Takkt AG

XETRA:TTK

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, ladies and gentlemen, and a warm welcome. My name is Sarah, and I'm delighted to be a host for today's earnings call of the TAKKT AG following the publication of the 9-month results 2024. TAKKT is represented today by Interim CEO, Andreas Weishaar; and CFO, Lars Bolscho, so the gentlemen will speak shortly and guide us through the presentation and the figures.

Following the presentation, we will move over to our Q&A session in which you will be allowed to place your questions via audio line or chat. And having said this, we are looking forward to the results and I hand over to you, Mr Weishaar.

[Andreas Weishaar, executive]

Thank you, Sarah. Welcome, everyone, also from my side to our earnings call for our quarter 3 financials. I had the pleasure of introducing myself already during our quarter 2 call. Today is my first earnings call in my role as Interim CEO. I'm hosting the call together with our CFO, Lars Bolscho, who will give you more details on our financials in a few moments.

Prior, I want to share with you the findings from my first 100 days and update you on actions so far. Also, I will provide a little more color on where -- on each of the divisions and the respective activities underway.

The past couple of weeks, I spent my time getting to know TAKKT in detail. I spoke to colleagues from all levels of the organization, met customers, visited many of our warehouses and facilities in Europe and the U.S., and I had the pleasure to meet and speak with many of you as well as -- and discuss our current challenges with shareholders.

In summary, and as I mentioned 3 months ago, we have a solid foundation to build on. We have an attractive and scalable business model. We market our products through well-known and very respected brands with a combined brand legacy of more than 600 years. We have a well-rounded assortment of high-quality and highly functional products, and we have a large base of loyal and long-standing customers who appreciate our product and service excellence. At the same time, we're facing substantial internal challenges. We see declining sales, not just due to weak markets but also due to internal issues.

To be more precise, our recent brand strategy changes have proven to be suboptimal and process and system migrations were not well executed, resulting in negative performance impacts. We are taking immediate and decisive actions to address these. First, we changed course. We adjusted our brand strategy and rewound Ratioform brand migration in I&P, and we stopped the commercial integration of Hubert and Central in FoodService. Both decisions follow our reinvigorated priority to put the customer at the center of everything we do.

Second, we initiated measures to improve our operational performance. We diligently execute measures to resolve our process and system challenges, improve our order intake and elevate our cash generation. Third, we strengthened our leadership team. We added new talent with deep industry and tech expertise and established a OneTeam approach with clear accountability and ownership, simplifying decision-making and accelerating execution speed.

In our last call, I referenced our internal challenges. Today, I would like to give you a detailed update on where we stand on these topics by division. First, in I&P, we operate with two major omnichannel brands in many European markets, KAISER+KRAFT for equipment products and Ratioform for packaging.

After adding our packaging assortment into the KAISER+KRAFT product range, we discontinued the use of the Ratioform brand. This was clearly a mistake that we have now rectified. We lost visibility in the market, both in online marketing after switching off the Ratioform webshop and with larger and long-standing customers after the integration of the packaging sales team into KAISER+KRAFT's organization.

In addition, the brand merger also included an integration of systems for order intake, sales and aftersales processes, which led to problems with service quality. Basically, we were not well prepared to handle the requirements of packaging customers in terms of webshop functionality, customization and delivery speed in the existing KAISER+KRAFT systems. This led to a lot of manual steps and did temporarily increase our backlog for important processes, negatively impacting our customers' experience.

We've made a lot of progress in improving these topics in quarter 3. We reactivated Ratioform as a specific sales brand for packaging products. We returned to trade fairs for packaging products and improved visibility for Ratioform with the customers and suppliers. This approach is supported by targeted activities to win back packaging customers, including promotions and visits by our sales reps. And we're bringing down our service backlog by adding staff while fixing systems and processes. We made good progress already, but especially the processes and system topics will require some time to be fully resolved.

Next, let's have a look at our OF&D division. You might have seen that we have had negative growth over the course of the year and the lowest growth rate among our three divisions in quarter 3. There are two reasons for this in my view. First, we had changed our marketing approach towards a more brand-centric one and relied too much on online channels. This led to fewer customer touch points and less leads and orders. We now have returned to a more product-oriented marketing approach and a better balanced mix between online and omnichannel marketing activities. We expect this to help improve our division's top line step by step.

