Krones AG

XETRA:KRN

Earnings Call Analysis

Strong Revenue and Profit Growth Confirmed

In the first half of 2024, Krones delivered significant revenue and profit growth. Revenue rose by 11.5% to €2,149 million in the filling and packaging technology segment, while process technology saw an 18.6% increase to €255 million, partly due to the recent Ampco acquisition. Despite a €27 million decline in intralogistics revenue, Krones maintains revenue and EBITDA margin guidance for the year. Liquidity remains strong with a cash position of €294 million, supporting further growth. Confident in hitting 2024 targets, the company anticipates a 9-13% revenue growth and an EBITDA margin of 9.8-10.3%.

Strong Financial Performance Despite Challenges

The company delivered a robust second quarter performance with an EBITDA of EUR 130.8 million, showcasing resilience despite the higher share of new machine business, which generally carries lower margins. The revenue grew by 11.5% to EUR 2,149 million, and the EBITDA margin remained healthy at 10%, aligning well within the guidance of 9.8% to 10.3% for 2024.

Segment Analysis: Mixed Performance Across Divisions

The Filling and Packaging Technology segment, the company's largest, reported significant growth with EUR 2,149 million in revenue, up by 11.5%. The Process Technology segment saw an impressive 18.6% increase in revenue to EUR 255 million, partly due to the Ampco acquisition, with an EBITDA margin jump of 3.2 percentage points. However, the Intralogistics segment experienced a revenue decline of EUR 27 million, expecting a stronger second half based on order intake.

Solid Liquidity and Planned Strategic Investments

As of June's end, the company held a cash position of EUR 294 million, even after significant expenditures on M&A transactions (EUR 185 million) and dividends (EUR 70 million), resulting in a stable liquidity position of EUR 1.144 billion. This strong liquidity supports the company's growth ambitions and capital expenditure projects. Additionally, the equity position rose by EUR 57 million to EUR 1.772 million, reflecting a solid financial foundation.

Order Backlog and Future Outlook

The company reported an order backlog worth EUR 4.5 billion, which assures a stable revenue stream for the next 12 to 18 months. They emphasized the normalization of supply chains, allowing internal processes to streamline effectively. Despite challenges, the outlook remains positive with confirmed guidance for various segments, expecting a revenue growth of 9% to 13% and maintaining healthy EBITDA margins.

Focus on Sustainability and Digital Transformation

The company is investing heavily in sustainability and digital transformation initiatives, predicting an average EBITDA margin growth target between 11% and 13% by 2028. Priority areas include a major IT modernization program to enhance digital connectivity and streamline internal processes, ensuring preparedness for future industry demands.

Strategic Cash Utilization Plans

With a strong cash flow projection (free cash flow around EUR 200 million), the company plans strategic investments in M&A activities while maintaining dividend payouts within the 25% to 30% range. They emphasized the aim to reach a net cash position of at least EUR 0.5 billion by the end of 2024, which will further support growth and acquisitions.

Addressing Economic and Market Uncertainties

Top executives expressed confidence in navigating economic uncertainties, with the pipeline demonstrating robust market conditions despite slower decision-making from customers and pricing discussions. The company's strategy of maintaining firm pricing amidst competitive pressures and fluctuating material costs was highlighted as a key focus area to uphold profitability.

Enhanced Operating Efficiency Through Workforce Expansion

The workforce increased by approximately 1,000 employees, largely due to the Netstal acquisition, bringing the total to 19,534. This expansion included additional field service engineers and digital community professionals, reinforcing the company's commitment to operational excellence and customer service enhancements.

Earnings Call Transcript 2024-Q2

[Olaf Scholz, executive]

Good afternoon, ladies and gentlemen, and welcome to the conference call of Krones. In the morning, we published a very good first half year. And to make a long story short, we have significantly increased revenue and profit. Now we would like to present you all the figures -- details about the first 6 months, 2024.

After the presentation by Christoph Klenk and Uta Anders, you will have the opportunity to ask questions. I think you also know the Q&A session, how it works. [Operator Instructions] Additionally, please be reminded that this meeting will not be recorded, and that is also not allowed to record the meeting. Please also deactivate any functions of recording at Teams.

So let's start with the presentation. I hand over to Christoph Klenk, CEO.

[Christoph Klenk, executive]

A warm welcome from Uta and myself on to today's conference call. Happy to have you here. And I can say in the beginning, there are no surprises. We are definitely confirming all our targets, and you will see the base in the presentation. I skip over that because we come to any detail anyway in the presentation. So, it's just a summary on the first page, but let's move on. Even the numbers here, I would say you have read all of them by today, and we are coming to them in detail in the presentation.

So first number order intake and let me say, most probably one of the, let me say, most challenged -- not challenging, but I would say, questionable things at the moment, if you look to the general economy, while Krones is working so well because we are very pleased with the order intake number we have so far. Market has developed quite well over the last 6 months. And when you would ask us how we see the markets, we see them still robust. The pipelines are absolutely okay. What changes a bit is, I would say, a more reasonable decision-making. It's not so fast as we have seen it. And I would say customers are discussing more pricing but, on our side, I can say for us, it's in the focus, we stay on the pricing we have. We don't do compromises on pricing and this makes maybe things a little bit more complicated. Nevertheless, I come later to the outlook we have on order intake. We see still our markets are robust, even under different circumstances we have around the world.

If we go to the next slide, and I don't want to go into details. I mean, what we said, we would need around EUR 1.4 billion per quarter if we are going to the target which we have. We would assume that Q3 might be a bit slower, that has mainly to do with summer vacations that we see a slower order intake because people are not there in making decisions. And we see from the pipeline perspective, again, a good Q4, and that makes us at least optimistic that we are going to get to our targets.

Now order backlog, and this might be one other big point for us, I mean, this EUR 4.5 billion and having the third increase of 5.7%, that's remarkable after 6 months, where we have actually good growth in the organization. I can say that we have reduced for our machines and projects, delivery times from 60 down to 50 weeks. Where is that coming from? In particular, it's coming from a supply chain where we have normalized the processes. In particular, once we are actually executing the orders internally because one of the biggest problems we had was the interrupted supply chains where we had a lot of workaround and we are going back to the normalized -- productivity that we were able to actually reduce delivery times. You will see that later on in the revenue Uta will present.

