This meeting is being recorded call for the first half year of 2023. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be forwarded, followed by a question and answer session. I would now like to turn the conference over to Maria Zesch. Please go ahead.
Thank you. Welcome to our earnings call for Q2, and for the first half of 2023. I'm hosting the call together with our CFO, Lars Bolscho. I will start the call with an overview about key topics, and give you an update on the strategy progress we achieved in the last six months. Lars will hand over, or I will hand over to Lars, and he will give you more insights into the financials. Before we come to the Q&A, I will provide you with an update on our outlook and how we position ourselves for the second half. Let me start with the key topics we see in our first half year. When we provided our first outlook for 2023 in March, we already expected a challenging first six months. This expectation has now been confirmed.
We have seen economic headwind from a persistent inflation. We also saw weak growth, both in Europe and the U.S., and we also see declining market data, especially from the PMIs. Against this background, the first six months were in line with our expectations. Organic sales are 2.5% below prior year. Q2, with -1.8%, slightly better than Q1, with a -3.3%. Especially if you consider the impact of the Certeo phase out, which slowed down growth by around 1%, the underlying run rate was only -1% in Q2. We had different growth rates in our three divisions and in the different regions. Apart from a good performance in FoodService, I'm quite happy with our core business in Germany, where we achieved positive growth despite the challenging environment.
I believe this shows that we are on the right track. On earnings, we saw lower gross profit due to the soft top line, and especially also because of a higher share of sales from FoodService. This came in with a lower cost profit margin, and that is due to a high share of project business. On the cost side, we are quite cautious in this environment. We have reduced marketing spend and also our FTE numbers year-over-year. We continue with our Growth and transformation initiatives, and have incurred some additional costs from this. We also see an inflation impact on cost positions. Overall, our EBITDA came in with EUR 57 million.
We continue with our focus on cash generation in this environment, we released inventory in half year one, therefore, we increased strongly our free cash flow to EUR 31 million. Looking at our strategy progress this year, we are well on track. We see good developments, I will give you an update in a second on FoodService and I&P. We have increased our Anchor Stage share, so the revenues we do with Anchor Stage products to 22% in June. We will continue this push towards more climate friendly and more sustainable products in half year two, also with specific marketing campaigns. After the short update on half year one, let me give you an update on some of our transformation topics we are currently working on. Let me start with I&P and the growth in I&P.
What has happened the last six months? As already mentioned in the previous calls, we set up I&P as an integrated unit to grow our share of wallet with our customers by offering more categories. Additionally, we want to be on the marketing side, also more cost conscious. We are continuously reducing the number of brands here. In the last 6 months, we strengthened our cross-selling activities throughout Germany, Austria and Switzerland. In all markets, we are above plan with our cross-selling activities. Furthermore, we have continued to streamline our marketing approach and have phased out the Certeo brand in Q2. Certeo was an unprofitable brand for quite a while now. We decided to focus now on our core brand, KAISER+KRAFT. One additional topic I want to mention is that we organized very successful supplier days in the U.K.
We had good discussions on market trends in the U.K., also had some look in interesting product innovations from our suppliers. Most of the work in I&P in the last six months has been behind the scenes, and I'm very happy and proud that we are only a few days away now from the relaunch of our most important brand in the group. In August 1st, KAISER+KRAFT will launch a new branding and design, as well as a new claim. With the new brand, we can offer our customers now the full range of equipment and packaging products that so far have been split between KAISER+KRAFT and ratioform. For us, it's another big step forward towards a more integrated presence in the market and more efficient advertising. This was I&P, let me now come to FoodService.
In FoodService, we also have taken next steps towards a more integrated setup and merged the customer-facing functions, such as sales, e-com, and marketing from Hubert and Central into one organization. This will further improve our push towards more cross-selling that we already started beginning of this year. We have seen very good results with substantial growth contributions already in the last quarter. In the back end, we have integrated warehouse locations of Hubert and Central. With that, we will increase efficiency and lower costs in the midterm. FoodService was growing significantly in the first half year, this was specifically backed by higher project business. Looking ahead, we will further expand our cross-selling activities, in specifics to profitability, we will focus on margin management in project business, we expect to see improvements from that.
