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Ladies and gentlemen, welcome to the Koenig & Bauer conference call and live webcast. [Operator Instructions] And the conference has been recorded. The presentation will be followed by a Q&A session. [Operator Instructions] The conference must not be recorded for publication or broadcast.At this time, it's my pleasure to hand over to Dr. Andreas Pleßke, CEO. Please go ahead.
Yes. Schönen guten Tag and hello to everybody for our first quarter conference. As usual, we start with Koenig & Bauer at a glance. And let me say, the first quarter was very difficult. We thought so, therefore I think we had announced it that we were facing these difficulties and all of the difficulties that we had envisaged have more or less in the region that we have anticipated also happened. And we will present the figures throughout the course of this presentation.On the other hand, some other things which we have predicted have also happened. For example, or let's say highlighting 3 things. First of all, we have said last time that we are not overly negative, but slowly turning to positive with regard to the order intake of Sheetfed, and that has happened. So the first quarter was the third quarter in a row where the order intake of Sheetfed is getting back to a, let's say, reasonable level. Not to a fantastic level, but a reasonable level. So we are on course of what we had assumed was going to happen.Secondly, as you know, the large order intake from Banknote, especially the last quarter, was also one of the reasons why we had visited. The first quarter will be difficult because we had waited for this order for quite a while. It then came shortly before Christmas. Unfortunately, if you do the special machine setup, if you have an order intake in last December until it goes through engineering and you have ordered the parts and you can really start assembling, it takes a while. So we don't see the effect of the large Banknote order until not yet in Q1. We will start to see it in Q2, and especially in the second half year. So we are quite optimistic about the further course of Banknote.And thirdly, we have further detailed program Spotlight, and we have shown more light into it of what we are working on, what we are looking at. All of these things, of course, have a very special environment in 2024 and that is called Drupa. So we still assume, because that has been the case in many Drupa's in the past, that Drupa is somewhat of an enhancer of investments, because people wait until they see the whole competition and then might make the decision which they want to make after that. So we still hope that there will be an effect afterwards. We assume that. So that's the general Koenig & Bauer at glance situation in the first quarter.If we turn to Page 3, please. The order backlog is EUR 900 million. A year ago, it was EUR 917 million. So the order backlog is not of its all-time high, which we had in the past, but it is not something which we find extremely difficult. But you have to bear in mind that, a large part of that order backlog is for Banknote and therefore the rest, let's say, still leaves something to be desired. So the top line is our ongoing main issue, also in this quarter and in the next quarter of this year. The top line, I mean, except for Banknote.The order intake is EUR 242 million in Q1. As we said, that had reasons which we had forecasted also last year when we talked about where we go. The revenue is EUR 253 million in Q1. As compared to the last quarter, it's slightly less as compared to 2 years ago. It's just about that slightly more. It is way too low, and that is also the main reason why we have this deviation in numbers. It's the top line. It isn't any other fundamental issue. It isn't a fundamental issue with our product or with the reach of the market or something like that. You can call this whole thing a top-line situation.Book-to-bill ratio at 0.96% is, I think, neither unsatisfactory nor satisfactory. It is what it is. It's a reasonable number in the machine business. And the EBIT of minus EUR 10 million, we had anticipated a not-good EBIT in Q1. And Stephen will explain more how this EBIT is broken up between the 3 segments that we have.If we turn to Page 4, Spotlight. Spotlight is a group of issues, as we have highlighted in the last meetings. And this group of issues which we have has been focused more now on especially 2 individual projects and the third one. The 2 individual projects that we now have absolutely in the focus is called Digital & Web 2.0 and Banknote Solutions X.I will come to that on the next page on Digital & Web 2.0. Stephen Cummings will explain Banknote Solutions X because we also had the shift over of responsibilities between myself and Stephen in the first quarter.I will take over the responsibility for Digital & Web, especially for the Digital & Web 2.0 program. Of course, what we always do in a situation of a weakness of the top line, we have a very, let's say, clear look at if our holding costs are suitable for the top line that we have. And they are not. So we also look at some measures which regard our indirect costs level.If you turn 1 Page over to Digital & Web 2.0, what are we having in Digital & Web 2.0? We are having quite a complex situation. We have good new products in good new markets. So we have all the, let's say, inkjet products which we have in the RotaJET and in the HP world, which are fundamentally good products. The market accepts them. We have nice margins with them.We are starting, let's say, a second attempt after we relocated with a new set of improved Flexo machines. We have the old world, which we call the service for the whole install base of newspaper machines and the occasional new