Ladies and gentlemen, welcome to the Koenig & Bauer conference call and live webcast. I would like to remind you that all participants will be listen only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for question at any time by pressing star one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Dr. Andreas Pleßke, CEO. Please go ahead.
[Non-English content] and hello to everybody, for our first quarter conference. As usual, we start with Koenig & Bauer at a glance. Let me say the first quarter was very difficult. We thought so, therefore, I think we had announced it that we were facing these difficulties, and all of the difficulties that we had envisaged have more or less in the region that we had anticipated also happened. We will present the figures throughout the course of this presentation. On the other hand, some other things which we have predicted have also happened. For example, or let's say highlighting three things. First of all, we have said last time that we are not overly negative, but slowly turning to positive with regard to the order intake of Sheetfed, that has happened.
The first quarter was the third quarter in a row where the order intake of Sheetfed is getting back to a, let's say, reasonable level, not a fantastic level, but a reasonable level. We are on course of what we had assumed is going to happen. Secondly, as you know, the large order intake from banknote, especially the last quarter, was also one of the reasons why we had envisaged the first quarter will be difficult because we had waited for this order for quite a while. It then came shortly before Christmas. Unfortunately, if you do the special machine set up, if you have an order intake in last December until it goes through engineering and you have ordered the parts that you can really start, assembly takes a while. We don't see the effects of the large banknote order until not yet in Q1.
We'll start to see it in Q2 and especially in the second half year. We are quite optimistic about the further course of Banknote. Thirdly, we have further detailed our Progress Spotlight, and we have shone more light into it of what we are working on, what we are looking at.
All of these things of course, have a very special environment in 2024, that is called drupa. We still assume, because that has been the case in many drupas in the past, that drupa is somewhat of an enhancer of investments because people wait until they see the whole competition and then might make the decision which they want to make after that. We still hope that there will be an effect afterwards. We assume that. That's the general Koenig & Bauer at a glance situation the first quarter.
If we turn to page three, please. The order backlog is EUR 900 million. A year ago it was EUR 917 million. The order backlog is not on its all-time high, which we had in the past, but it is not something which we find extremely difficult. What you have to bear in mind, a large part of that order backlog is for banknote, and therefore the rest let's say, still leaves something to be desired. The top line is our ongoing main issue, also in this quarter and in the next quarter of this year. The top line, I mean except that for banknote. The order intake is EUR 242 million in Q1. As we said, that had reasons which we had forecasted also last year when we talked about where we go. The revenue was EUR 253 million in Q1.
As compared to the last quarter, it's slightly less as compared to two years ago. It's just above that slightly more. It is way too low, and that is also the main reason why we have this deviation of numbers. It's the top line. It isn't any other fundamental issues. It isn't a fundamental issue with our product or with the reach of the market or something like that. You can call this whole thing a top-line situation. Book-to-bill ratio at 0.96 is, I think neither unsatisfactory nor satisfactory. It is what it is. It's a reasonable number in the machine business. The EBIT with EUR -10 million, we had anticipated a not good EBIT in Q1. Stephen will explain more how this EBIT is broken up between the three segments that we have. If we turn to page four, Spotlight.
Spotlight is a group of issues as we have highlighted in the last meetings, and this group of issues which we have, has been focused more now on especially two individual projects. The third one. The two individual projects that we now have absolutely in the focus is called Digital & Web 2.0 and Banknote Solutions X. I will come to that on the next page on Digital & Web 2.0. Stephen Kimmich will explain Banknote Solutions X, because we also had the shift over of responsibilities between myself and Stephen the first quarter. I will take over the responsibility for Digital & Webfed, especially for the Digital & Web 2.0 program.
Of course, what we always do in a situation of a weakness of a top line, we have a very, let's say, clear look at if our holding costs are suitable for the top line that we have, and they are not. We also look at some measures which regard our indirect customer costs. If you turn one page over to Digital & Web 2.0, what are we having in Digital & Web 2.0? We're having quite a complex situation. We have good new products in good new markets. We have all the, let's say, inkjet products, which we have in the RotaJET and in the HP world, which are fundamentally good products. The market accepts them. We have nice margin with them. We're starting, let's say, a second attempt after we relocated with a new set of improved Flexo machines.
