Okay. Ladies and gentlemen, let's start. Good afternoon, and a warm welcome here from Krones and also from my side. My name is Olaf Scholz, Head of Investor Relations. Krones reports moderate growth and improved profitability in a challenging market environment. This was the headline of today's press release. As you can see in Teams, Thomas Ricker and Uta Anders are also with us today.
They will give you more details about the situation at Krones and also explain the figures for the first nine months, 2026. After the presentation, you will have the opportunity to ask questions. I think you also know how the Q&A session works. Please use the function "Raise Hand" in Teams or send me just a short email, and then I will hand over to you.
Additionally, please be reminded, this meeting will not be recorded and that participants are not permitted to record the meeting. Please also deactivate any recording functions in Teams. I think let's start with the presentation, and I will hand over to Thomas Ricker. Thomas, the floor is yours.
Yeah, thank you very much, Olaf. Yeah, dear ladies and gentlemen, also a warm welcome from my side to the presentation of the figures from Q3 2026 from Krones, and I'm really happy for your interest in Krones. Before we start with the facts and figures, I would like to frame a bit what happens the last few weeks. I'm quite sure you're all aware of the geopolitical situation and the thereof resulting unfavorable developments in our markets.
Especially the macroeconomic uncertainties and the cost increases for our customer as well as for us are leading to a more careful investment behavior on the markets. Therefore, the board of Krones decided at the 22nd of October to adjust our revenue growth forecast for 2026 and also for the medium-term target for 2028.
The targets for margin and ROCE have been maintained and specified, which shows that we still have continuous positive price and cost discipline. This means that Krones reduced the growth rate, but Krones continues the profitable growth path, not only the last years, but also within that year. Our optimism is based on a few factors.
First of all is the stability of our global growth drivers, which you are aware of. Secondly, on our solid project pipeline. Last but not least, on our global setup, on our unique innovative product portfolio, and also especially on our worldwide team. Stating that, we now come to the Q3 results more in detail. Order intake year-to-date at the value of EUR 4.22 billion. Revenue growth adjusted for the currency translation effects at 0.8%.
EBITDA margin year-to-date was 11.1%, and free cash flow currently at minus EUR 5 million. More details later on in our presentation about the individual topics. Starting with order intake, and you will see the figures. Overall, the figure in 2026 of EUR 4.224 billion, which results in a growth rate compared to last year of 2.9%. You are aware that we had a good start in the year 2026, a strong first quarter, followed by also a good second quarter.
The third quarter was expected to be a bit higher, currently on the same level as we have seen in the last year, more or less, in the third quarter. And for the year-end, we are expecting still a strong fourth quarter, so that in the end of the day, the book-to-bill ratio, also as a forecast in the future, will stay for sure above 1.0.
Currently, after nine months, we are at a book-to-bill ratio of 1.03. Coming a bit to the order intake and to the regions, let me say, America regions, both of us, so North America and also Latin America, are quite strong. Showed a bit that at least the stabilization in U.S. leads to a bit better investment behavior of our U.S. customers.
I would say influence now of the midterm elections are not yet known, let me say, for that. Also in APAC, which is one of the most growing markets and most interacting markets, we have a very stable situation. In Europe, we did also quite well. Europe as a unique region. We had up to that decreasing order intake in the Central Asia, which is a smaller, let me say, regional environment. Also in Middle East Africa and China.
Middle East Africa for sure also based to the very, very high value from last year if we compare one year to the other. And China, it is a bit reduced, I would say still on a stable position, but more or less a stabilization in China. If we see the order backlog, as I mentioned already in the beginning, the pipeline remains robust.
And the order backlog is still on a very good level of around EUR 4.3 billion. Compared with last year, there is also a slightly increase by around 3% for the order backlog. Book-to-bill ratio I mentioned already. The delivery times are currently stabilized for more or less all of our products in the new machine area of around 30 weeks, depending a bit on the individual segment.
And please recognize that in the order backlog are already orders included that will generate revenue only by end of 2027 or even beyond 2027. So just that you also can frame this, let me say, high value for the order backlog, which for sure gives us also a kind of certainty and safety for the future. Coming to the individual regions and the development of the revenue.
First of all, we continue our revenue all around the world with a, I would say, good balance of sales in the so-called developed and emerging markets. From the revenue, you see that North and Central America is decreasing, as I mentioned on the order intake. So I think there is currently the turnaround because OI is also developing in a good direction. So this should be in the other direction then in the future.
