Ladies and gentlemen, welcome to the full year 2023 results conference call and live webcast. I am Sandra, the Chorus Call operator. I would like to remind you that all participants have been listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and 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 Alex Waser, Chief Executive Officer of Bystronic Group. Please go ahead, sir.
Thank you very much, Sandra. Good morning, ladies and gentlemen, and welcome to our full year results 2023. I'm here with our Chief Financial Officer
Despite approximately CHF 80 million lower sales, we grew EBIT by CHF 6 million to CHF 54 million. I've mentioned the challenging market environment. This is also visible in our lower order intake of CHF 794 million, and we also will elaborate on that a bit later. Our RONOA, as you can see, remained stable at 14%, and the board proposes an unchanged dividend of 12 CHF per Class A share. Thanks to a solid cash generation, our balance sheet remains strong, with nearly CHF 350 million of liquid assets. As we are moving to become a global full-service provider, we are facing a soft market environment currently, in which our teams did an outstanding job last year. Let me share some of the examples from various markets. I will start with Europe. Being close to our customer is key for us.
We conducted many customer journeys, visits, and open days in the past year. Sometimes we do this instead of attending an exhibition, and we have received quite positive feedback about this approach. Customers can feel much better the Bystronic spirit when they are on-site with us in our experience centers. We are also very mindful about spending. This even helps us to reduce some cost. The same also applies for China. After several years of restricted customer interaction, we conducted our first competence days, again in person. That has become a challenging market for us. Hence, face-to-face meetings are very important for us, for our meet prospective and existing customers. India is one of our fastest-growing economies. It is still a very small market for us, but we see large potential. Therefore, we opened a new facility and an experience center.
We want to be present locally to benefit from infrastructure, expansion, and grow the growth of the local manufacturing industry. Switzerland is our main hub for innovation, as the heart of our business is basically laser cutting systems. Our R&D department has been very successful, and we launched several new features. As the last example, you can see here on the very left, let me highlight the U.S. I'm proud of our development there. In the last 5 years, we have increased our sales in Americas region by more than 60%. As you might recall, we have invested into local production in the last years and have started the assembly of laser cutting systems in the silver segment. Last year, we have, for the first time, assembled a system from the gold segment locally.
This is a major milestone and is in line with our strategy to strengthen our local production. This helps us to deliver faster, at lower cost, and on top, strengthens our local supply chain. Our strategy centers around the three pillars: systems, software, and service. Let me also pick a few highlights here. In our bending portfolio, we have launched a new ByBend Star 120. It is the system of choice to bend smaller mid-size pieces of sheet metal. It can process different materials in different thicknesses, and despite its speed and premium class, it comes as a very compact and small system that virtually fits in every production. Let's move to service then. Our investment over the past years are paying off. Despite the economic situation, we grew sales by 12% at constant rate... while the number of service technicians remained flat.
This proves what we have been saying in the past: once the technicians are trained, they will become more effective, and they can strongly grow the business. In software, we have closed many projects. Of course, the sales number from these projects are still small, but the discussions about digitalization is very important for our customers, and we see a growing pipeline. We also strengthened our three main hubs on the software side, and we now employ around 120 software engineers, in this development side. I've mentioned before that we are developing ourselves to become a full service provider. Let me elaborate what this means and how our business evolved over the past years. Five years ago, we had a very limited automation offering.
However, today, around two-thirds of the laser machines in Gold and about 50% in the Silver segment will sell with automation and software. The same is true for the service business. It used to be only about 19% of our sales. Today, it's actually 26%, which actually is exactly on business plan. The Americas region in our growth is really our growth engine. We used to make slightly more than CHF 200 million in sales. Today, we generate CHF 335 million of sales in this region, a testimony of our strategy. Until a few years ago, our software offering was very limited. We only offered machine software, but had no integrated software approach to digitize factories of the future. This has changed with our acquisition of Kurago and the following release of our BySoft software suite.
We also build up our sustainability approach. In the past, our business was also more centrally managed. The regions had less responsibility, and much of our products came from Switzerland. Today, for example, the Americas have their own production. This shows how our strategy of regionalization is paying off, both in terms of local production, but also in local responsibility for sales and customer relationships. But also, let me mention one aspect of our business that has become a real challenge. Until a few years ago, our China business generated high margins and a substantial EBIT contribution. Today, the market is characterized by high overcapacities and price pressure. This, of course, has negatively affected our margins. We have talked about our digital offerings before. Let me show you one example, actually, great example.
Van der Leegte Metaal , as you can see here, is an important customer in the Netherlands. In their factory, we worked with both Bystronic systems but also third-party systems. They have rebuilt their factory to expand capacity and chose Bystronic software suite as their main core to drive the production, digitize their processes. We have actually learned a lot during the setup and installation process, and are very proud that this is really our first large, true digitalized smart factory. Together, we have opened their smart factory last November, and as you can see in the picture here, this is the opening ceremony on the top, right side here, together with the VDL leadership team. One more remark and why such projects are important to us. They are an entry point for us to discuss productivity and expansion plans with customers.