Then on the other side, with the order backlog we have on machines and projects, we have a, I would say, on a very high degree, planning security for the next 12 to 18 months. If we look to it, and we had just last week, a view on 2025, our point was that the 2025 year with the order backlog we have here is already pretty predictable. It's beyond mid of the year, so it's more towards the end of the year. And the order backlog gives us an excellent fundament even for the coming year where we have quite sound basis on where we are. I say that in particular because when you look back the last 3 years, we have been pretty good in predicting costs and anticipated pricing before. We have still those, let me say, mechanisms in place and keep them. So, even with the backlog and then what we see in terms of the gross margins we have in, we are, I would say, in a good situation.

Last but not least, you see at the right hand of the chart, we anticipate still the EUR 5.6 million order intake for the whole year. Again, it would take then an average EUR 1.4 billion on a quarter to get that. Again, Q3 will be a bit slower. We anticipate a good Q4.

And with that, just some more details on the order intake. Bottling and packaging for machines and projects is running good; Lifecycle as well. Processing has a bit of a lag in terms of order intake. We are a bit behind plan and Intralogistics is significantly above plan. So in total, we are pleased. When I say we are in processing behind plan, again, a big point for us was maintaining pricing. And it has no impact on the growth scenarios we have set for 2024, and it will slightly impact only the growth in 2025. So that's what we can say a bit more differentiated on the order intake. Overall, given the economic circumstances around us in the world, we are pretty happy how things were going.

Last but not least, split over the regions. I would say there are fundamentally no significant changes. When you see, for example, in North America, things are going back, then I would say it has a bit to do with timing because North America has been very good in order intake recently over the last 3 years. We will see in total over the whole year, we will see more of an increase actually in revenue, so that looks good. Europe, no surprise. I mean, this is where we have, let me say, the biggest hesitation on placing orders. Nevertheless, has to do with other regions have developed quite well. Maybe one comment on Asia Pacific, looks like it's going down. If you look over the full year, I would say it's all on the way, so we are in good shape for that. And all the other markets are, if you looked at working in accordance to what we have expected.

If you look to Eastern Europe, Central Asia, which is 7.6%, don't overestimate it. It's in terms of proportion, small compared to the others. And we have 2 projects in which are accounting for that pretty big ones, which have been materialized in the first half of the year. And I would say this is going to balance these out. Anyway, Eastern Europe and Central Asia is working quite well for the time being, and this will be reflected certainly in the percentage they take from our shares.

All the rest looks okay. And it looks like -- I mean, with the order backlog we have, we can predict actually the 2025 revenues in the regions. I would say there are no big surprises coming up. It's all balanced and continues on the way you see it.

So far for order intake and where we are in general, and with that, I hand over to Uta.

[Uta Anders, executive]

Yes, continuing on this revenue as usual but before I do so, just a few remarks on Netstal. I mean first quarter, we had said that Netstal was only included in our balance sheet and not yet in our P&L because we only consolidated starting end of March. And now we have the first quarter with full Netstal figures included and Netstal revenue was approximately EUR 50 million. But now coming to the overall numbers of Krones, you can see that with our EUR 1,309 million in the quarter and then coming to the half year of EUR 2,556 million, we actually fulfilled what we had said already in the first quarter that we said that throughout '24, we expect that the growth will actually increase throughout the fiscal year, whereas in '23, it decreased. And with our 10.1% increase compared to 2023, we actually have materialized that. With the 10.1%, we are within our guidance, as we had also indicated on our CMD that we come either close to it or come into our guidance of 9% to 13% growth. And of course, with the numbers we have presented and with a general stronger second half of the fiscal year and in particular, the fourth quarter of the fiscal year, we expect to be well within our revenue guidance.

Coming to EBITDA, we are also here, we are constant, we are stable. As you can see, we have delivered a good second quarter with EUR 130.8 million EBITDA. Netstal also is here included, had a small diluting factor, EUR 256.2 million, cumulated 15.7% growth and more important, 10.0% EBITDA margin. So also here, we are well within our guidance. And all is true despite of the fact that we had higher new machine business share, which, as you know, in general, comes with a lower margin. And having said that, this is also an evidence of our good backlog quality and of the fact what we have said all the time that the cost increases we see both from material or in the past and [indiscernible] are covered in the price increases we have done in '21 and '22. And yes, of course, we are confirming our guidance of 9.8% to 10.3% for 2024.

EBT development followed EBITDA development in general. You can see that we have a EUR 185.7 million EBT with a margin of 7.3%. We want to mention here also that we had a small positive extraordinary effect of EUR 4.5 million in our financial income, so we cannot double it for the whole fiscal year, and that a small extraordinary effect came from taking into income a delayed purchase price liability we had. And all in all, for EBT margin also here, we are in line with our expectation for 2024.

Personnel and material expense as the major components of our cost base -- as you can see, EUR 782 million personnel costs, starting with that, 30.3%. Also a slight decrease compared to what we had in the first quarter and an increase by EUR 84 million. And if you look at the increase, it comes more or less proportionately on the one hand, from the increase in merit itself, so the 4% to 5%, which we had communicated. And then on the other hand, the average FTE increase of an approximate over -- compared to last year half year, 1,300 employees. Coming to material cost, EUR 1,272 million 49.2% also here, slightly lower ratio than we had in the first quarter. Also here, an evidence of our backlog quality and also despite of the new machine business, of course, has also to do with the growth. And all in all, I already mentioned that cost increases are covered or have been covered by the price increases we have done.

Employees Krones employed as of end of June, 19,534 employees. This is an approximate 1,000 more than end of the last year and more than half of it is coming from Netstar because we acquired it within '24, as you know, and then we have an approximate 100 additional field service engineer, approximately 40 additional digital community people and then the remaining 300 is across all organizations and all functions. Yes, so far for the group, for the earnings, revenue and also employees.

