Koenig & Bauer AG
XETRA:SKB
Koenig & Bauer AG
XETRA:SKB
Price:
13.18 EUR
2.81%
Market Closed
Updated:
Apr 30, 2024
Section:
Earnings Call Analysis
Summary
Q3-2023
Q3-2023
Company's Path to Improved Margins by 2025
The company's sales performance was strong in Q3, with products sold across all groups except newspapers, signaling a positive trend. Despite uncertain market conditions, they're on track towards breakeven for their Digital & Web division by 2025, crucial for achieving 6-7% EBIT. This breakeven point, along with pre-COVID performance in banknote and sheetfed businesses, could result in such EBIT margins. Additionally, they've outlined a long-term vision to raise margins to 8-9% and sales to EUR 1.8 billion post-2026, relying on digitalization and new business models, including ink consumables and digital efforts.
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Good afternoon to everybody, and hello. If there is -- hopefully no interruption, it might be due to the fact that I'm presently with customers in Southeast Asia but let me guide you through our presentation as usual. So the Q3 numbers have been published. And all in all, you see 2 things. You see a mixed picture. You see an improvement, which we're aiming for in this year as compared to last year, but not as good as we had initially planned for. So it's a mixed picture.
Let's start with the business performance at a glance. First of all, I think that is very important news. We have successfully completed our EUR 500 million refinancing round and therefore, we have certain consequences out of that. Mr. Kimmich will go in greater detail.
We have also reported a weaker business performance in '23. We have high inflationary pressure continuously. On the other hand, we have the temporary increase in material costs, gradually decreases that is emerging as we had predicted it.
Highlights for the first 9 months in Q3 '23. First of all, there are some good news about the corrugated board market, which is growing. And we have had a very unique chance to sell several machines to one of the largest corrugated board manufacturers, which is also a good stamp of approval for our methodology, for our machines and for our business concept, more to that later.
Something which we considered to be very important, our vocational school is one of the [indiscernible] climate schools in the future. That is important because attracting young apprentices is our key against the lack of skilled workers. So everything which makes us and also our vocational school go more attractive is very helpful.
In other world and in [indiscernible], we have had anniversaries.
The 9-month figures. The revenue grew 10.6% after 9 months in all segments but the Q3 revenue is down by 6.3%, more details from Stephen Kimmich. The EBIT improved by 30% after 9 months, unfortunately to again, minus EUR 2 million instead of a positive agreement. But compared to last year, it has slightly improved. The EBIT decline in Q3 went from EUR 10.8 million to EUR 3.3 billion. That is where we are.
The segments in the 9 months. In the Sheetfed segment, we see a decline in customer demand in Q3. But in contrast, we see a significant increase in order intake in the Digital & Webfed segment. The Special segment is, as we pointed out many times, good and robust, but we have governmental delays in actually ordering machines. We'll come to that later.
Outlook. For 2023, we project a revenue of roughly EUR 1.3 billion, which is in line with our guidance, accompanied by an EBIT between EUR 25 million and EUR 35 million and confirm our medium-term guidance. The guidance for '24 and '25 will be specified in greater detail when we have the full year figures for 2023. But now let's break down these numbers in greater detail. I hand over to Stephen Kimmich, our CFO.
So thank you very much, Andreas and also welcome to the conference call from my side. Thank you very much for joining. On the Page #3, you see just at a very high level, the overall trends of the business. We had, again, a strong revenue period with EUR 294 million but that was combined with a mixed picture on order intake. We still continue to have a strong order backlog with a book-to-bill just under 1 for the third quarter. But within that order backlog we had, and you will see later, a very strong performance in Digital & Web with our new businesses and a weaker performance in our Sheetfed business for that segment.
Overall, our EBIT, which was also disclosed as part of our ad hoc communication last week at EUR 3.3 million for the single quarter, below what we had initially expected for the business. Also that I will go into in more detail later. But overall, for the full year, after 9 months, we're slightly ahead of the prior year. And based on our new guidance, you can still expect a strong Q4 from Koenig & Bauer but more on the figures later in the presentation.
On Page 4, if we move into the first highlights and as a CFO, it's always pleasant to announce that we successfully completed a refinancing. As many of you may be aware, the financing of our revolving credit facility was due to end at the end of 2024. And we had decided earlier this year to target a refinancing before the end of 2023, so that we, of course, had long-term liabilities in our books at year-end and are able to secure the financial future of the company.
We've successfully done that and the new rolling credit facility of EUR 300 million in a revolving cash facility and EUR 200 million in a guarantee facility is now [indiscernible] and has a run time of 5 years. We have the option in year 1 and year 2 to extend for an additional sixth and seventh year that we, of course, will aim to do, assuming the business continues as we are currently on track. And therefore, we would have a financing plan through 2030.