We will continue to streamline back-end functions, especially also in logistics and tech, to improve further efficiency and scalability. The next example I would love to give you on our Caring pillar. The Caring pillar is one where we want to make sure that we contribute to new worlds of work in a responsible but also sustainable manner. After focusing on the internal transformation in the last two years, we are now again looking at M&A and also taking minority stakes in startups, where we can learn and participate in interesting trends in our markets. I'm proud that we can announce that we have taken a part in a financing round at nuwo just recently. Announcement happened this week. What is nuwo?
nuwo is a Workplace as a Service provider with a circular business model. They help business customers to equip their employees' home offices with attractive and also ergonomic furniture. For the customers of nuwo, that also means to become more attractive employers. We see a very good fit with nuwo, as it shows that there are attractive business models with also recurring revenues, but while at the same time creating a new world of work. Let me now hand over to the financials, and Lars will give you more details on what happened in Q2 and half year one.
Thank you, Maria. Hi, everybody. Let's now have a closer look at our financials, starting with the second quarter and then continuing with the first half year, 2023. As Maria has already mentioned, in the second quarter, we were still operating in a challenging market environment with weak GDP developments and also weak market indicators, such as the PMI, the Purchasing Managers' Index. Looking at the group's sales development, top line has been soft, as already expected when we presented our Q1 results in April. With the pressure on sales we are currently seeing, we are fully in line with our expectations here.
Overall, we generated sales of EUR 319.4 million, down 2.8% year-over-year, and for the first time since two years now, we have seen negative currency impacts in the second quarter, mainly from the weaker US dollar compared to last year. Organic growth was -1.8% overall, a slight improvement versus the first quarter, which was organically at -3.3%, especially if we adjust for the Certeo impact. The phase out of Certeo that we communicated end of April and completed in June, has impacted sales and profit in the second quarter. On the top line, we had a negative impact on organic growth of about 1 percentage point from that.
The slight improvement in sales development we see was mainly driven by a better FoodService performance, with nice double-digit growth rates in the second quarter, while divisions, Industrial & Packaging and Office Furniture & Displays were still clearly below prior-year. Let's continue with a look at our profit development in the second quarter. EBITDA came in at EUR 26.8 million, down compared to EUR 34.6 million last year. EBITDA margin was 8.4% in second quarter this year, after 10.5% in the second quarter of last year. The decline in EBITDA was mainly due to the lower absolute gross profit in the second quarter as a result of the already mentioned soft top line.
In addition, gross profit margin was at lower level in the second quarter, 39.3% versus 40.2% in prior year, due to several reasons. First, we have seen a negative structural effect, first of all, due to the division FoodService, with structural lower gross margin growing strongest. This contributes with approximately two-thirds to the decrease in gross margin we see. There's a second structural effect due to higher share of larger orders and project business in our divisions, especially within FoodService, but also within Industrial & Packaging. Second reason for the lower gross margin, we were running in the second quarter against a comparatively strong gross profit margin prior year, especially at I&P. I will come to that in a few minutes.
Third reason, we were selling down Certeo inventory with a discount in the second quarter due to the closure of the business. Last reason within the division FoodService, as expected, we were operating with a comparatively low gross margin. In addition to the higher shelf project business, I've already mentioned that, also due to the sell-down of older inventories, with some pressure on the gross margin, but positive impact on cash flow. Looking at the costs in the second quarter, we continued with our cautious approach, adjusting costs to the lower demand, and at the same time, continuing with our transformation and growth initiatives. For the second quarter, this means we significantly reduced our marketing spend, and we continue to be cautious with hiring new personnel and replacements. FTEs are down year-on-year.
At the same time, we continue with the implementation of our transformation and the more integrated setup. In the last three months, we incurred additional costs from building up our tech group function, for example, the cloud infrastructure and our analytics capabilities. We also had high expenses from the ongoing integration process in FoodService. In addition, Q2 was impacted by higher one-time expenses compared to the previous year. In total, these came to EUR 2 million, were mainly due to the mentioned phase-out of Certeo. In cost, at the same time, we are continuing to see, as expected, some inflationary pressure on our costs.
