Bossard Holding AG

Welcome to our, um, summer announcement of our half year results of the. Um, from agenda perspective, we would like to guide you through the highlights 2023. If you, uh, financial overview that will be done by Stefan. I will then continue with the strategy 200 progress and, uh, give you a bit of an update where we are and then, um. go into an outlook for 2023. So starting with the highlights for H1 2023, we dare say it's been a good first half year. We would say the second best result in the boss of history in terms of sales and EBIT compared to some peak years in the last two years, 2021 and 2022. uh obviously as all the other industries we have seen a weakening in the last couple of months which is due to a destocking of our customers so our customers had built up stock over the last years and namely in the last 12 months and now are depleting some of their stock together with a general decline in the overall um business development this has led to a global demand normalization as we call it again after the peaks we have seen in 2021 and 2022. Also, we have seen a high negative foreign exchange impact on the top line. It's been like 4.6% on the bottom line, closer to 7% impact. So the FX has impacted us quite heavily in a negative way. We have seen only a slow recovery in China. after um kovit went over was over in q1 we all thought that the recovery would be faster as we've seen and we also see that with other industries this has not gone that um Quickly and, um, so the recovery is relatively slow in China yet. We focus on sunrise industries and, uh, this helped us also in first half of 2023. So this paid off, uh, namely in the segments of, uh, electro mobility and, uh, railway. Uh, and continues to do so, so, uh, over proportionate growth, um, also connected with our proven productivity services, um, namely smart factory. Logistics and smart factory assembly that has helped us to win new business and to create better stickiness with our customer base on the smart factory logistics side. We are now, um. at around 1000, more than 1100 customers and moving towards more than half a million devices, smart devices installed and growing, growing year on year, roughly 7%, also this year and smart factory assembly. This is the internal startup, which helps customers to optimize and automate their assembly processes. We have also doubled our installations year on year. And also we are doing this this year. So this helps to create bigger customer loyalty and stickiness and win new business with customers. Our new digital platform, our Dynamics 365, was rolled out in Singapore successfully in April after Denmark and Sweden last year, and we will be continuing to roll out the new digital platform now. The next rollouts will be in Malaysia and Thailand. So far, we're pretty experienced now in doing that. So with all this, with a normalization in demand and quite heavy investments on the IT side, We are proud of a good first half year 2023. And with that, we're also in line with the with the guidance that we that we gave. So from 2020 compound annual growth rate on the top line was 20% on the bottom line as well for the last three years. So in that sense, we're pretty much we're actually very well on track. So with that, I'd like to hand over to Stefan Sander for the financial review. Stefan, can I ask you?

Yes. Thank you, Daniel. Good afternoon, ladies and gentlemen. And in an increasingly demanding... Can you hear me?

We couldn't hear you for a second.

