Earnings Transcript for KRN.DE - Q3 Fiscal Year 2024

Operator:

Olaf Scholz: Okay. Good. Good afternoon, and welcome to the conference call of Krones. Krones significantly improves revenue and profitability in the first three quarters '24. This was the headline of the press release we published today morning. Now we would like to present you all the figures and give further details about this first nine months of the year '24. After the presentation by Christoph Klenk and Uta Anders, we will have the opportunity to ask questions. I think you also know how the Q&A session works. [Operator Instructions] Additionally, please be reminded that this meeting will not be recorded and that is also not allowed to record the meeting. Please also deactivate any functions of recording at Teams. So I would say, let's start with the presentation. So I hand over to Christoph Klenk. Christoph, the floor is yours.

Christoph Klenk: Olaf, thanks a lot. Yeah. A warm welcome today. Good morning and good afternoon to the audience. Uta and myself are happy to have you here today and are happy to present the Q3 numbers of Krones. As always, we jump immediately into the presentation because the summary you anyway have seen already and we go in any detail by the next slides to come. Here are the major numbers of Q3. And here, we jump into the order intake. And first of all, we are quite happy where we are. The EUR1.3 billion order intake in Q3 was in line with our expectations. So -- and it's on the same level as the previous year, where we are very happy about. And if you look to the nine months we have as order intake with the EUR4.1 billion. We are as well in line with what we have expected and predicted after Q2. The book-to-bill ratio is above 1, which is important in those times. I think we will most probably discuss about that more. I can say the markets, and this is said with all the considerations we have made over the last weeks and with the discussions we had with our customers, our markets are still robust. That's the important message I want to send and the investments of our customer continues. And this is based on what we see in the inquiries and thus, what we have in the pipeline and is based on the discussions we have with the big key accounts to understand their investment schemes, they are putting up for the next months and for the next year. I think all the rest, we can most probably discuss later on in the Q&A. If there are deeper questions to the order intake you might have. If we jump then to the order backlog we have, which has further increased slightly. I mean, if you compare to last year, it's up by 6%. However, I can say that the mix has changed a bit of the backlog because we have executed, let me say, machines built here in-house and they have delivered ex-works. So we have a bigger proportion now on the services to be executed to install those lines and that they are commissioned. So there's a bit of a change. And that's the reason why we have decreased our ex works delivery. If you look to, we have -- we are coming from 70 weeks in the past, and we are down to 50 weeks, 52 sometimes, sometimes a bit less, but this is the average we have right now at the 50 weeks, which was very important for us that we get competitive in the market because some of our competition had shorter delivery times. So that's an important achievement. One was, of course, with the, let me say, optimized and with better processes executed in new machines that we got more through without significant increase in the capacity without increasing significantly the capacity. And on the other hand, it's a bit of a shift into, let me say, aftermarket and installation. So that's an important message. Second important message with the order backlog, which we have is we have from today's perspective until the end of 2025 capacity utilization. And this is very important. If we look to next year that we have already a quite good view on how we can drive 2025 forward for Krones and have -- for the today's situation, a very good planning security, how we see 2025. Next slide is about the split through the markets. No significant change from what you have seen. Nothing in particular to explain. I mean, two things I want to highlight here. Number one is the Eastern Europe, Central Asia, number we have right now, it's 7%, which historically might be the highest we ever had. Those markets from, let me say, from Eastern Europe and it's going until Kazakhstan, it's not including the Southeast Asia area, but all the rest in the middle, below Russia. I mean, this was working quite well. We are quite happy where we are with that. So those areas are at the moment, really performing well. That's maybe one highlight. And then, of course, we have to look to North America and Central America, and we are all waiting what the outcome of the election will be, which we will see, hopefully, the next couple of days. We have played through, let me say, the possible outcomes of that. Nevertheless, I mean, we can't foresee everything. But as I said, we have played to most of it and are hopefully well prepared. So that's, for the time being, in a nutshell overview of order intake and order backlog and the split of revenue we have right now, and then over to Uta.

