Knorr-Bremse AG

Dear ladies and gentlemen, welcome to the call for the earnings Q2 2020 of Knopf Benze 18. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. If any participant has difficulties hearing the conference, please press star key followed by zero on the telephone for operator assistance. The call will be led by Frank-Marcus Weber, CFO of Knopf Benze 18. and Andreas Bittsauer, Head of Investor Relations. Followed by Q&A session together with the other two members for the Executive Board, Dr. Peter Leier, Head of CES, and Dr. Julian Wiener, Head of RES. And now I hand you over to Andreas Bittsauer. Please go ahead, sir.

Thank you, Operator. Good afternoon, as well as good morning, ladies and gentlemen. My name is Andreas Wittrauer, Head of Investigations of Knorr-Ramse 18. I want to welcome you to Knorr-Ramse's conference call for the second quarter results of 2020. As a reminder, the conference call will be recorded and is available on our homepage www.knorr-ramse.com in the Investigations sector. They can find today's presentation and later a transcript of the forum. It is now my pleasure to hand over the floor to Frank-Marcus Weber, our new CFO of Knorr Bremse. Please go ahead, Mr. Weber. Thank you very much, Andrea. Dear ladies and gentlemen, I warmly welcome you to our conference call for the second quarter results of Knorr Bremse in 2020. This conference call is very special for me, as I am speaking to you for the first time as the new CFO of Knorr Bremsen. Today's call is made up in three parts. First, I'd like to briefly introduce myself, then I will present the financial results for Q2, and later I will give you an update of our guidance for 2020. Thereafter, with my two colleagues in the Executive Board, Dr. Jürgen Wilder and Dr. Peter Leier, we look forward to your questions and comments. So, turning to Chart2. Let me quickly introduce myself. My name is Frank-Marcus Weber. I am 51 years old and I just recently moved to Munich with my wife and my two children. I have a business and financial background and studied business administration at the University of Tübingen. After a stint at an auditing company, For the past 21 years, I have held various management positions at the Daimler AG overall in the finance and controlling area. The most important tasks after several controlling positions at Mercedes-Benz during my time at Daimler were head of corporate development and strategy. I was able to gain valuable experience outside the financial sector, but at the same time, I was able to contribute important financial aspects. Head of transformation and the driving force behind the efficiency program MOVE with a scope of roughly 95 billion costs at the Mercedes-Benz AG. Last but not least, for many years I was CFO of Mitsubishi Fuso Truck and later on of Diamond Truck Asia based in Tokyo, Japan. The experience I gained in these positions supported my entry into Knorr Bremse very well. I also headed the M&A department at Daimler for the last four years. Looking back on my professional career, I have led many different finance departments in a company that has been listed on the stock exchange for decades. It is precisely this experience and knowledge that I would like to bring to Knorr Bremse to help develop the company's strong entrepreneurial culture further. My key responsibilities inside Nordbremse are finance, controlling, IT, legal affairs, investor relations and compliance. My focus will be on fostering and enhancing a culture of high performance, ensuring the continued support by the finance department for the development of Nordbremse as the global market leader for braking and other safety-critical systems. I have completed my first two months at Nordbremse and would like to share my first experiences with you. I was extremely positively impressed by the following. First, I have been able to get already into a high number of exciting projects. I have found a highly committed and very customer-focused team at Snow Wednesday. Second, the new colleagues are characterized by a high-performance culture and a strong cost focus in the two states of the world. Third, at Nordrense, there are many entrepreneurial people who are located close to the customers all over the globe and have a high level of P&L responsibility. I've also found the following topics that I have potential to improve and on which I would like to communicate going forward. Earlier reporting is a standard and is very important to me. I consider the IFRS migration so far as unstructured and will take care of this going forward. The profitable growth of the company was great so far but it has to be secured going forward. This means that we have to develop further on both aspects, growth and profitability at the same time. Our operational excellence needs to be even further enhanced by stringent standardization of processes and organizational alignment. Even more important, we have to improve our conversion rate on the cash side. Cash conversion rate is a very important topic for me. So let me continue with the finances of Nordbremse AG and the highlights of the second quarter 2020 on chart 3. Following a very sound performance at the beginning of the year, Nordbremse was able to give an impressive demonstration of its resilience, particularly in the face of the marked turbulence caused by the COVID-19 pandemic in the past quarter. First and foremost, our financial results have been solid in both our rail and truck divisions. The implemented countermeasures against the impact of COVID-19 paid off and supported our operating leverage. In this respect, our European and American operations benefited greatly from the experience of our Chinese colleagues. Our aftermarket business was also affected by the pandemic, but to a much lesser extent compared to the OE business. Accordingly, the sales mix increased significantly in favor of the aftermath. Overall, we confirm the guidance for 2020 and we feel confident enough to slightly raise the lower bandwidth of the guidance. I will give you more details later on. Chapter 4. Let me continue with the market development in the second quarter of 2020. On the rail side, global markets recovered faster than expected. It is especially important to mention that OEM customers have postponed orders in the OE segment, but we have not received any cancellations. Capacity utilization rates at the train manufacturers' plants are again almost back to pre-crisis levels, and in their latest press releases they have tended to publish rather bullish statements. In addition, numerous governments around the world have initiated stimulus packages to provide financial support to the rail industry while promoting green mobility. On the other hand, our sales development is clearly influenced by the postponement of projects, which will have an impact on the development of RBS in 2020 and 2021. Long term, however, we do not expect any negative sustainable impact on the division sales development. The COVID-19 pandemic has certainly had a greater impact on the sales markets of our truck division. Nevertheless, all relevant markets, e.g. North America, Europe and China, recovered relatively quickly, but at different speeds. In China, new records in truck production figures were already achieved in April and May. In Europe and North America, the recovery is proceeding more slowly, but continuously on an upward path. Overall, however, the last two regions I have just mentioned should face significantly lower volumes compared to last year. It was therefore important and the right decision to introduce adequate efficiency measures in the truck division at a very early stage. I will proceed on page five. A lot of things were positively driven at Northland in the past few months. At the virtual annual general shareholder meeting, end of June, Mr. Thiele, Mr. Enders and Mr. Weimar were elected as new supervisory board members with high approval rates. Thereby, the level of know-how and experience in the supervisory board increased significantly. The rail division won a major order in Egypt for brake systems with a volume in the mid-double-digit million-euro range. A total of around 1,300 passenger cars will be equipped in this populous country until year-end 2022. In addition, during the COVID pandemic, RVS was able to clearly demonstrate its modern and intelligent HVAC systems, which can significantly improve the distribution, filtering, and cleaning of the air in passenger cars. The Truck Division was able to secure the previous scope of delivery with Schmitz Cargo Bull for the future by extending grain contracts with an order volume in the upper double-digit million euro range. Norbenzi will continue to supply Schmitz Cargo Bull with the current dynamic trailer disc brakes in the coming years. The European Megasator wants to make road traffic safer. Therefore, a mandatory turning assistance for buses and trucks is planned for new vehicle types from 2022 and for all new trucks and buses from 2024. With a re-profitable turning assistance pro-feed assist plus, CVS makes an effective contribution for the truck manufacturers to meet these requirements. Let me continue with the financial highlights on chart 6. On July 16th, North Ramsey released preliminary results for the second quarter of 2020. The final results are basically in line with the preliminary figures, even slightly better. Overall, COVID-19 had a major impact on our results in the past quarter, as the pandemic mainly affected Europe and North America, where North Ramsey generated around 60-70% of its sales. Nevertheless, our performance, especially the divisional profitability, was still very solid and showed a high level of resilience. Let me take you through the most important KPIs. Autos received were at 1.1 billion, a decrease of minus 32% compared to the same quarter last year. On the other hand, with 4.4 billion, our order book was only slightly lower compared to the previous year, which is the foundation of our guidance and gives us a good visibility for these challenging times. At 1.4 billion, revenues decreased by minus 23% compared to the second quarter of last year. The development was driven predominantly by CVS. Our operating EBITDA margin consequently decreased, but only from 19.1% to 