Knorr-Bremse AG

Dear ladies and gentlemen, welcome to the Knorr Brunswick Q3 2023 earnings call. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Andreas Spitzhauer.

Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. I hope all of you are very fine. My name is Andreas Spitzhauer, Head of Investor Relations, and I want to welcome you to Knorr-Bremse's conference call for the third quarter results of 2023. Today, Marcus Desea, our CEO, Frank Weber, our CFO, and Nicole Lange, our new head of RVS, will present the results of Knorr-Bremse, followed by a Q&A session. The conference call will be recorded and is available on our homepage, www.knorr-bremse.com, in the Investor Relations section. Here you can find today's presentation and later a transcript of the call. It is now my pleasure to hand over to Marquis de Fer. Please go ahead.

Thank you, Andreas, and welcome everybody to our conference call. Today's call is made up of four parts. First, we will present and present the key takeaways of today, followed by an introduction by our new colleague in the executive board, Nikolaus Lange. Thereafter, Frank will discuss the quarterly figures in detail, and at the end, we are looking forward to your questions and comments. Let's go to the charts. Chart number two, key takeaways. Let's kick it off on chart number two with our key takeaways for today. We continue to see strong customer demand across all regions, especially in the rail division. As a result, all the book reached record level, which provides a very solid foundation for future utilizations. A boost program, 2026, which I presented at this strategy update in July, is gathering momentum. Cash flow has improved and moved in the right direction. TBS was able to successfully complete the second wave of price increases within 12 months. The first successes have already been seen in Q3. We have identified a revenue basket of 1.4 billion euros, which we are not really satisfied with. We are now systematically working to increase profitability in this part of our business. And at the end of September, we started the process of selling two more businesses that together generate around 200 million euros in annual revenue. We are confident to sell both units within the next 9 to 12 months. We are now very pleased to introduce to you today the new RVS board member, Nicolaus Lange. In addition, the Supervisory Board extended the contract of Claudia Meisler, responsible for integrity, legal IP at Art & HR. Personally, I'm very glad that we now have a strong executive board team with a great spirit of team. Last but not least, we confirm our guidance for 2023, and now it's time I would like to hand over to Nikola, so he can introduce himself to you.

Thank you, Marc, and welcome everybody from my side as well.

My name is Nikolaus Lange, I'm 55 years old, and I'm now head of RBS and a member of the Executive Board of Knorr Bremse since October the 1st.

As some of you probably noticed during the IPO process, I'm not new in this company.

I've been with Knobrenze for more than 20 years. In fact, it's almost 24 years now. I've been part of the European Management Board of Rail for the last six years, where I'm four as the chairman. During this time, I was responsible for the rail division's global brakes business, roughly two-thirds of RVS total revenues.

as well as its European business, which generates around half of the division's turnover. Therefore, I have a very broad and deep understanding of the rail market, the rail OEMs, and other business partners in this industry.

I am absolutely convinced that the successes in brakes businesses that my team and I have achieved in recent years are also possible in other units of RVS.

We generally have everything in RBS that helps us return to our old strength. We have excellent engineers, we have long-standing customer relationships, we have strong products and systems, plus the record order book mentioned already by Mark. At the beginning, I am now deeper analyzing the areas in which our profitability is not satisfying. It is clear to me that all possible cost viewers together with the portfolio rebalancing must be addressed at first. I will also start a review of our long-term product strategy, including cooperation with CVS wherever possible. I'm very happy to be part of the executive board of Knobrand now, and I'm looking forward to working closely with my colleagues. Together we will successfully realize Boost 2026, and thus, bring Knoebremse back to its old strength.

With this, back to you, Mark. Thank you, Niklas. It's really great to have you now on board.