Now let's have a look at our 3 segments, starting with our biggest segment, filling and packaging technology. All I have said for the group applies to most extent, also for filling and packaging. Looking at the overall revenue, EUR 2,149 million , 11.5% growth. And also here, we had a significantly higher growth in the second quarter of the fiscal year than in the first. Also here, Netstar is going into that. And for EBITDA, EUR 223 million, 10.4% and also here a slight increase compared to the first quarter and also an increase compared to last year, not only in absolute figures, EUR 25 million, but also in terms of margin, 0.2 percentage points. And also here, I want to mention just a little, just the effect coming from higher new machine business. We confirm our guidance for filling and packaging technology, which is revenue growth 9% to 13% and EBITDA margin, 10.3% to 10.8%.

Now coming to Process Technology, you can see Process Technology also shows a significant growth of 18.6%, EUR 40 million coming to EUR 255 million. There is, of course, some effect coming from the Ampco acquisition, which was in the first half of 2023, only included with 1 month. But also without that, we would have shown a significant growth. And from our point of view, more remarkable actually is the EBITDA margin. If you look, we have increased it by more than EUR 10 million compared to the first half of 2023. And looking at the margin, increased it by 3.2 percentage points. Yes, there is effect coming from Ampco , but also without Ampco , we would have been above our guidance. Revenue guidance or guidance in January, we are confirming our guidance, 15% to 20% revenue and EBITDA 8% to 9%.

Last but not least, Intralogistics. Here, the development is a little bit different. As you can see, EUR 152 million revenue. We have a decrease here by EUR 27 million compared to last year. Here, we have actually a different development than for the group. We expect due to the order intake in the first half of 2024 that the growth in the second half year also will be over proportionate. And looking at the margin EBITDA EUR 7.4 million, 4.9%. So in absolute, but also in relative terms, we are below last year and also below our guidance. But also here, we are confirming our guidance of 5% to 10% revenue growth and 6% to 7% EBITDA margin but we know that is ambitious.

So far for P&L, for the segment and for the group. Now let's have a look at liquidity and equity. Starting with liquidity, as you can see, as of end of June, Krones is holding a cash position of EUR 294 million. And this is despite of the fact that we have paid out EUR 185 million for M&A transactions and that we have paid our dividends in the second quarter of EUR 70 million. And taking all together used credit lines and free credit lines, as you can see them, we are holding a liquidity position of EUR 1,144 billion, which is solid and which allows us our further growth and also our capital expenditure projects, which we have envisaged.

Now looking at equity and equity ratio, you can see that we are holding an equity position of EUR 1.772 million. That's an increase by EUR 57 million, and that increase of cost is coming from net income, EUR 135 million. We have paid our dividend, EUR 70 million, reducing equity position and with smaller other positions, we come to that EUR 1,772 million. And we also have a 38.5% a small increase in our equity ratio. And that is because equity overall increased more than our balance sheet, sum of total assets and liabilities.

Working capital: also here compared to the first half of 2023 a stable position, 17.4%. If we look at the overall working capital, this is as of end of June, EUR 881 million. It's not a figure which you see on this chart, and it's an increase by EUR 115 million compared to last fiscal year, and you will see that also later in the cash flow statement. And if we look at the various parts of working capital, starting from the top, receivables [ PUC ], you see that we had a slight decrease here, which is because average revenue increased over proportional to the total value of contract assets.

Accounts pay and receivables: accounts payable, I mean, if we look at them on an absolute value, they are stable compared to last December. Their portion or proportion decreases and this is because of the increase in average revenue. Looking at inventory, we have the opposite development, still a slight increase in absolute terms of inventory partly also because of the acquisition of Netstal; I'll come to that in a second. And so that's why we are holding 14.8% in inventory in relation to average revenue.

Received prepayments in absolute terms, they remain stable and slightly above EUR 1 billion. But because overall average revenue increased, we have a small decrease here. I said that we have an EUR 881 million working capital increased by EUR 115 million, and EUR 40 million out of that is coming from Netstal.

Now let's look at free cash flow. When we stood here for quarter 1, we have reported a quite high or very high first quarter free cash flow before M&A of EUR 184 million. And we had already, at that time, said that for Q2 and also for Q3, we expect a negative free cash flow. And so we had a negative free cash flow in the second quarter, but more important, overall, plus EUR 127 million for the half year of 2024. And if you look at it, how it developed, starting from EBT other noncash changes, major portion in year depreciation of close to EUR 80 million. Change in working capital, I already talked about that. Other assets and liabilities, it's a composition of a lot of things, including some consolidation or some effects from the consolidation of Netstal. And then cash flow from operating activities, EUR 185 million. If I may jump then to the comparison to '23, major increase to the most extent coming from change in working capital. And if I then may follow, only continue with our CapEx for '24, you can see EUR 72 million. That's a 2.8% of revenue. Other insignificant free cash flow before M&A, EUR 127 million. And I already talked about the EUR 185 million, which is the composition of the payment for Netstal, EUR 170 million plus delayed purchase price for Ampco and some minor stake in [indiscernible]

Free cash flow reported minus EUR 58 million financing activities. Other, I already talked about the dividend, EUR 70 million being included in here and the remainder in that position is lease payments. And all in all, the net change in cash of EUR 154 million. The chart is very familiar to you because we want to frame our overall free cash flow development into what we have recognized throughout the last fiscal years. You know that we have talked about the cash conversion rates well above EUR 100 million and partly EUR 200 million in the fiscal year 2022. And that '23 was just a minor one, and we have told you that we expect for '24, a free cash flow of approximately EUR 200 million. And with our EUR 127 million, cash conversion rate is EUR 94 million.

ROCE is the development or the result of EBIT development on the one hand and average capital employed development on the other hand. And as EBIT increased over proportionately over capital employed in average, we have an increase here. We are within our guidance of 17% to 19%. Actually, we are on the very upper end. But also here, I just want to mention there's only 2 data points effect of Netstal included whereas going forward, it will be a higher one. So what I want to say was that 17% to 19% is our guidance and will be somewhere in the middle.

Yes. So far for the numbers.

