Bossard Holding AG

Welcome to our semi-annual results conference call. Stefan Zehnder, our CFO and I would like to guide you through the following agenda.

It works.

I will start with some highlights for the first half year 2022. Stefan Zehnder will then navigate through the financials before I will close with a strategic focus and outlook 2022. So let me start with the highlights. As reported this morning, the Bossart Group reached new heights on sales, EBIT and net income. The economic tailwind throughout the year helped us to achieve these numbers despite the ongoing pandemic, global supply disruptions and cost inflation. Our proven supply chain resilience through double sourcing of key products from different sources and regions and safety stock up to eight months helped us to respond to increasing customer demand without significant shortages. Our proven productivity services, namely smart factory logistics and smart factory assembly, were in high demand to reduce total cost for our customers. They opened opportunities for new business and for creating customer loyalty. And then we introduced a new global digital platform in June with the first successful implementations in Denmark and Sweden. We're proud of that. Stefan Zehnder, our CFO, will now give you a closer view on the financial results. Stefan, please.

Thank you, Daniel. And thank you and good afternoon, ladies and gentlemen. Geopolitical tensions on Europe's doorstep an energy crisis, China's zero-COVID strategy, the turning on the tide on interest rates and the strong rise in inflation, and the fear that central banks will hit the brakes too hard were just some of the topics which made its news around the globe in the first half of 2022. Regardless of this environment, BOSSEF experienced also in the first six months of 2022 a strong demand in all three market regions. by the continuing supply market challenges and capacity restrictions, which resulted in longer delivery times, coupled with price increases and higher rate costs. The Bossa Group achieved sales of 586 million in the first half of 2022, an increase of 18.4% compared to the prior year, whereby the currency impacted the sales development negatively by 1.5%. Organically, sales grew by 15.8% compared to the prior year. The acquisition of Jereka consolidated since October 2021, contributed 4.1% to the group's sales increase. Thanks to our consistently high delivery capability, we benefited from the continuing strong demands. As a result, BOSSET was able to report double digit growth rates not only in all three market regions, but also in the majority of all business units. Of central importance and crucial to our success in the first six months was again the delivery capability to our customers. That we have succeeded to do so is shown in the increase of sales, EBIT and net income, which reached new heights in the first half of 2022. The EBIT amounted to 77.2 million, representing an increase of 14.9%. Despite the volatile market conditions paired with significant cost increases, both in raw material prices as well as in operating expenses, we managed to keep the EBIT margin with 13.2% on a high level. Compared to prior year, net income increased from 52.6 million to 59.9 million Swiss franc. The return on sales amounted to 10.2% and remained above the double-digit percentage level. A look at our P&L in more details shows that our gross profit margin of 31.5% in 2022 was slightly lower compared to prior year, which is due to the challenging procurement market the regional product and margin mix, as well as higher operating costs for purchasing, warehousing, and quality, which are part of the gross profit margin. In total, sales and administrative expenses increased by 15 million compared to last year. Out of that, 4.6 million is due to the change in scope, meaning the acquisition of Yeveka. In the same period, the number of full-time equivalents increased by 291 FTEs. Thereof, 120 FTEs are related to the acquisition of Leveco. But also, higher travel and marketing activities were a driver for higher costs, as well as the costs associated with the successful rollout of our new digital platform in Denmark and Sweden. And part of the cost increase are also our initiatives as part of the Strategy 200. The financial results mainly increased due to the negative currency impact in the first six months. Despite these impacts, the results reported are