South America, I would say on a stable development, also with a good order intake in the year 2026, so they will catch up again to the percentage of the shares. Europe, as I mentioned, also in the order intake and the same in revenue, a very good development in this developed market. Middle East Africa, you see the revenue is following the order intake.
Last year was outstanding, and despite all the critical situation and geopolitical topic there, either order intake and on the other side also revenue is really proceeding or is going quite well in that region, and that's also one of the growth regions for the future. Eastern Europe, Central Asia is one of the smaller regions, a bit declining, but more or less on a, I would say, constant level with a few tenths of percentages reduced.
China in the percentage compared to the 100% value of Krones, a bit decreased from coming at least from 2024. If you see the absolute figures, we are more or less on a constant market position also in China. And for sure also with our investments, we'll keep that for the future.
And Asia Pacific as beside Africa, for sure the most attractive region in terms of growth possibilities for the future because of various factors. We are on a good way, and the revenue has grown the last years and for sure will follow also in the next years. Saying that, I will hand over to Uta Anders for giving you more details about financial figures.
Yeah. Good afternoon also from my side. As usual, I will guide you through all P&L and balance sheet-related items, and we start with revenue. Let's first of all look at quarter three. As we can see, EUR 1,385 million compared to EUR 1,381 million, very comparable numbers. I want to mention at this point that Q3 has included a EUR 20 million reduction coming from the tariffs from the U.S., and I would like to take you also on a side tour to what the tariffs meant for Q3.
So we have two different perspectives here. Perspective number one is tariffs, which we passed through to our customers. So we received the money from the U.S. government and passed it through one-to-one to our customers. This is EUR 20 million where revenue was reduced, but material cost at the same time was also reduced, so zero impact to the bottom line.
Then we have those kind of tariffs where we received the money, but kept the money also because we had expenses last year from that. And this is the EUR 10 million which hit the bottom line in the third quarter and also elevated our EBITDA in the third quarter and year-to-date. And also for that EUR 10 million, we have reduced material cost, which I will comment on later also.
So, so far just for the tariff world, some explanations. Now let's look at year-to-date. I mean, as you can see, we have EUR 4.1 million reported revenue compared to EUR 4,108 million last year. And if we adjust it for foreign exchange, we have EUR 4,140 million, which is a 0.8% growth, which Thomas Ricker already commented on.
Knowing the third quarter and also having a deeper look into the fourth quarter, we decided on 10/22 that we have to adjust our growth guidance for 2026 from originally 3% to 5% to now 1% to 2%, which also means that we expect a strong fourth quarter in order to come into our guidance of 1% to 2%. Moving on with EBITDA. First quarter, as you can see yourself, EUR 160.3 million, which was a quarter EBITDA of 11.6%. If we take out the EUR 10 million and add the EUR 20 million for revenue, we would then see a margin which is at the 10.8% approximately in Q3. The same is true also if we look at year-to-date.
I mean, overall 11.1%, as you can see, but also here normalizing it, I will not call it adjusting, but let's call it more normalizing. Normalizing it for the tariff effects, it is a 10.8%. Now, we confirm the guidance of 10.7% to 11.1%. We expect on a margin level, we expect a fourth quarter which will be slightly below what we had also excluding the effect from the tariffs.
This is because we will have a one-time effect in the mid to high EUR 1 million digit number for some flexibility measures we are taking here in Germany. That's why it will be around, it will be lower than Q1 to Q3, but definitely within our guidance. Moving on to EBTDA. I mean, EBTDA to a large extent follows EBITDA development, but it's worth mentioning that the additional EBITDA of EUR 22 million, which we have seen in the slide before, does not completely arrive at EBTDA.
This is because we have higher depreciation, EUR 13 million higher than last year. This is because of all the CapEx projects we have ongoing, also in preparation of the growth and efficiency and sustainability, everything which we had mentioned in the quarters before. But also our interest result was worse by EUR 3 million. Having said that, our EBTDA is only EUR 7 million more than last year, and the margin differential of 0.1%. But it was in line with our expectations.
Moving on with the two major ratios, personnel cost and material cost in relation to total output. Personnel cost, yeah, 1327, EUR 50 million more in addition than we had last year. With the only very limited or moderate growth we have seen, the payroll ratio also gets a little bit under pressure, as we can see with 32.3%. But we expect towards the end of the fiscal year this to go down a little bit, also considering the growth we are expecting in the fourth quarter.