I would like to proceed with chart number four. We put together our view of the rail and truck market. And I will not go through all the details because I think there will be a lot of time where we can discuss the specific items by your questions. Overall, demand in rail and truck is more or less unchanged for Knoll-Bremse and remains quite good. Of course, we also see shifts and follow macroeconomic KPIs very closely, but demand and therefore capacity utilization level plants is not a problem we're facing at the moment. In China, the economy is recovering more slowly than many expected, but we see that the truck market is benefiting from strong catch-up effects and that aftermarket business in the rail sector is picking up again well. In rail, Europe remains the strongest growth market for us and we do not stand a break in this trend. Furthermore, we see that next year will be more rail-ish than truck-ish. This year was more truck-ish than rail-ish. This does not mean that every quarter will now deliver a new record, but the goods Our high level, which we have achieved, should continue. All page chart number five. Let's move to that. Overall, we are very satisfied with the development of the past quarter. We have achieved what we had planned and delivered what we promised. This is the heart I would like to express special thanks to all KB employees who achieved this result through their great efforts, talent, innovation and work. Order intake was again up 5% year-over-year, reaching €2 billion, and especially the rail division overcompensated the expected slowdown in trucks. The positive order situation is also reflected in a 5% increase in the order backlog, resulting in a new record level of €7.2 billion in our order book. This will ensure solid capacity utilization in the quarters ahead. Revenues for the third quarter of 2023 also increased by 8% to more than 1.9 trillion euros. In addition to this operating leverage, the consistent implementation of cost measures as well as successful price negotiations and improved working capital management also contributed to the improvement in operating EBIT margins year over year and sequentially and the cash flow. The operating EBIT margin came in at 11.5 and a free cash flow improved to 230 million euros. As a consequence, our cash conversion rate reached a level of 168% in the quarter. I would now hand over to Frank for more details which is then coming up with chart number 6. Thanks Mark and welcome from my side as well. Let's dig into some more details of our financials and move to chart six, as mentioned by Mark. CapEx in the past quarter amounted to 83 million euros, representing 4.3% of our revenues. It was stable in absolute terms year over year, but lower in relation to revenues and well below our target range of 5% to 6%. Nevertheless, I do expect some higher payments towards the end of 2023 as kind of future. Net working capital was almost stable in absolute terms, but we improved our capital efficiency significantly by nearly 10% to 73 days in this year's third quarter. This was driven by improvements in all relevant elements of working capital, especially in accounts receivables and inventories. On the AR side, we have seen a good development of overviews in Asia. This all is the first result of our increased initiatives of the Network and Capital Optimization Project, COLLECT. As a result of improved EBIT and these Network and Capital measures, our ROSI increased to 17.5%. On chart 7, I would like to provide you more details regarding our free cash flow. The cash flow trend in the second quarter of 2023 with positive 34 million euros continued in the third quarter as expected. we now reached 230 million euros in quarter three. For me personally, the development of the cash conversion rate was the highlight in the third quarter. It increased strongly to 168%. In this quarter, we also benefited by the settlement we found with Indian Rail. They released the withheld payments which supported our free cash flow in the quarter. We expect that we will return to normalised levels with our customer again. But even without this payment effect in India, our cash conversion rate would have been a superb 120%. On the other side, we still maintain a certain high level of inventories in order to be flexible in response to customer requests and to ensure a high degree of supply security. As already mentioned, we have launched Project Collect, which is made up of cross-divisional teams such as direct indirect purchasing, logistics, supply chain, as well as sales and aftermarket in order to systematically improve our network and capital efficiency in scope of days. The performance in the third quarter is a clear proof that we have taken the right measures. As a result, I am very confident that Knorr Prensy will reach its free cash flow guidance of €250 to €550 million in 2023. Nevertheless, we have always to consider that when it comes to the payment behavior of our customers, this is not completely in our hands. Let's take a closer look at