Dürr Aktiengesellschaft (OTCPK:DUERF) Q4 2023 Earnings Conference Call February 27, 2024 9:00 AM ET
Company Participants
Jochen Weyrauch – Chief Executive Officer
Dietmar Heinrich – Chief Financial Officer
Andreas Schaller – Head of Investor Relations
Conference Call Participants
Sven Weier – UBS
Holger Schmidt – DZ Bank
Nicolai Kempf – Deutsche Bank
Philippe Lorrain – Berenberg
Felix Wienen – SFO
Peter Rothenaicher – Baader Bank
Christoph Blieffert – Exane BNP Paribas
Andreas Ruf – EUWID
Operator
Welcome to the Durr Conference Call. Dr. Jochen Weyrauch, CEO; and Dietmar Heinrich, CFO of Durr AG will present the Durr Group’s preliminary figures for fiscal 2023, followed by a Q&A session.
I will now hand over to Andreas Schaller, Head of Investor Relations of Durr AG.
Andreas Schaller
Yes, thank you very much. Ladies and gentlemen, good afternoon and good morning to those of you in the U.S. Welcome to our earnings conference call. With me on the call today are our CEO, Jochen Weyrauch; and our CFO, Dietmar Heinrich, and they will present the preliminary results for the financial year 2023 as well as the outlook for 2024, and we’ll be happy to answer your questions afterwards.
As always, our earnings presentation is available on our Investor Relations website, and we assume that you have it in front of you. Please be aware of our disclaimer regarding forward-looking statements on Slide 2.
And now it’s my pleasure to hand over to our CEO, Jochen, please go ahead.
Jochen Weyrauch
Thank you, Andreas. Welcome to all participants on this call also from my side, and thank you very much for joining.
Let me start with some short remarks on the past year on Slide 5. Operationally, 2023 was in most regards, a good year. We increased sales revenues by more than 7% and reached a new record level of €4.63 billion. EBIT before extraordinary effects improved by 21% and after a slow start in Q1, we reached a margin of 6.1%, thus meeting our target range. All divisions contributed to this profitable growth.
Last but not least, we could convert the higher profitability into a strong free cash flow and achieve more than €100 million in the fourth year in a row. These improvements were only possible because of the high dedication of our more than 20,000 employees, and I would like to thank all of them for their strong commitment.
And our Woodworking Machinery and Systems division, we were facing a special situation in 2023. HOMAG successfully worked on reducing the very high backlog from the peak years of order intake in 2021 and 2022 and reached a new record margin of more than 9% in the second half of 2023. At the same time, we had to realize that the order intake was lower and the cyclical downturn in demand stronger than expected. As a consequence, we announced the capacity reduction program in November to improve the resilience of HOMAG, and we are convinced that the business will emerge stronger from this downturn and has the potential to reach at least 10% margin before extraordinary effects in an operating market.
My last initial remark is on our strategy to develop our portfolio towards profitable growth. In 2023, we made considerable progress with this strategy. First, we accelerated growth in production automation systems with the acquisition of BBS Automation. With this move, we reach critical mass in a top 3 position in the industry. In addition, we unlock many synergies that we will be working on this year.
Second, we strengthened our battery business with the acquisition of Ingecal and the technology partnership with LiCAP. We expanded our offering and at the same time, position us as one of the innovators for the next technology generation of electrode dry coating. In our established businesses, we further improved the gross margin of the service business. In addition, we saw the first outcome of our value before volume strategy with margins improving the Paint and Final Assembly Systems. All in all, I think we have made good progress in 2023 and we look cautiously optimistic in 2024. We are determined to do everything it takes to improve the group’s earnings resilience and portfolio. This is why we choose taking action as the headline for our 2023 report.
Let’s move on to the overview of 2023 on Slide 6. Order intake reached €4.62 billion, which is slightly above the midpoint of the guidance. When we published Q3 earnings, we saw the potential to even reach the other end of the guidance based on the solid project pipeline in automotive. We have already mentioned many times that automotive projects can be quite large and winning a project or not can easily make a difference of a couple of hundred million euros in order intake.
The fourth quarter, we saw a more aggressive behavior of competitors. In that situation, we stuck to our value before volume strategy in Paint and Final Assembly Systems and less lower-margin projects to conversation. Still, the division reached almost €1.5 billion of order intake, which is not too far from the record level of 2022. And Application Technology reached a new record order intake and HOMAG achieved more than €400 million order intake in Q4.
This was mainly due to large – two large projects in China and Spain, but does not change the overall market picture. The order backlog increased by 4.7% year-on-year to €4.2 billion mainly due to the acquisition of BBS automation. The sales record of €4.63 billion was supported by increases in all divisions and by BBS automation already contributing €107 million. The book-to-bill ratio stood at 1.0 despite the decline in order intake.
The EBIT margin before extraordinary effects reached 6.1% for the full year and 7% in Q4, a big contrast against the 4.1% in Q1. We managed to finally reach the guidance range. Net income reached the lower end of the revised guidance range with €110 million. This was because special expenses reached €89 million in 2023 as we booked provisions of about €50 million for the capacity and cost cuts at HOMAG. On top came PPA effects and of course, transaction costs related to the acquisition of BBS Automation. Another highlight is the free cash flow of €129 million, thus clearly exceeding expectations. Once again, we were very disciplined with CapEx and net working capital management. Dietmar will go into more details in a couple of minutes.