Now I can hear you. Okay. Good. Okay. So good afternoon, ladies and gentlemen. In an increasingly demanding economic and geopolitical environment, we also experienced that the market challenges started to shift in the last six months. In this changing market environment, the Bossert Group achieved sales of 577 million Swiss francs in the first half of 2023. A decrease of 1.5% compared to the prior year, whereby the currency impacted the sales development negatively by 4.5%. Organically, sales grew by 1.2% compared to prior year. The acquisition of Penn Engineered Fasteners consolidated since November 2022 contributed 1.9% to the group's sales development. With the lifting of the strict COVID-19 restrictions in China, demand started to normalize in the industry sectors that benefited from the pandemic. Whereas growth industries such as electromobility and railway reach gratifying growth rates, other focused industries like consumer goods and electronic industries, as well as medical technology, recorded a normalization of demand, and these industries particularly benefited from the pandemic. Also as part of the normalization, the supply chain challenges and the long delivery times have eased. Lead times and freight costs have now almost reached pre-COVID levels, which is actually good news. On the other hand, the normalization of the procurement market has caused also lower demands, specifically in the second quarter. How much of it relates to the better availability and therefore drives our customers' re-leveling activities of their stocks? Or how much is driven by the current economic outlook and market uncertainties is not a clear science. But likely both are impacting demand to a certain extent. The softening of the demand. in course of the first half of the year and the appreciation of the Swiss franc also impacted our P&L. With a 32% gross profit margin, which represents an increase of 0.5% points compared to last year, we have well managed our price levels, but also product and regional mix were favorable. In total, sales and admin expenses increased by 7.2 million Swiss francs compared to last year. Wage inflation, as well as higher number of employees, plus 98 FDs, were part of our cost drivers in comparison to last year. And continued investments have been made in the targeted growth initiatives, especially in digitalization as part of the Strategy 200. The EBIT amounted to 69.6 million, representing a decrease of 9.8%. Despite slightly lower sales and an over-proportional increase in costs, the EBIT margin of 12.1% is still underscoring the group's continued solid profitability. What is noticeable is also the marked increase of the financial result. Whereas negative currency impacts due to the appreciation of the Swiss franc contributed to the increase, the major impact was attributable to higher interest rates paid in the first six months. As an outcome, compared to prior year, net income decreased from 59.6 million to 49.9 million. The return on sales amounted to 8.6% in comparison to 10.2% in the prior year. As mentioned previously, the actual currency, Evelyn, this is not the correct chart. Go one ahead. One more. Here, here we go. As mentioned previously, the actual currency reality has obviously an impact on Bossert's Group business performance. Even though the Bossert Group, as already explained in the past, has a good natural hedge. This is due to the fact that income and expenses are generally incurred in the same currency areas. Nevertheless, the appreciation of the Swiss franc had an impact on the consolidated financial statements. This currency effect can be recognized not only in sales, but also EBIT level. Without the translation effect at unchanged exchange rates 2022, sales would have amounted to 609.4 million in the first half of 2023, which is already, as mentioned, would correspond to an increase of 3%. On a comparable exchange rate basis, excluding the valuation effect from the appreciation of the Swiss franc in 2023, EBIT would amounted to 75.7 million Swiss franc, representing only a decrease of 2% compared with the previous year. On this basis, we would have generated an EBIT margin of 12.5% and not the 12.1 as reported. As we will see, currency did impact business performance in all three regions. Evelyn, can you go back to the sales? Yeah, perfect. In America, the group again posted solid and growth-based growth in the first half of the year, although it began to slow down toward the end of the period. Sales increased 9.9% to 161.1 million Swiss franc, where also in local currency, sales growth was 13.8%. Organic growth in local currency amounted to 6.4%. Our expertise in the electromobility sector built up over the last several years has led to further expansion of our customer base. In Europe, the group recorded a decrease in sales of 3.2% to 321.2 million Swiss francs. In local currency, the sales development was slightly positive. The result is