Second, one of our larger suppliers recently relocated his manufacturing operations. This meant that in quarter 3, we had to recertify products to be eligible for government customers during which time we experienced assortment gaps when selling products to these customers. We now secured GSA eligibility and are improving our go-to-market approach.

Looking at FoodService, we are encouraged by the meaningful performance improvement seen in the third quarter versus the second quarter. The actions taken by the team to address our internal challenges clearly had a positive contribution. Our quarter 2 performance was negatively impacted by the start of commercial integration of back-end systems and functions at Hubert and Central. Specifically, there are three topics that have an impact here.

First, the flawed ERP migration that we already talked about in detail. Here, we made good progress during quarter 3 and solved all major issues. Systems and processes are running, in some cases, with workarounds introduced. Speed and performance are thus not yet where we would like it to be. Now we're restoring the full system capabilities, also adding automation to achieve targeted performance levels.

Second, the reduced efficiency and capacity of our sales call center. Efficiency was a result of the lower system performance. Capacity was and to some extent still is impacted by some vacancies among our call center team because of the previously intended commercial integration. As we upgrade system performance and continue to fill vacancies in the team, we expect the sales channel to improve results going forward.

Third, a much reduced level of big contract orders. These are typically large orders for equipment to fit out new canteens or restaurant kitchens. There were some changes in the project team in early 2024 that had an impact on our business. We have now reactivated and strengthened the team. We put specific focus on converting our existing order backlog from big contracts into sales. This helps us to generate additional cash flow and reduce inventories.

Thus, overall, the team has done a great job these past 3 months, correcting brand strategies and resolving operational issues, yet there's still more work ahead of us. For me, our current situation holds also an opportunity. Measures to improve our business performance are clearly within our control. We have clear plans and are executing diligently. I see good initial progress and consider us well underway to again serving our great customers the way they can expect from us.

Before I hand over to Lars for a more detailed look at the financials, let me share my view on key developments and performance in quarter 3. As you all know, the market environment remains stagnant overall with a negative trend over the course of the year in Europe, especially in Germany, and to a lesser degree in the U.S., the economy of which we see comparatively in a better shape. Across divisions, we experienced a lower demand level from our customers. Looking at our own performance, it is still impacted by internal issues despite initiated measures gaining tractions and problems being solved one by one.

On Q3 sales, we remain significantly below prior year at minus 14%, but see a significant improvement compared to quarter 2 of almost 5 percentage points. We attribute this to the positive impact of our order intake measures and commercial actions as well as our backlog reduction efforts. And as we have mentioned in our quarter 2 call, we are now running versus a lower base in the prior year in quarter 3.

On quarter 3 profitability, we saw an even stronger improvement compared to quarter 2. We see the impact of our ongoing cost management efforts continuing to deliver results. That said, our current profitability is well below our ambition. We remain very cash strong and very solid from a business perspective. Our free cash flow in the first 9 months benefited from inventory reductions and payment term improvements, developing much more stable than EBITDA. Our equity ratio remains high with 59%, close to the upper end of our target range of 30% to 60%.

Looking ahead, I'm sure you saw that we have adjusted our profitability guidance for 2024 this Tuesday. This is due to our conscious decision to accelerate our turnaround in quarter 4 and ensure the right balance between cost management and cash on the one hand and investments into growth, processes and systems on the other. More on that when I present the outlook and our priorities going forward.

And with that, over to Lars for our financials.

[Lars Bolscho, executive]

Thank you, Andreas, and welcome from my side as well. Let's have a closer look at the financials of last quarter now followed by the first 9 months. First for TAKKT Group and afterwards, we will go through the development of our divisions. So starting with TAKKT Group on the third quarter and top line. At sales, we were at EUR 269.0 million after EUR 313.4 million last year in that quarter. And with that, we have an organic growth, so growth adjusted for currency impact of minus 14.1%. As Andreas has mentioned, this is an important improvement compared to the second quarter, where we had a minus 19% sales growth. The improvement is supported by our internal measures that gained traction in Q3, including our focus to reduce our order backlog, especially at our division FoodService.

In addition, we are also comparing versus a weaker comparison base last year. At I&P and FoodServices, we still see negative impact from our internal challenges that Andreas has talked about but still a visible improvement in those two divisions compared to the second quarter.

Our division Office Furniture & Displays showed a negative trend in Q3. A weaker government business was affecting sales development at this division, both due to the issues from our supplier and the eligibility of their products for the government program and also due to an overall more subdued government spending in connection with the discussion about potential shutdown at the end of the budget year in the U.S. And while our sales performance was clearly impacted by our internal topics, in addition, we were still operating in a difficult market environment, especially in Europe and in Germany.