[Christoph Klenk, executive]

Yes. And just to the outlook, everything what we have just said is confirmed here on that page. Revenue growth 9% to 13%, EBITDA between 9.8% and 10.3% and ROCE between 17% and 19%, so no surprises here. And I would say, quite explainable with the order backlog we are sitting on and the business still continuing good, I think that's absolutely doable. Here the confirmation on our segments, I mean, filling and packaging, no question, processing, I said we are behind order intake, but no doubt that we are going to achieve the numbers here and have still a good fundament with the order backlog we have for 2025. Intralogistics, which have been slow in order intake by the end of last year and would said that relatively low revenue by the first 6 months but nevertheless, we are pretty optimistic that we catch up in the way we predicted it and confirming the numbers here as well again. So all numbers confirmed here.

And then let's have a short look on 2028. I mean, we presented it just 4 weeks ago, so, you should be familiar with it. But nevertheless, I mean, if you look to the revenue target of EUR 7 billion, I would say, with the half year results, we are confirming that and with the outlook for 2024, that we have a very reasonable view on that number, that our markets, if nothing really significant happened, which is deviating then the whole plan, but if nothing significant happened, we believe in the strong growth we can show here. This anticipates in the EBITDA margin, a growth in average between 11% and 13% as a target number. Again, I want to emphasize why we have not lifted the 13%, which have been long term there already further? Well, the reason is that we do see a huge transformation program on sustainability, on digitalization. Those 2 things will transform our products.

And last but not least, we have a huge program in modernizing our IT landscape, which is even necessary in particular out of the digitalization program, which needs to be more connected to the internal IT and processes, which will be streamlined. So there's another big pocket where we invest money in order to be state-of-the-art and even be prepared for the next 10 years with really state-of-the-art systems. That's the reason why we don't move on the 13%. So again, target will be between 11% and 13% on EBITDA level. And of course, then ROCE as a resulting number of greater than 20%.

And if we summarize all of that, we had a very good half year in 2024; we showed you the numbers. Markets are robust. And this is, I would say, more valid than anything else in today's environment we have out there. We have a very good order backlog. I said that was a good planning security far into 2025. We are concentrating on maintaining our pricing and pricing power. So that's a very important point for us that we keep that in shape. And I wouldn't say there is any danger that this path will be left since the whole organization has digested the new pricing system. And that is true for every aspect of the business, whether it's new machines and projects, whether it's the car segment, whether it's processing, whether it's Intralogistics or our Lifecycle business is all the same. Free cash flow goes in the right direction. We are on track to what we have promised earlier.

Netstal, the acquisition is going quite well. I would say the 2 teams are really fitting to each other. I would say, a very important point that we don't see any cultural change. We are very happy with the team we have on board. And I would say, understanding and the way we develop business is really good. It's without discussion, we have aligned with the plans. And of course, again, we have ambitious targets for 2024 and going to achieve that, which will support the 2028 strategy with the midterm planning.

So far from us, from Uta and me, and now we are prepared for your questions. as always.

[Olaf Scholz, executive]

Yes. Thanks to Christoph and Uta for the information. Now we will start our Q&A session. [Operator Instructions] The first questioner is Sebastian Growe from BNP.

[Sebastian Growe, analyst]

First one would around the core business. You stated earlier on that the filling and packaging would have seen a higher margin if it was without Netstal. So my question then is if you could provide at least an indication what the organic margin improvement could have been? Maybe we take them one by one, it's easier, probably.

[Uta Anders, executive]

Yes, I would share that. Would have been approximately 0.1 percentage points difference.

[Sebastian Growe, analyst]

And on the Intralogistics segment, I think you said yourself that these are ambitious targets. So when I calculate what is required in order to meet even the lower bar on the 5% to 10% sales target, then this means more than 25%, obviously, in H2. So you made the reference to very good order intake activity lately. So the 2 questions that I would have is, if you could comment a bit in detail at least on the phasing for projects in '24 and probably also how much you have already secured for '25? And if I recall correctly from the Capital Market Day, I think you made some sort of cautious comments around Intralogistics sector. So I was surprised then to see the kind of very encouraging comments now on order intake. So you could just put that into perspective, that would be very helpful.

[Christoph Klenk, executive]

First of all, the order backlog which we need for 2024 is to 95% there, so there is no question on the order backlog. Just -- I mean we have a service business which is paying to the revenue, of course, which is coming month by month. So this is still missing. But in terms of the bigger projects we need for fulfilling the ambitious targets in terms of revenue, it's all there. So there's no question mark at all. The problem even which we had in Q1 is, I would say, low order intake in 2024, but even postponed projects. So it was not only the point that we didn't have the orders. It was that they have been postponed. And if you look at the backlog, now we are more in the opposite. We are wondering how we get, let me say, all the projects executed in 2025, because we have been hesitating on head count just to make sure that we maintain profitability levels. And now it's the next question coming with, I would say, so far and have to say so far, we have half a year behind us with a good order intake. And I have to say the second half looks realistically, I would say, on a very comparable level than the first half of the year. So, I would say we are even in good shape for 2025 as far as we can see today. I mean, in Intralogistics, I mean certain projects can disappear. We have all learned that last year. But what we see right now is that there's quite a demand and the projects we have calculated being in the pipeline being potential order intake, they look sound in terms of they are going to be realized. So I would comment this way.

And I would say, Intralogistics, even if I sounded right now, optimistic, I would say, is a more bumpy road than in our other businesses because as I said, big projects can disappear and that's the reason. Last time, maybe one big project disappeared. So it's a bit more cautious. But again, I checked the pipeline this morning, we are going through that. So that's my statement to it. I think things would go most probably okay for 2024 in terms of order intake and would provide good fundament for further growth in 2025.

[Sebastian Growe, analyst]

And then the last question that I would like to discuss is around the working capital target for '24. I tend to recall, I think that you were striving for a slight improvement year-on-year, if I remember that correctly. And specifically, if you could comment a bit Ms. Anders on the potential release of safety stock, which has been, I think, one of the reasons why working capital is not improving more at this point, at least and also how we should think about potential tailwinds from prepayments in wake of the order intake acceleration?