They help us to position us as a partner of choice, no matter what they stand in terms of digitalization. We're actually very excited for more such projects, and we can see that the pipeline is filling up of such projects. Before I hand over to Beat for the financial review, let me share some ESG highlights. In 2023, we have committed five specific midterm ESG targets. Three of them relate to the environment, with a reduction in emissions and waste. They are also in line with the science-based targets. We'll publish our 2023 data later this year, but I can tell you already now that we have achieved a strong reduction from 2021 to 2022 already. The fourth target is about females in our leadership teams, and the fifth about safety in workplace.
With this, I would like to hand over to our CFO, Beat Neukom.
So thank you very much, Alex, and good morning also from my side, and thank you very much for joining us today. Let's see here how this works. So here we go. Well, let me first elaborate when we talk about the financials on our order intake and the trends and developments we are seeing overall, and then also by region. Well, in general, the strong Swiss franc has left clearly its mark on the performance. We lost about CHF 55 million or about a third of the decline of order intake due to the strong Swiss francs and due to the foreign exchange rates. In organic terms, the orders declined by about CHF 160 million or 16% respectively. Our market environment is and has been challenging due to geopolitical uncertainties, high inflation, and increased interest rates.
Therefore, many customers wait to make a decision for better financing conditions and better interest rates. And therefore, we have the discussion with these customers, you know, when they will invest, and we clearly see that many of these customers are waiting. In EMEA, order intake has declined by 23% on a constant currency basis, but has been stabilizing, albeit on a lower level, in the second half of 2023. In Americas, order intake has been reached almost last year's level, so 2022 level. However, we saw some cool down in the fourth quarter of last year due to the soft economy. And in China, our order intake remains at a low level, even so it has been stabilizing throughout the year. And Alex has mentioned already that this market is really, really challenging for us.
We're focusing on keeping costs under control and going after larger customers, where we can differentiate with our automation solutions, where we have invested into a local production and local competence center to go after local competition. In Asia Pacific, the order intake has been declining over the past quarters, and we haven't seen a pickup in demand overall yet. However, if you drill down into the Asia Pacific market, the performance is twofold. The more mature markets, like Australia, for example, perform much better as we could benefit from a high demand for automation solutions. Now, let's have a look at the P&L. Our net sales reached CHF 930 million, nearly CHF 90 million below last year. However, about CHF 63 million of this is pure FX related.
So thanks to our high order backlog of over CHF 400 million at the beginning of last year, the organic decline was only 23 million, and we ended the year with a backlog of 250 million CHF. The sales performance here is twofold. If we look at the systems versus our service business. The service business continued to grow strongly with 12%, Alex mentioned it, the constant currency exchange rates, and shows that our investments in the last years in this area are demonstrating success. Today, our service business accounts for about 26% of total net sales. The systems business, on the other hand, declined by 6.3% on constant currency basis amidst the weak macroeconomic environment. Our gross margin improved.
This is mainly driven by the implemented price increases, as well as a better mix with over proportional growth in the United States and the service business. And in both these areas, we can realize better prices. And also, we experience some better sourcing conditions for components and parts. Our personnel expenses declined in line with the number of employees. Because of lower capacities needed and the strict headcount management process, we reduced the number of FTEs by about 3% or about 100 in absolute value. Our total personnel costs also declined 3% on a group level, so we have overcompensated the inflation adjustments for salaries, which was also around 3%. And then, thanks to strict cost control, our operating expenses declined by nearly 9%, hence a bit more than sales. There is also a sizable FX impact on our EBIT.
Thanks to our successful hedging, both natural hedging, mainly for the euros, and through financial hedging instruments, we could limit the negative impact to a mid-single-digit million CHF on the EBIT level. Nevertheless, with a CHF 60 million FX impact on net sales and a mid-single-digit million CHF EBIT impact, this impacted our margin negatively. So eventually, EBIT increased by 13% to CHF 54 million in 2023. Given the higher interest rates and our cash balance, our financial results improved, as you can see on the chart. Then, with regards to the taxes, our taxes are slightly higher because of an unfavorable country mix. For example, with higher profits in the United States. In addition, we generated lower profits in China, where our companies are benefiting from lower tax rates because they're classified with a high tax—sorry, with a high-tech status.
This results in an effective tax rate of 24%, hence slightly higher than what we expect for the midterm. Eventually, our net result amounts to CHF 42 million... We're pleased to operate with a strong balance sheet, and let me highlight the most important items here. Despite the reduction of advanced payments from our customers and our dividend payment of CHF 25 million last year, cash is slightly higher at the end of 2023, compared to the level on the 31st of December 2022. To drive our cash flow, we have successfully reduced inventory levels. This is true for finished products as well as work in progress. On the other hand, parts and components closed at similar levels last year. So despite the lower order intake and backlog, we slightly increased some safety stocks.
As the positive impacts from our focused working capital management could offset the negative impact from the lower advanced payments, net operating assets remained stable. Therefore, also the return on net operating asset is at similar level as last year. Now, with regards to the cash flow, our working capital management is therefore also visible on the cash flow. We focused on cash collection and reduced our trades payables. Inventory and accounts receivable reduced by almost CHF 70 million, over proportional compared to the sales and order intake. Advanced payments from customers decreased by CHF 54 million due to the decline in order intake and lower backlog. Our CapEx to sales ratio was slightly lower than what we planned midterm. However, this helped to improve our operating free cash flow from CHF 34 million compared to -CHF 41 million in the previous period.