newspaper machine, which is not important, but occasionally it happens and then it's nice to have.So we have these 3 segments. What we are doing is, and what we've done in the first quarter, is first of all eliminating the problems which we had announced in the past. That is the so-called trailing costs and startup costs or not a lot costs in Germany. So we've been working on that. And we are going in the right direction. So the majority of contracts or machines which we have out in the field, which were causing these trailing costs, have now been finally accepted by the customers. Not all of them, but the majority of them. So we are making progress there. We probably -- also need to streamline the whole Digital & Web segment. The Digital & Web segment cannot remain as it is. It has to very much focus on these 3 big elements of where we are successful. And it has to see to it how many structures it needs to be profitable.So the turnaround of Digital & Web from the disastrous minus EUR 20-something million of last year to a very reasonable number next year and the intermediate year of this year is the core of Digital & Web 2.0. And it is a structural change. And therefore I think that is one of the reasons why I also took over the responsibility for that, to bring this in the right direction. So that will not be a program which drags on for 3 or 4 years. It will be something which we'll do this year. And we'll hopefully harvest the results step-by-step over the next year.My colleague Christoph, who is absolutely the face of the market and knows all the customers, has built up this new portfolio of nice products. That was all he's doing. He will concentrate very much on the top line. And I think that is excellent, because we have a goal here. And we also hope we have another goal, a higher goal rate after Drupa. And that is the main effort. So we have more or less split our responsibilities. I'm a bit of a minister for Interior and he's the minister for Exterior. And that's how we will go about.All-in-all, it will be something which will keep us extremely busy this year. As you can imagine, this kind of new structuring of a whole segment in this book takes a lot of daily attention. And that is one of the other reasons why we think it is better done with 2 of us, and 1 being responsible for the program, the other being responsible for the top line.So that's where we stand with Digital & Web 2.0. And BNSx is another project which we focus on, which will now be introduced by Stephen Kimmich, who has taken over that responsibility since April 1.
Thank you very much. And also good morning, good afternoon from my side as well. Before I present you the figures later, also a couple of insights into Spotlight from my side. So as already explained from Andreas Plebke, he's going to be spending a lot of his time with the Digital & Web 2.0 project and the structural changes there. And in order to balance the responsibilities at the group level, I've taken over the full responsibility from Special from Andreas.And therefore, since April 1, it's now in my responsibility. We've spent the last few months not just outlining all of Spotlight, but really detailing what do we want to achieve within Special, particularly within Banknote. And if you've been following Koenig & Bauer for the last several years, you know that we've had some difficult years, the last few years with some projects. It's still a great business. It's a profitable business. It's a strong performing segment. But we know that the Banknote business can be more efficient and have higher earnings.So the full -- the main target of BNSx is to return Banknote to its historical above-average profitability that we have seen in the past. This is, again, a combination of measures focusing on profitability, focusing on earnings, but also looking at the 3 locations that Banknote currently operates in. The headquarters is focused and will remain in our site in Switzerland, in Lausanne. We are going to focus the operational activities, which are currently spread between Moedling and Austria, in our plant here in Würzburg. The focus of the operational value creation will be in our plant in Austria. And Würzburg will continue support in certain specialist functions, as they have in the past with R&D and some service. But we're going to be streamlining the organization, focusing certain parts of the value stream in certain locations, and we'll use these efforts to return BNSx back to the above-average profitability we've seen in the past.It's also a project that is not going to take years. It's something we're implementing now and have started to implement. And the measures should all be implemented within this calendar year, so that the savings then we're able to enjoy in 2025 and 2026. So it's running, and you can expect to hear more about it in the coming quarters.If we move on to Page 7, just to round out the Spotlight before I hand back over to Andreas for some further comments, it's not only about Digital & Web 2.0, which is a major initiative under Andreas' leadership here in Würzburg, and BNSx under my leadership in the 3 locations. We also, as mentioned, are focusing on the group-wide projects and holding structures. If we see a weaker top line than what was previously anticipated, we have to look critically at our costs, particularly on our holding structure, where we are also identifying certain measures to have a more optimized administrative structure for the group.Those are the main focuses of Spotlight. Spotlight is, of course, designed to have a limited number of focus areas and not touch everything in the entire group and every corner of the globe. With these focus areas, we certainly think we're on the right path.So, I'll hand back over to Andreas.