The good news for the capital markets and for our shareholders is that the restrictions that have been in place since 2020 due to the participation of the German KfW Bank which is a state support of the business during COVID, those restrictions on things like dividends and share buybacks and other topics are now completely released. We're back to the freedom to operate that we had prior to 2020. And therefore, also, you can be expecting in the future, a return to a dividend policy that we will also communicate at an appropriate time.
So overall, we're very happy with the step and with the support of our banks that we had over the last 6 months. And look forward to the financing the future growth.
So that being said, I will hand back over to Andreas Pleßke for the remaining highlights before we move into the financial figures.
Okay. So first highlight, Saica, one of the biggest and most important corrugated converter purchased 6 machines from Koenig & Bauer Celmacch and Koenig & Bauer this year. These 6 new lines will go into operation in summer '24 and then progressively after that, it will be 4 Chromacut X Pro and 2 Chroma HighTech.
The really important thing about that is, why did this customer select these machines, because of the technology. It's, first of all, the latest technology, which we can offer, inside out printing in a single path. So this dual side printing allows a significant increase in efficiency and a significant reduction in production cost. Also, they find it the right decision for a big group to have the same technology in their several factories for a combination of know-how of education of spare parts of operating. So that is something which we expected from big groups. If they decide our technology is good, then they roll it out through several plants.
And especially in the corrugated world, that is a very, very good sign of approval to have this big order from one of the most important worldwide players.
On the next page, we see that we have been awarded as vocational school as a climate school. You see our minister in Bavarian together with the head of the school and other people to show this climate school is awarded if we internally make steps to reduce CO2 savings that internally organize our school but also if we provide our students with the skills, which they need to shape the future sustainable and make climate-friendly actions. So we basically -- is also about giving our apprentices the skill set, which they later on in our factories need to push our sustainability agenda. So this was quite a big step. First, for the existing apprentices, which are very proud that they are there now, but also as a as a matter of attractiveness for the next round of hiring young people.
Being a climate school has an extremely high traction, especially among the very young generation, which we address here.
The next highlight would be that we have 2 anniversaries: 1 anniversary of 175 years in Modling and 1 of 125 years at Radebeul and besides that these anniversaries prove that a company like ours has [indiscernible] power and the management skills for constant metamorphosis, as we may again use our buzz word, otherwise, you are not around for that period of time. There's also something else behind that. [ Modling ] we constantly evolved into the center of [ banknote ] machine printing, whereas before that was in 3 locations, more or less in [ Vosburg ], [ Modling ] and [indiscernible], we now focus to have that eventually concentrated in 2 locations. That again has mainly to do with synergies and cost savings and also to have the know-how in one place. So this is also why everybody is beaming in Modling because everybody is quite happy to be with us in the future of this special banknote business.
Koenig & Bauer in Radebeul has had its 125th anniversary. And it is amazing what this company went through from before the first world war -- through the first world war through our [ Horry ] time in Germany after the war. And then again, in the split Germany and being acquired by [indiscernible]. It's something which makes also the people there quite proud. And again, why do we make these celebrations, basically also to be an attractive employer, to give our employees a good identity with the company and to give our employees the confirmation and the stability that this company is in for the long run. So that's why we always make a bit of [indiscernible] around it, which makes everybody proud and happy.
Now from proud and happy, which are nice words, now back to the next message, that's the 9 months in Q3 2023 with highlights and medium light, I would call it and not so medium light, and I hand back to Stephen Kimmich.
So thank you. On Page 8, we dive now into the first figures at the group level. On the top line, on order intake, we see a continued reduction year-on-year at EUR 831 million of total order intake compared to prior year. That being said, we did have an uptick overall in the group in Q3 at EUR 278.4 million at a group level. It was strong. But when we look in the individual segments, we see it, of course, it's a very different picture among the various businesses. Overall, the trend -- downward trend of order intake that we have been seeing in the last few quarters continued across various businesses and we will talk more about that a little bit later.
On the sales side, we see the expected increase. So sales revenues are up for the full year now by 10.6% at EUR 891 million. But on the -- for the Q3 itself, we actually had a slight decrease in revenue compared to the same quarter last year from EUR 314 million, down to EUR 295 million. Also, this is important to understand because the downward turn is coming from 2 segments, whereas 1 is showing revenue growth but also I will get into more detail a little bit later.
Order backlog, as mentioned in our opinion, still strong at EUR 891 million. We still -- we will be starting Q4 with a higher order backlog than 2 years ago, 2021, for example. But of course, we expected a book-to-bill under 1 for this year. We've announced that many times in the past that a book-to-bill under 1 should be expected, and that's what we're seeing but at EUR 891 million, still a robust order backlog in the various businesses. That's the top line.