17.2% in Q2. Given the current adverse economic and market environment, we consider this to be a very solid level of profitability and the proof of our resilient business model. Let me dive deeper into our results in chart 7. Order intake on group level in Q2 declined by minus 33% to 1.14 billion compared to the same period in the previous year. This development was not supported by the FX development or M&A on a net base. Therefore, the organic development was slightly better with a reduction of roughly 30%. Due to the extensive lockdowns in Europe and North America in April and May, Customers of rail and trucks were very reluctant to place orders. With the easing of the curfews in June, incoming orders also improved. Our book-to-bill ratio in Q2 was impacted as well, reaching 0.8 versus 0.9 in the previous year's quarter. The development of the order backlog in the second quarter of 2020 was particularly pleasing Compared to the previous year's figures, the development of the order backlog was only significantly lower. It reached 4.36 billion end of June 2020 and increased significantly beyond Q2, 2 more August. Let me continue with our revenue development on chart shows. In the quarter of April to July 2020, revenue at the food level decreased by minus 23 billion, or in absolute numbers, by minus 418 million to 1.43 billion euro. On an organic level, we saw a decline in the same magnitude. Worth mentioning was the development in the APEC region, which entered the COVID pandemic first, but gaining most of the experience how to handle it. As a result, APEC was able to grow by more than 4% year-over-year. The recent view of North America recorded the greatest impact of the pandemic in the second quarter of 2020. Accordingly, our group revenues fell by a clear double-digit percentage. Let me continue with the development of our profitability of Chart 9. In the second quarter of 2020, Groups operating EBITDA was 245 million after 350.2 million in the previous year. The operating EBITDA margin amounted to 17.2 after 19.1% in the previous year. This decrease mainly resulted from volume effects of the declining OE business with corresponding impact on the operating leverage. This margin impact was mitigated by contributions from the accretive aftermarket business. The aftermarket share increased from 32% in the second quarter 2019 to 38% in the second quarter of 2020. In absolute figures, nevertheless, Aftermarket business was not immune to effects of the pandemic and recorded a decrease of 8% to 549 million euros. This decrease was more driven by CVS. The group's operating EBIT of 174 million also saw a decline of 112 million euros at 12.1%. The EBIT margin was below the previous year's level of 15.5%. The higher deviation compared to the EBITDA of the previous year quarter comes from higher depreciation due to increased investment activities. In summary, we consider Q2 2020 to be a rock-solid proof of SnowBlamper's business model in the currently challenging market environment. Turning to slide 10. While we have initiated a CapEx management program and were spending closely, we realized an increase of CapEx in sales to 4.7% in the second quarter of 2020. Nevertheless, the level of 4.7% is very much in line with our long-term goal to spend 4 to 5% on an annual basis. A substantial amount was invested in supplier tools and future growth options for both divisions. A large part of the increase year-over-year derives from the continuous expansion of the capacity for air-disk breaks in North America to support our market-leading position in this segment. We also made strategic investments in further software development in our global steering business. Networking capital at the end of past quarter showed an increase to almost 1.2 billion euros. This development was mainly driven by measures to ensure the ability to supply our customers. Our corporate policy, customer first, is very important to us and has been a cornerstone of our business success for decades. Accordingly, we have kept a higher level of inventory to support our customers in the difficult times and prevented a potential disruption of their supply chain. As a consequence, we also accepted that working capital will be higher in the short term in order to strengthen our long-term customer relationship. Nevertheless, from CFO's perspective, I would like to clearly emphasize that this flexibility towards our customers is over time limited despite our strong balance sheet and we are working consistently to reduce working capital over time. Annualized operating royalty was impacted by lower profitability and increased working capital, but with 22.2% well above most other companies in the capital sector. On chart 11, I would like to continue with the cash flow KPIs while we're on the bottom line. Our pre-cash flow in the second quarter of 2020 was positive. reaching 48 million euro, after minus of 61 million euro in the very short quarter of this year. The year-on-year decline is predominantly due to lower profitability and at the same time slightly higher capital expenditures and increased working capital. Based on methods we started already, free cash flow will improve accordingly in half year 2 of 2020. As mentioned at the beginning, the cash conversion rate is very important to me. My definition of this KPI is free cash flow before M&A, meaning as reported in relation to the respective net income. The level of slightly above 40% achieved in Q2 2020, which we deliberately accepted to cope with the pandemic, is not a satisfactory level going forward in normal times. In the long term, I expect Nordbremse should be able to achieve a cash conversion rate of roughly 70-80% during a normal growth phase. On chart 12, I would like to give you an update on the impact of COVID-19 on our two divisions. Compared to the quarter 1 2020 presentation, in which we needed a total of 5 charts for explaining this topic, this time we believe only one chart is necessary. This should also be seen as a sign that we know very well how to deal with the pandemic. Nevertheless, we continue to monitor the situation very closely and are prepared to act quickly if necessary. With the exception of India, demand in the global rain market segment has recovered significantly and our customers on the train manufacturing sites have almost returned to pre-crisis levels. although the important customer segment of train operators have not yet reached normal levels again. We see continuous and steady improvements regarding trains in operation and no cancellations of contracts, only postponements so far. What does this mean for our rail division? Our suppliers have also almost returned to pre-crisis levels, which also applies to our own facilities. For example, we have ended short-time work at RBS in Europe. I would now like to move on to the truck situation. The key sales markets have recovered significantly from the lows and are also showing a steady improvement month after month. This assessment has been confirmed even after the summer break. Our customers have kept their commitment. Similar to the rain side, only India is still strongly affected by the pandemic. This has a corresponding impact on our suppliers and our own plants, which are also experiencing improved capacity utilization or base significantly below the prior year levels overall. Let's move on to the divisional review, starting with RBS on site 13. In the second quarter of 2020, all the intake of rail vehicle assistance was at 790,000 of a decrease of 11% in total and 7% on an organic basis. This development can be attributed primarily to the lockdowns at our customers as sales activities were significantly restricted. This led to postponements of meetings and contract awards as well as costs from framework agreements affecting the OE and aftermarket business. In July and August the situation eased considerably again. Next to it, I would like to remind you that developments in the rail industry with its long cycles do not go well with quarterly reporting. There are always fluctuating large orders in individual quarters, which make comparisons difficult. Projects in rail are generally independent of seasonality or cyclicity. All regional markets experience postponements and lower demand, which could not be compensated by the development in China. The book-to-bill ratio was developed accordingly to the lower order index, but it was flat compared on an annual basis. It moved from 0.92 in the second quarter of 2019 to 0.93 in the second quarter of 2020. The order book, on the other hand, increased by 7% compared to the same period in the previous year to 3.5 billion euros. which provides good visibility for the rest of the year and shows the confidence of our customers in the long-term trends in the rail industry. We assess the order backlog of our rail division as a very solid and do not expect any order cancellations going forward. Nevertheless, we do see selected shifts of tender biddings. I am now moving on to the revenue and profitability for the rail division chart 14. In the second quarter of 2020, RBS recorded revenues of €849 million, which decreased by minus 10% year after year and only minus 9% on an organic basis. which was affected by the pandemic mainly in the past quarter, contributed about 70% of the year-on-year decline in the division segment. Both the OE and aftermarket business were affected by weeks of closures of customer plans and depots. In the OE segment, only the locomotives and passenger business were growing. In North America, we recorded an overall decline. Lower revenues, predominantly in freight, could not be mitigated by the almost stable development in the service business. APEC, including China, also declined overall. The lockdown had a negative impact on most countries outside China and revenue segments like high-speed locomotives and the aftermarket business. The very positive growth of the Chinese metro business which more than compensated for the development in other customer areas, led to an overall growth in China, but not in the entire A-package. On RBS2's level, noticeably, lockdowns of depots and a significantly lower number of trains on the tracks in the second quarter had a bigger impact than the full effect from the second half of 