the consequence of the economic slowdown and normalization of demand in an environment marked by a shortage of skilled labor and inflation. Also, smart factory logistics services draw even more attention from customers. Sales in Asia declined by 12.1% to 94.2 million Swiss francs, though in local currency, sales were down only by minus 3.6%. The strong Swiss franc was playing a key role. In addition, demand varied from region to region. In China, after the COVID-19 restrictions were lifted, only marginal growth drivers were evident in the first six months of the year. However, the majority of the other regional companies showed a positive development. Looking at the balance sheet, it shows that after a substantial rise in 2021 and 2022, total assets were now slowly below last year's level. Whereas in the last years, the increase resulted mainly from higher receivables caused by the significant increase in sales, and the above average growth in inventory to cope with the supply chain challenges, the balance sheet expansion is consolidating now on a high level. Compared to prior year, total assets decreased slightly from 905 million to 901 million Swiss francs. In comparison, the equity ratio increased slightly from 40.8% in the prior year to 41.3%. We expect that the equity ratio will further increase towards the end of the year, staying well above the 40% target ratio. Compared to last year, the operating net working capital increased by 4.2%, whereas in relation to sales, it dropped slightly from 48.5% to 47.9%. Even though sales were lower, at the same time also the operating network and capital intensity in relation to sales started to ease, which is mainly due to our lower inventory levels since the beginning of the year. These were deliberately increased during the pandemic to ensure the best possible delivery capabilities to our customers in view of the continuing market uncertainties and long delivery times. On a year-on-year comparison, net debt increased from 293 million in the prior year to 323 million. The good news is that net debt remains stable since the beginning of the year, seeing only a marginal increase. The gearing net debt measure against equity of 0.9 is slightly above last year's level of 0.3. There is net debt in relation to EBITDA increased slightly from 1.9 times to two times. Thereby, BOSA continues to have solid balance sheet ratios, which are within the range of the long-term balance sheet funding targets of a gearing of less than 1.3 times and net debt EBITDA ratio of less than two times. In the first half of 2023, we invested totally 17.8 million Swiss francs. Thereof, 4.3 million relates to two ongoing infrastructure projects in France and Taiwan. In Taiwan, we just moved into our new office and warehouse facilities. The project in France is expected to be completed by the end of the year. This year, we invested so far 5.2 million in digitalization, The biggest share of this investment was dedicated again to our new global digital platform. After Denmark and Sweden last year, we have successfully completed our first rollout in Asia and Singapore in April, as Daniel already mentioned. 4.6 million was spent for replacement investments in ongoing operations. And 3.5 million we invested into smart bins and electronic labels, which we installed at our customer premises as part of our smart factory logistics solutions. What the cash flow of the group concerns, we have seen an overall strong development in the first half of the year, mainly driven by the under-proportional increase of the operating networking capital in comparison to last year. Cash flow from operating activities totaled 50%. 4.4 million, a substantial change in comparison to the negative cash flow of minus 15.6 million in the same period last year. As already mentioned, this is mainly due to the normalization of the supply markets as lead times become much shorter again and therefore the availability of the products. The biggest impact is coming from the inventory. Whereas we faced an inventory increase of 67 million Swiss franc last year, it contributed positively by 16 million Swiss franc to the cash flow in the first half of 2023. Cash flow from investing activities decreased from 20.4 million to 14.8 million in 2023, mainly due to the less capitalized costs for the new digital platform. In addition, There was a cash inflow from a purchase price adjustment related to the acquisition of Penn Engineered Fasteners in Canada. While the group reported negative free cash flow of minus 36 million in the prior year, a positive free cash flow of 39.6 million resulted in the first six months, thereby almost recovering the dividend payout of 42 million Swiss franc this year. With this last remark, I hand over again to Daniel. He will comment now shortly on the progress of the implementation of the Strategy 200 and what business environment to expect in the second half of this year. Daniel, please.