Uta Anders: Thank you, Christoph. Good afternoon also from my side. As usual, I will continue with revenue development. And as you can see, we had a strong third quarter with one -- a bit more than EUR1.3 billion order intake, which brings us then to close to EUR3.9 billion revenue after nine months. I mean, as you can see, 11.2% growth. And you remember that we have said in Q1 and Q2 call that our growth throughout the fiscal year will increase. And we are showing that this is the case. Talking about Netstal, I mean, Netstal has been included in quarter two and quarter three close to EUR100 million revenue for the two quarters. And if you look at the growth, 11.2%, Netstal contributes here with about little bit more than 2 percentage points. With our 11.2%, we are within our guidance. Remember, we had said Netstal is part of our guidance. And we are also confirming our guidance of 9% to 13% growth. I mean, with the 11.2% and with the outlook we have right now for Q4, we believe that we will be rather at the upper end of the guidance. Coming now to EBITDA. Also here, we had a strong quarter, EUR134.9 million. The quarter itself was a 10.2% margin and comparing it also to the last -- towards the Q3 of 2023, significant change from 9.5% to 10.2%. And now looking at the overall numbers, as you can see, EUR391.1 million EBITDA, which was an increase by close to 18%. And from a margin perspective, 10.1%. And as you can see, 0.6 percentage points increase compared to last year. And that is despite of the fact that we had new -- higher new machine sales share in our revenue and also despite of the fact that Netstal has some dilutive effect, which is about 0.1 percentage points. And as we have also said in previous calls, the price increases, which we have done in '21 and '22 cover all the cost increases, which we had in the past, but which we will also have going forward, in particular for payroll. And we also confirming our guidance of 9.8% to 10.3% EBITDA margin. Continuing on with EBT. Also here, a strong quarter with EUR89.9 million and compared to quarter 3 last year EUR15.6 million in addition, 0.4 percentage points, bringing us to EUR275.6 million for the nine months and the 7.1% margin, so above 7%, which some of you may remember from previous times also. And also in the numbers are included from quarter two, still a EUR4.5 million one-off from a taking into income and earn-out obligation, which we have. And also here, our margin is in line with our expectations for 2024. Yes, and now coming to personnel cost and material cost as the major components of our cost base. I mean, personnel costs, as you can see, significant increase from an overall perspective, by EUR133 million, EUR1.168 billion personnel expense. As you know, we always see being at around or below 30% is important for us here, and we are here at 30.0% we had been after Q2 at 30.3%. So a slight decrease also coming just from performance. And looking at material cost EUR146 million in addition compared to last year, but also here 49.1% ratio. And that's despite of the fact, as already mentioned, that we have a higher new machine share in our revenue base. Employees. Yes, as you can see, we have beaten, broken the threshold of 20,000 employees in September. So Krones as of September employs 20,025 people, which is a little bit more than 1,500 in addition compared to end of December 2023. If I look at the additions, half of it comes from Netstal plus additional service engineers plus digital community so that makes up half of the increase and the other half comes just from recognizing our order backlog and just recognizing the higher business volume, which we have. Looking at the breakdown, Germany compared to rest of world, outside of Germany, I mean, it's the same breakdown as we had in quarter two and compared to end of last year, the change is that we have now a smaller share in Germany because of the acquisition of Netstal. But all in all, no change to compare what we had also for quarter two. Now coming to the segments. First of all, filling and packaging technology as our major segment, and of course, it follows group development overall. Looking at revenue, EUR3.277 billion after nine months, 13.8% growth. EBITDA margin or EBITDA is EUR342 million, significant increase in absolute numbers compared to last year, some volume, but you can also see that with our 10.4%, we have 0.1 percentage point higher margin compared to last year. And also here, we have a dilutive effect from Netstal included 0.2 percentage points approximately. And also here, we want to mention that in general, we have a higher new machine share in these numbers. We confirm our guidance here, which is 9% to 13% in revenue growth, given the fact that we are at 13.8%, we will be rather at the upper end and for EBITDA 10.3% to 10.8%. Continuing on with Process Technology. As you can see, EUR378 million revenue, which is an increase by EUR40 million, 11.7%. And we have in mind that last year, Ampco was only included four months. Now we have it nine months included coming to the EBITDA, 36.4, 9.6 percentage point margin. You can see that we have quite a significant increase coming from volume, first of all, but also then coming from margin. And this is not only coming from Ampco. Also without Ampco, the contribution on the EBITDA margin of the segment would have been much higher than last year. And looking at the guidance, 15% to 20% is our revenue guidance. We will be rather at the upper end there with all what we know right now for EBITDA, we believe that we will be rather at the higher -- at the lower end, sorry, for revenue at the lower end and for EBITDA margin on the upper end. Intralogistics, last but not least, EUR220 million revenue so it decreased by EUR46 million. Here, we had quite strong first nine months last year, but we expect them to have a very strong fourth quarter, then also coming to our guidance. And on the margin, you can -- on the EBITDA, you can see 12.4, 5.6 percentage points. So it's to remark here that despite of the fact that we had much lower revenue, we were still able to increase the margin by 0.6 percentage points, confirming all the measures we have taken in the last years. Looking at the guidance, 5% to 10% is ambitious for us and EBITDA margin, 6% to 7%, we will achieve that. So far for earnings, now let's come to cash and liquidity. I mean, as you can see, very strong and stable cash position and overall liquidity position, EUR305 million cash we were holding as of end of September and bringing us to EUR1.159 billion liquidity reserve and then coming to equity, I mean, as you can see, we have increased equity by EUR120 million in the first nine months, which is, of course, made to a major extent driven by net income, a little bit more than EUR200 million, then paying out the dividend and then a very small contribution negative just from neutral effects going into equity. All in all, you can see that the over-proportional equity increase by EUR120 million and the under-proportionate increase of our total assets and liabilities. They stayed more or less at EUR4.5 billion. For after nine months, we were able now to increase significantly our equity ratio to 40.5%. Working capital. Also here, stable development, 17.1% compared to last year's 17.3%. If I look at the overall numbers, we will see that later also in the free cash flow statement, we have increased throughout the fiscal year working capital by EUR188 million. And looking at the different components of working capital, you can see also in these numbers that we are executing our backlog. So that means we are also utilizing the down payments we had on the liability side. And now are netting them if you want to say that technically with the asset side. That was the reason that our balance sheet, some didn't change a lot, but that's also the reason looking at our receivables POC that we are now at 37.1%. Overall number didn't change a lot compared to end of December. Payables also here, I mean, overall total number didn't change a lot. And of course, with higher revenue in average, the payables share decreased to 14.2%. Inventory, you may remember that we had said that this is a focus point for us to make sure that the safety stock we had built up is now on a stable level and with further potential for reduction. Overall, the absolute number is more or less the same and with revenue increasing the share decreases and received prepayments actually, here, we have the highest change they are lower by EUR120 million and that bringing the share to EUR18 million. And one more time, change in working capital, EUR188 million which you also see here now in the free cash -- on the cash flow statement, looking first of all, at the first nine months, I mean you can see earnings contribution as a noncash changes depreciation, then you see the change in working capital. Cash flow from operating activity is very strong. CapEx being a little bit under-proportionate as we always have it in the first nine months. And then coming to free cash flow without M&A EUR145 million. And then M&A activities, that is mainly Netstal and including then financing activities others, which is mainly the dividend, bringing us then to a net change in cash of EUR140 million. And cash at the end of the period, EUR305 million. Just a short comparison to the nine months period of last year. I mean the major change comes from change in working capital because you can see that there is EUR160 million difference between the two years. And the other major change, of course, comes from the earnings before taxes. Free cash flow, looking at a multiyear period, as you have seen from us over the last periods already. I mean you see our EUR145 million, and we had said in all calls of 2024 that our expectation for 2024 is a free cash flow before M&A of about EUR200 million. So we expect another strong fourth quarter, and we are also confirming the EUR200 million. Return on capital employed, I mean, as always, it's a result of EBIT development and average capital employed development. Over proportional EBIT development brings us to a capital employed of 18.3%. And so also within our guidance given of 17% to 19% and which we are also confirming. Then continuing on to the outlook.