In total, three bigger effects that led to the lower EBITDA level in Q2, the weaker top line, and therewith, the lower absolute gross profit, the lower gross profit margin, and the impact from one-time expenses and transformational costs, with the main reason being clearly the pressure on sales out of the economic conditions. Looking ahead, we will continue to balance growth and transformation on the one hand, and gross margin improvements, cost management, and cash improvement on the other. With this balance, if pressure on top line would remain in the second half, we would even increase our focus on those three areas. More on that when we talk about our outlook. Let's have a look at the division I&P now for the second quarter. On sales were at EUR 170.3 million, after EUR 178.5 million last year.
A decline of 4.6% reported, and 4.3% organically. The closure of our Certeo activities had a negative impact of around 1.5 percentage points on level of division I&P, so the underlying run rate is closer to -3%. We continue to see different developments between our regional activities within I&P. More challenging in the U.K., while we see very good signs from Eastern Europe and also Germany. In our view, the good development in our home market in Germany is especially promising, given the weak market data, for example, from manufacturing PMIs we are seeing. On profit at I&P, EBITDA was at EUR 21.2 million, down EUR 7 million compared to a strong prior year. EBITDA margin came in at 12.4%.
Again, the lower gross profit is largely a result of lower absolute gross profit and one-time expenses. On gross profit, the lower sales level was the main driver. We have seen a decline in gross margin versus prior year. We had a very strong prior year, with a gross margin of close to 44%, and now we are a bit below the 43%, which is still a good and high level. Within this number, we have already digested the impact from the Certeo phase-out. On costs, it's a very similar story in I&P as on group level. We have significantly adjusted our marketing costs to the lower level of top-line activities, and we were very cautious on the personnel side.
On the other hand, we have seen the expected impact of inflation costs, and we have continued to invest into our transformation. On the level of division I&P, already mentioned several times, please consider the higher one-time expenses resulting from the Certeo exit. Continue with our U.S. activities, first with our division, Office Furniture & Displays. Let's start with the top-line development. Here, we saw a slightly weaker environment in the second quarter in the markets for office furniture, and especially for displays compared to the first quarter. Sales were at EUR 71.5 million, down 12% compared to the second quarter, 2022. The currency effect was negative, with an impact of two percentage points. Organic development was -10.3% against a strong prior year, where we still saw double-digit growth.
As mentioned before, both businesses currently have to deal with weaker markets, which we see clearly in our main market indicators, such as the Restaurant Performance Index or the BIFMA order intake. At Displays2go, our sales were declining in the high single digits. At NBF, the decrease was more around a low double-digit organic decline. Looking at profit, EBITDA was impacted by slower growth and came to EUR 6.0 million for the quarter, after EUR 7.9 million in 2022. EBITDA margin resulted in 8.3% in second quarter this year, versus 9.7% last year. We were able to compensate some of the impact from the lower top line on absolute gross profit by good improvements in the gross profit margin. We are continuing here with a positive trend from the first quarter.
Gross margin was clearly above prior year, due to lower freight costs and good management on the price and discount side. On cost positions, we are missing the operational leverage that we were able to generate with our good growth last year, and we have to digest also here some expected inflationary pressure as well. Let's continue with our third division, FoodService, and with the sales development. Despite the challenging environment, we achieved strong growth at FoodService, even better than in the first quarter. Sales increased by 12.7% to EUR 77.5 million. Also here, slightly negative currency impact due to the weaker US dollar, so the organic growth was even at almost +15%.
This was due to good top line performance at both brands, Hubert and Central, especially an increase in the project business, also good results from cross-selling, which is significantly above plan and supported in growth. On EBITDA, also an increase here, at the same time, some adverse effects. We generated EUR 3.9 million in EBITDA this year, after EUR 3.6 million in the second quarter last year. In terms of profitability, we see a slightly softening development of 5.0% EBITDA margin compared to 5.3% last year. The biggest factor continues to be the gross profit margin. We had already talked about the margin pressure in FoodService in our last call. The gross margin of FoodService is negatively impacted by the sell-down of overstocks and the negative mix impact out of having more project business.
On cost positions, we had some impact from the ongoing integration process, but still achieved some operational leverage which partly compensated the lower gross profit margin. After this more detailed look at the second quarter, let me walk you through what that means for the first half of this year. I'll keep it shorter here, since it is very often a repetition of the same effects and trends that I've just presented to you when talking about the second quarter. Looking at sales development for the group, our sales for the first six months was -2.4% below prior year. Positive currency effects from the first quarter and negative effects from the second level each other out. Organic growth is almost the same as reported growth, with -2.5%.
