Koenig & Bauer AG

XETRA:SKB

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, welcome to the Q2 2021 Results Conference Call and Live Webcast. I am Irene, the Chorus Call operator. [Operator Instructions] The conference is being recorded. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Andreas Plesske, CEO. Please go ahead.

[Andreas Plebke, executive]

Ladies and gentlemen, also a welcome from me. If we go to Page 1, we usually start with Koenig & Bauer at a glance. Now as we had announced on Q1 and on various occasions thereafter, Q1 and Q2 were a difficult phase for our company, I believe, for the whole market, but we are talking about our company today. And we have announced the figures about a week ago, so that is for discussion later on. But what we will do today is we'll summarize where we are at.

But more importantly, we also have more clarity now and announce more of what we're going to do in the second half year to recover from the situation and come to the year-end results as we predicted it. That is also the first bullet point that we have here. We confirm our operational guidance in this fairly difficult market environment that we have had and that is between EUR 25 million and EUR 40 million -- Yes, between EUR 25 million and EUR 40 million at the lower end.

So we confirm that. We also confirm the turnover that we have forecasted this year. News and highlights for the first half year, spotlight. I'll come to spotlight later on. So just at a glance. Spotlight will be a mix between cost cutting, restructuring incentives and, let's say, discontinuing certain models of certain products. Product improvement costs. And generally, it will follow the line that we're in the process of harvesting and not sowing again. So we will also reduce as we had expected R&D expenditures and focus on selling in the market.

That's what we're doing there will be a mix, but it will be a fairly classic program. It will involve all sorts of things involve cutting costs, but including cutting personnel costs and cutting personnel that is something which in this environment and in our company is unfortunately necessary. We have announced that the special costs, which we will expect for this will run between EUR 30 million and EUR 45 million.

I'll come to Drupa. I'll come to strategic partnerships. I'll come to PowerCo and our new, hopefully, future little business. And on figures, there's at least one figure, which we think is fairly good. The highest half year order backlog of EUR 1.021 billion has been achieved. The revenue of EUR 532 million and the EBIT of minus EUR 33.9 million is below the previous year that has very much to do with the slow order intake in Q3 and '23 and also the beginning of Q4. We sequentially increase and a slight positive note, the last month of the second quarter shows signs of a turnaround by being a positive month.

We have a lower revenue in Sheetfed and Special due to the market-related order intake and a slight increase in Digital & Webfed. The outlook for '24, we again confirm that our operating EBIT will be at the lower end of the forecast range of EUR 25 million to EUR 40 million. We confirm our revenue target of EUR 1.3 billion despite our difficult market environment.

And the EBIT target of 6% of approximately EUR 1.5 billion in full year '26. Why do we keep reiterating that? We believe that the improvement that we have to achieve will be mainly due to our own measures due to spotlight. If we go to Page 2, I just want to go through 4 figures with you. If you go to the top left box order backlog and order intake, you see the EUR 1,021 million order backlog and the order intake of EUR 398.6 million.

On the revenue side, you see where we are at, and that is basically the main explanation for our poor operating performance, but Stephen will tell you about that later. And on the book-to-bill ratio, you see an extraordinary book-to-bill ratio in Q2 of 1.43. The EBIT is, as we announced, at minus EUR 23.7 million in the second quarter. The operating EBIT is minus EUR 13.7 million. The difference between those two is mainly the cost for the Drupa.

Now news and highlights of the first half year. We have announced changes in the management. In reality, if you make a restructuring, and that's what we need to do at Digital & Web is the restructuring. You need fresh management faces, dynamics and fresh wind to the whole thing. So you start with the top and then you work down to the other levels.

So we have more or less announced a new management Board consisting of Philipp Zimmermann as the CEO. My colleague, Christoph, who has absolutely built up the digital footprint of this company in [indiscernible]. He's spending most of his time now with customers all over the world. in strengthening these ties and securing orders for our inkjet program, including the RotaJET and the HP. That's what he's doing mostly now.

And Philipp Zimmermann is running it operatively. And we will also have a new CFO, a very well-established CFO who was in our company in a different business unit before. And we also have some other, let's say, changes in the management on all levels. That's what I would call the fresh wind, and I think you could already see the structure. The second thing which we need to do is, fresh wind isn't enough, we need to restructure.

The restructure will be cost cutting that will involve, as I said, personnel cutting. And it will involve other cost cutting. It will not be entirely in Digital & Web, but Digital & Web is one of the main focuses because of its loss situations over the years.

But it also includes the other main areas of Spotlight, which is Banknote's group-wide projects in the holding. If I want to reiterate on that Banknote, it's a profitable company, but the profitability, let's say, can be substantially higher due to our market position that we have. And the program here is not a restructuring program that I say, an operating excellence program in bringing us back to, let's say, former EBIT figures.

The holding in generally, as I've already announced on marketing conferences, we have to get slimmer in the holding. That itself is a goal. But also if we look at the footprint that the companies have, and that the company is eventually -- the segments eventually have to pay what the holding does because most of the holding gets shared services to be able to have the operating segment and a better financial position, all of these shared services and the cost of these shared services also need to go down. because it is also a major part of the segment's profitability.