Of course, on Page 9, you see that on the bottom line, it's a very different and mixed picture. We see it despite the increase in sales of roughly up to EUR 891 million. We see only a slight increase in our operating performance, our operational EBIT at minus EUR 2.1 million after 9 months. So of course, and we've talked about this last week in our [ ad hoc ] that we were expecting to have a stronger Q3 than what we did have. That was also connected with our expectation for Q4, one of the main drivers for our downward revision of our earnings expectations for the full year.
Why is this happening? We still see, of course, a positive effect from our volume and sales revenue, roughly EUR 10 million. Price increases as we had expected, are roughly compensating all of the inflationary effects. This is a picture that we have also been expecting to see over the last quarters. More or less in line, EUR 19 million of price increases covering EUR 20 million of inflationary impacts, whether that's material or energy or personnel costs.
The main challenge that we had in the first 9 months and particularly in Q3, was that as we will show in a second, as we begin to execute more orders in Digital & Web across the 4 different product groups, so RotaJET, HP, corrugated and flexo. We now have more orders now in execution and have start-up costs and ramp-up costs associated with those that were not planned and are now having to be managed so that going forward, we get the product costs or the manufacturing costs where they were intended to be.
This was an unexpected negative impact on our P&L in this year, and one of the main drivers for our downward revision of the full year guidance. But also here, we can discuss more later.
If we look at more detail on the income statement on Page 10, we see, again, the increase in revenue. We see also a corresponding increase in gross profit, although this EUR 22 million of gross profit improvement is slightly less than what we were originally expected. On the R&D side and distribution cost side, we see, of course, the capital-- sorry, the amortization of our capitalized R&D costs, which were capitalized in prior years, are now in amortization, which is the same picture we saw in Q2 and Q1.
Distribution costs under IFRS, of course, also have a strong variable component with sales provisions and outbound freight that's linked also to the higher sales and [ condition ] across all 3 [ post ] as R&D, distribution and administrative costs, we have the annual salary increases for staff in those areas that are now having a full year impact, roughly in line with what the tariff increase was from the labor unions.
Otherwise, this -- the main topic at the EBIT level at minus EUR 2.1 million compared to minus EUR 3 million last year, showing only a minor increase and certainly less than what we had expected, but still roughly EUR 1 million better than prior year.
Of course, interest rates have increased. We are all aware. With similar net financial positions that we saw in the previous quarters, we now have EUR 13.1 million of bank debt -- of interest rates on our bank debt that income tax expense, of course, with losses and driving overall net loss for the period of minus EUR 12.2 million.
If we move to Page 11, a high-level picture on cash flow. Also here is a similar picture to what we have shown in the previous quarters. Our net working capital reduction plans are fully started and showing the first impacts, but still a lot of work to be done on net working capital the coming quarters, moving also into next year. We did compare to Q2, have a sequential improvement in net financial position when we published the figures. Three months ago, we had a net financial position of minus EUR 135 million, now at minus EUR 119 million. So a slight uptick which is also something that we have predicted when talking to you last quarter. Overall, due to the losses, and we had a slight reduction in our equity position at 27.2% compared to 29.2% last year.
On Page 12, you see that net financial position reduction in our cash flow statement. The good news is also on our gross cash flow. So cash flow from operations, we did see a EUR 7 million uptick from EUR 23.6 million to EUR 30.5 million at the same time last year. So this is good news, again, showing that we're heading in the right direction, even if the step-up is not as high as we would have hoped for. The main factors driving our cash flow is net working capital and investments at minus EUR 34.5 million are actually as planned, roughly in line with depreciation. So the main topic we have here is our net working capital management and then, of course, the change in financing and interest rates that are continuing to put pressure on cash flow. But overall, a slight increase in our operational performance at cash flow level.
On Page 13, you see on the balance sheet. There's no major highlights to point out. You see, as shown also in prior quarters, strong increase in inventories from EUR 426 million at the end of '22 to EUR 537 million at the end of September '23. This is one of our major tasks now is to reduce inventories as we react to the market downturn and execute the orders in our order backlog, we expect these numbers to come down. And that's something that we've been working on throughout the summer months and in Q3, but you can expect to see the improvements in future quarters. Otherwise, there's no major highlights to discuss on the balance sheet. You continue to see the strong equity at EUR 349 million even if it's slightly down compared to the same -- to the end of last year.
Page 14 is perhaps the most interesting one to present because it shows very different picture that you see across the 3 segments. Sheetfed with a revenue increase of nearly EUR 80 million compared to the same time last year. EBIT improving by EUR 8 million, which is a strong step in the right direction for Sheetfed. And looking only at the first 9 months shows improvement. The -- I think the key figure that has received a lot of attention is the order intake in Sheetfed in Q3 was weaker at EUR 112.3 million, you see on the right part of that graph, a disappointing quarter on order intake. We are seeing a softening in printing in the packaging markets in some of our products, and you see this in order intake. What this means for next year, we will also discuss later. And -- but overall, EUR 505.9 million of order backlog is clearly a negative development in that segment. Looking forward to next year, but operating performance this year, still showing a step improvement compared to last year.
Digital & Web also a very mixed picture. We, on the one side, have these large cost issues that we just showed in the EBIT bridge. We had announced already in Q2 that we were fighting with increased start-up costs and ramp-up costs on some products. And this continued in Q3 to an order of magnitude that we now pointed out specifically in our EBIT bridge. So on the cost side and the ramp-up of the products currently in execution, we are having to manage it and work to bring our product execution back down to the levels that we expected to be at.
But that's the bad news on the one side. The good news on the other side is that we're starting to see clear improvements in order intake. The trend of improved order intake on those products continued. We had a very strong order intake month -- quarter in Digital & Web at nearly EUR 60 million. We now have an order backlog of EUR 143 million at the end of September, which is nearly 80% higher than what it was at the same time last year. So order backlog, order intake continues to move absolutely in the direction that Koenig & Bauer has been working so hard for the last years and then we've been talking about with the capital markets the last really several years that order intake of Digital & Web is one of the key success factors for the future of the company, and this is definitely heading in the right direction.
The [ footside ] is that the orders that we're executing are not being executed as efficiently as we had hoped. We can certainly talk about this more. But the short answer is that we are simply working on 4 different products, RotaJET, HP, flexo [ tecnica ] and corrugated, bringing in new versions, new technologies. This is not yet in a serial production where we are as efficient as we need to be. Even the RotaJET that, as we talked about for, of course, several years, particularly in the decor segment, we're in the middle of implementing RotaJET in 3 or 4 new business segments, which are different versions of the machine, different adaptations and simply require more efforts than at the start of phase than what we anticipated.
But again, Digital & Web on the other side, clearly headed in the right direction. The products are being received well by the market. You saw it in our corrugated Saica order that was in the highlights. But on top of that, also several RotaJETs, several HPs, sevreal flexo machines making up this order backlog at the end of Q3.
Special also a mixed picture or somewhere in between Special, we clearly still see a slow development on order intake. So also here, we can talk about more during the Q&A sessions. The order intake in banknote is slower than what we had expected during the middle of the year or even at the beginning of the year. Those are not orders that we've lost, has simply been pushed back. The decisions have not been finalized where the contracts have not been finalized, but down payments have not yet been received that we can execute them and bring them into sales and generate EBIT.
But overall, we're still confident the business is heading in the right direction. We're -- unfortunately, however, not better than last year. We're roughly in line with our year performance in Special segment, whereas we would have expected to be -- show a year-on-year improvement at the end of Q3, that is just a slight EUR 300,000 improvement driving earnings in that segment.
So those -- that's a very high-level summary of the various segments. So a mixed picture and the overall mix picture when we reviewed our Q3 preliminary results and based on the Q3 preliminary results, discussed our forecasting with our business units for full year. We arrived at the clear conclusion that the original guidance of EUR 39 million or 3% on EUR 1.3 billion EBIT was not going to be met, and we see our full year EBIT slightly lower in a corridor between EUR 25 million and EUR 35 million. The corridor, as mentioned in our ad hoc is -- because some of that EUR 10 million range is dependent on specific order intake that we expect to receive 3 years end. And if the order intake comes or doesn't come, we'll move the needle towards the lower end or the higher end of that corridor.
So overall, this mix picture led us to the conclusion that we had to slightly revise downwards our EBIT corridor which is, of course, always disappointing for a company or for the capital markets. But even at -- if we take the middle of this range of EUR 30 million, we talk about roughly EUR 9 million reduction in our earnings outlook for the full year.
What that means for 2024 and our 2025 guidance is something we're not going to comment on today. Clearly, the macroeconomic environment has gotten more difficult in the last 6 months instead of easier but we are in the middle of our planning process for the next several years and will, as typical, when we publish our full year figures for 2023, either in February with preliminary figures or no later than the balance -- the disclosure of our full year results, we will update our guidance for 2024 and 2025.
But the third comment on this slide, that we confirm the midterm guidance EBIT. We fully understand the gap between where we are now and where we expect to be in the midterm, is a large gap. But the underlying business development and market development, if you ignore the temporary downturn that we're currently seeing, we're still convinced that the markets we're addressing, the products we're bringing to the market and the businesses we're developing are heading in the right direction and will bring us to this midterm guidance. We're just going through a very difficult storm at the current time and need to get through it and get back on track towards this midterm goal.
So that was all from my side, a quick walk through the Q3 financial figures. And I would hand back over to Andreas Pleß for some closing comments before we move to Q&A.
Yes. So the closing comment would be, yes, we have a mixed picture. But yes, our strategy, especially in the growth market, workspace growth. We hit in other areas. But what we now will do and need is, of course, a strict cost management to achieve improvement. But the general course of our business models is something which we will push combined with good cost management. We just have to deal with that situation, and we will deal with that situation. So that was the presentation. And I think I hand over back to the operator now.
[Operator Instructions] Our first question comes from Stefan Augustin from Warburg Research.
I'll start with 2 questions. The first is actually on the refinancing. I would be interested if the refinancing has covenants, if there's any one-off costs due to the refinancing to expect in Q4? And if the run rate or the implicit running cost of the financing, is it fair to extrapolate Q3 times 4 and thinking this might be the right terms in looking for the financial results?
Sure. So I take that question. So first of all, covenants, of course, we have covenants. There are typical covenants similar to what we've had in the past for debt capacity and equity ratio, et cetera. So nothing dramatic. It's a similar, I'd say, market standard for this type of facility that, of course, you have covenants that you have to keep. Second part of the question was on one-off costs. So there's no -- you can expect a significant charge in Q4 that will be part of the -- large part in the financial results in Q3. The refinancing was also done at a market condition. I mean we never disclosed the interest rates or the margin grid of our previous facilities, and we're not going to start now. We're very, very happy with the conditions. We basically stayed at the similar levels to what we've had in the past. So a [ Eurobor ] plus X and the X is just simple risk premiums for our industry. So we're happy with the conditions and they're similar to what you've seen in the past. So any assumptions you would have made in the past on financing, they're absolutely still valid with the new financing. There's no major shift, which is good news. There's also maintaining risk premiums as we've had in the past despite the clear increase in geopolitical, macroeconomic and market risks is something that we're quite happy that we've been able to achieve.
So again, summary is, without getting in too much detail on the conditions, similar to what we've had over the previous years at [indiscernible], no major changes.
Okay. The next one would be then you outlined a little bit on the order intake Q3 in Sheetfed. You see some softening in some products. And I would be, let's say, interested in what is, let's say, the analysis on the Q3 order intake. Is that a little bit an outlier? Is it really something that you will see to continue around that level or is that a Q4 pickup? How do you see the world? And where have you seen the softer [ news ]?
So perhaps I can start and Andreas can expand on my answer, if you like. But -- so we don't have a crystal ball nor does anybody. So the markets are clearly softened. Whether Q3 is the absolute bottoming out of that weak order intake, we won't know until the quarter is over. We see it's a different picture throughout the world. We see Americas is different than China, is different than Europe. It continues that Europe and particularly Germany, is the weakest of our markets. And when you head into other regions, the uptick seems to be either earlier or faster.
We see differences among our businesses and we -- as you know, we are very strong in large format and not just in medium format, and we do see that the higher capacity increases, which a large format decision is to increase capacity significantly, not just moderately to a medium format machine. We do see that the trend in large format is more down in Q3 than in the medium format side. So it's a different picture across our products and across the businesses.
And of course, we expect an uptick in the near term, whether that's Q4 or Q1 or Q2, nobody knows. It's a very volatile market. Andreas, do you want to expand on that or?
I think I would expand on that well for Digital & Web, you have said that we don't have a downswing, we have an upswing. And for Special, which includes, let's say, in the driving sector banknote, I would not think that there is a swing in the economy. What we have here is one of these awful banknotes, those things where you have to keep your nerves where many of these orders, which we expect in Q4 and to which we would then immediately [ pocket ] which would lead to a sizable EBIT proportion.
These orders, many of them, let's put it this way, it's quite clear that they will be placed and it's quite clear who they are placed with, but it just sometimes takes countries a while to execute the implementation. And so therefore, they shift. So I wouldn't call that the pipeline has changed. It's things which are at the very top of the pipeline, which have shifted for so-called in-country regions but it's not that these things will be canceled or don't take place so that there are political situations where they fall out. We don't expect that. We expect more or less, in general, a shift in months, but that is not in years, but that is especially harmful if it is at the end of the year, and you have to make a forecast. So that's where we are there. So there, I would say that the business model and the so-called -- what I always call the robust order pipeline is not affected. It's just the good old banknote.
Thank you for these explanations. I think or I can answer myself the question, at least half. So a lot of the orders we see in Web and Digital obviously could not really be substituted by Sheetfed orders but for the portion where this might be possible, I just wanted to confirm that you do not see any, let's say, cannibalization effects on the Web and Digital side on the Sheetfed side.
That's right.
No, no, no. So the customers which we have these days for the digital machines of flexo are not cannibalizing on our digital strategy for Sheetfed or flexo and corrugated is its own planet. And there is, as today, not a big cannibalization between the corrugated and the cardboard market as in the substrates with which you make boxes. That is not visible, I would say it that way.
And then the last question from my side would be, can you outline more or less in more detail, what exactly you are planning to do to reduce the costs on Web and Digital side.
Let's -- you're raising your finger. Please go ahead by all means.
No, no, go ahead, Andreas.