2020. Overall, this led to a decline in the after-market business in the past quarter, but this was significantly less than the decline in the OE business. The profitability of RBS in the past quarter was certainly the most remarkable KPI of all of KPIs. EBITDA of RBS came in at €204 million in the second quarter and was down only minus 6% compared to last year. The EBITDA margin increased from 20.5% to 24.0%. This margin improvement is based on the following topics. COVID-19 measures had the largest share in supporting profitability in Q2 2020. Please keep in mind that the measures are predominantly of a short-term nature. We have sold the lot-making power tech unit by the end of Q3 2019. A creative after-market share increased in Q2 2020 due to OE postponements and some pull-in effects. Past recovery in China supported operating leverage in the country. Many of these positive topics rose specifically in the second quarter of 2020 and will only have a limited impact in the second half of the year. Accordingly, we expect a positive overall development of RBS profitability until year-end, but at a more normalized level. Let me finish the rail path with an overview of current market announcements on slide 15. The rail market is currently still showing a certain degree of volatility. Accordingly, it is still too early to give a longer-term outlook. However, there are some indicators in the market that should support a general positive development longer term. In contrast to the financial crisis in 2009, the rail market is now benefiting from supportive programs around the world, which are being launched by many governments to contain the pandemic. Many of these measures pursue of reducing CO2 emissions, which can be summarized very well under the term green mobility. The rail industry in particular can make a valuable contribution in this respect, as it has by far the lowest CO2 emissions per week per passenger and kilometer driven compared to air and road traffic. On the right side of the chart 15, I have summarized some examples of this. RVS will clearly benefit from the implementation of these measures, but due to the long lead times between the definition of tender details and the delivery of our product, we do not expect a significant impact on sales in the next 18 months, but generally the program will be positive for our rail division. On slide 16, I'd like to continue with the development of our truck division. The order intake for CVS was €346 million in the second quarter, which is a decrease of minus 57% year over year, more or less in line with the organic developments. This development was expected and reflects most of all the strong negative effects of COVID-19 pandemic in Europe and North America. In addition, the underlying demand in both regions further normalized after a period of strong growth in the last two years. In May and June, we saw the first signs of stabilization in both markets, which has continued to stabilize since then. The increases are rather slow but steady. In APEC, the development of order intake was very well supported by record levels in China, driven not only by recovery demand. The order book of our truck division amounted to 880 million at the end of June 2020, which is a decrease of minus 32% year-over-year. Let's move to slide 17. Our CVS division posted $579 million in revenues for the second quarter 2020. Compared with last year's figure, this is a decrease by minus 34%. Driven by a lower truck production rate in the last quarter due to the pandemic, customer demand was predominantly weak in the European and North American truck markets. Both top lines more than 40% lower compared to the previous year's levels. The APEC region again recorded revenue growth in the second quarter of 2020 year over year, well supported by China. Our Truck Division recorded aftermarket sales of €168 million in the second quarter of 2020, a decrease of only 13%. At the same time, the share of sales improved from 22% in the previous year to 29%. In the second quarter of 2020, CVS achieved and operating EBITDA of €51,000,000, which is significantly lower compared to the same period of the previous year. The operating EBITDA margin amounted to 8.7% compared to 15.9% a year ago. Considering the 34% drop in sales, this is certainly a good indication of the resilience of the Truck Division. On Shard 18, I have summarized our expectations regarding further market developments in the most important truck market. These expectations are also the basis for our outlook up to the end of the year. The key message here is that the revenue development of CVS in every major region strongly outperforms the respective truck production rate year over year in the second quarter. A repeat of the outperformance as in the first quarter of 2020. This clearly shows our market strength as well as the support from growing content per vehicle and the solid development of the aftermarket business. In the coming quarters, we expect a positive trend in truck production rates in Europe and North America, compared with the low levels in the second quarter of the year. In China, which accounted for roughly one-fourth of CV sales in the past quarter, compared with around 10% in the previous year, we expect the truck production rate to continue at a good level. Let's move on to chart 19. Northampton closed the acquisition of RH Shepherd & Co. on June 3rd of 2020. The purchase price amounted to US$150 million. Shepard is one of the two leading manufacturers of steering systems for commercial vehicles in the North American market. With this acquisition, we took the step in becoming a global supplier of commercial vehicle steering systems by further strengthening our position as a global supplier of integrated steering and braking systems systems as a basis for driver assistance and highly automated driving systems, following the acquisition of Hitachi's steering business in early 2019. In 2020, we expect a revenue contribution of more than $50 million by Shepard and a target margin of EBITDA break-even. driven by the COVID-19 pandemic and the fact that the KB way of efficiency is not implemented yet. Dear analysts and investors, with all that being said, we are convinced that Nordremse has proven to be very resilient during this very extraordinary year so far. As market leader with presence in more than 30 countries and high market shares in both divisions, we feel well positioned to shape future trends and continue to set standards. We continuously focus on the extension of our product and service portfolio in order to drive the business. Based on our standards, we are always working on implementing innovative solutions that deliver clear customer benefits and meet industry-wide standards for safety, efficiency, and reliability at best quality. To continue these strengthen our position and to address the industry trends in our two main markets, we invest an above average percentage of our revenues, around 5-6% in innovation. In our rail division, we are developing solutions that follow the need for increasing the number of trains and existing rail infrastructure, especially against the background of sustainable mobility. We are clearly focusing on the mega-trends, urbanization, sustainability, digitalization, and green mobility. In the CVS division, we focus our R&D efforts on future trends such as traffic safety, emission reduction, and e-mobility, as well as automatic driving. Operationally and technology, both for RBS and CVS, we face the future with broad checks. For RVS, we believe that we can benefit from future stimulus programs, predominantly in Europe, which will drive green mobility and long-term or strong after-market business, too. For CVS, we see great potential in the area of driver assistance systems. We expect that content per vehicle will grow, will continuously grow globally. Our truck division with its innovative products is well positioned to support the truck OEM in meeting future regulatory requirements. As a result, since the IPO, Northland has clearly created value and it is our goal and duty to continue to do so. Let's move on to chart 21 by concluding slides and potentially the most interesting one for many listeners. Overall, small bremses performed strongly in the very turbulent first half of the year. Our rapidly implemented countermeasures were very well able to cushion the market downturn in both divisions. In the second half of 2020, we expect that the positive market trend will generally continue, albeit to a moderate extent. For the Chinese truck market, we expect a normalization in half year two after a very strong quarter two 2020. In Europe and in North American region, we see the market recovery ongoing, but still well below last year's level. The rail OE market is almost back at key 19 COVID levels, which should continue in the second half of 2020. Please keep in mind that there were some cooling effects in the rail aftermarket business in the first half of 2020 and therefore we could see slightly lower aftermarket sales in the second half of 2020. We also expect the positive OE aftermarket mix to change slightly with a corresponding impact on the development of revenues and profitability of the rail division in the second half of 2020. We published a new outlook for 2020 together with the preliminary figures as the half year 2020 in July. Bearing further lockdowns due to the COVID-19 pandemic and the resulting negative impact on the business up to the end of the year, we now expect revenues of €5.9 billion to €6.2 billion and an operating EBITDA margin of 16.5% to 17.5% in the full year of 2020. As you can see, we have slightly raised the lower bandwidth of both KPIs as the market environment and our expectations have continued to improve slightly since July. Last but not least, in these challenging times, we continue to focus, apart from cash flow and costs, on the people around us. The health, safety and well-being of our colleagues and our business partners remain our first priority. And I would like to acknowledge all of them for their dedicated efforts in this unprecedented quarter. With this, I would like to thank you very much for your attention. Now, Mr. Leier, Mr. Wilder and myself are looking forward to your questions.