Christoph Klenk: Yes. Thanks, Uta. I mean, just to summarize all of that, it's two months to go into the year and of course, would be quite surprised in case we would have other numbers than those here and being confirmed. So we confirm the revenue growth Uta said that by the end of the year, EBITDA will be within the range. You see we have delivered after nine months, quite consistent results and ROCE as a result of that will go in the right direction. If you look to the segments, I mean, even that is already said. So we are in filling and packaging on track to our targets and the guidance we have. The same is true for Processing Technology. The only one where we have to make a statement is into logistics Uta said that, that will be very ambitious to get to the 5% growth. This has to do with postponed projects, not from us, from the customer, where revenue is missing. However, we have a quite ambitious Q4 and are still working on getting to it or close to it. And for the profitability, you saw that before, we are at 5.7% for the time being. And with the high revenue, we do expect in the last quarter, we definitely confirm the 6% to 7% here on this slide. And all in all, the long-term targets, we should never forget about them. So we know it's ambitious in those times to talk about organic growth in the direction of EUR7 billion. Of course, some acquisitions might be included but some. And even the -- let me say, the ambitious targets on EBITDA and EBT are in those times really challenging, no doubt, but we believe with the position we have in the market and let me say, the measures we have taken and it's all listed up here. There is a reasonable chance to get there and as a result, to be with the ROCE above to 20%. Having that in a nutshell, we are quite happy where we are. We -- important for us is to say our markets are robust, and I think with the Q&A, I would assume we come to that more in detail. We are happy with the order backlog, which we have that we have a quite big certainty on the planning for next year and can anticipate quite good where we are with that. Profitability is okay and in the right direction. So we are happy with that and even free cash flow is targeting in the right direction. Last but not least, Netstal is going very well. I can say, I mean, we have worked already before the acquisition long together already. So we knew each other, but it's like they have been already a long time with us. So it's very easy that we are a team now together with Netstal and getting momentum into the market, which is the target. So even that one works very good and is closing what is for us very important, the recycling loop for PET that we are the first company having, let me say, all technologies in our hand. And with that, all the improvement possibilities for the future to make the circular economy really happening with PET. And again, targets are confirmed. So with that, we are going over to Q&A.

