Durr Ag Spon Adr

The conference is now being recorded. Welcome to the DUR conference call. Dr. Jochen Weyrauch, CEO and Dietmar Heinrich, CFO of DUR AG, will present the DUR Group's preliminary figures for fiscal 2023, followed by a Q&A session. I will now hand over to Andreas Schaller, Head of Investor Relations of DUR AG.

Yes, thank you very much, ladies and gentlemen. Good afternoon and good morning to those of you in the US. Welcome to our earnings conference call. With me on the call today are our CEO, Jochen Weiberg, and our CFO, Dietmar Heinig. And they will present the preliminary results for the financial year 2023, as well as the outlook for 2024. And we'll be happy to answer your questions afterwards. As always, our earnings presentation is available on our investor relations website, and we assume that you have it in front of you. Please be aware of our disclaimer regarding forward-looking statements on slide two. And now it's my pleasure to hand over to our CEO. Jan, please go ahead.

Thank you Andreas. Welcome to all participants on this call, also from my side, and thank you very much for joining. Let me start with some short remarks on the past year on slide five. Operationally, 2023 was, in most regards, a good year. We increased sales revenues by more than 7 percent and reached a new record level of 4.63 billion euros. EBIT before extraordinary effect improved by 21 percent, and after a slow start in Q1, we reached a margin of 6.1%, thus meeting our target range. All divisions contributed to this profitable growth. Last but not least, we could convert the higher profitability into a strong free cash flow and achieve more than 100 million euros in the fourth year in a row. These improvements were only possible because of the high dedication of our more than 20,000 employees. And I would like to thank all of them for their strong commitment. At our woodworking machinery and systems division, we were facing a special situation in 2023. HOMAC successfully worked on reducing the very high backlog from the peak years of order intake in 2021 and 2022, and reached a new record margin of more than 9% in the second half of 2023. At the same time, we had to realize that the order intake was lower and the cyclical downturn demands stronger than expected. As a consequence, we announced the capacity reduction program in November to improve the resilience of Formag. And we are convinced that the business will emerge stronger from this downturn and has the potential to reach at least 10% margin before extraordinary effect in a normal environment. My last initial remark is on our strategy to develop our portfolio towards profitable growth. In 2023, we made considerable progress with this strategy. First, we accelerated growth in production automation systems with the acquisition of BDS Automation. With this move, we reached critical mass in the top three position in the industry. In addition, we unlocked many synergies that we will be working on this year. Second, we strengthened our battery business with the acquisition of INGECAL and the technology partnership with Leica. We extended our offering and at the same time positioned us as one of the innovators for the next technology generation of electrode dry coating. In our established businesses, we further improved the gross margin of the service business. In addition, we saw the first outcome of our value before volume strategy with margins improving and paying environment services. All in all, I think we have made good progress in 2023, and we look cautiously optimistic on 2024. We are determined to do everything it takes to improve the group's earnings resilience and portfolio. This is why we choose taking action as the headline for our 2023 report. Let's move on to the overview of 2023 on slide six. Order intake reached 4.62 billion euros, which is slightly above the midpoint of the guidance. When we published Q3 earnings, we saw the potential to even reach the upper end of the guidance based on the solid project pipeline in automotive. We have already mentioned many times that automotive projects can be quite large, and winning a project or not can easily make a difference of a couple hundred million euros in order intake. The fourth quarter, we saw a more aggressive behavior of competitors. In that situation, we stuck to our value before volume strategy at pale and fine assembly systems and left lower margin projects to competition. the division reached almost 1.5 billion euros of order intake, which is not too far from the record level of 2022. And application technology reached a new record order intake, and OMAC achieved more than 400 million euros order intake in June 4. This was mainly due to two large projects in China and Spain, but does not change the overall market picture. The order backlog increased by 4.7% year-on-year, to 4.2 billion euros, mainly due to the acquisition of BBS Automation. The sales record of 4.63 billion euros was supported by increases in all divisions and by BBS Automation already contributing 107 million bids. The book-to-bill ratio stood at 1.0 despite the decline in money intakes. The EBIT margin before extraordinary effects reached 6.1% for the full year, and 7% in Q4, a big contrast against the 4.1% in Q1. We managed to finally reach the guidance range. Net income reached the lower end of the revised guidance range with 110 million euros. This was because special expenses reached 89 million euros in 2023, as we booked provisions of about 50 million euros for the capacity and cost cuts at Huma. On top came PBA effects and, of course, transaction costs related to the acquisition of PBS automation. Another highlight is the free cash flow of 129 million euros, thus clearly exceeding expectations. Once again, we were very disciplined with CapEx and networking capital management. Dietmar will go into more details in a couple of minutes. Slide seven simply shows the percentage changes in the figures I have just described, so it doesn't require further explanation, and we move on to the next. On slide eight, we can see the comparison of the actual results with the original guidance from February and the last guidance provided in November. Order intake came in slightly above the midpoint of the guidance range due to the reasons