So therefore, the holding costs, which includes not only typical holding functions, but as I said, a lot of shared services, will also go through a cost decrease process, which again will involve personnel and it will involve other costs. And then we have certain group-wide projects. We focus on very few R&D projects, which are still ongoing.

And basically, we switched the whole company from strategically planning new products -- features of products into a harvesting scenario where we have a very good program and this very good program now we have the market and improve the operating profit out of this program.

The cost of these special effects will be between EUR 30 million and EUR 45 million, and they will mainly relate to adjustments in material and personnel expenses. As a matter of fact that we switched from developing a portfolio and new product ideas to marketing and harvesting it was also why we had, I believe, an extremely good Drupa presentation and extremely good, I mean, now by the reaction which we got from customers, that's not entirely limited to orders on the Drupa.

Orders on the Drupa are always something like -- I mean we have wonderful machines, no doubt about that, but nobody comes to the Drupa looks at the machine and falls into a happy dance and says is there a [ contract ] please where do i sign.

These signatures are always something which happened. And of course, we have discussions with the customers. So one of the main effect is what's the reaction of the market to where we stand. That has to do a lot with the attention we get, the amount of discussions which we lead, the feedback from the customers that we have. And it can be measured in KPIs, but it also can be seen in a whole summary. And I think there are two messages where our customers were particularly happy with our program.

First of all, they have seen a whole workflow in the packaging world from preprint to two different versions of print, Sheetfed and Digital to two different versions of die-cutting rotary and flatbed to a further [ gluing ] line. And they have seen the whole of the other machines that we have. So Drupa is not a Sheetfed show. Drupa is a printing machine show. So we were also there with all of the other products.

We didn't display many of them because that, again, is a matter of cost and we focus on the workflow on Sheetfed, but we were there promoting, of course, the RotaJET, promoting Banknote. We actually had visitors there from the Banknote, well, quite a few flexo, MetalPrint and the whole Koenig & Bauer world was there in various of display and we had meetings booked with everybody who counts as our customers.

We have marketed orders of about EUR 250 million, and legally binding of those were about EUR 200 million. This was I believe wonderful. You must see the Drupa in the light of what can a company like ours do in marketing. We are in the printing world, a household name. So nobody kind of asks around and who makes [ offset ] printing machine and who makes a digital printing machine.

We are one of the very few in the world. So how do we market things? Do we market them through local trade shows or through magazines or online that doesn't work with our machines? You have to bring people and technology that is a running machine together and therefore, Drupa is the unique event.

Nobody travels that far at that cost very often. And since this happens only every 4 years, it is of essence. And it is of essence that this is the point of time where you present your company with a new product range. And the visitors that we had were similar in companies which visited the Drupa in the past year.

So there was a very high attendance to just give you a few figures. There were 6,000 visitors only from India. So there was a very strong worldwide presence. And actually, this has now to carry through the [indiscernible] over the next years.

The next years on the economic outlook are at the moment, a bit dull, and that is the whole machine tool -- the whole underlying shift the VDMA. It is -- which also includes our machines. As I've said, our development program, we have declared that we are through and we the harvesting situation, but we still do a few things with partners where the development weight is not with us, but it's with partners.

Two things which we successfully launched or even sold machines at Drupa was digital printing presses for MetalPrint. There is the MetJET product family. There is a multiparts machine, which we developed with [ Durst ]. The first one is already purchased by a customer and running.

And we have announced a partnership with the Italian company, Neos, which makes a single-pass digital machine, which is also suitable for MetalPrint. So this is no serious additional expense from our side, but it increases our footprint in the digital world, also in the metal printing market, where we believe a lot of our future will lie.

An example on the next, Page 8 just shows you what our customer, Tetra Pak, who hopefully, eventually will buy many more machines, thus to promote our machines. He promotes the RotaJET also with our name company -- company name is [indiscernible] in all countries.

Here's an example of what he does in China to promote the digital business. So this is not exactly order intake for us, but it shows that there are major players like Tetra Pak, who promote digital printing and whilst they're doing so they promote us and our machines with it.

If we go one page further, PowerCo orders a machine from us. As we have announced, there is one machine, which does the dry coating, which we developed here in Wurzburg at our expense. And we have some contractual agreement with PowerCo, which is a 100% subsidiary with Volkswagen of how to test that machine and bring it, hopefully, to [ CEO's ] condition. But PowerCo decided that they wanted a second machine to speed up the process, and they ordered that.

So we will sell that, so you could say it's the first sale, but it's not the first sale of a serious machine. We still have to go through the development phase, and the development phase is not finished. So I cannot yet announce that the whole thing works wonderfully.

But I can announce in the middle of it that Volkswagen made the decision that at least it seems so -- the expectations seem to be that it works. So they placed an order for a second machine at a absolutely, let's say, acceptable, and for us, nice price. Then we return to the figures in more detail, and I would like to hand over to Stephen on that.