underscoring our earning power, also in a difficult environment. As already mentioned, all three market regions did contribute to the market growth with double-digit growth rates. In America, sales increased above average by 32.8%, to 147.1 million Swiss franc, or 27.8% in local currency, and was broad-based. The competencies built up over the past years in the field of electromobility were particularly successful, translating into new customer relationships and business. In the field of electronics, existing customer relationships were significantly expanded. America also recorded strong growth in the United Mechanical Engineering sector. Also in Europe, the group recorded broad-based growth in the first half of the year. Sales increased by 12.9% in local currency by 17.6% to 331.7 million Swiss francs. Organic growth amounted to 10.4% in local currency. On the one hand, this was due to Bossert's consistently high delivery capability, and on the other hand, also to the strong economic environment. The mechanical engineering and electronic segments developed here in this region particularly well. The aerospace segment was also able to continue the above average sales growth over the previous quarters. In Asia, sales increased by 18.7% whereas in local currency by 17.2% to 107.2 million. This led to double-digit growth in local currency for the seventh month in a quarter in a row, with support from all regional companies. The growth segments railway, electronics, and electromobility developed in this part of the world particularly well. Looking at our balance sheet, It shows that the above average growth of the operating networking capital, but also the investment activities of the group, led to a market increase in total assets. Compared to prior year, total assets increased almost 22% to 905 million Swiss francs. In comparison, the equity ratio decreased from 47.6% in the prior year to 40.8%. This was mainly driven by offsetting the goodwill from the acquisition of Yevika against the equity in October 2021, an option on the Swiss Gap Fair, which Bossert applies, and by the disproportionate increase of the operating net working capital, which led to a strong expansion of the balance sheet. We expect that the equity ratio will increase towards the end of this year, staying well above the 40% ratio. Compared to last year, the operating net working capital increased by almost one-third, whereas in relation to sales, it grew from 43.5% to 48.5%. While the increase in receivable was in line with the sales growth, the increase in inventories was above average. In addition to more volume, the increase was due to higher raw material prices and trade costs. Furthermore, inventories were deliberately increased to ensure the best possible delivery capabilities to our customers in view of the continuing market uncertainties and long delivery times. Last but not least, the acquisition of the Evercar also contributed to the increase in total assets by around 19 million Swiss francs. As a result of the strong growth the market increase in operating net working capital, the higher investment activities and the acquisition of Yerika last October, net debt increased from 153 million in the prior year to 293 million. The hearing net debt measured against equity recorded an increase from 0.4 last year to 0.8. whereas net debt in relation to EBITDA increased from 1.1 times to 1.9 times. Thereby, FOSA continues to have a solid balance sheet ratios, which are within the long-term balance sheet funding targets of a gearing of less than 1.3 times and a net EBITDA ratio of less than 2 times. We also invested quite a bit in the first half of 2022, totally 20.4 million Swiss francs. Thereof, 4.3 million relates to two ongoing infrastructure projects in France and Taiwan. The project in France shall be completed by the end of the year, whereas in Taiwan we expect next year in spring, next year in 2023 in spring. We invested 8.7 million in digitalization, The biggest share of this investment was dedicated to our new digital platform, which we introduced yesterday, as already mentioned. In total, we will invest about 70 million Swiss francs into the new digital platform and the global rollout of it over the next six years. So far, we have spent some 16 billion. 4.5 billion was spent for the replacement investment in ongoing operations. And 2.9 billion will be invested in smart things and electronic labels.