explained before. Sales revenues are are also very close to the midpoint of the guidance. The EBIT margin before extraordinary effects reached the low end of the guidance range after continuously improving quarter to quarter. The reported EBIT margin came in slightly below the guidance range due to the large extraordinary effects. Earnings after taxes reached the low end of the guidance that we adjusted in November, and free cash flow exceeded the guidance that was unchanged during the year. Due to the strong cost increases for bidding materials, we reviewed our CapEx program at HOMAC. This is why the CapEx to sales ratio came in lower than planned at 3.4 percent. Overall, we met the operational targets and the provisions for the self-help measures at HOMAC are an investment into higher earnings receipts. On slide nine, we see the order intake by quarter. After the weaker Q3, we saw an improvement in Q4. There was more potential for order intake in Q4, but we prefer to continue with our value-before-volume strategy in pain and fine assembly systems as described before. Moreover, we saw some delays in orders from battery producers, except for HOMAC, the project pipelines look solid entering into 2024. On slide 10, we see the geographical distribution of order intake. The order decline in China reflects the local economic slowdown, but it's not that significant and in line with the overall decline in orders for the group. The Americas saw order levels normalizing after the record year of 2022 with several large projects. Europe and Asia without China who are able to grow their intake with larger automotive orders in Asia. Now, let me quickly recap the achievements regarding M&A. With the acquisition of BBS Automation, we have established a new automation powerhouse with performer sales of about 500 million euros and a top three position in the market. We have unlocked various synergies due to the complementary portfolio and the partly overlapping geographically footprint. For example, we closed the TeamTechnik site in China and moved these operations to BVS Automation in Suzhou. The combination of TeamTechnik, Ecuma, BVS Automation, and Kale generates a lot of interest at customers as we have the critical mass and the financial background to manage larger projects in the automotive, medtech, and consumer sectors. Another M&A focus was battery production. We acquired Ingecard, a French specialist for calendaring equipment. This expands our product offering, and at the same time, we got a hold on equipment that can be used for the next generation of electrode coating technology. I'm talking about dry coating technology, which will significantly lower energy consumption in battery production. The important precondition for dry coating is the right recipe for the coating material. That is why we partnered with Lycap, a California technology provider, with its patented activated dry electrode technology. Both companies, Ingecal and Lycap, will help us tapping the huge potential of dry coating. Let's have a quick look at the progress we made with reducing scope 1 and emissions on slide 13. We concluded our switch to green electricity, installed further PV systems, invested about 20 million euros in sustainable buildings, and revised our car policy in order to incentivize the use of emission-free vehicles. All in all, we reduced scope one and two emissions by about 55 percent compared to the base year of 2019. and are well on track to reach our 70% goal by 2030. Now let's have a look at the diversional development. We start with paint and fine assembly systems on slide 15. I already mentioned the reasons for the lower than expected order intake in 2004. Nevertheless, hook to build stood at 1.08, and full year order intake was not far from the record level of 2022. The project pipeline remains solid and includes, among others, the first line of Mercedes in the framework of our partnership. Sales revenues grew to a new quarterly record in Q4, and we reached a service share of more than 30% in the full year. We improved the EBIT margin before extraordinary effect due to the consistent application of our value before volume strategy. In Q4, however, we had a margin impact due to increased expenses for a single project. ROSI in the asset line business improved to more than 26 percent. We made good progress with the margin in 2023 and go for the mid-cycle target of at least 6 percent in 2024. Application technology reached a new record order intake of almost 720 million euros. In Q4, we received some orders that we expected for 2024. Sales revenues grew by 4.7% and service sales clearly outperformed equipment sales. EBIT margin before extraordinary effects almost reached already the mid-cycle target of at least 10%. and came close to the pre-corona levels. Clean technology systems order intake in Q4 was impacted by decision delays from customers in the battery and chemical industries. The extremely high prior year order intake included two larger orders of solvent recovery. Sales revenues grew by 5.5% and were mainly driven by projects in North America and Germany. The key highlight is the significant margin improvement. At 6.3%, the EBIT margin before Extraordinaries was in line with our mid-cycle target of at least 6%. This might not sound a lot when comparing to a double-digit margin in machinery business, but look at the more than 50% return on capital employed of that asset line business. In 2024, our focus will be on bringing the battery business up to speed. Now let's have a look at the industrial automation systems division on slide 18. After the acquisition of BDS Automation Q3, order intake reached a run rate of close to €200 million in Q4. Sales revenues were even slightly above, at €230 million. The EBIT margin before extraordinary effects reached 7.1%. strong performance of measuring new process systems, solid margin and BBS automation, and still relatively low margin from Team Technique due to some legacy projects that we will wash out over the coming quarters. The extraordinary effects include PPA effects for BBS automation and some smaller optimization charges as we already realized some synergies and closed the Team Technique site in China, as already mentioned. In 2024, we will focus on top and bottom line synergies and