Dear ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speaker, please dial 01 on the telephone secret now turned into the queue. Once the name has been announced, you can ask the question. If you find your questions unanswered before the turn to speak, you can dial 020 to cancel your question. If you are using speaker equipment today, please lift that before making your connection. One moment, please, for the first question. And the first question we received is from Philippe Lorrain of Barenburg. Your line is now open, sir. Please go ahead.

Yes, thank you very much, Philippe Lorrain from Barenburg here. I've got three different areas to cover. The first one on CVS, then that would be RDS, and then a bit more general. So I'm going to start with CVS. In the outlook section of the in-frame report, you mentioned trunk production forecast numbers. Are these trunk production forecast numbers that you mentioned the ones that you get from market forecasters, or are these your own estimates? And also, are these numbers then used already in your current outlook?

Hello, Philipp, this is Peter. I have a question. Just to answer that, as traditional in Knorr branches, we use inputs from the market together with own sites and create our own TPRs. So the TPRs which we have indicated here are based on official institute and additional information which we can see out of different sources including economists and we have reflected them in our article.

Okay, perfect. So the question that I have here is basically regarding this Trump business. How should we think about the content-related growth for this year as a whole because you've posted a very strong outperformance in revenue terms versus the specific production rates in the different regions in Q2. At the same time, you're just increasing the low end of your guidance range. But if I understand that correctly, the TTR outlook has significantly improved probably over the past couple of months.

Naja, at first we need to say if you look to our business in the related markets, we have the OEM business and the aftermarket business in those markets. So if we compare production rates with our business development, we have as a first part the resilience of aftermarket which is helping us in the respective markets. In addition, you are right, we gain market share, specifically in China. which is helping us. You see that very well with the TTR development on the one side and the related CVS revenue development. Besides this market share gain, festivity in non-European regions, content per week is helping us, and that is coming mainly from new regulations coming into play.

Okay, perfect. I want to come back to this question on the volumes. I mean, it seems like the volume trend has, since you published the preliminary numbers of Q2, that it has improved by quite a margin. However, you're not really turning extremely bullish, if I understand that, on the 3DS revenue outlook. Is that correct?

What you need to take in mind is, look, just to do a short recap of what happened. in the last few months. When COVID-19 crisis hit the different markets, what we have seen in our figures, which are orders from customers, you could not rely at all on that. So we had to adjust the figures from the beginning. And we are still in a period where the figures in the systems are volatile, not as volatile maybe as in Q2, But they are still volatile. And what you need to have in mind is you have in the moment the action figures which we are seeing, they have some bounce back effects due to the situation in April. In Europe and North America, none of the truck will be produced without some new exceptions. So it's very hard to predict the truck production rate for the remainder of the year, and we have taken some increased assumptions into account for Q3. For Q4, it's still a little bit volatile, and we reflect our own perspective in there by considering as well that we see overall GDP in relation to that as well as transportation volume. lower than pre-COVID prices.

So it's not like you are taking those numbers very strictly and you just like mathematically increase the whole forecast just because these volumes go up?

No, we adjust the TPR and accordingly the volumes according to our best guess based on the inputs I explained before.

Okay. Then the second question on the rate business. So on slide 15, it seems like you expect this stimulus program to only help the situation to go back to normal. And also you mentioned that you don't expect like a major boost within the next 18 months. I do appreciate that the long-term growth potential for the division perhaps is a little difficult to call, but... Do you expect still these stimulus programs to, let's say, bring the trend line of the RBS revenue up over time versus the base scenario that we had last year? Or is it more kind of a one-off effect?