A - Olaf Scholz: Thanks to Uta and Christoph for the presentation of the figures and the additional information. Let's start the Q&A session. [Operator Instructions] This is what Sven Weier has done. He sent me an e-mail more or less at the beginning of this conference call that he wants to have or to give us questions. So Sven Weier, it's up to you, your questions, please.

Sven Weier: Yeah. Good afternoon and thanks for taking my questions. And first…

Christoph Klenk: Good afternoon.

Sven Weier: Yeah. Good afternoon. Good to see you. Just wanted to follow up on your order intake guidance, right, because you said you expect a slight positive book-to-bill, but you will probably understand that I can't get you off the hook not reminding you about the EUR5.6 billion you mentioned in Q2. I know it was roughly 5.6%, but is that still a number in the ballpark or have things developed a bit softer? So any color on this would be appreciated. Thank you.

Christoph Klenk: Yeah. Sure. I appreciate it because I was assuming the question in those times that this might be most probably the most important question. I mean as you repeated it quite well, I said it is roughly around EUR5.6 billion. And if you would ask me as of today, and I said that earlier, we have in the pipeline enough orders to be negotiated and taken on board to reach our targets, and I'll come to that in a minute. This is the statement I wanted to make. So the activity of our customer is allowing to be around that number. And if we qualify things now reasonably for the time being because I have been personally at customers the last couple of weeks and talking to them. We have two big exhibitions going on for the time being. And we had almost every second day of qualification where we are by the end of the year. I would say, for the time being, we would judge the Q4 at around EUR1.4 billion. And very rough mathematics, this would lead to EUR5.5 billion. This would lead then to still book-to-bill ratio bigger than 1. Is there a chance to get to the EUR5.6 billion. Let's see because that's depending. And it's difficult to say right now because we have a couple of circumstances around the world. One is happening today and the outcome we know most probably not before the next two weeks, which might shape the things a little bit. And when I say there are enough orders in the pipeline, then I have to make two howevers. One, however, is we need to win it and the customer should not postpone it because what we have seen is that customers didn't cancel, let me say, their ambition to order, but they have postponed it to a certain extent. And the second, however, is, of course, how does the world turn out after the election in the U.S., how does Iran, Israel continue and we have been in Africa, a couple of conflicts where we are looking a bit concerned to it. So this might be, let me say, the disclaimer I put on it. But I would say the EUR1.4 billion for the Q4 are reasonable, gives that color?

Sven Weier: Yeah. I think that's good. And I think also EUR1.4 billion would be a good outcome in these days, I guess, relative to other cap goods companies. Maybe I can just follow up on two things. First of all, in the last couple of years, Q1 was always extremely strong. And do you still see that seasonality? I know next year is a drinktec year. And the other one I had was just on I think on Intralogistics, you said the order intake is quite good. I was just wondering if you could put any numbers behind that.

Christoph Klenk: Yeah. First to the Q1, would that be very strong next year? That's really a good question. I mean if you look -- I mean, usually, we have a visibility of the orders in the pipeline of four to six months, and it's still the case. And for us, it's a bit of question. How do the customers react by the end of the year? Some are we know waiting about the elections and the outcome of the elections, particularly when they are in South and North America based. And to what would that leave -- would that then leave the order in December already or would they postpone to January. So for the time being, we have talked a lot about that, but we can't really say where the bigger proportion might be. We are and I would put it this way. We have still an ambitious order intake planning for next year. It's not out of the frame, but at least, I would say it's not that we are losing all our optimism, but I would call it this way. I would say it's a realistic optimism and a realistic means. We take into consideration how the world economy kicks around the world and what triggering events we might have like the elections, like Iran, Israel. So this is my first statement to that. I can't qualify really quite well how Q1 would be. Then the second question to give a more light on Intralogistics, how that worked. The number we had last year after I have to think after 12 months is around EUR400 million, a bit above. And this year, we have after nine months EUR350 million. We had a good Q3 in order intake, and we have been quite heavy already in October. So a bit of Q4, we know already. And I would believe that Q4 would -- if not anything goes south, Q4 would be good for Intralogistics as well. So I would say we are on track to manage a backlog which allows for the growth in the future. And again, we had a bit of a problem in executing the orders which you have seen today in the numbers in Intralogistics, but that has mainly to do that customers have been not finishing their facilities that we could move in and for execute. That's the issue. But it's not a lack of backlog and it's not an issue of order intake for this year. And again, I mean, I would see Intralogistics quite good growing for Q4 and for the whole year. I hope that gives you light on your questions.

