KSB SE & Co. KGaA (KSB) Earnings Call Transcript & Summary

Dear ladies and gentlemen, a very warm welcome to our first KSB Earnings Call. My name is Sonja Ayasse. I'm Head of Communication at KSB, and I have the pleasure to moderate this call today. As our main speakers, we have our CEO, Dr. Stephan Timmermann; and our CFO, Dr. Matthias Schmitz. Stephan and Matthias will present you our half year performance. They will also give an outlook on the remainder of the financial year and also on our strategic objectives. [Operator Instructions] Last but not least, I would like to inform you that this call is being recorded. And for transparency reasons, we will publish the recording on the KSB website. But now, enough said. I would like to hand over to Stephan to do a deep dive into our numbers.

Dear Sonja, dear ladies and gentlemen, thank you, first of all, for the kind introduction. It is indeed the KSB Earning Call 2023 and one of the first Earning Calls that I have seen in this company for many, many years. The beginning of something that Matthias and me want to do in the future, 2 earning calls per year in order to inform you, dear investors, on how our company is running and how we're going to move along. Having said this, Matthias, on my side. I, of course, say a hearty welcome from all of us, members of the Board. Matthias, our CFO, on my right side; Stephan Bross and Ralf Kannefass, responsible for production and sales in the background; and myself being the CEO, being on stage together with you. This year the investment into our share, some of you whom we have talked to in 4 eyes talks in the forefield has become really something, that especially Matthias and me have taken on to the radar screen. We are a stock-listed company. We obey all rules and regulation of the stock company. And knowing that we have a big stakeholder in terms of the foundation, really have an emphasis on seeing that not only our investors are happy, but that this is also reflected in the share price. And as you can see, and Matthias for sure will comment it in the -- in his presentation, as we roll along, the share price has been doing well. And this basically reflects the good story that I, together with Matthias, I'm going to tell you in the next roughly 40 minutes. Before I go into the story, just as a matter of housekeeping, you know the rules and regulations. Talking about the past is rather easy. The figures do not blush. They show the company as they are. Talking about the future, this is a lot about estimates and best guesses at the time. And I really ask you, not only for the presentation for my part, for the part that Matthias is going to take, but also for the Q&A sessions, everything which touches the future is the best guess that we have at the time. So please in terms of liability, no guarantees. This is the best that we can predict in today's world. And as I will show you, today's world is a rather rough sea in order to navigate a company through, especially when it is globally set up as KSB SE. Within the first word, I would like to introduce our short agenda. I will start with a short introduction of the first half of the fiscal year 2023. Then as the major part of today's presentation, Matthias will do a deep dive into the figures. As he has done it, I will pick up the presentation once more to give you a very short overview into how we see the present year, in terms of the outcome of the complete year 2023. And in rapid, into something which is extremely important for us at the time, because we're really putting a lot of focus and work into this, our strategy, the prolongation of our strategy, which we today call Strategy 2030+. And then of course, we wrap it up and as Sonja said, we will have a Q&A where you can post all those questions, which have not been answered during the presentation. Having said this, let me begin and a very, very short glimpse into what moves us in at KSB in the year 2023, in the first half year. Basically, for those who have been following our presentations, it's the continuation of the hiccups of the challenges that 2022 have already provided. It's COVID. Is COVID gone? Of course, not. Especially at the beginning of the year, we still had certain impacts of COVID all around the world. Still today, as we travel, we do have occasions where people, employees of KSB are infected by the virus. So COVID still has an impact. Then we have the very unfortunate war between Russia and the Ukraine. The invasion of Russia -- of the Ukraine via Russia, is this over? Of course not. Are the impacts over? Of course not. There are massive material surges that we saw in 2022. So last year, they, for sure, are slowly, slowly going back, but we are far away from being normal. Certain commodities like copper are still on very, very high levels. And of course, this is a little bit connected to the Russia-Ukraine war, but a lot connected to the demand for copper, especially for electromobility. Then we have the issue of electricity prices, of gas prices, of oil prices. Are we at the level of 2022? Of course not. Slowly, but surely electricity and gas prices are going down again but we are bound by long-term frame contracts, which, of course, influenced the result of the company in a certain way, very different all around the world, but it is still an impact, which we see in 2023. As if this was not enough, the new big question marks, in terms of macroeconomic development of the world are, of course, the conflict that China is imposing into the world by the discussions of integrating Taiwan back into the Mainland. This, I do not have to tell you, leads to a lot of challenges all around the world. And on top of this, the slowdown in the economy of China, which we, with our big exposure in China, also feel in a certain way, adds to the basket of challenges. Besides this, the picture on the left, under corner shows -- that's the plant in La Roche. Hailstorms, metrological challenges all around the world do not make production in the world easier and everything connected to sustainability, and we have a very strong path and strategy in terms of growing sustainability, yes, that poses challenges. At the end of the day, it costs money. If as the last challenge, I would now deep dive into Germany as being part of the -- European