[Stephen Kimmich, executive]

So thank you very much, Andreas, and also good afternoon or good morning, good evening from my side. I will walk you through the next few pages of financial figures for year-to-date, Q2 as well as first 6 months. There are certainly better days for a CFO than to present the figures that I'm about to present to you because, as already mentioned, and as frankly, has already indicated in the previous months we had a very weak first half of the year. There's no other way to state the facts, the figures across the board on the P&L side and cash flow side are weak.

But there are, of course, positive messages to come, particularly looking towards the second half of the year. We have strong order intake in many segments, which gives us momentum moving forward. And we're convinced that the worst is behind us moving forward. But the purpose today is to present the Q2 figures to our investors and to the capital markets. And those figures, of course, are weak. But starting at the top line positive side, order intake is up 16% year-on-year at EUR 641 million.

Just to put that in perspective, this morning, VDMA, the German Machine Equipment Maker Association announced their figures this morning for the overall machine market was down 8% year-on-year. So we see in printing machines, perhaps also driven by the Drupa, but in general, with 16% increase in order intake, that's good news and gives us some positive momentum moving forward. You see that also on the right side of this slide, with order backlog increasing now to over EUR 1 billion at 1.021 billion, which is the highest figure at midyear that we've had in the recent history of the company. So that's the good news.

On the pure sales, our revenue and earnings side, of course, is a different picture. So we had a 10.8% decrease in revenue. Also this was expected. This is not a surprise to us. But at EUR 532 million of revenue, it's very difficult for us to make money. The weak revenue was driven primarily from weak earnings in the Sheetfed segment because of the different order intake we saw last year as well as the Banknote segment that had a strong order intake in December last year, but those orders are just now ramping up and will bring us sales and earnings in the second half of the year. But did not help us in the first half of this year.

So overall, on the revenue side, clearly, the biggest headwind. And you can see on the next page how that directly relates to a drop in earnings, driven entirely by the drop in revenue of over EUR 60 million, we are predominantly fighting a volume and mix effect that dropped earnings year-on-year by around EUR 18.5 million. This is the two effects. We have volume issues, as you saw on the previous page, but mix being supported in difficult environments.

We're selling some of our lower -- more of our lower-end products and less of our higher-end products. So also, of course, margin's under difficult times are certainly under pressure. And that's something you also see in this EUR 18.5 million figure. On top of this, we also had the extraordinary impact of roughly EUR 10 million, driven primarily by, of course, our Drupa trade fair, which we had also announced in the past and is not unexpected.

So overall, if you think about what we have been telling the capital markets for the last 3 to 6 months, we were expecting a very weak first half of the year. We were expecting the second quarter to be weaker than the first quarter. And we were obviously expecting the roughly EUR 10 million of extraordinary costs. This is exactly what happens. It doesn't make the figures better, just that we were expecting them. And then overall, of course, at 6 months, a minus EUR 33.7 million EBIT is a dip that we now have to overcome in the second half of the year to meet our operating guidance, which we're, of course, convinced we're on path to do.

If we move on to the next Page 12, you see some more details on the income statement. As already mentioned, sales are down, and that directly relates to lower gross profit. I think some good news on this slide is simply that our cost control on the functional cost of R&D, sales, expenses, administrative expenses, it's clearly working here under distribution. You see a large portion of the Drupa expenses, and we've been able to otherwise compensate with strict cost control and see a year-on-year decrease that helps us to mitigate some of the volume loss.

But overall, at minus $33.9 million bottom line EBIT, of which EUR 23.9 million minus is operating EBIT, of course, a very difficult first half of the year. On top of that, of course, interest rates have -- debt has risen and interest rates have risen over the course of the last 12 months. So we also have an increase in interest expenses. And therefore, of course, our net loss at the end of the 6 months is disappointing but in line with what we expected it to be. On the next page, 13, some other highlights on the key financial KPIs.

I think it's obviously not -- I wouldn't try to push this as great news, but I think it's a good sign that we have significantly decreased negative cash flow. So this time last year, we had minus EUR 46 million of negative free cash flow. It's only -- and of course, still losses, but at minus EUR 27.7 million in free cash flow, we're making significant headway in improving our cash generation even with, of course, not where it needs to be.

The good news on the bottom left, and this is where a lot of our effort is concentrated on is that we were successful in reducing net working capital over the last 6 months. Certainly, at this roughly EUR 16 million, nowhere near in line with where we need to be going forward. We are aggressively working on reducing working capital further. But at least we see in the first 6 months a step in the right direction.

And if you look at our year-on-year figures compared to Q1, Q2, Q3 last year, we're clearly making progress in net working capital. But of course, our net financial position because of the negative free cash flow, slightly down and equity ratio because of the negative net losses, of course, also under pressure.

The group cash flow is -- I think you see again the EUR 27.7 million from the previous slide. What is driving this negative cash flow? At the end of the day, it's primarily our losses and the gross cash flow coming from operations. On top of that, under investing activities, you see a slight increase.

This is mainly driven by our demo machines for the Drupa that are here booked under work in progress or under unlock [indiscernible] that increased our investing activities. Those machines will be sold to customers, so it will ultimately result in cash in, but that's driving this EUR 27.1 million negative cash flow from investing activity.