Thank you very much, Stefan. So I'm happy to give you a short update on the Strategy 200. As you may know, this is our strategy which is leading us towards 2031 when Bossart turns 200 years old. That's why it's called strategy 200. And as an overview here, we said that we want to go for accelerated, profitable and sustainable growth, as we indicated the mid term 5% top line growth in the range of 12 to 15% a bit margin, based on our proven business model, which is our products and services model, organically and through acquisitions over the time. And we want to achieve relevant market shares in our key markets through seven specific initiatives now i just want to share three of the initiatives and give you a little highlight on where we are first of all our cultural initiative called together we create with the idea to become much more efficient in global collaboration which means we don't want to reinvent the wheels and we started initiatives on talent and leadership management

Stefan, we can hear you.

Initiatives on talent leadership management to retain and develop talent in a scarce global market with the notion that the work age population is going to shrink in the next decades. That's getting even more and more important than we managed to keep talent and to attract new talent much better than in the past. So that's why we believe this initiative will be key for our future success and we continue with that. On the sales engine side, the aim is to become more efficient in customer acquisition, mainly by shifting from analog to digital. So we shifted boldly to digital lead generation and we created harmonized sales roles across the group. So after all, we could see 30% more qualified leads across the board and a faster pipeline conversion. Then we are and have been ramping up our AI-based services, which is smart factory logistics, which is enhanced with tools, which is capturing the historical demand from customers. So we have tons of data that we can capture from those 1,100 customers. around the globe and do predictions for the future and make sure they have less stock outs or through a tool called real time manufacturing services, which is a platform which allows customers to inquire special turn the mill parts and to receive quotes within seconds and being able to place an order within a few minutes. So this is ramping up. And so here we're expecting further growth over the next months. Then the operations engine has already indicated where the main driver is our D365, our Microsoft Dynamics 365 IT ERP solution, which we successfully implemented in Denmark, Sweden, and as I mentioned in Singapore. Next up will be Thailand, Malaysia, France, and USA in the next 12 months. Then increased internal efficiency also through AI based tool. We developed a tool called Product Solution Advisor. Now we have had this for about two years, which allows internal people to access our internal product data and also less skilled people can make technical advice based on these data now. So we become much more efficient in using modern tools to provide consulting to our technical consulting to our customers. So those are three initiatives I wanted to highlight very briefly. The rest of the initiatives are also more explained in our investors handbook available online. Then to the outlook 2023. Now, as far as I can look out, I would say I'm rather talking about influencing factors than the real outlook. um as you see all over the global markets are cooling off i mean that has been a trend over the last six months for sure um with a high negative fx impact which is probably likely to continue people forecasting the us dollar swiss franc to be more at 0.7 than 0.8 so it's not going to improve on that side so we need to deal with that Jan-Willem Wasmann, Supply chains continue to normalize and availability as well availability of fasteners are at normal levels again also freight costs, by the way. Jan-Willem Wasmann, have come down dramatically and they're actually at pre-COVID levels, so the overall environment has normalized as we already indicated. Jan-Willem Wasmann, Inventories have reached a peak, we see that the inventory levels are starting to go down as Stefan indicated in his presentation. um with definitely a positive impact on cash flows we had a swing of about 70 million compared to last year from minus 35 to plus 35 million this year which is quite nice wage inflation digitalization initiatives and interest rates are though driving our cost base further so we continue to uh roll out our erp system um in the group over the next uh next two three years so that will have an impact on the cost of course wage inflation i mentioned scarce resources will be an issue and further initiatives strategic initiatives will which will help us long term to thrive Then we see definitely further potential for above average growth in sunrise industry, namely electromobility and its ecosystem. We mentioned it at other instances with batteries, with charging stations. For example, India is investing a lot in electrical scooters, for example, two wheelers, three wheelers. Railway is still thriving well. Why? Because this is a long term. They have long term projects. And also in the area of automation, we see further growth potential. And then last but not least, all this with our proven productivity services, which are here to reduce total costs for our customers and namely smart factory logistics and smart factory assembly moving forward. Now, to underline this as well, I have a chart which I maybe need to shortly explain. On the horizontal line, you see the importance of certain topics for CEOs. And on the vertical line, you see whether this topic is of growing importance or of fading importance. So on the top right, You see topics like machine learning, AI, productivity, and maybe a no-brainer, but these topics, especially these days with a lot of inflation happening, become more and more important. So productivity is key, and that's exactly where we hook in to win new business. And we see that this happens, especially with smart factory assembly. As I mentioned, we're doubling our installations year on year, and this is happening also this year. We're creating more customer stickiness. And it makes it easier for customers to onboard new people, scarce resources, onboarding new people to their company. So we're in the middle of this and we believe by following this and to further promote our productivity services, we're in a very, very good stage to do that. Overall, I can say again, we are in a situation where maybe the water levels are a bit lower globally, but we're keeping on adding new water and we're very very confident moving forward that this will help us to maintain the customer base in a not easy environment moving forward so with that i'd like to close and hand over to natalie for some comments and obviously move over into q and a thank you very much and we have the first question from stephanie shorty from mirabo securities please go ahead yes hello everyone um i would like

to ask a question on Asia. I mean, organic growth in Q2, the decline actually accelerated despite this reopening of Asian countries. Would you expect that there will be a catch-up in Q3 or Q4? Do you think that situation is going to improve in Asia? And maybe which industries were affected the most, especially in the last quarter? in Asia.

Maybe I can try. Maybe Stefan, you can tune in as well. We, as I mentioned with China, we have expected a faster growth. We see a decline in the semi-con, you know, customers like VAT, for example, which are in a cyclical downturn and we have quite a number of customers in that range across Asia Pacific. So that has negatively impacted the result. What has positively impacted still the result is electromobility. And we believe, especially looking into China, there are a lot of exciting projects going on. with autonomous driving cars, BYD, a new project that we were able to win moving forward. So I would judge and say it's probably going to stay rather flat over the next months without knowing it, of course. But there are industries which are still rather going down. Semicon, we expect to have a revival, maybe Q4, maybe Q1 2024. um and but other industries are are doing relatively okayish but the overall mood across asia pacific i would say except india is a bit depressed india itself is actually doing quite well if you look at india and separate the markets they're also benefiting from this china plus one strategy that a lot of customers have so they want to move away from china as a key source or don't want to be dependent on and move over to India. For example, Foxconn, they decided to move their Apple production big scale from China over to India, which in many instances we can benefit. And we're also growing nicely double digit in India, by the way. So Asia is a bit of mixed picture. There's some industries moving well. Overall, I would judge to say it's going to be rather flat for the next six months. Stefan, anything to add?