expect strong sales growth and improving margins. Now we come to OMAC on slide 19. Order intake was relatively strong in Q4 due to two larger orders in China and Spain. As these projects have long lead times, they will only partially support utilization in 2024. The underlying market weakness has not changed yet, and we still expect recovery only for the end of 2024. Sales revenues for the full year increased slightly to a new record high as we work off the high order backlog. EBIT margin before extraordinary effects reached more than 9% in the second half based on efficiency improvements, cost cutting, and price increases of the past. In 2024, we will reduce capacities, save costs, and secure utilization. At the same time, we will work on growing the service business and further optimizing operations, for example, with our new logistics centers. Based on lower headcount and fixed costs, OMAC is expected to be stronger after the downturn and resume its path towards the 10% march. Slide 20 shows that we reached about the same service share of revenues as in 2022, while at the same time we improved the service margin. This is a very good result considering the market downturn at home. Service remains a solid profit contributor and will be further strengthened going forward. And now, I give my hand over to you, Father Fernand. Thank you, Jochen, and welcome to everybody also from my side. Slide 22 gives an overview about the most important key figures Jochen already described. This will help you with updating your models. However, I would like to directly jump to slide 23. This one shows the revenue development over the last eight quarters. In 2023, we increased sales revenues every quarter and reached a new record in Q4, with more than €1.3 billion in a quarter. This strong finish is comparable to last year. BVS Automation contributed €107 billion, mainly in Q4. The geographical distribution shows how auto intake from 2022 translated into sales in 2023. The Americas and Europe were gaining share, whereas China lost share. Overall, sales are geographically well diversified. Now, let's move to slide 24. We reached almost 100 million euro EBIT before extraordinary effect in Q4 at a margin of 7.0%. Cross-profit was the main margin driver, benefiting from the improved supply chain, the high service margin, and better project margins. Reported EBITS likely declined from €205 million to €191 million due to the higher extraordinary effects of €-89 million compared with €-26 million in the prior year. The main difference were the provisions of about €50 million for the capacity reduction at HOMAC. In addition, we had acquisition-related costs and the small optimization charges in the automation business, Johan mentioned before. On slide 25, we can see the free cash flow development. Q4 was very strong, driven by the increased profitability as well as disciplined management of networking capital and capex. We saved capex by moving from a new construction to renovating office buildings and finally spent 3.4% of sales revenues. The high free cash flow of €129 million allowed us to contribute internal financing to the M&A activities of 2023. Networking capital can be seen on slide 26. After the acquisition-related increase in Q3, we can clearly see a reduction of networking capital by the end of Q4. A major driver for this improvement was our focus on reducing inventory Looking at the full year, we almost compensated for the reduced prepayment level and limited the operational increase of net working capital to €23 million. The rest was acquisition related. Despite the acquisition related increase in net working capital, our base working capital came out at the low end of the target range of 40 to 50 days with 40 2.4 days. A disciplined management of networking capital remains high on the agenda for 2024 in order to support free cash flow generation. For the next slide, slide 27, we can see the development of net debt. After the acquisition-related increase in Q3, net debt came down to 517 million euro, well within the guidance range. In addition to the external acquisitions, we spent a low double-digit million euro amount to buy out non-controlling shares of subsidiaries. In addition, some WOMAC shares offered to us were acquired at a guaranteed price. Foreign exchange rate effects increased net debt by about 15 million euro. The key driver for the reduction of net debt in Q4 compared to Q3 was the high free cash flow. At the end, the leverage stood at 1.6 times net debt to EBITDA, which is well within our target of staying below two times. The balance sheet remains solid after the acquisitions, and the same applies to our liquidity headroom that we can see on slide 28. Cash amounted to about €1 billion at year-end and we have an undrawn cash credit line at our disposal. We increased this credit line in December 2023 from €500 to €750 million in order to adjust the size to our growing business. The syndicated bridge loan of €300 million that we used to finance the acquisition of PPS Automation as a maturity of 12 months, but can be extended by another 12 months if needed. As we continue to expect a high liquidity level, we currently plan to pay back the bridge load in 2024. At the same time, we plan to further optimize our funding structure by placing another green shul shine load in 2024. Our focus remains on generating cash from operations and extension network and capital management. I hand back to Jochen for the outlook. Thank you very much, Dietmar. Let's turn to the outlook and to slide 30. The demand for our solutions is driven by fundamental trends, such as the decarbonization of production, the manufacturing of products for a CO2 society, like wooden houses or EVs, and the automation of production as skilled labor becomes scarce, and production is reassured in the industrialized countries. E-mobility is a growth opportunity for us in many ways. Slide 31 shows the current expectations regarding the ramp-up of EV production over the next years. We not only benefit from the amount of EV paint jobs and assembly lines, but also from additional battery production and the need for automated solutions, for example, for EV powertrain assembly. Let's stay with automation for a second. The growth prospects are shown on slide 32. Immobility