Working capital, as mentioned, had a positive contribution. And otherwise, the noncash transactions are roughly neutral. If we move on to the balance sheet, I think there's nothing spectacular to really mention on this slide. The only thing I would point out is at the bottom right under other liabilities, you see an increase from EUR 273 million to EUR 330 million. This is due to increase in customer down payments. So we do see the uptick in orders also on our balance sheet, which is good news. And the [ judgment ] on the tax is now to turn that into sales revenue and earnings.

Otherwise, there were no significant movements in our balance sheet positions other than the working capital positions I already mentioned. Moving on to Page 16. Looking at the 3 segments. This slide always takes a little bit longer to present, but gives a good picture at the various business areas that Koenig & Bauer is operating in.

On the Sheetfed side, we see obviously a fourth quarter in a row with a positive trend on the order intake from the deep of EUR 112 million in Q3 2023. This is the -- these are the blue columns in the top chart.

From our low of EUR 112 million, we now pushed up to EUR 179 million of order intake in Q2. And at that point, I would mention also that, of course, the Drupa orders, only a portion of those are in Q2. Many of those, around 1/3 of them are in Q2.

The large majority of the Drupa orders will not be booked as order intake until Q3, perhaps even Q4 because we have a clear rule that we do not show order intake in Sheetfed until down payments are received, which sometimes weights on subsidies or other topics.

But Sheetfed is clearly on the right track also with momentum coming from Drupa that orders are recovering, order backlog is recovering. And clearly, we're on a good trend in that segment to return to revenue levels that we had seen prior to 2023.

But despite that, in Q2 and in the first half of the year, Sheetfed was very, very weak at EUR 290 million of revenue. It was 18% below prior year. This is again something that was expected and that we had hopefully prepared you well for because of the different orders in Q3 last year and partly Q4 last year. This is really what's hitting our revenue now in Q2.

The order backlog is now there. We will see a recovery in Sheetfed in the second half of the year. But in the actual figures per June 30, of course, a very, very weak first half of the year. On the far right, in Special, you see the strong uptick in order backlog and order intake that we've seen since this time last year. We had strong orders turn into revenue until second half of this year or even into 2025 and 2026. That's the nature of some of the businesses in that segment. Because the strong orders from December don't hit until the second half of the year, we were actually able to generate low -- we were only able to generate lower revenue in the first half of the year, despite the strong order backlog.

So here, also EUR 180 million in revenue, down 7.5% year-on-year. Also here, based on business unit mix as well, a significant drop in earnings in the Special segment. But again, to repeat, here also, we see a strong recovery to come in the second half of the year, driven by the order backlog and a much stronger second half.

That brings me to the middle segment, Digital&Web. Here, it's a similar picture to what we've seen in past quarters that we had a weak order intake in Q2, at roughly EUR 29 million. So certainly nowhere near in line where we want it to be steady state going forward.

There are some positive signs into -- moving into Q3, but I'll leave that to Andreas Plesske to explain later. Overall is slightly up year-on-year due to the order backlog we had this time last year that's now being executed. Earnings are, of course, not where they need to be. And I think this again underlines the necessity to accelerate our Spotlight program and work on structural costs in Digital & Web, which is well underway.

Wrapping up on Page 17, I think you saw this in our adhoc messages. And Dr. Andreas Plesske mentioned earlier, despite the extraordinary expenses driven by Drupa and despite the high one-off costs for Project Spotlight, around EUR 30 million to EUR 45 million, we still confirm our operating earnings by year-end should reach the lower end of our forecasted range of between EUR 25 million and EUR 40 million And that will achieve our revenue target of around EUR 1.3 billion, despite the very, very difficult first half of the year and a very difficult market situation we continue to be in.

This is obviously implying a very strong second half of the year. As mentioned, we saw already the first positive signals in June in the last month of Q2 that we're on the right track, and we have to keep this momentum going forward through year end and keep pushing. But bottom line, of course, including Drupa and including the cost for Spotlight, we're looking at, obviously, a negative bottom line for the group in 2024. But completely out of the necessity to restructure the business going forward and reach our midterm goal, which we are absolutely committed to achieving that 6% EBIT, no later than 2026.

And we're convinced that we have the measures now defined and ready to execute to reach that goal. So that's it from my side, and I would hand back over to the operator for starting Q&A. So operator, could you please take over?

[Operator]

[Operator Instructions] The first question we have is from Jorge Gonzalez of Hauck Aufhauser Investment Banking.

[Jorge González Sadornil, analyst]

The first one is in regards to order intake. Looking into the detail by division, I see that Sheetfed order intake was quite similar to Q1. You mentioned Stephen that some of the orders were not booked, but I'm not sure if you were referring to this EUR 50 million additional to the EUR 200 million that were not completely signed or that were missing some parts or some documents or something?

So could you clarify which is the order intake including all Drupa signed contracts for the quarter in Sheetfed? And if there is any change in trend for Sheetfed that you are foreseeing? Or if we can -- if you still see a positive dynamics for the rest of the year in this division? That would be my first question, please.