We have the old world, which we call the service for the whole installed base of newspaper machines and the occasional new newspaper machine, which is not important, but occasionally it happens, and then it's nice to have. We have these three segments. What we're doing is, and what we've done in the first quarter is, first of all, eliminating the problems which we had announced in the past. That is the so-called trailing costs and startup costs or ramp-up costs in Germany. We've been working on that, and we are going in the right direction. The majority of contracts or machines which we have out in the field, which were causing these trailing costs, have now been finally accepted by the customers. Not all of them, but the majority of them. We're making progress there.
We also need to streamline the whole Digital & Webfed segment. The Digital & Webfed segment cannot remain as it is. It has to very much focus on these three big elements of where we are successful, and it has to see to it how many structures it needs to be profitable. The turnaround of Digital & Webfed from the disastrous EUR -20 something [million] of last year to a very reasonable number next year, and the intermediate year, this year, is the core of Digital & Web 2.0, and it is a structural change. Therefore, I think that is one of the reasons why I also took over the responsibility for that to bring this in the right direction. That will not be a program which drags on for three or four years.
It'll be something which we'll do this year, and we'll hopefully harvest the results step by step over the next year. My colleague, Christoph, who is absolutely the face to the market and knows all the customers, has built up this new portfolio of nice products, which was all his doing. He will concentrate very much on the top line, and I think that is excellent, because we have a goal here, and we also hope we have another go or a higher go rate after drupa, and that is the main effort. We have more or less split our responsibilities. I'm a bit of the minister for interior, and he's the minister for exterior, and that's how we will go about. All in all, it'll be something which will keep us extremely busy this year.
As you can imagine, this kind of a new structuring of a whole segment in this book takes a lot of daily attention, and that is one of the other reasons why we think it is better done with two of us, and one being responsible for the program, the other is going to be responsible for the top line. That's where we stand with Digital & Web 2.0. BNSx is another project which we focus on, which will now be introduced by Stephen Kimmich, who has taken over that responsibility since April 1st.
Thank you very much, and also good morning, good afternoon from my side as well. Before I present you the figures later, a couple of insights into Spotlight from my side. As already explained from Andreas Pleßke, he's going to be spending a lot of his time with the Digital & Web 2.0 project and the structural changes there. In order to balance the responsibilities at the group level, I've taken over the full responsibility from Special from Andreas, therefore, since April 1st, it's now in my responsibility. We've spent the last few months not just outlining all of Spotlight, but really detailing what do we want to achieve within Special, particularly within Banknote. If you've been following Koenig & Bauer for the last several years, you know that we've had some difficult years the last few years with some projects. It's still a great business.
It's a profitable business. It's a strong performing segment, but we know that the banknote business can be more efficient and have higher earnings. The main target of BNSx is to return Banknote to its historical above average profitability that we have seen in the past. This is again, a combination of measures, focusing on profitability, focusing on earnings, but also looking at the three locations that Banknote currently operates in. The headquarters is focused and will remain in our site in Switzerland, in Lausanne. We are going to focus the operational activities, which are currently spread between Mödling in Austria and our plant here in Würzburg. Focus of the operational value creation will be in our plant in Austria, and Würzburg will continue support in certain specialist functions, as they have in the past with R&D and some service.
We're going to be streamlining the organization, focusing certain parts of the value stream in certain locations, and we'll use these efforts to return BNSx back to the above average profitability we've seen in the past. It's also a project that is not going to take years. It's something we're implementing now and have started to implement, the measures should all be implemented within this calendar year, so that the savings then we're able to enjoy in 2025 and 2026. It's running, and you can expect to hear more about it in the coming quarters. If we move on to page seven, just to round out Spotlight before I hand back over to Andreas for some further comments. It's not only about Digital & Web 2.0, which is a major initiative under Andreas' leadership here in Würzburg and BNSx, under my leadership in the three locations.
We also, as mentioned, are focusing on the group-wide projects and holding structures. If we see a weaker top line than what was previously anticipated, we have to look critically at our costs, particularly on our holding structure, where we are also identifying certain measures to have a more optimized administrative structure for the group. Those are the main focuses of Spotlight. Spotlight is, of course, designed to have a limited number of focus areas and not touch everything in the entire group in every corner of the globe. With these focus areas, we certainly think we're on the right path. I hand back over to Andreas.