No, not from my side.

I hope I could answer your question.

Yes. And maybe on wages, can you quantify how much wage inflation was in the first half and what do you expect it to be in the second half?

Stefan?

Yes, I can answer that one. Overall, what we see for the group is about 5% to 6% wage inflation in average. So definitely over proportion to what we have seen in the last years. A bit specific for the BOSA group is that we do in general the salary adjustments 1st of May. So that's usually having the increase or the impact in the second half. So in the first half, it's a combination between the higher FTEs and the inflation. So the impact on the salary adjustments was maybe one about a million or one and a half million. So the bigger impact we will see on the second half.

And then maybe a third one, if I may, and I hope that's not too much of a repetition for you. on your ERP systems, you're planning to invest 70 million, that's right? And then you have invested already last year, 15 million. And if I look at your presentation in the first half, you have invested 5 million. So does this mean that you're a bit behind your investment plan in terms of ERP or where do you stand here and how much do you intend to spend this year?

That's a money question.

Yeah. This year, we expect to spend about 14 to 15 million from that perspective. I mean, what's on the platform. The other part of that's the CapEx. And then, of course, with the rollouts, we also have OpEx. With the rollouts, we have more licenses need and so forth. So that's a bit the combination of that. But overall, it's about 14, 15 million this year. That's what we expect. And then, of course, it always depends a bit on the plan, whether we can stick to the plan or whether there is anything holding us back. But we implemented Singapore according to plan. And we have two additional companies coming up, which is planned to introduce the beginning of Q4.

Okay, and then your remaining budget is still 40 million. Is that right?

Well, I have to add here, I have to add that we have already introduced Microsoft AX212 in Germany four years ago, and that's part of that budget. So I cannot give you an exact number here, but it's not only the numbers that you brought up. It's already more that we spent already a couple of years ago.

Okay, perfect. Thanks a lot.

Thank you.

The next question is from the line of Michael Rose from Barahelvia. Please go ahead.

Hi, good afternoon. Can you hear me? Yes, loud and clear. Perfect. Excellent. Actually, I just have one question, so I won't take up too much of your time. On the working capital, you did quite a good job, I have to say, in the first half of reducing working capital from the higher levels last year. How do you expect that to continue in the second half? Are you going to accelerate that further? Or what do you expect? And also maybe as a scenario analysis, assuming growth or let's say things start to cool down further, can you accelerate that even further? Thank you.

I can take that question up. Yes, we are expecting a further normalization of that. At the end of the day, it all depends on the demand of our customers. If the demand stays good or high, then of course that helps us to accelerate. If the demand further, let's say, weakens, it takes a bit longer to adjust our inventories. But I expect that we will see a further normalization also on our on our inventories and having also a positive impact from that perspective, also on the cash flow on the second half.

Okay, perfect. Thank you very much. You're welcome.

The next question is from the line of Tobias Farnholtz from Stiebel. Please go ahead.

Yes. Hi, good afternoon. Two questions, if I may. First, on destocking. You have a couple of decades to look back. What would you say, how long did these destocking periods typically last? Is it one quarter? Is it two, three, four? And when did it start?

Maybe that's the first. I would, maybe I'll try. Now you're talking about our customer base. And I think... last year customers still expected the parts to to be with long lead time so they they were still sitting on stock and ordering i would say it started somewhere beginning of the year into the last six months and we hope that by q4 or so that will start to normalize again so that would be my judgment but i have to say that the big pot um it's probably also a bit different by, by industry, but I would say in general and the average, I would expect that this would go down all the lines by Q4, but okay. We don't know.

Good. And the second one on artificial intelligence. Um, I mean, yeah, a lot of people speaking about it. Uh, could you quantify the potential midterm savings, uh, you're going to see there and are these kind of operational efficiency improvements, I would tell them, are they baked into your guidance?