part of our business and you know 50% of our business round about is still in Europe, I do not have to tell you that the European industry in itself is rather sluggish, especially in standardized commodity products. And we, in Germany, we have a very special problem. And this is reflected by everything that you can see in the newspapers at that time. I've just taken out 2 graphs, the 1 is from our Ifo, which basically predicts that Germany will not grow this year. The second is from the International Monetary Fund, which also does not exactly give Germany the best position in terms of economic development. If you want to hear the truth, we were the last kid on the block in this last survey, which was published last week. Now how is KSB doing in this potpourri of challenging -- challenges? I must say, rather well, we are keeping our costs and we are keeping our costs well. We are tuning our organization, putting a lot of energy into really streamlining the organization. We are working on our strategy. I will pinpoint this at the end of the presentation when I can tell you a little bit about our Strategy 2030+. We do all of this with increasing focus on those parts of our company where we have the profitability. And last but not least, as an extremely important part, also of my management business and the business of all my colleagues and extreme focus on our employees and we do with this with utter confidence that we will grow KSB to a next level, even in such a rough climate. Now in terms of figures, as I told you, Matthias will give you a profound insight into how the company has developed. The only thing that I allow myself to show is this chart, where you can see our profitability in the first half year of 2023 is really amazing, above 8%. If you take out a onetime effect in insurance payment, which Matthias will comment on, way above 7%, a trend which has been growing year by year, really an absolutely fantastic story. And I must say, I'm extremely proud to be part of the team, which is making this happen. Now, you might ask yourself, and for sure, you will question where does this come from? What are the drivers of this success? And for sure, I could elaborate quite a few minutes on this, but I've tried to summarize it in one little slide. The key drivers of the success, they are graspable. It's for one, the organization that we have put in place as the result of our strategy program, CLIMB 21, we put it in place in 2020, just before corona hit us. This organization, which focuses on markets, which divides our company into the Pumps division, the Valves division, and our service division, KSB SupremeServ, this is really starting to reap the crop. Having said this, KSB SupremeServ, as one of the muscles of our profitability. We started this journey in 2018 and changing a mindset, which is connected to this, really making a company focus on aftersales. Yes, slowly, but surely, it is showing impact. And there's a lot of more improvement to go. Then pinpointing companies, which are making a loss. I mean, this is basic entrepreneurial work, but we have professionalized this. And for sure, one of the biggest chunks that we took on to the radar screen was the company that headquarters our KSB world. It is what we call in Germany, the KGaA, that company where you have bought the stocks from. This encompasses all German production plants in Pegnitz, Halle, and Frankenthal and the big headquarters, so round about 4,000 people. We had sizable problems of being profitable in this entity with a project, which we called basically restructuring the KGaA, started in 2020. We have managed to sizably reduce the losses. And today, we record a very, very sizable profit. And this is just the beginning of the journey. If you do all of this, you change mindset. And for sure, one of the most important mindset changes that we have reached, and this is absolutely essential, especially if you become as profitable as we are today and have the objective of becoming even more profitable, cost awareness and prudence. You can only spend the euro once. And I think, a lot of things have gone into this all around the world to raise this cost awareness. Closely connected to this, we have lost a lot of money in the past by making mistakes. By taking projects into our books, which were economically either not viable or which were technologically not executable the way that we had predicted it. And I think, Lee Tunnel, some of you might know it, an absolute disaster. And this loss, of course, has to be compensated. I would say, with all the risk mitigation programs that we have in place today, the possibility that we really have a sizable loss-making project. Of course, it cannot be avoided, where people work, they make mistakes. But it is much, much, much smaller than it was in the past, and we see this in our fiscal results. And what we have learned, and again, this is something, which is connected to culture. If we make mistakes, we fail fast. We have managed to see that our employees report mistakes that are made immediately, and this is good, then we can act fast, take contact with the customer and learn out of our mistakes. In addition to this, of course, especially in those times where prices were surging, on the commodity side, we did a lot of work once to pass on [indiscernible] market that also to negotiate with our suppliers that the increase of the procurement side stay in certain limits. And with this, we were able to secure our contribution margin. A lot of this, closely connected with the corona effects, which basically avoided that anybody was able to travel, an excellent collaboration across the world. 100 KSB companies all around the world aligned working via Skype or working via Teams. Supporting those who, for whatever reason, had a weak phase in the economic development, pushing ahead those who are really making the profit to make those even stronger. And last not least, and this is also normal, and absolutely necessary, a bit of luck and I think a lot of hard work from all our 15,700 employees. This is what made the success story happened. And with these very short explanations, I think, Matthias, now it's your turn to put a little bit of meat to the bone and deep dive into the economic figures of the first half. Matthias?