Looking at the three divisions, we see FoodService achieving high single-digit growth in the first six months, a very nice success in these difficult market circumstances. Both I&P and also OF&D are showing negative growth. On EBITDA, we achieved EUR 57.0 million in the first half year, with a margin of 8.9%, which is a decrease of around EUR 10 million. Profitability last year was at 10.2% for the first six months. The main driver for lower EBITDA is absolute gross profit, where we are down around EUR 8 million due to the pressure on the top line. The gross profit margin, we were able to keep pretty stable with -0.2 percentage points. More on that on the next slide to come. Against this background, we were cautious concerning our costs.
This shows in a significantly lower marketing spend and also a lower number of FTEs for the first six months, which is down approximately 2% versus prior year. At the same time, we made the conscious choice to stay fully on schedule with our transformation. We are currently building a basis for future growth in top line and in profit. It would not make sense for us to slow down or interrupt projects and initiatives. In addition to that, we also saw the expected cost inflation on personnel and on other costs, and from that, an impact on our EBITDA in the first six months. One-time expenses were similar in the first half year to the level of 2022.
As you know, one of the focus topics this year is our gross profit margin, which we are working on to improve towards our target value of 40% this year. You can see in this bridge, after the first six months, we are very close to the 40% at 39.7%, down 0.2 percentage points versus prior year. You can also see here what impacted our gross profit margin development in the first half of 2023. Biggest negative influence is the structural effect from the higher share of sales of our FoodService activities, with structural lower gross profit margin. This is an impact of -0.5 percentage points on the group margin.
With our focus on gross profit margin, with passing on price increases, improving our pricing methods, and actively working on optimizing our product and freight costs, we were able to largely compensate the described negative structural effect and keep our margin almost stable. In my view, a very good performance in this environment for the first six months. Looking at the three divisions, in Industrial & Packaging, we were -0.2 percentage points below prior year. This is due to the phase out of Certeo. If we adjust for the Certeo impact, Industrial & Packaging has a stable gross profit margin in the first half. At division OF&D, we continue to see a very good improvement by almost two percentage points, driven by National Business Furniture, where we benefit from improvements in freight costs compared to prior year, and from strict margin management to keep this benefit in our pockets.
At FoodService, our gross profit margin is 1.1 percentage points lower than in the first half of 2022. As expected, and also shared in our call for the first quarter, we are still seeing the impact of selling discounted inventory at Central in order to reduce our high inventories, and also the negative impact of the higher share of project business, which comes in with a lower gross margin. We will continue to focus on gross profit margin, something we focus on, especially in times of pressure from economic conditions on our top line. Let's go into the details for the first six months, starting with I&P division.
Again, starting with the top line, we recorded EUR 350.5 million in sales, a decline of just below 5%, and slightly impacted by negative currency effects of half a percentage point. Organic growth is at -4.3%, again, with a more negative development at the U.K. activities, while Eastern Europe is growing, and Germany and Scandinavia are stable. On EBITDA, we are at EUR 48.1 million after the first six months, compared to EUR 55.3 million last year. EBITDA margin was 13.7% after a very good 15.0% last year. The lower EBITDA was again mostly a result of the weaker sales and lower absolute gross profit.
On costs for the first half, we spent significantly less on marketing, while other cost positions were impacted by inflation and the ongoing implementation of our transformation. One-time expenses were on a similar level in first half of 2023 compared to the first six months of 2022. On the next slide, we see the first half year at our division Office Furniture & Displays. Sales came in at EUR 144.7 million, 7% below prior year. Organic growth was -8.1% after adjusting for a slightly positive currency effect. Displays2go developed slightly negative after a stronger first quarter, while at NBF, we saw a stronger decline in low double-digit range compared to a very good first half 2022, when we still benefited from also converting order backlog into sales.
The weaker top line is also reflected in the profit development. We generated an EBITDA of EUR 11.4 million after the first six months. EBITDA margin was 7.9% compared to 9.2% in the prior year. On gross profit margin, we are seeing good improvements and can compensate some of the negative delta resulting from the lower sales level. I've already talked about the reasons for the good gross profit margin development at OF&D. On the other hand side, the weaker top line has a negative influence on EBITDA due to overall missing volume. On costs, we are overall almost stable compared to prior year, so in total, we see higher cost ratios because of less leverage of our infrastructure at the moment. With that, only FoodService remaining as division for the first half.
