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

Good afternoon, ladies and gentlemen. This is Andreas Plesske. Welcome to the Q3 figures of our company, Koenig & Bauer. We live in interesting times, not only in politics, but also in our company. And I usually start with Koenig & Bauer at a glance. I want to do that again today. So the very good news that we have today, and it's -- I think in these days, it's helpful to start with good news. The very good news is we have a strong order situation, and we have an initial positive effect from the Spotlight focus program. I will come back to the details later on when we look into the Spotlight program where we stand. Because we have that, we confirm our operating guidance in the market environment that we have. Spotlight led to a nonoperating special effect. I will come to that also later. It's EUR 24 million. It's mainly provisions, which we booked in Q3. I will come also back to that later. And we have a number of sales and product highlights, which I will ask my colleague, Stephen Kimmich, because it is mainly in his world of segments that these things occurred. The 9-month figures, as I said, strong order situation. We have an order intake of EUR 988 million in the first 9 months. That's an increase of 18.9%. We had always hoped for that after drupa, there is a momentum in the market besides the drupa effect, and it seems to be that we can catch this momentum. We have the highest order backlog in our history at EUR 1.080 billion presently. The revenue as of the first 9 months is EUR 819.6 million, and the operating EBIT is minus EUR 20.7 million, which is below the previous year, but that has been expected and announced. As you know, we communicate the operating EBIT to be differentiated from the nonoperating special effects for Spotlight. The sequential improvement in operating EBIT in Q3 compared to Q2 happened also as we have predicted. And very important to our company, we see an improvement in our free cash flow at net working capital as of 30th September. And I think Stephen Kimmich will tell you a little bit about how we see the near future on that. We see that also as quite optimistic. The segment report for the first 9 months in detail will be made by Stephen. On the forecast, we have an unchanged outlook for '24. We see an operating EBIT at the lower end of the forecast corridor of EUR 25 million to EUR 40 million and a revenue target of EUR 1.3 billion. We see -- and that's important because we always deal with future, we see tailwind from the high order backlog. That is also helpful because we need to achieve a massive good EBIT effect in Q4. Q4 will make this year. The strengthening of our operated EBIT is already happened by the Spotlight focus program. And therefore, the midterm guidance goals are also confirmed being at 6%, around EUR 1.5 billion turnover in 2026. That's Koenig & Bauer at a glance. I would now like to hand over the next presentation of the business performance in detail to Mr. Kimmich. Please, Stephen.