Slide 7 simply shows the percentage changes in the figures I have just described. So it doesn’t require further explanation and we move on to the next.
On Slide 8, we can see the comparison of the actual results with the original guidance from February and the last guidance provided in November. Order intake came in slightly above the midpoint of the guidance range due to the reasons explained before. Sales revenues are also very close to the midpoint of the guidance. The EBIT margin before extraordinary effects reached the low end of the guidance range after continuously improving quarter-to-quarter. The reported EBIT margin came in slightly below the guidance range due to the large extraordinary effects.
Earnings after taxes reached the low end of the guidance that we adjusted in November and free cash flow exceeded the guidance that was unchanged during the year. Due to the strong cost increases for building materials, we reviewed our CapEx program at HOMAG. This is why the CapEx to sales ratio came lower than planned at 3.4%. Overall, we met the operational targets and the provisions for the self-help measures at HOMAG are an investment into higher earnings resilience.
On Slide 9, we see the order intake by quarter. After the weaker Q3, we saw an improvement in Q4. There was more potential forward intake in Q4, but we prefer to continue with our value-before-volume strategy Paint and Final Assembly Systems as described before. Moreover, we saw some delays in orders from battery producers, except for HOMAG, the project pipelines look solid entering into 2024.
On Slide 10, we see the geographical distribution of order intake. The order decline in China reflects the local economic slowdown, but is not that significant and in line with the overall decline in orders for the group. The Americas saw order levels normalizing after the record year of 2022 with several large projects. Europe and Asia without China were able to in grow in the intake with large automotive orders in Asia.
Now let me quickly recap the achievements regarding M&A. With the acquisition of BBS Automation, we have established a new automation powerhouse with pro forma sales of about €500 million and the top 3 position in the market. We have unlocked various synergies due to the complementary portfolio and the party overlapping geographically footprint. For example, we launched a Teamtechnik site in China and moved these operations to BBS Automation in Suzhou. The combination of Teamtechnik, Hekuma, BBS Automation and Kahle generates a lot of interested customers as we have the critical mass in the financial background to manage larger projects in the automotive, medtech and consumer segments.
Another M&A focus was battery production. We acquired Ingecal, a French specialist for calendering equipment. This expands our product offering, and at the same time, we got a hold on equipment that can be used for the next generation of electrode coating technology. I’m talking about dry coating technology, which will significantly lower energy consumption in battery production. Important precondition for dry coating is the right recipe for the coating material. That is why we partnered with LiCAP, a Californian technology provider, with its patented activated dry electrode technology. Both companies in Ingecal and LiCAP will help us tapping the huge potential of dry coat.
Let’s have a quick look at the progress we made with reducing Scope 1 and 2 emissions on Slide 13. We concluded our switch to green electricity, installed further PV systems, invested about €20 million in sustainable buildings and revised our car policy in order to incentivize the use of emission-free vehicles. All in all, we reduced Scope 1 and 2 emissions by about 55% compared to the base year of 2019 and are well on track to reach our 70% goal by 2030.
Now let’s have a look at the divisional development. We start with Paint and Final Assembly Systems on Slide 15. I already mentioned the reason for the lower-than-expected order intake in Q4. Nevertheless, book-to-bill stood at 1.08 and full year order intake was not far from the record level of 2022. The project pipeline remains solid and includes, among others, the first plant of Mercedes in the framework of our partnership.
Sales revenues grew to the new quarterly record in Q4, and we reached a service share of more than 30% in the full year. We improved the EBIT margin before extraordinary effects due to the consistent application of our value before volume strategy. In Q4, however, we had a margin impact due to increased expenses for a single project. The ROCE in the – the asset line business improved to more than 26%. We made good progress with the margin in 2023 and go for the mid-cycle target of at least 6% in 2024. Application Technology reached a new record order intake of almost €720 million. In Q4, we received some orders that we were expected for 2024. Sales revenues grew by 4.7% and service sales clearly outperformed equipment sales. EBIT margin before extraordinary effects almost reached already the mid-cycle target of at least 10% and came close to the pre-corona levels.
Clean Technology Systems order intake in Q4 was impacted by decision delays from customers in the battery and chemical industries. The extremely high prior year order intake included 2 larger orders for solvent recovery. Sales revenues grew by 5.5% and were mainly driven by projects in North America and Germany. The key highlight is the significant margin improvement and 6.3%, the EBIT margin before extraordinaries was in line with our mid-cycle target of at least 6%. This might not sound a lot when comparing to a double-digit margin in machinery business, but look at the more than 50% return on capital employed of that asset line business. In 2024, our focus will be on bringing the battery business up to speed.