the divisional performance in quarter three, starting with RBS on chart A. In terms of order intake, RBS recently reported growth in all markets, realizing an increase of 16.1% to 1.02 billion euros. The lion's share of this absolute performance was in Europe and Asia, followed by North America. The book-to-bill ratio is still above one for nine quarters in a row now. All the backlog with record level of 5.2 billion euros as of September 30th. We are now witnessing a slowdown in demand in general. We are not witnessing a slowdown in demand in general, even if there are always postponements for one or the other project ongoing ever since COVID occurred. Let's move to top nine. Revenues of RVS in four to three months, 932 million euros, an increase by 9% year-over-year, despite FX headwinds of 5% to 6%. Both OE and aftermarket business increased year-over-year. Despite the increase in revenues, especially in the accretive aftermarket business, our operating EBIT of 134 million euros was only stable compared with prior year's levels. The main reasons for this development were, as we informed already previously, first of all, price increases in new businesses and cost measures only partially offset higher inflation costs and lower pricing in legacy contracts we won before the inflation started to increase. Secondly, additionally increased R&D in Europe, particularly for innovation projects in the brakes business, take its toll. And last but not least, negative effects and weaker product mix burden the profitability as well. As already mentioned several times, in case of longer-term OE legacy contracts that we won before the sharp rise in inflation, it is not possible to fully pass on the increased cost to our customers. But it is important to note that the new OE contracts we have won already since the end of last year have the same good profitability as contracts we realized before the sharp increase in inflation. Let's continue with our truck division on slide 10. Order intake in the CVS division amounted to 962 million in the third quarter of 2023, showing more or less a normalization at a high level after the records in previous quarters. In the past quarter, demand was quite good in Europe and North America. At the same time, the strong recovery in the China market continued. With 2 billion euros, our order book as of September 30th was stable compared to the same period last year. Currently, we are fully booked through quarter 1.24. However, we need to observe the demand fluctuations closely. At the same time, we share the opinion of some market participants that Europe and North America should see a lower truck production rate next year, and China could still see an increasing one. But comps are getting tougher in China as 23 demand was dramatically increasing over the months. Let's move to slide 11. The positive revenue trend was influenced in particular by the stable truck production rates in Europe and North America and the significant increase in China. In addition, further successes in new price agreements fueled this trend, which were part of the successfully implemented Wave 2 program. CVS posted a 7% increase year-over-year in revenues to more than a billion euros in the third quarter of 23. Also here, despite negative FX effects of around 6%. In the commercial vehicle sector, both OE and aftermarket business increased, leading to a stable aftermarket share. Operating EBIT of our CVS division improved in quarter 3 to 107 million euros, up 23% year-over-year. Consequently, the operating EBIT margin improved from 9.2% to 10.6% due to the successful implementation of our cost measures and higher customer prices. These increases will also have a positive impact on the upcoming quarter. Towards end of the year, we continuously forecast to have our cost-price gap closed. With that, I hand over to Mark for the guidance for the full year and some final remarks. Thank you, Frank. Let's continue with Charge 12, which mostly is known to you. We all will confirm the guidance for 2023. We expect revenues in the range of 7.5 to 7.8 billion euros. an operating EBIT margin between 10.5 and 12, and a clean cash flow between 350 and 550 million euros. Now, on chart 13, let's move on this to the last chart of ours, and getting away a little bit from just quarterly development. In July, we launched our 50 update, which is 2026. Now, we're driving forward our portfolio optimization program by reviewing very closely its performance. At the same time, we are reducing our costs through targeted measures and started the sales process for further businesses. Progress is clear. Our top priority are the margin development and the cash flow. From our point of view, we have all what is necessary to achieve the goals of FOOS 2026. Now we are one strong executive team. We have one common clear goal. Financial power to improve soberism and over 30,000 employees who are hungry for change. With all of that, I would like to thank you for your attention. Looking forward to your questions and hear from you.