is only one of the drivers. Very interesting to us from a margin perspective is MedTech as more and more companies in the life science industry look at the automation of their production lines due to the increasing regulatory requirements. Demand in automation should grow by a high single digit percentage over the coming years. and we are well-positioned to capture this growth with BBS automation and t-dash. Now, let's take a look at the guidance for 2024 on slide 33. With regards to order intake, we see potential for growth, but expect at least a stable development. Accordingly, the target range is between 4.6 and 5.0 billion euros. with the upper end reflecting the record level of 2022. For sales revenues, we expect growth to between 4.7 and 5.0 billion euros, which corresponds to the growth rates of between 2 percent and 8 percent. These growth rates are a bit lower than we originally forecasted, 5 to 10 percent, as order intake in paint and final assembly systems was a bit lower than expected in 2022. We assume that all divisions except woodworking, machinery, and systems will grow sales revenues in 2024. The biggest growth is expected for industrial automation systems due to the full-year consolidation of BDS automation and healthy organic growth. For OMAC, we anticipate a sales decline in the mid-teens percentage range based on the lower order intake in 2023. The guidance for EBIT margin before extraordinary effect remains at a range of between 4.5 and 6 percent as given in October 2023. The extraordinary effect should decline to 45 million euros in 2024 and mainly consists of PPA effects. This translates to reported EBIT margins of 3.5 to 5 percent. Due to the higher capital employed after the acquisition of BBS Automation, we expect a return on capital employed of between 9% and 40%. Due to the higher debt level, interest expenses are expected to increase and lead to a financial result of around minus 40 million euros. As a consequence, we forecast a net income of between 90 and 150 million. We are committed to achieving a positive free cash flow in 2024, despite the expected lower margin and the cash out for the capacity reduction . We target free cash flow to be in the range of between zero and 50 million euros. We will remain disciplined with CapEx and plan to spend between 3% and 4% of sales. Taking into account the dividend payments and possible small M&A activities we assume a moderate increase in net debt by the end of 2024. Our clear focus for 2024 is on margin improvement in all divisions, except woodworking, machinery, and systems, where we reduce costs and capacities to increase the resilience of the business. On page 34, we can see the outlook by division for order intake, sales revenues, and EBIT margin before extraordinary. Let's start with order intake. For the automotive business, we expect a stable development overall. The project pipeline remains solid, and we see the chance of a stable or increasing order intake at high-end finance and resistance. By application technology, we forecast a decline in some of the orders expected for 2022. Demand for battery technology is assumed to drive growth in the water intake for clean technology systems. Water intake of industrial automation systems is expected to grow significantly due to the full year consolidation of BBS automation and organic growth. For woodworking machinery and systems, we continue to see a stabilization of demand on low levels of 300 to 350 million euros per quarter and an improvement in demand not before the end of 2024. However, there might be a single larger project materializing now, and then that could temporarily increase order intake as seen before. Now let's turn to sales revenues. We expect that all divisions except woodworking, machinery, and systems will grow sales revenues in 2024. The biggest growth is expected for industrial automation systems. For HOMAC, we expect a decline in mid-teens percentage range based on the low water intake in 2023. Last but not least, we take a look at the EBIT margins before extraordinary effects. For paint and fine assembly systems and clean technology systems, we expect them to be in line with the mid-cycle target of at least 6%. For application technology, we assume around 10%, which is slight increase on 2023 when we had a very strong service business. The margin of industrial automation systems is expected to improve and make a step towards the mid-cycle target of at least 10%. We will still work on some legacy projects with lower margins, and the integration process will also keep us busy. The assumption for homework remains unchanged at 2 to 4%. Just a quick reminder regarding our strategy and targets on slide 35. We target for sales of more than 6 billion euros by 2030, and we already talked about our growth areas in automation, battery production, and solid wood construction. This translates into a CAGR of 5% to 6%. In 2023, we did a bit more than 7%, so we are well on track. We target at least 8% EBIT margin before extraordinary effects in the mid-cycle. With our mix of capital-like construction business and high-margin machinery business, this should translate into return on capital employed of 35%. Due to the downturn at HOMAG, we will probably not reach 8% this year or next year, but we will continue to improve efficiencies and the setup of our businesses continues. Now let's summarize on slide 37. Operationally, 2023 all in all was a good year with record sales revenues, a solid margin improvement before extraordinary effects, and a strong free cash flow. We achieved a margin improvement at Walmart to more than 9% in the second half of 2023. We cut capacities to weather the downturn and realized a full margin potential of HOMA. We made significant progress with developing our portfolio towards higher margin growth markets with the acquisition of DBS, Automation, and EJCAP. Our fundamental demand drivers are intact. We are a key enabler for the efficient and sustainable production of goods that billions of people use every day, as written down in our purpose statement. In 2024, we will continue to take action and strengthen our profitability on our way towards our long-term goals. Thank you very much for your attention. Now we're happy to answer any questions you might have.

