Interroll Holding AG (INRN) Earnings Call Transcript

So good morning, good day. It's almost 12:00, and welcome to our analyst conference of Interroll of the results of 2023. Thanks for being physically here in this room. I just wanted to let you know, we are also online. So we have also participants joining us online. Therefore, I would like to remind you when we go into the Q&A sessions, [ Yu ya, Waynad ] will be so kind to handle out the microphone so that also the participants online can join the discussions that we're having. Okay. Let's immediately dive into that. We are here present today as Heinz Hossli, our CFO; Maurizio Catino, the CSO for Sales Officer; and myself, Ingo Steinkruger, the CEO currently also in Personal Union as a COO and the CTO. We will provide you with the welcome and the group overview. We will then dig into -- with Mr. Hossli into the results, then we will have an outview into the customers and our focus industries. I will then go into the innovation, digitization and service, and I will also line up and finish with the outlook. What a year 2023 was for us. I just got a feedback that last year, our outlook was a little bit hesitant. But last year, we said at the beginning of the year, after having received a high order intake in January with major orders, especially also out of the U.S., we were very confident that this year will start good and it did in January, but we saw then in the next couple of months, the order intake deteriorating into the wrong direction. And we finally ended up with figures that I'm going to present to you in a minute. But the takeaway was that basically, we saw that our customers, especially on the product business side, were in the so-called destocking phase. So our most important big customers did not place any orders with us in the beginning of the year because they had a lot of material still on stock. And I did a lot of visits with customers and also small customers and even on small customer side, they were crowded with rollers and roller drives out of our product portfolio. And in the second half of the year, the situation improved. So we saw order intake on the product side coming back in, especially from the bigger ones, but not on a level that we have experienced before -- the year before. So the economic downturn also hit us there. So what was the -- our strategy to cope with that situation and the best strategy to deal with the situation is basically the strategy that is our long-term strategy. So we were able to react on this. The first one is the topic of cost fitness. So we will see that. And Mr. Hossli will also give us an outlook into that, we were really looking into how can we mitigate our fixed cost? How can we make sure that the cost level that we are having on -- with our facilities going to be on a low level and to defend the profitability of our company? This was a strong measurement that we put in place in the last year. Second one was the pricing strategy. So instead of lowering the price to gain market, we took the decision and I took the decision to keep the price as it is right now. Because we saw that we were in an economic downturn, and we made the decision to keep the price level on the level to wait until the market is coming up. And this paid off into our profitability as well. And with that strategy, and this is the most important topic is we were able to gain back customers. What does that mean? In 2021, 2022, we lost customers in the big peak of order intake because our delivery times went into from 2 days into 3, 4, 5 months, plus the situation that we were challenged by the missing semiconductor situation. And this also extended our lead times, and we lost customer that went to our competition. In the last year, we were able to gain back these customers, to win back these customers even with the high price level that we had in place. And the good news is we even engaged and onboarded new customers that we have not done business yet before with and this is a very strong signal into the market. And the last bit is the scalability. It paid off that with the long-term strategy that we put in place, we can down-grade and we can upgrade afterwards. And this is the strong foundation of this company when we look into the future. In numbers, this is the order intake, CHF 519.7 million, we generated turnover in sales of CHF 556.3 million and an EBIT of CHF 83.9 million. And this distributes in order intake numbers 10% in Pallet Handling. This is a very strong business for us, still potential for growth, 40.7% in Conveyors & Sorters, 18.2% in Rollers and 31.1% in driven rollers, we call them Drives. As Second topic I'd like to place today is this slide. And I show this slide and my predecessor showed this slide also in every analyst conference. Why? we could get bored of this slide. No, we are not because this shows our long-term strategy. So we're coming out of the situational restructuring, repositioning and divestments and acquisitions, went into the platform concept, global footprint and end user approach, and we are now in the third decade. And this is, for us, a very important one because all what has been done here is a foundation for our third decade. And this is where we are really looking into and strengthen our modularity to generate scalability, strengthen our digitalization approach, and I will come to that in my second part and we are looking into industry solutions because we are not just selling our projects and our solution. We want to come more into the application and fulfill customer requirements immediately and business excellence. So making sure that our production processes are on a global level, high standards that is in the material flow industry. So highlights of our growth strategy. You know that our growth strategy is based on 3 major pillars: products, projects and service since 2021 -- since we've generated or initiated our service initiative within Interroll. And if we look into the structure, I told you about the increased customer base. Mr. Catino will give you details about what that exactly means. But we also started in 2023 our customer experience team with -- to set up the digital strategy to make sure that we can create even more customer orientation within our company. I'll tell you, in my second part, what we exactly mean with that. Three weeks ago, almost 3 weeks ago, 2 weeks and 5 days, we launched our S/4HANA system. And this was, for us, a very major important milestone. It took us the last 3 years to prepare that launch. And I can tell you, I've been in my life through a couple of launches, when it comes to ERP systems, I've never seen such a smooth launch that we had at Interroll. So we were sitting together Sunday night at 6:00, and I gave the okay for Monday morning, and we launched it, and there's no customer being affected. We had some issues that we coped with, but there was no customer effected with the S4 launch, and this is a great achievement of the team. On top of that, on the structural side, we also strengthened the position of Mr. Catino, the Chief Sales Officer and we have now separated our sales team in two sales team, one is responsible for product, the other sales team is responsible for project to focus and sharpen our know-how and to get a better customer understanding and get closer to the customer and we also put the service underneath the responsibility of sales of Mr. Catino because I strongly believe that service and sales are a strong weapon to understand what the customer requirements are. On innovations. Last year, I told you about the high-performance conveyor platform that we launched at the LogiMAT, which we did. And I can tell you this was a very attractive session at LogiMAT. There was a lot of attention on our multibelt switch, and I will come to that in my second part to give you some details on that. I repeated -- I said that this morning in the press conference as well, there was a very important customer of us, who is doing business with us on a global basis, and he was standing in front of our multibelt switch. And he told me like this is the first real innovation that I see at the LogiMAT this year, and there were robots moving around and artificial intelligence. And I give you the details why he said this in my second part. Modernization of production facilities. We launched in our plant in Wermelskirchen, where we manufacture rollers and roller drives, a piece of equipment, machine that manufactures 3.5 million rollers per year, without tool changing time. So it can produce whatever kind of roller we have in our portfolio, and this is a portfolio of 60,000 different rollers; this machine manufactures these rollers without tool changing time. Impressive! Europe service business running, we established that in 2021. If you remember that in 2022 and 2023, we ramped up the service business in Europe and this is now well established. We deliver spare parts within 48 hours to every location in Europe, which is quite a good achievement. We also started in 2023 with the ramp-up of the service business in the U.S. And I can tell you, this is a success. So we have created a team. I'll come to that in a minute. And we are doing a lot of good businesses and also go into new areas of business with the service, is very good for us. And we also finished the expansion of our location in Brazil last year. Looking a little bit into Asia Pacific and what's going on this year, Mr. Catino will give you an overview of what are our ideas when it comes to increase the sales presence in Asia Pacific. We have started now after initiating service in Europe and also in the U.S. This year, Asia is in focus. So the team started in the second week of January for a tour into the APAC region, and we are now setting up the team and have also started with the education of the people out of Asia to make sure that we are on the same know-how level and this year, we will also move into a bigger location after the good business we had in the recent years in Australia. This will happen by mid to end of this year, depending on the progress of the bidding. In October last year, we announced that we will go into a transformation and will put -- will split the position of our Executive Vice President for Product and Technology to focus more. Why do we want to do this for us are one of our customer promises or the customer promises, quality, speed and simplicity. And we see how powerful that is, what kind of benefit and value-add this gives to our customer, and we would like to strengthen this. So we would like to further strengthen our customer promises. How are we going to do this? By putting a clear focus on production, product and customers. And this is -- needs to have like a little bit of transformation, also a little bit of different structures. This is why I announced to create the position of a CTO, Chief Technology Officer and also to create the position of a Chief Operations Officer so that we have a clear understanding what is the best production that we have to have for our global facilities. Second is what kind of additional products we can implement into the platform in the future, because we see that there's also a lot of development in the intralogistics industry and we would like to keep up with that moving forward. And as I said before, we also strengthened the position of the CSO with Mr. Catino by also putting together the sales organization with himself and also the marketing information so that we have that all summed together under one responsibility. This was it from my end side, as a starting point. We will now dig deeper into the numbers, and this is where I would like to hand over to Heinz. Thank you.

