Half Year 2026 KSB Ltd Earnings Call
Speaker #1: So much as, oh yeah, it is indeed a huge pleasure to welcome you, and to give you a short overview regarding the agenda that we have a few words from my side, and then for sure the key part of today's presentations will be the financial update of the first half of the fiscal year 2026 by Matthias.
Speaker #1: I will then try to summarize it once more, give you an outlook, and put a few words in terms of where do we see the fiscal year of 2026 in terms of long-term perspective, and then, as you said, Zonya, questions and answers for all those who have questions at hand.
Speaker #1: I welcome you, of course, in the name of the entire board, Matthias and me, we have been given the job to present the figures, but of course we do this in pleasure for the colleagues which are not here today, Stefan Bros and Ralph Kanapas.
Speaker #1: Having said this, a little bit of housekeeping: as always, we will concentrate on the figures of the first half year. These figures do not blush.
Speaker #1: At the same time, especially regarding my part, then at the end of the presentations, we will give certain guidance, best estimations regarding the future development of the company, and these, as you know, these are no heuristical guarantees.
Speaker #1: This is the best true and fair view that we as a board have at the time. And having said this, it's now a huge pleasure to hand over to you, Matthias, to give us a deep dive into the first half year of the year 2026.
Speaker #1: Matthias, please.
Speaker #2: Thank you, Stefan. It's a pleasure this time to give this update. So, ladies and gentlemen, thank you, Stefan. I also want to take the opportunity to welcome you in this call.
Speaker #2: My pleasure today is, and my duty, of course, to guide you through the figures of the first half year 2026. Let's first talk about order intake and sales.
Speaker #2: We have increased the order intake by 8.8%. We have increased our sales revenue by 0.4%. So what is the message behind increasing order intake in these difficult times in this very difficult political and economical environment?
Speaker #2: We are a company that is growing despite all these circumstances, and in order intake and sales, and of course on profitability, we are on our path in order to fulfill what we have promised in our mission 1030.
Speaker #2: We are showing a reported EBIT by 98 million euro, 98 million means this includes already affected from the first-time time consolidation of Saudi Arabia, 16.6 million.
Speaker #2: We talked about this in the Q1, and we have spared 12.3 million euro for the implementation of SIP HANA. Talking about SIP HANA, let me make one special remark: first of all, in this year 2026, we will spend approximately 26 million euro for the implementation of HANA, which means we are then more or less on the same level as previous year.
Speaker #2: The second message I want to give to you, SIP HANA project is running well, is on track, and we will go live in the first quarter of 2027 as it is planned.
Speaker #2: We also can talk about an equity increase by 45 million, and here you have to take into account the 61 million after tax we had.
Speaker #2: We paid dividends of 53 million, and later I will elaborate a little bit about the OCI effects of 37 million. You know OCI is other comprehensive income.
Speaker #2: These are effects that are only going through the equity, but I will not be shown in the P&L. Yes, we are a growing company, so for that reason, we have we had to increase compared with the end of the year.
Speaker #2: Our working capital by 85 million euro. Here also you have to take into account the first-time consolidation of Saudi Arabia. This has an effect of approximately 23 million euro.
Speaker #2: This is a half-year highlight of KSB. Now let's go and make a little bit of deep dive. First, let's compare the figures with 2024 to 2026.
Speaker #2: Again, you see order intake and sales revenue is growing. Yes, our EBIT is behind previous year. I will come to this later because what we see, what we are realizing is a strong Q2.
Speaker #2: So the company is back on track. In order intake, of course, we have increased the order intake by 8.8%. And here you have to take something into account, which is valid for 2026, as well as for 2025.
Speaker #2: Although we are only in the middle of the year, the currency effects, FX effects, compared with the previous year, amount to a level of 44 million euro.
Speaker #2: What does that mean? We are showing an order intake increase by 150 million, calculating these order intake effects for FX means that we have grown we should take them like for like to a level of 190 million euro.
Speaker #2: If you compare Q1 with Q2 in the order intake, you see that, of course, Q2 is lower than Q1. Again, this is due to the big order intake we got by a great job, a big job in our energy division.
Speaker #2: Let's take a look at sales. We have increased our sales by 0.4%, and also here you have to take into account currency exchange effects with a level of 37 million euro.
Speaker #2: That means eliminating this FX effect compared with the previous year, we have grown by far more than 40 million euro. We have grown by far more.
Speaker #2: This is a company that is growing. You can read our lips. We fulfill the growth path that we have in mind. Let's compare Q1 2026 with Q2 2026.
Speaker #2: And one thing is really obvious here: we have increased our sales by nearly 50 million euro. We have increased our sales by nearly 50 million euro Q1 to Q2.
Speaker #2: Where did we increase our sales? We increased it in pumps, and we of course have increased our sales by 27 million in supreme serve.
Speaker #2: In order meetings, we had, I explained to you that we are suffering in supreme serve, a little bit by the economy, but here you see supreme serve is on its way back to track.
Speaker #2: The EBIT, of course, is being influenced by the sales, and you see now that we have an EBIT of 98 million euro. That means we are a little bit lower in pumps.
Speaker #2: We are a little bit better in valves, and we are a little bit worse in supreme serve compared to 2026 with 2025. And the reasons are obvious.
Speaker #2: The reasons are obvious. First of all, we had a not-so-good Q1. If you might remember. Secondly, we see that we have an increasing margin pressure.
Speaker #2: We see an increase in competition by Chinese competitors, also in other areas. So the price pressure is increasing. And of course, with all the sales we did, we had to cover higher energy costs as well as logistic costs.
Speaker #2: On top, I mentioned it before, in the first quarter, our plans were not as much utilized regarding our capacity than we had in mind.
Speaker #2: Let's make a deep dive and compare the both quarters. I'd like to start with the Q1 2026, and you might remember that Stefan Timmerman and I, he's close to me here right now, that we when we had our press conference, that we said, it might be that the first quarter 2026 does not fulfill our expectations.
Speaker #2: Indeed, it did not. And indeed, this was reflected also in the stock market. But now take a look back to what we have achieved so far in Q2.
Speaker #2: We have 64 million profitability. And we have a higher profitability in pumps. It increased by 19 million. And take a look at supreme serve.
Speaker #2: Supreme serve is the profit contributor in the second half of the year, with 46.3 million euro profitability. What does this mean? Yes, we had a weak quarter.
Speaker #2: Q2, we see we are back on track. And I can promise you that the second half of the year, we will be even better of course than the first half of the year.
Speaker #2: And I take now the moment to make a summarize. Yes, we stay in what we have promised in our prognosis. Here is a short overview about the EBIT impact.
Speaker #2: And of course, we cannot cover all the costs. You see that the cost of materials have increased from a ratio of 39% to more than 40%.
Speaker #2: Here, the higher costs are in are integrated. Also, the logistical energy cost as well as material cost. You see we had an increase in other income.
Speaker #2: This is due to the first-time consolidation of Saudi Arabia. And of course, some other expenses are on a level of 232 million. Here, the implementation cost for SAP HANA with an amount of 12 million are integrated.
Speaker #2: Again, we increased the total output of operations. Here you see the development in material cost. We were very low in the first half of the year 2025.
Speaker #2: We were above 40% in 2024. And of course, as we are not confident with this cost of material level, we have launched special programs in order to reduce our cost of material.
Speaker #2: Our earnings after income tax is on a level of 60 million euro. And what I really want to line out, we have a level of in our tax ratio of 31.7%.
Speaker #2: You might remember that in the last years, we had an up and down in our tax rate due to special effects. Now I can say our tax ratio at the end of the year, we'll be anywhere on the level of 31, 32%.
Speaker #2: This is our running rate for our tax ratio. So also here, we are in line with what we have promised and with the plans.
Speaker #2: We are executing. Finance income is a little bit lower than previous year. You see here already major effects. It's interest expense for pensions. We have some hyperinflation effects that we have to take into account in Turkey and Argentina.
Speaker #2: And of course, the way how we calculate lease liabilities when you activate them in your balance sheet, we have to differentiate also an interest expenses.
Speaker #2: This is an amount of 1.5 million. And so you see it's a pretty stable constellation we have here. Also tax will remain stable now and in the future.
Speaker #2: Let's take a look to the balance sheet. Yes, we increased the total sum of our balance sheet to nearly 3 billion euro. And here we have to work out that the non-current assets increased due to the investments.
Speaker #2: The current assets increased due to the working capital. And despite all these economic effects, we still have a stable slightly increase equity ratio of 48.4%.
Speaker #2: I want to take this opportunity in order to underline this is a very solid balance sheet. This is a sustainable balance sheet. The increase in equity, how is it being influenced?
Speaker #2: On the one hand, of course, because of the earnings after taxes. We made dividend payments of 53 million euro to all of the investors.
Speaker #2: And of course, we have three types of other comprehensive income. Translation effects for currency, pension, and the total sum for a lot of other smaller effects.
Speaker #2: At the end of the year, we also will have a better equity as we have right now. We are going on to do everything to further strengthen our balance sheet.
Speaker #2: Working capital. There are two ways to look at it. On the one hand, you can say, your working capital has increased to a level of 29.7%.
Speaker #2: This is true. Bear in mind, once this management started, we were on a level of some 34%. We have decreased the working capital. And now we have reached a reasonable level of, let's say, 29% on average.
Speaker #2: We think it might be better at the end of the year. We are a growing company. And so our task is, once we are growing, we have to utilize working capital man but it should be amongst the level of 30%.
Speaker #2: And this is what we're striving for. Therefore, we have a lot of action in place. We follow then up on a regular basis. And it works out.
Speaker #2: We are below 30%. Free cash flow. Yes, this point of time, we see a free cash flow due to the reasons I have told you before.
Speaker #2: That is lower than in the last year. And I can tell you it will improve in the second half of the year. We are aware of this situation.
Speaker #2: So what has happened and two things. You have to take into account. First of all, we see a lower cash flow in the operating activities due to lower EBIT.
Speaker #2: And of course, we had the first-time consolidation effect of Saudi Arabia. With 16.6 million euro. So this has an effect on your earnings after tax, but it has no effect on the cash flow.
Speaker #2: You have to bear that in mind once you want to make a kind of a link between earnings and cash. Secondly, I think you're aware that we have increased our shares in Iomatic.
Speaker #2: In ECOP. And we made we increased our shares in KSE Group, which is pump and service group in the in east of Europe. Yes, we played prices for them in a double digit number.
Speaker #2: This also affected the free cash flow. The investments are still on a reasonable level. 48 million. And we invested this as we are starting to build in new testing facility.
Speaker #2: We invested already 4 million for that. A new testing facility for the energy department. We invested a GIW in the new CNC machine. And of course, we are modernizing our large parts production.
Speaker #2: In pignets. So what does this mean for the net finance positions? There's one very good way to read that chart. Take a look at 2024.
Speaker #2: You saw that at the end of 2024 until the met of 25, the net finance position went down. And it came up afterwards. The same in this year.
Speaker #2: We see that the net finance position to the end of June fall on a level of 200 million euro. And the major effect here is of course that we paid 53 million on dividend.
Speaker #2: The curve you're seeing right here is a curve we are facing year on year. For this reason, I can tell you the net finance position will increase until the end of the year.
Speaker #2: I think it will not be on the same level as in the end of 2025. But it will definitely increase by far more than 250 million.
Speaker #2: Market capitalization. Actually, we are talking about the market capitalization of more or less 1.5 billion euro. I saw that our preference shares today have increased by 50 euro.
Speaker #2: So I'm absolutely convinced with the outlook we give you. With a strong quarter two, we have that our profitability will further increase. I can confirm we are on our way to fulfill mission 1030.
Speaker #2: And I think really for this reason, I'm optimistic the share price will increase. As we are steadily increasing the value of the company. Let me summarize.
Speaker #2: We have increased the order intake by 8.8%. We have increased our sales revenue. We had a second quarter which was much stronger than the first quarter.
Speaker #2: And which gives a positive outview for the second half of the year. So that means stronger sales revenue EBIT as well as net financial position are expected in the second half of the year.
Speaker #2: So for this reason, we confirm the outlook for 2026. And the outlook is being summarized here. I do not want to read all the figures.
Speaker #2: But again, we are on our way to fulfill what you can see here. Thank you very much.
Speaker #1: Thank you so much, Matthias, for your.
Speaker #2: Very positive and bullish summary of the first half of the fiscal year 2026. And my job is now to wrap it up into the overall picture.
Speaker #2: And I would like to frame the boundary conditions that we are in today. Even if it might sound a little bit boring. And to show how boring it is, these are the boundary conditions that we had in 2025.
Speaker #2: And as you know, 2025 was the most successful year of the company in the history is recording. If you now ask, have these boundary conditions significantly changed?
Speaker #2: Especially in the light of the continued positive development of the company. I must clearly say they have changed a little. Only the ingredients of the soup have somewhat changed.
Speaker #2: And if you want the real big ones, of course, February end of February, we had the unfortunate beginning of the Iran war, which is still ongoing.
Speaker #2: And which has huge repercussions. All around the world. In the smallest part of the continents, where you wouldn't even expect them. Then we have a slowdown in China.
Speaker #2: Also nothing new. But the impact is becoming more and more graspable. And also visible all around the world. Especially by the efforts of our Chinese competitors, which I commented full respect for what they are doing in exporting their products wherever they can.
Speaker #2: And this is not only the car industry, but also in the pump industry. Then we have the economic downturn in Europe. Unfortunately, no true recipe in place yet to get the upswing going at short notice.
Speaker #2: And the big impact for us is of course the automotive industry. Especially in Germany and with all this automotive industry, the automotive supply industry and the tool machine industry.
Speaker #2: So this is a tough cookie if you know how big our exposure in Europe is. And last not least, the geopolitical fragmentations, which you know better than I, all of this really leads to boundary conditions, which have a multitude of impacts.
Speaker #2: What is our remedy? And this might sound very simple. But we are responsible of leading a company of 17,000 employees against to the sixth year of a wild economy.
Speaker #2: Cost awareness. Extreme pressure. And focus on costs. Prudence in what we do, be it investments, be it working capital, be it the risk mitigation.
Speaker #2: But also a lot of confidence and a little bit of optimism. Because again, if you lead a company, you have to be optimistic. And coming to this optimism and putting it a little bit more graspable, what are our chances?
Speaker #2: And our chances they are there, irrespective of the boundary conditions. The big one is at the moment data center. And data center for KSB, this is a big field of activity.
Speaker #2: It starts with the energy production where our power plant division of course steps in. And then goes into the cooling, the primary circuit, the secondary circuit, the water supply.
Speaker #2: A real turf for KSB. And we are getting our foot into that door. Power generation worldwide as population grow, power generation is necessary as the climate gets warmer, more power generation is necessary.
Speaker #2: And of course the big consumer again is data center. Water wastewater if you are in Europe at the time, you can see we are really lacking water.
Speaker #2: And this lack of water this has repercussions, positive repercussions on KSB. And be it that pumps which pump water out of deeper areas below the surface are now necessitated for farming.
Speaker #2: And who makes the best in the class in Europe? It's KSB. And we see a nice demand there. A short term demand solely based on the change of weather in Europe this summer.
Speaker #2: And last not least, despite the fact that we are with own organizations in more than 100 countries, there is still a lot of room for expansion.
Speaker #2: Because KSB from the heating seller to the nuclear power plant. We have such a big portfolio. And there are a lot of countries where our brand label is strong, but we still have opportunities.
Speaker #2: And having said this, what is our way forward? Resilience in what we have started in our company strategy. Flexibility in terms of the company setup.
Speaker #2: As soon as we see downturns, we have to react very quickly. And this is what we do. We focused on costs. We focus on liquidity.
Speaker #2: We focus on our profit structures. Of course we utilize AI. And all possibilities of digitalization. And SAP HANA for sure as the biggest digitalization project that we're running at the time.
Speaker #2: It will have an impact on our costs. And last not least, and this is the one that I want to deep dive with a few comments, a little bit more take care of our structural costs.
Speaker #2: Because as the seas get rougher, you have to see that your ship gets lighter. Otherwise, in a big trough or valleys, you might hit the rocks.
Speaker #2: And this is not what we want to do. So if you continue with our strategy, everything that we have put in place from KSB Supreme Serve via voice, via our customer orientation, mission 1030.
Speaker #2: The big cookie that we are now really focusing on is the question, how can we worldwide reduce our structural costs? And here we basically have two packages of measures.
Speaker #2: One short term measures. And here for this fiscal year, Matthias forgot to mention it or gave the pleasure for me to mention it. We saw the downturn coming from the Iran war.
Speaker #2: And we took action rather quickly. And asked our organization to reduce structural costs, variable structural costs, up to the amount of 30 million in order to safeguard our EBIT.
Speaker #2: And the nice thing about KSB, we have a management. If you whistle, they execute. And this for sure will help us not only grow our EBIT, but also mitigate any risk should there be a turn down in turnover, which I do not see at the time.
Speaker #2: And the next part of the structural costs will of course be to look into our headquarters worldwide and to see how we can make them a little bit more lighter, a little bit more flexible for the future to come.
Speaker #2: Because our target is clear. We want to grow our profitability. And having said this, summary from my side, what do we do? Of course we study the daily headlines.
Speaker #2: In order to extract what trends do we see? We mobilize, we adapt our organization accordingly. But we lead with our long term target. And our long term target is to make this company by 2030 4 billion plus company with a return on sales of more than 10%.
Speaker #2: And this is what my eagle, our eagle stands for. And with this, I thank you so much for your attention. And now it's on your hand over to you.
Speaker #2: And I think now we have a nice half an hour for questions and answers.
Speaker #1: Indeed, we do. Thanks a lot, Stefan, for your presentation. Also, Matthias, for your insights. So it's now time for us to open the Q&A session.
Speaker #1: Therefore, we will move to our little Q&A corner. Please give us two minutes and we will be right back with you. You can use the two minutes also to send in your question.
Speaker #1: We will be glad to answer them. See you in a minute. So we are back. And thanks very much for sending in your question.
Speaker #1: So let's start right away with the first question related to data centers. Stefan, I'm addressing you. Could you provide more details on the size of orders for cooling pumps for data centers?
Speaker #1: Were these orders were these orders from different customers? And do you expect further orders in this area in the coming quarters? What do you estimate the annual revenue potential of this market opportunity to be?
Speaker #1: And who are the key competitors in this market segment? Are data center pumps more margin accretive than other applications?
Speaker #2: Yes, Sonia. A lot of questions, exciting questions regarding data center. And I'll just come start from the bottom. Are they more accretive than other applications?
Speaker #2: Data center pumps, these are huge packages of pumps. And that makes them extremely interesting. We're talking about numbers where the smallest order is 100 pumps.
Speaker #2: And the vision that the customer groups give are in the thousands. And this is standardized pumps. Then one type, this for a factory, this is the best that we can have.
Speaker #2: Because we have economies of scale. We can really streamline the logistical processes. From the procurement side, to the own manufacturing side. And so far, this is in highly attractive business for us in terms of economies of scale.
Speaker #2: Who are the customers? Of course, I cannot tell you explicitly the names of the customers. Because this is really top secret business. But I can tell you there are two huge customer groups.
Speaker #2: And these are the Chinese and these are US based companies. And probably you'll guess these are all the big names in the business of AI, which really large scale orders.
Speaker #2: What makes this business extremely exceptional also for KSB is the speed. For some strange reason, maybe this is connected to the genetics of AI, speed is of essence.
Speaker #2: And we're not talking about months. We are talking about weeks. Customers expect prototype pumps in four weeks. And they expect before first orders to be executed in two months.
Speaker #2: And this is something where we really have to streamline our organization. And since I follow this in terms of somewhat guidance and godfathering, I am fascinating how fascinated how our colleagues in China team up with the colleagues in Germany and make it happen.
Speaker #2: Or in France or wherever these pumps come from. And of course, I have asked the question, how big is this business going to be for us?
Speaker #2: The last estimation was, but this is accumulated that in the next three years, they expect about 100 million in terms of order intake from data centers.
Speaker #2: But I fear this is not the holistic calculation. Because data centers, as I told you, it starts with the electricity generation. Outside of the data center, it continues with the water generation.
Speaker #2: And as you know, a lot of these data centers are in the middle of nowhere. And it then ends in what you probably connect with data center, the cooling processes.
Speaker #2: And here we have the primary circuits and the secondary circuits. And the firefighting and the cooling of the building, the HVAC. So a lot of business.
Speaker #2: Fast, extreme pressure in terms of delivery. But also connected to this urgency. You have the willingness to pay a good margins and to give us the chance to execute with economies of scale.
Speaker #1: Thank you, Stefan. So we take away, it's a matter of speed actually. Matthias, I have a question for you. The order backlog should provide good planning security.
Speaker #1: But the EBIT guidance range remains relatively wide. What did prevent you from narrowing the guidance range? And how confident are you in achieving the midpoint of the guidance range?
Speaker #2: So first of all, if you take a look at your order backlog, I think it's the first time that we have an order backlog of more than 2 billion euro.
Speaker #2: Taking this into account, you must bear in mind this order backlog is not only an order backlog for the actual year, but it has an extent of 3 and sometimes also up to 4 years.
Speaker #2: Taking the big energy project, nuclear business projects into account. And of course, due to the big energy order we got, the order intake the order backlog increased by these more than 150 million euro.
Speaker #2: So that means yes, the order backlog is higher. But it's not only the order backlog for the end of the year. Secondly, to give you a little bit in guidance or an idea, if you have an order backlog, a rough calculation by some, means that the order backlog we have is gives us the full work for the next six months.
Speaker #2: That's a little bit a kind of an estimation. And I think for that reason, there's no reason to narrow the guidance range. I don't think so.
Speaker #2: Regarding the question, how confident are you in achieving the midpoint of a guiding range? I am confident.
Speaker #1: That was clear. Thank you, Matthias. Stefan, I have a question for you regarding the Iran conflict. So how does the Iran conflict impact your business currently in the Gulf region and in Asia?
Speaker #2: Yeah, basically from two sides. One from the demand side. Of course, there are no big investments at the moment. Directly in the near states, which are impacted the most.
Speaker #2: This is Qatar, these are the Emirates. This is Oman. In Saudi, it's already a little bit different. The further you come away from the center of gravity, the bigger the investment appetite, which was very big rests but I am sure that this investment appetite which is there, it will resurge.