Now let’s have a look at the Industrial Automation Systems division on Slide 18. After the acquisition of BBS Automation in Q3, order intake reached a run rate of close to €200 million in Q4. Sales revenues were even slightly above extraordinary at €30 million. The EBIT margin before extraordinary effects reached 7.1% in Q4 and 5% for the full year. This includes a strong performance of measuring and process systems, solid margin and BBS Automation and still relatively low margin from Teamtechnik testing due to some legacy projects that we will wash out over the coming quarters. The extraordinary effects include PPA effects for BBS Automation and some smaller optimization charges as we already realized some synergies and close the Teamtechnik site in China, as I already mentioned. In 2024, we will focus on top and bottom line synergies and expect strong sales growth and improving margins.
Now we come to HOMAG on Slide 19. Order intake was relatively strong in Q4 due to 2 larger orders in China and Spain. As these projects have longer lead times, they will only partially support utilization in 2024. The underlying market weakness has not changed yet, and we still expect recovery only for the end of 2024. Sales revenues for the full year increased slightly to a new record high as we work off the high order backlog. EBIT margin before extraordinary effects reached more than 9% in the second half based on the efficiency improvements, cost cutting and price increases of the past. In 2024, we will reduce capacities, save costs and secure utilization. At the same time, we would work on growing the service business and further optimizing operations, for example, with our new logistic centers. Based on our head count and fixed cost HOMAG is expected to be stronger after the downturn and resume its past downturns [indiscernible] 10% margin.
Slide 20 shows that we reached about the same service share of revenues as in 2022, while at the same time, we improved the service margin. This is a very good result considering the market downturn at HOMAG. Service remains a solid profit contributor and will be further strengthening going forward.
And now, I’ll hand over Dietmar for the financials.
Dietmar Heinrich
Thank you, Jochen, and welcome to everybody also from my side. Slide 22 gives an overview about the most important key figures Jochen already described. This will help you with updating your models. However, I would like to directly jump to Slide 23. This slide shows the revenue development over the last eight quarters. In 2023, we increased sales revenues every quarter. It reached a new record in Q4 with more than €1.3 billion in the quarter. This strong finish is comparable to last year. BBS Automation contributed €107 million, mainly in Q4. The geographical distribution shows how order intake from 2022 translated into sales in 2023. The Americas and Europe were gaining share, whereas China lost share. Overall, sales are geographically well immersive.
Now let’s move to Slide 24. We reached almost €100 million EBIT before extraordinary effect in Q4 and a margin of 7.0%. Gross profit was the main margin driver benefiting from the improved supply chain, the high service margin and better project margins. Reported EBIT slightly declined from €205 million to €191 million due to the higher extraordinary effects of minus €89 million compared with minus €26 million in the prior year, the main difference by the provisions of about €50 million for the capacity reduction at HOMAG. In addition, we had acquisition-related costs and the small optimization charges in the automation business, Jochen mentioned before.
On Slide 25, we can see the free cash flow development. Q4 was very strong, driven by the increased profitability as well as disciplined management of net working capital and CapEx. We save CapEx by moving from a new construction to renovating office buildings and finally, spend 3.4% of sales revenues. The high free cash flow of €129 million allowed us to contribute internal financing to the M&A activities of 2023.
Net working capital can be seen on Slide 26. After the acquisition-related increase in Q3, we can clearly see a reduction of net working capital by the end of Q4. A major driver for this improvement was our focus on reducing inventories. Looking at the full year, we almost compensated for the reduced pre-payment level and limited the operational increase of net working capital to €23 million. The rest was acquisition related. Despite the acquisition-related increase in net working capital, our base working capital came out at the low-end of the target range of 40 to 50 days with 42.4 days and disciplined management of net working capital remains high on the agenda for 2024 in order to support free cash flow generation.
For the next slide, Slide 27, we can see the development of net debt. After the acquisition-related increase in Q3, net debt came down to €517 million, well within the guidance range. In addition to the external acquisitions, we spent a low double-digit €1 million amount to buy our non-controlling shares of subsidiaries. In addition, some HOMAG shares offered to us were required a guaranteed price. Foreign exchange rate effect increased net debt by about €15 million. The key driver for the reduction of net debt in Q4 compared to Q3 was the high free cash flow. At the end leverage stood at 1.6x net debt-to-EBITDA, which is well within our target of staying below 2x.
The balance sheet remains solid after the acquisitions and the same applies for our liquidity headroom that we can see on Slide 28. Cash amounted to about €1 billion at year-end, and we have an undrawn cash credit line at our disposal, we increased this credit line in December 2023, from €500 million to €750 million in order to adjust the size to our growing business. This indicated a bridge loan of €300 million that we used to find in the acquisition of BBS Automation as a majority of 12 months, but can be extended by another 12 months, if needed. As we continue to expect the high-liquidity level, we currently plan to pay back the bridge loan in 2024. At the same time, we plan to further optimize our funding structure by placing another green Schuldschein loan in 2024. Our focus remains on generating cash from operations and stringent net working capital management.
Financial side, I hand back to Jochen for the outlook.
Jochen Weyrauch
Thank you very much, Dietmar. Well, let’s turn to the outlook and to Slide 30. Demand for our solutions is driven by fundamental trends, such as the decarbonization of production, the manufacturing of products for zero CO2 society like wooden houses, or EVs and the automation of production as still labor becomes scarce and production is reshored in the industrialized countries. E-mobility is a growth opportunity for us in many ways.