Yeah. Let's turn to page eight. A few more messages about drupa. We talk a lot about it in our yearly accounts, about harvesting and sowing and so forth. Actually, what we're doing here is we're now bringing to market the products into which we have heavily invested over the past many years. We will come to drupa with new products which are marketable, which are industrialized. They are not experimental machines. They are not tryouts. They are not the first betas. They are ready to be ordered. The main highlights that we come to drupa with as new products will be our VariJET, the digital printing machine in the format class, where we otherwise sell the mid-format Rapidas, which applications is for everything which the Rapida has an application for, from Sheetfed.
The CutPRO Q and CutPRO X, which are die cutters with different technologies. One is flatbed, one is rotary, it's basically those die cutters used for making cardboard boxes. These die cutters are new. They have a very high performance, also as compared to our main competitors, which are not weak competitors, which are strong competitors, we believe we are having very innovative and new products, and they're ready to go into the market. A lot of that, what we have sold, we hopefully will harvest in the month after drupa and see that we have an effect on our order intake, higher than the normal year. What you see in the little picture here is, again, the complex workflow that we have.
Basically, what you can do with our equipment, if you look at the little picture, if you imagine that everybody in the printing industry reads things from right to left, not from left to right. It's funny, that's how it is. That's also how machines stand in the buildings. If you start on the right, you make a decision with a substrate, then you can put that substrate either in form of sheet or a web, through a digital machine or through an offset machine or through a Flexo machine. Once it goes through there, you have printed, let's say, for example, your box, you can then die cut it, and you can do it either with a rotary die cutter or with a flatbed die cutter.
Once it is cut, the next step to making the box, it needs to go to a folder-gluer to be folded and glued. All of these three major steps, the printing and the cutting and the folding, gluing, and that irrespective what material you use, if that comes from sheet or from web, we will show at drupa comes from Koenig & Bauer with one digital workflow throughout the whole process. It turns more from selling individual machines to selling systems having systems which can also give the customer the flexibility, if he has one in his factory, to decide on a day-to-day level, if he lets the job run through a digital or through a non-digital printing machine. This is one of the big messages we will bring at drupa.
I think it's at least these three new major machines which are market ready. Secondly, it is the system which we offer, and which will hopefully in the next few years, show that we will sell more and more complete systems in addition to selling individual machines. That's where we are. If we go to page nine. If you put all of these things together, the Spotlight program, especially Digital & Webfed and the BNSx and what we have to do in the holding together with the drupa, you have to package that together and scale it. The Spotlight program obviously focuses on scaling all these activities in such a way that all these different views are profitable. To what level do we scale them?
A lot of that will depend on how drupa and the drupa harvesting season after the next months will go and what they will show to us. Either the market comes really back, to a very high level, or the market comes slowly back. We will see. Depending on what we will see at drupa, all of these programs that we're designing now will then put into force scaled to the fitting top line that we see in the future. What we're doing with all of that, and there's always a question, well, what do you gain? What's the outcome? How much money will you make with all these programs? That will certainly be a question that you raise. Before you raise the question, I try to answer it here.
We have quite a steep target for 2026, to get 6%-7% of EBIT, which is quite a step away from where we were in 2023. What we are not doing, we're not moving that year along the road. We're not saying that, well, we are not ready to get years of the 6%-7%, it's shifted down the road for another year. We are still aiming to achieve that. What we are doing here in all these projects is aimed to secure that we actually make that with a mixture of top line, which will hopefully get a push through drupa. Even if that push is not very high, it's a bit high, then we want to achieve it with all of these measures that we have. In either case, it's to secure that we achieve the 6%-7%.
If I can turn back now to Stephen Kimmich to get you through the individual figures of the segments.
Thank you very much. Now I will walk you through the figures in a little bit more detail for the next perhaps 15 minutes before we move on to Q&A. As already mentioned on the top line, it's a mixed picture. Order intake at EUR 243 million in the single quarter, was obviously down versus our extremely strong Q4 2023, but also just slightly down compared to Q1 2023 and Q2 2023. We are still struggling on the overall group level at order intake, but across the segments, which I'm going to show in a few slides, it gives a slightly different picture depending on where you're looking at. As mentioned, Sheetfed continues to show a sequential recovery.