Thank you very much, Andreas, and good afternoon also from my side. As mentioned, I will walk you through the business highlights and also the financial figures in the next few minutes. And as you will see, particularly on the order backlog, order intake side, there's quite a bit of very good news. Also on the cash side, we're seeing also very positive trends. Of course, our operating performance after the first 9 months is as it is. We are where we expect it to be. But as mentioned, we are looking at a very, very strong Q4. As mentioned, the order backlog at EUR 1.080 billion is the highest in company history, driven by another strong order intake quarter in Q3 this year, which I will also go into more detail in a second. The book-to-bill ratio, healthy and comfortably well over 1 at 1.21, and that gives us a lot of momentum moving forward. On the revenue side and on the operating EBIT side, after 9 months, of course, below previous year, but a sequential improvement compared to the last 2 quarters. Before I go into more detail on the figures, first, the very important highlights of what happened in Q3. So the very first good news is we received another business award from the Bureau of Engraving and Printing in the United States for our banknote business unit in the Special segment. And that is, of course, for that part of our business, a very, very good achievement. And this comes on top of the strong awards that we received in Q4 in 2023. The first order acceptance of this new order will start already in the second half of next year and stretches through 2026 and 2027. But in general, another great business award in our banknote printing. To give you some more details on that on Page 5, it's not just about the 2 awards. We had a little bit of a complexity in our quarterly reporting last quarter because in segment Special, we reported EUR 197.2 million of order intake. But after June 30, we received the information that a tender with the Bureau of -- an award with the Bureau of Engraving and Printing in the U.S. would again be sent out for tender. And therefore, at that time, we said a mid-double-digit million euro business award. This quarter, we're saying that's precisely at this EUR 70 million. That's relevant for 2 reasons. So the EUR 197.2 million we reported in Q3 were actually, when this order was eliminated, only EUR 127.2 million, which is still a strong figure, but EUR 127.2 million. And Q3, we're reporting EUR 139.4 million, but actually, it was EUR 209.4 million with this large new order we just received. But we eliminated the EUR 70 million from our reporting so that our year-to-date figures are now accurate. So we have EUR 390.7 million in the first 9 months in segment Special. The EUR 70 million order is not included. It's still out for tender, and we expect that to be completed no later than the first quarter of 2025. And of course, Koenig & Bauer is still fighting to receive that business award on top of the EUR 390 million that we've already received. What does that mean? It's not just a very, very strong first 9 months and very, very strong quarter for banknote with EUR 510.1 million of order backlog in the banknote segment, it's the highest order backlog in that segment that we've ever had. Many of you that have followed us for a long time will remember that we had a press release in 2018 with a large award in banknote as well for Egypt. That brought us to this order backlog of EUR 460 million in 2018. We're now at EUR 510 million in 2024. So great momentum moving into the next years. And as mentioned, the business awards are not done. The EUR 70 million tender is still out there, and additional business is also in the pipeline. The pipeline is still full in that business despite the historically high order backlog. So very good news in Special segment and a very good tailwind moving forward. On Page 6, you see another highlight that is at our subsidiary, Celmacch, that we purchased in 2022 at, first, 49%. So we're still a minority investor, but with options to call the majority in the coming years. Celmacch is fully dedicated to the corrugated segment. And as many of you know, the corrugated segment has been very, very weak in the last 18 months, driven by the general economic difficulties around the world and drop in consumption, but also due to the major mergers among our customers so that we saw quite a bit of a standstill in the business the last 18 months. That clearly changed in Q3. We had -- we're calling here a triple sales success. We sold more than just 3 machines. We actually are now at 7 in the last few quarters, but 3 in Q3 that were very, very important. The first was the first machine to Asia. The other is the first machine to Greater Africa sent to Kenya. And the third machine is the -- was sold to one of these major groups that has been on basically an investment stop for the last 12, 18 months. We finally sold a machine to one of these major groups, signaling to us that hopefully the worst in the market decline is behind us. So 3 successes in Q3. Why is this important? Particularly the machine in Africa and the machine in Asia, this was exactly the intent of the cooperation or the merger with Celmacch was to take a small but very, very fine company in Italy and Southern Europe and scale it to an international business using the existing sales and service footprint of Koenig & Bauer. Celmacch is already very, very successful in Southern Europe and in Europe in general. And the intent the last 2 years was to bring Celmacch into the entire globe, and now that's happened in Q3 in both Asia and Africa. On top of that, we're still very heavily focused on getting the first machines into North America and Latin America. And there, stay tuned, more to come. We're confident that, that will happen in 2025. On Page 7, for Digital & Web, and as many of you know, Digital & Web is a strong focus of our Spotlight program. But of course, orders is also here, one of the most important KPIs that we have. And we were able to, again, sell a RotaJET, which is our flagship digital printer made here in Würzburg. We were able to sell another RotaJET in Q3 to a very successful U.S. packaging company that is using it for supplying a global brand with digital printed packaging, focusing on enabling that customer on connected packaging and transforming packaging into more than just print. So we were able to sell another one of our flagship RotaJETs in Q3. And finally, on Page 8, we wanted to talk a little bit about Sheetfed. This is, of course, under the responsibility of our Board colleague, Ralf Sammeck. But we know that the market was asking what happens after drupa. So will the market drop? Will it -- will there be momentum coming out of drupa, yes or no? We compare on this slide drupa 2016 to drupa 2024. There's 2 major messages. So we didn't see the collapse of order intake pre-drupa. So we had a very strong Q1 of order intake at pre-drupa. We had a very strong Q2, which was the drupa quarter. Q3 was EUR 161 million, still a strong quarter. We're able to move a lot of the announced awards into our LOIs into order intake. But more importantly, what we're clearly stating on this slide is we expect a strong Q4 of order intake, which we can certainly confirm after October. We're absolutely on track that our Q4 order intake in Sheetfed will be higher than Q3 and will show a positive trend at year-end. So there, a little foresight into what you can expect in our largest segment moving into 2025. So a lot of good news and frankly, only good news on the order intake side. And that's, of course, the most important prerequisite for bringing Koenig & Bauer into the profitability that it needs. The other major prerequisite will be presented by Andreas Plesske, our Spotlight program.