Ladies and gentlemen, if you would like to ask a question, please press 9 followed by the star key on your telephone keypad. If you wish to cancel your question, please press 9 followed by the star key again. So now, please press 9 star to state your question.

The first question comes from Sven Weyer from UBS.

Yeah, good afternoon and thanks for taking my questions. The first one would be regarding next year. I think in the previous years you have always provided certain indications for the following year. You haven't done that this time. Should I take it that you're actually quite happy with the current market expectations and you didn't see any reason to to correct that or how should I look at the absence of 2024 indications? That's the first one. Thank you.

Thanks, Ben. I take that one, at least the start of it. As you know, we usually give our guidance for the year 2024 when we talk about the annual results, which we will do at the end of February next year. Unfortunately, we're not so happy with the market developments out there looking especially at the truck markets potentially for next year. You know for me that since quite some time I'm giving the indication that we should see rather a decline in Europe and North America for next year, but that's not the major reason. I would say generally you should expect from us that Our revenues for next year should be growing and we are also striving for an increased profitability of the company for next year. To go into much more details, I would say it's not the right time currently. I can add a little bit of more flavor to that. Maybe that is much more clear, that picture that I just described for maybe the rail division. for the truck division as we just talked about the market situation going into next year. We are clear also striving for an increase of the profitability, but that's getting much tougher according to the most recent developments that we foresee for 2024 in the market of trucks. With that, I think I stick with that level of details for the time being.

Okay, thank you for that. Second question is just on rail and you've been mentioning the nine quarters of a positive book to bill. Now you had originally guided for Q3 or the second half to slow down in terms of the order intake and it didn't happen in Q3. So should Q4 now be the first quarter with a negative book to bill?

Look, the rail business is, of course, a project-related business. It's not a product business like we have on the CVS divisional side. Therefore, it always highly depends on, first of all, with what timing the order intakes on the OAM side did came in with a certain delay, then with a design phase would then in the end end up with all the intakes for us as the tier one supplier, first of all. And secondly, it's in very general project business. So it depends on which tenders would be then really closed in the quarter. So rail business is not the business that you could linearly extrapolate throughout quarters, so it's always kind of ups and downs. But it's fair to assume that we will not in each and every quarter achieve a one billion order intake rate. We are pretty confident that we will keep our market shares at least. And given the timing of the tenders that the OEMs have won with the time lag, then will the order intakes occur on our side. But it's not a given that in each and every quarter we should see the 1 billion. So it might be a bit lower in the fourth quarter of 2023. So the pipeline is there except for the timing issue, no? Our pipeline is fully intact. The market is running well. basically in all segments around the globe. Maybe with one exception is the freight business in North America. But we talked about that already in the second half of this year beginning. So that's the only maybe a bit yellowish that we see in the market currently. Thank you, Frank.

You're welcome, Sven.

Thank you very much. The next question comes from Guillaume Desprez, Deutsche Bank.

Well, thanks very much. Good afternoon, everyone. I have two questions, please. Firstly, given the change in leadership at LVS, can we now envisage an acceleration in portfolio optimization and cost-fitting actions? I mean, that's perhaps a question directly for Dr. Lange. There is obvious actually need to implement a manufacturing footprint optimization program.

Yes, it's Nicolas.

As I mentioned in my short introduction, my full site at the beginning goes into that direction. It goes into our portfolio, of course, into the weaker parts of our portfolio. So this topic will speed up, be it with regards of fixing or improving a weaker part of the portfolio, or be it coming to a decision to sell even further parts than those two already mentioned generally by Marcus Bissell before.

And the other part is, Looking at the cost situation in general, we all know that we have to work on the side of prices versus costs continuously.

We will see an improvement of this relationship in the next year. We already said that this year would be the worst in that regard. and we will work also on things like STNA and other parts of our cost driving factors. We will start with that in those months and we will see first results probably already next year, but definitely for the BOOST 2026 program.

Today's nothing is big that's actually needed, right?

Sorry, today's nothing?

No. Okay, thank you. And the second question is on the margin guidance for this year. At the midpoint, it's around 11.3%, I guess. And it seems not to imply any further improvement in margins for RBS and Q4. And I think that's rather surprising because there is usually some positive seasonality and your comments around aftermarket in China sound also rather positive. Could you provide a bit more color on the mix dynamics that should be at play here in Q4 specifically?

Look, as I already mentioned, Gail, it's a project business and it's highly depending on what kind of projects we are intending to close in a certain month and then, of course, in a certain quarter as an end result. And the fluctuations in margins, even though they are not huge, but you have regional differences and of course also project related differences in the contribution margin of the individual projects. So it's always a bit of uncertain when it comes to the closure of projects in a certain quarter. And I would therefore say it's fair to assume that we should be, and I don't doubt that there is a certain seasonality that we usually see. We see usually a good aftermarket business in North America in rain in the fourth quarter. We usually see a good aftermarket business in China in the fourth quarter. But you also have, as I said, these kinds of product mix effects. That's why I would say to work on the hypothesis with the midpoint of the guidance and the rather stable development in terms of the profitability of RVS moving from quarter three into quarter four. That's the best assumption we could have at this point in time.