Revenue at EUR 253 million, a weak quarter in top line, at the levels we saw in Q1 of 2022 and Q2 of 2022, where we also reported strong losses. Of course, it's not fun for a CFO to present losses of EUR -10 million, which I will show you on the next page. At the end of the day, it wasn't surprising for us. We saw this coming. We knew that Q1 would be a weak quarter. We mentioned that already in our February or in our March press releases, that the first half of the year would remain weak. We think we're managing the right topics, but overall, the top line is in Q1 at a level that did not make it possible for us to generate profit. Order backlog at EUR 901 million.
The total group, a very healthy figure, only 7% down, compared to the same time last year. If you compare this figure to the VDMA benchmarks, it's a fantastic result for the total group. Also here, of course, you have to look at the individual businesses, which we will talk about in a few minutes. On page 11, you see the EBIT bridge compared to Q1 last year. At the end of the day, it's very simple to explain. It's volume and mix. We lost EUR 10 million of contribution margin, and this is what's driving the losses. It's particularly in the Special segment. This is a temporary effect that we'll recover throughout the rest of the year.
I will talk more about our guidance in a second, but at the end, on a P&L perspective, the only main message we have is, volume was down, and the drop in gross profit drove our losses in Q1. We were able to reduce functional costs and have a positive margin effect in some of the products. Overall, the main message here is volume, volume, which we look to recover throughout the rest of the year. If we go into more detail on page 12 in the P&L, it's what I just mentioned. The only real spectacular figure on this is gross profit dropped from EUR 76 million to EUR 66.9 million, so a EUR 10 million drop in gross profit compared to the same period last year. Again, the main message, it's all about top line and missing turnover.
How that affects the three segments, I will show in more detail. It's also, of course, in large part from the Special segment, as already mentioned by Andreas Pleßke, but I will talk about that in a couple of minutes. Everything else on the page, research and development costs, distribution costs, and administrative costs are flat, which is good news. We have high inflationary pressure over the last 12 months due to salaries and general inflation.
We also have, as mentioned in the past in this call, we also have headwinds from increased depreciation as we've now moved into the depreciation of our capitalized R&D expenses, depreciation of our capitalized SAP costs is now year-on-year driving a higher P&L effect, we're able to compensate on that on the cost side so that an overall flat development below gross profit is good news and shows that we are doing a lot on the cost side to maintain control and to reduce costs wherever possible. In other income expenses, there was a positive FX effect that helped contribute a little bit to the quarter, otherwise in the P&L, nothing spectacular. We go on to page 13 on the cash flow, it's a mixed picture.
We were able to significantly improve, compared to prior year in Q1, still, however, had a negative cash flow of EUR -3 million. That EUR -3 million is mainly coming from our losses, that we saw on the previous page. Net working capital still remains high at EUR 362 million. This is one of our other major focuses outside of the Spotlight, which focuses more on costs. We have parallel, a very large working capital initiative ongoing to continue to reduce working capital. This is showing the comparison to prior year. If we look just at the last three months, our inventories at the end of December were around, I believe, EUR 378 million, EUR 379 million, somewhere in that ballpark, EUR 375 million. We're able to reduce net working capital by a double-digit figure in Q1, simply not enough.
We need to continue to work on it to generate more cash flow, some items are clearly moving in the right direction. On page 14, you see here also the details. The main message remains consistent. We have EUR 10 million missing from our gross cash flow compared to prior year. Again, volume. It's tough to compensate that with balance sheet items or net working capital items. We were able to do that in part, EUR 5.9 million positive free cash flow from the rest of operating activities. Investments are also under tight control, we're able to reduce them by just around 15% compared to last year. We also have a lot of pressure in the organization to continue to maintain good control on investing activities. Overall, free cash flow at EUR -3.2 million, still slightly negative.
On the balance sheet on page 15, there is really no major topics to mention. The main messages remain working capital. We know that we have two topics. One is the higher inventory levels compared to historical levels, and the second on the liability side that the customer down payments continued to drop over the last couple of years as order intake was declining. These are the topics we have been talking to you about for the last several quarters. Otherwise, in the other balance sheet items, no major movements, no major issues in Q1 in either direction. If we move to the statements on page 16, as always, it is a picture of three different stories within the company. I start today on the right with Special.