Yes. Thank you. Now Spotlight is aiming at different business units in the group primarily at Digital & Web. So at Digital & Web, the task is to eliminate the losses. That's the main task. So the first, let's say, reasonable news on Digital & Web, if I pick up from order intake, is that the orders which we see in-house today, they fit the footprint of Digital & Web, which we aim for in '25. When we start the Spotlight and started the scaling of the Digital & Web unit and see how big is it, which machines will we still build and which we won't build, of course, we had to take an assumption early -- very early this year of what we aim for in '25. But now the year is nearly over. And I can say that the order intake and the various different product groups that we have, they fit. So the smaller shoe size, which we have in that division in '25, correlate to the order intake that we have. That means that from this point on, we neither need to increase nor decrease massively the Spotlight approach. It seems to match. The same thing can be said for banknote, which was a much lower, let's say, impact, which we had for Spotlight. It was a lot more of, let's say, streamlining and see how much F&E do we really need if we have a successful new program and [ dum, dum, dum ]. It's not so much a massive footprint exercise. And as you can see from order intake, it didn't have to be. We always said that we will slim down the holding. We have started that. I will come to that. That's still on track. And then we have a few other group-wide projects. All in all, what we also tell you is that the gross cost cutting that we aim for, as I said initially, we see first effects of the Spotlight program. In 2024, we will see between EUR 15 million and EUR 20 million primarily in -- already in cost cut down from personnel, but also in other cost groups. In '25, that will be accumulated then, EUR 40 million to EUR 50 million gross savings. And the Spotlight program will be over at the end of '25. It's a program. It's not a continuous task, but the full year effect will only materialize in '26. And that full year effect will have a magnitude of between EUR 60 million and EUR 70 million. So far, the whole Spotlight program is well on track. So these numbers are not for reevaluation from our side at this point of time. To give you a bit of a background, we have a very interesting environment because, as you know, the labor unions presently demand in our business a 7% increase of wages. And there's a lot of strikes. The first strike at midnight after the old contracts ran out was -- by the way, was [indiscernible]. And secondly, you all know what's happening in the automotive world. So it's an interesting environment. But Koenig & Bauer being Koenig & Bauer, we have a lot of common sense in our works councils, which take the priorities in the company and not in politics. So whilst this is all going on on the outside, we have been doing our programs inside without any disruptions. To give you a few examples of what we're doing, we are reducing the headcount by, let's say, 300-plus x people. The majority of that is in Würzburg, 200-plus x people. We're doing that with a program where we approach people. It's not a [indiscernible] plan, but it is what we would call a [Foreign Language] program. I have no idea how to translate that into English, but it is something like a -- we offer a voluntary contract cancellation, but only to those people that we actually address with it. That we have done also in P24 after COVID. That is something which we know how to do. It works. We also reduced time. We have many 40-hour contracts, which we reduced to 35-hour contracts. And we do that silently without any big noise. Cost reductions in other companies, as you read in the papers, is a lot of turmoil, all the extra tariff employees as well as the managing directors as well as the executives like us. Also, we cut our own fixed salaries to set the good example, and that is the biggest important point to gain the credibility, that we start with ourselves so that everybody else follows along. We have shut down our operations for 1 week in fall to get -- to reduce all of the provisions for holidays and all of the -- our accounts that we have this year so that we run through the end of this year without any material provisions which we need to make. We have a tremendous amount of applications like [indiscernible]. That is [indiscernible]. It's an instrument which also allows you to cut hours and parallel cut wages. So it's a massive bundle of different things. And so far, knock on wood, you haven't heard a lot of noise from Koenig & Bauer in the press or elsewhere. So this is going. And this is also something which Koenig & Bauer has proven in the past that we are quite able to do something like that, at the same time, as we need to have the full attention on the fourth quarter because the fourth quarter needs to be the quarter where we make a major amount of profit to achieve our goals. So to mix that in the outside environment with tariff increases and our own restructuring program plus Q4 will be the decisive quarter to achieve our EBIT goals is a task. So therefore, yes, we do have interesting times, but I think this company has a lot of common sense if it comes to getting through a crisis. And I'm quite optimistic that the spotlights effect will come as in time and as to the amount as we project them. Now I would hand over back for the next page for the detailed analysis of the segments and the business performance in the group to Stephen.