Okay, thanks very much.

You're welcome, Gail.

Thank you. The next question comes from Akash Gupta, JP Morgan.

Yes, hi, good afternoon, everybody, and thanks for your time. I have two as well. First one is on RBS. The question I have is that have you seen any impact or disruption, or do you see any foreseeing potential disruption from cash flow hydrants highlighted by one of your largest customers in Europe? Do you see this could be a bigger issue, and maybe if you can talk about how do you see the situation in Europe? That's the question number one on RBS.

Yes, Akash, nice to hear you again. It is this number one customer, our biggest customer in fact in Europe, is a customer with which we are having a very good relationship and I think we are the largest sub-supplier for them, for their trains.

We are having a continuously good relation. talking about, of course, about their projects, even if there are also some project delays, like a famous one in UK, not only since weeks or months, but continuously with them. So we are always aware about the situation they are in, and everything we are planning right now is reflecting already what is happening on their side. We don't see any negative impact compared to our actual banning. We know what they are doing.

They need us in order to complete their trains, which is in the end the kind of win-win partnership. We are supplying our goods. punctually into their trains. We do not provide them any more issues than they have already, maybe with some other sub-suppliers or with their customers. So we are helping them with our subsystems and vice versa. They are taking our goods and by the way, also paying for our goods, of course. And if I look into the overview situation we are having with them, We are not talking about individual figures of our customers, but they are in a comparable range like we see it at that time of the year.

Thank you. And my second follow-up question is on your CVS margin commentary on 2024. Frank, you mentioned that in the current backdrop, it may be difficult to grow profitability in CVS. And maybe if you can elaborate because serious margin this year has been quite different in first half versus Q3. So when you talk about margin growth, are you referring to Q3 level of 10.6% or is it more the full year level which may be below what you have achieved in Q3 in margins? Thank you.

Thanks. Fair question, Akash. I would rather see that talking about current levels, not the ones we have ahead in the first and in the second quarter, but more or less the current levels that I'm talking about. You know, we clearly see that cost operating leverage would be potent if a market or these two elements of the market would substantially go down. China has still a growth plan ahead. If I look at the Class 6 and Class 6 to 8 figures, including the buses, where we're also in. So that, so to say, is helping definitely China, but Europe and North Africa are difficult. And also, of course, if you would need to go for further price increases with customers for whatever reason, you would also see a different environment that you potentially or we potentially had in the last 16 months where the market was positive for our customers as well. So price negotiations were potentially more fruitful in those days. But nevertheless, you should always count on our content per vehicle growth in the end and so once we finally see how the market demand is and how this spreads across the customers and then adding our content per vehicle then we should see clearer and we will provide you then with the full guidance around February. Thank you.

You're welcome, Akash.

Thank you. The next question comes from Daphne Broad from ODDOBHF.

Yes, good afternoon and thanks for taking my questions. I have two questions, if I may. First, can you say how much of your RDS cells are made with contracts signed before the inflationary period and how much it should be in 2024. And second, still on RDS, can you qualify a little bit your pipeline? You say that the pipeline is full, but what this pipeline is made of?

Thank you. Yeah, thanks, Delphine. Maybe I'll take the first part. of it and the second Nico will take over. Look, the figures have basically not changed since we last talked, Elfin. We have had roughly in our order book of the end of 2022, 1.9 billion roughly around that order intake that did stem from the period of time before the Russian war with Ukraine. And out of that 1.9 billion euro, roughly 1.1 billion euro would be invoiced throughout the year 2023. So as we speak, they are occurring and burdening our contribution margins. So that represents roughly a third, in a nutshell, a third of our revenues in 2023. And this is the big pain point, of course, that we are having in this year. Next year, this should round happen. Let me put it this way, round happen. That negative impact, so that's a bit of a tailwind moving into a year-over-year comparison into 24. And then the year after, it should basically be on a very, very low level. So that's wiping out over time that effect. But those are the numbers adhering to that effect that you mentioned. Perfect. With that, I hand over to Nico.

Can you please repeat the second part?