As in Q2 overall, a very good top line development here in an environment that is far from easy. Sales increased to EUR 146.0 million, which translates into an organic growth of 8.9% after adjusting for slightly positive currency impact. In the first 6 months, we generated very similar growth rates at the brands Hubert and Central, with high single-digit growth. We achieved this performance compared with a strong first half 2022, that already saw double-digit sales growth. Really, a strong growth performance here. On the profit side, we have very similar developments compared to the second quarter. EBITDA for the first 6 months is below prior year at EUR 6.5 million. EBITDA margin ends up at 4.4% for the first 6 months of 2023, after a 5.9% last year.
The gross profit margin was below prior year, due to the impacts from sales mix and discounted inventory I already talked about. Together with a strong sales development, this resulted in slight absolute gross profit increase versus prior year. On the cost side, we have seen increases similar to the sales increase, so generally stable cost ratios when we adjust for higher one-time costs associated with the integration. Overall, despite the nice sales growth development, we see declining profitability due to the challenges in the gross profit margin and the further investment into our transformation. Let's look at cash flow now. As you know, one of our priorities for this year, and a very positive development in the first six months, and also a very important KPI in this uncertain economic environment we find ourselves in.
Starting with the TAKKT cash flow, this was down a bit more than EBITDA in the first six months, mostly due to a lower financial result resulting from the higher interest paid. Overall, a decrease of TAKKT cash flow from EUR 58.9 million to EUR 45.0 million. In net working capital, you can see the focus we have been setting for this year. While last year we have been investing into our working capital and had a cash out of more than EUR 50 million, we have now significantly improved that and had a cash out of only EUR 7 million. Biggest impact on change in net working capital is the cash in of almost EUR 20 million from re-releasing inventories. Last year, the buildup of inventories led to cash outflow of around EUR 40 million.
With CapEx being slightly above prior year, this development leads to a free TAKKT cash flow being at EUR 31.4 million, and with that, a very good improvement compared to last year, where we were cash negative after the first six months. You might remember, we then had a very cash-strong second half last year. This year, we will continue with the focus on net working capital and cash generation, and we expect a significantly higher free cash flow for the full year. I just also want to manage expectations and ask you not to expect the same level of delta versus prior year from the first half, also in the second half. Let's continue with a short look on the balance sheet. No surprises here, as I can still present a very strong balance sheet.
Our net financial liabilities have increased due to our dividend payment in May to now EUR 154.8 million, whereof EUR 60 million are lease liabilities. Due to our strong cash flow generation, net financial liabilities should substantially decrease until year-end, unless we would be able to pursue a M&A opportunity. As a result of the dividend payment, our equity ratio declined slightly to 60.2%, but remains above our internal target corridor of 30%-60%, and with this, allows us to continue to buy back shares, look for M&A opportunities, and also pay dividends. Having mentioned Share Buyback, let me share just a quick update on our program. Since the start of the Share Buyback in October 2022, we used around EUR 8 million, approximately one-third of the allocated volume of EUR 25 million.
In view of this remaining potential and the positive experience with the program, we prolonged the Share Buyback program until the end of 2024, with our decision taken end of June. The total volume remains unchanged. Around EUR 17 million are available for further purchases. Before I hand back to Maria for our outlook, let me summarize the financial update. In the challenging economic environment we are in, we are performing on sales growth well within our own expectations, and so far, even a bit better than expected. We are cautious in our cost management, even if we see some cost increases due to our transformation, and also some expected inflationary cost pressure. Our focus on gross margin, and especially on cash flow, pays off, especially our good development on free cash flow is something I want to emphasize as a success for us in the first half.
With that, over to you, Maria, for our outlook.
Many thanks, Lars, for the Q on Q2 and also the first half year. As both of us explained, it's a challenging situation, but in this environment, we believe we are doing the right things and we are also performing. I believe, you know, the teams are working hard and doing a good job, and we also see that we are fully in line with the expectations we had for the first half year. What does that mean now for the second half of the year? When we first published our guidance in March, we highlighted the high degree of uncertainty, and we look forward to an upswing in the second half of the year. Let me come to our estimation for the economic environment.