Material cost, yeah, very good development here, as we can see, 45.3%. Comparing the overall cost, as you can see yourself, EUR 102 million less compared to last year with about the same volume. Three reasons for that. Reason number one, we have a certain mix effect in there, favorable mix effect. Reason number two, savings from previous material cost negotiations, which we have talked a lot about. But reason number three, also in for EUR 30 million, that's the effect from the tariffs, the EUR 30 million I mentioned earlier.
Altogether, that brings us to the 45.3. If we had taken out the EUR 30 million from the tariffs, we would have been at 45.8, but still a very good level. Employees, different to other quarters, not a lot to talk about, because as you can see yourself, 72 FTE or employees in addition to what we have hired throughout the fiscal year.
So very stable, only an increase by 0.3%. If I look at the distribution between Germany and outside of Germany we have a bit less employees than we had, and outside it is a bit more. If I take it net, it is more or less the additional employees we have from our newly opened facility in India. Moving on with the segment and starting with Filling and Packaging Technology. As always, this segment follows group development to a large extent.
All I have said earlier about the tariffs also relates more or less to this segment. Let us first of all look at Q3. We had a 1,148, that is now not FX adjusted, versus 1,179. So it is a slight reduction compared to last year. If I look at year-to-date, 3,440 reported, 3,471 adjusted. So it is more or less on the same level as we had last year if I look at revenue or FX adjusted.
Here, as I mentioned earlier, EUR 20 million tariffs in this segment, reducing revenue. Now let us look at EBITDA margin. Q3 itself was 12.1%. This was impacted by EUR 9 million. The EUR 10 million tariffs, EUR 9 million is for Filling and Packaging, and EUR 1 million is for Process. If I look at year-to-date, the margin we are reporting is 11.5%.
If we normalize it for tariffs, then we would have been at 11.2%. So we are within our guidance, and also we confirm our guidance when it comes to EBITDA. However, we had to adjust our guidance for growth to now -1% to +1% FX adjusted. Moving on with Process Technology. We had a good Q3, EUR 153 million versus EUR 127 million last year, so we caught up.
As we can also see from the year-to-date numbers, 391 reported, 395 FX adjusted. So we are at 4.2% revenue growth, so already within our guidance of 0% to 5%, which we also kept for the fiscal year. If we look at the margin, as we had also our previous years, a very good margin, 10.7% year-to-date.
If I normalize that for the tariffs, as I mentioned earlier, there is a EUR 1 million EBITDA effect here from the tariffs, it is 10.4%. We also here kept the guidance for EBITDA 9% to 10% for this segment. Now, Intralogistics, not only slow in revenue recognition, but also slow on the screen, as you can see. Intralogistics, Q3 EUR 84 million versus EUR 75 million in the last year.
So in the quarter, growth by 12%. If we look at year-to-date, 269, 274 FX adjusted versus the 249, we are at 10% growth. That was also the reason why we were confident that we can increase the guidance here to 10% to 15% from a growth perspective. But of course, that requires a very strong fourth quarter, which we foresee from all the plannings we have.
That will also help in our margin because as you can see, 5.5%, this is where we are, and also a little bit mix-related. But with the volume we are expecting in the fourth quarter, we also confirm the guidance 7.5% to 8.5%, and this segment is not impacted by tariffs, neither in the top line nor in the bottom line. Now coming to balance sheet equity liquidity, let me start with liquidity.
You can see yourself EUR 411 million cash, free credit lines and used one, EUR 982 million and one, and that brings us to EUR 1,393 million free or liquidity reserves, which is very stable, which is good for us to manage all the volatility we have been in the last years and we will be in also in the upcoming years. Very solid. And the same is true for equity.
I mean, as you can see, we have increased equity throughout the year by EUR 141 million, driven first of all by net income EUR 290 million, impacted by the dividend we paid out EUR 88 million, and that is the main driver. And then with a stable balance sheet sum, we come up with 44.8% equity ratio, which is very, very solid. Moving on with working capital.
As you can see, 18.9% as the average over the four quarters. So here we see also a little bit that we are lacking revenue growth in the ratio itself. If we look at the overall components on the right side, receivables POC, more or less stable. Also, if I look at the overall number, absolute number, we decrease it by EUR 32 million positive to the free cash flow. Accounts payable, we are Q4 loaded when it comes to accounts payable.