Thank you. The business growth and investment gains in the first half of 2022 had an impact on our cash flow too.

Cash flow from operating activities before changes in net working capital increased from 65.4 million to 77.4 million of this range, or by 18% compared to the prior year. By contrast, the cash flow from operating activities of the changes in net working capital fell from 46.6 million in the prior year to minus 15.6 million. As already mentioned, this is mainly due to the higher accounts receivables and inventory levels. Cash flow from investing activities increased from 11.4 million in 2021 to 20.4 million in 2022, as just explained. While the group reported a positive free cash flow of 35.2 million Swiss francs in the prior year, a negative free cash flow of 36 million resulted in the first six months of 2022. With this last remark, I hand over again to Daniel. He will comment now on the business focus, the current environment, and what to expect in the second half of this year. Daniel, please.

Thank you, Stefan. I would now like to elaborate on our strategic focus 2022 and what we expect for the rest of the year. We have been and will be focusing on sunrise industries, businesses that are outgrowing the market average. Namely, we look into railway with Alstom as a prominent example for companies that benefit from broad-based government infrastructure programs globally, particularly in USA and Asia and there in China and India. Then we look into electronics with ASML, the global leader in the development and production of semiconductor equipment as an example. Healthcare is another market segment outgrowing the market with Roche Diagnostics as a customer, which is one on on the forefront of serving the global market with health diagnostics devices. And last but not least, we serve electric vehicle sectors and its ecosystem. And what you see here is Lucid Motors, a customer where Bossart has become strategic supplier for fasteners and where we have been participating in the production ramp up this year. Besides, we are serving a broader range of global EV companies, manufacturers of cars, scooters, trucks, buses, but also producers of batteries and charging stations. We also work with tier suppliers to the EV OEMs, which is electronics manufacturing service providers. This helps us to reduce our dependency on single EV OEMs. Another strategic focus in 2022 is our proven productivity promise to our customers. Our product solutions, assembly technology, expert and smart factory solutions are key enablers to make our customers more competitive and productive, particularly now in times of inflation and higher costs where everybody looks for cost reduction. But also because international customers are nearshoring and moving production from low cost countries like China back to higher cost countries in Europe or America. where our solutions enable customers to reduce their total cost in sea parts management and assembly significantly. That leads me to our service model. By far, the majority of our sales volume is driven by product sales. The services are creating value, customer trust, and loyalty. While we sell product solutions to purchasing, we sell smart factory to production and logistics specialists. Instead of a low product price, they want a smooth and lean production and logistics flow. Likewise, we sell assembly technology expert services to the designers and developers who need innovative and safe products instead of a cheap price. And finally, we aspire to sell our complete service package to P&L owners, usually the C-level, to demonstrate the full potential for total cost savings. In summary, our strategic focus for 2022 is to run the business and ensure we achieve profitable growth by focusing on Sunrise Industries, retain and penetrate existing customers, but also win new business through our strategic services, especially now. We will sharpen our view on sustainability, both socially and environmentally, and for the latter, collect data and set realistic short-, mid-, and long-term targets. Besides running the business, we are implementing new strategic initiatives, one of them being our operations engine, where we will prepare the next global rollouts of our digital platforms. The sales engine will help provide us with a joint structure, processes and systems to acquire new customers, while the Together We Create initiative is the foundation of our cultural transformation journey for better and more efficient internal collaboration through the application of our new guiding principles, leadership development and talent management. As communicated earlier, Our mid-term financial targets are organic sales growth beyond 5%, an operating profit margin EBIT in the range of 12% to 15%, an equity ratio beyond 40%, and the dividend payout ratio of 40% of net income. As far as the outlook 2022 goes, we are still facing a few challenges. Global supply chain shortages still exist, but seem to relax. Lead times for fasteners are still high, but trending downwards. Raw material and fastener prices, as well as freight costs, are still on high levels, but are slightly trending down. On the other side, wages have been increasing globally and, unlike raw material prices, will not relax in the near future. The same is true for energy costs, particularly in light of the recent energy shortage discussions in Europe and globally. This means we'll face rather high price levels for our products also in the second half of 2022. Another challenge is the geopolitical tensions in Europe. Overall, it may impact the European and global economy due to war scenarios or energy shortages. But by how much, of course, we don't know. What we can do is to continue to focus on growth industries and serving customers globally not being dependent on one or two regions or countries. The overall insecurity leads to our customers to do more nearshoring and to reduce dependency on third countries for production. This plays into our hands, as mentioned before. The geopolitical tensions may amplify the supply chain challenges mentioned above, which we address with our supplier risk mitigation strategy, buying key products from multiple regions and manufacturers. The Chinese COVID policy may lead to further lockdowns in the country. This mostly puts pressure on our local market development and may impact the supply chain further. On the other side, the global PMIs continuously indicate strong global demand, so customers' order books still seem to be full. In summary, we are still facing a volatile environment with the challenges mentioned before. Our sourcing strategy will help us to maintain product availability. We see these as key success factors in our business. The Strategy 200 initiatives will support us to continue our profitable growth path, namely through the focus on Sunrise Industries and promoting smart solutions to achieve proven productivity goals with our customers. Combining the above factors with the full customer order books leaves us with an optimistic outlook for the rest of 2022. So with this, I'd like to thank you for your attention and Stefan Zehnder and I will now happily answer your questions.

Ladies and gentlemen, if you have a question for our speakers, please dial 011 on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial 0 and 2 to answer your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. And the first question is from Christian Obstbader-Hellweger. Your line is now open.

Yes, hello, and thank you. For taking the question first, I have a question concerning the growth split. You stated that 15.8% is organic. How much of that is volume? How much is price related? And then can you give us some kind of a detailed effect of the shutdowns in China and how the current development is emerging with further shutdowns and how you are affected? and then concerning the rollout of your new digital platform can you give us some kind of a first impact what you have seen with the integration or is it far too early at that stage thank you so maybe i can start from the back if that's okay with rollout of the erp system so basically we have started with two countries

And of course, now we have introduced the first global template and we're continuing with the other countries to come. Always when you start introducing a new system, people have to get used to that and it's kind of a process to make sure that people get used to it and finally use it in the best possible way and reach significant savings. The global impact we will only see when we roll the system out globally. So we have global transparency, et cetera. So it will take some time for us to get there. But the good news is really that we introduced a system now which works. There was no customer, negative customer impacts. And we have already seen some efficiencies, but obviously we still need to learn the system and then roll it out globally so it has the full global impact. I don't know if that answers your question.