Thank you, Andreas. Moving on to Page 10. You see more details on our top line figures. First, on order intake, fantastic, as mentioned several times, EUR 988 million in the first 9 months, an increase of 18.9%. Compared to the VDMA German market average, it's a fantastic result, and we're quite proud of the order intake in the first 9 months. Revenue. Despite the order backlog, which is very much going to help us in '25 and even '26, revenue in the first 9 months is down. This is as expected. We saw it also in Q1 and Q2. That revenue was down year-on-year. We're now at 8% decrease, around EUR 72 million lower turnover in the first 9 months this year compared to last year. Order backlog, as mentioned, fantastic developments. The EBIT is, of course -- Page 11, the slide which I least like to present in today's call because it shows that after 9 months, our operating EBIT is, of course, disappointing at minus EUR 20.7 million. It's significantly below where we were this time last year. And it's -- we've, in a way, dug a hole that we now have to crawl out of in Q4. And why is that? At the end of the day, it's lower sales. So we had EUR 72 million in lower revenue compared to last year, which is directly missing contribution from those sales. Of course, we also have special effects on top of this minus EUR 20.7 million operating EBIT. That's the drupa, which we had always announced was circa EUR 10 million, now EUR 10.5 million as the final figure in Q3, and Spotlight, which we have now booked in Q3 at EUR 24.4 million. The large majority of that is accruals for personnel cost reductions. But of course, there's other operating expenses associated with Spotlight beyond that. And at this point, I would also mention, I will repeat at the last slide that, of course, more Spotlight costs will occur in Q4, but I'll come to that on a later slide. Operating EBIT of EUR 4.2 million in the single quarter of Q3 is, of course, a positive news. So we had a significant improvement compared to our operating performance in the first half of the year, slightly better than the Q3 of last year, but still a long way to go in the last 3 months of 2024. On the income statement, I think there's no major highlights that we haven't already talked about. Sales are down, gross profit is down, of course, also due to the Spotlight expenses that are, of course, booked to a large part in cost of sales. Otherwise, and I can confirm this, if you look at our administrative costs, also our primary distribution costs, which means excluding drupa and excluding outgoing freight, if you look at our primary sales costs and distribution costs, they're also significantly down year-over-year. R&D, despite our depreciation of our capitalized R&D expenses, is around EUR 1 million lower than prior year. So on the functional expense side, we clearly have a lot of focus. Still, operating EBIT of minus EUR 20.7 million, a very, very difficult first 9 months. Interest rates, of course, are higher driven by, of course, higher interest rates in general, but also our higher usage of our credit lines. But that leads to a bottom line net loss, including all-in, of minus EUR 77 million after 9 months. On Page 13, you see, however, some more, as a CFO, clearly, good news. We receive a lot of questions and a lot of comments about net working capital and cash flow and net financial position and why can't Koenig & Bauer do more. We have had cash in focus -- strongly in focus. But a company like ours with 9-, 12-, 14-month lead times or throughput times, it takes -- it simply takes time for measures to show up and to hit, but we're seeing progress. Net working capital is now down year-over-year EUR 13.3 million, so EUR 336 million compared to EUR 349 million last year, but down by EUR 43 million compared to the peak we had in Q4 last year. What is driving this? It's 2 major effects. Inventories are down by EUR 68 million compared to the same time last year. So also here, inventory management, despite our strong Q4, which we're still -- which means we're going to be pushing a lot of our inventory into the cost of goods sold in the P&L in Q4. We're moving into Q4 with significantly lower inventories than we did this time last year. Our inventory management is working. The same on our order backlog, the strong decline in advanced payments from our customers that we saw in 2023 down to EUR 211.8 million. We've seen now sequential improvement throughout the year. We're still not quite at the level we were at this time last year, roughly EUR 21 million down, but significantly better than the lows we had in Q4 this year. So we're seeing improvement. Our working capital is improving. And in the previous slide, we decided to commit to higher Sheetfed order intake and at least explain to you and make it clear that we are expecting higher order intake in the Sheetfed segment. And on this slide, a similar message, you can clearly expect that cash flow in Q4 will be positive. We will end the year in Q4 with a positive trend moving into 2025. And this is driven, of course, by our strong operating performance, but also the measures on the cash side, not just on net working capital, also CapEx management, investment management and cash management in general. So the second message for today's call, number one, Sheetfed order intake will be strong in Q4; and second, net working capital or free cash flow improvement will be strong in Q4. And that's, I think, a positive message considering the difficult and -- yes, difficult times we're currently in. You don't see it quite -- on Page 14, in the first 9 months. However, it is a significant improvement compared to the first 9 months last year, but I won't dive in too much detail, the minus EUR 35.8 million that you see here in free cash flow after 9 months. I can only repeat this number will improve in Q4, and you can expect positive cash flow from the company. On the balance sheet on Page 15, there's frankly no major items that are worth mentioning on my side. Working capital, we already discussed. Of course, the losses and the provisions are driving a drop in shareholders' equity. That's an investment in the future, particularly on the accruals that we expect that to return to higher earnings in the coming years. On the liability side, no major movements also in pension liabilities, et cetera, nothing major to discuss. On Page 16, you see the typical slide with a lot of details by the various segments. Also here, I think we've touched on everything, so I would just briefly present this slide. Sheetfed order intake and Q3 performance, strong. Special order intake, very, very strong. We don't have a strong first 9 months in Special. Of course, Spotlight is also hitting this segment. But here, driven by the strong order backlog in Q4 last year, we're going to have a very strong Q4 in segment Special for the company. Digital & Web, a reasonable order intake at EUR 53 million driven by this RotaJET project that I mentioned as well as our other products, a reasonable order intake. And the operating losses at minus EUR 10 million, I think, clearly, again, show the necessity for the measures, the personnel measures we're executing here in Würzburg. And finally, and I think that's the third major message is on the financial side, we confirm our guidance. We see a fantastic Q4 for the group ahead of us. Revenue -- after achieving only EUR 280 million in the previous quarters, we're expecting revenue to achieve nearly EUR 0.5 billion in Q4. So EUR 480 million is what we're expecting just in the last 3 months as we push a lot of machines into the market and particularly on the big percentage of completion orders as we finally ramp up some of those programs that were awarded in the past. So EUR 480 million of revenue in 3 months is, of course, the main driver of our improvements in operating EBIT. We are expecting additional Spotlight costs in Q4. So we had mentioned already in our prior quarters that we see between EUR 30 million and EUR 45 million of Spotlight expenses in this year, more towards the upper side of this corridor. We're at EUR 24 million after 9 months. So you can expect between EUR 10 million and EUR 20 million of additional Spotlight expenses in Q4 as we continue to execute and announce measures and, under IFRS, can then book the appropriate accruals and/or the appropriate expenses for the measures that we continue to announce through Christmas. That leads to -- frankly, we're expecting EUR 45 million of profit in Q4 from operations, and that's going to be one of the strongest Q4s that the company has had in the last 10 years. But it's something we've done before. This won't be the highest Q4 ever. It's going to be one of the best Q4s ever when we reach the targets. Our average in the last 10 years, you see on the right slide, has been around EUR 31 million. Last year, we did EUR 32 million of profit in Q4. Our 10-year average is EUR 31 million. But you see on the right side, we've achieved over EUR 50 million and achieved in the high 40s several times in the last 10 years, and we're confident that we can do it again this year. And that's why we confirm our guidance for the full year. But of course, there's risks. Of course, there's uncertainty in the last 12 weeks. It's a massive effort in difficult times where we're also generating personnel measures. So of course, there's a residual risk in execution. It requires everything in our plans to go well, but it's what we're executing as we speak and what the Board is permanently reviewing. And we're confident that we can achieve this goal by year's end. So again, the third major message, Sheetfed, on track, cash flow, on track and Q4 operating performance, on track, that all 3 of these figures should be positive by year's end. So should have a positive development through year-end. So that's it from my side. And I think the key messages we would just -- on the last page, we would just leave up. And it's all been mentioned. We're seeing good orders. The temporary weakness in corrugated is behind us. Banknote, of course, has a great track record of -- and a great order backlog and tailwind moving into the future. And in general, supported by Spotlight, we see ourselves on track not only to meet our guidance this year, but also, we are still committed to our 6% profit target in 2026 and a significant improvement on the way to that goal in 2025. So I would -- from my side, that's it, and we would hand over to Q&A before, of course, Andreas Plesske would have the closing comments after Q&A. So operator -- oh, thank you.