Yes. Let's turn to Page 8, and a few more messages about Drupa. We talk a lot about it in our yearly accounts about harvesting and so on and so forth, but actually what we're doing here is we're now bringing to market the products into which we have already invested over the past many years.So, we will come to Drupa with new products which are marketable, which are industrialized. They are not experimental machines. They are not tryouts. They are not the first betas. They are ready to be ordered, and the main highlights that we come to Drupa with as new products will be our VariJET, the digital printing machine in the format class, where we otherwise sell the mid-format Rapida, which applications for everything which the Rapida has an application for, from Sheetfed, and the CutPRO Q and CutPRO X, which are die cutters with different technologies. One is flatbed, one is rotary, but it's basically those die cutters used for making cardboard boxes. These die cutters are new. They have a very high performance, also as compared to our main competitors, which are not weak competitors, which are strong competitors that we believe we are having very innovative and new products and they are ready to go to the market.So, a lot of that, what we have sold, we hopefully will harvest in the month after Drupa and see that we have an effect on our order intake higher than the normal year. What you see in the little picture here is, again, the complex workflow that we have. So, basically, what you can do with our equipment, and if you look at the little picture, and if you imagine that everybody in the printing industry reads things from right to left, not from left to right. It's funny, but that's how it is. That's also how machines stand in the buildings.So, if you start on the right, you make a decision with a substrate, and then you can put that substrate either in form of sheet or a web, through a digital machine, or through an offset machine, or through a flexible machine. And once it goes through there, and you have printed, let's say, for example, your box, you can then die cut it. And you can do it either with a rotary die cutter or with a flatbed die cutter. And once it is cut, the next step to make the box, it needs to go to a folder viewer to be folded and glued. And all of these 3 major steps, the printing, and the cutting, and the folding, gluing, and that irrespective what material you use, if that comes from sheet or from web, we will show that Drupa comes from printing about with one digital workflow throughout the whole process.So, it turns more from selling individual machines to selling systems, and having systems which can also give the customer the flexibility, if he has them in his factory to decide on a day-to-day level, if he lets the job run through a digital or through a non-digital printing machine. So this is one of the big messages we will bring at Drupa. So I think it's at least these 3 new major machines, which are market ready.And secondly, it is the system which we offer, and which will hopefully in the next few years show that we will sell more systems, more and more complete systems in addition to selling individual machines. That's where we are.So if we go to Page 9. If you put all of these things together, the Spotlight focus program especially Digital & Web and BNSx and what we have to do in the holding together with the Drupa, you have to package that together and scale it. So the Spotlight program obviously focuses on scaling all these activities in such a way that all these business are profitable. So to what level do we scale them? And that -- a lot of that will depend on how Drupa and the Drupa harvesting season after it, the next month will go, and what they will show to us. So, either the market comes really back to a very high level, or the market comes slowly back, we will see. And depending on what we will see at Drupa, all of these programs that we have, that we're designing now, will then put into force, scaled to the fitting top line that we see in the future.The whole -- what we're doing with all of that, and there's always a question, well, what do you gain? What's the outcome? And how much money will you make with all of these programs? And that will certainly be a question that you raise. So, before you raise the question, I'll try to answer it here. We have quite a steep target for 2026 to get 6% to 7% of EBIT, which is quite a step away from where we were in '23. And what we're not doing -- we're not moving that year along the road. We're not saying that, well, we have another difficult year for the 6% to 7%, it's shifted down the road for another year.We're still aiming to achieve that. So what we're doing here is, in all of these projects is aimed to secure that we actually make that. That we actually make that mixture of top line, which we hopefully get a push through Drupa, but even if that push is not very high, it's a bit high, then we want to achieve it with all of these measures that we have. So, in either case, it's to secure that we achieve the 6% to 7%.If I can turn back now to Stephen Kimmich to get you through the individual figures of the segments.