Yeah, yeah. Makes sense.

Thank you. Then the second one, China. China makes about, yeah, what's that? 10%. maybe out of our total sales approximately altogether. We didn't have a major negative impact from the lockdowns. There was some sales slowdown. The good news was that we could deliver from different locations out of China. So it was not only out of China, but we could deliver out of Tianjin and some other warehouses in the country. So that made us also a bit resilient. And that will probably be the same for the future. I think the biggest impact is more on the morale of the people that they, I mean, they continued working, they slept in the warehouse, they stayed there. And it's more pretty difficult to keep up the morale, I would say, if this lockdown situation continues, which it does. Now, we don't know how strong our people in our regions will be impacted. But for sure, we cannot travel right now. People cannot travel out. And so it goes more to the morale. And hopefully, like in the last lockdowns, we will not see a major drawback on our sales and profitability. Obviously, there will be some if there are some new lockdowns. Maybe that part on China. I don't know if that answers your question. Okay. And the last one, I'll start, and then Stefan, maybe you can jump in on the prices and the volume. Obviously, we have had price increases over the last two years, and they make a good amount also of our sales increase by how much we don't know, because we have quite a lot of products and customers, and we cannot track that individually. So there was a significant impact. I cannot give you a number of how much volume growth and price growth we had, but also not what we would expect to the future. But for sure, prices had a significant impact on the sales growth and will still have in the future. Stefan, to you, maybe more details.

No, nothing to add. I think that's just the complexity of the business which we have. I mean, we have 30,000 customers, 1 million items. There's many customers buying the same items. And right now, we still have 11 different DLP systems. And that's creating a certain complexity. That's why we cannot determine the exact number from that perspective.

Okay. So this all then implies that you don't count your volume, right? We, of course, we have... Because the price in the end is only the data through the organic growth.

Yes. Of course, we have to add some on the individual level, but we don't have to consolidate the number due to the complexity. Okay. It's just too complex. But for sure, I mean, what Daniel mentioned before, you know, the majority of the price increases happened last year. So on an annual basis, So the impact was for sure more this year than it was last year, just from a rational point of view.

Maybe I can give you another view on that. Just the reality that today we're selling approximately two-thirds on special parts. which is like 66% to 70% we sell on customer-dedicated demand or customer-specific demand. That means that when prices go up, we automatically also buy new volumes at a certain level, which then we pass and forward on to customers. Likewise, when prices will go down, we will buy at lower cost, so we're not buying on stock for customers and have to sell at a lower price because customers demand for a price decrease, but rather for those parts, for 70% of our business, the prices swing along with the customer demand. So it's not that we will sit on high cost inventory for specials and then when price goes down, there's a pressure on price and we cannot sell at a high price. So that will not happen for those 66, 70% of our business. For the rest, for standard parts, this can happen. But for us, that's actually good news and creates some resilience on the price and the cost development.

Yeah, thank you for that. And maybe some additional on that. You have inventories increase about more than 40 billion on a year-on-year basis. And you say you have up to eight months of safety stocks. Do you expect some kind of a release in the second half? Or do you stay with that high level of safety stocks? This is my last question. Thank you.

Well, we will still receive parts, excuse me, still fighting with the Corona. We will still receive parts that we ordered some months ago. So the inventory levels and values will still rather be high in the next month to come. But obviously we also see a full order books of our customers. And for now, and at least the next six months, we don't see a, a reduction in demand on that side. So maybe net will be a little growth to come.

Okay, thank you very much.

The next question is from Marta Burska-Bernberg. Your line is now open.

Hello, good morning, good afternoon, and actually congratulations on the fantastic results. Hi, Marta. So I just wanted to follow up firstly on the question with regard to inventories. So you think that the second half, the inventory in the second half in absolute terms will increase over first half in absolute term. Is that right?

Stefan, do you want to?

Yes, I can.

Hi, Marta. Yes, I still expect that we will see an increase on the inventory. And just, you know, the goods we get in are still on a higher level from that perspective. So even if the tonnage would stay the same, we still would see an inflation on the price. So I'm expecting it's still going up. On the other side, that's just if everything stays the same. But it depends also, you know, how the economy goes. So basically, what we see, certain goods, it's going out because we have a certain backlog from that perspective. So I would assume or expect it's still going up, but not to the same magnitude, but also depends what's going out of the warehouse system.