So it is 13.3%, similar to where we have been a year ago, but of course less than we were end of the year, in which we had commented on several times. And if I look at the overall number, EUR 754 million, and this is an increase or decrease by EUR 127 million, which is the major reason for the increase in working capital. Inventory, as you can see, 13.5%.
We had commented on this already in the previous quarters, several reasons for it. There is a certain safety stock in it, but also, I mean, we have decentralized to a certain extent also our supply chains or have started doing so. For instance, as a result of out of the tariff situation in the U.S., we are holding now more inventory in the U.S. and have not at the same time decreased it elsewhere.
So those are the reasons for the inventory increase. And if I look at received prepayments, 15.3%, a slight decrease compared to last year. And if I look at the overall number, it is EUR 65 million, EUR 68 million less than last year, and so also impacting working capital. Overall and working capital, EUR 1,157 million, and that is EUR 221 million more than we had the end of December, which is also impacting our free cash flow, as we can see on this slide.
Let us go through free cash flow. I mean, starting with EBTDA, not a major change, and I commented on this already. Other non-cash changes here, this is mainly depreciation. You can see it is slightly less than we had last year, but nothing really significant. Change in working capital, I already commented on.
Other assets and liability on a similar level like last year, EUR 90 million tax payments in here as the major component. Cash flow from operating activities, EUR 130 million, reduction compared to last year, mainly driven by working capital. CapEx, as you can see, we are always Q4 loaded, but this year was a little bit different. I mean, we continued throughout the fiscal year even more than the previous year.
That's why we are also already at EUR 152.5 million or 3.7. Others, not significant free cash flow before M&A minus EUR 5 million, and if I compare to last year, CapEx and working capital being the main reasons. M&A activities, that's the acquisition of Wiro we have done and an earn-out we have paid for Ampco, and that brings us to the free cash flow reported, as you can see. Financing activities, others, EUR 88 million dividend, and the rest is lease payables.
As you can see, change in cash EUR 139 million, coming to EUR 411 million I mentioned earlier. Now the outlook, the rough outlook on free cash flow. We have commented many times that we are Q4 loaded. The average of the Q4 free cash flow of the last years was EUR 190 million. I'm not saying that we will do EUR 190 million.
I'm saying this to give you and us confidence that we will also increase the free cash flow throughout the fourth quarter to come up to a decent value also for 2026. ROCE, 17.6%. I mentioned earlier that we are a little bit under pressure also from the lack of growth. We can see that here as well, because if I look at the EBIT, more or less same level like last year.
The capital employed is by EUR 180 million higher than it was last year, which is CapEx. As we have said, we are growing, and we will continue growing, and we continue all the CapEx measures we have discussed and decided. Working capital or seasonally is a little bit higher than last year. So far for the numbers itself. Outlook, we have talked about that already.
We adjusted our growth guidance to 1% to 2%, remained everything as we had forecasted it. If I look at the segments, I commented on this already, we have adjusted Filling and Packaging Technology down to -1% to 1%. We have adjusted Intralogistics up to 10% to 15%, and kept everything else, so Process Technology growth and EBITDA guidance as it was before. Last word from my side on 2028.
First of all, we will not show you in this call a breakdown of the EUR 6 to 6.2 billion by segments. We will do that at a later course. I mean, as you can see, we have adjusted our 2028 targets to EUR 6 billion-EUR 6.2 billion. I mean, many of you had challenged us a lot on the 2028 targets, and we found that it was a, with also the reduced expectations for 2026, it was the right time also to adjust those targets a little bit down, or down to EUR 6 to 6.2 billion, and have also narrowed now the EBITDA guidance to 11% to 12%.
You can see on the upper right of the chart that we plan a Capital Market Day 2027. We are looking from a date-wise at week 25, but of course, we will give you more details on that in the upcoming weeks, where it will take place and also which horizon we are planning. But as said, that will happen in 2027. Yeah. So far from my side, I think key takeaways.
The summary?
Yeah.
Yeah.
One has been said.
Everything said.
Yeah.
Must not repeat again, I would say.
Yeah.
You can use these takeaways perhaps at the end, if you resume the call, and we can start our Q&A session if you like. As you know, please use the raise hand function in Teams, and then I will hand over to you. I already see here three persons, three analysts, three investors who want to ask questions. Let us start with Sven Weier from UBS. Hello, Sven. Your questions, please.