[Andreas Plebke, executive]

I think we -- Stephen, please jump in. I try to answer that. The first question was the order intake, which we announced, which was EUR 200 million in legally binding orders. As Stephen said, in the second quarter, we have booked as order intake in our figures roughly 1/3 of that. That is due to the fact that these orders include to a large extent and the Sheetfed orders themselves, they have a certain rule.

We only book them once the down payment has been received by us. So about 1/3 of the part of the orders, which were the Sheetfed orders out of the EUR 200 million, 1/3 has been booked in Q2. The rest will most likely be booked in Q3. We have also announced that there is another EUR 50 million, we said between EUR 200 million and EUR 250 million, another EUR 50 million order, which we would say was a letter of intent or a firm handshake.

Now these orders, we expect to be partly in Q3 or in Q4 or however, it is with a firm handshake. If somebody doesn't remember that you have given a handshake, it's just not legally binding. So -- but of the legally binding orders, the Sheetfed part of that, 1/3 was probably booked. Roughly 2/3 will be booked mostly in the second quarter which what we expect. Again, this EUR 200 million included orders from all divisions because all divisions were present at the Drupa.

[Jorge González Sadornil, analyst]

So very clear, Dr. Plesske. So then we can say that the trend in Sheetfed is still quite good. Is this fair to say?

[Andreas Plebke, executive]

I think it is fair to -- yes. But A matter of fact that it took me 5 seconds to breathe before I give you the answer is that you and I read papers, and you and I talk to customers And if you read papers and talk to customers and look at the likelihood that people release investments in highly expensive equipment these days is not at an all-time high. So can I read the world? I can read our customers. I can read the news, they have an opinion.

Based on the customer discussions that we have, after 5 seconds of breathing, I would still say, yes, I don't see a falling off the cliff. I see that we will continue to get a satisfactory order intake. But I would not expect that a sudden search of order intake makes all of our problems go away. The problems go away only if we do our own measures.

[Jorge González Sadornil, analyst]

I understand. And regarding the Special, the order intake in Special in the quarter was really strong. So I was wondering if this division enjoy part of the Drupa success? Or it -- this is unrelated? And also if these orders are going to have an immediate effect on the revenue of special solutions in the next quarter or in Q4?

[Andreas Plebke, executive]

I think before I hand over to Stephen on that, we have several businesses in Special. And we have -- we only announced the segment. It's not easy. But a lot of the businesses in Special take -- the machine takes a long time until it runs through the factory. So if we have an order intake and that -- and these machines may be designed especially for the customer, it takes several months until we have the engineering through until we own the parts.

So the ramp-up until such an order becomes either POCable or if it isn't POC, it becomes turnover delivery is relatively [indiscernible]. Therefore, the time between order intake and when you see -- when we see EBIT is relatively low. Stephen, if you want to .

[Stephen Kimmich, executive]

No, that's a perfect answer. So it depends, of course, on the business and on the order and how much inventory we may have on hand, how fast we -- or how much engineering work we have to do on the order before we start to generate value in the factories. So it really does depend. But in general, it's typically not day 1 after the order intake then it starts generating order revenue and EBIT. It takes some delay.

But of course, the order intake in Q2 that we saw in Special will help us in the second half of the year. For sure, it will have an impact in Q3, Q4. The order intake is mixed, not just -- I mean we typically make the mistake often in these calls equivocate, especially Banknote. It's not just Banknote.

We also announced a strong MetalPrint order during the Drupa for our first ever high-end top line MetalPrint machine being sold to India. These are all examples of order intake that was in and around the Drupa and certainly is going to help us in the second half of this year, but more importantly, it will help us in 2025 and 2026.

[Andreas Plebke, executive]

Yes. And your question, is this all Drupa related. As I said before, nobody comes to Drupa, sees our machines start seeing and dancing and praising us and says could I at least have one quickly. Drupa is a bit of a culmination point of new developments. And we had new developments in every single division and every single segment of the whole group. The whole group was geared to tell us a, let's say, promotion of ideas which culminated in Drupa.

[Jorge González Sadornil, analyst]

And two quick ones, and I go back to the line. One, if you can give us a little bit how you have a split Drupa between the divisions to have a better idea for the underlying margins? And last one regarding Spotlight. So you have offered more or less the scope of -- well, more or less no -- you have -- sorry, offered the scope for the Spotlight and looks quite ambitious.

So I was wondering if you can already give us how you expect this to impact the margins by division or more clear road map of how this is going to improve margins? Or when you plan to do this if you are maybe offering a Capital Market Day or any more detailed presentation on how Spotlight is going to be translated into better margins for Special and for Digital?

[Stephen Kimmich, executive]

So the first question was easy. I mean, Drupa is roughly allocated to the segments based on revenue, not exactly because some of them were underrepresented. But as Dr. Plesske mentioned, all of them were represented. So it's spread evenly -- or it's spread across the 3 segments, roughly in line with their revenue splits in the group. I think that's a safe assumption to use that for your simulations.

The second question, so we're not going to -- certainly not today going to give any more details on how Spotlight will affect the segments, particularly on the savings side and the earnings side, The main message today is that, it's our program or our approach to securing the 6% EBIT target that we've communicated. We're not -- we have those figures internally, but we're certainly not ready to communicate nor would it be appropriate to communicate them to the capital markets on how they will hit the various business segments.