All right. Thank you for that. And with regards to the proportion to sales, so basically, do you expect the proportion versus sales to increase as well, right? So that's the kind of the logic behind it.

Well, again, it depends on the demands. I would say if the demand remains, what we have seen it's probably staying about the same if suddenly i mean we know there is incoming goods uh over the next six to nine months which is quite sizable if there is the economy you know would slow down a bit that would mean that just the percentage would still would still go up but of course we try to monitor that that's our best as we always did but i think at the end of the day it's all about the availability and being able to supply our customers. And that's the, you know, that's the focus number one.

That's clear. Thank you very much. And then if I may ask, you know, the demand was so broadly really strong and in particularly in the U.S. Could you tell us a little bit more what drove this fantastic second quarter in the Americas region?

Yes, I can also comment on that one. So as mentioned, one for sure is the electromobility sector. And as we had mentioned in the past, we have quite a few projects there. And of course, going to customers, going on production, although they're fighting the same topics with the bottlenecks of the supply chain, but those added to this volume. in that sector. And of course, there was also some contribution from Tesla. The other part is the electronics segment, which we were able with one of the bigger customers we have, also our relationship. And of course, the electronics sector is still running well. So that definitely contributed with one of the drivers by the segment itself. And the other big part is building in general and we also have the size of the software in that what we call machine building and that one definitely contributed as well but it was if I look overall the business unit was broad-based and all contributed with a double digit upgrade and I think that's also to do a bit with the refocus and you know the focus going forward and And of course, the economy was still well. And yeah, the backlog is also there. So the demand was high. So that was driving the growth in North America.

Fantastic. Thank you very much. And lastly, if I may, please. Are there any areas at all in which you see any signs of weakening demand from the very high level, but any sort of areas you monitor more at the moment?

I would say, if you just compare one-on-one, I would say the sector which was a bit lagging was the medical. But there is a certain logic, because You know, the ease of COVID, I mean, last year, I mean, there was a lot of production when it comes to analytic machines, let's say. And there was the inflation and the inflators. So there was a lot of equipment produced to cope with COVID. And this was easing off, so that's why that sector was rather flat compared to the other ones. But there is a certain occurrence. I mean, we benefited a lot in 2021, and now we have the reverse of it in that segment.

So basically, it's a stabilization, what do you think, with regard to the situation, the lead times, and pricing. It's more stabilization. on a high level than any sign of weakness at all. And the medical could probably still catch up later on because of the delays that they've seen.

And maybe I can add to that that the aerospace actually resumed quite nicely in 2022. So that's actually also a segment we could mention on the growth side again. And of course, we had a major turndown some two years, one and a half years ago, and that resumed quite nicely. Um, yeah, and it's maybe more the consumer related segments, which maybe are more, uh, you would think they're rather flat, but actually we see, for example, coffee machine producers, they, they still have full order books. So maybe this is going to come, but for now we don't see a slowdown even in this segment, which is interesting. Of course they also have industrial applications of coffee machines, but we don't see, yeah, it's more flattening in some industries than really a downturn.

Fantastic. Thank you so much. Thank you. That's all from my side.

Thank you.

The next question is from Stephanie Schultz. Your line is now open.

Yes, hello. Stephanie Schultz here. Hi. I have a question. I'm not sure if you've answered it, but sometimes your line was really bad, and it's on the ERP system. Maybe can you share with us how much you spent on your ERP system in the first half year? And then, I mean, you said you implemented it in two countries. Have you experienced any issues? And which are the next very crucial countries coming on stream? I mean, I think those you have implemented, Anita, are I would assume more easy ones, but which ones are the next that are you causing some headaches And then on wage inflation, the second one, how much is this impacting you in the second half? So what can we expect that there would be a margin hit because of that? And then a last question on this near shoring. I found it very interesting. Maybe can you quantify how much of your growth was coming from this and which industries? are doing that and what you believe what's the potential of this trend. I hope that was not too much.