Speaker #2: It's just being somewhat strangled as long as the outcome of the war is not clear. And there I think we all have the confidence there's a visible horizon for the end of this war.
Speaker #2: The second impact is in the producing plants. We have a lot of orders which were supposed to be invoiced and sent into the region.
Speaker #2: Transport into the region is extremely difficult. And a lot of the customers are not willing to take the pumps and valves that they have ordered.
Speaker #2: So they remain in our plants be it in Halle, be it in India. And of course, this postpones turnover. And out of both, if I were to summarize it, Sonia, it's just two chances.
Speaker #2: The turnover will come the one which is in the packed crates in our plants and the demand be it for new building or be it for refurbishment of damaged plants.
Speaker #2: This will be present as soon as the investment possibilities are there again. So opportunities.
Speaker #1: Very good. And I would like to add another question on the Iran conflict. And that's the impact on the forecast corridor. So is it more likely that you will end at the lower end of the guidance than at the upper end to the due to the ongoing Iran conflict?
Speaker #1: But I think here, Matthias already made a clear statement.
Speaker #2: I confirm what I said. I'm confident we reached the midpoint.
Speaker #1: Yeah. Thank you for confirming that again. Then we have a question on the cost of materials ratio, which has increased from 39% to 40%.
Speaker #1: Has KSB been able to increase the selling prices? And did competitors also increase selling prices?
Speaker #2: Yeah, you're very clear. Yes, from 1st of June onwards, we increased our prices. In alignment with the competition. So it's always a game who goes first.
Speaker #2: And who follows how. The first ones raised their prices in May. And we then adjusted worldwide in June. Basically, based on the fact that our transport costs have gone up in many countries, the supply of raw materials again, India let alone due to the gas shortage in India, foundry articles have increased by price 25%.
Speaker #2: And what we can pass on to customers, we pass on. Otherwise, we change our supply chains which is in many cases not done overnight.
Speaker #2: So this is basically the next jump. Passing on costs and finding alternatives. But we have raised our prices, yes.
Speaker #1: Thank you, Stefan. Then we have a question on the 30 million reduction in structural costs that you just mentioned. So Matthias, how much of this was delivered in the first half of the year?
Speaker #1: And what is to come in the second half? What was or is the one-off cost associated with this? And is it being taken above the line?
Speaker #2: Yeah. So in the first half of the year, we could take out of it approximately value beyond 10 million euros. So that means in the second half of the year, there will be an even bigger effect.
Speaker #2: This is due to the reason that in the first quarter, we had to work out this program. So far, and until the end of the year, there will be no one-off costs.
Speaker #2: Because all the measures we are undertaking right now in order to safeguard the budget and our prognosis for the year 2026 do not contain any structural measures.
Speaker #1: Thank you, Matthias. Then there's a question on Chinese competition that you mentioned. Is it mainly within China or increasingly outside of China too? And which end markets is it mainly seen in?
Speaker #2: The competition in China in itself this is horrendous. And the reasons are rather simple. A key driver for the growth of the economy in the last years in China was infrastructure spending.
Speaker #2: And everybody happily lived on this, this infrastructure spending by the government is over for fiscal reasons. Of the government. The supply of Chinese products are there for the little bit of the cake that is left in China.
Speaker #2: Everybody is trying to get his part. And this is a purely cost-driven business. Where yes, due to our reputation, due to our people, due to our connections, we get a small part of the cake.
Speaker #2: But this is just a small part of the cake. The much bigger part of the cake now for Chinese suppliers is the export business.
Speaker #2: And they have exported since decades. So this is nothing new. But now this is being driven with a high level of professionality, I must say, which you can admire.
Speaker #2: And starting corners where they are under the radar screen, be it South America, be it Africa, where they have been in the market long term.
Speaker #2: Now it's just becoming much, much more fierce. And now, of course, they're also coming to Europe. And you see it in the car industry.
Speaker #2: I think this is in the headlines. The BYDs, which are now coming also to Germany. Do we like it? No. Can we prevent it?
Speaker #2: No. We are in competition. And today, Chinese products, many of them they are of good quality. And we have to adapt accordingly.
Speaker #1: Thank you for your comments. Then I would like to continue with a question on the capacity utilization. Can you comment on that? And on the production process efficiency in the second quarter?
Speaker #1: What development do you expect for utilization levels in Q3 and Q4?
Speaker #2: I can take over this question. When you talk about production and capacity utilization, you always have two parts. One, the variable part, the flexible part.
Speaker #2: And here, I must say, I'm extremely proud. Especially for the European plants. We have an extreme amount of flexibility together with the labor representatives and the unions.