Slide 31 shows the current expectations regarding the ramp-up of EV production over the next years. We not only benefit from demand of EV paint shops and assembly lines, but also from additional battery production and the need for automated solutions, for example, for EV powertrain asset.
Let’s stay with automation for a second. The growth prospects are shown on Slide 32. E-Mobility is only one of the drivers. Very interesting to us from a margin perspective is Medtech, as more-and-more companies in the life science industry look at the automation of their production lines due to the increasing regulatory requirements. Demand in automation should grow by a high single-digit percentage over the coming years, and we are well positioned to capture this growth with BBS Automation and Teamtechnik.
Now let’s take a look at the guidance for 2024 on Slide 33. With regards to order intake, we see potential for growth, but expect at least a stable development. Accordingly, the target range is between €4.6 billion and €5.0 billion, with the other end reflecting the record level of 2022. For sales revenues, we expect growth to between €4.7 billion and €5.0 billion, which corresponds to the growth rates of between 2% and 8%. These growth rates are a bit lower than the originally forecasted 5% to 10% as order intake in Paint and Final Assembly System was a bit lower than expected in 2022. We assume that all divisions except Woodworking machinery and Systems will grow sales revenues in ‘24. The biggest growth is expected for Industrial Automation Systems due to the full year consolidation of BBS Automation and housing organic group. For HOMAG, we anticipate a sales decline in the mid-teens percentage range based on the lower order intake in 2023. The guidance for EBIT margin before extraordinary effects remains at a range of between 4.5% and 6% as given in October 2023.
The extraordinary effects were declined €45 million in 2024 and mainly consists of PPA effects. This translates to reported EBIT margins of 3.5% to 5%. Due to the higher capital employed after the acquisition of BBS Automation, we expect a return on capital employed of between 9% and 14%. Due to the higher debt level, interest expenses are expected to increase and leads to a financial result of around minus €40 million. As a consequence, we forecast a net income of between €90 million and €150 million.
We are committed to achieving positive free cash flow in 2024 despite the expected lower margin and the cash out for the capacity reduction in HOMAG. We target free cash flow to be in the range of between €0 and €50 million. We will remain disciplined with CapEx and plan to spend between 3% and 4% of sales. Taking into account the dividend payments in possible small M&A activities, we assume a moderate increase in net debt by the end of 2024. Our clear focus for 2024 saw margin improvement in all divisions, except Woodworking Machinery and Systems where we reduce costs and capacities to increase the resilience of the business.
On Page 34, we can see the outlook by division for order intake, sales revenues and EBIT margin before extraordinary effects.
Let’s start with order intake. For the automotive business, we expect a stable development overall. The project pipeline remains solid, and we see the chance of a stable or increasing order intake at Paint and Final Assembly Systems. By application technology we forecast a decline as some orders – some of the orders expected for 2024 were already awarded in 2023. Demand for battery technology is assumed to drive growth in order intake for clean technology systems. On intake of Industrial Automation Systems, this is expected to grow significantly due to the full year consolidation of BBS Automation and organic growth.
For Woodworking Machinery and Systems, we continue to see a stabilization of demand on low levels of €300 million to €350 million per quarter and an improvement in demand not before the end of 2024. However, there might be a single larger projects materializing now and then that could strongly increase order intake as seen in Q4.
Now let’s turn to sales revenues. We expect that all divisions except Woodworking Machinery and Systems with gross sales revenues in 2024. The biggest growth is expected for Industrial Automation Systems. However, we expect a decline in the mid-teens percentage range based on the low order intake in [indiscernible].
Last but not least, we take a look at the EBIT margins before extraordinary effects. For Paint and Final Assembly Systems and Clean Technology Systems, we expect them to be in line with a mid-cycle target of 36%. Application technology we assumed around 10%, which is a slight increase on 2023 when we had a very strong service business. The margin of industrial automation systems is expected to improve and make a step towards the mid-cycle target of at least 10%. We will still work on some legacy projects with lower margins and the integration process will also keep us free. The assumption for HOMAG remains unchanged as to the 4%.
Just a quick reminder regarding our strategy and targets on Slide 35. We target for sales of more than €6 billion by 2030, and we already talked about our growth areas in automation, battery production and solid wood construction. This translates into a CAGR of 5% to 6%. In 2023, we did a bit more than 7%. So we are well on track. We target at least 8% EBIT margin before extraordinary effects in the mid-cycle. With our mix of capitalized construction business and high-margin machinery business, this should translate into a return on capital employed of 25%. Due to the downturn at HOMAG, we will probably not reach 8% this year or next year, but we will continue to improve efficiency and efficiencies and the setup of our businesses in order to increase our profitability and continues.
Now let’s summarize on Slide 37. Operationally, 2023, all in all, was a good year with record sales revenues, a solid margin improvement before extraordinary effects and a strong free cash flow. We achieved a margin improvement at HOMAG to lower than 9% in the second half of 2023. We cut capacities to weather the downturn and realize the full margin potential for HOMAG. We made significant progress with developing our portfolio towards our higher-margin growth markets with the acquisition of BBS Automation and Ingecal. Our fundamental demand drivers are intact. We are a key enabler for the efficient and sustainable production of goods that billions of people use every day as written down our structured stake. in 2024, we will continue to take action and strengthen our profitability, our reach towards our long-term growth target.