I think -- you can see from the slide, I think Slide 3 or Slide 4, today, the 3 main areas of Spotlight and that is the Digital & Web 2.0, the BNSx program and the holding project. I would say that if you think of it this way, that the BNSx project and other projects are predominantly outside of Germany, predominantly not exclusively. And the D&W 2.0 and the holding project is focused more on our location in Wurzburg.

And I think everybody on the call understands that personnel reductions in Germany are expensive, and therefore, the one-off costs will predominantly be geared towards our German locations and those two big areas of Digital & Web 2.0 and holding. And holding will, of course, be allocated to the segments based on roughly in line with revenue, not exactly, but roughly in line with revenue.

So it was a long answer, but I hope you -- I know you're trying to figure out how to simulate it in your model, that gives you a rough idea, but we're not going to communicate any time soon as how the segment-specific P&Ls will develop over time. That's something that we'll consider at the next Capital Markets Day, but don't get your up too high.

[Andreas Plebke, executive]

But I want to add, not to contradict Stephen. But I want to say and I've said that before, obviously, it is a goal, but I'm not giving any time, but it is a goal and the time cannot be too long. But in Digital & Web, we stop making losses.

[Jorge González Sadornil, analyst]

Okay. But this...

[Andreas Plebke, executive]

That's clearly part of Digital & Web 2.0. But I don't -- the details we'll announce at a date which I think we'll have some venue where we do that, maybe at Capital Markets Day.

[Operator]

The next question we have is from Stefan Augustin of Warburg Research.

[Stefan Augustin, analyst]

So the first one is, I have some housekeeping before we go a bit more in the discussion. Again, on the Drupa cost division, so it would not be unfeasible to think something like EUR 7 million for Sheetfed, EUR 4 million for Web & Digital and roughly like EUR 2 million for Special. So that would be my first assumption out of your answer.

And the second one is a little bit the conclusion on the EUR 200 million orders from Drupa and the EUR 50 million and a little bit the split where the order intake appears now in the segments.

And here, I also have a question on a comment that is in the report, which says that one larger Special order is going back into the negotiation program. So that seems to be like a mid-double-digit million. So is it fair to simply assume that the EUR 190 million, we see in special right now is -- will be effectively somehow reversed the next quarter, and it's something like EUR 130 million, EUR 140 million, EUR 150 million left over there? And let's say, this massive Special order intake somehow included in this EUR 200 million number that you presented as the result of the Drupa trade fair? This is my first part.

[Stephen Kimmich, executive]

No. Okay. So first of all, I mean, your assumptions for how throughput costs split are roughly okay. That's a reasonable assumption. And I think anything else is immaterial that it's roughly okay. The second question, so we put that note in our half year report simply because we felt that it was necessary.

There was material to mention. That order is not lost -- by no means is it lost. It's simply -- we have a legally binding contract for this order that justifies having it in not justified it because we're obligated also to have it in order entry on June 30. So it's appropriate, it's actually correct and mandatory for us to show it as order intake per June 30.

As of today, it is a legally binding contract that we have signed, but we know from our customers that it's going into a unplanned additional negotiation phase that we hope will be solved by the end of the year. We still expect the award to be given -- awarded in our favor. And whether or not we show it in our Q3 or Q4 order backlog frankly, we'll decide at the time we have to publish what is the actual situation and do the appropriate things they want to promise you is that we'll make it transparent is it in or out.

And it's in -- as you mentioned, it's in the EUR 187 million is in and that's correct. And again, it's just our feeling of what is right and transparent in what are the obligation of the capital markets to mention that the order is kind of situation that was worth mentioning. But again, it's not lost, and please don't understand it's being lost. Was it in the EUR 250 million? Yes.

[Stefan Augustin, analyst]

Just also another quick question. If it goes back, do you -- I assume there has been a prepayment. And does that prepayment then temporarily flows out again?

[Stephen Kimmich, executive]

No. the prepayment is not an obligation in all of our segments, particularly in certain kinds of customers. It's often impossible to get prepayments at contract signing, but there are -- so there's no cash risk for us as a company, exactly opposite.

Even if we were to sum -- if we don't expect, even if we were to lose the contract, there would be reimbursements for -- on our side. So there's no risk. It's just -- frankly, it's just our diligence and the expectation on ourselves to be transparent in our reporting to show that this is -- it is what it is.

But again, low risk financially. It's simply risk in the order backlog, is it lower than we show or not. And as mentioned, we're confident that it will become an order just at a later date. And sorry -- and perhaps one other comment, it has no material effect on our guidance for this year. So it's irrelevant for 2024 or immaterial for 2024.

[Stefan Augustin, analyst]

Okay. Understand, and thanks for the transparency. That brings me then to the second part here. If I look then into the Digital & Web and I recall that when we went back in November, we were discussing that there is a learning curve in working off the order backlog in Web & Digital and that there will be an improvement in the, let's say, orders work off as the learning curve finally comes out.