[Uta Anders, executive]

Yes. What we have said is that our target is to be low 20% because if you recall what we had in the past, it was well above 20%, partly close to 30%. So our overall target is that well below 20%. And with increasing revenue, of course, the absolute working capital is going to increase further. But as I said, we want to stay below that 20% going forward. And if I look into the various elements of working capital, we think that with the inventory we are right now, we are at the maximum. We are pursuing measures to reduce it further or to reduce it. With the prepayments in-- with the order intake development, as forecasted, we expect this to remain approximately as it is right now. And then the other thing is then everything which is locked in working capital in broader terms and there, our major task is there to complete orders, to get the orders out of our backlog and collect the last payment. So this is how I would qualify it and quantification, I would keep within that below 20% statement.

[Sebastian Growe, analyst]

The last one then on cash use. As you have been alluding to the point that the current cash conversion is almost 100% so 94% is what you said and what we can calculate, 80% is what you said at the Capital Market Day. So considering the fact that probably net cash will go towards at least EUR 0.5 billion based on my calculations at the year-end '24 and the very promising business outlook that you have, the simple question is, what are you doing with all that cash? So, when would you start considering eventually raising the payout ratio, how should we think about the potential share buyback as [indiscernible] doing it? So your thoughts would be very much welcome.

[Uta Anders, executive]

Yes, first of all, the 80% were more towards the future, then beyond ‘24. And yes, I mean, we discussed on the Capital Markets Day, first of all, that we have also raised our CapEx expectations to the 4%. So that's one of the payouts we're going to do. We said although the EUR 7 billion is organic growth, still, we will, if available, pursue further M&A activities. I mean dividend payments, we always said with our 25% to 30% range, and we always have been on the upper hand, we remain that. And with our increase in revenue and EBITDA, EBT net income, the absolute value will increase in share buyback. I think it was discussed several times also that's not on our on our agenda.

[Christoph Klenk, executive]

Yes. And I can just emphasize, I would say, for the time being, first, we need to have the money. Once we have that, I would say, we have still strategic considerations, how we can add further acquisitions? So, I would say that's the first thing we have in mind once we think about cash. First of all, the biggest point is we want to get it and convert it because, again, we are rising in terms of revenue. And the customer, it gets every day more difficult to get our projects cleaned out. It's not because of us. It's because of the environment we see everywhere. And I would say, once we are being at the cash levels we have predicted, we are quite happy. And then I would say, first thing is to think about what we can add on M&A.

[Olaf Scholz, executive]

The next question I get through mail. So it's Benjamin Thielmann from Berenberg.

[Benjamin Thielmann, analyst]

If I look at margins in Q2 for Process Technology and Intralogistics, it looks a little bit like the road is also bumpy in Process Technology. I would say -- maybe you can give us a little bit of color what we could expect in the second semester of this year? Were there any significant one-off effects that were driving the margin for both of the divisions and a little bit of color on that one?

[Christoph Klenk, executive]

I tried to answer that because in processing for me, so when I say that I don't see the road bumpy, I see a pretty steady development with the measures we have taken in any regard. So I would say the EBITDA margin is quite stable. And if you look to the growth pattern we have delivered over the years, it's quite stable. I said the order intake is behind target. That's most probably due to the economical environment. Nevertheless, with the order backlog we have, there is no concern that we do not maintain the growth for 2024. And again, we are sitting on a very good fundament even for processing for 2025, that we can deliver equivalent revenue. So processing for us is, in compared to previous times for those who are longer with us, in an absolutely sound, good environment. I mean breweries maybe is the only one where the investment scheme is not as high, and that's the reason why we see that lack of order intake. Nevertheless, since the proportion of the brewery business is pretty small in the meantime compared to the overall business, it doesn't harm us. That's the point I make. And by today, I think I can say we've got a good order, so things are going the right direction.

Intralogistics, I would describe as more bumpy with all the ups and downs we have seen last year in order intake with a good start with a very slow mid and end year. Then with the concentration of us to get to the smaller projects, maintaining the price level, which was important for us that we have the gross margins and the order intake that we fulfil the promises on profitability. Now things are, I would say, a bit better in the market, as I said, for Intralogistics. The projects we get are good, and we are growing really good in terms of order intake, which delivers a good basis for growth next year and even confirming then, let me say, the improvement of EBITDA levels even for Intralogistics, so I would say things in both of the smaller segments are continuing the right way.

[Benjamin Thielmann, analyst]

Yes, next question would basically be on Netstal in particular. You mentioned in the presentation that excluding Netstal, revenue growth would have still been double digit. I think you mentioned 12%. So if I carve out, Netstal revenue should be slightly above EUR 50 million in Q2. Is that going as planned? Is that in line with what you internally expected Netstal to generate on revenue run rate per quarter?

[Christoph Klenk, executive]

Yes. This is actually what we assume right from the, let me say, end of last year, beginning of this year, and Netstal was a bit higher in terms of revenue previously but everything which is outside of the beverage industry in terms of the injection molding technology goes not as good as expected. So, there is a general slowdown of the industry. We see that from many competitors in the market. Nevertheless, the numbers are in line with what we have agreed once the acquisition was finalized, so no surprises for us so far and even profitability is on the level we have seen in the beginning. And what we said is we need between 2 and 3 years to get them on the level where we are and that they are not diluting anymore. So that's -- everything is fine with that, no surprises. And I can say, we are, I would say, good on track in terms of the beverage industry. And I can say -- I would say we have promising a few in terms of the pharmaceutical industry, where they have another league into. So I think even this one is on a sound level.

[Benjamin Thielmann, analyst]

Yes, because I was wondering, I remember you factored in roughly EUR 50 million per quarter of Netstal revenues, but just wanted to know whether you guys were a little bit cautious on that one and now it's below expectations or whatsoever. But that's very helpful. Maybe the third question, if I may, and then I go back into the queue. You mentioned that intake in Process Technology is a little bit tougher for breweries. I know you don't give that granularity, but can you give like a rule of thumb of what share did breweries on average have over the last 3 years of your order intake?