Now, Alex was talking about the dividend, and let me give you some perspective to that. With 12 CHF per share, it is unchanged versus the dividend last year. It rewards shareholders for our performance in 2023. After the dividend payout of about CHF 25 million, our liquid asset will be, and continue to be, at a high level. Our dividend policy for 2024 will remain in place, which is with a payout of about a third to 50% of net profit, while taking into account the company's liquidity situation and future needs. This concludes the financial review, and I'm happy to hand back to Alex.
Thank you very much, Beat. Oh, that was,[crosstalk] that was fast. That was fast. Thank you. So let's talk about the recent years. So due to various external effects and market disruptions, our profitability has declined over the past years. Back in 2017 to 2019, our China business has generated substantial profits. Since then, the market has significantly deteriorated. In addition, while we experienced, you know, COVID and supply chain disruptions, we deliberately invested in our service and software business. This has led to a gradual decline in our profitability, despite some of the countermeasures already taken in 2023. As we continue to be faced with a weak economy, we need to take further measures to stabilize and improve our EBIT margin. Therefore, we are planning to structurally improve our profitability, hence, we are launching a cost optimization program.
Let me provide you with some more details about this program. The program actually is twofold. It's got a structural piece and a volume-related piece. First of all, we want to reduce structural cost. This means we take out a portion of cost that won't come back, even if our volumes are rising again. This relates to organizational adjustments as well as efficiency gains. To give you some indications on what we are working on, we are actually flattening our organizational structures by reducing management layers and increase the span of controls. We are looking at overhead functions, and we want to establish readiness for the next economic upswing to become future fit. In terms of efficiency, there are various work streams. Some of them have already started, and some of them are already implemented. Secondly, we take out further volume-related costs for 2024.
This mainly relates to personnel cost and capacities. Once our orders bounce back, we would expect that the majority of this cost of the capacity will come back as well. In total, we expect an impact of around CHF 50 million. These measures also come with a reduction of FTE. We estimate about 210 headcounts. Actually, about half on the volume-related side and half on the structural side. Before we move on to the Q&A, let's take a look at specifics about an outlook of 2024. As we all know, outlook for 2024 is very difficult to make, but for now, we expect the market environment to remain challenging, with an order intake on the level of the previous quarters. We estimate that our order backlog is now on a normalized level with about CHF 250 million.
While we expect a weaker machine business, we are confident that our business, our service business, will continue to grow, likely on a somewhat lower rate, but will grow. In sum, also given the strong Swiss francs, our sales will be lower in 2024 than in the past year. As a result, we will experience a negative operating leverage, and in addition, we expect some wage inflation. To mitigate these impacts, we launched a cost optimization program I've just mentioned before. To conclude, an outlook, 2024 is very hard to make, but we expect a decline in sales and also lower profitability, which we'll counteract with our cost optimization program. Those of you who follow us closely certainly know that our business is somewhat seasonal, with usually a stronger second half of the year.
As volumes will be higher in the second half, we anticipate a weaker profitability in the first half and a catch-up later in the second half of the year. Also, the effects from the cost optimization program will gradually have an effect on our profitability. With this, I will move on to the Q&A session, and we'll take the first question here from the room.
Before asking a question here in the room, kindly also mention your name and the company you're working for.
Walter Bammer from Zürcher Kantonalbank. Almost half of your market capitalization is now in cash and securities and loans. Is there something useful you can do with that money?
Yes, we are. I have mentioned this in here in these slides, but we have been looking into M&A, of course. That was the initial idea, to have enough firepower to do M&A. We also did that in 2024. We didn't got to the conclusion to have a perfect fit, and that's why we haven't really mentioned it. But there is a second part to that, where Mr. Heinz Baumgartner, I think you mentioned it last year, that there is, of course, a point when we need to decide what we're gonna do with our liquid assets.
Is there a need to invest in external growth? Because if you look at your own valuation, it's really a question mark if you find anything that comes close to that.
Well, I can answer the technical part of that, of that question. As we have always said, the core of our growth strategy is expanding the applications. And that's still a need in there, we feel. We feel we are solid on the service side, and we are solid on the software and on the solution side.
Last question, in the same direction: Can you give an update on the vendor loan, Mammut? When will that become due, and what do you plan to do with that?
So according to the contract we have with Mammut, the payback is four.
10 levels to 6 in their organization. How about Bystronic? And can you please maybe give us some comment? I mean, did you clearly overexpand in the past, you know, personnel-wise, something which now needs to be rectified? And can you please elaborate on where these jobs will go, especially in Switzerland, those who have already gone this year, we learned 200, and I see now another 210. So where, where are you cutting?
Actually, I understand your question, there is exactly as we put on here, we have two groups where we reduce cost. One is structural part, and that's probably what you're referring to, and the other one is capacity related. The capacity related will be where the plants are, and the plants are in Germany, in Switzerland, in Italy, in China, and in the U.S. So we basically look at every capacity planning of every plant. So that's where the location is. When it comes to the structural part of it, you know, we are in an organization where we can reduce layers of management, and that's what we're doing as well. And that's exactly what I said as well. I think we haven't over...