Well, first of all, on the like investing in the sales initiatives and in our operations engine, that means, of course, we want to be more efficient in winning new customers by using digital lead gen. So as I mentioned, the pipeline conversion, which is accelerated, and then also hopefully at higher margins. But okay, and how much exactly? That's pretty hard to say. Also on the ERP side, I think we have to see that this is a multiple year process to introduce all the systems or the system across the group. And we only have the full efficiency effect once we're having it in all 32 uh 32 countries so now we have started with three and this is going on so there is a time where we have legacy systems to run for the next three years and so we will also have additional cost for that so on the operations engine erp system side it could take a couple of years before we see the full benefit full efficiency benefit unfortunately we have to change the system or we have to change But this is a long-term effect which could take years. On the sales engine side, I would say this effect we should see much quicker. But how much exactly? Well, I would refer to our mid-term guidance of 12 to 15% EBIT margin for that to grow hopefully soon. Thank you.

The next question is from the line of Sebastian Vogel from UBS. Please go ahead.

Hello and good afternoon. I have three questions. I would ask them one by one. The first one is on the margin trajectory of seasonality in that regard. So H1 versus H2, if I'm not mistaken. In the past, or in normal past years, let's put it that way, H2 margin was maybe around like 150 basis points, 200 basis points lower than the first one. Also given, I guess, regarding labor seasonality, as Stefan was pointing out. Is 2023 a year that could be in that sense shape out a little bit like this normal average in that sense? Or what is your thinking in that context?

Well, I would expect that it's going to be kind of what we have seen as an average in the past, that there is certain seasonalities, of course. I think what's a bit different is that we will see also further currency impact on the second half. If I draw your attention to the Q2, currency was impacting the top line almost by 6%. If you look the, um, on the, uh, Swiss appreciation specifically in the last 10 days, uh, vis-a-vis the us dollar and the Euro. So that will expect to remain. And you have seen a bit also from the slide or indicative with, I show you the impact from the currency for the first half on the EBIT. So that might be an additional, a bit, an additional burden from, from that perspective. But again, It's, I think, on general, if you look in the second half, as Daniel mentioned, I think you will see rather a softening or a stable softening of the demand and not an acceleration. So I rather see that we will see kind of this 1.5, 1 to 1.5 basis points in the second half.

Got it. The second one is regarding a comment in the press release from the morning in which when you were talking about the outlook and about that on a best case, you see stable pricing there. Does that mean that in a sort of a best case and sort of a base case, you expect some pricing pressure building up on your side that your customers are asking you for lower prices and you need to give in there?

Well, maybe I can take that and say we have already expected that in the first half, and well, I think we were not too bad at defending this at the high level. Will the pressure increase? I guess yes, because the overall pressure on our customers will increase as well, and they will come back and ask for it. On the other hand, We also have to see that we have two thirds of our inventory are special parts where we have a fixed volume and price agreement with customers. So whenever they order a new batch, there will be a new price negotiated at a negotiated new price level. So it's not that we have to sell off the expensive stock cheap. That's not what it is. that we have to re-quote and then see hopefully to still gain a decent margin. So in that sense, I'm confident that we have a big chunk of our stock that we can sell still at a good margin. So in that sense, customers will come and ask for sure, can we defend it? I think we have many arguments and also structural prerequisites to defend this.

Got it. And the last thing on the smart factory services, since you mentioned great growth rates over there and that's definitely impressive. I was just wondering to put things into context, how much of sort of is the revenue contribution at the moment from these sort of services?

Well, as indicated earlier, this is still this is minor and will stay minor. So it's maybe all together with all the services, it's maybe 1.5% of our total revenue. But it was never and is never the intention for this to grow dramatically in the sense that this is going to be 50% of our sales or so. But it's here. It's like a shoehorn to create product sales. So our main revenue driver is product sales. Services are here to create value and stickiness and therefore driving the product sales. But to answer your question, it's about 1.5%. Got it.

Many thanks. That had been all my two questions. Thank you.

The next question is from the line of Christoph Grau from AWP. Please go ahead.