We are now in Q3. We still see uncertainty. We face a very volatile demand, which leads to ups and downs in different regions and also in our divisions. What I can say is there is no clear trend. Overall, we have seen an improvement from Q1 to Q2. There's also markets where we see demands slowing down. That means risks, but also opportunities for us. In July, for example, we see a growing demand, both in I&P and also in FoodService. On OF&D, we still see an improvement, but still not yet on the gross cost. I would say, or I would call that there are a lot of moving parts at the moment on the demand side.
On the cost side, the cost inflation and potentially higher wages, they will continue, and they will have impact also in the coming months. GDP growth looks like it might take a few more months before we really see an improvement there. Given this environment and the uncertainty, there's still a risk of a significantly worse development, even a deeper recession in the core markets. What does that mean now for us? What does it mean for the priorities of TAKKT? Our strategy is clear: we want to grow, we want to become a more integrated company, and we will get impact via our Caring pillar. As I just said, despite the challenging environment, we are also currently seeing some good developments and an improving demand in some of our key markets.
For me, it remains clearly a top priority to serve our customers and fulfill the demand which is out there. We continue with our strategic growth initiatives, especially with cross-selling, with pricing, and also our initiatives in e-commerce. At the same time, we have to focus on manage costs and profitability. A main topic for us remains profit margin and the margin management. We further push measures to improve our gross margin towards 40% and compensate for the structural negative impacts, Lars had mentioned that, of the sales mix we have seen so far. What we expect is positive earnings contributions from the cross-margin measures, but also a very stringent cost focus in the second half of the year.
Coming to costs, regarding costs, we ring-fenced our Growth and transformation projects because we will not slow down on the transformation journey, but any costs or projects or initiatives that does not contribute to a more integrated setup or to our Growth, will be managed very cautiously. This also includes a very restrictive approach to hiring in this challenging environment. We also continue with our focus on managing net working capital, and we want to build on the success we have achieved in the first six months. The focus there will be on further inventory management, but also on improving on Days Sales Outstanding and Days Payables Outstanding. Let me then come to the forecast and to the guidance for the full year. I mentioned the expected upswing we initially anticipated for the second half of 2023.
Looking now at the current environment, there's a risk we might have to wait for early 2024 to really see a significant improvement in GDP growth. This puts pressure on our sales expectation, but still we continue to expect an improving demand from our customer space in the coming months. Why is that? Why do we believe in that? There are three factors or three reasons I would like to highlight. First, we have a much higher or a much weaker comparison base in half year two than in half year one, so a much weaker comparison base. Second, the order intake in July, and the more optimistic feedback we get from our divisions towards the second half of this year, supports a slightly better second half.
As I said before, order intake in July so far is better than what we have seen in Q2, and this is driven by growth in I&P, so slight growth in I&P, as well as the continued growth in FoodService. As I mentioned, OF&D is still on a declining trend, but also here we see improvement already. The third reason I want to mention is our growth initiatives, which should have further positive impact on our sales development, and, for example, cross-selling activities, but also the pricing measures we set. Together with this challenging environment and our current insights on sales, we expect a stable to slightly negative development for the full year. This means, and this requires an improvement compared to the first six months.
On profit, we specify our guidance towards an EBITDA between EUR 120 million and EUR 130 million. This still implies a higher EBITDA in the next six months than in the first half year. Originally, we had a wider range, the range was between EUR 120 million and EUR 140 million. What are the reasons for adjusting the guidance? Well, I think we have talked about half year two still being a challenging environment, and despite the mentioned reasons for an improvement in sales development, our initial expectation for half year two was more positive. Missing sales compared to our initial expectation brings us to the said EUR 120 million to EUR 100 million. Finally, definitely, it's also about cash and our cash generation. Here, we stick to our initial guidance and want to earn significantly more free cash flow than last year.
For achieving this, we are working intensively to improve the net working capital, as I said before, also on receivables and payables and, of course, inventory levels. This was the guidance, but before I hand over to you to start the Q&A, let me give you just a short reminder about our investment thesis. First, I believe we have a huge Growth potential in a very large and also very fragmented markets. We have a diversified position with our activities in Europe and the US, and this has helped us in the past and will also be important for the future. Our vision is clear: We continuously execute on our strategy to bring new worlds of work to life in the three pillars, Growth, impact, and Caring. We have a very good financial track record and execution.