Okay. Thank you, Stephan. I think you did a great job in giving an overview about the company. Where does the company stand? Now I will go deeper with some figures. Financial update. First of all, Stephan, you mentioned it already, our EBIT increased up to EUR 112 million, which is comparable with ROS of 8.1%. If you deduct the onetime payment of the insurance due to the hailstorm we had in France last year with an effect of EUR 10.2 million, the operative or the operational ROS is 7.3%. Where is this operational ROS coming from? First of all, we increased the sales by 21% compared to the first half year of 2022. Secondly, and this is what we have promised in all the road shows and in the investment meetings we had with you, the muscle of this company is SupremeServ, and we have increased our order intake as well as the profitability in SupremeServ. So you can read our lips, what we have foreseen really did realize in the first half year 2023. As a consequence, out of increasing sales, higher margins, the cost of material, as a percentage of total output, have now improved by 3%, and also our cost ratio of staff in relation to sales. I'll come to that later. I'd like to highlight that we have also an equity quote of 45% roughly. We have increased the equity by 19% despite the fact that we have paid some EUR 39 million in dividend and have also some counter effect. One correction I'm very happy to make in this presentation here. In the right-hand corner, you see that we have a market capitalization of EUR 958 million. This was true at the end of June. As of today, we have a market capitalization of nearly EUR 1.1 billion. So this company now is -- but don't want to say unicorn, but it has a capitalization of more than EUR 1 billion, and the actual cost -- the actual price for our ordinary shares at the moment is about a EUR 675 million to EUR 680 million. Here, you can see the overview of our main KPIs. Also in this way, we will represent them in our annual report. Order intake has increased. Sales revenues have increased. Also, the EBITDA has increased up to EUR 112 million, as I told you before. As a consequence, earnings after tax, we have a positive free cash flow and our earnings per ordinary share have increased as well. Let's go a little bit deeper into the order intake. Order intake was EUR 1.6 million and on the left-hand side of the chart, you can see that, of course, Europe is our main home turf, where we get nearly 50% of our order intake. And this switches a little bit more and more towards the other regions. EUR 1.6 billion is the order intake for 2023. The FX effect is about EUR 73 million. If you would take this FX effect, which means we calculate your order intake exactly with the FX ratios of the previous year, then we are a EUR 1.7 million company, and the change of 8.2% would be about 13% increase compared with the previous year. I think the EUR 70 million you have to take into account. Pumps, Valves and SupremeServ, these are the segments we are reporting. And you see that, as well as in Pumps, in Valves, as well as in SupremeServ, we have increased our order intake. When you see these figures, please bear in mind, we are talking Pumps and Valves wells as new products. In SupremeServ, we are talking about service plus the spare parts. You really should bear this in mind when you see these figures. The same development, more or less, we have in order in sales. In sales, we have increased by 21%. The FX rate here is more than 50%, so that means if you're going to add that up, like-for-like, with the FX ratios as of previous year, we would have -- I'd say, it's of more than EUR 1.4 billion. And you see, in Pumps and Valves, we have increased but for us, in focus, it's SupremeServ. Here, we have increased by 21%. This is the area where we make also the most of the margin. And clearly, we have implemented what we have promised SupremeServ, the muscle of the company, grew more than 20%. EBIT. We mentioned before, EUR 112 million, 8.1%. You see Pumps and Valves, new products is in the range of about 2% to 3%. The EBIT range of KSB SupremeServ, which is EUR 89 million is in our -- as of today, of 19%. Let's take a look. I mentioned it before. The total output of operations. Here, we're talking about this because in our annual report, we are reporting the total cost methodology. Therefore, we have to take into account the sales revenue, plus the change in inventory of EUR 45 million has increased. As a consequence, also our material cost ratio has decreased plus, of course, we have to take into account all the actions in