So, thank you very much. And now I will walk you through the figures in a little bit more detail for the next perhaps 15 minutes before we move on to Q&A.So, as already mentioned, on the top line, it's a mixed picture. So, order intake at EUR 243 million in the single quarter was obviously down versus our extremely strong Q4 2023, but also just slightly down compared to Q1 '23 and Q2 '23. So, we are still struggling on the overall group level at order intake, but across the segments, which I will show in a few slides, it gives us a slightly different picture depending on where you're looking at.As I mentioned, the Sheetfed continues to show a sequential recovery. Revenue at EUR 253 million, a weak quarter in top line at the levels we saw in Q1 of 2022 and Q2 of '22, where we also reported strong losses. Of course, it's not fun for a CFO to present losses of minus EUR 10 million, which I will show you on the next page. But at the end of the day, it wasn't surprising for us. We saw this coming. We knew that Q1 would be a weak quarter. We mentioned that already in our February or in our March press releases that the first half of the year would remain weak. We think we're managing the right topics, but overall the top line is in Q1 at a level that did not make it possible for us to generate profit.Order backlog at EUR 901 million. So the total group, a very healthy figure, only 7% down compared to the same time last year. If you compare this figure to the VDMA benchmarks, it's a fantastic result for the total group. But also here, of course, you have to look at the individual businesses, which we will talk about in a few minutes.On Page 11, you see the EBIT bridge compared to Q1 last year. At the end of the day, it's very simple to explain. It's volume and mix. We lost EUR 10 million of contribution margin, and this is what's driving the losses. It's particularly in the special segment. This is a temporary effect that we'll recover throughout the rest of the year. I will talk more about our guidance in a second. But at the end, on a P&L perspective, the only main message we have is volume was down and the drop in gross profit drove our losses in Q1. We were able to reduce functional costs or -- and have a positive margin effect in some of the products, but overall, the main message here is volume, volume, volume, which we look to recover throughout the rest of the year.If we go into more detail on Page 12 in the P&L, it's what I just mentioned. It's -- the only real spectacular figure on this is gross profit dropped from EUR 76 million to EUR 66.9 million, so a EUR 10 million drop in gross profit compared to the same period last year. But again, the main message it's all about top line and missing turnover. How that affects the 3 segments, I will show in more detail. It's also, of course, in large part from the special segment, as already mentioned by Andreas Plebke, but I will talk about that in a couple of minutes.Everything else on the page, research and development costs, distribution costs, and administrative costs are flat, which is good news. So we have high inflationary pressure over the last 12 months due to salaries and general inflation. But we also have, as mentioned in the past in this call, we also have headwind from increased depreciation as we've now moved into the depreciation of our capitalized R&D expenses. Depreciation of our capitalized SAP costs is now year on year, driving a higher P&L effect, but we were able to compensate that on the cost side, so that an overall flat development below gross profit is good news and shows that we are doing a lot on the cost side to maintain control and to reduce costs wherever possible.In other income expenses, there was a positive FX effect that helped contribute a little bit to the quarter, but otherwise in the P&L, nothing spectacular.If we move on to Page 13. On the cash flow, it's a mixed picture. We were able to significantly improve compared to prior year. In Q1, still had a negative cash flow of minus EUR 3 million. That minus EUR 3 million is mainly coming from our losses that we saw on the previous page. Net working capital still remains high at EUR 362 million. This is one of our other major focuses outside of the Spotlight, which focuses more on costs. We have parallel a very large working capital initiative ongoing to continue to reduce working capital. This is showing the comparison to prior year.If we look just at the last 3 months, our inventories at the end of December were around EUR 378 million, EUR 379 million, somewhere in that ballpark, EUR 375 million. So we're able to reduce net working capital by a double-digit figure in Q1, but simply not enough. We need to continue to work on it to generate more cash flow, but some items are clearly moving in the right direction.On Page 14, you see also the details. The main message remains consistent. We have EUR 10 million missing from our gross cash flow compared to prior year. So again, volume, volume, volume. And it's tough to compensate that with balance sheet items or net working capital items. We were able to do that in part, so EUR 5.9 million positive free cash flow from the rest of operating activities. Investments are often under tight control, so we're able to reduce them by just around 15% compared to last year.We also have a lot of pressure in the organization to continue to maintain good control on investing activities. But overall, free cash flow at minus EUR 3.2 million, still slightly negative.On the balance sheet on Page 15, there's really no major topics to mention. The main messages remain working capital, working capital, working capital. We know that we have 2 topics. One is the higher inventory levels compared to historical levels, and the second under yes -- on the