Now there is -- let's say, there is short-term swings. In short-term swings affect flexible costs or variable costs, which are material and personnel. Now material is one thing. Of course, we reduced that according to order intake and personnel, we have several instruments to swing that. Some of these instruments are in which everybody has like short-term work if that needs to be and some other instruments are [indiscernible] have negotiated after the COVID crisis. That means that we have some flexibility to reduce the labor hours in our factories according to demand over and beyond whatever government programs we might have.
So to kind of counterbalance, swings in variable costs on material and personnel, we believe we have the instruments at hand. And if it comes to cost management as in the cost overruns, which we had in the runoff of many of the new digital web products, I think Stephen mainly answered that. We have products out there, which we have repetitively sold where we do not have the issue of runoff overruns. And we have many new products in film, in book, in folding cards in liquid packaging with different adoption to customers where we are not yet in the kind of a small [ serious ] level, where we have these cost outruns, we'll manage that. So that once we come into a more small [ serious ] level, these costs will become more predictable and [ full ]. If it comes to any other costs, there is the, let's say, the typical set of what management can do and in the past, what we had announced is major programs like [ P24 ]. Any programs which are not large, we [indiscernible] not publicly announced.
I would just reinforce what you said, Andreas, on Digital & Web, that the key challenge that we've been facing in the last 6 months, as mentioned in Q2, we already had mentioned that we were struggling with higher costs. And the [indiscernible] challenges is that we're bringing a lot of new products into the market. And it's the 3 -- we have 5 different product groups in digital web, but it's really 3 new ones. So the RotaJET, the corrugated family and flexible packaging machines. Flexible packaging machine is also new because we just finished transferring to [ Birds ] port from our plant in Italy and the first machines coming out of the factory were kind of mixed machines between Italy and [indiscernible] have Germany, then we started doing more on our [indiscernible] factory and starting doing more. But the machines that we've been bringing into revenue, we're simply not efficiently manufactured. And we already see that. We're seeing improvements as we now move into the next machine.
The next machine that the supply chain gets now fully moved to the plant in [indiscernible] that we're already seeing improvements. We just have to keep pushing but that product group has simply been in a volatile situation over the last -- during this transfer and it has to settle down.
For corrugated and for RotaJET, it's similar to what we -- what Andreas just mentioned. It's not about just selling the next and the next and next machine. We're selling new versions. We're selling new applications. RotaJET has been successful in the decor market, but now it needs to be successful also in these other markets we've introduced it to for book printing, for film, for liquid packaging. And we're always better on the second and third machine, not on the first and right now, we just installed the first machine for folding carton. We just installed the first machine for film. We're just in the process of installing the second one for liquid packaging. But it's -- but also that second machine is completely different than the first machine from liquid packaging. So we're still on the startup, call it the start-up learning curve that will have an end because the amount of new applications is finite. And as we move into a more serial production, we will bring costs down. And the question, of course, that you'll ask is when, and that's something we're working on every day to make sure it happens as fast as possible, but it's a big task, and we're managing it.
Okay. Then maybe a little bit on Q4 and Q3, the consistency of the web and digital order backlog. So are there a couple of RotaJETs in there? And how would you see that demand for web and digital orders is going on. Have you already seen quite nice elements, say, up to date in the quarter, so in October?
So what I can confirm is that Q3 had products from all of our product groups. We had HPs, RotaJETs, corrugated and flexos, we sold everything in Q3, except for newspaper, which is good. So that's the good news. It's not just -- we've now had several quarters of Digital & Web where all of our products are being sold to customers. Will that happen again in Q4? Again, I don't have a crystal ball. But the clear trend is, yes, we're heading in that direction that we can expect order intake in all of our core products in every quarter and that's why we said we're heading in the right direction. Again, I won't comment on the details of Q4. But I will say that in October, we've again had order intake in multiple product groups. It is heading in the right direction.
Our next question comes from Florian Sager from Stifel.
I have 3 questions. Two are on Digital and Web. And the last one is on the medium-term targets. Maybe on Digital and Web, could you maybe give us some more color on when you intend to break even? I know it's been difficult to paint a picture in the past, but maybe there is something new you could tell us?
We have clearly -- we clearly announced that the 2025 guidance that we had previously published, so 6% to 7% in EBIT in 2025 was only possible in connection with the breakeven of Digital & Web. So that was our target, we'll achieving breakeven for Digital & Web in 2025. Whether that's still possible is something, again, we're going to announce in February. It's a mix of course, market effects and these cost [indiscernible] talked about. But we're on a [indiscernible] to breakeven at Digital & Web.
Okay. Okay. And you currently do have higher costs, particularly for start-up costs for new machines. I would assume that these will just go away as order of things.
Sorry, I didn't want to interrupt you. Your concern was?
No, my concern was that maybe competitors may also invest in digital printing. For us to continue to invest in new digital printing machines, prompting constantly higher costs. Is that [indiscernible] justified? Or is that -- should that be a concern?