We delivered on our financial goals. We'll make sure that we do that also in 2023. Last but not least, especially in this environment we have the advantage to operate from a position of financial strength and stability. We have a strong balance sheet, we generate substantial free cash flows, and also we are clearly committed to pay dividends to our shareholders. With that, I'm happy to take your questions. First, to the operator for the Q&A.
Thank you very much for your presentation, Maria Zesch and Mr. Bolscho. We will now move to the Q&A session, as you already said. For a dynamic question, we kindly ask you to submit your questions via audio line. In order to do so, click on the Raise Your Hand button on the lower part of your screen. If you have dialed in via phone, please use the key combination star nine, followed by star six. We did not receive any questions yet, and we will just give it some more seconds. We are now taking the questions from Lukas Spang. Please go ahead, Lukas.
Yes. Hi, good afternoon. I have just one question concerning your explanations about the July order intake. You said the July order intake was better what you have seen in Q2. How do you mean that, on an average monthly base, Q2 versus July? How do you mean this comparison?
Lukas, thanks a lot for the question. It's about July and order intake and how we see that in comparison to what we've seen so far, right?
Exactly.
Yeah. Currently, what we see in July is not over, still some days to go. It's on an average, we see higher order intake than what we saw in Q2. As I said, in FoodService, we see a very strong trend, same as we saw, like, the last quarters or the last quarter. Also in Industrial & Packaging, we see positive growth, a slight positive growth. That's what we see in July. In Office Furniture & Displays, a better development than in Q2. In all three divisions, a better development than in Q2.
Okay, got it. Thanks again. Thank you.
Thank you.
We're now continuing with the questions from Craig Abbott. Please go ahead.
Oh, hi. Can you hear me?
Yes, we can hear you well.
Okay, excellent. Yeah, I apologize. I'm going to follow up a little bit with the question just raised, because I was trying to figure out how to raise my hand, and so I missed a little bit of your first part of the answer. I do apologize for that. I also wanted to understand a little bit better where you've seen the signs of optimism. If I caught the end of your answer correctly, you said it was across all three divisions. If you could elaborate just real quick again there for us, please. I'd appreciate it. Then I have another question after that. Thank you.
Of course, Craig. What we see in July is compared to Q2, and as I said, July is not over, still have some days to go.
Mm-hmm.
What we see so far is, in I&P, so in Industrial & Packaging, we see slight growth, so better than what we saw in Q2. In FoodService...
Sorry, but were there any particular subsegments you would highlight there, where you saw improving demand?
In Industrial & Packaging?
Yes.
What we see is, you know, that we are separated in regions.
Mm-hmm.
Across all regions, a very positive trend, especially in large sector. Continuous very positive figures from Eastern Europe, but also Germany, positive, also the Nordics, positive, and even UK seeing, you know, good trends. A very positive development for Industrial & Packaging. FoodService, you know, we were already quite good in last quarter, so we see that trend continuing. In Office Furniture & Displays, what we see there, that both companies are improving versus the last quarter, but still on a negative base.
Okay, thank you. Then on food services, I just wondered if you could give us, like, kind of a, I'm talking about a range here, obviously. Once you finish the inventory phase-out measures at Central, and you kind of feel like you have, like, a normal sales mix in terms of the product share and so forth, what would be your sort of normal run rate EBITDA margin range in the food segment? Food services segment, excuse me. Thank you.
Yeah, thanks for that question. Again, just for me to get the question right. Yes, we have the TAKKT on EBITDA margin at the moment. I think it's three topics, actually. It's first of all, the sales mix we have, with TAKKT on the gross profit margin.
Mm-hmm.
Secondly, the sell-down of the old inventories, which we are doing.
Mm-hmm.
In order to reduce our inventories, improve our cash position. We also have some impact out of the transformation we are doing there. Some of the one-time expenses you've seen is coming out of that division FoodService. If I go through those three lines, the impact out of reducing inventories, old inventories, that's something I would expect with that magnitude, that impact, to end around end of this year, probably beginning of next year, so that should not last too long. The impact on the sales mix is very difficult to forecast, because I think this depends a lot also on how the market develops in the different sub-segments. Therefore, it's difficult to say on that impact on the special items we see.
There is, after this year, I would say, no bigger topics to be expected, as main part of the integration will be finalized and done in the main parts end of this year.