Thank you very much for your attention. Now we’re happy to answer any questions you might have.
Question-and-Answer Session
Operator
[Operator Instructions] And the first question is from Sven Weier. The floor is yours.
Sven Weier
Yes. Good afternoon. Thanks for taking my questions. The first one is on the PFS order intake guidance that you’ve given for 2024, roughly stable. I mean does that fully include the Mercedes paint shop order, which I guess is quite a few hundreds of million of euros? Or how should we think about the order guide for PFS? That’s the first one. Thank you.
Jochen Weyrauch
Yes. Thank you, Sven, for the question. Yes. As you already talked a few times about the Mercedes, what I think the magnitude of the order is well known. And it’s a good question. Look, if that order comes as we anticipate. I would say we’ve made a good step towards at least fulfilling our order intake target. And on the other hand, as we said, there was a few orders or a few projects in discussion where customers take a bit more time. So – in brief, if that all it comes, I would say, we are well on track to at least achieve that number.
Sven Weier
Okay. Is it also you factoring in a continued disciplined approach as you did in Q4 and because competition remains very tough?
Jochen Weyrauch
Yes. There is a definite, yes. As we have proven in – especially in Q3, actually in Q4 also, we rather fill our capacity with the right projects at the right time then. And as we described in earlier calls, we have now the benefit of a lower capacity in the organization that allows us to become more selective and we will not at all change that approach.
Sven Weier
Understood. Thank you. And then if I may, just on the HOMAG restructuring. I was wondering if you’re on track, how tough are the discussions with the local works council that you’re facing? Is it maybe that the good order intake you had in Q4 is less helpful on progressing on the size of the restructuring? Or how should we think about this?
Jochen Weyrauch
Yes. The relatively good order intake in Q4 for us doesn’t change the picture, as we said, because even at HOMAG, order intake can be volatile from quarter-to-quarter, and we do not see this as a change in the market environment. For the negotiations we have with the employee representatives and the union, we are in the midst of the discussions, the negotiations and we’ll have to see by when we have a final outcome. I would say, yes, we are well underway. And you can imagine that such negotiations, as always, are tough ones. They have to be tough ones because it is about people, and this is what we are doing right now.
Sven Weier
And the expectation you have for a pickup by the end of the year, is it just based on the timing of the pipeline that you have in front of you? Or what’s the optimism based on for the end of the year?
Jochen Weyrauch
Yes. I would say it’s a slight optimism based on a mix of experience from previous downturns. And of course, you can imagine a lot of discussions we have with customers at this point and some macro data we are analyzing. So a mix of a couple of sources.
Sven Weier
Understood. Thank you very much.
Jochen Weyrauch
Thank you.
Operator
And the next question comes from Holger Schmidt. The floor is yours. Holger Schmidt, we can’t hear you, maybe you are on mute. The floor is yours.
Holger Schmidt
Can you hear me now? Sorry. Good afternoon. Thanks for taking my questions here. The first question is on the battery business in your presentation. You mentioned the weaker battery business due to a delay of projects. What are the main reasons for the delay? And when do you expect to see an increase in the order intake from battery projects?
Jochen Weyrauch
Yes. Thanks, Holger, for your question. We see a recovery this year. We had a very good ‘22 with a few orders also coming in relatively late ‘22, wasn’t that strong in ‘23, also some customers reviewing projects. But I would say we have good chances to rather come closer to at least what we had in ‘22 than to the lower levels in ‘23, partially because we see projects, partially also because we have enlarged our portfolio, as we described with Ingecal, and there is quite an interesting pipeline coming with the business.
Holger Schmidt
Okay. My next question is on the service business. The share of service revenues in relation to group revenues is more or less unchanged over the last 2 years and also more or less in-line with pre-COVID leverage. Is there scope for a higher proportion of service revenues? And how do you see the midterm growth prospects or the midterm growth rate for the service business?
Jochen Weyrauch
Thank you. Yet the – looking at the fare of the service business of the total business and basically where victims of our own statements, I must say, is sometimes a good way to look at the business, sometimes it’s not because in years when your new business growth, growth significantly, it might look that the service business is falling behind because it might only grow at the same rate or slightly below. But what we see is over the past years, and that makes us confident is the constant growth of the service business over time in absolute terms. And even last year, when HOMAG customers were facing difficulties, we could well defend the service business, which to us is really a sign that we are well on track. And I would say we will grow our service business at least in-line with our overall CAGR of 5% to 6%, actually our ambition is to grow even faster.
Holger Schmidt
Okay. That’s helpful. And my last question is on the Paint and Final Assembly business. You mentioned that one of your competitors has become much more aggressive in terms of pricing. Do you expect this to remain an issue for longer? Or was it just temporary phenomenon?