You know, I tried to explain that. It's, you know, we expanded our service organization by well over 200 headcounts, and we expanded our software organization probably by 80-ish headcounts in a time where it was actually not logic to do that. But the result of what we have done, you know, 3 years ago, results in a significant growth of our business in service, which we are completely on track, actually. But not only on sales, but also on the contribution margin, doing a very good job there. It results in a software suite that is allowing us to generate significant value to our customers by digitalizing their process steps, and we have, we've seen an example here.
So yes, we have invested with a long-term view in mind, and we personally feel while it was sort of counterintuitive to do it at the time, we feel that the results are coming on that. That part that we are actually attacking right now is really, you know, while service and the software part are doing actually quite good, it is the machines part of it that has high cycles. And in these high cycles, we need to react and basically work on the structures. But at the same time, we wanna make sure we are ready when we start again, you know? You have seen our order entry of nearly 800 CHF here. You know, not too long ago, 18-24 months ago, we had an order intake of CHF 1.2 billion.
So we need. You know, in our business, you need to sort of be ready. And when you look, for instance, on different charts, one of them is, you know, the PMI Industrial, that you can have a look at. You can see that we are in red area since 18 months. So it's not really a surprise that we are where we are, so we think we are at the bottom at that. And, you know, sometime in the future, we will see that changing again. And we see that with customers, actually, that are holding back projects. They're holding actively back projects. So sorry, a long answer to a long question. I'm not sure I'd have answered everything.
Now, still, I mean, you have to tell me, how many layers of management do you then have, you know, and will you have in, at the moment, and will you have in the future? And, and again, you know, Switzerland, how much will it be affected, you know, especially in Niederönz? I mean, you have many people there, so, if you could give, if you could elaborate a bit on that.
So we are quite smaller compared with Clariant. Obviously, we don't have 10 layers. We don't have that much layers. No, we are actually. There are different programs being finalized right now, and therefore, I can't give you the really exact numbers, but, you know, one of the levels we are looking at is to reduce one layer of organization, and that probably would be three layers then, instead of four, in some of the areas. But we are a relatively flat, organized business to be. I have 14 direct reports, 12 + 2. So we have, you know, we don't pile. I don't wanna mention anything about Niederönz, because we really, that wouldn't be fair.
We're gonna organize, we're gonna communicate all of that just in two hours to the rest of the organization, while the plans haven't completely be finished. We know pretty much what it is, but would be unfair to do this right now. There will be effect, you know, 200 headcounts globally for us. 100 in the plants means 100 basically for the rest of the organization. And 100 headcounts for an organization that have 3,500 headcounts, that basically means 3%, right? And we have a fluctuation rate that is much higher than that. Maybe that helps you to put that into perspective. Did I answer your question halfway?
Fehrenbach, AWP. In contrary to other companies, you made an answer for sales and EBIT margin. It looks a bit defensive. How much, to what extent is it due to the difficult market environment, and to what extent maybe to leave some room for the new Chief Executive Officer, Mr. Iacovelli, for a positive surprise?
Okay, I'm not sure I understand the second part of the question, but I can answer you the first part of your question. So, you know, yes, we will have a successor. That successor has been announced. The change was discussed for. You know, we are long-term oriented. We have, we have had a succession planning that goes over long time. So we are in the opinion, and we have discussed this in the board and in turn, of course, that if we have a need to make changes, we make that constantly. We are not waiting for certain changes that would just result in waiting times and things that we would need to do.
So we feel we have a very clear strategy, we know exactly where we wanna go, and we saw the need to make corrections, and we're doing this now. And yes, there will be a change in the middle of this year, and I will be around anyway. So there is no surprise or different, you know, The board has clearly confirmed the strategy that we are on, so I don't expect significant surprises on July 1st.
So you're not extra cautious to leave some room for Mr. Iacovelli?
Not sure what the answer to this question is, to be honest. No. We are, we are transparent about what we are doing, and, and we are not playing games. That's probably true.
Well, let me, let me quickly take that, Alex, if you, if you allow. So, so if you look at the, you know, the development from 2023 into 2024, and then your, your, your point is about 2024, that is, you know, overly cautious.
The assumption that we put into the outlook for 2024 is that the order intake will remain flat compared to what we have experienced in the last quarters. If you look at 2023, we benefited strongly from our high order backlog of over CHF 400 million at the beginning of last year, right? That, you know, has been used up, and now we're at a level of about CHF 250 million, right? Which is still, you know, probably higher than what we will have in the long term, right? Kind of over the cycles. But it's not going to be CHF 100 million, right, over the cycles because of longer delivery times and installation times due to the complexity of our systems.
In the past, we had single machines and had an average of about CHF 150, 120, 150 million of backlog. Now it's going to be, you know, slightly higher. So what we're saying is because of the, because of the declining order intake, I don't think it's overly cautious, right?
Maybe if I was second one, the margin will go down again this year. You have as mid-term target, you defined, 12% for the EBIT. Is this still reasonable, or when could this be reachable? Maybe in another way.