liability side, that the customer down payments continued to drop over the last couple of years as order intake was declining. These are the topics we've been talking to you about for the last several quarters. Otherwise, the other balance sheet items, no major movement, no major issues in Q1 in either direction.If we move to the statements on Page 16. As always, it's a picture of 3 different stories within the company. I start today on the right with special. The special statement continues to have to enjoy a high order backlog at EUR 352 million due to the big order intake we had in Q4 last year from the bureau -- predominantly from the Bureau of Engraving and Printing in the USA. But as mentioned, these are the kind of Special projects. They have a lead time between order intake and really generating sales and profit in the P&L.So Q1, we've now ordered all of the material. We finished the engineering work. But the -- in order to generate percentage of completion revenue, that material needs to arrive. We need to start adding value to the project. That's going to accelerate throughout the rest of the year. So we're not worried about the Special statement development at all. We continue to see a very strong development throughout the rest of this calendar year from the order backlog. We had a temporary weak Q1 simply because the material and the value add was not ready in Q1, but will be ready starting in Q2. So that's Special statement. No cause for worry. But, of course, the minus EUR 5 million losses in Q1 hurt the overall group temporarily for this quarter.Digital & Web is a similar picture and we think clearly outlines the necessity for Digital & Web 2.0. That the order intake recovery or the order intake positive trend that we have seen partly in -- starting in Q4 2022. We had a weak order intake in Q1. And that this missing top line continues to result in high losses in the statement minus EUR 6 million for the single quarter. And I think there's nothing else really to say other than Digital & Web, the loss making situation, is being addressed and will be addressed going forward. And this remains one of the single most important Spotlight projects in the company.Sheetfed on the far left. First, a very positive message. We see the third quarter in sequential order intake improvement. So after the very weak Q3, there were a lot of worries internal at Koenig & Bauer, but also on the market. Will this low level of EUR 112 million continue? Worst case, perhaps, until after Drupa. So will we have 4 or 5 quarters of very weak order intake, which would at some point result in significant difficulties in the statements.We had mentioned in our calls in February and March that we saw a positive trend and expected to continue to see a positive trend. And that's exactly what happened. The EUR 172 million of order intake in Sheetfed is very good news for the Group. And the positive recovery continues. We're not -- we did not have to wait for Drupa. Customers are ordering. And as we sit here today in the call, we can also say that April -- in the month of April, that trend has not changed.So we're still have a positive outlook on the further recovery in Sheetfed, especially now looking forward to Drupa that perhaps can even enhance that recovery or accelerate the recovery. So the good news on the Sheetfed top line is perhaps one of our other main messages today that Sheetfed is on a good track going forward. And the worst seems to be behind us.Special as well, no need for concern. So we have a Sheetfed that's on the road to recovery. We have a Special that is a temporary weakness that is clearly based on the order backlog only temporary. It will have a strong full year. And that leaves our segment in the middle with Digital & Web 2.0 that has to simply be addressed with other means and other approaches. So that's the summary on the 3 segments. We're working on it, and we will continue to report throughout the rest of the year.Perhaps on Page 17, the last main message, what does this all mean? We -- despite the weak Q1, we absolutely still see ourselves on track to meet our full year guidance of between EUR 15 million and EUR 30 million of group EBIT. This is despite having EUR 10 million of Drupa expenses in our plan. And that means from an operation perspective, without these Drupa costs between EUR 25 million and EUR 40 million, this roughly sidewards movement in operations, not a particular improvement, not a particular decline. We're still actually confident that we can end the calendar year 2024 in the corridor that we had expected. So despite the some of the numbers we saw today, these were planned. We knew a lot of this was coming, and we have the measures in place now for the full year to meet our guidance.And as mentioned already from Andreas Plebke, but I will repeat it, Spotlight is our key for securing our first step goal of an EBIT margin between 6% and 7%, no later than 2026 with a group revenue of EUR 1.5 billion. Also here, we already see ourselves actually on track to meet it, but BNSx, in order to return to the higher profitability in segment specials, Digital & Web 2.0 to reduce and eventually eliminate the losses in the segment, combined with a Sheetfed that's clearly recovering, as well as a more efficient holding structure. These are the right measures and the right fields that we need to be working on. And we're convinced that we're on the right track, both short-term for our group guidance in 2024, in the next step to the 6% to 7%, and ultimately then to become an above average performing company in the mid-term.So that's all from my side. I would hand back over to the operator and we'll move on to Q&A. So thank you very much.
The first question is from Stefan Augustin with Warburg Research.
Actually, just 2 questions. The first one is going to the Web and Digital. So if I recall that correctly, like the first one is we had the issue of a missing top line issue, which you described that this is overall, again, let's say, the bigger problem. And then we had the trading costs coming from Q3 into Q4. We had the idea that there is an improvement looming inside the structure. As I recall that right, there was an outlining that the hours for each work step was better in line with the budgeted time than before.And now looking a bit in Q1, I mean, the order intake is quite low ahead of Drupa. So we probably run again into a top line issue here. At the same time, the cost structure issues are not really fixed at that point. At least that is how it looks from the outside. I know that web and digital is more than one business, so it might look different if we have more granularity. But setting that aside, what is -- where is the point of the constant negative surprise when you make the budget and the measures versus the outcome? What is the thing that loom inside here? And if I look at the program you have lined out for that the D&W 2.0 is that -- do I understand that correctly after a review of Drupa and looking at the prospects of everything, there could be a major decision in the second half when it comes forward how Digital & Web actually look like in the end. And maybe there is a decision about a project that is where you're probably maybe not the right owner or something like that?
To give you a short answer, independent of Drupa, it will have to change. Definitely. The question is how much? Will there be -- is there a possibility of a major decision after Drupa? Yes.
So you continue to screen the market at that point in time to see if, let's say, your mid-term assumptions for market volumes would be correct?
If you look fundamentally at what this company or a company does and what the problem is, which we have, then you look at the product, the right product for the market. What amount of quantity of that product can you bring into that market at what gross margin and is there a nice gross margin? And my answer would be on the majority of the products, yes, they are nice products. They can be brought in the market and they have a nice gross margin. They do all that. Most of them, I would say. The question is how many can be then put into the market in a given interval? And how much structure can we then afford, which is paid for by that gross margin to enable us to make a profit at the bottom line? So it's not so much -- the center is not. Are the products the right or the wrong ones? The center is the scaling. That is the center of it all. The products are -- I'm saying that the majority of the products, that is not the issue. It's not that they are not functioning or that they have been -- they don't find customers or they don't work or the productivity is too low or the customers that we have are dissatisfied with them. That's not the issue. At the end, it comes down to scaling and scaling comes down to realistic expectations of the turnover.
I understood that one. The next one is actually just simply on the interest lines. Interest or, let's say, your financial results have been stepping up again. Is it still fair to assume without a major change in the debt levels that I can simply quote a Q1 result?
It would be less than that. We had -- it's a good question you asked. And there was also an accounting change that was a one-off issue in Q1. The one-off time score would be unrealistic. And there it's more on the level of 3x.
The next question is come -- sorry-- comes from the line of Jorge Gonzalez with Hauck Aufhauser.
So a few ones from my side. Allow me please to do one-by-one. So the first one is regarding Drupa. Is there any cost related to Drupa already in Q1 that we should take into account it's -- at the end of the -- it's not okay. That was the first one.The second one, on regarding the last order for banknotes in Q4. You commented that we should expect it to start kicking in in the second quarter. I have 2 questions in this regard. So in how many quarters more or less, we should take into account? This is going to be extended, the effect of this order? And also, if this means that the second quarter should return to some stable year-on-year development. It would be interesting if you can elaborate a little bit on that. And well, that's my --
Understood. So I mean, the big order backlog from December from the U.S. that will be turned into revenue over the course of the next 2 years. So we would stretch partly into 2026. So it's not all going to happen this year. It's also going to affect revenue next year in 2026.The main message is that, and I think that's the heart of your question, you can expect banknotes to show a significant improvement in Q2 compared to Q1, and that by the end of the year, in our guidance, you see the comment that we expect Special to have an above-average contribution to earnings. And that is the case. So we see Special at least as strong as last year by the end of the year and actually have an over-proportionate contribution to the company.So it's -- you'll start receiving Q2. I'm not going to give you a specific quarterly guidance on how much EBIT you can expect, but Q1 was an extraordinarily low figure simply because the percentage of completion was not possible until the order starts to be executed in the plant.
And 2 more, 2 quick more. And one is also related to Special, but I would like to also link this with the net financial position of Koenig & Bauer. So last year, the net financial position at the end of the year, I think, came in above, in general, the expectations of the analysts. And I was wondering, the fact that you had in the order intake a big -- a huge order for the banknotes, how this worked in your prepayments? And how we should take this into consideration for '24, taking into account that the needs should be different for the order intake.Just it would be interesting if you can just guide us a little bit on how you expect the free cash flow to develop through the year, to understand better the final position at the end of the year? Well, if you can answer that, that would be amazing.