Jochen Weyrauch
Yes. It’s not just a single competitor in market and has become a bit more competitive in the second half of the year as we described one project can make a difference. And all our competitors are much smaller than we are. So for them, it is more, I would say, a digital product, but to have a project or not to have a project, is a big difference. So if they run empty, they become more aggressive once they are filled up. Sometimes one or two projects are sufficient. They relax a bit again. We see this. This is, I would say, a constant situation we are dealing with. And this is where we act a bit more, I would say, well thought through and I think we have now proven that we select the right projects with good margin prospects and where we can make a difference for customers. And there will be more competition coming, going on projects, but I don’t see a real change of the overall market situation at this point.
Holger Schmidt
Okay, that’s very helpful. Thank you very much.
Jochen Weyrauch
Thank you.
Operator
And the next question is from, Nicolai Kempf. The floor is yours. Nicolai Kempf, the floor is yours. Maybe you are on mute.
Nicolai Kempf
Yes. Thank you. Nicolai Kempf from Deutsche Bank. Thanks for taking my question. I have two. First one on the EV slowdown. We have a lot of OEMs pushing out the EV targets as well as postponing model launches and also plant construction. Have you seen impact in this also your business that’s for – especially for new paint shops that could slow you down?
Jochen Weyrauch
Yes. Thanks, Nicolai. We see this a little bit. Yes, what we said was not really projects we will sign. What we see is customers reflecting a little bit on potential production volumes. Consequently, what capacities they need, they need more support from our end to find the right capacity versus CapEx. This is what we see. On the other hand, the good thing, especially in Paint and Final Assembly Systems is that we don’t really depend on the business, business has been fueling activities and to promote sustainability trend that is connected to E-mobility and the sustainability targets the OEMs had given themselves, this in combination supports the business.
On the EV side now, yes, this comes into several ways. I mean, we have seen in the last number of years, lots of activities in China that we saw [indiscernible] in Europe, partially in North America. Now some of the customers reflected a little bit on how they invest. But all in all, our pipeline remains solid cost as the overarching theme, all of the OEMs, especially the traditional audience with own paint shops have to invest in sustainability. That likes the business at least as much or EBIT more than just the EV customers [indiscernible].
Nicolai Kempf
Okay. Understood. Thank you. And my second one would be on your leverage. 1.6x, not great, not terrible. But also keep in mind that this year, your free cash flow has been €0 million to €50 million. We probably not have a lot to lower leverage. Do you think to maybe start divesting one of your segments or smaller business.
Dietmar Heinrich
Yes. Thanks also for that question. As we said, and we probably said it a bit more now than in the past we are revisiting – and I would not rule out that we’re looking also at streamlining our – that’s probably what I think [indiscernible]
Nicolai Kempf
Okay, understood. Thank you.
Operator
And the next question comes from Philippe Lorrain. The floor is yours.
Philippe Lorrain
Good afternoon. Hello, yes, good afternoon. Thanks for taking my questions. So I just wanted to follow-up first on HOMAG. You were mentioning that you were making good progress with regard to discussions with work councils and so on, on the restructuring. It looks like you’ve adjusted already quite a bit your head count there. Is there more to come really and what would be the magnitude of the adjustment, if you don’t mind sharing with us?
Jochen Weyrauch
Yes, bonjour, Philippe. On HOMAG, we are making progress. I would say we are in line. And so we will have to see what comes out from that. In parallel, of course, as we have said from the very beginning, we will also use fluctuation at HOMAG. And you have discovered that our headcount, obviously has already reduced, I would say, we are down compared to the mid of the year at more than 100 people already in Germany. So, of course, we are trying everything in that direction as well in order to soften the measures then as much as needed, but we will have to see what comes up. What I didn’t get, please repeat is the second part of your question, there was another question, I didn’t perfectly catch it.
Philippe Lorrain
Yes, sure. I had noticed anyway that you were missing like, let’s say, like around 100 employees or so like versus the mid of the year. And I was just like wondering whether you would expect that – or you would share with us like by how much you would further expect that headcount to come down actually for division?
Jochen Weyrauch
Yes. We stick to our original target of 600 people worldwide, of which more than half, so roughly 350 in Germany. That is unchanged.
Philippe Lorrain
Okay. Perfect. Then the next question is actually more like, let’s say, housekeeping. Would you have a bit more of an explanation for the one-off cost that you had in relation to one project in PFS and how you actually manage such situation so that this does not come up much more often, let’s say, especially when you follow the value of volume strategy.
Jochen Weyrauch
Yes. Thanks Philippe for pointing that out. Look, what can I say on this call. I can say that this is a one-off issue. It is one-ish off issue in an area that I repeat the word you said, we can easy isolate by saying this, and tell you that this will not repeat itself. But also to be frank, has nothing to do with old lower-margin orders, which we have basically been well washed out completely. It is a one-off in a project for a certain reason that hit the bottom line, but I can tell you it’s an isolated case. The impact maybe to give you an orientation on Q4 EBIT in terms of PFS, about 2%.
Philippe Lorrain
Okay. On Q4, 2% of EBIT or of the margin point?
Jochen Weyrauch
Of margin points.
Philippe Lorrain
Okay. Perfect.
Jochen Weyrauch
So, I think one, roughly 2%. So, you can add 2% if you look EBIT from an operational perspective, and if I may use the word for that.