Yes. I just wanted to know if you can qualify your pipeline on RVS.

Provide a bit color.

Yes.

Let me start with regain effect. So the pipeline is highly dominated by the life growth we see in Europe. We see another good part coming out of India. India is our second large growth region.

And in the Americas, we have two effects. The one is already mentioned by Frank. I'm afraid we have some counter winds. But on the passenger side, America is also very growing. China is almost stable in that.

And then what is also necessary to know is, of course, always the mixed effect between our portfolio products. And there we have, as you all know, on the break side, we are growing with the market slightly above the market being the dominant player in this break market.

The market share gains are of course smaller than in the non-brakes business. In the non-brakes business we have a pipeline which is in that way that we see clearly wins in our market share, which is underlining again also the fact that these are the portfolio elements we need to care about now with regard to profitability. in order that we bring them, if it's not at exactly the same level of the brakes, then at least strongly into the direction of this profitability level.

Thank you. Thank you. The next question comes from Viat Estola from Barclays.

Hello there, it's Vlad here. Thanks very much for taking my questions. Can I please start with the pricing on the rail side, if possible? Is it possible to try and quantify what will be the realized price increase on the braking systems, let's say, on average next year compared to this year? Are we talking low single-digit increase? Are we talking double-digit increase? If that's possible at all, I'll start here.

It's difficult to say that, and it's hard to break that up. We have to look on the one hand side into rail services, on the other into the OE side. And, of course, we are seeing also an effect which comes up over years. So the effect described by friends before, that we have always these legacy contracts and a growing portion of new contracts

leads to a fact that we don't see jumping price increases from year to year.

We see a fact which is accumulating over, let me say, three years at least, probably in the range of three years, because this is also the running time of a lot of those projects. And therefore, I'm sorry, but I cannot break that down into detailed price increases of next year.

But of course, we continue on that, and as we said, we will come back to the old margins, not this year, but probably by the end of next year. I would like to add one, because we, and Nico mentioned this, in the past we were fixated on growth. This is over. we are now very focusing on margins. So every new order which comes in or any form of demand which comes in which is not fulfilling the minimum requirements in returns of sales will be rejected, will not be preceded. So that means we will see also by this measure a significant improvement of the margins in the next two years because growth is there also by doing good business. We are not interested in non-making-sense growing business.

Understood. Thanks very much for the call. And if I can ask Frank a working capital question, please. Obviously, you mentioned that India contributed to a significant improvement, but there was improvement outside of India as well. Can I ask what was the main driver behind this outside of India improvement? Is it receivables, inventories, payables, all of those?

Thanks, yes. The mentioned effect from India, you can calculate back, it was net around 60 million euro that we're talking about. All the other improvements that led us to the 73 days in terms of scope of days were by accounts receivables and inventories achieved. I think payables only slightly improved as we are not, of course, seeking our fortunes on the back of our suppliers here. So it was accounts receivable to a third, and it was to two-thirds, it was optimizations on the inventory side that made these numbers in quarter three possible. And of course, we have over the last, I would say, 24 months, quite significantly, improved also our increased our inventory levels in order to be the reliable partner for our customers especially in times where we were also asking for price increases it would have been counterproductive if we would have not ensure our delivery quality and at the same time ask for price increases. So these levels of inventory we reduced to a certain extent, not completely. We still have positive effects that should come throughout the next year out of that. But that was a major effect and also some good developments on the OPPO2 side outside of India only. So accounts receivables, one-third and two-thirds on the inventory side.

That's very helpful. Thank you very much. And maybe the final more strategic question, if I may. If I look at the past year, you are gradually allocating increasing proportion of CapEx and R&D to truck rather than rail business. Will this trend continue? Will it be kind of more balanced going forward?

You are absolutely right. This holds true for R&D as well as for CapEx. What you just mentioned where the intensity is of investments in regards to the underlying revenue was higher. I see it a bit in terms of the percentage points coming down on the CDS side. and getting more closer in the divisional view, a bit closer towards each other. Why? Because some of the big chunk of those projects where we have invested into on the CVS side should come into revenues. We see quite some start of production for some of our products rather sooner than later. Therefore, the percentage rate should come down a bit going into the future and should bring both divisions closer together in that range. Ultimately, for the group, both percentage ranges should rather come to the lower point of the range. when we talk strategically into the future. So the 6 to 7 should more or less over the years come closer to the 6, and the 5 to 6 for CapEx should more or less come closer to the 5 percentage point.