So we know, and we have described this several times in our growth strategy that has three legs. We know that we need to grow on the system side of it, and that, of course, is now at the very lowest of the cycle that we have seen. On the other side, we have the software side and the service side, that's actually on track. So as what we said at the very beginning of this, we need about CHF 1.3 billion, CHF 1.25 billion to get to that point, and we wanna make ourselves future fit so that when the upswing comes, we become double digit. The question is when that upswing comes.
But we are confident with the program we have now, with the progress we have done on the service side, on the software side, that that is the way we wanna go.
I have a question. My name is Daniel König from Mirabaud Securities . I first have an easy one. The power prices used to be a problem, now you probably get a little bit help in 2024. How much could that be? And then a second question on the competition. Does it make sense to be in China? When I hear your description of the Chinese market, I feel depressed a little bit, you know, high overcapacity, lousy economy, and the Chinese behavior, competitive behavior is normally doesn't change so quickly. So why be there? And then I had a third question is, I looked at Amada. They came out with nine-month numbers in early February, and I always get the Bloomberg message that Amada is making a new high.
I'm wondering, what are they doing better or different, or is there something to learn from Amada? Because the share prices, every day I get a message, new, new high from Amada. Thanks.
So which one is the difficult question now?
Uh, Amada.
So let me, let me talk about China. As a Western company, you could think, like, exactly what you said. But you need to know, and, and of course, you know that we have made an acquisition about 6-7 years ago with DNE, and DNE is a local producer, a local OEM of, of laser systems and press brakes. Which means a part of us is actually locally in, in the China market. No difference. There is overcapacity and, and there is, you know, an issue there. What we are doing with DNE actually is, is quite interesting. We are expanding, we are expanding DNE globally right now. We have opened a new distributor in the Americas.
We're going into Europe, and we see significant growth of that Chinese—our Chinese OEM part to outside of Europe, and that's working actually very well. So the Chinese OEMs, since they have significant overcapacity, they basically buy, not sure buy is the right word, but they buy... They create volume by lowering the prices in China, and then get the margin basically outside of China. And, you know, our DNE business is somewhat okay still, but with the additional business outside of China, especially the U.S. is developing very nice right now. That's actually helping us. So I don't see just, you know, negativity, but there is a lot of negativity. But in our business, we have learned that that's one part that will be good.
The second part that we're seeing, which is really interesting for us on the Bystronic side of it, is that we see more solutions typically are not with Western machines, they're done with Chinese machines. You know, maybe a little bit has to do with patriotism and things like that. And we can offer that because we have the software side of that business, and we do have the hardware side of that business. So, yeah, very challenging, China, but there are two areas where I think it's actually going quite okay in the circumstances. Now, there were more questions. One, why, why don't you take one?
I'll take the easy one, I guess, right? It's the power. So, I think from an energy consumption perspective, what we're doing. You know, the majority of our production is assembly, so we are not, you know, significantly dependent on energy prices. So even, you know, when energy prices went through the roof and we kind of looked at what the impact would be for us, it was a low single-digit CHF million. Now, you know, with energy prices coming down, we're also, you know, gonna not over proportionally benefit from that. And in addition, we invested into solar panels at our facility in Niederönz.
You know, first in 2022, into one roof of our production hall, and now into even the second roof of our production hall. So we're becoming also there, you know, less dependent on energy prices. I think the last one is Amada, right?
Well, we all read the numbers of our friends from Japan. We actually have a small office in Japan as well. Japan is a very patriotic market when it comes to what they're buying. It's actually a very good market and a very large market for Amada as well. I would need to look up what percentage of sales is there, but they're doing a good job. They have done a very good service part of it. So I think they do a lot of things really, really good. One of them that we think they are excellent in is the service side of their business. I think they're a couple of years ahead of us, to be honest. You're absolutely right.
Yeah, we are in this aggressively now since 3 years. I think you could argue on the systems side whether they can really build complete smart factories, so I won't comment on that one. But yeah, you know, we know them quite well, and we think they're doing a good job.
There was a question, Mr. Meyer.
Yeah, Andreas Meyer, Finanz-Zeitung. Again, about competition, would you still describe yourself as leader in automation? And then my second question is about the development of sales. How much is pricing here?
Should I take the automation?
Mm-hmm.
So just for definition, how we use what words we use. So we have single machines, and then we have automation modules that are quite old, that are around here since many years. And then we have basically the software layers that manage that part. The automation side has developed over the last years, and yes, we are selling, as I mentioned, in the Gold segment, 100%. You know, these machines are so fast, you can't you cannot operate them without automation, meaning loading, unloading, and the storage system. It's just simply humans would be too slow to offload and bring the parts in. So yes, I you know, we are one of them out there that are offering fully automated systems, as some of our competitors are.
Now, the next level of automation is how do you actually synchronize the production? You know, one is just load and offload and do the things, but you have to synchronize a full production of thousands of parts that are being built every day, and that can only be done with software. And the software suite, we call it the Smart Factory Suite, that is pretty unique, what we have, what we have offered in the market. It's not impossible to do this, but it's very easy to use, what we're actually doing. So we feel, yes, we are at the cutting edge with some others, very few others, that actually can do this in the sheet metal industry.