Sven Weier: Sounds good. Thank you. Maybe the final one is just a housekeeping on -- I saw that obviously, depreciation, amortization went up by EUR5 million sequentially. And I would have thought that maybe the Netstal PPA was already fully baked in Q2. So I was just wondering if you could comment on the D&A line. What caused that EUR5 million higher and where you would guide us maybe also for the full year on that line?

Uta Anders: Yeah. I think it's a combination of different things. I mean major thing actually increased CapEx activity in general. I mean, you remember that we have said that also in the Capital Market Day, no special effect. I mean, as I said, PPE was included in Q2 already. So just general higher activity in that quarter. And we expect actually for 2024 or for the fourth quarter, a similar amount as we had it in Q3. So another EUR45 million approximately.

Sven Weier: And you mentioned CapEx. Are you still guiding for the 4% of revenue?

Uta Anders: Not in 2024. In 2024, the 3% -- the 4% was going forward then.

Sven Weier: Okay. Thanks very much. I’ll go back in line.

Christoph Klenk: Thank you.

Olaf Scholz: Thanks to Sven for the questions. I see also that Sebastian Growe from BNB Paribas have some questions. Sebastian, next for you.

Sebastian Growe: That’s great. Hi, everybody. Hi, Olaf. Yeah. [Indiscernible] Good afternoon to you as well. So the first one was around the growth outlook. You confirm the fiscal '24 guide for Intralogistics. If I heard that correctly, then this means EUR140 million in the fourth quarter, which is almost double the revenue level as in the prior three quarters. So how is that simply possible to start with? And to what extent has that eventually also weighed on working capital because you have been preparing eventually to just kind of ship that equipment on the last minute in a way. If we could start there, please.

Christoph Klenk: First, how is the Q4 possible? I mean this is a combination of everything. I mean usually, you tend to look only to the new machine production, but that's a proportion of it, and we said it earlier that the processes are working quite better because we have not a shortage of components and have been returning to regular processes. And on the other side, we have worked on more automation. We have invested in milling machine and in lathe machines that we get parts faster manufactured. We have some support from suppliers which we use. So this is the combination we use. And of course, we have some people more on board. But on the other side, we have to look at some of the contribution comes even in Q4 from Intralogistics, where actually, they have a quite good supplier network, which we can use to have an extended workbench, then the growth comes from processing in addition, which is quite well distributed around the world. And we had some smaller facilities all in all together, this brings then a bigger proportion to it. So it's a combination of everything. And don't forget, life cycle, which has developed over the year as well quite well, where it's more on people, and we have hired quite significant service technicians, which each service technicians, once he is clarified, is actually generating revenue. So when you look to that, this is the reason why it is possible. And it's not only I have to emphasize that it's not only production. So that's the first remark I have to make. Is that answering your question?

Sebastian Growe: Yeah. It's even going beyond my expectation because I specifically asked for Intralogistics and because, obviously, it's so much of a step up.

Christoph Klenk: So sorry for that one. But I explained already Intralogistics and now to the working capital.

Uta Anders: I mean, working capital, if you look at Intralogistics specifically, yes, through the increased revenue, we'll have a lower proportion there. We don't disclose that. Looking at the group level, there will not be a major effect just coming from Intralogistics. Does that answer your question?

Sebastian Growe: Yeah, it does. The second question then I have surround top line growth in a more structural way. So as of the second quarter, we have seen now double-digit growth rates on the top line. The same would then apply apparently also to the quarter four. So the question I simply have is how do you feel about growth continuing at double-digit levels. You pointed really to -- it's good that you're laughing, but at the same time, I think you have been pointing to this very good factory utilization. Thanks to the order backlog, you could plan in, I think, a great advance for those volumes picking up over time. So I know it's not a call here to discuss '25 guidance, but if you could at least qualitatively address the question, that would be much appreciated.