[Christoph Klenk, executive]

I don’t do that over the last 3 years because that has significantly changed. I mean, again, one part of the -- let me say, of the restructuring of the process segment was that we actually shrunk the revenues we are generating in breweries. And then in the critical years '19 and '20, we laid off a lot of people to make that business smaller and that we have the better possibility to select the orders better and not having the pressure to take all the time, the big things on board, just that we are utilizing capacity. So I would say today, we are down at around between 35% and 40% in terms of brewery. That's where we are. And the percentage is further shrinking because we are pushing on the other business, this is growing. And when you look to, I would say, roughly EUR 500 million we are doing today, then that gives you a bit of a smell where we are with that. So it's this year, maybe at, I can say that 35%, something like that.

And again, we are sitting on a very good backlog. This is important for us. The projects are running long in the brewing section. And with that, we have even a pretty good view on 2025, even for the brewing side.

[Olaf Scholz, executive]

The next question is coming from Sven Weier from UBS.

[Sven Weier, analyst]

The first question is coming back to the order intake, the EUR 5.6 billion. Should we look at this as kind of a minimum target for this year? Do you still feel really comfortable in this? Could it be better? Or based on what you said earlier, do you think the risks have become a bit more balanced here?

[Christoph Klenk, executive]

I look at it this way, I mean, the first 10 years of my business life I was in sales and therefore, I would never feel confident on order intake. Now just joking a bit, I mean we are talking every day on order intake and have a view on it. And of course, from day to day and from the orders you get, you get sometimes a bit different view but I mean we have this view very stable over, let me say, the last 3, 4 months, and we see that confirmed after 6 months. Now if we look to the next coming 6 months, what I said is markets are robust, so the investment schemes are there. Our customers are investing reasonable. We have not seen anybody disappearing in panic because the economy is going down. It's more because maybe timing is not right or one or the other aspect is not right. So we see a very reasonable activity. The pipeline is good, what we have quoted, and we are looking on 4, 3, 6 months basis, what do we anticipate and what projects are going to be closed and what do we see? And this is all on a level that we have a good feeling for the EUR 5.6 billion. Is it going beyond that? I would not assume that. Because if you look to the quarterly intake, we need to have, I said it, EUR 1.4 billion for the coming quarter in average. We don't see that as high because of the summer vacation. And then it's all the time a bit of a question at the end of the year, do we get everything into the books because the last 2 weeks are usually a race against the watch that we get things settled. And with that, I would say, we are not going beyond the EUR 5.6 billion. Once we are going to achieve that, that's ambitious, but doable. That's the statement we do.

And again, I would say, in -- I said pricing was a bit weak. I would say we have a good reasonable outlook there that we can catch up a bit. Intralogistics looks okay and even bottling and packaging, machines and projects are looking good and Lifecycle runs very well. So with that, I would say that's a good fundament that we can say we are running to the EUR 5.6 billion.

[Sven Weier, analyst]

And what you said on seasonality, is it fair to assume that Q3 orders will be like on Q2 and then Q4 will be like Q1? Or is it going to be even more extreme based on what you said?

[Christoph Klenk, executive]

Sometimes it's only timing, I can say. We have a couple of bigger things which should be settled. They are actually not done yet because of vacation reasons, and then we need time to get it into the books. So to say really there is a repeatable pattern where we can exactly predict how a quarter will go. It's difficult. The statement we have made is more on the pipeline we see in actual and where we know that dates have been set for finalization of those. That's more what is in, I would say, the basis for the statement I have made. And we see that a lot is by the end of September, and that can easily spot into October.

[Sven Weier, analyst]

And when you said earlier, I mean, you said clients take longer, they try to negotiate a bit on price, is that specifically referring to the brewery segment and in process? Or is it just a general statement on every segment?

[Christoph Klenk, executive]

General statement in every segment.

[Sven Weier, analyst]

Last question I had, and maybe that's too early to ask, but I remember at the CMD, we talked about the 4% CapEx target and you kind of indicated we might go back into the queue and have another look. I guess that's probably too early to rediscuss this point now?

[Uta Anders, executive]

Yes. I think it's -- I mean, for this year, I mean, as you can see, we are at the 2.8% right now. And this is tangible and intangible. I think we confused everyone a little bit because our 4% was 3% tangible and 1% intangible but I mean, as I said, the 2.8% is all together. We are usually more heavy loaded towards the second half of the fiscal year. So overall, it will increase. At the same time, revenue will also increase. So, we don't expect to come to 4% this year. but overall, that's more a long-term trend for both. And for us, it was important just to have both numbers and also the tie to the free cash flow statement because that only comes if you include both. I hope this answers somehow your question. And let's see then going forward, which ratio we will show then also for '25.

[Christoph Klenk, executive]

This was the question you raised already on the CMD, which brought us into larger discussion afterwards.

[Uta Anders, executive]

No, we looked at long-term trends and the competition and yes.

[Christoph Klenk, executive]

Yes.

[Olaf Scholz, executive]

The next questioner is from Deutsche Bank, Lars Vom-Cleff.

[Lars Vom Cleff, analyst]

Lead times still round about 60 weeks currently. So not a major improvement quarter-on-quarter. Your target, nevertheless, is still to bring it down to 40, 45 weeks. Do you have to accept the new reality in the meantime?

[Christoph Klenk, executive]

Yes. I mean, we reduced, as you said, from 70 to 60. The guess until the end of the year would be between 50 and 55. And we are doing a bit different because we have not every order on that delivery time. So we are having some slots. So some of the orders are delivered faster, some of them might take a bit longer. So that's the average we have. But nevertheless, the target is around 40 to 45 weeks, yes.

[Lars Vom Cleff, analyst]

And then Intralogistics, I mean we're seeing revenue coming down and you've mentioned in the quarterly report, order intake was very low. We already spoke about that, but would you be able to give us a kind of percentage figure? What does it mean order intake last year was lower? It must have been massively lower.

[Christoph Klenk, executive]

It was only massively lower in the last quarter. I mean all over, it was not so bad. And the biggest problem for us was that we did miss our revenue in Q4 in last year and Q1 and Q2 this year, the revenue and the order intake. So in total, it was a book-to-bill ratio above 1. And this year, we are going well, I would say, significantly above 1. And you can anticipate -- I mean, with the growth. we anticipate it will be around between EUR 360 million and EUR 370 million in revenue, mainly easy calculation, and we are going significantly above 1 in terms of order intake.