The Special segment continues to enjoy a high order backlog at EUR 352 million due to the big order intake we had in Q4 last year predominantly from the Bureau of Engraving and Printing in the USA. As mentioned, these are the kind of Special projects. They have a lead time between order intake and really generating sales and profit in the P&L. Q1, we have now ordered all of the material, we finished the engineering work. In order to generate percentage of completion revenue, that material needs to arrive. We need to start adding value to the projects. That is going to accelerate throughout the rest of the year. We are not worried about the Special segment development at all. We continue to see a very strong development throughout the rest of this calendar year from the order backlog.
We had a temporary weak Q1 simply because the material and the value add was not ready in Q1, but will be ready starting in Q2. That Special segment, no cause for worry. Of course, the EUR -5 million losses in Q1 hurt the overall group temporarily for this quarter. Digital & Web is a similar picture, and we think clearly outlines the necessity for Digital & Web 2.0, that the order intake recovery or the order intake positive trend that we had seen partly starting in Q4 2022. We had a weak order intake in Q1, and that missing top line continues to result in high losses in the segment, EUR -6 million for the single quarter.
I think there is nothing else really to say other than Digital & Web, the loss-making situation is being addressed and will be addressed going forward, and this remains one of the single most important Spotlight projects in the company. Sheetfed on the far left. First, a very positive message. We see the third quarter in sequential order intake improvements. After the very weak Q3, there were a lot of worries internal at Koenig & Bauer, but also on the market. Will this low level of EUR 112 million continue? Worst case, perhaps until after drupa. Will we have four or five quarters of very weak order intake, which would at some point result in significant difficulties in the segment?
We had mentioned in our calls in February and March that we saw a positive trend and expected to continue to see a positive trend, and that's exactly what happened. The EUR 172 million of order intake in Sheetfed is very good news for the Group, and the positive recovery continues. We did not have to wait for drupa. Customers are ordering, and as we sit here today in the call, we can also say that in the month of April, that trend has not changed. We still have a positive outlook on the further recovery in Sheetfed, especially now looking forward to drupa, that perhaps can even enhance that recovery or accelerate the recovery.
The good news on the Sheetfed top line is perhaps one of our other main messages today, that Sheetfed is on a good track going forward and the worst seems to be behind us. Special as well, no need for concern. We have a Sheetfed that's on the road to recovery. We have a Special that has a temporary weakness that is clearly based on the order backlog, only temporary. It will have a strong full year. That leaves our segment in the middle with Digital & Web 2.0 that has to simply be addressed with other means and other approaches. That's the summary on the three segments. We're working on it and we will continue to report throughout the rest of the year. Perhaps on page 17, the last main message, what does this all mean?
Despite the weak Q1, we absolutely still see ourselves on track to meet our full year guidance of between EUR 15 million and EUR 30 million of Group EBIT. This is despite having EUR 10 million of drupa expenses in our plan. From an operation perspective, without these drupa costs between EUR 25 million and EUR 40 million, this roughly sidewards movement in operations, not a particular improvement, not a particular decline. We're still actually confident that we can end the calendar year 2024 in the corridor that we had expected. Despite some of the numbers you saw today, these were planned. We knew a lot of this was coming, and we have the measures in place now for the full year, to meet our guidance.
As mentioned already from Andreas Pleßke, but I'll repeat it, Spotlight is our key for securing our first-step goal of an EBIT margin between 6%-7%, no later than 2026, with a Group revenue of EUR 1.5 billion. Also here, we already see ourselves absolutely on track to meet it. BNSx, in order to return to the higher profitability in segment Special, Digital & Web 2.0 to reduce and eventually eliminate the losses in the segment, combined with a Sheetfed that's clearly recovering as well as a more efficient holding structure. These are the right measures and the right fields that we need to be working on, and we're convinced that we're on the right track, both short term for our Group guidance in 2024, in the next step to the 6%-7%, and ultimately then to become an above-average performing company in the midterm.
That's all from my side. I would hand back over to the operator, and we'll move on to Q&A. Thank you very much.
We now begin the question and answer session. Anyone who wishes to ask a question may press star one on their telephone. You'll be asked to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Anyone who has a question may press star one at this time. The third question is from Stefan Augustin with Warburg Research. Please go ahead.