That's excellent, Carlo.

Thank you very much, Antoine. You're welcome.

Thanks a lot. The next session comes from Luca Ferroni from Jefferies.

Good morning. I also have two questions. And the first one just on CDS, the outlook for trucks. Just wanted to comment on kind of the slowing market you're talking about. Is it something where you're just referring to essentially what some of the truck owners have said already? Or is it something you're already seeing when you look kind of at the run rate of orders in CDS already kind of in the start of Q4 as the first one?

Yeah, thanks, Lukas.

I think we are always taking several dimensions into consideration when we talk about expected market development. On the one hand side, of course, we talk to the OEMs, which are our customers directly. At the same time, of course, we also talk to their customers, at least a big portion of their customers, the fleets. to stay in close contact to us and thirdly we also have our certain market expertise in very general out of these three dimensions basically we draw our conclusions and make our assumptions going into the future looking at our EDI systems which is the electronic data system that connects the OEM with the tier one supplier. We don't see cancellations of orders in the system as we speak. So there is no, nothing extraordinary that we at this point in time see. If we look at our current order intake in the quarter, we see a bit of softer order intakes in North America already. That's the only region where we see something in terms of, if you compare that to where we have been at the same time around last year. but we don't see any cancellation of orders in a dimension that would indicate that already. So it's basically driven by what we see in the fleet environment and what we see in the OAM expectations that we recalculate, so to say, what it means for us. So that's how I judge the situation currently.

Perfect, and just on the softness, you're from North America, is it sequentially or year-on-year levels?

Year-on-year levels.

Okay, thank you. And the second one is just on RDS, when you talk about the new contracts back to the old margins, can you comment roughly on what levels you have in mind, obviously, with the changes in China and Russia? Is it kind of in line with the mid-term targets where you see kind of the new backlog coming in or is it something still below the mid-term targets for RBS?

No, no, it's of course fully in line with what we have guided you towards within our strategy day in July, so that perfectly fits together. Needless to say as well, it it doesn't take into account anymore, so to say, the China reductions we have seen in the past and adjusted already in the forecast, and it also is without Russia, needless to say. So if you take those two things out, it's demonstrating or, let's say, proving our path that we outlined in July for RBS to go into the future.

Perfect. Thank you.

You're welcome.

Thank you. The next question comes from Holger Schmidt from DZ Bank. Mr. Schmidt, your connection is now full. You can speak now.

Can you hear me now? Good afternoon everyone. I have two questions and the first one is also on the truck side. How should we think about the pricing? As you mentioned, declining demand both in Europe and in North America in 2024. Do you think you have to reduce your prices in order to adapt to the declining demand? That's the first question. And then the second one is how should we think about content per vehicle in your presentation? You mentioned that it is in line or growth of content per vehicle is in line with the expectations. What kind of growth rate do you expect in the next two years?

Thanks, Holger. First of all, I mean, you know that we have been having two rather holistic ways of price negotiations with our customers in the CVS division. One was concluded already in 2022. The second was concluded in 2023. So as I said, rather holistic. Basically, we negotiate with each and every customer and that took quite some significant price increases. We haven't planned yet anything as a kind of third wave going into the new year that would be at risk then out of such a market development. One thing, the second thing is, of course, we have also, starting from 2022, reviewed and revised basically all contracts in order to give us clearer, systematically clearer levels for further price increases on the input cost side. And these enhanced price sliding clauses that I'm talking about would potentially also kick in in future, so that's the only major point that I would see where we would need to adapt prices. Systematically, for other reasons, I don't see any reason why we should adapt pricing levels going into the future. Downwards, I don't see that. But, of course, the price-riding clauses, like in a marriage, in good times as in bad times, would kick in then once a certain development of an indice would occur. In regard to content per vehicle, we still hold upwards our target of roughly 4% across all regions close in content per vehicle. Might be depending on the customer structure that you would have in a given market, maybe a year 3.5, the next year 4.5% or what have you, it would be oscillating around that 4% line and that is something that we should always see on top to the market development of the underlying market for us. So we still think that this is a valid figure going into the future. As you also know, Holger, the 4% is a global average figure. the improvement rates that we could see in terms of content per vehicle are past the 4%. If we talk about Asia, Asia Pacific region, it would be below that level if we talk about Europe. And if we talk about North America, we would be somehow on the average kind of level. So that's the overall view of myself on pricing going into the future and content per vehicle.