Yeah. Hi, Olaf. Thanks for taking my questions. Good afternoon. I just have one question actually, and it is around the impact that you see from IFRS 18. What should we expect in terms of impact on your EBITDA and if at all any impact on EBITDA and EBITDA margin, and what that would do to your 2028 target? That is my question. Thank you.
Interesting. First question on IFRS 18. I said to Olaf earlier, when will we get questions from our analysts on it? Not a lot of impact or very minimal. We plan to move to OpTi, which is, I mean, for me, very similar to what we have currently for EBITDA. When we also looked at Q1 and Q2, margin differential very, very minimal from what we see right now, which also means that the targets, of course, we will then communicate as per IFRS 18. EBITDA will not exist anymore. I mean, it is just a KPI which will not be there anymore. We will concentrate on OpTi.
That won't be much different either, yeah?
No, no. It won't. No, sorry, I wasn't clear. No, no. We did for Q1 and Q2 transitions or bridges, and that was really, really minimal. We are talking in maximum 0.1 and maximum. It's really very comparable.
Good news for you and us. Thank you.
That's right.
Thanks, Sven. You see no big differences in your models to change for next year or for the targets 2028. Next questions are, I see Adrian Pehl from ODDO. Adrian, your questions, please.
Yes, thanks for squeezing me in. Actually, I have got three questions. One is on the working capital development. I mean, obviously, I understood that you are also running a bit of buffer inventories for safety reasons. Question is, what in your view needs to happen to bring that level back down to numbers we saw last year? I guess also in light of that you are increasing your capacity in the emerging markets. Maybe take the questions one by one and then make it a bit easier for you, I guess.
What needs to happen? First of all, Q4 will bring working capital down again as an absolute number. Which then also with the impact from the increased revenue will have also an impact on the percentage itself. We will come down from what we have currently. That is question number one. Overall, that I call it decentralization of the supply chain, that will continue.
Will we have major effects to working capital, which would also then mean to ROCE? I do not see that right now, but of course, all those numbers depend heavily also on growth. That is what I said earlier, we are getting a little bit under pressure in some of the key figures because the growth is not as we had expected it originally.
The second one is actually on, could you elaborate a little bit on the factory load? In particular, as in next year we have the new capacity or more capacity available. How you think that is going to evolve and will it take more I mean, I understood you so far that you try to stay price disciplined, but you may face a situation where you favor factory load over pricing, or is that not the case with the excess capacity next year?
First of all, you are absolutely right. We talk all the year, throughout the year about the balancing of the price discipline on the one side and on the volumes. Made also a statement that volume would be available on the market, but again, we have a strong price discipline. We have strong steering processes and also, let me say, our people trained for that.
Utilization, I think this was your first question. For sure, the growth is not as expected. I would say we have a challenging situation, but not in fact of the overall figures, but instead of utilization of individual units, divisions, setups, et cetera. But currently, I think it is on a level where we can adjust it or leverage it quite well with our existing resource, let me say, flexibility models we have already in place.
Generally, you would say the pipeline is good going into 2027. Is that what customers are telling you?
The pipeline, I stated the same I did last time. The pipeline is good, is on a good level. As I said before, the uncertainties in the market still leading to longer decision times and then sometimes also to longer clarification times means, I would say, some really clearer, what was it, regulations or how we call it, from the market have been changed a bit, that the translation from order intake to revenue generation is a bit more shaky than in the past. But currently, I would say it is on a handleable level.
Last question from my side is on Process Technology and maybe on Germany. I mean, I saw that German revenues in the quarter were quite strong when my model tells the truth here. And also Process Technology revenues looked a lot better. I suspect there was a bigger project in Q3, or is that not necessarily the case?
No.
No, not really?
I was just wondering, Germany Process Technology. No, no. It is very similar to other quarters before. We have strong contribution also from the component and unit business, strong contribution from Ampco. Nothing really.
Nothing special to.
Yeah.
All right. That is it from my side. Thank you.
Thank you.
Thank you.
Thanks to you, Adrian. I see also on my list, Constantin Hesse from Jefferies. Hi, Constantin. Your questions, please.
Hi, everyone. Thank you so much for taking my questions. I have got a couple. One, I would love to understand a little bit more the key drivers of the cut. I mean, I was expecting a cut. I just wasn't expecting it to be this big to your medium-term guidance. If I look at Netstal, if I look at FX, I kind of estimated that both of those could have potentially cost you some EUR 350 to 400 million.
I mean, this is a EUR 1 billion adjustment, which is quite interesting. I am keen to understand better what were the other drivers of that cut. Then in addition to that, I would love to understand the cadence of getting to that level of sales. Should we expect a more linear growth throughout 2028, or is it going to be back-end weighted again? Thanks.
Maybe I share a bit your surprise. As mentioned a few weeks ago, though we kept these targets, I think the results now out of Q3, either on the revenue side, but especially also on the order intake side, and what I just said to the colleague before, that decisions take much longer in combination with what happens currently around the world.
There was a lot of influence factors to bring us, first of all, to the decision to adjust our growth rates, and then the second also to adjust it maybe a bit more that you have expected. You are talking about EUR 1 billion, and I think we talked very long time already about this around EUR 7 billion, which is, we can discuss now maybe EUR 300 million, EUR 400 million, but it's a huge step.
We don't see currently a stabilization on the geopolitical situation, and we don't see currently also a big stabilization on the, let me say, uncertainty side globally, including the cost increases mainly on the oil price, but then on the second part directly also influencing our customers with their increased costs of raw materials.
That together have been the main reasons why also we discussed long time for the adjustment. Again, we want to have a reliable forecast for the future again. I think it's still challenging seeing the results now out of Q3. On the other side, you also see if you calculate it to 2028, there might be and there will be also more growth coming within the next two years.
If I just may add on this, I mean, we had talked all the time about the around, yes, that's number one. Also we had talked about what the assumptions had been originally when we put together the around EUR 7 billion target. We had to acknowledge that injection molding, for instance, is not as we had seen it two years ago.
Also then breweries, so turnkey project, there is not in a way we had seen it originally. Plus what Thomas said, the geopolitical development. That's why we found it very reasonable to adjust it down to the EUR 6 to 6.2 billion.
Just on the cadence?
You mean the CAGR for 2027?
The cadence, yeah. Is it going to be backend weighted or can we expect a more linear growth?
Yeah. I mean, what we had said originally for 2028 is still true. China and India, in particular India and China, not so much. India, the full capacity will be then only 2028. So it will be a little bit more towards 2028, but also for 2027, we expect growth.
Then, just lastly, thanks for this. Just lastly, just on cost. I mean, next year, cost headwinds are a key theme amongst CapEx goods, and just wondering how you are positioned to deal with that. Can we still expect further margin accretion next year, or would you say that these additional cost headwinds could create a bit of an issue for further margin expansion next year?
It's too early to speak about 2027 when it comes to margin. Really too early. We will do that once we talk about the Q4. I mean, the overall cost situation, I mean, we will have payroll cost increases. We will have in some components also increases in material in some, but we talk, of course, also about we expect this to pass through to our customers. But it's too early to tell about margin development in 2027.
Thank you.
Oh, thank you, Constantin. I think that was your questions. Yeah. Next question's coming from-
No worries. Thank you very much.
Okay, thank you. Next question coming from Ben Thielmann from Bernstein. Benjamin, your questions, please.
Yeah, thank you, Olaf, and hey, everybody. I have three questions, if I may. Organic revenue growth, the new target is between 1% and 2%. H1 this year, you were at 1.8%. Now after nine months, you are at 0.8%. So Q3 was quite a bit softer than the first half of the year, and Q4 definitely needs to be better to get into the guidance corridor. What gives you the confidence that you can have a much better Q4 compared to Q3 on organic revenue?
The confidence we have from we have, first of all, some seasonality in revenue. We have some of the regions where in particular the after-sales volume is higher in the fourth quarter. Then we have also in the fourth quarter more volume coming from just closing customer sites, yeah? So, that will also bring us additional volume.
Then on top of that, Intralogistics, large contribution to the fourth quarter when it comes to the increase. Then overall, yeah, if we look at the production schedule of the order backlog, the order intake, or order backlog, that altogether gives us the confidence. But it is, as you have said, it is a very strong fourth quarter. Yes.
Is it fair to say that we should get a bit more comfortable with the lower end of it? At the lower end of the target, like closer to the 1% rather than the 2%?
Of course, it will be much more difficult to achieve the upper end. This is how I would see it.