[Operator Instructions] First question is from [ Johannes Reese ] from [indiscernible].

I'm surprised I'm the first. Maybe 3 short questions. First, on corrugate and RotaJET, how is the pipeline after the successes you mentioned in the recent months? Can this trend be maybe prolonged even further, maybe machines from both areas in the pipeline coming in the next maybe months or quarters?

I think I hand over the question to corrugated. Do you want to have your first -- the 3 questions first or the answer first?

We can do it, okay. Second, maybe -- you're still guiding for EUR 1.5 million -- or EUR 1.5 billion sales in '26. How good is your visibility? And what are maybe the drivers you see? Maybe it depends a little bit even maybe on the first question that you can achieve this number in the year 2026. And third question, I only have to ask -- there's no word -- no single word in the presentation. What about the Volkswagen project? We are coming close to the end of the year.

Okay. Well, thank you. So I would try to answer the first question. And on corrugated, I would hand over to Stephen because it's in his world. And on Volkswagen, I would also answer and then I would like to ask Stephen for the guidance. So let's start with RotaJET. The pipeline that we have on RotaJET is robust. I used that word also in banknote over the last years. When everybody asked me where do we go in banknote, I always said, difficult to say when an order comes, but the pipeline is robust. I used that phrase. And there were quarters where we had no or literally no order intake in banknote, and it takes a little nerves, but there was a robust pipeline. So -- and now we see on banknote, we have a tremendous order intake way more than we had anticipated in this short period of time. So the pipeline is robust. The predictability of what you get in which quarter is difficult. And I would apply that also on RotaJET. RotaJET is -- it's a big thing. It's like the U.S. enterprise. It's sometimes a 2-digit million investment in a specialized new business model. The pipeline is robust. The pipeline gets longer, not shorter. So I'm positive on the year-over-year to '26 view. To predict how much orders we have in each quarter is as difficult as in banknote. That's the answer on RotaJET. On the Volkswagen project, yes, I said we will see at the end of this year where we are technically. And we now have the, I don't know, what, 8th or 9th of November. So would you please give me the remaining weeks? And we have promised to make an announcement, and we will make an announcement, and we are in the middle of testing. And you do not see me desperate, but it is new -- it is a totally new thing. So anything can come if you have a totally new thing. I haven't heard that anybody else is doing what we are doing presently, not even the big boys on the battery dry coating business. It is still a new thing. We're in the middle of testing. You don't see me desperate, and we will announce something around the end of the year. Now I would hand over to Stephen on the corrugated and on the EUR 1.5 million (sic) [ EUR 1.5 billion ] question.