Christoph Klenk: Yeah. We were laughing because in case we would continue, let me say, on that growth level, that would be of a miracle, I have to say. I mean we are growing next year definitely. That's the plan. But we have -- it's too early to really say on what level it is. It will -- I mean, it will be reasonable. And it's obvious we have a quite good backlog. We want to reduce delivery times further. So you see something coming out of that. And we do assume that our aftermarket business works quite well in addition. And I said it earlier, the service technicians, they come on board, they help to generate revenue. But I would say, with the real numbers, we come with the guidance once we give that for 2025, it's too early.

Sebastian Growe: Okay. Then I apologize for my next question. It's the last question. It's just a quick follow-up to the earlier answer that you gave to Sven's question when he asked the quarter one '25 order intake. And you then said apparently that you are having some ambitious expectations when it comes to that quarter one. You made some comments before on the pipeline that it's generally speaking, in a good shape, etc.. Would you feel comfortable at this juncture with all the uncertainties that we have to also see another year with a book-to-bill of 1 or even higher or is this really way too early to talk about it?

Christoph Klenk: I would say, it's really too early to talk about because we have not yet talked about the real number of growth. And of course, this would set the target for the order intake. But I said it earlier, we have reasonable and reasonable is defined as received these circumstances around the world on one side. But we see on the other side, the pipeline which we have in the inquiries and, let me say, the ambitions of our customers. And we see that our markets are robust. And based on that and our positioning in the market and based on that, I would say, we have this realistic optimism even for order intake next year. And I wouldn't see the point coming where we are away from a book-to-bill ratio of 1, at least in a bigger nutshell. We have not finalized our numbers yet and are not here today to have really a qualified answer on that. But I would say we have a reasonable view on it, and we still believe with a realistic optimism that we can drive things even next year forward.

Sebastian Growe: Okay. Great. And then the very, very last one because it just fits to it on pricing, if you could comment on what you're currently seeing. So is this kind of stable-ish. Are you seeing competitors of yours acting a bit more rationally eventually? Or is everybody still pretty well filled. And for that reason, simply there is no need to kind of go down the route of price cuts or so?

Christoph Klenk: I mean we lost tonight an order, a quite a big one. Then it's difficult to be reasonable today. No, just joking. No, we don't see that at the moment. We don't see unreasonable behavior I would say we have sometimes a bit of a disadvantage because of the long delivery times where we are working on and getting things okay. But I would say pricing in the market, as I said last time, is an issue because every customer is pushing for it, but it has less to do with competition. I think it's more customer-driven rather than competition driven. And I would say, for the time being, the observation we have, it's reasonable. And I'm careful with that because this might come more under pressure when things are getting in the market more south, which for the time being, we do not anticipate.

Sebastian Growe: That’s encouraging then. Thank you very much and see next week in Paris or the week after sorry. Bye-bye.

Christoph Klenk: Yeah.

Olaf Scholz: |Thanks, Sebastian for the questions. I see the next question is coming from Lars Vom-Cleff from Deutsche Bank. Lars, your questions, please.

Lars Vom-Cleff: Yeah. Thank you very much. Good afternoon. Thanks for taking my question. First of all, seamlessly following Sebastian question, you already talked about the competitive situation, competitors behaving reasonably or reasonable. I think in the last call, you mentioned China stepping up. I guess that is still the case. So not expecting harsh fight at the moment, but competitors becoming more active. That is still the case, correct?

Christoph Klenk: Yeah. Sure. I mean, there is no, I would say, short-term change in that environment we have right now. We see them in the cases we have even seen for three months ago, and there is no significant change in the competitive landscape nor on those being there nor on how aggressive they are, nor on the pricing. So I would say that has been -- this is something which change slowly. There is no fast action in the market.

Lars Vom-Cleff: Perfect. Thank you. And I take it, given how you asked Sebastian's question. Pricing pressure for you not too high currently, but at the same stage or at the same point in time, you're also not able to increase prices. So I ask for market price increases. I think.

Christoph Klenk: Yeah. I mean we have not lost the concept on how we build up the pricing for our, let me say, investment good equipment. When we said we explained that in the last conference calls, we had that we are looking every six months up how the cost structure would be in the future. I would say, at the moment, we see that quite stable, and that's the reason why we don't see a need of price increases for the time being because those rises we see on the personnel cost we can compensate to a certain extent on the material cost. So we see it quite flat. And the pressure on price increases is not yet given. So that's my first statement. If you would ask us, there is no price pressure for us, I would see it different. Of course, there is price pressure. But -- and I would say we are losing because of price, in particular, when they're coming from China or from Italy. So we are losing orders but not in a bigger magnitude than we have doing that before. And if you would have our sales colleague here on the board, he would say, oh, I'm on a pressure because I have to be much more selective and have to fight much harder than before. But we are capable of doing that and maintaining the levels we have right now.