Well, it is a little bit of both, so to say. I mean, first of all, you need to keep in mind that the tender cycles and the awards in the rail sector, they are all long-term. They go tend to take sometimes a year or something like that to be structured and to get into the market and to be awarded. So short-term reaction in the rate sector is always, at least on the OE market, very difficult. And we also have the time during the month in the second quarter, for example, in Europe, As you might have realized when you took a train or something like that, that those trains were still running, but, you know, they were mostly empty. There were times when you could choose which car you would like to take a seat because they were all empty. You can imagine that that led to major losses on the operator side. And those stimulus packages, to a certain extent, whether it's UK or whether it's Germany or other countries, they have to ease that situation because it was so important for also governments, let's say, in individual states to keep up that infrastructure running. That costs a lot of money. And therefore, there was a lot of stimulus money required. The good thing for us is that also, if you put it a little black and white, that also anti-trains need to break. and therefore there's continuous service business and also infrastructure planning, so basically the procurement of trains rather long term. whether there will be additional trains to be bought or not really depends on the ridership that we will see over the upcoming year, whether that is really going to improve dramatically or not. We have seen, as we pointed out before, also during those crisis months that we could benefit at some point or at some spot even from that because there was a sign on operators that said, you know, I'm afraid that I'm running out of spare parts. I don't know how the supply chain will develop. So let's basically buy additional parts, and that's also a reason why we benefited in the first half of the year. But mostly the question to your answer, whether it will, so to say, secure the numbers that we have mentioned before, that is more the case than, let's say, in the next 18 months additional potential or something like that. That would be my clear answer to that.

Okay, thank you very much. And the last question is for Mr. Vigan. it's about the free cash flow conversion target. If I remember correctly from the time of the IPO, the target range was more something like 80, 90%. And if I did understand you correctly, you mentioned something like 70 to 80% in this call today. So I was just wondering whether there's been like a change to any of the items that would be influencing the free cash flow conversion. And the second question here would be as well, whether your free cash flow definition will include the lease payments that were previously included in the KPI prior to the adoption of IFR 15, since it doesn't seem to be the case right now.

Thank you very much, Philippe, for your question. I do say, first of all, the range is 70 to 80 percent, 80 to 90 percent, somehow in the same, similar ballpark, of course, 10 digit points away from each other. In regards to the definition, I was not considering to, so to say, readjust the strategic targets going forward lower level just wanted to make sure that somehow and sometimes free cash flow and cash conversion rates are used in different definitions what my internal definition and focus area inside the company definitely is all about and I will of course ensure that there will not be a readjustment that is lowering the aspiration levels of cash flow generation going forward. I think that's a very important message, so to say. Second of all, in regards to the definition in the end, when it comes to free cash flow, it's basically somehow an all-in figure that you usually look at. And also, I'm not a fan of excluding and adjusting too many items going forward as it makes things too complicated once you want to really completely implement a certain philosophy of KPI steering in the company, with the management, with the colleagues, and with the employees all over the globe. So I'm rather looking for a figure that is rather simple, but fits to the point of having basically all aspects in. Okay, thank you, Philipp. Maybe moving to the next one in the line. It would be great if you could limit the number of questions to three.

And the next question we've used is from Sven Weyer of UBS. Your line is now open, sir. Please go ahead.

Yeah, thank you. And good afternoon, gentlemen. Thanks for taking my questions. So the first one would be on your order intake guidance. I saw in the quarterly report that you gave an order intake guidance for the year where you basically say you expect the backlog to be up somewhat year on year and that the order intake should fall less than revenues. So, of course, in the first part, we had the complete opposite, right? The order intake was more than $300 million lower than the revenue level. So my question would be, of course, this major turnaround in the second half, then, is that driven by both divisions? And should we see order intake exceeding revenues in Q3 already? That's the first question. Thank you.

Thank you very much for your question. May I answer from my point of view first? To my understanding, we have no guidance anymore out there for order intake for the year 2020. We have just had in since July the renewed guidance on the revenue side and the margin side. and we renewed that for the Knorr-Brenze AG or the group level just now. So we have no order intake guidance. I think the figure that you refer to from the annual report, which is already from the very beginning of the year 2020, nevertheless, so to say, let me answer your question content-wise. I think, yes, you're right. We have order books currently reaching a level of 4.3 billion. But to tell you order intakes looking at the months of July and August have risen compared to the levels of 2019. So our order book in total was positively impacted and we are now back by the end of August to a level that is very close to 4.5 billion again. So, other intake in July and August was overall some 20 or even slightly more than 20% higher than the other intake that we received in the year 2019, which I think is a very strong result and also very strongly driven by CVS. So it's a very good situation we think we are currently in looking at this summer month.

Yeah, I was referring to the quarterly report and the page 17 in the middle of it. So if I understand it correctly, there's a guidance on how to intake, but yeah, let's maybe leave it there. And then as far as your commentary on aftermarket was concerned, the pull-forward effect that you mentioned was a slight one. I mean, was that more in Q1? And would you expect your aftermarket revenues in Q3 to be lower than in Q2?

Maybe I want to answer that, Juergen, here. On the right side, at least I can say that, you know, the impact of the crisis on the operators. The first reaction, so to say, very practically speaking is, they are concerned at the beginning of how do I keep my teeth running? And that is what impacted them at the end of Q1 and also during Q2. And the second concern that they had was, I'm not really sure whether during those crisis how the supply chain will develop, whether I'll be able to get all the spare parts, for example, that I will need when I need them at the time. So there was a time that supported the aftermarket business where operators said, for example, you know, I'd better put some extra spare parts on the shelf, so to say, then facing the situation later on that I might run out of them and then I'm in trouble. And then there was another impact of it where in the overall business, so to say, there was less utilization of the trains and when you have, so to say, a bit of a backlog in terms of maintaining those trains. That was a great opportunity to do it at that point in time. That also happened during Q2 and partially Q1. And as a result, of course, since we took all kinds of measures in terms of being able to deliver when customers need anything, I think that was a very successful We were able to deliver and we happily delivered and that was a benefit for our aftermarket business and then the supply chain maybe did not, let's say, was not as difficult as one or the other expected it to be. And therefore, those spare parts are still partially on the shelf. And the regard in the next few months is a little bit that there might be fewer demands on the spare parts level for the second half year. So you have a little bit of counter-intuitive effect. that during the COVID month or the peak of the COVID month, you had a higher demand and later on you have a little bit of a lower demand. Now, I'm not saying that that is a dramatic effect, but it will be an effect that can be noted. Let's put it that way. That won't be my answer to it.

Is it an effect you still expect or is it something that you've seen now that we are almost at the end of September? Have you seen that in July and how that could be happening in reality, that the demand is lower?

No, we see that to a certain extent a little bit and we also expect that for the rest of the year to a certain extent. But that is essentially reflected also in our guidance. That's what's covered in there to the best of our knowledge what might happen there.

And in CVS, this was not really a major factor.

No, we have seen in regard of aftermarket a little bit similar behavior as Jürgen said in specifically the month of May partly. We see aftermarket being back on normal. Aftermarket business was, as I mentioned before, the stability factor in Q2. But for sure, you have a situation when transportation volume is going down and we have transportation volume reduction in Q2. You see that as well in aftermarket demand that by April was weak. Why is April not so good? a lot of garages were closed. So when the garages are closed due to the legislations in different countries, you cannot make so much revenue. And then there is a little bit But overall aftermarket we see stable as well for the remainder of the year. You know there is some seasonality in, so Q3 is usually a strong aftermarket or stronger aftermarket quarter because of the distributors are filling their pipeline for the winter season and winter season is usually higher aftermarket demand than in spring and summer.