[Lars Vom Cleff, analyst]

And then quickly speaking about your business mix, I mean new equipment business still growing slightly stronger than your higher margin service business. At least I read that for filling and for the filling lines, I guess, Process technology is comparable. When do you -- it's not comparable?

[Christoph Klenk, executive]

No. I mean, that's part of a nature of the business. I would say, in processing, we have never that big proportion in aftermarket business like you have it in the machine business. I mean our statement to that is all the time, a machine-building company has around 25% of its revenues in, let me say, aftermarket business. We are in very good shape. That's our statement we do all the time because we don't mention numbers. And if you look to processing and Intralogistics, that's significantly lower than the 25%, why? Because there are not so many parts needed for the operational challenges you have in such an application. So processing is a lot of tubes and valves and there are some ores to be replaced, but that's it. There are no turning parts or whatever. And the same is true for Intralogistics. So the average Lifecycle business, Intralogistics and Processing is significantly lower than in the machine building business. That's not only true for us, it's true for everybody.

[Lars Vom Cleff, analyst]

But then for filling and processing -- for the filling lines, I mean, at the CMD, you talked a lot about modular service agreements, Lifecycle services. So when shall we expect the business mix to improve again? Is that as soon as the order intake or the order backlog has been worked down or already a bit earlier?

[Christoph Klenk, executive]

I wouldn't see that before the order backlog has been brought down to a level where we do not further decrease in it. And I mean, as we presented that on the Capital Market that we say, okay, with the programs we have in place, we are anyway increasing the share of machines we service. I put this very simple. And we have all the time said, we are between 65% and 70% of the lines we serve and the business we utilize. And yes, we are increasing that slightly but since the new machine business is rising faster, you won't see that. And you will see maybe in, I don't know, 1.5, 2 years, you will see the service proportion in relation to the new machine and projects pricing to a certain extent, but it will be not numbers which are really in a bigger scale, recognizable.

[Lars Vom Cleff, analyst]

M&A wise, I mean, Sebastian already asked about the cash position and what you intend to do with that. M&A wise, I guess you will continue to rather focus on bolt-on acquisitions? Or is there anything missing region-wise, product-wise, where a larger acquisition could still make sense for you?

[Christoph Klenk, executive]

Well, I wouldn't say, I mean depending all the time, what you see is a larger acquisitions but I would say we see a couple of add-ons in terms of technology, which would help us to grow in the individual sections of our business. We are in discussions for those area. So, I would say the pipeline we have is very comparable to what we have done over the last 5, 8 years. It's nothing as significant as Netstal. So, it's not to be expected that we do anything in that magnitude. But nevertheless, there are some things out, which could be a perfect add-on to extend our business and having a better offering for our customers. In terms of regional acquisitions, there are some minor issues which we are considering, but nothing on a large scale, it's more an add-on in a country maybe on a service level or on a, let me say, on a small component level.

[Olaf Scholz, executive]

The next question is Christoph Dolleschal from HSBC.

[Christoph Dolleschal, analyst]

So starting with the first one on the pricing side in your opening remarks -- and you just repeated that you see it across all segments. I was wondering whether you could elaborate a bit further on this? So are we starting to see first signs of price pressure in the market? And obviously, how is competition behaving, especially the Chinese ones?

[Christoph Klenk, executive]

I would say it's coming from a different factor. Yes, we see more price pressure in the market but I wouldn't say that's coming from competition. It's more coming from the analytics our customers are doing. If they look to the overall material cost index, which is decreasing, that they make conclusions on, let me say, the costs we have on our products. And this is true for us as well as for our competition. Now the fact is that we don't have a tailwind on material cost. Why is that? Because we have still on the electrical components side, a very strong pricing of our suppliers. And there are some other issues, which I would say, for us, are still on the cost side. On the material side, there are some gainings, but this is balancing it. And the argument at the custom side is coming from like every procurement guy would do to say, "Look, my overall index is showing a decrease in material costs. So we want to have the same from you." And that's the reason why I said that this is becoming a point. Of course, in case we have Chinese competition, it's a bigger point but I would say that's very rare that we have in projects of let me say, larger scale, we have Chinese competition in. And that's the reason why I mentioned it because it's true for all areas. It's regardless New Machines, Projects, Lifecycle that we see this argument and that we are going to maintain our pricing strategy. Like with my history a long time ago, I would say this was all the time an argument, and I said all the time, we bring pricing into the DNA of Krones and I would say one of my targets is to maintain that DNA and to continue on that.

[Christoph Dolleschal, analyst]

So then the next one on processing, because you said that orders are behind plan, obviously given breweries and pricing. Could you tell us how much roughly you are behind plan and whether you still expect that to catch up in H2? And also what that means for the revenue guidance?

[Christoph Klenk, executive]

Again, for the revenue guidance, it has no impact at all, nothing, 0. Why is that? Because we have all the order backlog to be executed in 2024. And for the -- let me say, for those businesses like components where we have very short delivery times, business is 100% okay. I was referring to, let me say, larger projects, and that was going to breweries. And this might have an impact in 2025 but still, we are sitting on a very good backlog that we do not see jeopardize the revenue targets in 2025. So, that's the statement I'm going to do. And if I need to qualify, I wouldn't do for the time being because, yes, we are behind, there are still big projects out, so we could catch up, but first, we need to win them. And whether we win them, all of them or not, I can't say today. So there is a good chance, yes, a possibility to catch up but again, on the other side, we are very careful taking big brewery projects on board. And pricing is a big matter here. So let's see how this turns out by the end of the year. Again, it will have no impact on revenue for this year, and it will have as far as we can see, not jeopardize our targets for 2025.

[Christoph Dolleschal, analyst]

And then Intralogistics, we've already talked quite a bit about it. Sales were EUR 150 million in H1 and your minimum guidance looks, if you translate the 5% to 10%, so we're looking at round about EUR 360 million in revenue for the full year, implying EUR 210 million in the second half. You also said we are 95% there in terms of orders. So when I do the math, does that mean we already have like orders for EUR 200 million secured for revenue to be processed in H2 2024?