Ladies and gentlemen, if you would like to ask a question, please press 9 and the star key on your telephone keypad. If you would like to cancel your question, please press 9 and the star key again. please press 9 and start to ask a question. If you would like to ask a question, please press 9 and the star key on your telephone keypad. If you would like to cancel your question, please press 9 and the star key again. Please press 9 and the star key to ask a question now. And the first question is from Sven Weyer. The floor is yours.

Yeah, good afternoon. Thanks for taking my questions. The first one is on the PFS order intake guidance that you've given for 2024, roughly stable. I mean, does that fully include the Mercedes paint shop order, which I guess is quite a few hundreds of millions of euros, or how should we think about the order guide for PFS? That's the first one. Thank you.

Thank you, Sven, for the question. As you already talked a few times about the Mercedes order, I think the magnitude of the order is well known. It's a good question. Look, if that order comes as we anticipate, I would say we've made a good step towards at least fulfilling our order intake target. On the other hand, As we said, there was a few orders or a few projects in discussion where customers take a bit more time. So in brief, if that order comes, I would say we are well on track to at least achieve that number.

Is it also you factoring in a continued disciplined approach, as you did in Q4, because competition remains very tough?

Oh yes, there is a definite yes. As we have proven, especially in Q3, partially in Q4 also, we rather fill our capacity with the right projects at the right time than, as we described in earlier calls, we have now the benefit of a lower capacity in the organization

that allows us to become more selective and will not at all change that approach understood thank you and then if i may just on the the hallmark restructuring i was wondering if you're on track how tough are the discussions with the local works council that you're facing um is it maybe that the good order intake you had in q4 is less helpful on progressing on the size of the restructuring, or how should we think about this?

Yeah, the relatively good order intake in Q4 for us doesn't change the picture, as we said, because even at home market, order intake can be volatile from quarter to quarter, and we do not see this as a change in the market environment. For the negotiations we have with the employee representatives and the union, we are in the midst of the discussions, the negotiations, and we will have to see by when we have a final outcome. I would say, yes, we are well underway, and you can imagine that such negotiations, as always, are tough ones. They have to be tough ones because it is about people, and this is what we are doing right now.

And the expectation you have for a pickup by the end of the year, is it just based on the timing of the pipeline that you have in front of you or what's the optimism based on for the end of the year?

Yeah, I would say it's a slight optimism based on a mix of experience from previous downturns and Of course, you can imagine a lot of discussions we have with customers at this point and some macro data we're analyzing. So a mix of a couple of sources. Understood. Thank you very much. Thank you.

And the next question comes from Holger Schmidt. The floor is yours. Markus Schmidt, we can't hear you. Maybe you're muted.

Can you hear me now? Sorry. Good afternoon. Good afternoon. Thanks for taking my questions here. The first question is on the battery business in your presentation. You mentioned the weaker battery business due to a delay of projects. What are the main reasons for the delay and when do you expect to see an increase in the order intake from battery projects?

Yeah, thanks, Olga, for your question. We see a recovery this year. We had a very good 22 with a few orders also coming in relatively late in 22. Wasn't that strong in 23. Also some customers reviewing projects, but I would say we have good chances to rather come closer to at least what we had in 22. than to the lower levels in 2023, partially because we see projects, partially also because we have enlarged our portfolio as you described with INGECAL and there is quite an interesting pipeline coming with the business.

Okay. My next question is on the service business. The share of service revenues in relation to group revenues is more or less unchanged over the last two years. and also more or less in line with pre-COVID levels. Is there scope for a higher proportion of service revenues and how do you see the mid-term growth prospects or the mid-term growth rate for the service business?

Thank you. Looking at the share of the service business, of the total business, and basically we are victims of our own statements, I must say, is Sometimes a good way to look at the business, sometimes it's not, because in years when your new business grows significantly, it might look that the service business is falling behind because it might only grow at the same rate or slightly below. But what we see is over the past years, and that makes us confident, is the constant growth of the service business over time in absolute terms. Last year, when HOMAG's customers were facing difficulties, we could well defend the service business, which to us is really a sign that we are well on track. And I would say we will grow our service business at least in line with our overall CAGR 5% to 6%. Actually, our ambition is to grow even faster.