Okay, thank you. You're welcome. Thank you.

And the next question we received is from Igor Schappel of Commerzbank AG. Elias, now open to questions. Go ahead.

Yeah, thanks for taking my question. I think the first one would be, despite the obviously very nice numbers on your CEO search and situation, whether you could give us a quick update on where the process stands, what your impression is, or understanding how the process works, whether it's primarily run by Mr. Mangold or other bot members like Weimar and others that are actively involved.

Yeah, thank you very much, Ingo. As we just also talked recently, there is a very professional process, search process, which is led by the chairman of the supervisory board, Mr. Professor Munboy. And there is, I think, already a long and promising list which will be now narrowed down over the next coming weeks towards a short list. And we are overall, I would say, very convinced that the supervisory board will find a good candidate and a proper CEO. And we will let you know as soon as the company has found one. Please accept that I cannot elaborate further on that process. of our Chairman of the Supervisory Board. Thank you Ingo.

Yeah, sure. And maybe just, and of course we will give you a bit more time, so you have to take strong strategic viewpoints on their specific matters, but I guess with the background in M&A and in the commercial vehicle sector, and of course steering systems being a very important area of M&A, for Knoll-Ramsay in the last year so we were just wondering whether you already have a view on whether the portfolio that Knoll-Ramsay put together is the right one to tackle the technology shift in the future or do you think you need to present in more geographies or with an even stronger market position or maybe even with a broader product offering or deeper product offering in this area?

Yeah, also I think a good question. What I have found coming to Knoll-Ramsay that there is a professional team in very close alignment with the divisions already focusing on not only the organic side of the business and searching and seeking for both options, but also on the inorganic side, so on the M&A side. We have, I think, a pipeline of more than 140 potential targets. screened, but I have to say that our current focus is more on the adjacent businesses' side, so there are currently no silver bullets in regards of the big growth additions to the company, but we are very professionally managing and discussing the, say, lower double-digit number of potential targets going forward. You also know that we have a very profound balance sheet liquidity situation in the company, so the company per se is held, needless to say, going forward, but there is nothing at this point in time that I would specifically highlight, neither on the technology side of things, nor on a specific region or a specific division. We are a team of three. very closely studying, discussing, and making our decisions going from that, taking it very serious, the growth aspects in both dimensions, organic and M&A-wise. Great, thanks very much. You're welcome.

And the next question we received is from Akash Gupta of J.P. Morgan. Please go ahead.

Yeah, hi, good afternoon, everybody. Thanks for your time. I have one question on rail and one question on track. So maybe if I start with rail first. So this is for Dr. Wilder. So maybe if you can talk about if you have seen any of your customers, and maybe customers, customer, or I mean by rail operators who are asking to, who are potentially asking to delay deliveries because they're running out of cash. I mean, you earlier said some of the customers have received bailout money, but I'm just wondering whether they have received enough money to also cover for their CapEx as well. So anything you'd like to add on that?

I mean, of course, we have gotten some customer reactions just because of the COVID crisis and the closure of their manufacturing sites temporarily. and the schedule of the delivery are adjusted, but we have not really seen customers approaching us and saying they are so short on cash that we need to majorly postpone projects or something like that. As we have said before, we haven't seen any cancellations on orders. That seems to all go rather stable. The disruptions that we might have had in terms of delivery, they are for other reasons. They were for very temporary reasons when the workshops and the plants were closed and just drinks were not finished for a certain period of time and it was very different from customer to customer. I would say some customers were almost not tracing any plants and others, depending also where the plants were, were tracing let's say extended times, extended meaning weeks of plant closure, but by now we are all up and running and we haven't heard of cancellations or anything like that because of cash problems.

Thank you. And my second question is for Dr. Lyle, and this is on hydrogen. I mean, since we last spoke at Cuban Reserves, there is a lot of high surrounding hydrogen on both sides of the Atlantic, and I'm wondering how this, excuse me, how this move to hydrogen in the medium to long term would impact your scope of truck size, particularly if you look at your portfolio outside of braking systems. Like, I mean, I think one of the things you've got is that this hydrogen truck is going to be quite expensive, so is there any opportunity for you to grow in that size to increase your truck or contain for vehicles substantially, like any thoughts on that front would be great.

Yeah, thanks, Akash. I would like to answer in that way. At first, very general, I think the next decade or one and a half decades in the truck industry is characterized by a mix of portions. You will see combustion engines, you will see battery electrics, and you will see hydrogen trucks. You have to distinguish between fuel cell, and hydrogen engines. I assume if you talk about hydrogen, you talk about fuel cells. If you look to battery electric vehicles or fuel cells, the only difference is where the energy is coming from. It's both electric driven and that's why for us and our technologies where we are in, there is no difference. If there is a fuel cell truck or a battery electric driven truck. We have an electric motor and based on that we have some changes in requirements of trucks and I think in our last capital market they already showed to you that we are preparing on the one side our product portfolio for that where we are I think very successful with example was I think last time our compressor strategy where we have now e-compressors which we are bringing into the market very successfully could give you more. And on the other side, as I mentioned, we are investigating growth opportunities in electric motor driven trucks and buses. And for that we have built up a special activity which we call the EQ beta. The EQ beta is an engineering team which is separated from their the standard approach and activities into separate building. We are building up the team right now to work besides this adaptation of product portfolio on growth opportunities in the e-mobility arena and we are working and very close with our customers right now and discussing with them where they maybe are seeing further interactions with Knorr besides the existing product portfolio.

Overall, do you see there is an opportunity for Knorr to increase its truck content per truck or do you think it could be, like how do we see content per week and opportunity when it comes to both hydrogen and electric trucks?

In principle, there are, that depends on the technology changes. To give you an example, if you look to steering, for example, steering is still hydraulic power steering, as you know, in trucks. So the question is just, is the truck industry moving similar like the pet car industry some 10, 12 years ago from hydraulic steering into electric, pure electric power steering? If so, does that mean that electric power steering is maybe more expensive per unit than hydraulic power steering? Then you would see an increase in content per truck. You see the ifs in there. Yes, there are opportunities to grow content per truck further, yes, but that depends very much on principal technology decisions, and those decisions will be taken by the truck manufacturers, maybe together with their system suppliers like us in the upcoming 18 to 24 months, and I just can tell you we are in extremely close discussions with all the customers about those technologies.

Thank you.

You're welcome.

And the next question received is from Alexander Hauenstein of Desert Bank. The line is now open, sir. Please go ahead.

Yes, hello, Alexander Hauenstein from Desert Bank.