[Christoph Klenk, executive]

Not completely. As I said earlier, the service part of it is missing, which is a small one. But yes, we have the orders to execute the revenue, yes.

[Christoph Dolleschal, analyst]

On the inventories, you said we are, if I got you correctly, we're at the maximum where it can be in terms of inventory levels. I mean if we look historically, you had inventory levels that were somewhat lower. I mean, we even had years where we are at only about 10% of sales.

[Christoph Klenk, executive]

No, 10% of sales, never. We have been historically between 24% and 28% of sales. Then we had corona, where we had for time being a significant drop of it, but there have been special effects on it. And let me say, the overall strategic programs we had in place to reduce our working capital, you see right now. And the level we see today is, let me say, 5, 6 years action plan, which we had, which is executing well and which brought us to the level we are today. And we don't see that decreasing further for the time being. Hopefully, I summarize that because -- I mean, I do that for a very long time, and we have been challenged a lot in terms of working capital. So, we were talking a lot at our meetings about that. I'm quite happy to be where we are for a machine-building company like we are. And in Projects, the magnitude we have, I would say, the level is in comparison, very good.

[Olaf Scholz, executive]

I get an additional question from Sebastian Growe.

[Sebastian Growe, analyst]

So I know 0.1 percentage points can be anything between probably then 50, 60 basis points and 140 basis points. So the question that I simply have is if you could give us any more color on the Netstal margin because if I take the 0.1 percentage points for granted, it would mean that Netstal was high single-digit margin, probably even 10%, which would be almost to be true. So if you could give us a better understanding that would be much appreciated? And the second one is around the famous pricing discussion. The question I had is simply whether you can comment on to what extent you might have turned also projects down already and whether that has changed? So if I take like fiscal '23 was EUR 100 million and then you could have done EUR 120 million or so index wise, has this risen to EUR 130 million? So the question and the background of that very question is simply to better understand whether some of your peers might turn less rational on pricing or whether you think there's just so much of cake to eat for everybody in this industry, so that we don't run into any troubles with pricing?

[Uta Anders, executive]

Actually, EBITDA margin of Netstal, was approximately 5% in the quarter. That's what it was and with that, we came to 0.1 percentage points diluting effect for the group and also mostly for the FPT segment.

[Christoph Klenk, executive]

And to the question, did we turn more projects down than in the past? That's really a good question. I mean we maybe no, the answer is no, but for other reasons. I mean, in the past, we turned projects down more for delivery time issues. This time, we might have turned more down in terms of pricing issues. But is that an indication that the market is going in the wrong direction? I can't really say. What we see is we have not seen competition acting unreasonable. I mean, as always, there would be one or the other project which we would consider like that. They would most probably do the same with us, but that has more to do that maybe the content of the quote was different. But all in all, we see a very consistent behavior, at least on the larger competitors we have and those you might have in mind. From time to time, of course, you see a smaller one coming with an unbelievable pricing. But then I would say the scope is different. I can't say it's different but I wouldn't see that there is a different, let me call, rejection rate of orders right now than we had, let me say, 6 or 12 months ago.

[Olaf Scholz, executive]

I got also a questioner [indiscernible] your questions, please?

[Unknown Analyst]

Firstly, on pricing, could you discuss what was the pricing in order intake year-to-date? And what was the realized pricing in P&L? And question number two, on lead times, you discussed that lead times are coming down but if I look at on your balance sheet, you still have close to EUR 1.2 billion tied to contract assets. Historically, that has been around mid-teens of your sales on a trailing 12-month basis. Now it is at low 20s as a percentage of trailing 12-month sales. Could you help us understand why that is? And when do you expect to convert contract assets into receivables first and release that into cash in terms of timing? Is that this year or next year?

[Christoph Klenk, executive]

First of all, in terms of pricing this year, we have been stable in terms of pricing. So there has been nothing done, as I said it many times that we need to be stable on that. Of course, here and there, we did some adjustments, but nothing which has been -- I would say, a real impact on the general picture.

[Uta Anders, executive]

Yes, I would say, I mean, if you look at the balance sheet, this is more than the development happens from the lead times of the past, which were much longer and which we are still executing. When we talk about the 60 to 70 as a target, the 50-plus weeks -- this is then for the future. And this is how I would differentiate it. And also on your question, when we turn that into the final receivables and revenue final revenue, I mean, to '24, but also 25. As we said, our backlog leads well into '25. This is how I would answer the question.

[Christoph Klenk, executive]

And maybe there is one another important point to be understood. When we talk about the 50 to 60 weeks delivery time, that's for machines of our [ core ex works ]. So that does not necessarily mean that we have the project finished. And that you might find them still in the balance sheet on the receivables for a quite longer period. And as bigger the project gets like Intralogistics or in case, we have bigger processing projects on board, they take much longer than the 60 weeks. So a calculation between delivery time and, I would say, the receivables we have on the balance sheet, that's quite difficult. And what we see right now is installation, as such, is rising significantly, installation and commissioning at the customer side for the next, let me say, 18, 24 months because with what we shipped this year, this becomes, I would say, the first 6 to 9 months of 2025 installation and commissioning. This is, of course, a smaller proportion of the revenue but nevertheless, this we keep it still in the books. And therefore, the calculation on compared delivery times to when do we convert it into cash, that's really difficult.

[Olaf Scholz, executive]

I have a quick look on my e-mail folder here, I didn't see any additional questions, also directly in Teams. No additional questions. So I think I can close the Q&A session.

[Christoph Klenk, executive]

Yes. Then thanks a lot for joining us today. And some of you might have the summer vacations in front of you. So, I would say all the best for the summer vacation for those who go still into that. Looking forward to see you at the end of Q3 that we can talk further, and we are pretty sure that we are delivering numbers which confirming our this year's targets. And then hopefully, by the end of the year, we can be all happy that we have achieved what we have promised. Thanks a lot. All the best for you.

[Uta Anders, executive]

Thank you. All the best.