Let's continue with profit development in the third quarter. Reported EBITDA was at EUR 20.5 million after a EUR 30.2 million last year. Looking at the drivers for this significant profit decrease, by far, the biggest negative impact here is the negative sales development. We are losing EUR 17.7 million in gross profit from the lower sales volume. Gross profit margin does not play a big role in this quarter. We lose an additional EUR 1 million from the somewhat lower gross profit margin of 39.6% compared to 39.9% in the third quarter last year.

This is mostly due to our division Office Furniture & Displays, where we returned to a more sustainable gross profit margin level after a very high margin last year. We had talked about this in our previous calls. And we were also benefiting in gross margin from some nonrecurring margin adjustment impact out of our activities at FoodServices to close large projects. This was a benefit on group level in the third quarter of around 0.8 percentage points. We then were able to achieve good cost compensation in our personnel costs, both due to our personnel reductions during this year, but also due to lower bonus levels and releases of bonus provisions.

In total, cost savings of EUR 8.4 million versus the third quarter last year. The release of provisions is nonrecurring and at a level of around EUR 1 million. On marketing and other costs, we also saw good savings of EUR 4.2 million in total. In marketing, we are adjusting our marketing costs to lower demand in the market. And in other costs, we have also been very active in cost management. Also here, some nonrecurring benefits out of neutral profits this quarter in the area of EUR 0.7 million impact.

Onetime costs were at EUR 3.6 million this year, mostly due to adjustments in our personnel structure, last year netted out to 0. Our adjusted EBITDA margin with this was 9.0%, so still below prior year, which was at 9.7% and as I explained, with some nonrecurring items. Anyhow, a significant improvement compared to Q2, where we were reporting an EBITDA margin adjusted of 6.6%.

Looking at the first 9 months of the group now, I can keep it a bit shorter since most of the developments have the same background as already shared for Q3. On sales, we achieved EUR 798.4 million compared to EUR 954.5 million 1 year ago. Organic growth with that was at minus 16.5%, so significantly impacted by the internal challenges we see in our three divisions and in addition by the weak market we are operating in. For the first 9 months, the sales decrease at Industrial & Packaging was less negative than at our U.S. activities of Furniture & Displays and FoodServices. Anyhow, all divisions were down double digit.

On profit, reported EBITDA for the first 9 month is at EUR 50.4 million after EUR 87.3 million in 2023. Looking at the impact of the lower top line, we see this resulting in a decline of absolute gross profit of more than EUR 60 million. We then see a positive impact from a slight increase in our gross profit margin being for the first 9 month at 40.2%, bringing a positive impact here of EUR 3.2 million.

You have seen that this was a slight negative delta in Q3, which is fine for us as we are okay with a slight negative trend in the gross margin over the course of this year as we have, for example, Office Furniture & Displays on a more normalized margin level again and as we also push for reduction of overstocked inventories, with some additional rebates as part of our cash program.

Going further in the bridge, we see also year-to-date good impact from our cost management with a reduction of EUR 17 million in personnel and EUR 14 million in marketing and others. Before one-offs, we are able to compensate for more than half of the sales impact on EBITDA, which is a good cost compensation rate for us. Onetime costs were at EUR 10.8 million this year, so EUR 8.4 million higher than prior year. With this, adjusted EBITDA margin came in with 7.7%, down from 9.4% last year. So despite the cost compensation in absolute euro, we see a lower profitability due to the weak top line and our internal challenges. And with this, the profit and also profitability level is clearly below our own ambition.

Coming to our divisions now, starting with Industrial & Packaging. Looking at Industrial & Packaging and at important developments with a focus first on Q3, but also I will mention impact for the full 9-month. On sales, we see continued negative impact of the market environment here at I&P, clearly, the division of the most challenging environment currently due to the weakness in European and German manufacturing. And as Andreas has mentioned, we also see a significant impact from the internal topics resulting from the temporary discontinuation of our Ratioform brand.

At the same time, despite a negative trend in the environment, for example, in PMI development, we have seen some improvement in top line growth in Q3 compared to the first and also to the second quarter, driven by internal improvement measures and the targeted reduction of order backlog, and also here, we are benefiting from a lower comparison base versus last year. As a result, organic growth was at minus 11.8% in Q3 and minus 14.1% in the first 9 month, not where we would like it to be but heading into the right direction.