Okay. Perfect. One more question on pricing, if I may. I mean, markets like China can be quite competitive. There is a long tail of competitors, smaller competitors. I was wondering, in terms of pricing, do you see any headwinds that you cannot keep your prices at least stable, maybe compared to last year?
I have seen the numbers from KHS, one of your strongest competitors, were not great either on the volumes. I was wondering, do you see the risk that prices could be a headwind over the next couple of quarters?
There is always a risk, and I think that is an ongoing fight to get the right price for our, let me say, high-valued products. On the other side, we invested also a lot, especially in China, though this is not just to do production there. This is to increase our competitiveness there, and that pays a bit off.
But, absolutely, this is one of our most important programs or projects also for the future to get more competitive, especially for China, for Asia Pacific, for these growing markets, with more local setups, not only in the production, but also on the engineering side, sales, and service anyhow, to be more local and to fight against the Chinese competitors directly in China and around.
Okay. One more question, if I may. Regarding, Uta, you mentioned already that Q4 margins are likely to be below what we have seen over the first nine months of the year. You mentioned there is some one-off costs related to flexibility measures. Just for me to understand, what exactly is that? You mentioned, I think, mid to high single digit EUR million, but what exactly are those measures?
It's going to get a little bit technical maybe now.
That's okay.
There is still the possibility of early retirement, for instance, in Germany, which may cease shortly, also with all the ideas the German government has. We will make sure that we take advantage of that still in 2026, which will also cause some accruals for that. That is major, that's what I mean with flexibility measures. We will reduce short term a little bit capacity, but also then medium term, just to take advantage of what we can do still in 2026.
Okay. It's basically related to accruals for headcount.
Correct
adjustments.
Correct. Correct. In Germany. Yeah. But not to a large extent. We are not talking here now about hundreds of people, not at all. It is just that we see we can do that. It is wise to do. It is also relatively cheap. If I compare to what I read of the automotive companies, this is really cheap. So we decided let us do that also to be prepared also for, or to be more lean also going forward.
Okay, cool. I go back into the queue. Thank you very much, and give the stage to Lars.
Thank you.
Yeah. Thanks, Ben. So Lars, yeah, Ben already gave you the possibility to ask your questions, so please start.
Thank you very much. Maybe I would follow up on one of his questions. I guess I need to dig a bit deeper into your pricing power. We just talked about China, but how resilient is your pricing power as the market currently cools? If I recall correctly, you were more of a price taker before the pandemic, given the customer structure you have.
Now these customers are even postponing CapEx, given higher OpEx. I would assume they are putting some pressure on you. Then also with regards to the competitive situation, in this weakening environment, do you see a risk of a starting price war with your competitors trying to buy market share?
Yeah, again to say that, though, not easy to say, no, I don't see a risk. But I see the risk at any time. I think we are, for sure, also the price leader in our industry, and we have to defend that at all the time. In the end of the day, it depends a lot of the performance of the overall solution, and it's not only the CapEx and the solutions we delivered. It's keeping that equipment for a long time on a very high efficiency, supporting our customers in the best possible way that they can keep also their, let me say, targets high.
I think we talked a lot about this price performance ratio, and this is what we have to turn forward, developing solutions for our customers, developing also, or continuously developing our service setup, working intensively on digital solutions also to be closer to the customers, to help them even without being present on site and all these things.
That's the way forward. But for sure, the risk of a price war is every time given, especially if volumes overall are a bit more reduced, and we have to defend our position and win the projects with the best possible solution for our customers.
Okay, that is helpful in a way. I'll go back into the line.
Thanks. Thank you.
Thank you, Lars. I do not know, Ben, is it a question again?
Yes, it would be.
Okay. It is up to you.
Okay, perfect. Thank you. Lars, I didn't know that you could have a follow-up on one of my questions. Maybe two more questions from my side. You mentioned already the new facility in India now has basically on-boarded all of the new people. Did everything go as planned over there? If I remember correctly, I think the starting date was, or is supposed to be in mid-2027. Do you think there is any delay in ramping up your operations there because
No. If you talk about the India plant, we just opened it up in
Complete.
Sorry. The Indian plant, there are two plants in India we opened up. The one is mainly for bottling and packaging equipment, was in September. The other one, over the process, was an extension of our existing Process Technology plant. Both are fully in the plan, either from the setup for the factories and also on the ramp-up plans, but there is no major impact also expected for 2027 out of the India plant, because ramping up, training the people. We are fully on plan, and then, yeah, for both plants.