Philippe Lorrain
Yes. Perfect. That’s very kind of you sharing with us the impact. Now, the next question is actually on CapEx. So, I had the impression that you had mentioned that there was a bit of a change in your approach in investing. And actually, when I look at your guidance, the 3 percentage points to 4 percentage points CapEx to sales ratio for 2024 and the fact that for 2023, you had expected 4% to 5% and you actually achieved 3.4%. So, what’s the view going forward? Is the 3% to 4% something like a normalized kind of CapEx to sales ratio to take into account in our models, or is it something like a more isolated development that you see in there, and we will see a catch up at a later stage.
Jochen Weyrauch
Yes. Philippe, actually, and when looking to the models and when looking to the return perspective, we are targeting to be below 3%. So, for 2024, as you mentioned, 3% to 4% in line or being caused by the HOMAG CapEx program, but afterwards going down to levels below 3%.
Philippe Lorrain
Okay. That’s very helpful. And then also for next year, maybe still on the housekeeping front. You guide for earnings before interest and taxes, but also for earnings after taxes. I was just wondering implicitly how much you would guide for the net financial results including or excluding the investment result and maybe as well for the tax rate, since the tax rate was pretty high in 2023 as a whole?
Jochen Weyrauch
Yes, that’s right. In 2023, we had some special impact when reviewing what we call the locking this [ph] in Germany. So, in general, so we had a rate of around 35%. We expect for next year, again, the typical tax rate of around 30%. And in regard to the financial results being caused then by the higher net debt, we expect around €40 million in financial results, so expense.
Philippe Lorrain
Yes. And the financial result of €40 million negative, is it including the investment result or excluding it?
Dietmar Heinrich
That’s included in the investment results.
Philippe Lorrain
Okay. Perfect. And last but not least, actually, so when you were saying that you would be considering, you are looking at potential portfolio streamlining measures, I do not see the situation with the cash generation and probably the EBITDA generation as well as, let’s say, to catastrophic, but still interesting points that you make here. Would you share with us what kind of area would be considered, is it like across the whole portfolio, or is it maybe more, let’s say, in the legacy NPS business that you had, which is now like a very small portion within the automation business?
Jochen Weyrauch
Thanks for asking. My answer, hopefully, it’s not too disappointing by saying that it’s difficult to impossible to comment on this at this point.
Philippe Lorrain
Okay. Fair point. Tried it. I will be back in the queue.
Jochen Weyrauch
Thank you.
Operator
And the last question at the moment is from Felix Wienen. The floor is yours.
Felix Wienen
Hi. It’s Felix Wienen, SFO. I have a couple of questions, please. The first one would be on the HOMAG. Can you probably comment on the order backlog that you still have for the business also after the strong order take in Q4?
Dietmar Heinrich
Thanks for the question. We have to check. I don’t know if there is bit less of checking, Andreas, €840 million is the backlog, which is significantly below, obviously, the top levels we had, but fueled by the relatively good order intake in Q4, but it is not a bad number. However, please keep in mind as we mentioned, that some portion of the strong order intake we made in Q4 is on longer lead orders, which will not materialize into sales during ‘24.
Felix Wienen
Very clear. Thank you very much. And then a question on the industrial automation systems business, please. In the Q4, the adjusted EBIT margin was quite lower than I would have expected and I think also lower than you had guided in November. And it seems the Teamtechnik had some significant issues there in the last months of the year. Can you maybe give some more color on that and when you see these issues getting resolved, it will be great.
Dietmar Heinrich
Yes. You are right. We still have a couple of issues to do. We have adjusted processes. We have invested in the change. We have now merged two of the legal entities. So, a lot of work being done plus still a few orders in the books that we had to list through. And I would say the worst will definitely be over in the first half, if not first quarter of this year.
Felix Wienen
Great. Thank you. And then the last one on Clean Tech Systems, please, in the last year, the margin profile was very heavily H2 loaded. What should we expect for ‘24, similar kind of profile over the year, or should Q1 and Q2 start on a higher note compared to last year? Thank you.
Dietmar Heinrich
Yes. We have – we always have the bit of a profile that’s back – more back-end loaded into Q3 and Q4. And maybe even if we come out a bit more balanced this year, still, we will see that profile as it seems to be the classic way our business behaves. So, maybe a bit of mix of the two, but definitely, we will make more of earnings in the second half of the year than in the first half.
Felix Wienen
Okay. Thank you very much. You projected everything.
Dietmar Heinrich
Thank you.
Operator
And the next question is from Peter Rothenaicher. The floor is yours.
Peter Rothenaicher
Hello gentlemen. Firstly, on Paint and Final Assembly Systems and your guidance for 2024. So, you are expecting for the current year sales of €1.4 billion to €1.5 billion. So, I would have expected somewhat more because I think in 2023, some projects had some delay, and you still have a record high order backlog, so why do you not expect somewhat more in terms of sales?
Dietmar Heinrich
Peter, good question, definitely. We will have to see. I mean probably there is a bit more out there, but let’s rather be a bit more conservative. Some of the larger orders, especially the ones that we are expecting for this year will not contribute too much in terms of the revenues for the year. As you know, those projects are often longer lead projects. So, this is where we see the business at this point and I would rather surprise positively than negatively.