I can try to. I will try to follow. So I'm starting with the invest. It was the 8.7 million that we invested in 2022 for the digitalization. And in total, we're going to invest around 70 million until we rolled out the whole system. So this is about the figure. I hope that answers that question. And the next rollouts, well, those were I would say two units in Denmark and Sweden, which represent quite a bit what we have in the group. We have Denmark, a large business unit with quite a lot of complexity and interfaces, and we have Sweden, a smaller business unit, which depends on some other business units. If we manage those two, we're probably quite good to lay a foundation for the next rollout. Now, the next rollout will be planned for America, Switzerland, and Singapore. And for that, we will do an analysis this year about what's missing compared to the global template. And then we will start with the next rollouts sometime next year. We have a detailed rollout plan in that, but this is planned. So it will take us another three years overall to roll out the systems in all our business units, 32 locations globally. So that's a bit to the rollout strategy. Did we have major hiccups? Not major hiccups but obviously we did have hiccups like every ERP system implementation has some smaller things like suddenly the invoice comes too late or an order in the warehouse is not printed because the printer was not added or things like that or user training related things but I wouldn't say I mean there was no impact on the no major impact on the customer side so we could always deliver we monitor the the amounts we pick pack and ship the the sales volumes and they were on the same or even higher level that the month before for Denmark and Sweden. So in that sense, there was no impact, no business related impact whatsoever, but obviously there are in day to day operational details. There are things that people forgot, you know, which button do I have to press? But I can say there that we have invested a lot of money and people. Um, we had 35 people on site for an organization of imagine 80 people in Denmark. to do so-called floor walking. So if somebody had an issue, they had different color of panels raising their flag and say, red color, okay, that's purchasing. Then some purchasing expert would come and say, what's your problem? Can I help you? Is it a trading issue? Is it a process issue? Is it a system issue? They would address it and then fix it Obviously, if possible, most quickly as possible, but then also address it to the super desk where they super user desk where they try to fix the problem in the system or then it had to be reprogrammed. So we had a quite intense phase called that hyper care phase, which is still going on. We started early June and this is running till end of. well, now beginning of August now, and then there will be a kind of a reduced support structure. Did we have hiccups? Yes. Did it impact our business significantly? No. So that's maybe the part on this one. Then I hope that answered your question on that one. And then the wage inflation, what will we see? I think what it does actually, it helps us to further justify the, The price levels, because you could imagine maybe for standard products, prices could be under pressure in the next, I don't know, 12, 18 months because of it. That could be economic slowdown because of war or anything. But the wage inflation kind of sticks. And that means we will also continuously ask for higher prices at our customers. So we will not see many reasons to reduce prices in the next 12 to 18 months. So that rather helps us to justify price increases and keep up the price level. I think that that's more the case. Do we see a higher personnel cost? Yes, we do. And it does impact our P&L in one way. But on the other side, it helps us to justify higher personnel. higher prices. Maybe Stefan can add to that in a second. And then, now I forgot your last question. Sorry for that. What was that?

That was on the on-shoring or near-shoring.

Ah, near-shoring. Near-shoring.

Yes, like how much contributed it to growth and also which industries and potential going forward.

We cannot give you a number here. I can just give you an example. Mexico, we have seen significant sales growth and a good part of it is because of American customers moved back from China to Mexico. And that helped us also to win new business and to add projects to that country, for example. But to quantify that now on a group level, that's pretty difficult. Some of those Companies also came and asked for smart factory solutions because they want to automate, they want to make sure they're leaner. And that added some smart pin systems. But how many of those were? Honestly, I cannot tell you. Maybe, Stefan, you have a number.