Yes, hello, gentlemen. Thank you very much. Just two questions. The first one is going to the Web & Digital. If I recall that correctly, the first one is we had the issue of the missing top line, which you described that this is overall again, let's say, the bigger problem. We had the trailing costs coming from Q3 into Q4. We had the idea that there is an improvement looming inside the structure as I recall that, right? There was an outlining that the hours for each work step are better in line with the budgeted time than before. Looking a bit in Q1, the order intake is quite low ahead of drupa, so we probably run again into a top-line issue here. At the same time, the cost structure issues are not really fixed at that point.
At least that is how it looks from the outside. I know that Web & Digital is more than one business, so it might look different if we would have more granularity. Setting that aside, where is the point of the constant negative surprise when you make the budget and the measures versus the outcome? What is the thing that looms inside here? If I look at the program you've lined out for the D&W 2.0, do I understand that correctly? After a review of drupa and looking at the prospects of everything, there could be a major decision in the second half when it comes forward, how digital and web actually looks like in the end, and maybe if there is a decision about the [project] that is where you're probably maybe not the right owner or something like that?
To give you a short answer, independent of drupa, it will have to change.
Definitely. The question is how much. Is there a possibility of a major decision after drupa? Yes.
You continue to screen the market at that point in time to see if, let's say, your midterm assumptions for market volumes would be correct.
If you look fundamentally at what this company or a company does and where the problem is, which we have, then you look, is the product the right product for the market? What amount of quantity of that product can you bring into that market, at what gross margin, and is there a nice gross margin? My answer would be on the majority of the products, yes, they are nice products. They can be brought in the market, and they have a nice gross margin. They do all that, most of them, I would say. The question is, how many can be then put into the market in a given interval, and how much structure can we then afford, which is paid for by that gross margin, to enable us to make a profit at the bottom line?
The center is not, are the products the right or the wrong ones?
The center is the scaling.
That is the center of it all. The products are I'm saying for the majority of the products, that is not the issue. It's not that they are not functioning or that they don't find customers, or they don't work, or the productivity is too low, or the customers that we have aren't satisfied with them. That's not the issue. At the end, it comes down to scaling, and scaling comes down to realistic expectations of the turnover.
Okay. Thank you very much. I understood that one then. The next one is actually just simply on the interest lines. Interest or, let's say, the financial results have been stepping up again. It is still fair to assume, without a major change in the debt levels, that I can simply forequote the Q1 result?
It will be less than that. It's a good question you ask. There was also an accounting change that was a one-off issue in Q1. One-off 4x would be unrealistic. It's more on a level of 3x .
Okay. Thank you very much.
The next question comes from the line of Jorge González with Hauck Aufhäuser. Please go ahead.
Hello. Good afternoon. Thank you for taking my questions, Andreas and Stephen. A few ones from my side. Allow me, please, to do one by one. The first one is regarding drupa. Is there any cost related to drupa already in Q1 that we should take into account? If not, okay. That was my first one. Second one regarding the last order for banknotes in Q4. You commented that we should expect it to start kicking in in the second quarter. I have two questions in this regard. In how many quarters, more or less, we should take into account this is going to be extended, the effect of this order? Also, if this means that the second quarter should return to some stable year-on-year development? It would be interesting if you can elaborate a little bit on that.
Well, that's my other question. [crosstalk]
The big order backlog from December from the U.S., that will be turned into revenue over the course of the next two years. It would stretch partly into 2026. It's not all going to happen this year. It's also going to affect revenue next year and 2026. The main message is that, and I think that's the heart of your question, you can expect Banknote to show a significant improvement in Q2 compared to Q1, and that by the end of the year, in our guidance, you see the comment that we expect Special to have an above-average contribution to earnings improvement, and that is the case. We see Special at least as strong as last year by the end of the year and should actually have an overproportionate contribution to the company. It starts in Q2.
I'm not going to give you a specific quarterly guidance on how much you can expect, but Q1 was an extraordinarily low figure simply because the percentage of completion was not possible until the order starts to be executed in the plant.
Okay, two quick more. One is also related to Special, but I would like to also link this with the net financial position of Koenig & Bauer. Last year, the result, the net financial position at the end of the year, I think, came in above, in general, the expectations of the analyst. I was wondering, the fact that you had in the order intake a big, huge order for the banknotes. How this work in your prepayments, and how we should take this into consideration for 2024, taking into account that they may should be different now for the order intake. It will be interesting if you can just guide us a little bit on how you expect the free cash flow to develop through the year to understand better the final position at the end of the year.