Sure. So, I mean, we do not guide on cash flow, so I cannot give you a figure on it, but you can expect further improvement in both net working capital and net debt position. So, this is something we're working hard on, but I do not want to quantify it today.The answer to the banknote order intake itself, we have, of course, prepayments that, from a liquidity perspective are normal and will not drive an increase in working capital as we execute the order. That is absolutely not the case, and will not impact it.The overall challenge is simply to continue to reverse our safety stock that was built up. And frankly, through order intake and top line recovery, to enable us to reduce inventories faster than what we have seen in the past.We did see -- I said, some improvement in net working capital compared to the last 3 months. We were at -- our peak was on -- if you look back to the last 6 quarters, the peak was at EUR 379 million of net working capital in -- on December 31, and that's now dropped to EUR 362 million. But if we look back just a 1 year, 1.5 years ago, we were more on the line of EUR 300 million to EUR 330 million. So, Q1 moved in the right direction, but there's still a lot of work to be done.
But it will be true that the prepayments for these orders are below the average for the rest of the machines, or not only?
No, no. No, no. Absolutely not.
Okay. And my final question is on the margins. I saw -- like I saw a very good improvement in Sheetfed. That is quite welcome. But in Digital, still there was a worsening that I imagine is related to the startup cost that you were mentioning. But it will be also interesting if you can confirm this. It is -- if this worsening is related to some project? And also on some project, I mean, if this is something that you're going to reverse for the year, and taking obviously Drupa outside of the picture?And also -- I'm most interested in the comments that Andreas did on the pass-through of some of these startup cost to clients. Can you elaborate on this? If this means that customers are going to pay for these prototypes that they are enjoying, and then reducing the losses that you are having? Or how we should understand this, please?
Let's work in the sequence backwards. I wasn't talking about start-up costs, I was talking about one-off the costs for the implementation of the first machines of a new type of the customers. So, there were more costs than we had anticipated. These --
Not pass-through.
What?
But they were not pass-through to the customer.
They are not -- they never -- of course, they were not pass-through to the customer. If they were pass-through to the customer, we wouldn't have a problem. We have to bear them. It just took us more hours, and more work, and more time to get these machines to a final acceptance than we had anticipated. That is the Mahler-Lucassen, whatever the best English word for it is, issue that we had. No, they are not pass-through to the customers. We have to bear them. We sell to the customer a functioning piece of equipment for price X, and he expects this to perform according to specification at a given date. If it doesn't do so, then we have to send our teams in there and do whatever is necessary to bring this equipment up to speed. Which I have said, we have now achieved in the first quarter with the majority of those machines that we were working on, but not the very last one of them. So, let's say on a decreasing scale, we still have that, but it's getting less and less.
The next question is from Peter Rothenaicher with Baader Bank.
Peter Rothenaicher. Gentlemen, I have a question of specification of the development at Digital & Web. Can you perhaps give us here some information which partial segments are running better and where are the currently biggest problem? So, how is demand for the RotaJET, for example, performing?
Yes, in broad terms, I can give you that. Let's say everything which has to do with corrugated is fairly weak. And that is the HP machines. With the HP machines, the industry produces so-called top liners for corrugated boards. And it is also our own core machine, the core Cut, which is called now Chroma. It's part of the Chroma family that we re-branded. That has been weak. Well, weak is understatement. It has been terrible. And that is, I think, a general situation of the industry.As I think we had published and as you may know, there are something like 5 big groups in the world, which produce corrugated cardboards, which dominate the world. And those 5 are, all 5 of them, are in the middle of a complex consolidation with 2 mergers being announced. And the third one also trying to be a buyer of one of those companies, which is another one purchased. So, there was a total stop of any business activities while that was going on. And I think, I mean, those companies, they are the usual big players. They are Smurfit, WestRock, DS Smith, International Paper and Mondi. And that was certainly affecting us. So, that was --
On that, is there -- with this consolidation, then the risk of more purchase power from their point of view and the risk of increased price pressure for you?
Not different than today. I mean, first of all, besides the big 5, there are still others around. There are customers, a few. But if we are facing 5 big guys, or in the future facing 3 big guys, each of them are in the double-digit billion figures turnover, it's a lot of illegal quality that we are facing. And that hasn't changed. It's the number 3 now instead of 5. It's basically the same thing.
Okay. Then the other partial segments?