No, I don't have a number. But, I mean, just in general, I mean, there is a lot of talks about this nearshoring. Yes, we have seen some. which was more driven at the time because of this economic war between the US and China and then anti-dumping. But in general, I mean, if you look what's happening right now, we have the cost inflation, we have the salary inflation, there is the energy inflation. And by the discussions with the supply chain and interruptions, I think on mid and long term, companies will rethink And one of the rethinking is the nearshoring. So I would say it's creating opportunities. How much these opportunities, which we'll create going forward, at least we will see how it will materialize. And again, there is different topics which drives the total cost of ownership and having a reliable supply chain. That's as much as I can say at the moment. Coming back to maybe quickly on the, I can add on the new digital platform. Daniel mentioned we're going to spend 70 million over six years. What we spent so far is 16 million in total, whereas about 8 million we spent in the first half of this year, just to round up that number. Now coming back to the wage inflation, Daniel commented on that one. I think in general, and some of you know my talk, is that we have a certain business seasonality. That means because of summer months, summer vacation, and also in Europe, which is still the bigger part of our sales, also due to, let's say, December, we see lowers usually, you know, like 51 to 49, something in that relation, we have lower sales in the second half, driven by seasons. The other part is, yes, the inflation has some impact on the second half in a sense that, as I explained before, we have almost 300 employees more compared to last year. And out of that 300, we added in the first half of the year. So the annualized impact of this, We will only have the full impact in the second half. So that's why, just by default, we will have higher costs. Then what we do in general, as we also did in the past, and I commented on that, is that we do general salary increases first of May, not like other companies, first of January. So the impact we have on the second half. And, yes, we have some rising costs, and probably there will be more highs also in the second half. And so that's why, if you look at BossArt, there is a seasonality, there's lower sales, higher costs, and that's why also the profitability, it's always lower in the second half versus the first half. What I can mention also from that perspective in terms of cost is that with the first implementation of the digital platform in Sweden and Denmark, we start to depreciate that platform. So the depreciation in the second half to expect is some additional 800 to 900,000. Of course, there is no cash out, but it will impact the EBIT. So overall, that in a nutshell is on different layers now, just explaining why the profitability also is lower in the second half. So that was maybe some excursion on a bigger picture.

But very helpful. Thank you.

Thank you.

The next question is from Andreas Muller from AG. Your line is now open.

Yes, good afternoon, gentlemen. Thanks for taking my questions. also on the inventory levels i was wondering at your clients places or inventories at the same kind of um elevated level and um and and also i mean interest rate have changed is the propensity to hold this inventory not getting a bit weaker given that you have opportunity cost with these inventories and then I have on the order book also a question about double ordering if you see something and if not or on what indicator do you sense that Is it the absence of cancellations or other factors? And then I was wondering at the last question on if you can give an update on the scaling of your smart factory assembly services or clients going from the pilot phase into the production phase already.

Maybe I can, Stefan, if it's okay, I'll take that from the back again.

Yeah, sure.

Thanks for the question. Smart factory assembly services. Yes, definitely we're moving from prototype to implementation and we're actually doing that in a number of countries right now. Europe, but also in Asia we have started out of Singapore. And yes, we see a number of companies now turning that into actual production. So this is now, I cannot give you an exact number, But this is definitely happening and we're now we have staffed more people in all regions moving forward and we see actually a big window of opportunity for this kind of service because exactly people want to save money. They want to make sure people learn fast how to assemble. It's still man-machine related, so wherever it doesn't pay off to buy a robot, they will use this service. So maybe that's a bit to the SFA services. We're now ramping up people to see more implementations and more to come. I hope that answers your question on that one. The next one is order books. forecasts i mean one one reason also why we haven't why we say we have a high availability is sometimes we see that you know there is there's some parts sometimes that we cannot deliver there is a few parts that that we cannot but we have to say in most cases or actually in all cases we haven't seen we haven't stopped a customer's production because of a lacking part occasionally there are some parts but the reason then is mostly because as you say some customers they just order longer ahead and they order more than they actually need. So this is happening somehow and but on the other hand we also see like in the railway sector that they have long-year contracts also by the way in aerospace and we know approximately what they need to build a train and we can estimate a bit okay is what they buy now is that just you know a three-year consumption or is that just a three-month consumption and Looking at this, I would say the order books are full and there is still a lot of volumes that we can still deliver into the future. The same we see with EV. So I would say it's of course a mix as always. It's not one size fits all. Everybody is just buffering. Most companies to be on the safe side, of course they order longer before they order more. They may have some buffer for some items, but it's not that they would sit on a three-year stock and then, okay, maybe from next year we would not be able to deliver because they just use up all their inventory. It's mixed, but I would say in general, we still see a good potential for fulfilling backlogs and for making sure that our customers can continue production. So bottom line, I think it still looks positive that we can also deliver products So that's maybe to the order book question. I hope that answers your question.

Yes, that was clear. Thanks.

And then the inventory. Now, help me again. What was the question there?

Yeah, one question was really, and you answered that, you know, the inventory levels at your client's places, but also, you know, the higher interest rates, you know, at some point you have opportunity costs if that's already hampering inventories.