Looking at profit now, we've seen a good development on gross profit margin with an increase over prior year in Q3 as well as in the first 9 months. Then looking at costs, we realized an increased level of savings from our cost management measures over the course of the year, so a more substantial impact in Q3 compared to the first 9 month, with personnel, marketing and other costs being managed down successfully and clearly below prior year.

In addition, we also at I&P have seen some nonrecurring impacts such as bonus impacts and the mentioned neutral profits. Overall, still a clear decline of absolute profit to EUR 15.6 million in Q3 and EUR 48.7 million for the first 9 month. Onetime costs were at EUR 1.8 million in the third quarter and at EUR 5.1 million after the first 9 month and with that significantly higher than last year. Anyhow, the good cost compensation and gross profit margin being above prior year in Q3 allowed us to even improve our adjusted EBITDA margin compared to the previous year to 12.3% after 12.0% last year. So a very nice development in profitability in light of the weak top line. But also one that we don't necessarily expect to repeat in Q4 since there were some positive nonrecurring influences this quarter.

Let's come now to our division Office Furniture & Displays and start with sales development here again. We are significantly below prior year here with an organic minus 20.1% in Q3 and a minus 18.2% in the first 9 month. And we also saw a negative top line trend here over the course of the year. Andreas has already talked about the situation of our NBF activities in detail. So just to repeat, we see a negative impact from a changed marketing approach and positioning of the brand. And now in Q3, an additional headwind from the issues at our supplier that led besides the uncertainties around potential government shutdown to lower government sales.

And Displays2go, the second brand in this division, we've already talked about that in the past. We also see a challenging situation that is due to an assortment that's in relatively low demand and that we are updating to being more digital step by step. So Displays2go was also down double digits, a bit better than NBF, but not by much.

On profit, we've had very high gross profit margins here at OF&D last year and also beginning of this year as we were benefiting from not passing on decreases in freight costs to our customers. And I think you could say that with a level of almost 47% gross margin in Q3 last year, this was an unsustainable margin for the long run. So we consciously adjusted to a more sustainable level at now 43.4% in Q3 this year to become more competitive on that side again.

On costs, we have adjusted our spending on personnel and marketing and other costs, but still see a slight increase in cost ratios due to the clear sales drop. And with this, absolute profit is going down significantly to EUR 5.3 million in Q3 and EUR 12.5 million for the first 9 month. Onetime costs were at EUR 0.2 million in Q3 and at EUR 1.4 million in the first 9 month. So on adjusted EBITDA margin, we saw a significant decline now in Q3 from a 13.6% last year to a 9.3% this year. Biggest impact here outside of this low sales volume is the mentioned lower gross profit margin.

And to wrap up our divisions, let's now look at our division FoodService and again, first at sales development. Andreas has already highlighted the improvement that we saw in Q3 compared to Q2. From a minus 28% in sales in Q2 to a minus 13% in Q3, so a very strong increase of 15 percentage points. This is far from where we want it to be, but it shows that our efforts have significant positive effects on our performance and that we have to continue on this path and now take the next steps.

Even if lower prior year base helps here, drivers behind the improvement in top line are definitely our measures to fix the most urgent data and process issues after the ERP migration, but also rebuilding our outbound sales team even if we still see negative impacts out of those challenges also in Q3. And we also benefited from our efforts to reduce our order backlog that to a large part in FoodService consists of large project orders. We have achieved good progress here in Q3 and we'll continue to push for that also in Q4.

Looking at profit. Gross profit margin was on prior year's level in Q3, which is significantly better compared to the weak Q2. As already explained, we benefited from some gross margin adjustments out of a larger project closed in Q3. For the first 9 month, we are still below prior year gross margin due to the very low margin quarter in the second quarter.

On costs, it's a bit of a mixed picture here with FoodService due to the difficult situation in Q2 and our measures to resolve the situation causing some costs. We have managed down personnel costs successfully. Marketing spend is also down year-to-date, but more stable in the third quarter. And in other costs, we are even slightly above prior year due to the topics mentioned above. Onetime costs didn't play much of a role here in division FoodService this or last year. In absolute EBITDA, this leads to reported EUR 3.6 million in Q3 and EUR 2.7 million in the first 9 month.