And even if I subtract now a, let's say, EUR 1 million Drupa cost in the Web & Digital, it seems to be simply getting rather worse than better, which then brings me to the second part of my strategic question. If I look into Spotlight and I compare it to P24x, I don't, at this point, really see a difference between the two and the P24x even simply have gone.

They have not really materialized in the overall group result. And I had expected actually for Spotlight rather to be that there is something like we look at Drupa and then we finally make our call and maybe we abandon one or the other line of development and simply think it's unfeasible to market it right now.

But I cannot read anything that you, let's say, or I don't know where to expect that you have cut your product range or reduced the optionalities or whatsoever. And so the question is actually then what will be the magic of turning around Digital & Web? I mean, simply reducing a bit of workforce is probably not going to make the move here.

[Andreas Plebke, executive]

I hope I got this all. In case I overlooked something, which asked Mr. [indiscernible] later on repeat the question. Let's start with why is Digital & Web in the first half year very weak? It is. There is a -- I think I didn't read back what I said I hope I mentioned in the same way. There is still the ongoing problems that we have to resolve. We are more or less now through resolving them.

There's still one machine out there where we are fighting for a final acceptance. And I think I talked about 7 or 8 machines. I don't know if I said that in detail, but that was about the size of it which we had to get market ready. And that is the big task of the first -- was the big task of the first time a year.

We are more or less getting through that. If you look at the -- what I said there is a bit of a light on the horizon in the last month of the first quarter that also applies on Digital & Web. So I can also see there a bit of a, let's say, the first figures of a turnaround. If it comes to product ranges, I mean, there are many things which we announce and don't announce. We are also in the market and we have competition.

So therefore, we have not said that we get out of any market altogether. But we very much, I would say, focus on the inkjet part of the business, and we focus on a very, very clear, defined, serious production range of standard flexo machines. That's what I would say is the focus. Inkjet because it is -- inkjet includes HP and RotaJET because it is a nice merchant business and it is future business. It is specialized in some cases, especially in the RotaJET.

And on flexo, we clearly look at a certain segment of that, which we would call the highly standardized machine, which is particularly useful for the [ carton ] production because that is our home turf. We do not officially pull back out of anything else for various reasons. But let's look about what we focused on, and that's, I think, what we've focused on.

And the rest is out of focus. What we do with Digital & Web is we look at the shoe size of the whole company, we look at how much order intake do we -- can we generate realistically in the next year with all of those things that we focus on and everything else is then cream on the coffee.

And whatever we focus on, that will determine the size of the shoe. And that is the basis of the restructuring. It's rightsizing based on two focus areas, which I just mentioned.

[Stefan Augustin, analyst]

Okay. I think I consider answered on that one. And well, mainly -- finally, probably, let's say, the scope of the costs between, let's say, initial P24x and now Spotlight are not so different. So I assume it is fair to have in the back of our minds roughly same kind of effects.

[Stephen Kimmich, executive]

I think it's difficult to compare the program. Spotlight is something completely different than P24x in my mind. P24x was an answer to COVID and group wide, no stone left unturned classical cost-cutting measure that we had everything.

Spotlight is Spotlight. It's focused on certain problems in the company to fix them for certain areas of the company where we say we have to earn more money. And I would add to Andreas Plesske's comment one other thing, it's not just about the current portfolio. But we also understand under group-wide projects.

One of the great things about Koenig & Bauer is that we have a lot of ideas. One of the greatest ones is this Volkswagen project that came up the last couple of years. And we have other great ideas in the pipeline that we could have decided to start in hearing project on or start new initiatives on. And there are several examples that we're not going to mention details on this call, where we simply told the organization, no, we're not starting the next product, the next project, the next business area until the current ones start being harvested.

So it's not just about stopping what you're doing. It's also about not starting new things. We're also stopping -- as Andreas mentioned, we're also stopping and consolidating certain product lines and variations and versions and trying to make current businesses less complicated. But at the end of the day, it's about focus, and that's the main message.

And we think our product portfolio is still the right one. We're addressing the right markets, we're addressing packaging, we're addressing fundamentally good areas with our current portfolio, that current portfolio can be done better and more efficiently with less complexity.

We're not looking to give up complete business areas, but we are certainly saying we're not starting the next business area. So that's -- again, it's a little different take on what Andreas just mentioned. We're not -- the savings that Spotlight, we'll talk more about that in the future. But P24x was a EUR 56 million announcement when we announced it, I think EUR 54 million or EUR 56 million.

And now we talk about EUR 30 million to EUR 45 million. And it's a different kind of project. It's more of a restructuring as opposed to an excellence program. So please don't make that direct comparison.

We'll try to follow up with more details for everybody in future calls. So I think we're almost out of time, but we'd love to take one more question from Peter Rothenaicher, who's in the line. If you don't mind, Mr. Augustin, we would move on and just -- but we only have time, I think, for one more question, apologies.

[Peter Rothenaicher, analyst]

Hello? Do you hear me?

[Andreas Plebke, executive]

Yes.

[Peter Rothenaicher, analyst]

Okay. One question on the Special results. So in previous quarters, we set a number of sales you were mostly able to achieve balanced or only slightly negative results. What is different this time to have such a big loss of EUR 7.5 million, apart from the Drupa cost, which might be EUR 1 million or EUR 2 million?