Speaker #2: To breathe according to the load. If we have little load, we work into time accounts. If we have a lot of load, we work out of time accounts.
Speaker #2: And this is what we utilized in the first half of the year. What you can, of course, not change overnight are the structural costs, the investments that you have made into the factory.
Speaker #2: That is there. And this then hits you as soon as you turn over is lower than your break even. Then you will have to bear these costs.
Speaker #2: And these are the things where I said in terms of SG&A costs on the office side, there we just have to come up with clever remedies.
Speaker #2: How we are more flexible to adapt. Now, as we look forward into the second half here, and this you can see if you compare all of our second half years the second half year for whatever reason in mechanical engineering is always much stronger than the first half year.
Speaker #2: And this is what we not only expect, we already see in July. And this is what we count on. And going back to the question of the workload that we have, there is no reason whatsoever why this should not also materialize this year.
Speaker #1: Thank you very much, Stefan. So we have a question on KSB pumps Arabia. What is the expected contribution excluding the one-off 16.6 million EBIT of this newly consolidated operation in 2026?
Speaker #2: It's roughly between 5 and 6 million euro.
Speaker #1: OK, thank you. And can you provide some more color on mining spare business in case the Supreme serves and the sustainability of the improvement you saw in quarter two?
Speaker #2: Mining business, it sounds exotic but it's a capex-driven business. And first of all, the good news, the mines all around the world, they are working at full power, be it the copper mines, due to electrification and the change in electromobility are now, of course, the data centers.
Speaker #2: So they are running at full load. At the same time, of course, new mines are on the radar screen. But here, there's an extreme cautionlessness in terms of investment.
Speaker #2: Because building a mine once you have built at the point of no return is behind you. This is a huge investment. And according political environment has to stay stable.
Speaker #2: And I think if you look at Panama and Chile and quite a few other countries, in the past it has become rather wobbly. So mine operators are very risk prone.
Speaker #2: And this you then also see in the variable part of the business. And this is the stock keeping of spares. Which is, of course, for us a crucial part of our Supreme serve business.
Speaker #2: And I would say in the last half year of 2026, for the first time in my recording, I saw a big hesitation to buy spares.
Speaker #2: They there was a collective basically activity of reducing spares in order to safeguard liquidity. This went on into the first quarter of 2026. So this year.
Speaker #2: But now in the second quarter, we've seen that relaxation has come into the business. And again, since the mines are running, the time to buy spares, you can't postpone this forever.
Speaker #2: It will come. And this also makes me personally very bullish for the mining business. This is an extremely important part of our business. And it will grow.
Speaker #1: Thank you, Stefan. And we stay with mining and we stay also with KSB Supreme serve. So in the first half of the year, KSB Supreme serve was surprisingly stable considering that a major mine grounded to a halt in September last year.
Speaker #1: And we'll only start to ramp up again in the second half of the year. So do you expect some orders as the mine ramps up to 65% towards the end of the year?
Speaker #1: Against that background, why are you no longer expecting KSB Supreme serve to grow in the second half of the year? And thus, on a full year basis?
Speaker #2: First of all, I'm expecting Supreme serve to grow on a full year basis. Irrespective of this very specific question, which is touches the Freeport mine in Indonesia, which in terms of figures, this is for us a 15 million business in spares.
Speaker #2: Annually. And for those who are not so much in the detail, this mine unfortunately last year had a catastrophical accident. It's a mine underground, which basically collapsed.
Speaker #2: And unfortunately, to my knowledge, which is rather present, it won't open up at least not the part which touches our pumps until 2028. They wanted to open up this year, end of this year.
Speaker #2: And we were really happy about this. But this has now been shifted because there has been another mining accident. And now the state of Indonesia is really looking into the boundary conditions of the mine.
Speaker #2: So this will be postponed. And 15 million, we have to compensate. So looking for the good stories in Supreme serve to compensate 15 million overnight, this is not so easy.
Speaker #2: But we've managed to do it. And for us in this business, of Supreme serve, especially the project business is crucial. This is mining. This is the chemical industry.
Speaker #2: And this is the energy industry. And coming back to these, the only one which is not growing at the time also to the known boundary conditions is the chemical industry.
Speaker #2: Solely due to the fact that we have worldwide overcapacity in the chemical market. And this basically either leads to the shutdown of chemical plants or at least a huge risk mitigation in terms of doing too much repair work.
Speaker #2: And this is what we see at the time. But again, like in mining, the chemical industry will, after consolidation of capacity, come back into track.
Speaker #2: And we're one of the big players. So I'm very positive.