reducing material costs that we have done so far. EBIT soars, take that in mind, despite the economic downturn. If you go on to take a look at this chart here, you can see that cost of material in percentage, as well as staff costs are going back to the level we had in 2021. If you take into account the other expenses, they increased a little bit. Here, we are absolutely confident that the other expenses in percent of sales revenue will improve until the end of the year. EBITDA is at about 11%, EBIT is at 8.1%, I presented to you before. Let's go beyond the EBIT. Beyond the EBIT, you can see, we have a negative finance income or expense of minus EUR 7 million. I'll come to that later. And we have a tax ratio of about 29%. This is not comparable with the previous year as there, we had a special onetime effect because the interest rate raised, and this had an effect on our pensions and on our DTAs. So my message to you is, taxes on income will be at about 27% at the end of the year. Let's take a deeper look at the EUR 7 million. Two things are really obvious when you take a look at this. First of all, we had a positive income of EUR 4 million. And then we have 2 special points we have to highlight in the financial expense. First of all, the interest expense for pension is now EUR 8 million, which is EUR 4.6 million more than the previous year. And secondly, we have an effect of hyperinflationary countries, which is, in our case, Turkey as well as Argentina, which affects our earnings after tax negatively by EUR 2.6 million. The balance sheet is more or less in line with what you have seen before. You see, we have increased a little bit the total assets as well as the total equity. And it's all we can say. It's a very stable balance sheet. It's a sound balance sheet with a good equity ratio of about 45%. Here, we are really stable. Also, this is shown here. Group equity, 44.8%, 45.4% end of December, better than in the first half year of 2024. I promise we will further improve. Again, we have a very sound balance sheet. Let's take a look at inventory, receivables and payables. All this is summarized up in the net trade working capital. Here, you can take 2 eyes to make up your mind about the working capital. On one hand, we see that working capital, in absolute terms, is increasing. On the other hand, if you take the percentage in sales of the average of the year, we are at about 31%, which has been our position in the last year. And if you take the cash-to-cash cycle, we are talking here about 128 days. So in relative terms, we are stable compared with the previous year. In absolute terms, of course, we want to improve the working capital. And we have already put measures in our activity plan in order to improve until the end of the year. Here, you see it again, great working capital. One thing, if you say, "ah the development might be not so good in absolute terms." You have to take one thing into account. The increase of EUR 64 million in trade working capital is financed fully from our own liquidity reserves. So despite this fact, our net finance position is still at EUR 190 million and the forecast we already made internally, we are absolutely sure to improve the net financial position until the year-end in the region north of EUR 200 million. Yes. Stephan, you already mentioned our share price. I did take a look at this morning. Again, we are at EUR 675 million, EUR 680 million for the ordinary share. This really is very important because this means the market capitalization is higher than the equity of our owners. So there's no need for impairment test. And of course, it's a signal to our shareholders that we really have started a sustainable action plan 5 years ago that works out now. And Stephan will talk later a little bit more about -- with the new Strategy 2030+ we have in mind to further develop the company in a sustainable way, step by step. What I'd like to do here is to say, thank you for everybody who trust us. Thank you for everybody who is buying the shares. And I really can tell you, we are working to develop the company further in a sustainable way and in a steady way. As summarized by finance, the order intake increased by 8.2%, 21% increase in revenue. EBIT is now, operational-wise, is at 7.3%. The earnings after tax increased up to EUR 74 million. And the equity ratio is on 48%. If you take the EBIT of this half year, and you double it by 2, then, of course, I think it's obvious why we have increased the outlook, why we have increased our prognosis, and Stephan will tell you more about this. Thank you very much.