If you can answer that will be amazing.
First of all, we do not guide on cash flow, I cannot give you a figure on it. You can expect further improvement in both net working capital and net debt position. This is something we're working hard on, I do not want to quantify it today. The answer to the banknote order intake itself, we have, of course, prepayments that, from a liquidity perspective, are normal and will not drive any increase in working capital as we execute the order. That is absolutely not the case and will not impact it. The overall challenge is simply to continue to reverse our safety stock that was built up and primarily through order intake and top-line recovery to enable us to reduce inventories faster than what we have seen in the past. We did see some improvement in net working capital compared to the last three months.
If you look back the last six quarters, the peak was at EUR 379 million of net working capital on December 31st, and that's now dropped to EUR 362 million. If we look back just a year and a half ago, we were more along the lines of EUR 300 million -EUR 330 million. Q1 moved in the right direction, there's still a lot of work to be done.
It will be true that the prepayments for these orders are below the average for the rest of machines, or not really?
No. Absolutely not.
Okay. My final question is on the margins. I saw a very good improvement in Sheetfed. That is quite welcome. In Digital & Webfed, still there was a worsening that I imagine is related to the startup cost that you were mentioning. It will be also interesting if you can confirm this, if this worsening is related to some project, and some point, if this is something that you're going to reverse through the year, and taking, obviously, group outside of the picture. I'm also interested in the comments that Andreas did on the passthrough of some of these startup costs to clients. Can you elaborate on this? This means that customers are going to pay for these prototypes that they are enjoying and then reducing the losses that you are having, or how we should understand this, please? Thank you.
Let's work in the sequence backwards. I was talking about startup costs. I was talking about one-off costs for the implementation of the first machines of a new type at the customers. There were more costs than we had anticipated.
These were not passed through.
What?
They were not passed through to the customer. No.
Of course, they were not passed to the customers. If they were passed to the customer, we wouldn't have a problem. We have to bear them. It just took us more hours and more work and more time to get these machines to final acceptance than we had anticipated. That is the whatever the best English word for it is, issue that we had. They are not passed through to the customers. We have to bear them. We sell to the customer a functioning piece of equipment for price X, he expects this to perform according to specification on a given date.
If it doesn't do so, then we have to send our teams there and do whatever is necessary to bring this equipment up to speed, which I have said we have now achieved in the first quarter with the majority of those machines where we were working on, but not the very last one of them. Let's say on a decreasing scale, we still have that, but it's getting less and less.
Thank you. I come back online.
The next question is from Peter Rothenaicher with Baader Bank. Please go ahead.
Hello. Peter [inaudible] . Gentlemen, I have a question of specification of development at Digital & Web. Can you perhaps give us here some information which partial segments are running better and where are the currently biggest problem? How is demand for the RotaJET, for example, performing?
Yeah. In broad terms, I can give you that. Let's say everything which has to do with corrugated is fairly weak. That is the HP machines. With the HP machines, the industry produces so-called top liners for corrugated boards. It is also our own core machines, the CorruCUT, which is called now ChromaCUT X Pro. It is part of the Chroma family, has been rebranded. That has been weak. Well, weak is understatement. It has been terrible. That is, I think, a general situation of the industry. As I think we had published, and as you may know, there are something like five big groups in the world, which produce corrugated cardboards, which dominate the world.
Those five, all five of them are or in the middle of a complex consolidation with two mergers being announced and a third one also trying to be a buyer of one of those companies, which is another one purchased. There was a total stop of any business activities while that was going on. I think, those companies, they are the usual big players. They are Smurfit, WestRock, International Paper, and Mondi. That was certainly affecting us.
On that, is there, with this consolidation, the risk of more purchase power from their point of view and the risk of increased price pressure for you?
Not different than today. First of all, besides the big five, there are still others around that are our customers, a few. If we are facing five big guys or if you're, in the future, facing three big guys, each of them are in the double-digit billion figures turnover. It is a lot of oligopoly that we are facing. That hasn't changed. The number is three now instead of five. It's basically the same thing.
Okay. The other partial segments?