I have also two questions, please. First of all, let's start with RBS. I would like to come back to the Q3 discussion here. I understand that the reversal of the positive mix and also the broad forward aftermarket from Q2 and Q1 is obviously an issue here. My question is, how should we think about the margin development part here for Q3 and Q4?

Are we probably looking for similar margin levels in both quarters at around 20th level or are we going to see, let's say, more of a margin

impact on the downside in Q3 versus Q4 or maybe even Y2Y. Is that possible to give a certain trailer here?

I mean first of all I would say the margin development from quarter to quarter is that we always won't be tired to emphasize that that really depends on the business mix we see in that quarter. So we see slightly different margins in the two quarters. Most likely because of the different mix we can see there. But I would bring caution to extrapolate from that a certain trend or something like that, because it has much more to do with mixes that we see. In Ray, we have very different portfolios. We have breaks, we have doors, we have HRECs, we have aftermarket, we have all of that. As you can imagine, they don't have all similar margins in there. They have different margins, and that is not because they are performing very differently, but it is because with those different portfolio elements, you can earn different kinds of money in the market, so to say. If I say it's very simple. And it really depends on what the mix will be in a certain order. So I would expect slightly differing margins in the two quarters to come, but I would really caution to derive from that strength or extrapolate it into the future or something like that. That would be very difficult.

Yes, I understand that and that's also where I'm coming from because it's difficult to see whether there will be a a relatively sharper drop in margins from almost 24% down to maybe 20% and then from there on maybe a slight recovery or the other way around, which is more of a smooth development going step by step a bit more to the downside without, let's say, deriving from that anything for 2021. But yeah, that's why I'm asking here. So that's where my question is coming from. Yeah, Alexander, if you allow, if I may add, Frank Babel speaking, I would not assume that we will have in the second half of the year such a steep decline on the margin, EBITDA margin side on the rail business based on the descriptions that Dr. Wilber has just given. As we can also calculate, there will be mixed effects in those two quarters coming up, but the reduction will not be that significant. Just to be a little bit there, guiding you throughout Q3 and Q4 will not be 20, but as he explained, we will have some effects that will occur going forward. Okay, thank you. That is helpful. Then I come to my second question, please. It's also for you, Mr. Weber.

I'm wondering, what do you personally see as your most pressing three tasks in your new role here? What is the focus on in order to bring Knau to the next level here?

Thank you. Very good question. I personally think, number one, very clear, which is the highest priority of us going forward, keeping the profitability level and improving that profitability level going forward of Knoll-Renze, of the AIS. improving the excellent standards of this company by improving the contribution margins and the cost positions going forward. You know that we have articulated that we want and will improve on our margin side going forward, so this is number one. Number two for me is clearly seek for any kind of growth option. that we could find jointly with my colleagues so grow the company and based on what I just said prior to that profitably grow the company into the future Third, I would say is improve the focus and also the groundwork in the company and throughout the company on cash flow. Put cash flow work into focus and I think there we got a lot of elements that we can trigger here. So I would ask you for three, this would be the three points.

Okay, thank you for that. You're welcome. Thank you.

The next question we received is from Iris Tang of Credit Twist. Your line is now open.

Please go ahead. Hi, good afternoon, everyone, and thank you for taking my question. My first question is to Mr. Weber, and many thanks for the run-through of your first impressions, and those are the key areas of focus. They're really useful. And if my chest is at the Q1 presentation, I remember there were some like 200 million meshes related to cost and cash mentioned. And is it possible for us to get an update on that? And if some of those meshes may have been reversed now, if the situation is turning better? And also on the 2020 guidance, it looks like it's based on the FX as of mid of July. And we've had some FX movements since then and wonder what you'll like to see on that. I mean, if it is not available, then if you can maybe let's do more on the transactional side of the business, i.e. if we see any further euro against dollar movements, then how that would have an impact on the margin.

So in regards to the first The question that you raised, we have, and the colleagues have, I have not done it as I was not part of the company, the colleagues have very early and very decisively started cost programs in both divisions. One roughly with a volume of 130 million and the other roughly of 60 million, which you cannot immediately calculate and draw the conclusion that one has only half of the aspiration levels than the other because it has a different base. But these are the 200 million that you talked about. Those tokens are on very good implementation levels so far. and we already saw a significant amount of positive effects implemented cost measures starting in the first quarter already, but specifically also in quarter two and quarter three and quarter four to come. So we'll bring us with those respective measures throughout the year 2020 and further things to come. Partially, of course, as you also know, some of the cost measures, where you would also get the support of the government, like the Kurzarbeit measures in Germany. would be measures that would not be sustainable for many borders or even years. I think that is pretty clear, but the vast majority of the cost initiatives driven by the colleagues and initiated by the colleagues are very good on its way. Could you please repeat the second question, Iris?

Oh, yeah, sure. Just on the guidance for 2020, because I see on the presentation slides, the assumptions are based on the FX rates at the end of July. So I'm just trying to get a view if we use the latest assumptions, then if it's going to have any implications on the margin side.

No, I think as we are pretty close to what is written there as the date of the assumptions, I think you know what we're having. Of course, we don't know the hedging situation that we are having. Of course, we have translationary issues going forward, but we, at this point in time, feel rather comfortable that we will not see significant deviations as of now compared to what we considered in end of July when we had the outlook where we based our forecast and guidance upon. So I think to answer your question, at this point in time I don't see a significant change based on that premises that we outlined.

Yeah, and if you see any further movement on euro against the US dollar, is it going to have any maybe impact on the margin just mechanically from your hedging and transactional base?

You know the business model of Knorr Bremse due to your experience, potentially even better than myself, just here for eight weeks, but you know that we have a very global and decentralized footprint of Knorr Bremse all over the globe and also in the United States we have a very high level of value-add in the country or in North America. So the level of natural hatching that we have all over the globe and North America is quite high. So I would, and based on also the hatching rate in regards to the US dollar for this year, close to 100% already at Knorr Center, I see a very limited impact out of that. And as I just mentioned, or actually for my forecast, currently we rather think towards the 115 direction.

Okay, that's very helpful. And my next question is on the truck side to Ms. Lyer, if I may. So I appreciate that you've mentioned your M&A aspirations, and currently there's no big maybe deals to be announced at this stage. But if you could maybe give us a longer term picture and what do you see as maybe the end game you see for Knorr as the world is transitioning towards autonomous? And do you think if steering plus braking would be a good enough offering or you think in order to maybe get a bigger share? then it will be logical to add some other assets or at the moment they're in plus rating as what you're looking for.