OK, that's helpful. And my last question is for you. on the paint and final assembly business. You mentioned that one of your competitors has become much more aggressive in terms of pricing. Do you expect this to remain an issue for longer, or was it just a temporary phenomenon?

Yeah, it is. It's not just a single competitor market that has become a bit more competitive in the second half of the year, as we described, one project can make a difference. All our competitors are much smaller than we are. So for them, it is more, I wouldn't say a digital product, but to have a project or not to have a project is a big difference. So if they run empty, they become more aggressive once they're filled up. Sometimes one or two projects are sufficient. They relax a bit again. And we see this. This is, I would say, a constant situation we are dealing with. And this is where we act a bit more, I would say, well thought through. And I think we have now proven that we select the right projects with good margin prospects and where we can make a difference for customers. There will be more competition coming, going on projects, but I don't see a real change of the overall market situation at this point.

Okay, that's very helpful. Thank you very much. Thank you.

And the next question is from Nikolai Kempf. The floor is yours. Nikolai Kemp, the floor is yours. Maybe you're muted.

Yeah. Hi. Thank you. Nikolai Kemp here from Deutsche Bank. Thanks for taking my question. I have two. First one on the EV slowdown. There are a lot of OEMs pushing out the EV targets as well as postponing model launches and also plant construction. Have you seen impacting this also your business that's special for the new paint shops that could slow you down?

Yeah, thanks, Nikolai. We see this a little bit, yes. What we see is not really projects that will die. What we see is customers reflecting a little bit on potential production volumes, consequently what capacities they need. They need more support from our end to find the right capacity versus CapEx. This is what we see. On the other hand, the good thing, especially in pain and fine assembly systems, is that we don't really depend on the business. The business has been fueling activities and sustainability trends that is connected to e-mobility and the sustainability targets the OEMs have given themselves. This, in combination, supports the business. On the ED side now, yes, this comes in several ways. I mean, we have seen in the last number of years lots of activities in China. Then we saw activities in Europe, partially in North America. Now some of the customers reflected a little bit on how they invest. But all in all, our pipeline remains solid because it's the overarching theme All of the OEMs, especially the traditional OEMs with old paint jobs, have to invest in sustainability. That drives the business at least as much or even more than just the EV investments.

Okay, understood. Thank you. And my second one would be on your leverage. 1.6 times, not great, not terrible, but also keep in mind that this year you have a cash flow have been zero to 50 million, they'll probably not have a lot to lower its leverage. Do you think to maybe start divesting one of your segments or smaller businesses?

Yeah, thanks also for that question. As we said, and we probably said it a bit more now than last, we are revisiting a lot. And I'm in not rule out that they're looking also at streamlining. That's probably what I'd like to say at this point.

Okay, answered. Thank you.

And the next question comes from Philippe Lorraine. The floor is yours.

Good afternoon. Hello. Good afternoon. Thanks for taking my question. So I just wanted to follow up first on HOMAG. You were mentioning that you were making good progress with regard to discussions with work councils and so on on the restructuring. Looks like you've adjusted already quite a bit your headcount there. Is there more to come, really, and what would be the magnitude of the adjustment, if you don't mind sharing with us?

Bonjour, Philippe. On HOMAG, we're making progress. I would say we're in line. And so we'll have to see what comes out from that. In parallel, of course, as we said from the very beginning, we will also use fluctuation at HOMAG. And you've discovered that our headcount obviously has already reduced. I would say we're down compared to the mid of the year. more than 100 people already in Germany. So, of course, we're trying everything in that direction as well in order to soften the measures as much as needed. But we'll have to see what comes out. What I didn't get, and please repeat, is that the second part of your question, if there was another question, I didn't perfectly catch it.

Yeah, sure. I had noticed anyway that you were missing, let's say, around 100 employees or so versus the mid of the year. And I was just wondering whether you would expect that or you would share with us by how much you would expect that headcount to come down actually for the whole division.

Yeah, we stick to our original target of 600 people worldwide, of which more than half, so roughly 350

in germany that is unchanged okay perfect then um the next question is actually more like uh let's say uh housekeeping um would you have a bit more of an explanation for you know the one of course that you had in relation to one project in in pfs and how you actually manage such situations so that this does not come up much more often, let's say, especially when you follow the value over volume strategy.

Yeah. Yes. Thanks, Philipp, for pointing that out. Look, what can I say on this call? I can say that this is a one-off issue. It is a one-off issue in an area that I repeat the word you said, we can easily isolate, and by saying this, tell you that this will not repeat itself. It also, also to be frank, has nothing to do with old lower margin orders, which we've basically meanwhile washed out completely. It is a one-off in a project for a certain reason, that hit the bottom line, but I can tell you it's an isolated case. Impact, maybe to give you an orientation, on Q4, EBIT returns of PFS about 2%.