Lars Vom-Cleff: Understood. Many thanks. And then looking at your lead times, 50 weeks now, if I'm not mistaken, you're going to go down to 40, 45 weeks. And I assume that capacity utilization is currently relatively high, maybe 95% or so. Against this background, I guess you're also not planning any or you don't see the need for capacity additions. You are happy with the capacity you have?

Christoph Klenk: Yeah. We are happy with the capacity we have. And I would say we are between 95% and 100%. And as I said earlier, we have even used supply chains even in supporting us building machines, not for the entire machine, but at least for components. The plant in China works quite well where we are serving the Chinese market, which helps a lot. So I would say in the plant in Hungary, which was for quite a long period, kind of a headache is performing well and giving good support, and we can even get there some efficiency increases. So all in all, we do not need to increase capacity or, let me say, for revenue, we plan as in Q4.

Lars Vom-Cleff: Okay. Glad to hear that. And then the last one, let me quickly tackle the elephant in the room when it comes to cap goods companies and the upcoming U.S. Presidential Election. I mean, independent from who will win. America first will definitely play a role. Do you have any view on the potential impact of potential U.S. import tariffs that you're faced with or is it largely you producing locally anyhow already?

Christoph Klenk: No. I mean let me say, this is a quite complex matter for Krones and what have we assumed. We have assumed that regardless what outcome the elections will have, we might face an increase of import taxes of 10%. And if you look now to the picture, Krones has is that still with the 10% import tax, we have -- and this we have played through all over the years. We have advantages here and producing here in Germany. Why is that? Because we have the major competition for our car segment sitting here in Europe. That's a very important factor, which is important when we view on that. So there is -- there's nobody who Promac (ph), which is American-based can, to a certain extent, maybe benefit out of it. But in North America, they have anyway a higher cost structure. Second, Processing is totally different. In Processing, we are totally localized because the competition sits in North America, and we have North American facilities doing, let me say, 85% to 90% of what the North American market requires and processing in North America. And the same is true for Intralogistics. We have just expanded our plant in Arden, North Carolina, just because of that reason. It's going right now into production. It will be opened next week. And we will have then the ability to serve Intralogistics, let me say, 90% out of the U.S. market in the U.S. So that's a different picture. Beyond that, we have not thought yet because we don't know the details. And maybe I should add, even in North America, we've built a part of our labeling technology. It's a small proportion. But for us, it was important all the time to maintain there the know-how, how to build machines and have the processes in place because the learnings in China -- in the Hungary was it's more difficult to get the processes there and the IT systems rather than to build the machines and this we have done in North America is we started already quite a while ago. Over the last three years, we have prepared for it, and we have at least a backup scenario in case we would have to shift quickly production to North America, which we do not expect for the time being. I hope that answers your question. Quite complex, but.

Lars Vom-Cleff: It does indeed. Many thanks. Much appreciate and I’ll go back into the line.

Christoph Klenk: Yeah.

Olaf Scholz: Thanks, Lars. I get the next questioner from -- through the e-mails. It's Benjamin Thielmann for Berenberg. Benjamin, your questions please.

Benjamin Thielmann: Yeah. Hi, guys. Good afternoon. And maybe, -- I have only one question left actually. It would be on Intralogistics as well. Mr. Klenk, you already mentioned that you see some order postponements from your customers for that division. And I'm just wondering, what do you expect or when do you expect them to basically come back? How do your conversations with customers look like? Is it more like you're postponing it and you expect revenues to come back in 2025 or is it more like customers are postponing it and let's see when they are coming back. So I try to get a little bit of a feeling how Intralogistics could do over the next 12 months.

Christoph Klenk: Yeah. I mean we do expect for next year, and I can say that a good growth for Intralogistics in terms of revenue because when I talk about projects being postponed, then they are unfortunately postponed by the end of their project execution and not at the beginning. Once the building is not finished, we have maybe 60% to 65% of the work finished already, and then it's holding up. It's only by month, it's not by years so that they change completely. The buildings are under the way. They have not finished, and this might swap then the last 30% of the revenue into the next year. So if we look to next year, and that's quite sound, when I say that, we look to a really good growth of Intralogistics and based on discussions with customers to make sure that they are really executing. And the best proof of it because in, I would say, 85% of the cases in Intralogistics, the civil work goes before, and all those civil works are underway. So I have no doubt that those projects will be executed and we will see a good growth in Intralogistics next year.