[Stephen Kimmich, executive]

I'd say it's predominantly just mix. I mean at low number of machine production in some of the business areas, some of it's mix. It's just -- again, it's not just Banknote. We have other businesses in the area. And it's, at the end of the day, it's low machine sales and a different mix on gross margin. It's always gross margin. It's just a perfect storm.

[Peter Rothenaicher, analyst]

Yes. And then regarding Digital & Web, perhaps one word regarded corrugated. You did not mention this. Has anything changed here? The environment is still difficult, and do you see here the necessity to adjust anything?

[Andreas Plebke, executive]

The corrugated market in and investment perspective is one of the weakest markets that we presently see. You see that predominantly that is the business which is these days run by [indiscernible] which is not yet consolidated where we have a minority share, but it presently is in this market environment, one of the weakest, driven by the...

[Stephen Kimmich, executive]

I think you know as well, the mega mergers we have by the major customers. But overall corrugated market, corrugated producers are producing less.

That's -- it's still a positive business and [indiscernible] still a great investment, but it's certainly, I would agree with Andreas' comments. It's all of our markets we address, it's the weakest at the moment. But in the midterm or even hopefully in 2025 or second half of this year, we certainly expect it to recover, but it's where we're fighting the most.

[Andreas Plebke, executive]

In the world of Digital & Web where we only make very, very small part of that, it is what I would consider the cream on the coffee. If it comes, we like to have it, but it's not largely built in because the majority is in Italy and...

[Stephen Kimmich, executive]

Okay. You do see we have -- even if it's already 1 minute past, we do have one more question in the queue, which I apologize for running over. But I think just out of politeness we would take this question from Johannes Reese from [ Apple's ] Capital. Operator would let him, that would be great.

[Operator]

Johannes Your line is live, you may go head.

[Unknown Analyst]

Only two questions. First, you're targeting with a Spotlight program [indiscernible]

[Andreas Plebke, executive]

We can't hear you.

[Stephen Kimmich, executive]

It looks like we lost you Mr. Reese.

[Andreas Plebke, executive]

Operator, can you still hear us? Operator?

[Operator]

Yes. I can sir.

[Andreas Plebke, executive]

Okay. But then it's not on our line. That's not our end. We can't hear Mr...

[Unknown Analyst]

So your plan is Sheetfed at least with Spotlight in year '26, 6% margin. But based on EUR 1.5 billion of sales, does this EUR 1.5 billion of sales, first include [ shellmark ] Maybe you have the majority? Or is it only organic flows without [ shellmark ]? And what is maybe most analysts are expecting your sales are lower. How much maybe this could affect against the bottom line? Or will you be able with Spotlight maybe a little bit more severe cost measures even to achieve higher margins without maybe growing as you have planned with the EUR 1.5 billion?

[Stephen Kimmich, executive]

I think that's a great question, Mr. Reese And so first of all, [ shellmark ] will not be consolidated before 2027. So that's not included in 2026. And I think it's probably the most important message we can give you, the 6% at EUR 1.5 billion is our target. If we achieve less sales, we will stick to our 6%. So if we only have EUR 1.4 billion or EUR 1.45 billion or EUR 1.47 billion, our target internally is 6% EBIT in 2026.

We see the path to the $1.5 billion in turnover. Of course, that depends heavily when does the market come back? Does it come back the way we hope? But it's a very important message to everybody on the call. We are not waiting on the top line to achieve profitability. We are focusing on bottom line, and we will not stop on measures until we achieve the 6%.

[Unknown Analyst]

Great, super. Second question on the Volkswagen project. Any change to the timetable? Originally, your forecast was -- it was said that through the end of the year, there will be a decision by Volkswagen your partners there to go or not to go. Now that seems maybe a first step in the right direction. But has anything changed from the timetable even with the news you heard today?

[Andreas Plebke, executive]

No.

[Unknown Analyst]

Okay. [indiscernible] still maybe a decision at the end of this year?

[Andreas Plebke, executive]

No, at the end of the year, I think we announce that we have the clarity if our machines that we have developed can bring the production data that Volkswagen likes to see. What Volkswagen does with that result and when and if they do whatever order with us, will happen according to, well, Volkswagen's timetable.

But what we said is at the end of this year, we [indiscernible] as to if our development, let's put it works in a production environment. And that time level hasn't changed. And no matter of fact that they ordered the machine is definitely not a negative sign.

[Unknown Analyst]

More [indiscernible] that you're going to test it in the production environment.

[Andreas Plebke, executive]

Yes. You could interpret that. Yes. I think we are through the questions. Then thanks to you for the discussion. We'll hopefully have another discussion in -- when will it be in mid of October or end of October?

[Unknown Executive]

Early November.

[Andreas Plebke, executive]

And hopefully, we can confirm what we have announced today. We'll work hard on this. So to all of you who haven't , have good holidays, to those of you who are in the middle of it, continue. We haven't had it yet. Thank you.

[Stephen Kimmich, executive]

Thank you very much. Bye-bye.

[Operator]

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines.