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Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome, and thank you for joining the
Koenig & Bauer AG's Investors and Analyst Call on the first half year and Q2 2023 results. Throughout today's recorded presentation, [Operator Instructions]. It is my pleasure, and I would now like to turn the conference over to Dr. Andres Pleßke, CEO. Please go ahead, sir.
Good afternoon to everybody. And today, we present the first half year figures shortly before we go into the summer break. So let's start Koenig & Bauer at a glance. The business performance of the first half year was satisfactory. Our half year results will be presented in detail by Stephen Kimmich as usual.
We had a continuing high inflationary pressure, but the inflation rate goes slowly down. We have the interest rates which go up. We have material supply, which is substantially better. So all in all, there was an improvement in the first half year, but we're not out in the blue yet.
We have benefited in several ways from the growth market corrugated. I'll come to that later. And we entered the partnership with Huber Group about colors and a strategic partnership with -- for certain machine types in the banknote industry. And after the [indiscernible], we would like to give you a short summary about our cooperation agreement with Volkswagen on sustainable battery production, which we also signed in the first half year.
We had, in the first half year, the highest half year revenue for a very long time amounting to EUR 596 million. An EBIT of minus 5%, which is an improvement of about EUR 8 million compared to the first half year of the year before. Sheetfed and Digital have a double-digit revenue growth. Digital & Web fed has indeed a high order intake.
The cumulative order intake in the first half year of EUR 552 million is at the expected level, we have announced for many quarters now that after the enormous increase in order intake, we expect a certain reduction of order increase over the next quarters. And that amounts now to the book-to-bill ratio of 0.9% despite our sales increases. These figures have been expected, not built in our business model and guidance.
The forecast of 2023, we keep as it is with a group revenue of EUR 1.3 million and an EBIT margin of around 3%. The medium-term planning around EUR 1.8 billion with an EBIT margin of EUR 8 million to EUR 9 million. And as an intermediate goal and revenue of EUR 1.5 billion and an EBIT margin of EUR 6 million to EUR 7 million as in 2025. There is nothing new on that.
If we turn one page further, you see in the 4 boxes what I just described in words, the order backlog, which went from Q1 '22 of EUR 800-something million over EUR 1 billion and has now returned to still a little bit under EUR 1 billion, but still fairly high. The order intake, which is 26% down as compared to the incredibly high quarter Q1 '22.
On the top-right box, you see the revenue of the second quarter compared to a row of second quarters over the last 9 years. And you see that the performance in revenue in the second quarter is quite good. The book-to-bill ratio, which is at the left-bottom box was extremely high over the period of Q1 '22 until Q3 '22 and is now swinging at about 0.9% in the second quarter of '23. It was 0.8%, but then intermediate would be 0.9%.
We still have a satisfactory order intake, but it is not at the very high levels, which we had 1 year before as we had already expected. The EBIT -- you see the EBIT distribution over the 4 quarters of '22 in the lower-right box, which went from minus 8, minus 5 onwards for the next quarters. This year, we went from minus 3 and minus 2. That is the accumulated improvement of EUR 8 million.
We still have what we internally always call a bit of a Christmas tree, that means a large amount of our EBIT will be made in the second half year. But if you look at it in a nutshell, we are forecasting in our guidance as we improve from EUR 22 million EBIT last year to approximately 3% EBIT this year, which would be EUR 39 million.
That difference is about EUR 17 million. In the first half year, we have achieved the first half of this EBIT improvement of a EUR 8 million. So if we continue to work as we are, we'll achieve the second EUR 8 million in the next half year. And therefore, we stay with our guidance. That was the overview in a nutshell. I hand -- as you now go to a few highlights.
There are a few pages, which I will go over quickly. Corrugated. Corrugated has really taken off in the first half year. What you see here is 4 large customers of ours. All of these customers are in the range between EUR 7 billion and EUR 20 billion or EUR 22 million of turnover large customers. They have a very big increase of their own revenue, and that's where the order intake pipeline comes from.
Next page, please. These are some machines which we have sold in the first half year between us and Koenig & Bauer [indiscernible]. The good thing what you see here is that we have large customers, which now buy the second or third machine, which means that these machines, which they have purchased as number one, have proven in -- technically in quality and an improvement in their business models.
The total order backlog of the Corrugated world that we have here is 33 presses. 10 presses are the Chroma Xpro series. If you compare us to figures which we have the year before, that is a very steep increase of where we stand with Corrugated. One page further, please.
Corrugated is not only directly printed corrugated, but this is also what we would call preprint where a normal sheet of paper is printed and then later laminated on the corrugated cardboad -- on the corrugated board. We also improved our sales on this part of the corrugated world. This is an example of a particularly big investment of a single mid-sized company.
The company [indiscernible] invest EUR 36 million in a site in [indiscernible]. If you continue, please. We entered into a partnership with Huber Group about ink. Had a bit of a step where we want to participate in the future more on ink revenue and also on the combination of qualifying ink for complicated procedures.
We've been doing that for a very long time in the banknote world. We are now -- we have -- we are doing it in the digital printing world. We now moved into that also in the offset printing world. On page further. This is -- needs a bit of explanation. You usually need 6 or 7 machines to produce a banknote, out of which 4 or 5, however you qualify them, are core machines and 1 or 2 are machines where you sell 1 or 2 a year.
And there have been 2 companies in the world who are providing machines, which affects certain stripes on bank notes. We call them the [indiscernible] machine. These 2 companies were [indiscernible] us. And we entered into an agreement, under which, in the future, we will build together only one type of machine, one that will be built by [indiscernible]. Certain components will be delivered from us to [indiscernible].
We will then offer that machine as a joint Koenig & Bauer and [indiscernible] machine to our banknote customers, and we expect that we save on F&E expenses on that. And [indiscernible] will do all that for us. And we will only have, let's say, one supplier for this very unique feature in the world. So we think it is beneficial for both sides. If you put one page further, please.
The cooperation with Volkswagen has been announced after the adhoc. There have been some questions from your side -- individual questions. I would like to again try to guide you through the main points, but I believe that by now, they have been widely published, especially by Volkswagen. What we are working on is we're developing the system for so-called dry coating of electrodes.
Dry coating is the next big step in battery manufacturing. Today, there is wet coating or slurry coating. Dry coating has an enormous amount of advantages. It saves floor space, it saves massive energy cost and it saves all the poisonous substances which are in the solvent, which creates the slurry. This is something which is very experimental. There are some patterns.
There are some institutions who have developed this. And what we agreed with Volkswagen is we will develop the machine to industrialize this technology to put out quantities at a constant quality. We're in the middle of it. We have said we expect results by the end of 2024. So in the meantime -- we don't publish a lot about it.
Obviously, if we start such an endeavor, we believe it is within the scope of our know-how. And we also believe that at the end, it is a business which is -- which size is very attractive for us. So I can't say much more about that. If there any more questions, I'm happily answering them. if you move one page further. I believe now we come to the detailed figures, and I would like to hand over to Stephen Kimmich.
Thank you very much, Andreas. And I would just walk through the next few pages on the detailed financial figures starting first with the top line. The top line improvement in terms of revenue was fantastic. We have a 21% increase year-on-year. As Andreas [indiscernible] already mentioned, one of the strongest -- the strongest first half in terms of revenue that we've had in the last 10 years.
Order intake, we have been talking to you for the last many, many quarters that order intake, we're expecting to soften. We were coming from very, very high levels in Q3, Q4, Q1 '22 throughout all of 2022, and we have been expecting this to decline. And that is happening. It's not a surprise to us. The reduction of 26% in Q2 is, of course, slightly more than a softening, but still in line with what we were expecting.
The good news is that our order backlog remains very, very strong. So despite the weakness in the Q2 order intake, our order backlog remains over EUR 900 million, so EUR 906.9 million as of June 30. Also here, we have openly said to the Capital Markets that the extremely high order backlog above EUR 1 billion, we wanted to reduce it.
We expect it as we're looking forward to having a few quarters of book-to-bill under 1 because we saw that part of this higher order backlog was inefficiencies in supply chain and inability to deliver machines on time or executing and simply the assemblies and the efficiency that we were used to. So in general, order backlog remains very strong and a slight reduction is nothing that is of concern for us yet.
On the EBIT side, it's a mixed story. So we -- as already mentioned, we are showing an EUR 8.4 million improvement year-on-year in our first half results, so minus EUR 13.8 million at the same time last year, now at minus EUR 5.4 million. And this EUR 8 million improvement is something we now need to duplicate and do again in the second half of the year to match our guidance.
Where is this improvement coming from? We have, of course, a very strong volume and mix effect coming from our higher sales and higher gross profit. We were nearly able to completely compensate the inflationary impact. So material, energy and now the important personnel cost increases due to the salary increases that were agreed last year were EUR 16 million in the first half of the year compared to last year.
Price increases were nearly able, but not completely able to compensate it at EUR 14 million. So a slight negative impact on EBIT remains from inflationary pressures. The other effect is something that we're openly reporting in our first half results. Other effects are mainly driven by 2 business segments in Digital & Web. We have, on the one side, the very good news that the order of backlog continued to increase [indiscernible] to remain at a high level compared to where we were a year or 2 years ago.
So the new machines are being pushed into the market, whether it's [indiscernible] jets or corrugated machines or also the transfer of our flexible packaging machines to Richford. The machines are being placed. But what we saw in the second quarter of this year was that we had some higher costs in executing those first inflations for first applications of new products.
And we quite meet our cost and productivity targets in the [indiscernible] take to install a machine or get it up and running. So we had a negative impact in Q2 on Digital & Web. On the other hand, the machines we're seeing today that are being built now in Q3, we are already seeing a much more stable situation in production.
Many of the machines that we booked into revenue in Q2 were assembled in Q1 or internally or in -- even in Q4 last year, so that -- simply the cost base was where it needed to be. The second, which I will talk about also on the segment side is in banknote business, where we have some project delays or disruptions with 2 of our big banknote customers in Sudan Argentina.
If I go into more detail on the income statement, it's -- many of the topics I already discussed. We had a very strong revenue of EUR 596 million. You see it also in our base profit improvement so that we're able to generate more profits out of our higher sales. On the functional costs of below gross profit, you clearly see an increase.
I'll start first of all, to remind everybody of the peculiarities of IFRS, the distribution cost [indiscernible] also outbound freight and provisions, which are directly related to higher sales and higher order intake. So that's roughly the largest block of the increase in distribution cost is variable cost.
But above that, that's something we've also been talking about for several quarters is that R&D costs is driven -- higher R&D cost is driven by 2 topics: first of all, higher depreciation or amortization of our capitalized R&D costs, which are now fully being amortized; and in addition, we've -- part of our exceeding print strategy, our new Digital business unit that has increased the cost base this year.
Distribution costs, as mentioned, mainly driven by outbound freight and provisions, but also we see an increase of travel among our sales teams, which is generally good that our customers are wanting us to get back into their plants. We also see an increase in our trade fairs. So the Print China happened in the first half of this year, our MetaPack in the metal printing industry and were all trade fairs that happened this year that did not happen last year.
And finally, administrative costs, we had a very good milestone in Q4 of last year with our go-live of SAP HANA in 2 business units and 4 different legal entities, but that also means on the flip side that SAP is now also frequently being amortized as that goes into production. Otherwise, we have the typical effects of higher personnel costs, et cetera.
You also see in the P&L, our interest results at minus 7.9%, driven entirely by the increase in the [indiscernible]. Otherwise, everything remains roughly in line with prior year. If we move to the net financial position. And also here, it's a basically unchanged picture to what you've seen -- what we've been talking about for the past quarters. If we compare the current path to last year.
Yes, at first glance, it's a EUR 90 million decrease in the net financial position from negative EUR 45.2 million to negative EUR 134 million. But this EUR 90 million is very easy to explain in [indiscernible]. At the bottom left, you see a EUR 75 million increase in working capital. These are the typical topics we've been talking about. So increased safety stock, increased order backlog.
And this is our balance sheet positions that we have to turn back into cash going forward. And those projects have already begun. So of this EUR 90 million, EUR 75 million is working capital, and the remaining difference is our acquisition of [indiscernible], which we've reported about in the past. Otherwise, no special items to be forced in working capital or in the financial position development.
The tax for us in the rest of the year and moving into 2024 then to get net working capital levels back to more normal amounts in future quarters. If we move to the cash flow statement, I think everything has already been mentioned in the previous slides. The good news is on the third line is here gross cash flows from our operations from just selling products before we do any investments or working capital, we had a EUR 15 million -- or nearly EUR 15 million improvement to EUR 17.2 million compared to the prior year.
So from simple selling machines and selling services, we're generating positive cash flow. As mentioned, the negative effects are coming from working capital and our investment activities. If we look at the balance sheet also here, nothing spectacular to report in Q2 that affected our H1 balance sheet. We see, again, the individual items, the increase in [indiscernible] from EUR 426 million last year to EUR 494 million this year.
This is -- cash is, of course, being trapped in these balance sheet positions. But moving forward, we work to reduce them again. Otherwise, nothing spectacular to report in Q2. We had a slight revision to our pension liabilities at 3.7% interest rate. Overall, equity in absolute euros was solid and equity ratio also at 27.9% at a continued positive level.
And that moves you to the last slide, which is a little bit more detail on the segments. I've mentioned some of it, but I'd like to point out a little bit more in detail on the 3 segments, how they were performing. The good news is that Sheetfed had a very, very strong Q2 at EUR 195 million in sales, also for the segment, one of the strongest Q2s in terms of revenues in the last 10 years.
And that was also able to turn into over 5% EBIT, so EUR 10.1 million of EBIT in the single quarter. Also here, one of the strongest EBIT levels that the segment has had in the last 10 years. I would point out because you can see on the slide the Q2 2021 was also EUR 10.1 million, but that was supported by the one-off effects of releasing the P24x accrual or partially we see the accrual and not entirely from operations.
And Sheetfed overall with EUR 572 million of order backlog, still very strong despite as we make the softening of order intake, still a strong order backlog now moving into Q3, Q4 and now also with orders well into 2024. On the right side in the Special segment. You see, of course, every year, one of our most profitable segments at year's end.
Again, at the end of 6 months, we had a slight loss of negative EUR 1.2 million. It's not dissimilar to what we had this year. It's actually [indiscernible] last year, actually an improvement of EUR 1.3 million compared to the same last year. The order backlog of EUR 212 million and sales of EUR 97.9 million. [indiscernible] We had, however, Special, as mentioned. And as you can read in our first half -- we had total programs with 2 countries that were disrupted in the last quarters.
First of all, it was in Argentina due to their foreign transfer issues in getting money out of our Argentina to pay us that disrupted our progress until we could agree on payment plans. And second, we had a project ongoing with Sudan that has now been disrupted in Q2 due to the civil war that started and is still ongoing. I think Andreas [indiscernible] get some more details if you request. I would leave that to him to explain.
But overall, these are things we can react to and to manage. But in the short term, in Q2, pushed EBIT down lower than what we would have liked. And finally, for Digital & Web, we had a mixed quarter. We had -- a lot of things are moving in the right direction. You can see our order backlog now still at a high level of EUR 115 million of order backlog in Digital & Web.
These are figures that we've really been pushing towards over the last several years to get stronger order backlog and order intake. We had a strong Q4, a strong Q1. Q2 was not as strong, but that's for this segment, not untypical. Overall, we're still very, very positive about the pipeline and future Digital & Web orders. The negative EUR 8.1 million EBIT is in the single quarter.
We had -- we openly say we had hoped that we come out a little bit better than what it did. But as mentioned in my opening comments, we saw some cost overruns in some of our new products. Just -- start-up costs, if you want to call them that, where some of our installations for our digital printers, our corrugated printers, also the flexo printers that have been transferred to [indiscernible] now.
Those first installations have now happened, and they happened at slightly higher cost than what we had expected. But as mentioned, we see that already now improving in new machines that we'll be shipping out now and installing in the second half of the year. But also here, I'd like to point out, even if the negative 11.2% is, again, a first half we lost in Digital & Web. So here, it's a EUR 1.5 million improvement compared to the same time last year.
And if you really sum up, all 3 segments have improved on revenue compared to last year and improved on EBIT compared to last year. All 3 segments even if the step is bigger or smaller depending on the business, but all 3 segments shown profitable growth or growth with improved profitability. And overall, a EUR 8.4 million improvement in turn year in EBIT, which, as already mentioned, if we duplicate that in the second half is exactly in line with our guidance.
And that being said, I would hand back over to Andreas. At leaset for this slide, I would just remind everybody that we've -- in our today's press release, we've again confirmed our outlook for 2023 as well as our midterm guidance and our interim goals of 2025. So this is all confirmed today our first half results. I'm sure that we're on path to achieve it. I would hand back over to Andreas.
Yes. Thank you. Before I come to the closing page, you said -- you asked me to explain a bit more about Sudan and Argentina. And I would assume that there are questions anyhow to give you an overview of that. Both Argentina and Sudan are banknote contracts of, let's say, a normal size.
So they are not exceptional contracts like we have with [indiscernible] in the past. In Sudan, I would describe the situation as follows. We have not delivered anything to Sudan yet. We have the machines with us in our factories. And we have a down payment which covers that.
But at that point, the whole thing got stuck due to the civil war. It actually is the case that you can't travel in and travel out. And there are different [indiscernible] going on with shooting and bombing. So it is absolutely a -- it fell into a disaster. In our forecast, we do not assume that this situation will rectify itself in this year.
Argentina is a totally different thing. Argentina, as Stephen mentioned, has problems in bringing hard currency outside of the country because there's a shortage of hard currency. So the government always prioritizes payments. So we build and deliver more or less in schedule, but the -- getting the money gets a bit more, let's say, stressful.
And payments are delayed and then they are staged. It is bundling along. We are still getting payments, but the whole thing is, let's say, a little bit of a stressful mode, and that's what we have taken in the assumption of this year's situation as well. But it is something which, for the time being, I would say, I see that this contract is going to be performed, but with certain delays and pickups, but it's a different situation than Sudan. So that's that in a nutshell.
Now my closing remarks on what we also used as the big word at our AGM metamorphosis. We are still and will continuously be in an ever-changing and faster-changing environment also or maybe sometimes especially in our industry. In the first half year, I think we demonstrated that we can adapt our business relatively fast.
One of the big changes this year is that we really made a big step in the growth market of corrugated board. If you look at the number of 33 machines which we have in some shape or form, in this year, just 33 machines of a normal machine sales price means that in corrugated, we came from 0 to a fairly sizable number.
So that is working very well. On the earnings side, I think Stephen Kimmich has explained everything on the, let's say, trying out new areas and see if we can expand with our core technologies into other fields. I think we are also quite innovative on that. Last but not least, in teaming up with Volkswagen where at the AGM, I said EUR 200 billion turnover team up with 200 years of a company being around.
It is something which could add to our results. So finally, we are confirming our results, our forecast and our guidance. We have also said that. And now our presentation is complete. And I would like to hand back to our lady who operates the call.
[Operator Instructions]. Our first question today is from Stefan Augustin from Warburg Research.
Actually, a few ones. First, maybe directly on the banknote orders, getting a bit more technically now. Can you elaborate a little bit if this, let's say, cancellation in Sudan has negatively affected the order intake? So have you taken that one out with a negative order intake in the quarter?
And as you have worked on both projects before probably also impacting EBIT. Yes, I know you would probably never answer the question how much, but can you give us a an idea if is this a smaller amount? Is it a provision? And maybe in conjunction here, I've noted that we have released provisions in the quarter. Is this somehow in connection to these banknote projects? So that would be the start probably.
Of course, I'll take that. I think the remaining -- so we have Sudan as partly in our actuals in the past and that -- there's no provision releases. So we have contracts, we have other contracts, and we anticipate to execute those contracts at some point in time in the future. So it's still remaining in our order backlog and what we've worked on so far and remains in our actual figures.
I'm not going to give any details on the amounts. But as I already mentioned in my address it's not a bank size of an extraordinary magnitude, it's a typical bank size order that we execute many, many times per year.
And we're still in direct contact with the management there that partially left the country. But there's certainly an intention that the contract eventually will be completed. Otherwise, there's no further provisions made. There's no need for provisions because as mentioned, very -- all the work we've done so far is completely covered by down payments that we've already received.
So there's no -- from a pure financial perspective, we feel [indiscernible] for provisions at this time. I think that answers all you questions. The only thing that I didn't answer was the amount, which we're not going to disclose.
All right. The next one would be actually on the corrugated orders you've mentioned, the 33 machines. How much of those do I actually see more or less on at clinical powers numbers and balance sheets and how much is not -- of that is not consolidated?
You see 10 in Koenig & Bauer, and that's the 10 large ones. We -- because we make the large ones, and the rest you see on [indiscernible], which is presently not consolidated. In terms of value, it's obviously a different distribution because it's the big machines in the, let's say, medium-sized machines.
Right. And also here in Digital & Web. The beginning of the year, you mentioned that you expect the division to be a major contributor to the growth of EBIT. So with the run-up costs, which is still speaks to that statement that this division will be a large contributor to the earnings improvement?
I think we said we call it was -- I forget the exact wording, but basically, it's not about -- we didn't use the word significant. We said that would be an over disproportional contribution to only 10% of our -- roughly 10%, 12% of our last year sales was a Digital & Web. And we expect it to be more than just 10% to 12% of our EBITDA improvement, and we still stick to that.
And the last one before I go back into the queue is actually on the joint venture with [indiscernible] joint venture with the cooperation with Volkswagen [indiscernible]. So yes, it's highly speculative if this will actually work out as planned, that we hope for. But just maybe for the idea, would that rather run into a business model of you selling machines?
Or is this rather to be viewed that the output of such a machine on the dry coating of the cathode electrodes would be to such an amount that you would rather get obtained by the output and there will not be so many machines actually needed to serve the industry as a whole?
I think it is okay, if I answer that question. It hasn't been raised before. I don't think we covered it in the adhoc. But we're rely indirectly covered in the adhoc. Presently, the assumption is we sell machines because we have no, let's say, no commercially direct involvement in the substrate, which is the metallic foil or in the powder, which contains the anode and cathode.
Presently, it is assumed that we sell the machines. And I would think that we stick to the business model, which we have that we sell the machine for a price and not [indiscernible] printed battery. But we have a joint development agreement and some outlines of a commercial cooperation.
The delivery contract will be negotiated when we see where we are. So it could take all sorts of courses, our general thinking would be we sell a number of machines. Of course, we service these machines, which is always part of the business. And we also assume that this number of machines is -- if it all works, this number of machines is not small. It's not a business where you sell 4 machines or 6 machines or something like that. It's not like the [indiscernible]. It's more quantity.
Our next question comes from Florian Sager from Stifel.
I have 2 actually. The first one would be concerning the order intake for the group, which has been slowing, as you mentioned, since Q3 '21. Do you think this will reverse in the next couple of quarters? And I'll follow up on that.
The order intake will reverse in terms of increase. I don't think I understood your question entirely.
Yes, reverse meaning rising again.
Yes. I mean we're still -- I mean I think tough -- nobody knows. My crystal ball is not better than your crystal ball. Overall, we expected a softening. And how long it stays soft, we don't know. You can see on our '25 guidance and on our -- in our midterm and also on our full year guidance this year that we're still -- we're confident that the orders will come where we need it.
And I think -- I mean, Andreas, I don't think you have any comments, but I think if you see when and how many quarters it will take for us to reverse, none of us know. What's good news for us is -- the pure financial answer, we have very strong order backlog. So a softening isn't worrying us if it's 2, 3, 4 quarters. We don't know yet.
I think what we can see from the market, and that's also the same question which the advisory Board asked is, what we see here is the trend and the trend says especially in the packaging industry growth. Depending on the market, it's 1%, 2%, 3% or 4% or 5% or 6% growth path. That's the trend. Now shorter than the trend is the amplitudes, which we have here.
And we've had that in the past. So I think we can assume that as the amplitude swung up to an extremely high order intake, which had nothing to do with the long-term trend. It now swings back. And eventually, yes, I'm very confident it will meter itself out on the basis of a long trend term because there's no change and nothing wrong with the long trend.
There is packaging. There is a growth in packaging. There is a growth in food. There is a growth in a worldwide middle class, which buys packaged food. So it will swing itself with certain movements back and forth back to this medium trend. But will that take one quarter shorter or one quarter longer? That is the difficult to answer.
But I would say to your answer, will it write itself again as in the pendulum swung very much to the high order intake number, it now as compared to the high order intake number, it went back. Will it swing back? Yes. And in which quarter will that be? Yes.
Okay. I understand.
It will go back to a median.
Okay. Okay. My second question would be on net working capital levels, which you want to get back to normal rates. Maybe you could give us some color here, what exactly the problem is.
Yes. We always said we want to see a maximum of 25% of sales in working capital, and we're not there as of now, and that's what we need to go back to. We were close. We were above 30% in -- around 2019, 2020. We were above 30%. We had some quarters last year -- or 2021 where we were around 27%, 28%, and now we're higher, and we need to get back towards the -- into the 20s. And our midterm guidance up till now was always the maximum working capital level of 25% of sales.
But the problem isn't that your customers push out orders further?
No, no. It's really all just inventory and work in progress. It's not about customer delays. It's safety stocks that we built up on purpose during the last 12, 18 months to supply the supply chain. And it's also our high order backlog. So reducing our order backlog will also help reduce our working capital.
The next question is from Jorge Gonzalez from HAIV.
I would like to start with the guidance for this year. Looking to the first semester and the targets, it looks that the second semester should bring very similar sales level. And obviously, you were talking now that you think you are going to increase your EBIT in about EUR 8 million in the second part of the year, not due to achieve your target.
And I was wondering how you're going to do this, taking into account that there is some cost inflation, some salaries going up, some energy cost increases. Is this related to the fact that you finished already so much in as you go with the working capital, this EUR 90 million more at the stocks or working capital? Can you clarify that, please? I follow up with -- after that.
Sure. I think -- I mean, the strong EBITDA and sales and EBIT that we're expecting in the second half of the year is a mixture of many things, but one of them is, of course, what you mentioned that we have built up a lot of working capital and work in progress that we're going to do -- at costs that are less inflationary and that those will bring into the P&L in the next 5 months. So that's certainly one of the reasons, but it's not the only reason.
We're still seeing strong -- as you saw a strong performance [indiscernible] order backlog, we're seeing good improvement in our Digital & Web business and good order backlog for that segment and in banknote despite the difficulties we have with these 2 customers. We're still -- we see -- as we mentioned in the past [indiscernible] pipeline.
We see projects that are on the horizon in this year and that gives us our confidence. And as I repeat -- one other thing, we have to simply do what we did in the first half of the year. So we are -- we have a guidance of EUR 16 million or EUR 17 improvement compared to last year. And we already achieved half of that after 6 months. So now we have to achieve the second half of that in the second 6 months. And that gives us the confidence to allow us to confirm our guidance today.
Okay. Maybe on that -- so you see now more potential to surprise the market in sales or in EBIT after this first semester?
I think that's a question we can't answer.
Okay. So then my second question is on the order intake too. Some of my colleagues already asked about this. But I was wondering how the picture -- obviously not having the crystal ball, how the picture looks like when you talk with your customers? Is there interest building and clients are waiting for financial conditions to improve to just sign?
I'm wondering this because after this [indiscernible] that you participated in China and other events, I have -- I thought that you were going to maybe surprising order intake this quarter, not obviously delivering onetime book-to-bill, but maybe not falling 25%. So I was wondering if the pipeline is looking better than the order intake at this point or really slow visibility into '24 right now?
I think if I split this answer into micro trends and cost of financing. And I think I've understood that these other things you touched, Jorge. If I talk about financing, does this affect the customers, then I would say the majority of our customers not so because they -- many of our customers, especially the large ones, don't resort to bank finance for their further investments and increasing factories, they more look at increased output.
And does the machine pay for itself? And is it able that we -- are we able to run them 24/7? So it pays for itself. That's more the question than the cost of finance. If we talk about micro trends. In micro trends, some of our customers also say that their customers have very much stockpiled packaging also in the difficult times.
And now they need to reduce their stockpile. So they have the same up and down similarly to others. The macro trend that we see is regionally very different. For example, the U.S. market and the Mexican market, they have a big push through what we call near shoring. So a lot of investments are done because American brands want to have their factories closer.
And they invest heavily in Mexico or the Mexican also invest heavily in their country. So the macro trends are the geo strategic trends are more or less guided by, let's say, risk assessment and therefore, investing in other regions than by any different view on the packaging world. The view on the packaging world from our customers as to how many packages we will print and create over the next years is stable. It's absolutely stable.
So they all look into the future that we tend to describe to you of a, let's say, reasonable growth of the packaging world and not so much in the commercial world and let's say, a fairly stable line in banknote. But a reasonable growth in packaging. That's also what our customers tell us. Again, the micro view might -- over a few quarters might look differently.
The financing on the big companies is not -- it isn't raised as an issue. It happens. We also happen to have small customers, and they then might look at us and say, oops, we need to look at the whole calculation again in the light of financing costs. But that is very much the exception.
Okay. And maybe to finish I have 2 more questions. One is about the Capital Markets Day. What is -- have you already thought on the theme -- on the thematic for the Capital Market Day? What do you want to tell us? If you can just tell us 2 lines about it, it would be interesting.
And trying my luck. Now taking into account that you have provided more detail on corrugated and also on banknotes businesses. Could you provide a rough indication of how much these divisions are now representing on sales or any other metric to help us to understand?
I would -- Jorge, if you allow us, then we -- I would like to ask Stephen to answer your question on the capital market in his closing statements because that's how we discuss that because that's of interest to everybody. And for the other questions, I would also address that to Stephen.
I think it was about more details on the detailed split within Special on the individual businesses, and that's not something we give in detail. And we try to comment on it. Of course, banknote is the largest of the business. That's something that's clear and open to everybody, but the remainder of the split, we unfortunately -- for you at least, we do not lobs those details.
And Stephen, maybe on that one. Is banknotes at least maintaining the same levels of sales compared to the last 2, 3 years?
Is what maintaining the levels, sorry?
Yes...
Is it on level as compared to the last year?
Yes, it's similar. There's no major shifts in the [indiscernible]
Call it more or less flat line a bit up and down. It's -- and that's fairly constant over many years.
The next question is from Patrick Speck from Montega.
I have 3 questions left. Firstly, could you please give us an indication what will be the first quarter when Digital & Web fat will reach breakeven from your point of view?
I would love to, but I can't. What we said in the past and I can repeat today is that Digital & Web reaching breakeven is one of our absolute midterm goals. So we want it to happen. Clearly, it won't happen in '23. That's something we've also openly said in '20, but will we expect the improvement whether we're going to achieve breakeven in '24 or '25 is not something we can comment, but we have to just keep pushing.
And I can only remind you, we lost over EUR 30 million in Digital & Web just 2 years ago in 2021. And in 2022, we lost under EUR 20 million [indiscernible] EUR 19 million. So we've made a huge step forward, and we want to do another step this year. So -- but we're not going to give a detailed segment prognoses on our guidance on when we expect to [indiscernible], but we're working hard. It's one of our biggest goals.
But from today's point of view, do you see that the second half of the year, you will be able to reduce losses compared to the previous quarters or compared to the quarter of the year before?
It's built into our guidance, and we clearly say that we expect to Digital & Web to contribute to the -- actually disproportionately, so even have a significant or a larger improvement on EBIT than the other segments, and that's something that we're working towards.
Secondly, on your free cash flow development. Could you give us a rough indication of what you expect for the free cash flow for the full year? Will it be higher or lower than in previous year?
I think what we said in the past and what I can repeat again today is that we feel like we're getting to the kind of worst -- the bottoming out, if you want to call it that, so that we can expect to see improvements in the second half of the year. But we're not going to put a number on it what we expect for free cash flow for the full year.
Okay. Fair enough. And thirdly, the interest expenses were significantly higher in the second quarter already. Do you see that as a run rate for the upcoming quarters? Or is there anything else we have to bear in mind?
Well, we'll see what the central banks do, right? I mean, obviously, the [indiscernible]. So as they raise again and our -- we have a classic revolving credit facility listening to the Euro bar, so that's the variable that I can't control. But in terms of our net financial position, I think I answered that with the previous comments.
But we don't -- do I personally expect? It's not occurring in our opinion, a huge drop in interest rates in the next 12 months or a huge increase that probably not, but it's out of our hands. So I think -- we hope [indiscernible] into a stable phase of interest rates, but we will see.
We have a follow-up question from Mr. Augustin.
Just a little bit. So the first one, the cooperation with the [indiscernible] Group. Is this something like a royalty-based agreement? So you certify the ink and then you get an amount of royalty from Hoover? Is it to be viewed like that?
No, I think -- thank you for the follow-up because it's important to clarify. So Huber Group is more -- it's more focused on development cooperation. So they're a large company, they're a EUR 4 billion or EUR 5 billion company that's very much active in offsetting ink. It's not the same model as what we're doing in digital ink, where we're trying to participate on volumes.
It's more of a development cooperation to work on developing ink in sustainability. And just to give you one example, they provide all of the inks that we use in our demo center in [indiscernible] to us for the innovation that we do there and for the customer demonstrations we do there. And if customers are impressed by their inks on our -- in our demo centers and that can lead to a follow-on contract with Huber Group.
But it's mainly a joint development and strategic for us that we actually at the forefront also in printing with sustainable inks length and also for a few product special types of inks. But I certainly don't want this to be compared to perhaps certain competitors that we're trying to now move into consumables and also printing. That's not the case.
Okay. And then coming back a little bit on just the question before. So clearly, the idea is basically the majority of what we see in the financial expenses is simply interest rate-driven. And as long as there would be no change, we should have the idea that there would be a meaningful change at the expenses. So no derivative accounting in there that elevated H1 or something like that?
No. Nothing material.
All right. And then just coming back on my question, possibly, if you would know that by heart, if not, we take it of is the reduction of the provisions in Q2. Was that -- is that still something allocated to the '24 [indiscernible]
No. Absolutely ordinary course. There were no special topics in Q2 that were out of ordinary course. It was all just classic operating provisions with salaries, with personnel costs, with suppliers, the typical provisions management at the end of the quarter, but nothing -- no special topics.
There are no further questions at this time, and I hand back to Stephen Kimmich for closing comments.
Yes. So thank you very much. Typically, Andreas Pleßke, always does the closing topics -- closing comments in these calls, but I'm very happy that you delegated that responsible to me today because the last message we want to give to you all is not only thank you for joining, and thank you for your interest in Koenig & Bauer today, but also our [indiscernible] sincere invitation to come to our Capital Markets Day.
We announced the invitation that end out, and it will be on the 9th and 10th of October in [indiscernible]. [indiscernible] for those who know is our largest site worldwide, even larger than our headquarters in Richford, focused very much on packaging and packaging and packaging with offset prinitng.
Also what is new is our digital printer as well as our post-press and also digital packaging workflows. So moving into the digitalization of our machine processes with our customers. So the focus of this Capital Markets Day will be very much on the products we do there. But many of you have never been or have not been in the last several years, a lot has changed, and we're looking forward to receiving as many of you as possible in [indiscernible] on the 9th and 10th of October.
And Andreas Pleßke will be there, of course, myself, but also other Board members and other executives from the company to present interesting topics show you some interesting machines and also have a very enjoyable dinner. So looking forward to that. And again, thank you very much for your interest and looking forward to talking to you soon.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you very much for joining. Have a pleasant day and a great weekend. Goodbye.