Okay, perfect. Then maybe one final question is on M&A. I mean, you always had a little bit like the, let's say, luxury problem that you were sitting on a pile of cash. Assuming that the M&A market could be quite attractive right now, you did two smaller acquisitions, the can company and the separation technology company. How do you feel about M&A activities for Krones as of today for the next 12 months compared to how you felt throughout this year? Anything on the radar that you think could be attractive bolt-ons over the next couple of quarters?
Out-looking into the next 12 months is hard, I can say. Let me answer this way. I mean, we are always looking at opportunities. Currently, we have nothing on our agenda which is major. At the same time, if you remember three years ago, Netstal was really fast, yeah? Within, from our point of view, three to five months from the beginning till the closure or signing, we were able to execute it. Currently, nothing really major, but we are happy that we have the opportunity with the cash we have to pursue if there is an opportunity.
Okay. Perfect. That's it from my side. Thank you.
Thank you, Ben. Looking at last from Cleff, but no, sorry, joking. I see the next questions coming from Christoph Blieffert from BNP. Hello, Christoph. Your questions, please.
Good afternoon. Thank you for taking my question. It would be helpful if you could comment on most recent trends in your service business and whether clients have reduced demand over the last couple of weeks. Thank you.
Maybe easier to answer the second question, if I got it right, if clients have reduced their demand. No, definitely not. Service business is on a, I would say, planned level. On the first step, as I mentioned before, our service business is globally with the setups. On the other side, it is getting more digital. We have a huge installed base where we have possibilities.
On the other side, since a few years, we are supplying or delivering all of our machines with the possibility of a connection. It depends a bit on the customer. But this went more towards, let me say, a digital servitization, though this does not mean you have to maintain the lines and you have to have the spare parts in the lines. But especially for upgrades and for troubleshooting, this will be more on the digital way.
Therefore, we created already in all of our regions and service centers around digital service centers where customers are connected or can be connected to help them to keep their production on a very, very high efficiency level. The trend, if you ask me, went definitely from, let me say, conservative services, going there, changing parts, checking machines, to more digital. And we are currently on a very good way to create the basis for that, and also the, let me say, the back offices to handle that in a good way in the future.
Thank you.
You are welcome.
I am looking on my Teams list here. I did not see any additional questions. I will check my emails. Yes, there is one question from an investor I have to ask, more or less. It is about the U.S. market, Thomas, perhaps, because we see in sales percentage decrease. Are there any special topics in the U.S. markets we have to understand?
I think U.S. market, as I said before, there was a U.S. market performed very well before the tariffs, so there was a strong decline then when the tariffs came up. A huge uncertainty on the customer side, so you can see this in the follow revenue is dropping down. In the meantime, we have, as I mentioned on the order intake side, it looks like that we have to turn around, that the investment behavior is more positive in the U.S. region.
My explanation that is tariffs are still there, but it is much better plannable at the moment. So customers, again, can plan for the future, can do it in their ROI planning, whatever. So means stability and certainty is very important also to do investments and future investments. Market size still very good, consumption on a high level. So all the preconditions are there. I mentioned before, it is too early, but we are expecting at least some positive effects also now of the elections, that it is getting a bit more stable.
Thanks a lot, Thomas. I also see that same investor is asking about the cash generation in Q4, but I think we already got a lot of questions and answers about the development in working capital and also that we see a very-
Q4 loaded, yes. Correct.
Yeah. I think that answers the question from the mail folder. I check again the list in Teams. I did not see anything at the moment. No additional questions. Nope. I think we can close the Q&A and perhaps resume with some words from you, Thomas.
Yeah. To summarize everything up, I would say, for sure challenging and tough times, not only for us, for a lot of companies and industries. I would say, yes, we have to reduce our growth paths and our guidance for the future. This was not an easy step.
You can be sure that the whole Krones team is working with full motivation to turn that around, and we are quite positive for the future to turn it again in better growth rates. I want to remind again, we are still on a growth path, and we keep or improve the profitability. This is the positive things, and let us turn it again in the more positive growth, which is essential for us in the future.
Thanks a lot, and we can close the Q3 call. Thanks to Thomas and to Uta, and also to you, and also for your questions. Have a good afternoon. Bye-bye.