Thank you, Ingo. Ladies and gentlemen, a warm welcome also from my side. I have the pleasure to present you the financials '23. I will start with the order intake. As we already published in January, we suffered a decline in the order intake of 9.2% compared to '22 and we had also strong foreign currency effect in local currency, it's a minus of 3.9%. When we look at the 4 product groups, there is one with a positive sign, Pallet Handling. Pallet Handling per sale is very cyclical, and it's also this year very cyclical. It is positive on the order intake. It's negative, heavily negative on the sales side. So this is always going up and down. But also the conveyor and sorters, which has been really the strong element of growth in the last couple of years is with minus CHF 8.6 million negative, despite what Ingo mentioned at the beginning that we had a very good start with several big orders from the U.S. when we went into '23. The market in the first 6 months was really destocking in Europe was very heavy. Then in the second half year, we turned completely around destocking with the big integrators over but general low demand as the general economy went down. Looking at sales, the picture is the same. And I think this is not really surprising sales of CHF 556.3 million considering that we also had a very low backlog when we went into the year, I think this number is still quite a good number. You can see this also on the book-to-bill ratio, which is the second time below 1, so this is really not a good sign, but we have now an even lower backlog going into '24, but on the other hand side, we are now in a very long downturn already. And as the outlook stated already what we published this morning, it's the probability that we go even lower without any significant external event is quite low today. So I think this is also some good news. When we look at the region, very diverse picture, Europe, strongest suffering region. It's also the biggest region for us, but clearly, here, we had the biggest impact with negative minus 24.3%. Americas minus 13.3% and Asia Pacific plus 24.3%, but plus 24.3%, I would like to make this very clear now, we had a project, which we announced in December '21. We received this in South Korea, about EUR 14 million. This project was invoiced and realized in sales in February '23. So this boosted the entire APAC regions result when we look at sales. When we look at the distribution, the share, EMEA is now back to 52%. This is exactly the same value where EMEA was in '21. Americas gained another 2% to 35% and Asia Pacific gained back 4%, but also considered the Korea effect is also in here. Nevertheless, we went again a step into the right direction. So we always said the midterm plan is to have 50% out of EMEA, the most mature market and the other 50% from the other 2 regions, this remains in effect. This is still the target. This chart basically says everything I don't have to comment too much, but I would like to really highlight it because we always get compared to other industrial companies in the same segments. The difference is we report in Swiss franc, the other ones report in Euro. What we did is we have taken the local exchange rates 2019. We have frozen them and continued to '23, so you can see this is 4 years. The FX impact only over these 4 years is roughly CHF 100 million. So it's a very significant amount. Nevertheless, Interroll will continue to report in Swiss franc. So there's no reason to change the policy. And coming now to the profitability. The profitability in absolute terms, clearly suffered also from the lower topline. We have now CHF 83.9 million EBIT which is a decrease of 20.2%; in relative terms, the margin decreased by 7 basis points from 15.8% to 15.1%, so minus 0.7%. When we look at the EBITDA, this looks a little bit better. The EBITDA is CHF 106.3 million, minus 17.8%. There were 3 reasons why we could manage to keep a strong profitability margin despite this huge drop on the sales and I would like to mention them one by one, and then I'll go a little bit into detail. But the 3 are really pricing on the market, it is purchasing and the second one is cost discipline. When we talk about pricing, this is what Ingo already mentioned, we were quite strong and did not make a lot of concessions on the pricing because we are clearly convinced strategically to lower the price level at the customers in a downturn with low volume, would be good for the first year because you could secure higher sales but it would be very bad for the continuous years because you will not bring this margin up with the same customers. This will take you years if you are in a position to get this up. So you can -- in other terms, you can also say we sacrificed maybe some of the top line. We sacrificed some of the sales, but we kept the margin and our real prices in the market on a high level. And this is ideal position together with gaining small new customers to be in the position during a rebound to really leverage our profitability. And this is where -- what it's all about. So maybe negative impact on the short term, but clearly positive impact on the long term. The second one is the purchasing side. Also there, it was very clear in the second half year, we benefited from better purchasing conditions, where it was still in the first 6 months more a sellers' market. You had to accept what they offered. This general economic downturn was clearly visible also on the purchasing side. So raw material purchases, the negotiation room was much bigger and we benefited from this. The last one is the cost discipline. I think this you know all; this is the strength of intro, this is in our DNA, and this is where we are really strong. We could adjust to these changes to the lower volume. We managed fixed costs, we variabilize fixed costs, but we managed them in a very effective way and we are very agile in adjusting to new circumstances. And I think this is important in a downturn, but this is also important when it comes to a rebound. We are ready for a