Yeah. That's a relatively difficult question to answer because that means that first you need to take in consideration how automated driving needs to be split up. Automated driving you have I'm always explaining that the three levels. You have the perception level, the level where the truck is looking around and getting to show what is going around the truck. Then you have the decision level, where based on your perception around the truck and the way you want to go forward and the target you want to go for, you decide where to move and how to move there. And then you have the actuation level where you realize what is coming from the decision level. We at Knaup-Range are coming on the actuation level and the both main actuators to have vehicle dynamics under control is braking and steering. Based on that, we always build our base on that and move that a little bit upwards to the decision level where we said we have a special layer of truck motion control where we have a combination of braking and steering to have the full vehicle dynamics under control. Based on that, we think we are here in a perfect position with our steering and braking position to participate on the most opportunities of automated driving. Besides that, you maybe remember that I talked several times about the related so-called redundancy requirements. So an automated driving mode needs to have the opportunity to move the truck further even if one of the safety relevant components is failing. You cannot just let them stay on the highway on a lane or something like that. You need to move them to the next carriage. This redundancy concept was something that we developed heavily on in the last few years and we have here now a concept with our braking and steering and clever combinations of that which is highly except we had the customers and we got first awards in that direction as well for redundancy concepts. Based on that, we see ourselves very well positioned for this endgame. In regard of system supply, I clearly want to say that similar like in PESCA business, the systems for automated driving will be realized in consortia with different partners in there. And we are getting invited by a lot of those discussions right now that shows our attractiveness. And so I'm quite convinced that the idea is running a good position.

Okay. Thank you, Iris.

This is very helpful. Thank you. Iris, may we come to the next line of speakers? Sorry to interrupt here.

The next question is from Felicitas Bismarck of Deutsche Bank. Your line is now open, madam. Please go ahead.

Yes, thank you very much. I hope you can hear me. One question, just could you give an outlook for your financial expectations for this year or give an indication of the key drivers that you are seeing in H2?

Thank you. If I got the name right, please let me know. Thank you so much. I think needless to say, the second half of the year 2020 will be dramatically better on the free cash flow side than the first half of the year. I think we will still, within the next month, work on the working capital side on the days of inventory outstanding, days of receivables outstanding, or days of sales outstanding. also on the DPO side significantly, but whether we can achieve the original target towards the year end, like in a clean year, where you would be able to implement certain consequences of the material management side and the supply chain side remains to be seen, so we're a little bit cautious on that. Also, we are potentially some inventories for Brexit, pre-courses measures. And so the answer is we will significantly improve on the working capital side compared to the status that we have as of 30th of June going forward. That should give us a significant uplift towards the second half of the year. And I think also on the CAPEX side we are still prioritizing the biggest capital expenditure projects throughout the company. So also this should give us some tailwind going forward. So having said this, I wouldn't, in addition to the losses that we might be facing on the AP star side, You might need to deduct some more on the working capital side in order to come to a cash flow delta for the full year. So we will lose on the free cash flow side maybe a little bit more than we lose on the profitability side. I don't want to say at this point in time, I don't want to mention a complete figure as you know. We are already, I think, pretty precise at an early stage of the year with July mentioning our EBITDA and revenue targets. So I don't want to be more precise or can't be potentially also more precise on those figures, but this would be my direction.

Thank you. Thank you very much. Another question is on governance. And I'm sorry, but I'm struggling a little bit with the understanding what a new CEO could bring to the table that would be considered a good fit for all parties involved. And I'm just wondering if you could give us any indication what he needs to bring, so to say, and Are you also considering an internal solution and might you also even consider a joint leadership solution in that sense?

Felicitas, if you allow, we ask our E&R head to answer that for you, Mr Spitzauer. Thank you. What we have shown already last year is that we are even only the three board members are very active, bring forward the company, bring down the costs and drive the company. And as you can see, we are doing so all already right now. As you know, the search has started for a fourth board member and this is I would like to move forward, and as Mr. Wieland mentioned before, there are short lists in the next couple of weeks. This will be narrowed down from a long list to a short list, and I think we're on a pretty good way, and yeah, we have enough things to do here, and I'm looking forward to this situation, and welcome a new CEO once in the future. Yes.

Maybe I can ask it a little bit differently, but do you think there's like a real room for a separate group CEO next to all of you, like the CFO and the strong division has?

I think we could be reaching too far right now. I think we have shown that we are working fine, that we have good results, and that's what we're working on. Exactly my point. Let's put it this way. We enjoy the question when we have the announcement and are happy to share with you our thoughts. In the room next to me, there's a free chair at least. Thank you so much. Thank you very much. Thank you.

The last question for today is from Alfred Glaser of AutoDHF. Your line is now open, sir.

Please go ahead. Thank you for taking my questions. I wanted to ask you again on the business outlook in the railway business. Currently, as you underlined too, there are fewer trains running, the occupancy rate is low too. Do you see a risk there that this is ultimately impacting your aftermarket and service business? I think just And my second question relates to hydrogen in the rail business. Do you see any kind of particular change to the way you do business or your product offering in that context? And conversely, will you see some new opportunities for either product development or acquisitions related to the emergence of hydrogen-powered trains?

Well, starting with your first question, do we really see any... This year, obviously, we already see an impact in terms of phase and also to a certain extent, of course, in order entry based on the COVID crisis, but As I said before, you could think of the model where the biggest impact, first of all, of that is with the operator, because they feel lack of ridership right away in their revenues that they have. But we are pretty much, in most of the countries of the region, back to a certain schedule, maybe a little bit of a stint of schedule in rail operation. And that helps, of course, the development of our business. If you apply a model where you see when we'll be back where we were pre-COVID times in terms of ridership, that might take a little while. And it might take even another one and a half, two years, two and a half years. It's really hard to predict. But that does not mean really that we see on that same timeline the impact, because the trains are still running, tenders are issued, further trains are ordered. So we see this short-term impact right now, but we expect that the long-term outlook in the rail business As we pointed out before also, it's very, very positive. You know, a CO2 discussion won't go away just because we had a COVID virus. That will all come back. And that are very, very good outlook, mid-term and long-term outlooks for the rail business and also for our development. I would say, whenever that would be, but I would say there will be a point in time in the future when we will look back and say, okay, there was a COVID, I mean, from the point of view of our business, I'm joking only, there was a COVID-19 crisis, but we have pretty much overcome it, and now we are going back onto the growth track. That's what I really see long term. The second question, hydrogen, if I remember correctly, hydrogen technology, well, you know, Obviously, there's a discussion that still, let's say, in some parts of the world, also Germany, there's, for example, a non-electrified line, 40% or something like that, of the overall rail network. And there's still a lot of diesel locomotives or even some diesel, multiple units that are running around those tracks. And, of course, with the sensitivity towards CO2 emissions, There is also opportunity for us to, for example, our people business to put in more modern hybrid traction systems in those locomotives or trains. That's also a business that we pursue. Hydrogen, of course, is another trend where the radio industry is experimenting right now with. We need to see where that goes. But, you know, the components that we offer towards trains, they are mostly not that dependent on that, so we also serve that market, of course.

So thank you for everybody taking part of the call. It was a great afternoon. Unfortunately, we have to conclude because we have to continue with other things to do. It was a great afternoon. I'm looking forward to staying in touch with you. Thank you very much.

Dear ladies and gentlemen, thank you for participation. call has been concluded, you may disconnect.