Speaker #1: Thank you, Stefan. Then we have another question on the water shortage, which is actually a very important topic right now, also on the media.
Speaker #1: So can you provide some more information on how water shortage in Europe translates into sales? And what level of contribution do you expect for KSB?
Speaker #2: The latter, how big is the contribution? I won't dare to give any guidance there. I can say, of course, and this is what we really see if you were to come to the workshops in Frankenthal, as we speak, we have one business area in the water section.
Speaker #2: These are what we call the UPAP pumps. Subground pumps, underwasser pumpen. At the beginning of the year, rather low in terms of order intake and suddenly with this heat period and a drought that we have, a surge of order intake.
Speaker #2: And if you then ask what is the reason, then you're told this is basically all farming business. The groundwater level has significantly gone down, which is explainable due to the drought.
Speaker #2: And the farmers have to now extract the water from deeper levels. And for this, they need stronger pumps. And these are the pumps that they order at the time.
Speaker #2: And since I fear this hot summer will not be one of hot summer, but probably the new area I do expect that the climate change, even in Europe, will have an impact on our business.
Speaker #2: A positive impact in that respect.
Speaker #1: Thank you very much. And I take the last question and the last sentence in address it to you, Matthias. With respect to the 30 million lowering of the structural cost, is this a set volume?
Speaker #1: Or could you step this easily up? Will there be cost associated with it? I think we have that one already.
Speaker #2: I'm smiling because easily is nothing in our business. Let me put it like this. These 30 million cost saving, we are going on to safeguard the budget for this year.
Speaker #2: They are related to 2026. At the moment, for the year 2026, I do see no chance to increase it to 40 or 50, whatever.
Speaker #2: And even not easily to make this very sure. Nevertheless, to increase our cost competition in SG&A cost all over the world, of course we see a chance.
Speaker #2: And this is something which we bear in mind.
Speaker #1: Thank you, Matthias. And we have another question on the service. Forecast for the end of the year. So the second quarter saw a nice pickup in service orders and revenues.
Speaker #1: What is your expectation on orders for the third quarter and thereafter? How is the Chinese competition affecting the service business? And what are the countermeasures, especially with respect to service business?
Speaker #1: Stefan, would you like to take that question?
Speaker #2: Yes, I see I had the discussion this morning in terms of serving service here. For our mining business, the good thing about our company is our people.
Speaker #2: And especially in the service business, of course you can sell spares. But the more critical the applications become, the more risk-prone the customer becomes.
Speaker #2: And the more he wants to know the people and have a good feeling that the ones that he employs know how to do the job.
Speaker #2: And even if they make mistakes, they have a company which stands up for the mistakes, mitigate the mistakes, and gets the job done. And KSB has created this reputation over more than 150 years.
Speaker #2: We're now in year 156. And this is what makes us extremely strong to paste and copy this you can try it. It will take an enormous amount of time and even more effort because it's a people's to people's business.
Speaker #2: And for this, it is so crucial for me as a person. You have to keep your people. You have to motivate your people. You have to have a super company culture because at the end of the day, our success is based on people.
Speaker #2: And where you see it the most is at the end of the day in service.
Speaker #1: Thank you very much. So by the looks of it, there are no further questions at the moment. Let's wait a couple of seconds.
Speaker #2: So the next time there have been five or six over. This time, we got all of them.
Speaker #1: Yes.
Speaker #2: OK.
Speaker #1: It was very clear. If not, is there anything that you want to say as a final remark or statement?
Speaker #2: I think this is the CEO task. To make the final remark. Come on, Stefan. Matthias, I do this with pleasure. And it was a good to listen to you, Matthias, how you summarized the first half of the year.
Speaker #2: After the games, before the game, now we have the second half of the year. In front of us, but I am, as you gave the guidance, very optimistic that despite these boundary conditions, which are again really cruel, if you're leading a company with 100 subsidies all around the world, which are cruel and which are challenging, I am very optimistic that we will get the job done because I see it on a daily basis.
Speaker #2: We have 17,000 highly motivated employees running the extra mile, mitigating costs, showing flexibility, in tough markets, finding new chances. And this is what makes me proud and extremely confident.
Speaker #1: Thank you very much for these closing words, Stefan. And if there are any further questions, of course you can always contact Peter Pot or Matthias Schmitz.
Speaker #1: They are at your availability. And if you want, you can also dial in into the next KSB Earnings call on the 25th of March, 2027.
Speaker #1: We will be glad to meet you again. Thanks a lot for dialing in today, for spending the last hour with us. Thanks a lot for your questions.
Speaker #1: We wish you a wonderful summertime. And hope to see you soon again. Thank you very much.