Okay. So corrugated, I mean, I think the point of the slide today was to show that we're finally seeing some positive momentum. The market is certainly not back to where it was in 2021, 2022, but those 3 awards were positive, which is why we decided to make them one of our highlights. The pipeline has grown in corrugated the last several months. We're having more RFQs. We're sending more offers to our customers, and we've booked more orders. And I mean just to give you some flavor on Celmacch, where I sit on the Board of that subsidiary, if you look back to spring this year, we were worried about, well, the factories are full until late fall end of this year. And now if we look now in October, our factories are full until late fall next year. This is good news. So we have now some room to breathe, and the pipeline is certainly growing. And Celmacch was able to stay profitable throughout the entire downturn, and that's good news. But I'm still a little bit hesitant to say it's great. It's not -- the market is still weak, but it's less weak than it was a quarter ago or 2 quarters ago. That's corrugated. For the guidance, EUR 1.5 billion, understood. And it's frankly -- the election results yesterday, there's still uncertainty everywhere. What happens now with the U.S. market? And what happens with China? And what happens to just free trade in general? So there's, of course, uncertainty around it, but our growth paths are clear. The EUR 1.5 billion is not a target. It comes from our planning that we did in the fall of last year when we announced the goal. And our growth paths are clear. It's growing in certain segments. It's growing in -- I think we've talked about enough in the past, in digital printing, in post press, in corrugated, in various initiatives. And we still see those growth paths. The EUR 1.5 billion is, therefore, confirmed. We'll see what happens in the next 12 months, if it's a little bit less or a little bit more or -- but it's not going to be EUR 1.3 billion. It's certainly not. The more important message for me is not the EUR 1.5 billion. It's the 6%. And we are executing Spotlight because we need significant improvements in profitability. And I mentioned in the last quarterly call, even if it's slightly lower than EUR 1.5 billion in 2026 on the turnover side, we have to keep pushing, even if we have lower sales, on higher profitability. And therefore, the 6% is the more important number. And whether I do EUR 1.4 billion or EUR 1.5 billion or EUR 1.6 billion or EUR 1.45 billion in turnover, we need to improve profitability. That's our target.

The next question is from Jorge González from Hauck Aufhäuser Investment Banking.

I have a few questions on Sheetfed and the drupa effect and also on Spotlight. So first, beginning with Sheetfed order intake, EUR 160 million more or less for the quarter. And I was wondering how much comes from drupa. If I remember well, you accounted around EUR 60 million, EUR 70 million that was mostly Special in the second quarter. So that means -- that should translate into EUR 140 million for the second part of the year coming from drupa. Is this correct? I mean you have EUR 140 million for the second part of the year. How much then have you accounted in this quarter? Just trying to get a feeling on what is the demand outside drupa. And thank you very much for the slide where you were showing what happened in the past. So that's also helpful. But -- well, this is my first question, please.

So I think I can take that. So very quick and clear answer. So around the EUR 100 million of Sheetfed that we had announced as firm orders, that's now fully in in Q3. The roughly EUR 40 million that we said is backed by LOIs, that is what's going to help us in Q4. So we expect in Q4 that, that entire EUR 140 million will be in the books.

So EUR 40 million in Q4 and EUR 100 million in Q3?

No, no. Sorry, the EUR 100 million is now fully included in Q2 and Q3. And the EUR 40 million additional drupa orders we expect by year-end will also be fully included. That doesn't mean it's only drupa in Q4, but we would say this EUR 140 million of projects for Sheetfed that we brought out of drupa, we expect them all to be in our books by year-end. And of course, we're now starting to get what we would call non-drupa projects, projects that came up after drupa and just normal business. So that EUR 40 million is part of the reason why we're seeing and why we're committing today in our -- a little bit more detailed guidance of an improvement in Q4 order intake in Sheetfed versus Q3.

Sorry, Stephen, because the line is not very clear. So then it's, without drupa in Q3, EUR 60 million, more or less? Could -- is that what you mean?

No. Maybe we can take this offline. Don't worry because I think it's difficult -- there's no -- it's impossible to have a direct drupa versus non-drupa, I mean it mixes. But EUR 100 million -- the total drupa number for Sheetfed was EUR 140 million. EUR 40 million of it -- EUR 40 million was LOIs and EUR 100 million was firm orders. Those EUR 100 million were partly in Q2 and partly in Q3. The EUR 40 million is now going to be in Q4. That's the way to think about it. But that won't explain the entire order intake. We also have service projects in order intake. We have other machines that have nothing to do with drupa in order intake. So if you're looking for the full bridge on the Q2, Q3, Q4, we can try to prepare something offline to help explain a little better.