Okay, on Q4, 2% of EBIT, of EBIT or of margin points?

Of margin points.

Okay, perfect.

So we have You can add 2% if you look at it from an operational perspective. If I may use the word for that.

Yes, perfect. That's very kind of you sharing with us the impact. Now the next question is actually on CapEx. I had the impression that you had mentioned that there was a bit of a change in your approach in investing. And actually, when I look at your guidance, the three to four percentage points, capex to sales ratio for 2024, and the fact that for 2023, you had expected four to 5%, and you actually achieved 3.4%. So what's the view going forward? Is the three to 4% something like a normalized kind of capex to sales ratio to take into account in our models or is it something like a more an isolated development that you see in there and we will see a catch-up at a later stage?

Yeah, Philipp, actually, when looking to the models and when looking to the return perspective, we are even targeting to be below 3%. So for 2024, as you mentioned, 3% to 4% in line or being caused by the Bomet CapEx program, but afterwards going down to levels below 3%.

Okay, that's very helpful. And then also for next year, maybe still on the housekeeping front, you guide for earnings before interest and taxes, but also for earnings after taxes. I was just wondering implicitly how much you would guide for the net financial results, including or excluding the investment result, and maybe as well for the tax rate, since the tax rate was pretty high in 2023 as a whole.

Yeah, that's right. In 2023, we had some special impact when reviewing what we call the Latente Steuer in Germany. So in general, we had a rate of around 35%. We expect for next year, again, the typical rate, tax rate of around 30%. And in regard to the financial results, being caused then by the higher net debt, we expect around 40 million euros in financial results.

Yeah, and the financial result of 40 million euros negative, is it including the investment result or excluding it?

That's including the investment result, yeah. Okay.

Okay, perfect. And last but not least, actually, so when you were saying that you would be considering, be looking at potential portfolio streamlining measures, I do not see the situation with the cash generation and probably the EBITDA generation as well as, let's say, too catastrophic, but still interesting points that you make here. uh would you share with us what kind of area uh would be considered is it like across the whole portfolio or is it maybe more let's say in the legacy um mps business that you had which is now like a very small portion within the automation business thanks for asking my answer hopefully is not too disappointing by saying that it's you know

Difficult and impossible to comment on this at this point.

Okay, fair point. Tried it. Thanks. I'm back in the queue.

Thank you.

And the last question at the moment is from Felix Wienen. The floor is yours.

Hi, it's Felix Wienen, SFO. A couple of questions, please. The first one will be on Hallmark. Can you probably comment on the order backlog that you still have for the business also after the strong order intake in Q4?

Thanks for the question. We have to check. I don't know if the bitmeister is checking. Oh, Andreas knows it by heart. 840 million is the backlog, which is significantly below, obviously, the top levels we had, but fueled by the relatively good order intake in Q4, it is not a bad number. However, please keep in mind, as we mentioned, that some portion of the strong order intake we made in Q4 is on longer lead orders, which will not materialize into sales during 24.

Very clear. Thank you very much. And then a question on the industrial automation systems business, please. In the Q4, the adjusted EBIT margin was quite lower than I would have expected, and I think also lower than you had guided in November. And it seems that Team Technic had some significant issues there in the last month of the year. Can you maybe give some more color on that? And when you see these issues getting resolved, that would be great.

Yeah, you are right. We still had a couple issues to do. We have adjusted processes. We've invested in a change. We've now merged two of the legal entities. So a lot of work being done, plus still a few orders in the books that we had to list through. And I would say the worst will definitely be over in the first half, if not first quarter of this year.

Brilliant, thank you. And then the last one on clean tech systems, please. In the last year, the margin profile was very heavily H2 loaded. What can we expect for 2024? Similar kind of profile over the year or should Q1, Q2 start on a higher note compared to last year? Thank you.

Yeah, we have, you know, we always have the bit of a profile that's back back-end loaded into Q3 and Q4. And maybe even if we come out a bit more balanced this year, still we will see that profile as it seems to be the classic way our business behaves. So maybe a bit of a mix of the two, but definitely we will make more of earnings in the second half of the year than in the first half.

Fantastic. Thank you very much. Good luck with everything. Thank you.

And the next question is from Peter Ruteneicher. The floor is yours.

Yes. Hello, gentlemen. Firstly, on paint and final assembly systems and your guidance for 2024. So you're expecting for the current year sales of 1.4 to 1.5 billion euros. I would have expected somewhat more because I think in 2023, uh, some, some projects had some, some delay and, uh, you still have a record high, uh, order backlog. So, uh, why do you know, do you not expect some, somewhat more in terms of sales?