rebound. We are ready for both scenarios, and we have always been ready for both scenarios. And this is clearly our strength that we can react fast. So even we get sometimes question here, what happens if the market returns with a growth of 20-plus percent. There is -- we are ready for it. We can scale up our capabilities. We will hire new temps in the manufacturing side, but we can do this in a quite short notice. And this is important. On the result, I don't have to say too much because basically what you have seen as an effect in the EBIT, it goes down to the bottom line. There is really not much to say. We had generated more financial income from our cash. But at the other hand, we also had more foreign exchange losses, which basically almost netted and the tax rate also is basically unchanged. We are now 20.9%, last year 21%. So effect between EBITDA and result basically 0. Then I come to the highlight. In my view, the absolute highlight is the operating cash flow with CHF 113.2 million, a plus of 58.5% and this was only possible because we optimized the net working capital. The 2 biggest drivers is the reduction of inventories, where we also pushed like others in the industry to really bring inventories down. We did this with a CHF 25.5 million effect on the cash flow. And we also reduced accounts receivable, but our accounts receivable is more related to the lower top line. So lower sales, lower accounts receivables. Nevertheless, the operating cash flow together with the lower investments with CHF 25.1 million resulted in an absolute record free cash flow of CHF 91.1 million. This is the highest value Interroll has ever achieved. Looking at the value creation, I would only like to highlight the last 2 years. You can see that both lines return on equity as well as the -- sorry, the return on net assets is going down compared to last year. Two very different reasons. The return on equity is very simple. We have now more than 75% of total assets is equity. So equity ratio is very high. The second one, return on asset is clearly coming from the lower sales. If sales rebound, this will go up because the investments we made already. Thank you Ingo. We are -- the investments we made for our capacity to come. So we have the capacities installed and we are ready for our future without any bigger investments. So the return on net assets will rebound as the top line goes up. Now I come to the dividend proposal. The Board of Interroll has or will propose to the general assembly on May 3 to keep the dividend stable at CHF 32 per share, which means that this is an increase of the payout ratio to 41.2%. So this is a change in the policy. In the past, it was always more or less 1/3 is paid out to the shareholder, 2/3 reinvested into the company. But on the fact that we have such a solid balance sheet with a very high cash position, this is underlined to go forward also with this. We keep it stable. I think it's a good sign also to the outside. It's a sign of strength and this will be proposed to the AGM. Looking at the dividend development over 20 years, I don't have to say too much. It is now stable on the top, but with our -- there are 2, 3 years in, which is not exactly the case. But in general, this is a reflection of the profitability of Interroll, how the profitability has developed over the 20 years, dividends coming from [ CHF 15 to CHF 32 ] and I think this is a considerable increase over 20 years. Now we will have a few slides to the sustainability. It's the second year that we publish a sustainability report. The first one last year was a baseline report. Now we did a progress report according to the same standard. We use GRI as the core standard, but we integrated also now the new Swiss law, article 964 from the Swiss Code of Obligations. And we also continue with the UN SDGs and the Global Compact. On the material topics, we did not make too many changes. We changed one. We reduced from 12 to 11 topics. We eliminated information security not because it's not important, but we added the information security topics on the corporate compliance. We believe that this makes sense and we reduced to 11 now. And we also said, clearly, we will have 3 focus topics in the future in the coming years, and these are climate protection, environmental protection and occupational health and safety. What is totally new in the Sustainability Report '23 is the CO2 emissions, for the first time we calculated the CO2 emissions with external support for the financial year '22 and financial year '23. On the left or on the right side on the chart, you can see now Scope 1, Scope 2 and Scope 3. The Scope 1 and Scope 2 together is 2.2%. Scope 3, which is not directly influenced by ourself, 97.8%. So it's a very clear picture where the emissions are. And if you look at the categories, there are 2 dominant categories. Category #1 is the lifetime of our equipment at the end users. So not even at our customers at the end users and the category #2 is coming from purchasing resource materials and components. This is the last slide from my side. I think this is really something we are proud of. We started with EcoVadis. First, a few years back, we got from customers requested to participate at the EcoVadis assessments, what we did. And then we learned this tool and this platform, and then we decided to use it also for ourselves and also push it through our supply chain. And our facilities participated at the assessment some for the first year, some for the second year now in '23. And what is really outstanding is that all entities score above average sector. This is really a good achievement because we have a lot of small subsidiaries. So there's not a huge manpower focusing on this and this is a very good pour. We have 3 which came in with platinum, Australia, Brazil and our polymer factory in Ticino. We have 10 gold medals for silver, 1 bronze and also the group scored as an entire unity has got a Silver medal. This is really a remarkable team. With this, I conclude, and I hand over to Maurizio Catino.

Thank you, Heinz. Good morning, everybody. So I'm here now presenting a little bit what happened in 2023. Ingo start with [ what he hear ] and being in sales, I can only confirm [ what I hear ]. We have taken some actions, strategic action. And I will give you an overview on what kind of action, why we have taken these actions. What are the expectations for '24 and going on? I would start from this, Heinz has already explained the share. This is obviously pretty clear when you compare from 2022 what happened, basically EMEA, our main region has been the region which has been impacted the most in this critical situation, in the past situation that I will show you, going from 58% to 52% of our share. Basically, U.S. has kept the share we started and kept a good project business during the entire 2023 while APAC, let's say, entire APAC is showing a growth, Heinz explain you why, basically because of one of big projects. Nevertheless, I mean, Korea and Australia did perform pretty well, while the Chinese area is not really following the same trend, the others did. But why? This is a graph which we pretty much use in sales, is a ABC analysis shows you the big, medium and small customer development in terms of sales. On top of this, I always measure the new and recovered customers that during the year, this is a rolling let's say, 12 months here. We acquired. Why? the focus for 2023 has been clearly on customers, because the customers that we have lost during the crisis of raw material has been substantial, both, let's say lost because they went to competition, but mainly lost because they overstocked our product. What happened in a nutshell? When you see that the main drive is the big customer, the A customer. The A customer we're facing in 2022 with a very strong order entry. And remember that these guys are working in projects, so 12, 18 months of delivery. Due to the situation, they were highly fearing that they had no material to complete the projects, so to invoice their projects. So they basically bought the entire amount of product that they need for 18 months, and this was sitting in their stock. And we have tried to deliver this amount of product that they are asking for. And I mean, protecting our top customer is obviously always a priority in sales. So this was reducing the double effect. First of all, we were struggling and struggling more to deliver this amount, huge amount of products, and on the other hand, we were lowering our, let's say, normal delivery time because, I mean, we require more and more time to fill this capacity. And this is pretty clear in this graph. This is 100% clear. You can see the black line is our number of customers. And the yellow line is our sales for products. So what happened? Customers started to go up in 2021, the demand was increasing. And then you see the sales, they were rocketing up, that was completely out of control. Unfortunately, when we reached the peak, we will start struggling. And one of the driver of our product is the delivery time. So we have to be quick fast. So the sales starts to drop down and as well the number of customers because the medium and small customers during 2022, they were trying to find the material everywhere, they -- this was able to find them. And basically, we have started to work mid of last year, but very strongly also in 2023 on recovering this customer. You see the black line mid-2022 on going up. We are not yet at the peak in 2021, but we are basically reaching a good level now. This is why we are thinking we have reached the bottom. You see now that the yellow line is more or less flat. And with this customer base we have now, we are ready. When the market is catching up again, we are basically back to our performance. So our delivery time is back on track. Our performance is again great and most of these customers coming back to us, they are telling us we're happy you're back. And the reason why we were buying from you in the past is the reason why we're coming back again in the future. A little overview on our ROI program. You -- some of you know, some not. This is a partnership program that we have with midsized customers, mainly around the globe. So this is a partnership that enable this midsized customer with our product for them to attack certain sites of project. Otherwise, they wouldn't have been able to do that due to their size. So these are very, very loyal customers. We are increasing these community more and more; you see the 10% increase during 2022, but the more important is the 44% increase of the [ onboard ] spend. So almost all of these customers, they have increased their spending in 2023. So just for you to understand how important are these customers for us. They give us a clear picture of what's going on in the market. They are very loyal. So they are really intro focused and in some cases, they are also giving us direction on the future trends in the market. So even innovation is achieved by this customer. So we will keep working on them. You see that we have 11 new ROI partner in 2023, and now we are close to 130 customers in ever -- in total. So let's go a little bit in 2024, what we see is going on in the market. So most of you know these are the markets where we are basically in since ever. And you see underlying in yellow where we believe 2024 and on, there will be a strong focus for us. The first one is by far airport business. The airport business was basically stopped during the COVID times. No investments, of course, no travel and now also driven two new technology coming up into the market, most of you traveling have seen that in some airports, you are not requested anymore to take your laptop and your liquid out of the bag. This is a new technology. And we are, together with this producer in this market, delivering all the handling line. So we see here a very big opportunity not only for 2024 but for the coming 3, 4 years. So this will be a kind of retrofit of several airports in the world. So this will be one of the biggest driver for our future growth. Warehousing and distribution. I mean this is -- keep going -- it's a market which is now driven a lot by a third-party logistics provider. So the 3PL company I mean more and more 3PL is a request to take care of the logistic area of end users. So we see this growing. We see our demand growing. And I would say the request for automation is also more and more. So we are confident that this will give us also good opportunity. Tire and automotive, specifically Tire, I would say, it's boiling the request. So Tire is a very high-energy demanding industry. So they consume a lot of energy to produce tires. So they are absolutely very keen on power consumption. And they were, in the past, using a lot of, let's say, normal voltage technologies. When they have discovered now our 24-volt technology, so low voltage, low consumption, they are pretty much happy. They can use this technology and also report on how much energy they can save into their, I mean, annual reports. Last but not least, industrial manufacturing. This is a trend and our new top loader interfacing AMR, so autonomous mobile robot to conveyors is growing. More and more production is connected with logistics. This is pretty much the trend. There is a big driver for this trend. I mean, it's more and more complicated to find employees in production and especially into the warehouse. There is a big shortage of people. So the automation is really, really the focus for industrial manufacturing. And I think we have several products that fits perfectly to these bids. Last but not least, we see there are some white spot in the market, where we want to tackle. I mean, we are basically going for 2024 on into South America, India and part of Southeast Asia more specifically, Indonesia, Malaysia and the Philippines. This is where a lot of the world population is and you easily understand that our technology, so moving goods is quite a lot connected on people needs and people purchasing. So we believe and we are planning to get stronger into this yellow region. That's all from my side. I'll pass to Ingo. Thank you.

Maurizio, thank you very much. So I would like now to come into the closing part. But before we go into the closing part, I'd like to give you a quick outlook into the innovation that we've introduced into the market last year. I told you about the high-performance platform, what you see here. If you know our product portfolio and you know our Modular Conveyor Platform, the so-called MCP, you see a lot of similarities in our high-performance platform. So what is the high-performance platform we made for? This is for the Korea Express parcel business, high-speed transportation, high-speed sortation. Though this is a consequent development and the extension of our platform for high-speed sorters, and this comes with high-speed sorters, but there's one innovation in here, the one that I told you about the end customer that was so keen about that innovation. This is also a sorter. In this sorter, if you look at this from a size perspective, if you look at it from an energy perspective, if we look at it from a speed perspective, this is not existing in the market yet. This is an innovation, a real innovation. Why? This bridges the gap between diverters, which can sort up to 3,000 goods to be conveyored per second and the usual cross-belt sorters, which start at 10,000 goods to be conveyored per hour. And this bridges the gap in between from 3,000 to 10,000. And this is creating a lot of interest into the market. So we're in discussion with customers, we are in discussion with end users, we had a discussion with [indiscernible] business, and this is quite interesting. So this drives also this kind of product portfolio into the market. And I can share that here as well, we just very close to win a major project in the Americas, in the northern part of the Americas, with our HPP platform, and we are very keen on this. It has not been finally signed. Here, another innovation. You see a mobile robot -- autonomous mobile robot here. This is not our delivery content. To be clear, this is not our delivery content. This is, for example, shadowed out. I think it's an OMRON. There is lot of autonomous AMR manufacturers in the world, 2 that are very prominent and very big is OMRON and MiR, we went into a partnership with OMRON and with MiR. Why? Because we see that we have a system boundary between a conveyor that is fixed installed and a conveyor that is flexible. And there's a lot of applications coming in this market due to the fact that there's a lot of workforce missing. There's new technology coming into how we sort, how we deliver, how we sequence goods and therefore, there needs to be a connection. And if you look in the Internet, there's a lot of solutions that have exactly this. But none of this solution is based on the platform. But what does it mean? There's no programming effort anymore. We deliver this part. This adapts to the AMR. So there's 2 different parts for MiR and for AMR. And by the way, both companies have our top loader in their product portfolio and selling this, right? And this 1 -- this part here is the platform that goes into our Light Good Conveyor platform, also called LC platform and interfaces with the conveyor. Three major topics. One is exact positioning; second, communication from here to there so the goods are being traced; third, ergonomics, if I hit this [ e-stop ] everything stops. If I hit the [ e-stop ] here, everything stops. So this is safety and ergonomics also considered, and this is a simple-to-integrate faster integrate solution. This is what -- how we think. Now coming back to the launch of S4, you see that here. We've been strongly believing that you have to have digital processes in your company. This is why we invested in 2030 heavily in implementing R3, SAP R3 as a foundation of our ERP software. We have now moved into S4, which gives us with that kind of tool, with that kind of application, the ability to go now into the digital transformation. We want to increase speed and simplicity with our customers. What does it mean? Our generation, my generation is getting older, and there will be other generations coming on. And their way of buying goods may be different compared to the past times. I remember that there were even times when you had to send the fax to place an order. There might be the need in the future that you communicate with Alexa or with the other computer voice of most of these devices here, which I don't want to name because then mine one switches on. And people are asking for who has the best product portfolio today and when is the delivery time? And we need to be prepared that situation. So what we're doing right now is we're setting up the digital foundation to be prepared for the unknown because we don't know how the future will look like in 5, 6, 7, 8 years' time. But we want to be in a position to not follow, to be adapt to the needs that are coming up. This comes along with the seamless customer experience. So we want to have an interconnected communication with our customer instead of call, getting the phone and discussing any -- where is the order right now, we would like to deliver that information on request and then take the time with the customer to understand his problems for the future and then generate more business with the customer. And what is also a major key topic that we have now and focus is the value-add through our product so that we generate additional possibilities with intelligence and digital service with our products. This is what we are currently working on. On service, just quickly, European side, the U.S. side, we started 2 years ago with that one. We have tremendously reduced our reaction time with the setup of the service team right now. This is all up and running. We're delivering now spare parts within 48 hours in Tire [ placed ] in Europe. We have more spare parts sold last year compared to the market. So the business in service is growing, and we outperformed also with that part, the current market. And we have now established a strong team, not just in Europe because this team is also interfacing now with the American team. This is now under one leadership and in the responsibility of Mr. Catino. So we are setting up strong forces here. We have extended our portfolio now also in a retrofit. We took like, okay, let's try this out and we took our product, the belt curve that is manufactured in the center of excellence in the U.S. We do it also in Europe and also in Asia. But here, we got in Canyon City, the center of excellence. And with that, we increased our -- but we overachieved our budget by 13% just because we went into the retrofit business. So there's potential for us in the future as well. Before I go to this, I would like to conclude. I would like to show you a quick video. This is just a part of a video. I can only invite you to go online on YouTube and watch the entire video because it's very interesting. Why I am showing you this video today, not to bridge time. It's more -- this is a customer Avarto. This is a 3PL logistics company. And we see this customer, they have 100 facilities in 17 countries, and we see these kind of customers growing. Yes, because the big ones, they have their own third-party logistics with in house, but there's other companies growing and they're not investing into the logistics part. So they are relying on the third-party logistics. And this piece is growing. And Avarto, for example, they have a clear understanding of their strategy and their strategy is 2 things: flexibility because they need to be flexible in how to set up their facilities because at 1 day, they do, like say, third-party logistics for cloth, the other day for automotive parts, the third day for, let's say, tires, whatsoever, and scalability because they need to grow or to close down and go up somewhere else. This is what they are looking for. And they approached us and we went into a discussion and we invited our -- one of our rolling on internal partners, Authentic from out of the U.S., a very good company. And what we created is an installation based on a virtual programming in the cloud using our MultiControl card So there's no interference between Siemens or Mitsubishi or Allen Bradley. This is all being programmed in the cloud and is steering our system and gives the flexibility and the scalability to the customer. And this is quite impressive because this is not a very tiny little installation. It's like this. [Presentation]

With that, I would like to conclude. So Interroll, we have a very strong focus on customer market. This is in our DNA, and this is what we have always had in our heart for 65 years. By the way, this year we're going to celebrate 65 years of Interroll, and we will keep that going. And we have that established with strategic partnerships and we are looking for end customers, and we are looking for system integrators as they go into a closer relationship with us, and we are working on this very hard. We just established the sales team that is as a global key account for an end customer, the first time in history of Interroll because we like to understand where they are going, what kind of product portfolio they need so that we can develop our product portfolio further into that. The rolling Interroll program, Maurizio told you about that, we have now 130 people, 130 companies in that program from Chile to Australia. And this is quite impressive. And with Authentic that you just saw, we're developing our applications further on. The digital sales platform that we established 2.5 years ago is growing, and we are pushing that forward because we see the need that other customers will onboard into that. The global lifetime service. I just showed you that this is the plan this year to go into Asia and with the transformation increasing and strengthening our customer promise; quality, speed and simplicity. When we look into the innovation pipeline, we will issue this year an update of the MultiControl card and hardware update of the MultiControl card plus a firmware update of the MultiControl card. Quite -- this has also been based out of the situation, when we went into the shortage of semiconductors in the crisis. We have now have a broader possibility to source different semiconductors for certain applications. So this gives us more security and stability if that could come again. We will extend next week on the LogiMAT, our sorter family. We will introduce a small wheel sorter; very, very interesting product because this supports the sorting ideal for midsized sorting centers, so distribution centers. And this goes a little bit into the last mile approach that we especially see on e-commerce side that the big companies are going closer to the customers. And this is from an ergonomical perspective and from an output energy-saving perspective, a very good product. And we will also introduce the sorter destination platform as the first company as far as we know that we have introduced the destinations also into our platform so that you configure and not redesign and reengineer every time the destination for the sorter application. You can choose and pick out of our platform, and we will also enhance our food platform. On business excellence, no matter what cost fitness, I think we showed this. This is evidence data this year. What we mean with that is not just a word. It's a real -- this is a real DNA topic that we have in our heart, the breathing production facilities to go down, but also with having the capacities in place also go up. We have the financial strength. You just show the cash flow numbers and we will foster our Interroll production system. When we look into the platform, we will be definitely deepening our platform. So all the products that we get on board will have an extension of our platform thinking. We have now with introducing into the sales organization the so-called customer project management team, we will also accelerate our interaction with the customer into the product management and delivering our sub systems. We will not forget, and we put this as a very major topic for us, sustainability and energy saving. And I just want to make sure that you not say like, okay, now they have a sustainability report, and that's it. We have just received a bigger order from a major customer who wants to exchange his driven rollers to ours because of 2 reasons: noise level and energy consumption. And this is where we are very strong, ergonomics and energy saving. And this is -- makes us quite proud. And this is also a good project for us. And last but not least, we deliver proven solutions. So based on the platform, based on the experience, proven solutions. To also give you an outlook. We -- and this is what you can read also in our statement, we think that the situation has bottomed out right now for us. Why do we think so? We've seen now repeat orders stabilizing. Repeat orders are the orders for products coming in on a monthly basis, and we see that stabilizing. We also see that in Europe, the product business is slightly increasing. We see that -- take Germany out but take the rest of Europe that there is the mood in that industry is also getting a little bit more positive. We don't see the business growing in the U.S. currently. So big projects out of the U.S are missing. And also APAC is on a healthy level, but on a bottom level. So with that, putting on top of that our opportunity pipeline is growing, but not with big projects, [indiscernible] is more smaller and midsized projects, which is also good that we see that plus the situation that we see the airport business is also growing currently. So this is how we currently see the situation. We will watch the situation. And I think with the strategy, with the measurements we put in place, we are ready as soon as the industry is coming back. Thank you, and we are now open to receive questions.