On adjusted profitability, we have achieved a strong increase compared to the second quarter being now in third quarter at 5.6%. You might remember, second quarter, we had to report negative absolute profit development. So good direction, but obviously, we are still far below an EBITDA margin that we want to achieve with our FoodService business.

Now let's look at cash flow for TAKKT in total, where we continue to see a much better development than on profit and better than on EBITDA. The cash flow before change of net working capital was clearly below prior year. This is driven by lower sales and the comparatively low profit level. For the first 9 month, we released EUR 15.2 million of net working capital. The improvement came mainly out of inventory reductions and improvements in payment terms with our suppliers. We had already highlighted our efforts here in the last calls, and I'm quite happy that we see structural improvements becoming visible step-by-step in our cash conversion cycle. And at the same time, I am convinced that there's still a lot of additional potential for us to unlock in the future.

CapEx was EUR 2 million below prior year in the first 9 month with EUR 9 million. Here, as expected, we already saw a bit more CapEx in the third quarter than in the first two. And this will continue as we continue to invest into growth and with that into the improvements we need to make to support order intake and sales. Overall, we confirm our range of CapEx ratio for 2024 between 1% and 2% of sales.

Lease liabilities remained very similar to last year. And with that, we generated a free cash flow of EUR 36.5 million in the first 9 month. This is below the EUR 50 million from last year, but still, we were able to keep cash generation much more stable than EBITDA, which is a nice success for us so far and that's what we are working on to continue in the remainder of the year.

And finally, let's look at our balance sheet. We saw an increase in financial liabilities compared to end of last year to now EUR 138.7 million despite the solid cash generation I've just showed. The reason is that we have done our dividend payment of EUR 64 million in May and also share buybacks of around EUR 7 million in the first 9 month. Since the dividend payment in May, we are then reducing afterwards financial liabilities and will continue to do so until year-end.

Lease liabilities being part of the net financial liabilities were pretty much unchanged at a level of EUR 55.5 million. This resulted in an equity ratio of 59.1%, a bit lower than at year-end, but still at the upper end of our target range of 30% to 60%. So we continue to have a very strong and very solid balance sheet.

I've talked about the increased impairment risk already in our last call in July and I still want to give you a quick heads up about the risk we are seeing. As you could see today in our numbers, we are facing a weak top line and earnings development at several of our businesses this year. This is true for FoodService, but also for our other activities.

We are now working on updated multiyear plans based on current development, additional measures to take and our expectations for the future. And there is an increased risk that goodwill impairments will be necessary as a result of these plans and potential changes in valuation parameters. As you all know, goodwill impairment would not have any impact on cash flow or EBITDA but would substantially change P&L lines below that. So as a consequence, we could see significant negative impact on EBIT and also net profit for 2024.

Looking at our balance sheet, this will remain very strong even in the case of an impairment, our equity ratio would not be impacted too much and would stay in the upper range of the target corridor. Before I hand back to Andreas for our outlook, let me summarize our financial performance in Q3 and also in the first 9 month this year. We are operating in a challenging market environment. In addition, we also see the significant impact from our internal challenges. This is where we focus on and where we are seeing improvements. Anyhow, a weak top line remains our challenge for 2024. And despite generating the expected impact in cost management, we remain at low profit levels.

We have seen the third quarter improving versus our second quarter in profitability, which is good with all the effort we have put into improving on sales and also profit, and we clearly can see the link to our initiated measures. Some of this positive P&L impact is potentially nonrecurring, for example, the release of bonus accruals. Anyhow, good to have this impact in the P&L. We just need to be a bit cautious to expect the same magnitude in the fourth quarter.

And last but not least, we are able to continue the path of compensating towards cash flow through reduction of working capital, which helps us a lot to keep our solid balance sheet enables us to continue with our attractive capital allocation.

And with this, over to Andreas for the outlook.

[Andreas Weishaar, executive]

Thank you, Lars. Before I talk about expectations, priorities and our financial guidance, let me outline what has changed between July and today. When we adjusted our outlook in July, we were aware of the weak market condition and the key internal operational issues at FoodServices and I&P. As mentioned, we're making good progress in resolving our brand strategy and internal operational issues for both of these divisions, but are still experiencing an impact on our quarter 3 and current business performance.

In addition, we identified topics in our OF&D division, partly more long-term challenges with the ineffective brand positioning and partly more short term with the assortment gaps. We continue to see positive effects of the measures we have initiated and implemented in recent months. It will, however, take some time for these to show the full impact on our financial performance.