Peter, good question. Definitely. Um, we will have to see, I mean, um, Probably there is a bit more out there, but let's rather be a bit more conservative. Some of the larger orders, especially the ones that we're expecting for this year, will not contribute too much in terms of the revenues for the year. As you know, those projects are often longer lead projects. So this is where we see the business at this point and rather surprised positively than negatively.

Okay, so we have to see it as a conservative guidance. Second question regarding PPA. So this year we have done fully in BBS. What is your current view on the amount of PPA for this year?

This year is around 45 to 50 million. I know PPA is the special impact as a whole around 45 to 50 million euro, but the majority is PPA.

Okay.

Let's say around 40 to 45 million euro, Peter.

Okay.

And the last question on cash. So I was a bit surprised about this huge amount of cash you had on the balance sheet. So I've seen You've paid back a smaller amount of debt in January. But what is your view how much in cash you would need during the year and what can we expect then as a fair assumption towards the end of 2024 as a cash position?

We indicated in conjunction with the guidance the net financial debt actually to be in a range of 540 to 590. And from a cash position point of view, yes, we had a high position at the end of the year. So it will be reduced. I would say normally we should operate in a level of around 800 million plus.

Is it really necessary in this high interest environment to have such a high cash position?

The advantage of the cash right now is that we also get interest then when we actually put it on the asset side. So it's not lying just on cash accounts. We do invest it. But it gives us the head, especially in conjunction with the projects where we see fluctuation in the cash situation.

Okay, thank you.

And the next question is from Christoph Bliefert.

Good afternoon. I have one follow-up question on PFS, please. Can you provide a breakdown of Greenfield versus Brownfield projects you have booked in your order intake in 2023, please?

Yeah, this is a tough question. And obviously, ask ourselves from time to time how to define this best because If you, let's just look at the Mercedes order that we've been discussing a lot of times. This will be greenfield, brownfield side, so sometimes difficult to classify orders. Nevertheless, I would say a fair view to look at TFS would be more or less 50-50 between, and this can fluctuate a little bit year over year, But I would say 50-50. Last year, maybe a little bit at the brownfield side. But if you take 50-50 as a normal guess, I think that's about it.

Okay, thanks a lot. Thank you.

And we have one more question from Philippe Lorrain. The floor is yours.

Thanks for taking my follow-up. I just wanted to come back to Peter's question on the PPA amortization. If we assume that for 2024, that's going to be around 40 to 45 million, implying that you've got a little bit of other exceptionals, maybe restructuring and so on, what would be the longer-term guidance on PPA? For how long should we expect that kind of run rate? And also, what's the view that you have maybe beyond 2024 and other, let's say, exceptional costs? Is it something that we need to take into consideration, let's say, on a recurring basis? Or is it something that you really would see going back to zero? Thank you.

I think the exceptional costs will go down, so we do not expect a significant amount anymore. The difference is small. Regarding the PPA, we have some short-term impacts that will actually wash out already in 2024, so we will already see a drop towards 2025. I would say by at least around 10 to max 15% to be reduced for 2025.

Okay, sorry, so 10-15% or 10-15 million reduction?

10 million euros, yes.

Okay, perfect. Thank you very much.

Thank you.

And there's one more question from Andreas Huf. The floor is yours.

Hello, I would have two questions on HOMAG. You mentioned that the order intake increased by around 140 million Euro in the fourth quarter and related it to two orders from China and from Spain. Could you give some more information on these two orders? Are they from the furniture or from the construction business and how big is the share of these two orders on the total order intake? in q4 and the next question regarding um yes i would i would have another question on the investments at homark you said that you are adjusting capex at home mark on the other hand you mentioned that you are going to finish the logistics center which adjustments will happen on the investment at OMAC next year or this year.

Thanks, Andreas. First, on your first question, the two larger orders were related to the furniture business. And they have a magnitude of roughly 25% of the order intake in Q4.

Okay.

The larger one being in China. On your second question on the investment, what adjustments have we done? For example, we have decided not to build a new office building at the headquarters, but have decided to refurbish the existing site in order to save capex. That's the main change, but it's a significant one.

And the logistics center will be finished within the next few months?

Yeah, they are basically already finished. Okay.

And the opening of the logistics center should bring the improvement in operations then?

Yes, definitely. Yeah, we will have closed many external sites that we had rented, which have a lot of inefficiencies.

Okay, thank you very much. Thank you.

There are no further questions.

Okay, thank you very much. Thanks a lot for your questions and for your interest. If you have further questions, please do not hesitate to call the investor relations team. And otherwise, we are at the end of our call. Thank you very much for participating and we talk to you soon. Bye-bye.

The conference is no longer being recorded