We have many customer feedbacks that are telling us that, you know, what's happening at the customer basically, is that it creates a productivity gain for them. The problem we're trying to solve is that it's harder and harder for our customers to find operators and keep them. It's not very sexy to work in a sheet metal, you know, manufacturing environment. And so the answer to that is automation. And in addition, of course, our customers experience inflation of those operators and that basically runs through shift by shift by shift. So, you know, it's very clear that our industry is automating, and on top of the automation, there will be software layers that will help to produce parts, productive, even more productive and very productive. That's our opinion.
That's what we have seen the last couple of years.
And then on the pricing, so from a price perspective, you, I think you need to look at it, you need to look at the business segments. One is service, right? There, it's around the inflation rate, right? Depending on, you know, in which markets you're operating. So hourly rates from our service technicians are clearly at the, you know, at the inflationary rates. And then also spare parts, we have looked at, you know, at an increase in average, because they're sometimes captive, that they can only buy from us, right? There, we took the price increase. On others, we have not taken the price increase at inflation rate, because the customer could go and buy them on the open market.
On the machine side, we have been more cautious in 2023 with taking price increases because of the economic environment. So that was a little bit lower than the inflation.
I would have a question, Marc Possa, VV AG, or actually two questions, hopefully two easy ones. Concerning the CHF 50 million cost of the restructuring, in order to understand, you nicely described the natural fluctuation rate. So you have wanted departures and then unwanted departures. Why does it cost CHF 50 million? How do I have to assess those costs or where do they come from? The second question would be, I assume they're mostly cash relevant. Could you describe over the time axis, how long they will last? When will you take these CHF 50 million costs hit?
Yeah, sure.
Maybe then I ask the second question later.
Thank you. So maybe I have not been very successful in communicating that. It's a CHF 50 million positive impact that this program is generating on run rate within two years. Basically, full effect will be 2025. In a very small footnote, we actually said that we expect the cost of this program to be about CHF 10 million. That basically will happen at the first half of the year as we go through the changes.
Makes more sense. And then the statement that you said you closed 12 projects in the software and service on the software and service-
Mm-hmm
... side. What is the lead time there normally, and how many projects?
Sure
Do you still have running?
Ah, okay.
Isn't the visibility increasing now that, you know, since it's more important projects, where you have to collaborate with the clients?
Yeah.
I mean, you should have a higher visibility than just an order intake.
I order
machines.
Yeah, yeah. Absolutely. So, so those are basically IT projects. So we have closed 12. We have, we have been very, very mindful on the quality of those, because they were the first project. So we have, we have done this. They run very well. We have basically a capacity of such programs of anywhere between 40-50 a year. But that hasn't changed, I've, I've said that in the past. What we're actually seeing is that we're seeing more large complex systems that would reduce, typically, the, the amount of projects, because you have larger projects, and we see very small ones. Give you an example, we have one module in our, in our, software suite that's called Quotation.
So basically take a drawing, click it, you know, drag it over, and within, you know, seconds, you get a full calculation of hundreds of parts that typically days, hours, and days to calculate. We have seen a strong demand of things like that as well. So it's almost like we were expecting in the middle, more projects, and we see more on the left, very, very simple ones to take a week or a couple of days, and under the other side. But it's in line, and yes, you're absolutely right. We see, we see more demand of that. We see more projects coming. We're actually holding back. We have a much longer list than what we currently put into the pipeline, if that's the right word.
We should ask you whether you make higher order intake this year or in H1, H2 than last year?
Well-
Instead of asking for sales, where there might be cancellations or postponements or any other kind of turbulences.
Well, the software projects have typically a size of, I don't know, CHF 150,000-250,000. So even if you generate two of them, it's way... You know, it's still a small plant, but it's a growing plant. So it, you know, that one will come up, and we actually see that it's coming up. It has strategically a very big impact. The impact, actually, of that project that I've shown you here was much, much bigger on the hardware side of it. We would have never won this without the software, but once we won the software, all of the hardware came with it. That's more the effect of it, actually.
Can I just have a last question? So is the gain of software projects that are leading then hardware sales, is that a KPI in the overall organization?
We actually follow that. We actually follow that, and we have only seen one project where that wasn't the case. At the beginning, now that changed as well. I think what it is, is people become confident with you and with your products, build trust and, and relationship, and that leads them to the rest of it. That's how I would describe that.
Yes. Hello, everybody. I have two questions. Torsten Sauter, Kepler Cheuvreux. The first one would be on, how can I say it? The release or the potential release of pent-up demand that is now building in this, in this downturn. Can you give a feel for the, how do I say best, average age maybe of the equipment, that's installed in the field? And what useful life of the assets normally is, so that one can gauge where we stand in the replacement cycle. And then the second question would be: If I look at your track record and what's available in the long term, in Conzzeta and Bystronic accounting, I always found V-shaped recoveries, after crises, right? Great financial crisis-
Yeah.
Revenues down, losses, and then you recovered. Corona, one difficult year, and you came back. Now, we have this ongoing, whatever. What is different this time, please?
Well, if I, if I knew that, I would tell you. But basically, basically, what we're seeing, you're absolutely right. COVID was a, you know, you can, you can look at that, was V-shaped, and now we see basically, you know, a longer period of that. When you look over 30 years back, let's say, on the PMI Industrial, you can actually see similar phases in, in the past. That's not the first time that you have 18 months of red, let's call it a red, a red zone. So, so I think, you know, our customers make decisions on capital equipment, and capital equipment has, of course, to do with the financing cost, and they're very careful.