Most likely, the internal topics will continue to have a negative influence into 2025 and we saw much less of an upswing in our order intake per working day since September than in our previous year. This may, to some extent, be related to weak markets, but most likely also to our internal issues that we have -- that have an impact on sales efficiency and customer satisfaction.

Let's look at expectations for the remainder of the year. The market environment is challenging and we don't expect this to change. The news flow on some of our customer industries, such as the manufacturing and automotive sector, specifically, is still quite negative. Our focus remains on addressing our internal issues and the impact these have on our performance. Starting into October, we're seeing some positive signs at I&P and continued progress at our U.S. activities, yet overall order intake uplift is limited so far.

And looking at quarter 4, while we will continue to reduce backlog, we expect to see a lower contribution than in quarter 3 and we do not expect to see the repeat of the positive uplift from nonrecurring effects as for example from lower variable pay. We will stay focused on resolving our internal challenges in all three divisions. We made progress here in quarter 3 and need to continue to do so in quarter 4.

Therefore, we took the decision to keep the right balance between short-term cost and cash flow improvements on the one hand and investments into growth, system and processes on the other hand. This means we will not go for purely temporary and unsustainable earning measures. I really want to highlight this point. I think that in many organizations, management would decide on a complete spending stop irrespective of negative consequences for the business. In our case, and we have seen some of this in prior years, it would include, among other things, a drastic reduction of online marketing spend and the delay of catalog and advertising print.

In addition, we could have stopped improvements of processes and systems across the group or decided on freezing the rebuild of our sales teams in FoodService and Packaging. While this would have allowed us to achieve an adjusted EBITDA margin towards the lower end of our previous guidance range, it would have negatively impacted our turnaround progress and our start into 2025.

So we are convinced that we took the right decision for all our stakeholders by continuing our turnaround efforts and adjusting our profitability guidance for this year. This does not mean we don't continue to manage costs and cash, quite the opposite. But we will do so keeping the right balance between cost and cash management and investments in our growth, systems and processes.

For the full year, we're expecting a top line development within the lower end of our guidance range of minus 15% to minus 17%. For quarter 4, this implies a very similar development as in the first 9 months. The weaker top line and our decision to keep the right balance between cost management and growth and improvement investments will impact our quarter 4 profitability. For the full year, we expect to see an adjusted EBITDA margin between 6.3% and 7.1%. Onetime expenses should come in between EUR 15 million and EUR 20 million due to continued structural adjustments and some external support to resolve internal challenges.

We will also continue to improve our cash conversion. In quarter 4, we will focus on processing larger project orders at FoodService and sell down slow movers from our inventory. This will help us to generate additional cash flow in the coming months, further reduce net working capital. We remain committed to generate free cash flow that develops significantly more stable than EBITDA.

Before we come to the Q&A, let me briefly outline what our short-term focus areas and our midterm priorities are for the next 100 days and beyond, so to say. We continue to actively add to order intake with several activities to respond to market dynamics and win back customers. We diligently execute process and system improvements to overcome internal issues, and we persistently realize cost and cash efficiency potentials and simplify our business and processes.

Looking ahead at our midterm priorities, we will work on extending customer touch points with our omnichannel approach, so both online and offline, and with that, build up and strengthen our house of brands and upgrade our assortment. We will prioritize improving and strengthening our end-to-end customer processes and systems, for example, by training our teams and by leveraging AI and other technologies. And we have initiated a strategy review to analyze and potentially adapt our market positioning and growth initiatives. We will share our results towards the end of quarter 1 2025. The team and I are very much looking forward to that.

And with this, we're happy to take your questions. Over to the operator for the Q&A.

[Operator]

Thank you so much, Andreas and Lars, for your presentation and the deep dive into your third quarter and first 9 month 2024. [Operator Instructions] And in the meantime, we have received the first lift your hand by [ Andreas Deeds ] so you should be able to speak now. Unfortunately, we cannot hear you, [ Mr. Deeds. ]

Meantime, we will move on with another participant. So Christian Bruns.

[Christian Bruns, analyst]

I hope so. Can you hear me?

[Operator]

Absolutely.

[Christian Bruns, analyst]

Okay. Thanks, Sarah. Thanks for the presentation, Andreas and Lars. And I have -- maybe firstly, my most important question. I mean you are doing a strategic review until Q1, and you did already a lot of, I would say, bold measures, yes, with rewinding some strategic things. So can you do that as an interim CEO? I mean, I think -- is this process still not ended? Or because I think it's also important for the team to have -- to know who is the leadership team, especially if you do such big steps?