Emrah Basic from Baader-Helvea. I have a couple, I will go one by one. Maybe the first one is a clarification one. The slide where you showed the market focus in 2024. Is this -- are these also areas where you expect growth from 2024? Or is this your focus in terms of investments in 2024 in the areas you'd like to push more?

So I think this is the previous one. On you meant, right? Exactly -- so these are the areas that we see basically a growth and this is the area where, let's say, our sales team will focus their activities in a certain way. Okay?

Okay. Perfect. The second one also theoretic; in terms of sales, very insightful slides with your ABC customers development, could you maybe give us also some insight what these ABC means in terms of sales -- percentage of sales?

Well, then there is a rule who says that 20% of your customers are making 80% of your turnover basically, -- so I mean we are basically following the rule, the Pareto rule. so this is 80%, 15% and 5%.

And then you mentioned you feel that probably market has bottomed up for you. Do you see, though, that this first half 2024 is maybe rather prolonged one versus in the past, now excluding an outline of last year, maybe over the last 2 years. So what I'm trying to figure out is just, is it maybe kind of like a bottom that is being a bit stretched out, another sharp recovery that we usually have maybe in the cyclical business.

It's a good question, but it's really what we said there is the outlook. We don't know when we will see a rebound. So what is clear now, and this has been mentioned, we missed some big orders in the U.S., and we see positive momentum at least starting in EMEA and APAC is flat; more we cannot say today now. Whenever a rebound takes place, it will probably not be at the same time in all the 3 regions. We expect Europe suffered the most, it will recover part of it. But we have to wait until we really see this in an order intake. Then we can also communicate. But today, the outlook is as stated in the talk, there is no change to it.

Probably, I can also add something with it because we have also an online question. This correlate a little bit. If you don't mind, I would like to read that out and respond to that as well. "Usually, the leaders in the industry gain more market share than usual during difficult times like now. Do you see that happening as well right now? And if yes, what are the indicators telling you this?" And I would like to also accelerate on what Heinz was saying. We are a company that sees developing in the market very soon. Right? So if it goes down, we are the first one seeing it compared to others that have a long-term business like with project business. So if the market is going down, we see it first. And you saw that also in the numbers in the year before. But we are also the one that see when the market is coming up. We're also the first one that's seeing it. And we are there also compared to that question that we gained customers back not on the volume that is there that gives us a clear indication of the market is probably not that ready. But once it comes back, we are there. I think this is the best answer we can give at this point.