Perfect. No, that's good. So then -- just a quick follow-up on that. So then out of the EUR 200 million binding from drupa, EUR 100 million were then Sheetfed and the other EUR 100 million were Special? Well, drupa -- I mean, the weeks where the drupa happened because I remember it was, you said, EUR 200 million.

Yes. EUR 250 million was everything. That was Digital & Web, it was banknote. It was EUR 150 million. I said EUR 100 million, but it was EUR 107 million and [indiscernible].

Okay. I get it.

But it's roughly EUR 150 million is Sheetfed and EUR 100 million is banknote and Digital & Web.

Okay. I got confused with the EUR 100 million. So then how this compare with last year? Because last year was like the weakest order intake for quite a long time. So do you -- now it's obviously disrupted because of drupa. But taking into account the pipeline that you were mentioning before and the expectation of a stronger Q4, are we at a similar point than last year in Q3 in terms of the market dynamics or we are in a better position now?

Much better. Q3 last year was very, very weak, very, very weak.

Okay. Sorry [indiscernible]. So then for the year, is any rough guidance that you can give us in terms of book-to-bill for Sheetfed in the year? Do you -- I mean are you expecting to be well above 1x book-to-bill? Or is there any reference that you can give us?

I mean I was -- frankly, I was hoping everybody would be happy that we're going as far as to say that you can expect higher than EUR 161 million and an increase in Sheetfed. We're not going to go in further detail on book-to-bill [ or exact ]...

No, obviously, we appreciate the effort and just trying to get a little bit more detail. And then on Spotlight, thank you very much for providing the impact. I think it was really expected by the market. So this is quite good to have it. I'm a little bit surprised with the numbers, though. So I have a couple of questions. You are mentioning a positive impact of EUR 15 million to EUR 20 million in '24. That looks already high. So I was wondering, is this EUR 15 million to EUR 20 million initial impact in '24 related to the 300 full-time employees equivalent adjustments or comes from a different measure? Because if I make the numbers of your average salaries and I apply the 300 and I consider one quarter, it's difficult for me to get to this number.

It is not primarily personnel expenses. Over the year, we have implemented a lot of measures. It isn't that it all has started on the 1st of October. It was going on throughout the whole year. So we cut all sorts of costs in all sorts of areas and of course, including personnel costs, may that be temporary workers, may that be overtime, but it's also all sorts of things from cutting down on travel expenses to other expenditures that we had. So it is accumulated over many cost divisions. It is not all personnel. The main personnel impact will happen as into the negotiations and the signing of the amendment contracts in this quarter. And the other main things that we do were we reduce 40-hour contracts to 35-hour contracts, which is a reduction of 12.5% in wage, also 12.5% in income. And I said that we do the same as executive members to be in the same boat. That will all be installed this year. Part of that will have an effect in '25. So the EUR 50 million or EUR 52 million, I'm unable out of the top of my head to break it down. I don't think we will break it down, but it is a mix of many things which we have done over the course of this year.

We did a lot of measures this year that we moved the savings forward from next year. Next year, we will have certain savings coming from really reducing staff. And for one example, we shut down 2/3 of the [ vertical ] plant last week for an entire week, and that generates temporary savings in Q4 that next year become permanent savings as we reduce the staff. But there's a lot of measures ongoing in Q3, Q4 to reduce personnel costs that don't require severance packages or just forcing vacation time, forcing reduction of overtime, et cetera, et cetera. So it's not necessarily -- even the accumulation from '24 to '25, it's not really accumulation. A lot of the measures are temporary measures today to become permanent measures next year. So there's very little savings this year from pure severance, getting people off of payroll, because that takes time in Germany. We're in the middle of that process. But as much as possible, we're pulling temporary savings forward into this year with certain other measures that Andreas Plesske just mentioned.

Yes. Okay. That is very useful. In fact, I have a follow-up on that. So taking into account this constructive approach for the severance, I mean, what is your expectation for next year? Out of these 300 full-time equivalent employees, how much of those do you expect to already achieve next year? How many of those? And in terms of the impact in cash flow for compensations, do you see the full impact next year? Or this is something that is going to be gradual? Maybe you get into agreements for kind of anticipated retirements and then that means that this is going to be distributed through, I don't know, 3, 4 years. I don't know how it's going to work, these provisions in terms of cash for you.