And people sometimes, it also has a psychological part of it, and with wars and with much higher interest rates, they're holding back, maybe, similar to like you would hold back on something privately sometimes. We see those effects, not on all the customers, but on medium customers and smaller customers. Large customers tend to have a budget, and that budget, you know, tend to get executed, basically. I'm not sure that helps you, but I cannot give you any answer for the future. But you know, it will come back. You know, there are infrastructure projects being built everywhere. You know, our sheet metal is used in so many different industries. We've always seen that it's coming back.
When it's coming back, we don't know, but we are. Our highest target or you know what we really want is to become future fit for Bystronic. If this takes a bit longer, well, we'll make the necessary changes to be ready when the bounce back comes.
So, Torsten, when I look at the, you know, the PMI is really a good indicator for us, right? So if I look at the, you know, the correlation, because the global PMI and our order intake, you're getting to a correlation of over 80%. And hence, our strategy to make us more independent of that PMI is... and into service and into software-
Of course.
Right? Because that makes us, you know, less vulnerable to this, to this economic crisis. You know, as we have shown last year, you know, with service growing 12%, and we're also expecting a growth this year on the service side. And then you had the question on the average age of the... Right, of the, of the system. So there's still a large number of CO₂ lasers in certain markets, right? Especially in the upcoming markets. So, you know, one market that is also benefiting from reshoring is, for example, Mexico, right? And you know, upgrading these systems from CO₂ to fiber laser is a clear strategy that we're following. And when you look at the average, you know, they're out there, you know, a decade or even longer, right?
The average age of a laser system is about 6-8 years.
Yeah.
Kind of in average. So there is a constant renewal happening.
Good morning, everyone, also from my side. I would like to take the occasion to quickly respond to two previously raised questions. First one was regarding the usage of excess cash, and as you might know, this is a regular topic we also have at board level. At board level, the view is basically this: as we are operating in a cyclical business, first of all, I think it's of utmost importance that we can operate with a healthy balance sheet, and a healthy balance sheet also means a decent level of cash. Now, we all agree, and we have seen many examples of companies also operating in a cyclical business, which are terribly struggling right now because they are desperately looking for further funds to financing their business.
Now, I think we all agree that we are in a very comfortable position, and of course, we have a excess cash position. Now, regarding this excess cash position, most of you know what my personal view is. Either we can make decent investments to the benefit of our shareholders with this cash, or we should pay back the excess cash to our shareholders and tell our shareholders, "Try to do something reasonable with this money." I think it's wrong to keep excess cash for a too long period. And whether we are already in a too long period where we have not used the cash, we can discuss. We have monitored various acquisition propositions. We have declined all of them, I think, for good reasons.
I would, short term, not expect an acquisition, as with the incoming CEO, we should also give him some time, let's say, to get familiar with the company, and it would probably not be professional to execute an acquisition right before he fully understands the company. Now, regarding the incoming CEO, also a comment or responding to a question Charlie raised, whether we are overcautious in preparing a smooth path for the incoming CEO. Here, my feedback to you is, we are leading this company on an ongoing concern, and what we are executing or the program we have communicated this morning, we would have executed exactly the same way, if there would not have been a CEO change. That's part of, let's say, our professional behavior.
Of course, it is the ambition of Alex and his team to do a proper housekeeping and to make sure that the incoming Chief Executive Officer gets the company in good shape. I think that's the, the aspiration, that's the motivation, that's the ambition, from all of us, and I'm, I'm very much, convinced, that, that we will able to, to achieve that. In that respect, I would also, already by now, to thank Alex for what he has achieved with his team in the more than 10 years where he was, the Chief Executive Officer of, of this company. This is a long time, and also we regret very much that he has decided to retire. We do understand, and we were well prepared for, for this step.
Now, it's too early to make a, let's say, big shout out to you, as we still need you for the next couple of months. And,
I'm here.
Of course, we will do that once it's the right time. But I wanted to express already by now our sincere thanks for all you have done for this company. And if we succeed with what we are planning for, I can assure you, Charlie, that there are still enough challenges around for the new Chief Executive Officer once he starts.
Thomas Buri from Finanz und Wirtschaft. I have to come back to China. The answer you gave me didn't convince me. We see a clear trend that companies are moving out of China due to geopolitical reasons, and they go to Vietnam or to India. And also the fact is, your business in China is doing very poorly, and I have strong doubts that with a China label, you can sell your products over the globe, in America or in Europe. And here, my question is, why you didn't consider to close or go out of China and go to India, which you told us has very high growth rates?
We do India.
Yeah.
- and we've actually opened an experience center. I, a part of your question, I understand where you're coming from. What is happening since a couple of years is we call this the Chinese tsunami. There is a large number of OEMs in China that are building laser systems, mainly laser systems, 2D laser systems, and flooding the markets on a level where we basically don't compete with the Bystronic side of our business, but they're pushing up. What they're doing is they're replacing technologies such as stamping, Stanzen, for instance, waterjet, to a big, big part of it, flame cutting. So basically what's happening is that the laser cutting technology becomes so affordable for entry-level... It's all entry-level.