If you look at the RotaJET, that is very well accepted. And the amount of, let's say, pipeline that we have there has nothing to do with the pipeline which we had 2 or 3 years ago. It has made its path from originally decor into all sorts of materials or combined materials of thin film or foil or paper. So, the use cases of the RotaJET are broadening. And if I look at the tests which are made in our test center here in Würzburg every single day for how many customers, it's astounding.\Also, there is a big trend, a big discussion about the packaging substrate in the future. As you may have heard, there is a discussion how viable is plastic thin film as a packaging material for the future. Many companies are working on other products which are based on fibers, not on petroleum, to package whatever from chips to whatever is built in accessible bags. And they do an enormous amount of tests on our machines. So, we are in the middle of also testing these new materials, how printable they are, how good the color is keeping on them. So, I would say the activity is high.
Okay. Then, another question, the general pricing environment. So, everywhere we are talking about strongly increasing personnel costs. Clearly, there is a hope that the increase will not be that steep anymore as over the recent 2 years. Nevertheless, to what extent are you able to pass on these higher personnel costs also via higher selling prices?
I would say it comes down to the forces of the market and the behavior of the competitors. If you are in a downswing of available orders like we were in the Sheetfed markets in Q3 and Q4 and we are slowly recovering, then, of course, the competition becomes stiffer and stiffer and stiffer and that has an effect on prices. It doesn't have that.If you have a very unique product which, well, there isn't a real competitor where the pricing is linked to the productivity and performance advantages it has for the customer's, that is not so much under pressure. So, the more you have a standard machine which comes to nearly a commodity, the more price pressure you have if the supply side, if the demand side goes down, the more it is a unique product it is.And so, that may be not a satisfactory answer to you, but we have a whole variety of products in our company as competitors who concentrate on 1 or 2 standard products. So, the standard products are under way more price pressure than, let's say, the unique products.We also see that in mid-format versus large format or in equipment which is middle-of-the-road standard 6-color offset as compared to 13 colors with perfecta and lacquering and varnishing. So, the more unique it becomes, the more stable we have our price, or let's say, the more we are able to increase the material and personnel costs to the customer. So, it's a mix, but there is also a large amount of our products which are fairly close to a standard product and that is under pressure in these quarters. Yes, it is.
But would you consider the average price and margin quality of your Sheetfed or the backlog worse than 1 year ago?
I consult with my colleague here. I would say that, there were years when the market was working the other way around. There was an enormous amount of demand and very little possibility of supply because of all sorts of disruptions in the chain of production. And in those years, we could get very good price increases very quickly. But while I'm talking, my colleague is thinking, and I hope that his thinking came to a conclusion. I cannot give you an intelligent and balanced answer on top of my head. So I hand over to the CFO.
I think it's clear -- it's clear, we're not going to give you a number on it, but I think anything else would be unrealistic. But to obviously say that, margins are under pressure, it's clear. In a downward market, margins are under pressure, but our sales team does a great job and they do everything in their power to maintain margin quality as much as possible. It's certainly gotten harder in a market downturn than it would be in a strong market. So, that's just simply a fact. Our margins are under pressure. We also -- the pressure concentrates more on the mid-size format, because I think we've talked about in the past that the large format machines are more under pressure than the mid-size format machines. Because the large format is a pure capacity expansion investment and that's happening less so that the market landscape is even more concentrated on the mid-format, which increases the pressure.So, yes, I think it's clear margins are under pressure. We think we're doing a good job to manage it and balancing getting orders in versus margin quality. But Sheetfed, at least from an order intake standpoint, is heading in the right direction. Can you expect the same profitability as last year or the year before with the product mix and the margin pressure? It's going to be a difficult 2024, but it's certainly still going to be a profitable 2024 for Sheetfed.
The only thing I have to add is, I was talking about us doing a good job when we had 6% EBIT. In between, we're fighting a war.
So I think we have to wrap-up.
Yes.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Dr. Andreas Pleßke for any closing remarks.
That's a very important message. Please, for your own information, for getting together, for getting to know more about where we're at, take a look at the invitation which you should have received for our Capital Markets Day on Drupa in Düsseldorf on the 29 of May. We would be very pleased, if you take the time and meet us there.
Thank you very much also from my side. Good afternoon.
Thank you and have a good day.
Ladies and gentlemen, the conference is now over. Thank you for your participation. You may now disconnect your lines. Goodbye.