Okay. We try to do it, of course, as cash saving as we can. So what we want to reduce is more than 300 FTE cost positions. A FTE cost position is not necessarily what I would call a warm body. So if we have some departments where we agree with them -- let's say, a little department in the holding where we agree, amongst the 10 employees, that 5 of those employees in the future will work half-time. Then we do not actually lay somebody off. But if 5% -- if 5 out of the 10 work half-time, then we have reduced 2.5 FTE cost in that department. In other departments, we offer them a settlement package. What you had mentioned, the pension plan, especially the split pension plan where you work for a time and then you are set off for a time, we try to do as very little as possible of that because, first of all, it's very costly. And second, the full effect will be at the very long end. So we try to very much limit that to the minimum. What we -- but what we do is if we do not target the right people in the right department, we have, let's say, a hub concept where maybe in another division, which is not affected by Spotlight, we can address 2 or 3 people and they leave the company against a severance package and then we rotate people in the group. So we do that also. So it's a mixture. There is fairly little of this, let's say, early pension scheme thing because it's -- the effect is very long time and the cost is very high. And to save cash, we also want to, if we can, reduce hours, but this will only be a part of it. The overall goal to have 300-plus x FTE costs eliminated stands. There will be no deviation, as I can see today.

And I would just add that the 300 FTEs should -- [ they're reducing ] now and the measures should be -- will all be in place in 2025. And by the end of next year, they're all gone. The cash impact, we can't predict exactly yet because the measures aren't finally negotiated with the works councils and the other stakeholders. But certainly, the largest portion of the cash out should be in 2025. There will likely be some remaining effects in 2026, depending on the exact period of severance, but the largest portion of the cash effect, we'll see next year.

Okay. [indiscernible]...

I think we must allow also Mr. Rothenaicher to participate. We only have 5 more minutes. I don't know if there's a very quick question from you, Mr. González. Otherwise, we are running a bit out of time.

Yes. No, I go back to the line.

The next question is from Peter Rothenaicher from Baader Bank.

Firstly, on free cash flow. So you mentioned in the fourth quarter, it should be clearly positive. Does this mean also positive free cash flow for the entire year? Or will this be not possible?

I don't want to commit to that. It should -- we're going to try to get as close to 0 as possible. But we're EUR 37 million down moving into Q4. Whether we have plus EUR 37 million or plus EUR 30 million or plus EUR 28 million or plus EUR 42 million, I don't want to commit to an exact figure. We're certainly going to be moving very close to the 0, and that you can count on. Whether we overachieve that, I don't see it at the moment, but we want to -- we're not going to give up until the last day of the year.

Absolutely clear. Okay. Then regarding Digital & Web, what is your view -- when do you expect being able to reach breakeven?

'26.

So in the full year already '26 or towards the end of '26?

Oh, we will see the results coming in at '25. But -- and I -- internally, I have a whole team here, and we commit ourselves that we will -- in the year '25, we will -- we are aiming for -- well, that's not a guidance. We're aiming for at the end of the year to see positive single month. But if you then accumulate it over the next year, it will still be a loss, a much smaller loss than this year. But driving down the cost takes time. So the '26 year will be the first full year where we have all the full year effects.

Okay. And lastly, on these big banknote orders, is profitability normal for this business? And in the past, you had in Special segment order -- profitability of more than 10%. Is this possible with the cost reductions you are doing, that with this kind of orders, you achieve the 10%-plus margin?

I think, as you know, we don't give specific profitability guidance on individual segments. But I think what we've said in the past and can clearly say again, the combination of the order backlog from banknote and the Spotlight program, which is reducing costs, despite the high order backlog, we're reducing staff in banknote. The combination should bring Special back to what we call above-average profitability. And it's the same view on Koenig & Bauer I've given in the past, but it's nice to repeat it again. If we want to achieve the 6% to 7% average profitability for the group, we need to have a Digital & Web that's in breakeven and is in black figures. We have a Sheetfed that's around that 6%, and we have a Special segment that's above average. And those 3 will combine to bring us to the 6% to 7%. So we're not going to give a profitability target on Special other than to say it will be a major contributor and will have above-average contribution.

Mr. Augustin, can you have a quick question for us?

The next question is from Stefan Augustin from Warburg Research.

Just a very quick one. The Spotlight savings in '26, is this a figure I should take as a net savings? Or is it gross savings?

I think these kinds of programs are always gross savings, always...

Gross.

Yes. It's the savings from the project.

That was the last question for today.

Right. So I think then it's for me to wrap up. We are already overtime. So the wrap-up will be fast. And it will be the same as I said initially. We live in extremely exciting times. And we have a lot to do in the last quarter. We have a big hill to climb on the profitability. We are very, very happy that the back order -- the order backlog allows us a very good perspective for the next year. But we will not turn into a boring company in the next 2 quarters. We promise that. So thanks for your attendance and discussing things with us. And well, we'll talk again early next year then.

Thank you very much.