For entry-level customers that before had different technologies such as waterjet, water, water cutting technologies, stamping technologies, flame cutting. That's really what's happening. We didn't know those customers because those are not typically Bystronic customers in sheet metal. But now with DNE, we can actually see that there is a significant market of technology change, and it makes sense to cover that market, and you can see many Chinese OEMs, you know, going outside of China, and to go after that market. We are doing that with a dual brand strategy, so this one is a complete separate sales and service organization, and there is a market to go after that. What you have mentioned is that previously outsourced work to China is going out of China. Yes, absolutely. We can see that.
We can see that a lot of work is going into Mexico, some work is going into the U.S., we see Vietnam, we see Bangladesh, we see Australia having a quite strong trend, actually. We have a lot of projects, several projects in Australia. That's the work of it. But that's a different trend. That's work that has been outsourced, you know, produced in China, it's going out. I think China will be different.
... after all of this than it was before. You're absolutely right, and we will adapt to that. But it's not black or white. We see that there is still a significant, you know, several hundred laser systems in China is currently what we're doing with the DNE brand. So I don't see it as digital as you do, but there are large movements going on. Absolutely. Absolutely.
But you told us before that with the China business, in China, you don't earn any margin.
I said that the China business with DNE brought significant margins in the past, also on EBIT, and that has reduced, yes. We are still break even or above with the DNE part of the business. But yes, it has significantly reduced through those challenges. The business in China is probably half of what it was a couple of years ago before we went into this crisis, and we have adapted ourselves to that.
For you, it's necessary that you are there in China?
Well, that's a good question. Besides the fact that a part of us is Chinese, and we have those products at the entry level, one effect that we haven't talked in the past is that we learn from Chinese construction concepts. So the current brand new laser generation that we have, it was basically reengineered in our Tianjin plant, and that's how we take cost out of our systems. So not only we have the products from our friends in China, we have an R&D center in China that provides us with cost-effective systems. And the new generation of automation that we just discussed a minute ago is based on new concepts that we adapt to Europe, of course.
It's a secondary effect, which I think is very, very valuable for a Swiss company to do so. You know, I would invite you to see some of this to get... It's not black or white. It's a little bit more complex, but you're right, it's very challenging.
At the moment, there are no more questions in the room, but we have one in the conference call. Sandra, please go ahead.
The first question from the phone comes from Remo Rosenau, from Helvetische Bank. Please go ahead.
Yes. Hi, can you hear me?
Yes, loud and clear.
That isn't loud.
Okay, great. You talked about a normalization of the order intake. However, if I go back the last four quarters, I mean, we had these exaggerated levels in 2021 and 2022, clear. But in the fourth quarter 2022, we had CHF 215 million orders, Q1 2023, 218, then 204 in the third quarter. The second quarter, 203, then 204 in the third quarter, and now 169, which is again 17% lower sequentially in the fourth quarter and the third quarter. I mean, is there a risk that we go from normalization to below normal in the order intake going forward now? I mean, it's a significant additional drop in orders in the fourth quarter.
So the fourth quarter, if you dive into the details of the fourth quarter, the decline sequentially mainly came in the Americas region. And, you know, did we expect more from the Americas region? Absolutely. There was an effect of FABTECH, you know, that large fair that we have, towards the end of the third quarter, and there was an increase, most likely in the third quarter of 2023, and then a slowdown in the fourth quarter of 2023. So if you normalize that, you know, we would be a little bit higher.
Yeah, but we talk about, you know, you know, CHF 35 million less than in the third quarter. I mean, that cannot be just from that effect, right?
Well, there's also a little bit of currency. You know, the strong Swiss francs didn't help, right? Especially against the US dollar, you know, from the third quarter into the fourth quarter. That's also an effect.
Mm-hmm. Because book to bill in the fourth quarter was 68%, and for the full year, 85%. So, I just wanna get a feeling. I mean, do you expect, and you already have two months in the first quarter, you know, that the order level will kind of stabilize at around 170 now, or, or, or should we go back again versus 200 or, or go down to 150? I mean, what, what is your feeling here?
So what we can say is... Well, first of all, January is always a, and also February, a little bit of a challenging month for us, right? It's, it's usually very slow, right? That has to do with, you know, Chinese New Year, in China, but also in, in, in some Asia Pacific regions, right? But what we can say is that the Americas region continues to be dynamic. So we have seen, you know, a better January and a better February than what we have seen, you know, in the fourth quarter of 2023.
Okay. So it sounds like it was a bit exceptionally weak quarter, the fourth quarter, in terms of order intake.
That is, that is fair to say. Will it go back to 210 levels, you know, immediately? Well, most likely not.
Okay, good. Well, thank you.
There are no more questions in the conference call and also not here in the room. Alex, you may go ahead to close the conference.
Patrizia, I hope you're gonna make it. Thank you. Thank you very much, Patrizia. Thank you very much, and thank you, operator. If there are no more questions in the room and the webcast, we close today's conference and wish you a successful afternoon. For those that are here in the Marriott, please join us for a standing lunch in Studio three downstairs. Thank you very much.
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