Okay, if we take the two parts that you can best predict, the inventory sell-downs and the special items, what would be their combined margin drag effect at the moment? Thank you.
Yeah, that's a bit difficult for me to assess, especially in that, in that second part. I would guess that could be around 1 to 1.5 percentage points.
Okay. All right. That's helpful. Thank you very much.
You're welcome.
Thank you very much for your questions, Craig. We are now taking the questions from Nils Scharwächter. In the meantime, a kind reminder, if there are still open topics you would like to discuss, please let us know your questions. Nils, go ahead.
Sorry, can you hear me? I had some-
Yes, we can hear you now.
Perfect. Thanks for taking my question. Just a small follow-up on the last question. You mentioned you want to lower your inventories, and I was wondering what would you consider as a desirable level of inventories?
Yeah, let me differentiate the answer a bit. We have one very specific topic, which we just talked about in our division FoodService, where we have in 2022, in the light of very disturbed supply chains, have done some, like, bigger bulk buys, and now reduce this old inventory again. That's the one part, very specific in this one market, and also limited to quite small numbers of items, like SKUs or articles. Overall, improving our inventory turns is something that we see midterm and also long-term in our structural cash management and trade working capital improvement.
This has many dimensions, as you probably are aware of, so, of course, that also has to do with how to sell off old inventories, not even get to the point that we have a higher share of all inventories. In our business model, this also includes what's the share of products we take into stock and what's the share of business we do with drop shipment. That's an overall ongoing initiative on inventory return optimization.
Okay, awesome. Thanks. Maybe a quick question on the guidance corridor you narrowed down recently, or you're targeting right now the lower half. Just, you mentioned within the presentation already the macroeconomics, but what could be additional to that, the main risks that you will not achieve the guidance this year? Thank you.
Let me start the answer on the sales side, I hand over to Lars also on the EBITDA side, and then cash, we confirmed, right? On the sales side, we believe we have multiple reasons why we believe we can be better in half year two than what we have seen in half year one. First is a comparison reason. We have a much weaker comparison base in half year two than what we had in half year one. That's the first one. I referred already in my first answers on July. What we currently see gives us optimism, and also there is good feedback from our divisions from the sales side, on the second half, also on projects, but also, what we hear in the market.
As I said, order intake in July is better than what we have seen in Q2. As I said, this is valid for all three divisions. In I&P and FoodService, we see already growth. In OF& D, we see improvement. The third topic is, of course, I have to mention that, because we have our Growth initiatives, and we continue with the Growth initiatives. On Smart Pricing, we continue also on the cross-selling topic and also on the e-com side. We expect further positive impact from the strategic measures, as I just said. Therefore, we believe we are not too optimistic and also not too pessimistic, but still, that's why we came with the new guidance. Lars, on EBITDA?
Yes, thank you, Maria. Also summarizing and agreeing, I agree, like, the top line and the uncertainty in the economic environment is a risk, but we feel comfortable, as Maria said. If you look at how do we need to improve our profit in the second half, the main part of that, around two-thirds, is coming out of our absolute gross profit. This includes the sales growth, which Maria referred to, and one important part in that is also our gross profit margin development, because if I compare that to the last year, in the second half last year, we were quite weak in gross margin, with also some challenges in overstocks.
It's important for this two-third to achieve that we keep working on our gross margin and keep it at the level we have it, even improve it a bit, and with that, be way better than last year in the second half. Two-thirds out of that, sales growth and gross margin, the remaining one-third in improvement needs to come out of improving on our cost development. If I look at the one-time expenses we had, for example, the first half, we've already mentioned that. Also, the cost management we apply, I think I feel quite comfortable that we can achieve on that. Overall, two-thirds on the absolute gross profit, one-third on the cost line, main risk, the uncertainty economic conditions.
Perfect. Sounds good, and thanks for the detailed explanation, and I will keep my fingers crossed. Wish you all the best for the second half.
Thank you for that.
Thank you for your questions, Nils. In the meantime, we have not received further questions. We therefore come to the end of today's earnings call. I would like to hand over to Maria Zesch for some final remarks.
Many thanks for your interest in our company, in TAKKT AG. We would like to invite you already today to our next conference, and another call, which will happen on October 25th. Looking forward to being there again with you, and until then, have a nice summer, and see you soon.
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