Okay, on the customer side, I think I've iterated on that. On our side, it's more that definitely availability goes over any networking capital, I would say overall networking capital considerations. Of course, it has to be reasonable, but the essence for Bossart is that we can deliver, and availability is the key point. So I think we know that now we're in a cycle where we face, okay, also higher interest rates and networking capital, and that's not, of course, what we like. On the other hand, it also gives us the right availability that we need. And this is a cycle and it will go the other way again. And in this case, we rather want to make sure we get the parts in that we ordered. We're also not canceling orders. That's also part of our supplier policy that we say whatever we commit to, we commit to. And of course, if we can cancel it and it's not a problem for the supplier, we will look into these situations. But normally we would then get in the parts and make sure we can use them. And with the downside that obviously the inventory goes up and the higher interest rate.

Okay, thanks. Thank you.

The next question is from Tobias von Hertz. Your line is now open.

Yes. Hello, gentlemen. If you could speak a little bit about cyclicality and your changing business dynamics. So as I understand, you so far do not yet see a lot of cyclical clouds on the horizon, right? And when it comes to the contrary, so you're slightly improving structural growth potential overall, could you elaborate a little bit more about about the drivers. We spoke about the nearshoring when it comes to the sunrise industries, which you're mentioning a lot. Could you quantify your sales share of these industries at the moment and give us some feeling how this developed? So what has been the share, I don't know, three, five years ago? And then on the other structural driver, the rising client focus on supply chain management, where is it really coming from? Are these existing clients that are just ordering more or are these completely new clients? Because, I mean, in the past, you always indicated that clients do not switch that quickly with thousands of customers. products which they order without having major problems. So has this structurally changed now? And as a conclusion then, I mean, the grand financial crisis, looking back at a worst case, you had also sales decline in the mid-20s, looking at all these improving surroundings and a little bit more structural growth potentials. how would you see your structural growth profile in such a weak surrounding at the moment? So with today's offering, would it just have been 2-3% lower or are we speaking about 10% or what's your feeling there?

Well, maybe I can start maybe a lot of questions. I think right now, Due to the fact that we can deliver, I think it also happened that we won new business and new customers because of availability. So in some instances, some customers couldn't source at their existing supplier, so they switched. Also, I would say smart factory solutions help customers now to decide to switch because there are some, I would say, unique features that we can offer to that as well. So that's one element. Again, it's a mix like always. So it's the availability, it's the smart services. Then I would say it's also price increases, which impact the sales volume increase overall, of course. And then I would like to mention the sales engine as well, that we installed a new digital lead chain system or structure in some of our larger markets that help us to, I think I mentioned it earlier, help the needle in the haystack to come to us. So instead of having a bunch of outside salespeople knocking doors at customers and finding the right decision maker, We post technical logistics and product-related content, and then the specialists, the engineers and the logistics production people would come to us, and then we can directly connect and provide solutions. There, we have also seen that some of the leads that we generated really resulted into nice couple of million dollars results results. in some of our larger markets. So that also added to win some new customers because we were available at the time, they looked for something and then we brought them a solution and then they buy with us. Will they sustainably buy with us? We don't know. It could be a one-timer as well, but it's definitely a way into a new customer relationship which we can build up on. And again, maybe to remind, we have 3% market share globally, which means 97% is still to go for and So in that sense, there is potential for new business, knowing that customers don't change that easily. You're right. But I think it changed a bit in the last two years because of availability issues. So if you have the part, you get the business. If you have a solution that no one else has, then maybe there is another possibility to win. And then it's also a mix, and then it's also price increases, which alluded to that. The Sunrise Industries, I think you mentioned how much that is. We cannot give you an exact number, but maybe it's around a third of our business right now. Maybe I'm totally off now, Stefan, but that would be my guess. We don't have an exact number for that. But it's growing significantly, and we know that by focusing on that, there will be more More to come. We have also developed product portfolios within the Sunrise Industries to make sure we can scale this to other customers, for example, in the EV sector or charging stations and so on. And that helps us also to win new businesses. So that's about the Sunrise Industries. Now, it's a package. It's a mix of things. I think it's some strategic initiatives which help us. It's the availability. It's the pricing. Yeah, that's what I would say. Maybe, Stefan, do you want to add something?

No, I have nothing to add on that one.

Did that answer your question?

Yes. Okay. Thank you.

Thank you.

We have no further questions. I will hand back to the speakers for some closing remarks.

Thanks a lot. Thank you. It was for us also an experiment with a new platform. Apologies for some disruptions that we had. I know at some point the voices were not great. We even lost voices. Apologize for that. Nevertheless, thanks for joining. Thanks for listening in and for asking questions. And we'll happily answer more questions if you have at a later stage, you know who to contact and where. And thanks again for joining.