Benjamin Thielmann: Okay. Perfect. That was actually already everything from my side. Thank you.

Christoph Klenk: Yeah. Thank you.

Olaf Scholz: Thanks, Ben for your questions. I see also Jorge Gonzalez calling from, sorry, Hauck & Aufhauser, has some questions. Jorge?

Jorge Gonzalez: Hello. Yes. Only one question from my side. Hello, Christoph and Uta. For the Process Technology division, Q3 has been quite flat. And I was wondering, which levers do you see for the division to regain -- to accelerate the growth for the Q4 and to be able to reach the lower end of the guidance. What are you seeing at this point for the revenues to improve going forward?

Christoph Klenk: Well, I mean, for Q4 in terms of revenue, I mean, it's pretty much said already because we can't do anything on where we are right now. So as Uta said, we are at the lower end of the revenue growth, which anyway was a quite tough growth. Profitability will go okay. And if you look because we spoke a lot about order intake, if you would ask me Processing was one of the issues where we had a bit of a headache. And this has to do with two things

Jorge Gonzalez: Okay. Thank you very much. I’ll go back to the…

Christoph Klenk: Welcome.

Olaf Scholz: Thanks, Jorge. I see also questions coming from Peter Rothenaicher from Baader Bank. Peter, your questions, please.

Peter Rothenaicher: Yes. Hello, Uta. Hello, Christoph. One question regarding M&A. So now we have the situation as you see with the valuation of the Krones share, but also other cap good stocks. Valuations look momentarily, relatively attractive. Does this have any impact or opportunities for M&A? How do you see here the pipeline and what can we expect?

Christoph Klenk: Yeah. I mean, for this year, nothing else than what we have done already because we still focus on Netstal. It's less on how we actually approach the market. It's more about -- I mean, we said that we might take two or three years to get the profitability up. So that's the focus we have right now, how can we fix that and how do we go in that direction. If you look -- would ask us about the opportunities we have. I mean if you look to stock market and share prices, yes, that would be attractive. But on the other side, if you look to targets on, let me say, revenue levels between EUR30 million and let me say, EUR300 million, there's a lot of private-owned companies and the expectations on multiples on EBITDA are still extremely high. So I'm not seeing that there is already some opportunities which might be attractive in terms of the multiples we see, in particular, when we search for acquisitions having profitability because we don't want to have further dilutive effects. We want to maintain the levels we have. And you know we have quite ambitious targets out there. So we need to look for acquisitions, which deliver profitability. And saying that, I would say there is still a limitation on it. Nevertheless, we continue and we are working on it. Its -- but it's too early to say more about it.

Peter Rothenaicher: Sure. Perhaps then also on Netstal, can you characterize that business development currently. What is demand doing with their products. I think with injection molding, we had in this environment, also some challenging. How is it developing currently?

Christoph Klenk: Yeah. First of all, I have to say the injection molding market as such is very challenging. I mean you have seen certainly the big ones, the competition, how much everybody is under pressure because, in particular, the automotive industry is missing in the injection molding market. Now Netstal has been never in that area, but that leads to the fact that injection molding machine manufacturers who have been historically in other areas have been a sudden focusing on areas where Netstal is in. So it's quite a competitive landscape. Nevertheless, we managed a quite good order intake and are happy with where we are. We made already together with Krone some momentum in the beverage market, which is our core focus. But nevertheless, we see good order intake on medical equipment in the injection molding, which is driven by some of the very large pharmaceutical companies and we see the cap business because they do injection molding machines for caps, for bottles and for cartons. So this is still okay. That was a boom two years before. It's now cooling down a bit, but it's still at a constant level. So the three areas

Peter Rothenaicher: Okay. Thank you very helpful.

Christoph Klenk: Yeah. Welcome.

Olaf Scholz: Thanks to Peter. So I have to check my e-mail folder. I didn't see any questions and also the team's channel. No further questions. No, not at all.

Christoph Klenk: All right. Then thanks a lot for listening today. Thanks for the questions, and we are looking forward to finish off 2024 as expected. So that's the plan. And then let's see how we manage 2025. Thanks a lot, all the best. And let's hope that the outcome of the elections are bit in reasonable, right? That's our new word, reasonable. Yes. Thanks a lot. Bye.

Uta Anders: Good afternoon. Thanks a lot. Bye.

Olaf Scholz: Thank you.