The first question I would like to answer, you say they will just go away. Well, that just includes a lot of management, but the real point is, is pricing okay? So do we overshoot production cost in series, and therefore, we don't have [ top -up ] pricing in the market. Do we overshoot our costs because of this many, many new adoptions of the machines are #1 or #2 and we don't have a series process yet, and we don't have stable costs yet. So if that is the case, which is our analysis and which we see, yes, these additional costs will go away. And therefore, generally, the pricing and the expected gross margins are okay.
Secondly, since that is the case, we keep selling these machines at, let's say, a price level, it is not exactly a market price level because in many markets, there is no real -- today, no real comparable competition. It's not like a mid [ formed ] offset machine. There's a lot to be discussed between machine 1 and 2. And I do not see massive market entry in our industrial digital business models in the near future. It's the same old, same old. We have 1 company which has left the industrial size, digital machines. Sometimes we go for strategic reasons. I'm talking about our size, industrial size. And there's another company, which is a formidable company, which is not yet, let's say, in, but they're working on it.
So it's a small world. I do not see any other major market entries in the near horizon. And when we speak to our customers, our position is either quite good or with the RotaJET, if the application is right, is quite unique.
Okay. And the last question would be on your medium-term target of EUR 1.8 billion in sales and your margin of 8% to 9%. And I understood it that way that you didn't really clarify a time frame for that. It's post '26, I assume. How do you intend to achieve this? Could you give us more color on this? Because I'm just looking at performance in the past couple of months and just trying to wrap my head around.
I mean, it's something we clearly have to -- we committed to this or we reconfirmed our midterm guidance. And of course, [indiscernible] skepticism of how do you get from 0% to 8% to 9%. In midterm first, we never -- we have minimum midterm, we never put a year on, but typically 4, 5 years in the future, the answer is always the same. The 6% to 7%, what we need to achieve 6% to 7% is breakeven Digital Web and our banknote business and Sheetfed business at historical levels they were pre-COVID and then we'll be a 6% to 7% company. The difference between 6% to 7% and the 8% to 9% is our new business models, which we've talked about in the past is we are expecting digitalization efforts and consumables in the ink business, et cetera, to help drive higher margin quality going forward at the end of that 5-year time frame. And that in consumables, on digital printing and digital business models will contribute to that gap between the 6% to 7% and 8% to 9%. And that's the background of our assumptions.
And of course, there's also a slight uptick in volume up to the EUR 1.8 billion. So it was also a margin effect from the core business on top of those margin quality improvements in the new business areas. That's the answer and we'll need to communicate that as transparently as possible.
The next question comes from Jorge Gonzalez from [ HAIB ].
I would like to start with 2 clarifications, please. Regarding the financial cost of the third quarter that my colleague already asked, but I'm not sure if I got it right. So you already had the extraordinary costs for the refinancing during Q3. That was your answer?
There won't be any material effect in Q4. That was the answer.
Okay. Okay. Okay. Okay. So I mean if we consider that the -- I mean, if the assumption was that the debt was flat, that obviously is not, but these levels could be the run rate with fixed interest rates, with fixed debt? I mean, it's nothing extraordinary in Q3?
No.
Then regarding the order intake, I mean, there were some interesting comments. And also putting those comments in context with the range of the guidance. So this almost EUR 10 million difference between the low end and the high end, I assume it's all explained by the banknotes order intake for the fourth quarter. I mean making a quick number, it looks to me that it could be a [indiscernible] we are talking here of more than EUR 40 million or even EUR 60 million or something like that. Is this correct? I mean you are waiting for being able to book a very large order or not necessarily is the case for the fourth quarter?
I think the answer is that very large is a question of definition. Every banknote order is easily in the higher 1 million digit figures, occasionally in the lower 2-digit million figures, even if it is not a large order, as you might have remembered from -- from Egypt, which was a very large order. So if a normal banknote order, which by definition is a large order as compared to all the other machines which we sell, which are not in that region. If a banknote large normal order, which is large, gets delayed and has a certain level of, let's say, already existing components and groups, and we cannot [ pop ] that, then the EBIT swing is significant. And since we [ pop ] the EBIT swing comes with order entry and not as in Sheetfed, let's say, 8 or 9 months later. So if 1 or 2 or 2.5 or something, normal banknote machines are ordered a few weeks later or a few weeks earlier over the end of the year, that is already the possibility that the EBIT swings several million back and forth. But it is not limited to banknote. It's a general assessment that we have in taking all the risk and chances, but the wide swing has a lot to do with that. Stephen, do you want to add something to that?
No, I think you answered it correctly. So a bank -- 1 banknote order will always have an impact on profitability immediately. And that's the main explanation for the large range we continue to have on the EUR 25 million to EUR 35 million. So your assessment is correct. With the exception of the EUR 40 million, we don't confirm, it can be a much smaller order that's still less. Still in our world, be a large order, but not EUR 40 million could still have an impact that's well in that range.