Hello, thank you very much for taking my call. I'm not quite sure if you already answered my question, but I will try to ask it again. You mentioned some cost-saving measures in your presentations. Can you give me maybe some more details into this? In what areas are you planning to cut your costs? And maybe can you repeat it for me?

Thank you very much.

Yeah, I can answer that. I cannot remember that we talked about cost-cutting measures.

No, I was also thinking where did we talk about this?

I don't know. Because, again, based on our mid-term strategic plan on the initiatives, I think we're going to spend money. I think that's what we said. It's a phase of... over-proportional spending. And it's all aligned with the strategic initiatives, as Daniel mentioned. It's with the sales engine, operation engine, and the biggest part is the digitalization. And it's the new ERP system, which we're going to have. Of course, as we always say, managing the cycles, we need to watch the cost as well. But we didn't talk about taking cost measures.

OK, sorry, Dan. I got it wrong.

No, but but overall, I mean, it's a fact that, uh, you look at your strategic project portfolios and say, okay. Uh, which ones are the elements of projects that you want to park and say, okay, maybe you can, you know, uh, postpone or not and we did that and also looking at the, uh. personnel cost development, obviously, we look into being more efficient and looking into people retiring, whether we need to replace or not. Those are natural things we're looking at in times where the overall economy is cooling a bit off. Yet we still do intentionally invest in our strategic initiatives because I can just repeat maybe what we said earlier, we're thinking in decades and not in quarters. So we do invest quite a bit into our strategic initiatives moving forward. that we say, okay, could we park them and could we postpone them?

Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star and one on your telephone. The next question is from the line of Marta Bruska from Berenberg. Please go ahead.

Hello, good afternoon. Thank you for taking my question. Hi, Marta. Congratulations on the excellent quarter. So, I hope you didn't mind a little bit philosophically. So, in Europe, we are already for a while below 50 in terms of PMIs. In some markets, they're as low as they were during the darkest time of the COVID pandemic. So, do you think that could get even worse from here in terms of expectations?

That's a good question. We don't know, of course. And we see industries, cyclical industries like Semicon, as I mentioned, which are in a down cycle, which are probably coming back, looking at all the digital needs that are still around. I'm confident that this will grow. Also looking at the whole EV environment and governments investing in those areas. I'm very, very uh confident uh looking into india as a special market which is growing nicely i think this there we see a definitely a good growth by the way on the pmi i think they're at 57 or something quite standing out of the standing out of the crowd it's so difficult marta because now with all the all the geopolitical uh things still going on and uh it's really hard to say what's gonna happen uh here i hope of course it's not gonna get worse and we do see industries which are um investing renewable energies ev i mentioned railway healthcare will invest further in the future so i'm i think it's just a matter of time until this will relax again unless there is a war or anything coming i know that's maybe not so clear but actually this is where we are in right now so we don't see that clearly how it's going to evolve i'm optimistic and i think we will see nice growing spots moving forward but the overall climate i think has been a bit depressed and maybe for the next couple of months i'm afraid it's kind of peak uncertainty absolutely yes i wish i could we could see clear but it's maybe i think i can add here and this is also from experience you know of course we have now a cycle we can't influence the cycle but we have to manage the cycle but

I mean, always through these periods, opportunities are not going away. We have a broad existing customer base. I think also digitalization or inflation, the shortage of labor, these topics are not going away. So we have offerings vis-a-vis our customers, which are independently of the cycle. Just to give a positive notion on the opportunities we have and what we also have learned. If we can, or what we do, seeding and gaining new customers from that perspective, then usually we benefit a bit over proportionally when we're going to see the tailwind. And like every cycle, it will change. It's just a question of time from that perspective.

Excellent. Thank you. Thank you very much.

Thank you.

So far, there are no further questions, and I hand back to Dr. Daniel Bossert for closing comments.

yes so um i'd like to thank you for taking the time to listening in um again um the first half year was the second best in the boston history maybe not to forget that and looking forward um there are there is a number of uncertainties but as stefan mentioned there's a lot of opportunities as well and we're consequently following those again we're thinking in decades and northern quarters we're very optimistic that we're on the right track with our systems and services so in that sense thanks for listening in and we'll be happy to update you again by the end of the year beginning next year on the year result thank you very much