers is they are happy to be in this market, but they don't want to place the order now because precisely at this day, there is no need to expand their production volume because at this day, their end customers don't expand their demand of packages. But they expect that this is going to happen, then they will quickly react. So it's something like they're withholding to a certain extent, investments, which are going into growth because the growth this year '23 or early '24, maybe is where it is. That's one sentiment. The other sentiment and that's one thing where we see a good chance, is that there are investments which do not go into just increasing capacity, but its investments, which are triggered by new technologies, new substrates, which require a different way of printing on them. And these things that also what we've partly, which supported our order intake on Digital & Web last year, there was a good order intake on machines like the ROTA that has nothing to do with volume increasing. It has to do with new technologies, new applications, new materials, new everything. So I think everybody is in a mixed scenario. Big groups that we have as main customers, more or less do both. They withhold to a certain extent or stop or break on volume-based investments, but they release investments, which are more future and technology driven. Maybe some want to be early adopters and maybe some of them already want to expand. Smaller companies might have a different view. They are more volume driven. They don't have these investment abilities. So all in all, the expectation of the end market, and the end market is packaged foods, beverages and consumer goods, the expectation of the end market worldwide is growth. And why is that expectation a reality and not just a hope. It's because that growth is directly linked to one single number and that one single number is the so-called growth of the middle class. Middle class being somebody who can afford packaged brand foods, beverages and consumer products. And that middle class of people who get into the income bracket to afford that is statistically growing. And by the way, it's statistically growing the fastest in Asia, it is growing in the Americas, and it is not exactly growing here. So the sentiment is distributed over the 3 continents. All in all, everybody agrees with us that fundamentally, our end market is okay. And the question is when do they release further investments? And are these investments geared towards expansion of volume or just new productivity technology or business model applications. So if you look at these trends, if you overlap them, we expect some recovery, but we do not have a crystal ball, which can tell us if it happens in Q2, Q3, Q4 or Q1 of the next year, we just don't.

Okay. Then regarding Digital & Webfed, you clearly mentioned you have to improve here the ramp-up costs and to bring down inefficiencies, is this something you have already seen now, some improvement in the recent months? Or is it still something which has to happen only?

Of course, we are working on that. So yes, we see some improvement, absolutely. On the other hand, that definitely is a big spot in the Spotlight program. And that's one spot, which I'm also, let's say, putting some of my weight into. It is one of the spots and that spot is about momentum and speed, yes.

So -- and the last point regarding your long-term guidance. Can you put a year after your focus midterm. Is it then '28, '29?

I think we obviously don't put a year on it. I mean typically, it's interpreted as 5 to 6 years. And I think our focus right now, frankly, is to get to that intermediate step of EUR 1.5 billion and 6% to 7%. And when we achieve that, I'm happy to give you a year on the step after that.

[Operator Instructions] We have a question from Stefan Augustin from Warburg Research.

Just a quick one. Actually, it's a clarification. If I understood you right commenting on the change in the down payments, I got the figure of EUR 50 million, EUR 70 million decline, and I just wanted to confirm if this is a correct one or if I misunderstood you there.

5-0 is what I mentioned, roughly EUR 50 million.

And then maybe a bit on top of that. I mean that is as a percentage change of the down payments more than, obviously, your order intake change. So is that simply due to the mix effect between Special, Web, and Sheetfed? Or is there also a, let's say, change of behavior inside one of these segments with regards to the down payments?

No, it's a good question. I think we're fighting hard to ensure there is no change of behavior. Of course, the pressure to change payment terms from customers is there, but we simply work hard on ensuring our sales team maintain the standard payment terms we've always had. The technical answer to your question is a large Banknote order doesn't -- we just talked about this, could be executed over 2 years. It doesn't automatically lead to a massive down payment for the entire year upfront, there are certain delivery dates where the down payments also come in certain tranches over the course of the product lifetime as the individual machines are then put in the order. So the answer to your question is on the mix side, that's the basic answer. There's some mixed business units. Otherwise, we wouldn't see this EUR 50 million drop.

Yes, that's rather on the milestone. Then maybe another one, if it is somehow possible to give a kind of a qualitative statement on the first month of the orders in Sheetfed, not so much on when we expect a, let's say, for the full year recovery or so, just what you have seen in the first month and how did that look like?

I think the only thing we can say and that's a clear statement and it's a positive one. The trend we saw from Q3 to Q4 with the market recovery has continued.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Dr. Andreas Pleßke for any closing remarks.

Right. Thanks for covering us as a team. Thanks for your questions. The time for harvesting is now the focus of what we have and that will also be the focus of what we do over the next quarters when we speak with you to see how we achieve that. Thank you.