Peter Rothenaicher
Okay. So, it’s – we have to see it as a conservative guidance. Second question regarding PPA, so this year, we have done fully in BBS. What is your current view on the amount of PPA for this year?
Dietmar Heinrich
For this year, it’s around €45 million to €50 million on PPA, the special impact as a whole, around €45 million to €50 million. But the majority is PPA. Let’s say, we are around €40 million to €45 million, Peter.
Peter Rothenaicher
Okay. And the last question on cash. So, I was a bit surprised about this huge amount of cash you had on the balance sheet. So, I have seen you have paid back a smaller amount of debt in January. But what is your view, how much in cash you would need during the year? And what can we expect then as a fair assumption towards the end of 2024 as a cash position?
Dietmar Heinrich
We indicate that in construction with the guidance, the net financial tax actually to be in the range of €540 million to €590 and from a cash position point of view, yes, we had a high position at the end of the year. So, it will be reduced. I would say, normally, we should operate in a level of around €800 million plus.
Peter Rothenaicher
Is it really necessary in this high interest environment to have such a high cash position?
Dietmar Heinrich
Advantage of the cash right now is that we also get interest then when we actually put it on the asset side. So, it’s not lying just on cash accounts. We do not invest it. However, it gives us a hit, especially in conjunction with the projects where we see fluctuation in the cash situation.
Peter Rothenaicher
Okay. Thank you.
Operator
And the next question is from Christoph Blieffert. The floor is yours.
Christoph Blieffert
Good afternoon. I have one follow-up question on PFS, please. Can you provide a breakdown of greenfield versus brownfield projects you have booked in your order intake in 2023, please?
Jochen Weyrauch
Yes, this is a tough question. And obviously, ask ourselves from time-to-time, how to define this best, because if you – let’s just look at the Mercedes order that we have been discussing a lot of times, this will be greenfield, brownfield side, so sometimes difficult to classify orders. Nevertheless, I would say, a fair view to look at PFS would be more or less 50-50 between – and that can fluctuate a little bit year-over-year. But I would say, 50-50, last year maybe it’s a little bit of the brownfield side, but if you take 50-50 as a normal guess, I think that’s about it.
Christoph Blieffert
Okay. Thanks a lot.
Jochen Weyrauch
Thank you.
Operator
And we have one more question from Philippe Lorrain. The floor is yours.
Philippe Lorrain
Thanks for taking my follow-up. I just wanted to come back to Peter’s question on the PPA amortization. So, if we assume that for 2021, that’s going to be around €40 million to €45 million implying that you have got like a little bit of other exceptionals, maybe restructuring and so on, what would be the longer term guidance on PPA so far? How long should we expect that kind of run rate? And also, what’s the view that you have maybe beyond 2024 on other, let’s say, exceptional costs, is it something that we need to take into consideration, let’s say, on a recurring basis, or is it something that you really would still going back to zero? Thank you.
Jochen Weyrauch
Philippe, exceptional costs will go down. So, we do not expect a significant amount anymore that the difference is more. Regarding the PPA, we have some short-term impacts that will actually washout already in 2024. So, we will already see a drop towards 2025. I would say, by at least around 10% to 15% to be reduced for 2025.
Philippe Lorrain
Okay. Sorry, so 10%, 15% or €10 million, €15 million reduction?
Dietmar Heinrich
All in million euro, yes.
Philippe Lorrain
Okay. Perfect. Thank you very much.
Jochen Weyrauch
Thank you.
Operator
And there is one more question from Andreas Ruf. The floor is yours.
Andreas Ruf
Andreas Ruf from EUWID. Hello. I would have two questions on HOMAG. You mentioned that the order intake increased by around €140 million in the fourth quarter and related to two orders from China and from Spain. Could you give some more information on these two orders? Are they from the furniture or from the construction business? And how big is the share of these two orders on the total order intake in Q4? And the next question is regarding, yes, I would have another question on the investments at HOMAG. You said that you are adjusting CapEx at HOMAG. On the other hand, you mentioned that you are going to finish the logistics center which adjustments will happen on the investments at HOMAG next year or this year?
Jochen Weyrauch
Thanks Andreas. First, on your first question, the two larger orders were related to the furniture business. And they have a magnitude of roughly 25% of the – or they take in the Q4, the larger one being in China. On your second question on the investment, what adjustments have we done, for example, we have decided not to build a new office building in the headquarters, but have decided to refurbish the existing site in order to save CapEx. That’s the main change, but it’s a significant one.
Andreas Ruf
And the logistics center will be finished within the next few months?
Jochen Weyrauch
Yes. They are basically already finished as we speak.
Andreas Ruf
Okay. And this – the opening of the logistics center should bring the improvement in operations then?
Jochen Weyrauch
Yes, definitely. Yes, we will have closed many external sites that we had rented and which have a lot of inefficiencies.
Andreas Ruf
Okay. Thank you very much.
Operator
There are no further questions.
Jochen Weyrauch
Okay. Thank you very much. Thanks a lot for your questions and for your interest. If you have further questions, please do not hesitate to call the Investor Relations team. And otherwise, we are at the end of our call. Thank you very much for participating and we will talk to you soon. Bye-bye.