[Andreas Weishaar, executive]

Thank you, Christian, for your question. Obviously, I and the executive leadership team are working in closest collaboration with our Board of Directors when it comes to developing our long-term strategy. As I mentioned as part of the quarter 2 call, the mandate I have as interim CEO is related to the short and midterm as well as long-term development for TAKKT, which I take very seriously and take the appropriate measures as you mentioned also in your initial remarks. The process for the final CEO, a permanent CEO, selection is underway. And as we outlined in our last earnings call, the Board of Directors is taking this as seriously as they should. So as far as timing is concerned, there's not much more I can say other than that I continue to be a part of this process.

[Christian Bruns, analyst]

Okay. I can understand that you are not -- I should have raised this question to [indiscernible], not to you, but -- or to the Supervisory Board, of course.

[Andreas Weishaar, executive]

Yes.

[Christian Bruns, analyst]

Maybe a question for Lars. You talked also about the further release of net working capital or inventories, old stuff, I would say, which we can also expect for Q4. By what figure this could impact free cash flow? Is it so significant that it could make up the gap in your free cash flow generation? Or is it a lower figure?

[Lars Bolscho, executive]

Yes. So thank you for that question. So definitely, when we achieve what we want to achieve in the fourth quarter, we will still be in free cash flow below prior year. Why that? You might remember, looking back into last year, we started being very actively on net working capital management mid of 2023 and then had quite a big impact out of that in the third and also in the fourth quarter last year.

So we will not be able with the lower profit volume, we will -- or profit level we will now have in Q4 to compensate for that and being above prior year. Anyhow, what we have also guided and what our ambition is that we can compensate a good portion of the lower profit level in cash flow through net working capital and that's something we are driving. And that's also which we will drive in Q4 and where we expect good impact out of that. So in total, cash flow development will be significantly better than profit or EBITDA development, but still below prior year.

[Operator]

Thank you so much for your questions, Christian. So it seems everything is clear so far. We have no further questions. So at this point, just a quick reminder, if there's still open topics you would like to ask to Andreas and Lars, do not hesitate to ask your questions. And by now, we will move back to Christian. So it seems he has some follow-up questions.

[Christian Bruns, analyst]

I mean I take just the opportunity if there's no one else. In Office Furniture & Displays, I think there was really a weak quarter. You talked about the -- of course, you talked about gross margin at NBF and also assortment issues. Could you give a little bit more detail on this? I still -- I'm not sure if I really understand what's going on there currently?

[Lars Bolscho, executive]

Thank you, Christian. Yes, we're talking about two topics here, right, as we mentioned, one more longer term and internal and one more short term and more of an external topic. To start with the longer term one, right? NBF has made a shift in their marketing approach earlier this year in quarter 1. This implied a more brand-focused marketing that focused on putting the NBF brand at the center of our marketing activities. And it also includes more of a concentration on transactional online marketing instead of the multichannel approach. This has led to a decline of quality leads and also resulted in a lower number of orders. We have reverted this and returned to a more balanced omnichannel approach that also includes, for example, printed advertising. And we focus more on marketing the product solutions we offer and that we're selling now. We already see positive developments in some of the leading indicators where we're looking at. For example, we see much more customer touch points and interactions.

The second topic is that one of our larger suppliers relocated his manufacturing operations. This meant that products had to be recertified to be eligible for government orders. This took longer than expected and missed -- implied that we missed some sales in quarter 1. Clearly, this wasn't well managed. We have now secured the approval. So this issue has been solved.

[Operator]

Thank you so much, Christian, for your question. So in the meantime, we have received no further questions. So everything appears to be answered by now. Should further questions arise at a later time, ladies and gentlemen, please contact Investor Relations and that means we will come to the end of today's earnings call. Thank you, everyone, for your shown interest in TAKKT and for joining. And a big thank you also to you, Andreas and Lars, for your time and the presentation. So from my side, I wish you all a lovely remaining week and hand back to Andreas for the last final sentence.

[Andreas Weishaar, executive]

Thank you, Sarah. Thank you, everyone, for your continued interest in TAKKT. We look forward to speaking to you again latest on -- during our quarter 4 earnings call, which is on February 13, 2025, if not sooner. Thank you and have a lovely day.