Thank you, Matthias. Outlook is the buzzword that I need as I wrap up our presentation. Outlook and a few words regarding our Strategy 2030+ because we want you to come to our investors conference here in Frankenthal on September 20. So I will not tell you all the secrets of the trade today. Outlook in our talk -- information, we raised the outlook for our fiscal year 2023 in terms of all major indicators. The order intake, the turnover, and, of course, the profitability in terms of the EBIT. You can see, we have shifted the corridors, and we have tightened the corridors, and this should give you an indication that we do expect a very strong year 2023. If you are responsible for a company in the mechanical engineering business, you know, the first half year might be strong. The second half year is even stronger. I do presume this will also be the case in KSB. So we are really on a good way forward. The first thing is that we know about July, they smell good. The final figures are not there, but also in the summer months of July, KSB has developed well. And now, it's time to reap the crop and just finish up as soon as our people have come back from the holidays worldwide. And this allows me to give you a few indications regarding our strategy. And if I talk about the Strategy 2030+, you can see this is not some onetime event. It's basically the continuation of what we have started with 2018. The first thing that we did was carve out our aftersales business. Give it a shell, I give it a type, KSB SupremeServ. This is something which is really developing magnificently and which still has a lot of potential. Then we said, in order to have really a good company in terms of profitability, but also company culture, we put focus on company culture. They measure this with our engagement survey called Voice. So taking up employee satisfaction onto the radar screen was the next one. Then CLIMB 21 was started in 2019. You know this. The outcome of this was this market-focused organization, which we took up in 2020. And last not least, also beginning with the end of 2021, we started to work on our Strategy KSB 2030+, which will be finalized together with the Advisory Board and the Supervisory Board in the last quarter of this year, and then also presented to you, which basically continues the success story. And what the red tape is regarding all of these things, you see on the right-hand side bottom, it's customer centricity, it's market orientation. It's just striving for profitability, efficiency, effectiveness, and last not least, our company culture in terms of employee satisfaction. That is the cook book with which we take KSB to a new level. As I told you, we will inform you in September -- September 20 is the -- and hopefully, many of you come to Frankenthal in detail about our Strategy 2030+ plus. What I can tell you today already, what is the strategy all about? It is basically of carving out 6 pillars, overarching strategic pillars where we say, this is what differentiates KSB from competition. This is what adds value to the customer in the global world of KSB. And you can read it faster than I can say it, it's about qualification, it's about know-how, it's about SupremeServ, it's about digitalization, but it's also about the important subject of sustainability for all of us. All of this then is based on the market strategies, which our 6 markets in the Pumps are writing at the time. We are finalizing it. We're counting the figures. We are seeing what the outcome will be, if all of this is put into the place. Our Valves business, an important business and a business, more than EUR 400 million, consisting of 10 plants all around the world. And last not least, I've mentioned, our aftersales business, our KSB SupremeServ world. And on top, and this is something that Matthias is taking care of. All of this only works if you have a superb infrastructure, not only in terms of production, this is Stephan Bross' job, but also in terms of IT. IT is becoming more and more important in a company like KSB, be it on the product side, digitalized products, but be it as a backbone of our production and programming infrastructure. This is what Matthias is taking for. Now what will all of this lead to? And this is a small appetizer, and the last appetizer regarding the Strategy 2030+, where do we intend to head the company to? From all that we can see at the time, EUR 4 billion will not be the sky. This is what we're heading for in the year 2030, but EUR 4 billion plus. Being among the top 3 of the key markets that we serve. Having grown our KSB SupremeServ in terms of a portion of our turnover somewhere into the realm of 40%, having a profitability of 10% as a figure to hold on, having digitalized our products and here, more than 50% is just an indication, probably it will be much more in 2030, all our new products that we deliver will be smart. Professionalize what makes the core of our business, the standard business. These are the pumps which go out in bigger scale where we reap economies of scale as the one part, this is what we call the standard business. And then as I already mentioned, our project business, important because a sizable part, really professionalized is that no mistakes are made and that the margins are good. Best-in-class in terms of quality and processes, I think this is a no-brainer but important because KSB worldwide stands for quality. And last not least, at the end of the journey, climate neutrality, CO2 neutrality, latest, I'd say, by 2040. This is a difficult story. By 2030, we already have our first targets, but real climate neutrality, latest by 2040. And last not least, as my near to last slide, where will this lead to? The 10%. If I have some vision, then it is for sure, what you see here, 10% return on sales. We have discussed, some of us, this in the forefield, when the investors were here in Frankenthal, is this possible? Of course, it's possible. I have put this into my story. It is called flying with Eagles, and we intend to fly with Eagles. And for a company like KSB, which has this big bucket of flexibility in terms of markets, which is also something which is very good for us, is because something will always lead to good order intake. I think with a 10% return on sales, this is going to be a superb company. And all of this, I'm going to tell you, together with Matthias, but this time, then also together with Ralf Kannefass and Stephan Bross, who are not there, when hopefully, a lot of you come to Frankenthal on the 20th of September, please save the date. Sonja is rearranging all of this to make this really an exciting event. And with this invitation, I would like to summarize my presentation, our presentation, with a very, very call short wrap-up. We have succeeded in this first half of the fiscal year 2023 to grow the company in terms of turnover, order intake, but also profitability. With our Strategy 2030+, there is nothing which is going to stop us from really putting this into an even better story as the years roll by. We are very confident that 2023 will be a very, very good year. And of course, is it in the pocket already? No. There is a unrestless world out there. We have to do a lot of work. We have to keep the money where it is, be frugal, focus, and last not least, also have a little bit of luck. But we will get there. This is what I promise. And with this, Sonja, I think it's your time now to step on stage once more, and to give us the chance to answer those questions, which have been post in the meantime. Sonja?

Absolutely. Absolutely, Stephan. And thanks a lot for sharing all these insights with us. So we will now move on to the Q&A session. But please give us 1 minute to prepare our technical setup here in the room for the Q&A session, and then we will be back in approximately 1 minute. So you can take a quick coffee or a water. So the first question to you is, can you please comment on the order backlog and not only on the incoming orders over time? I think, Matthias, you can take that one.

Yes, I take that one. First of all, as a comment in general, we are absolutely happy and confident with the order backlog development in the last years. Just to give you one figure, the order backlog was EUR 1.5 billion end of the year 2022. Now it's EUR 1.67 billion. So that means we have increased the order backlog by further EUR 170 million. That's a figure we are absolutely happy with. And you can say, more or less, that out of the order backlog, we can make sales minimum for the next 7 months.

Okay. I hope that answer was question for you -- was answered for you. So let's go to the second question. What is the reason for the strong increase in the KSB SupremeServ margin? Is that sustainable?

Maybe I'll try to answer this one. First of all, is it sustainable? Of course, it has reasons, but it has a bucket of reasons. It starts with the volume and connected to the volume, of course, economies of scale. It continues with the digitalization of our processes, which makes the whole business more efficient and easier for the customer. It goes on with spare part pricing. We have invested a lot of energy into clever spare part pricing. So making prices attractive for the customer, but also for us in terms of competition. It is, of course, new spare parts. This is an important part. As we deep dive into the SupremeServ business, we look what parts ordered at the moment from subsuppliers and reroute them by our own house or we take our products, like the sealings, which we produce ourselves. One of the most important wear and tear parts in a pump. And let alone, the seal business is ramping up, and this is a huge source of profitability. Then we have services which we provide, energy saving services, we call it SES services where we increased the business and with this business, of course, also the profitability. So there are a lot of things which go into this basket. And thus, since I see a bright future for all of this, we are at the beginning of this journey, I do not blush to say that. Of course, we will continue to grow this. It will have a natural limit in terms of the margin. Where this is, I cannot tell you at the time.

Thank you very much, Stephan. So now we have a question for you, Matthias. It's on the net financial position. It has decreased significantly from EUR 225 million end of last year, to EUR 186 million first half year this 2023. So what were the main drivers behind this decrease? And will it continue?

Yes. With this question, I want to refer to my presentation. The main driver for that are 2 reasons. First of all, we paid a much higher dividend of EUR 39 million. And secondly, our working capital in absolute terms has increased. And of course, if your working capital is increasing, this, of course, has immediately and, in fact, on our net finance position. For this reason, we have taken actions. First of all, I'd like to highlight that in the past, we have launched a working capital initiative, we have been at a level of about 36% working capital of sales. Now we are at 31%. So that means we already have improved. Without these actions, the net finance position will be definitely deeper. Secondly, now we have launched again or relaunched or have strengthened our efforts in order to improve the working capital situation, and I'm confident we will be better at the end of the year. And also our net finance position will be better at the end of the year. As of now, we are making a weekly cash forecast and the first forecast here give an indication in the direction that we will improve.

Okay. Then we have quite a couple of questions from Stephan. But let's start with the 2 first ones because they are related to service. So was there a significant catch-up effect in the service business when we look at the first half year, year-over-year growth? And would there be any clear foreseeable reason why the margin of the service business should decline? Would you like to take that?

Yes, of course. I mean, the second part, I already answered, and I will answer it again. But I'll start with the first part. I mean, for those of you out there, if you start to push a new business in a company, which has been on track for 152 years, do not imagine that you have a bright idea, you ask your people to do it. And from the next day onwards, there were dollars will roll in. These are processes which take a lot of time. And when we say we ramp up our supplies, the SupremeServ business, which was started in 2018. The effects of all of this. And there are a lot of things which go into this ramping up story. They show years later. And we are starting now to reap the crop of the things that we started and it's simple things like global presence. In service, you have to be present. It's about speed, speed, speed. The customer has some plan. This last plant has a hiccup. He loses $1 million a day, if we need it -- the spare part is not there. If you are not able to deliver this spare part, you're out of the business. If you are not present to put it in globally, then you're also out of this business. So putting money, focus and employees into this business, this has been something that we have been doing in the last years. Then the subject of speed is closely connected to warehousing. We have to have warehouses in all key places of this world. Today, we have them in Germany, in Brazil, in India, in China, and we will ramp up these warehouses as the customer necessity in terms of speed necessitates this. Then I estimate, from all those pumps, which have been sold in the last 152 years, those which we know, which still exist, this population that we know somewhere about 1/4, 25%. So now really taking up this population, putting it into a clever computer system, which we, of course, have, knowing where the customer is and then proactively approaching the customer to do predictive maintenance, this is also part of the secret. It takes ages until you have your population in such a system. Then it's the new spare parts, which I already mentioned. That the sealing rings, which we are now producing ourselves, there's such a lot of ideas. And it is now also connected to digitalizing our products as soon as a digital product is digitalized, it can talk with you. It can say, look, I'm starting to feel somewhat ill. And then we -- if we have the according monitoring systems can, of course, jump in before somebody else can do this and say, "Dear customer, we should do something, you're running into a problem." And all of these things, and these are just a few of the key levers, have been done. They are ramping up and we're seeing the effect today. And if you ask me, is this the top of the mountain? For sure, no. And if you remember the slide that I showed you, roughly 40% of our order intake or turnover in 2030 coming out of service, I would presume we are somewhere at 32% at the moment. So there's a lot of way, a lot of fun to reap as we go along.

And can we even assume an improvement of the service business, given the mix of order intake being strong in mining? So will there be a direct impact of the mining business?

Yes, of course. I mean, mining is one of our business areas where the new business and the service business, this is one big family. We sell the pump into a mine, and because it's a pure wear and tear business in those mines, latest after 3,000, 4,000, 5,000 hours, major parts have to be replaced. And thus, of course, the mining business, with its wear and tear character, is important for us. But it's a small part of our business. Is mining going well at the time? Of course, it's going well at the time. What are the drivers? It's the macroeconomical hiccups. Everybody wants to have their own mine, nobody wants to rely on anybody else anymore. It's electromobility, everything connected to this. Everybody wants to have their own source of copper. It's the rare metals for batteries. This, you know, basically every producer of cars wants to have his own mine. It's the phosphates. It's the dredging business, which is connected to the change of weather. It's the oil sands as a major export product of Canada. There are a lot of drivers which drive the business at the time. And if you ask me, if there is no absolute economical downturn in the world and a complete change in mindset regarding electromobility or wind-generated energy, this growth will take place for quite some time.

And already answered the next question. So let's move to the Pump profit. Why has the Pump profit a comparatively low operating leverage despite strong growth in the standard pump business?

Yes, maybe I'll comment on this. If you talk about the Pump profitability. Pumps' own business -- Pumps' new products, sorry. Pumps' new products, we're talking as of today about profitability of 3%. If you add the spare parts, we had about 9% in the Pump business all in all. So this is something we have to bear in mind. Secondly, if you take the Pump business, you have to really to differentiate between engineered business, where the profitability is not that high and on the other side, on our standard business. For the reason and this is also coming out of the new organization, we have reflected that, as a standard business for us is in the profitability, higher. For that reason, we have launched a program in order to improve order intake and margins in the standard business in order to have a better profitability for the new business at all. And on the other side, you see I come from the forklift business or other mechanical engineering business, a return on sales between 3% and 5% for new products in the mechanical engineering is an absolute okay ROS. This is what you should bear in mind.

Maybe I can just add one comment because we have not really underlined it. And this is important. That not too much focus is being put on after sales. After sales is important. But the second big muscle of profitability are these standard products, which Matthias just addressed. Those products, which we can produce in economies of scale, and by economies of scale, they get resizable margins. KSB has been a company, which has really perfectionized their engineering. We can build and construct and engineer any pump that you want. This cost a lot of money. And we are changing this mindset. For those pumps where we really can reap economy of scale, we are driving down the variance in order to really get better margins out of this business. So not offer everything, but like our competition, slowly but surely, over time, seeing that we have for this portion of our business, which is sizable, really standardized products, with streamlined, lean processes, which can be digitalized. And from all of this, of course, you can see that we have much better margins. Besides this, we will then -- and this is this differentiation between standard and project, we will always have our projects business. This is the big business where we really have great projects all around the world. This is not very economical in the most cases because the competition is very high on the newbuild side, where the profitability then comes from is, of course, on the aftersales side. And here, it is so important that you have to know which projects have you executed, where to see that you reap the aftersales business in the aftermath. And this was the comment that I made. We have to know where our pumps are going. Sonja?

We have one more question on the Valves margin and business. So if we exclude the insurance payment, at Valve, EBIT was still negative in the first half year '23. Do you expect Valves to turn positive in this year, excluding the insurance payment?

That's very simple, of course. It was profitable last year, and it will be profitable this year. I mean, this insurance payment is not being paid because we asked for insurance payment. This covers the losses that we make in production. And the production, which is touched is the production in La Roche, in our French plant near to Bordeaux. This production completely stopped in the last half year of 2022 and it has very slowly been taking up speed in the course of the first half year 2023. After the summer break, now in September, we expect to be back on track. And the losses that we have made here are those which are being covered by the insurance payment, but which also goes into the overall result. If I look at the complete Valves world, we have 2 plants in China, in Dalian and Changzhou, they are very profitable. We have a lovely plant in Luxembourg with resistor , highly profitable. We have a plant in Pegnitz. This will break even this year and then become profitable. We have the Indian plants, 2 Indian plants, MIL, double-digit profitability. And last but not least, in terms of hiccups, which I should mention, we have a very small Valve production site here in Frankenthal, which is completely connected to the German construction industry. Unfortunately, in a niche -- if this niche is booming our business here, we cannot avoid to make money. If it is down as it is at the moment, the construction business in Germany is down due to the interest rates, then, of course, also this production suffers, but it will be back. So I'm very, very optimistic for our Valve business. And they are, too, one of the key drivers, besides the new business is after sales. It's small, but highly profitable.

So I saw earlier that Johannes was raising his hand for a question. [Operator Instructions]

I just did.

Fantastic.

Okay. And thank you, Mr. Schmitz, for including a complete cash flow statement into the first half year report. My first question would be, what do you think are the growth rates for the next 2 to 3 years the company can expect?

We have a clear target to grow 1% above world growth. So to be a little bit better than the rest of the world, as a very holistic figure. And in terms of our profitability, you take the 10%, which you saw 2030, you distributed evenly across the remaining years, and you will have an indication how we will grow.

We will give you further insight when we have our Capital Markets Day.

My second question, if I may. Mr. Schmitz, you say on the [indiscernible] that you want to take the Valve business back to its old trends. What does it mean in terms of revenue and EBITDA margin?

This means exactly what Mr. Timmermann has mentioned before, and I want to widen a little bit your question. I've also been asked very often that it is obvious, we should sell the Valves business. I want to say, this is what we do not have in mind right now. What we have in mind is to restructure the Valves business, that if it comes to a certain ROS quality in the next 2 to 3 years. Therefore, we have worked out the plan. And for the whole of the business, it should be a meaningful one-digit ROS number in about, Stephan, 5% to 6% what we have in a closer time frame in mind.

Latest next year. I hope you...

That's what I mean with closer time frame.

This year, but latest next year.

5% to 6%? Excuse me, 5% to 6% on revenues?

Yes. Return on sales.

As a closed target.

Okay. And my last question is, this is a little bit more general. What are the 3 KPIs you are watching the most and why?

We are watching, let's say, a little bit more than the 3. First of all, we are watching the ones in our prognosis, which is order intake, sales and return on sales because this reflects the operating business. Further, of course, we are watching cash flow. That's the reason why I put the statement in the presentation as of today. And more and more, we are taking a look at return on capital employed. But this is more an internal discussion.

And the cost of stock.

Yes, of course.

We have 2 minutes left, and then we have to close the call for today. All open questions, of course, will be answered after the session. But we have, maybe, 1 or 2 more questions that we can answer.

Maybe we exceed the budget and ask 1 question -- answer 1 question more.

You can either comment on the India business or on our M&A and buy back.

Yes, I'll take the one of [indiscernible] because he starts with congratulations.

Then a comment on our India business. We have 7 plants in India, absolutely amazing plants. From foundry to 2 Valve plants and the rest are Pump plants. And we have our technological center, we do a lot of our digital work. Fascinating people, fascinating spirit, fascinating profitability. You can only learn from them. So it's a true asset for us. Especially on the digitalization side, we utilize it because we need a lot of digitalization power for the products, but also the processes and finding this in Europe is extremely hard. So this is really a good story. In terms of the KPIs, one important one you did not mention, this is our company spirit. We measure this every 2 years.

I apologize. Of course.

It is a chief happiness, obviously, this is important to have for me. If you look at the company culture in Asia, in India, this is extremely motivating. So they're really running the extra mile and they're a big contributor to our company. In terms of the M&A part, we are continuously looking at possibilities to add the internal growth with clever acquisitions, especially in those core fields of our business where we think this is something which will boost either the market share or the qualification of the employees or whatever. It is extremely hard. I mean now slowly with interest rates, the markets are changing, but to find companies and this is really worldwide, which fit into our mindset, which have a price tag, which is communicable, where we have the power to integrate this and make money with these companies short term and up to now, we have not found them. And on top, they have to be for sale, which is also rather seldom at the time. There are companies, some of them which we have scrutinized the price tag, which were then paid. There, I must say, we are a midsized company. I personally would not support this. You have to earn back the money that you have invested and there are cleverer ways then to do this. But we are on -- we have everything on the radar screen, so all good ideas from your side, please throw them into the room.

So we are almost over time. Matthias, do you want to take a final question or?

I'll take the final question because I've read it and I've been mentally prepared. So I take it and we make our budget here and we succeeded. So [indiscernible]. Congrats to your results. And he asked, can you say some more words to inventories in the coming half year, change of working capital and change of CapEx? It is used to be relatively constant. Yes, it is true. If you take a look at our investment, we are investing roughly 4% of our sales per year. This will be the same in this year. Regarding working capital, I mentioned it, we think that we can improve until the end of the year. For the next year, we bear in mind to be better than 130% of sales and even better than 128% -- 128 days cash-to-cash cycle. That's our target. That's what we are working on.

Thank you very much. So I think it's now time to close our call. Thanks a lot for your insights and explanations, and thank you for dialing in. Of course, if you have more questions after this call, you can contact Matthias Schmitz, [indiscernible] at your disposal to answer your questions. We will continue this KSB Earnings Call in the future, as we said, we are looking forward to that. But we are very much looking forward to see you, hopefully, in person here in Frankenthal in September at our Capital Markets Day.

Thank you very much, Sonja.

Thank you, everybody.

Goodbye.