Perfect. Maybe just trying to squeeze 1 more in this regard. Looking at year-over-year first half 2023 versus 2024 in terms of orders. I mean -- is this something where you believe you're reaching that target, reaching that number again? Or is this you stays to your previous...

I gave you all the hints, you need to calculate a -- there were several big orders from the U.S., we have not seen them yet.

And then 1 last one. Very positive announcement with the payout ratio. Are you, by lifting it to 40% -- are you entering a phase where you have relatively speaking, less reinvestment opportunities for growth?

No, no, not at all.

So are you expecting to do act the same way in the next downturn?

We are not planning downturns. We are just planning upturns, right? So we don't want to -- usually don't go through a downturn, but we are a product company. So we are a production company. This is -- and we are global, we have a global footprint, and we want to grow. And for growth, we need financial stability, and we need the money, right? Therefore, we -- I think we are doing good, so we're trying to keep everybody, let's say, balanced. This is what we're aiming for, but this company is made for growth.

Walter Bamert from Zürcher Kantonalbank, you showed a nice global map with some yellow areas, could we have more explanation, which of these locations you will attack with sales organizations only or which are related to CapEx spending and that also leading the question to the CFO regarding the pushed out CapEx project? What should we expect for the coming years?

On the guidance for the CapEx, maximum 5%, there is no change. And probably we'll be below the 5% also going forward. We have switched now from capacity. So really, we have built a lot of factories in the past. Last year, most of the investments did go into modernization of our production plans. When you talk about this yellow spots, this primarily is we want to penetrate sales. We are not planning to have production setups new in this white spots.

Also in India?

India is a totally different one, India you have to exclude. If you go to India, you have to go to India and assemble in India, because the import tax into India is so high that this makes no sense. If you really want to attack India, you need to go to India. But the other ones are more localizational.

Could you tell us more about India?

Not at the current time.

But you said assembly.

We said when we go into India, we go into India with clearly with assembly. You have to do the value-add in India and you have to avoid the import tariffs.

And that's a '24 project.

It is not a '24 project. We did not mention that this is '24. It was clearly stated by Maurizio Catino, in the year '24 and forward.

U.S. e-commerce, it's not too late to get big orders there.

No.

Do you have any hints, any indications -- you have discussions with those. You know where the big e-commerce companies are investing. Which discussion you have had to those projects?

So this is a good question. The answer is, e-commerce is there to stay. I mean, we don't believe e-commerce is going 0 again. This will grow. I mentioned a couple of times, the 3PL, the third-party logistics. This is strictly connected with e-commerce because I mean when we talked about a big name, makes sense for them to own the logistics. When we talk about mid and small sized, it makes no sense for them to compete against the giants to have, let's say, their own logistics. Therefore, the 3PL will play a massive gain into the e-commerce, let's say, roll out in the future. And we are obviously taking care of this one.

Does your answer mean you're very pessimistic regarding the very big ones that you resort to the midsized ones?

No. I mean in the DNA of Interroll, I mean, the midsize company are always very, very strong and we take care of them. Nevertheless, I'm not saying that we're not taking care of the big one. And I mean -- and the line, he said something about that already.

Yes. And there's something you need to also consider. Even though the big ones are not investing into big distribution centers, you know that the highest costs are created in the last mile. This is 60% of the delivery costs are in the last mile. So this is also opportunities to get out of the big distribution center into smaller ones. And this is where our product portfolio is very strong, as I just told you. Small sorters, medium-sized sorters, big sorters. So we have the product portfolio to serve the market wherever the market is going and this is the great topic.

Last question regarding the ERP System. You were successful with the launch. Is that a regional launch? Or is that really that we have seen most of the implementations done? And what's the recurring cost out of it? Or will we have additional CapEx up? Where do you stand with these organizational ERP system?

The ERP system was a global rollout. So almost, almost every entity is now on S4. The ones that are not on S4, are still not even in ERP because they are very, very little tiny, but we now have a plan to onboard them as well, but this is a very, very small topic. The total amount of the integration of the S4 topic was achieved by not using the entire budget that we were looking for. We're very happy about that.

Maybe I can add here. I think we can disclose it, it's roughly about CHF 10 million invest into this project. It's a modernization. It was a big bang, and it was a successful big bang. And we have other question from Sebastian Vogel here. Assuming system integrators would see order momentum picking up, how quickly could we see it at your end on the order side? This really depends on the size of a project. If it's a huge project, it can take months until we would see this as an order intake. If these are smaller projects, it's much faster. So there is no golden rule.

Alexander Koller, Stifel. You had several management changes at the last half year, which is quite unusual for Interroll. Could you please provide us if there is some background and where do you stand with your new COO and CTO position and what will be the main task there.

Yes. Okay. Thank you. I would like to understand several management changes.