No, because -- yes, I mean, I see that the order backlog for Special this quarter is below the last 4, 5 years for this time of the year. And obviously, after your comments, I mean, it could be in part or completely related to this situation. But is this, in any case, I mean, creating some kind of concerns for next year for Special or with the backlog you still have, this will not be -- there should not be a great change in terms of what you are planning to book in the following quarters. I mean is it going to be much difference, these orders that you are expecting to come at some point? Or with the backlog at this point, you still have good visibility for 1 year in Special, I mean?
It is -- let's for a moment assume that the largest business in Special is banknote and not talk about the [indiscernible] and that's dominating by clearly. In banknote, it is very, very difficult, actually impossible to make projections of order entry per quarter, not even to talk about per month. The orders which we now look at and some of that are the reason behind the spread of EUR 10 million. These orders, as I said before, are not orders which are normal pipeline orders where we have great hopes and we want to speak with the customer soon, and we think he would like our machines, but they are very much at the top of the pipeline, but they are not yet legally in order entry, but they're very much at the top of the heap.
And there are some decisions outstanding to implement a legally valid order. And that's in governments is unpredictable if that takes months back or both. And therefore, the swing over the year-end date can cause the spread of EBIT forecast, which we have.
Okay. And finally, from my side, Stephen Kimmich commented that Q4 is expected to be robust. With -- in this regard, you are expecting taking the Special [indiscernible] out of the picture. You're expecting a quarter pretty similar to last year, maybe slightly above. That was obviously last year was a strong end of the year. Or you are expecting something different, I mean, even much better because looking into the end of the year, I mean I think you will need digital not to deliver more units in the last part of the year. This is an assumption that is may be valid that you are going to be able to clearly push forward the delivery of more digital units in the last part of the year? Or is it still going to be the engine of the results for the last part of the year?
So I understand the question, but as you know, we don't give segment guidance. The short answer to your question is we're going to -- our guidance quarter implies a Q4 between EUR 27 million and EUR 37 million of profit. And that's slightly better than the Q4 last year and implies also a strong quarter across all businesses. And that's what you can expect. I'm not going to give details on specific segments. I think we only have 1 minute left, and there's 1 more question in the pipeline. If that's okay?
Our next question comes from Patrick Speck from Montega.
Maybe a quick one as a follow-up on your comments on the cost saving measures you already made. Could you quantify the effect you expect coming from it for Q4 already, maybe or at least the upcoming quarters?
I mean I understand the question, but again, [indiscernible] goes into too much detail and the measures, of course, now being implemented, and we have predictions, we have assumptions, but we're not going to put a number on that for Q4.
Would it be a headwind or a tailwind for Q4 already when you implement these measures?
Of course, it's -- no, it's certainly more of a tailwind. So the measures we're implementing will help Q4 and not hurt Q4.
Yes. Okay. Maybe in the short term, it might [indiscernible]. Okay. Another one, a quick one, if I may. Your development against the market in terms of orders. Despite the strong increase in Digital & Web was slightly -- there was a slight underperformance against the market, and despite your state-of-the-art technology. Is it more a base effect? Or do you see any other structural reasons for that?
Not really. I think we can mostly comment on our company. Comparing things is sometimes difficult. We see the weakness of our order entry in Q3. That is a clear situation. But comparing things is very difficult. The split-up of segments which we have is different than other companies might have the business model, the products might be different. So it's difficult. We analyze that we had weakness in order entry in Q3. I think we said a lot about that. And that's -- besides in the world of mixed message, the [ bad ] of the mixed messages, but it is very difficult to slightly compare, and we have to do our own homework.
And I would add one more comment. If you look back over the next -- over the last 2 years, we outperformed our many peers and the [indiscernible] benchmarks throughout most of 2022. So our starting point was also -- the year-on-year comparison was also higher. So if we look at just the [indiscernible] benchmark for printing industry, the overall market was at minus, I think, 19% in Q3, and we were at minus -- sorry, vice versa, the overall market was minus 16%, and we were at minus 19%, so slightly worse than the market, if you look at the [ VDMA ] benchmark, you're accurate. But again, if you look back 12 months ago, we were outperforming the market.
So the drop in a percentage is, of course, higher. So overall, I mean, just 1 example, 1 benchmark. Looking at our total order backlog, we're not dropping into the deepest [ value ] of everybody. It's just a negative trend.
Gentlemen, this was our last question.
Next question will come from Mr. [ Rees ].
I'm sorry. We don't have Mr. [ Rees ] on the line. [indiscernible] closing comments.
Andreas?
Okay. closing comment, right. The business model, the strategy is the right one. We have homework to do. We have mixed messages, some things work well. Some things we have to get things in better shape. Stay with us. We're looking forward to our next conversation.
Thank you very much.