If you look at the RotaJET, that is very well accepted and the amount of, let's say, pipeline that we have there, has nothing to do with the pipeline which we had two or three years ago. It has made its path from originally decor into all sorts of materials, or combined materials, or thin film, or foil, or paper. The use cases of the RotaJET are broadening. If I look at the tests, which are made in our test center here in Würzburg every single day from how many customers, it's astounding. Also, there is a big trend, a big discussion about the packaging substrate of the future. As you may have heard that there is a discussion, how viable is plastic thin film as a packaging material for the future?
Many companies are working on other products, which are based on fibers, not on petroleum, to package whatever, from chips to whatever is built in flexible bags. They do an enormous amount of tests on our machines. We are in the middle of also testing these new materials, how printable they are, how good the color is keeping on them. I would say the activity is high.
Okay. Another question. The general pricing environment. Everywhere we're talking about strongly increasing personnel costs. Clearly, there is a hope that the increase will not be that steep anymore as the recent two years. Nevertheless, what is your view? To what extent are you able to pass on these higher personnel costs also via higher selling prices?
I would say it comes down to the forces of the market and the behavior of the competitors. If you are in a downswing of available orders like we were in the Sheetfed markets in Q3 and Q4, and we are slowly recovering, then of course, the competition becomes stiffer and stiffer, and that has an effect on prices. It does have that. If you have a very unique product, where there isn't a real competitor, where the pricing is linked to the productivity and performance advantage it has for the customers, that is not so much under pressure. The more you have a standard machine which comes to nearly a commodity, the more price pressure you have. If the supply side, the demand side goes down, the more it is a unique product it is.
That may be not a satisfactory answer to you, but we have a whole variety of products in our company as compared to some of our competitors who concentrate on one or two standard products. The standard products are under way more price pressure than, let's say, the unique products. We also see that in mid-format versus large format, or in equipment which is middle of the road, standard six color offset as compared to 13 colors with perfector and lacquering and varnishing. The more unique it becomes, the more stable we have our price, or let's say, the more we're able to increase the material and personal costs to the customer. It's a mix, but there is also a large amount of our products which are fairly close to a standard product, and that is under pressure in these quarters. Yes, it is.
Would you consider the average price and margin quality of your Sheetfed or the backlog worse than one year ago?
I consult with my colleague here. I would say that there were years when the market was working the other way around. There was an enormous amount of demand and very little possibility of supply because of all sorts of disruptions in the chain of production. In those years, we could get very good price increases very quickly. Whilst I'm talking, my colleague is thinking, and I hope that his thinking came to a conclusion. I cannot give you an intelligent and balanced answer out of the top of my head, I hand over to the CFO.
I think it's clear we're not going to give you a number on it, I think anything else would be unrealistic, but to obviously say that margins are under pressure. It's clear. In a downward market, margins are under pressure. Our sales team does a great job, and they do everything in their power to maintain margin quality as much as possible. It's certainly gotten harder in a market downturn than it would be in a strong market. That's just simply a fact. Our margins are under pressure. The pressure concentrates more on the mid-size format, I think we've talked about in the past that the large format machines are more under pressure than the mid-size format machines, the large format is a pure capacity expansion investment, and that's happening less.
That the market landscape is even more concentrated on the mid format, which increases the pressure. Yes, I think it's clear margins are under pressure. We think we're doing a good job to manage it, and balancing getting orders in versus margin quality. Sheetfed, at least from an order intake standpoint, is heading in the right direction. Can you expect the same profitability as last year or the year before? With the product mix and the margin pressure, it's going to be a difficult 2024, but certainly still going to be a profitable 2024 for Sheetfed.
The only thing I have to add is I was talking about us doing a good job on we have 6% EBIT. In between, we are fighting a war.
Okay. I think let's wrap up.
Yeah. Okay.
Thank you.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Dr. Andreas Pleßke for any closing remarks.
There's a very important message. Please, for your own information, for getting together, for getting to know more about where we're at, take a look at the invitation, which you should have received for our Capital Markets Day on drupa in Düsseldorf on the 29th of May. We would be very pleased if you take the time and meet us there.
Thank you very much also from my side. Good afternoon.
Thank you, and have a good day.
Ladies and gentlemen, the conference is now over. Thank you for your participation. You may now disconnect your lines. Goodbye.