That's very helpful. And what are the key applications driving the content per vehicle?

What do you mean key applications? What do you mean?

Product areas, yeah.

I admit that that's, I mean, a very, very heterogeneous field. I mean, overall content per vehicle is fueled, of course, to a large, large extent by all the regulation changes that you would see around the globe. Those stem from emission regulations, safety regulations in basically each and every country with each and every different timings that you would have and it would be in the field of basically all the products that we have out there, but most, to the largest extent, to all the safety-relevant products that we have, but it's from Airtis brakes down to EBS, electronic braking systems, so it's basically across the floor flight.

Okay, thank you very much. You're welcome.

Thank you. The next question comes from Bayer from UBS.

Yeah, thanks for taking my follow-up questions. They are all related to M&A. First one is regarding the reports that you would be interested in buying Escort's Kubota business. I haven't seen you confirming the deal today, so does it mean You walk away from this, and then what would be the risk that maybe a competitor snaps up the business given the importance of India to your business overall?

So I will take this question.

As far as there's no interest for us, as long as the seller tries to cash in a temporary increase in revenues, They want five euros per one euro revenue or something like this. And this is in a range where we absolutely have no interest. Our business in India is organically growing. We are having a very good relationship with Indian Rail, which is by far one of our most important customers in the region. And we are not desperate to go for some assets which are now thrown on the market. Hopefully this makes it very clear.

It's not a general no, but it depends on the price. I got that. Second one is just regarding the reports that Conti could be pulling out of autonomous business. And I remember you have this joint venture on the software side. And I was just wondering if that would impact at all your plans in the business and how you would respond to that.

You know that we have not only this one project, but it's basically focused about the seeing dimension of the autonomous driving, seeing, thinking, acting. You know those are the three dimensions. And it's about the camera, LiDAR, radar systems that we would be cooperating with them on certain fields. I mean, we have to wait somehow and see what they are really intending to do and whether that would have an impact on that business relation. But it's basically only in that theme dimension and it's about some subsystems that we would need for our product offering and we don't have any signals yet. whether they would pull the plug or something like that. We don't know at this point in time. We watch it carefully, but so far we have no indication at all from Conti that any of our projects would be in danger.

Yeah, and finally, if I may just keep, I was wondering what's the latest there in terms of closing the deal and the 200 million mark you mentioned earlier, whether they are in rail, whether they are in trucks or both?

I will take this. The two assets are not in rail, they are in slug. So in rail we are now in a phase where we are putting all the data on the table. So we make it clear, either turn around, sorry, or we have to make a call. In slug we have a little bit of a head run by six to nine months. And here we have defined two assets which are of no strategic interest for us on the longer run. They will come on the market by November, December. And in terms of FIBA, I will be very honest to you, we are not super happy how the process ran. It took us now, I think, nearly 10 to 12 months. And one thing is for sure, we are very close now to the signing. We have now, I would say, the detailing of the closing is now on the table. And it's very clear. If it does not come this year, we have to reconsider how we will progress. And that will be very clear to you because I think the most important for this call is expectation management. We have to be honest to you, we have to be clear, so that you can expect something from us. This is the reason and the purpose of this kind of call, otherwise we can send you just some written documents. And I will be very clear, Keeper is a good company, and we are now in the process to finalize it, and your question is right, because now it took already 10 to 12 months, the whole process is feeding by far what we had in our plan, but there is an end to it, left or right, that's for sure. And maybe additional information for you, Sven, you have maybe seen the press release of PERAK, which is the spec that would ultimately absorb Kiepe via this company, Herr Lambert. They have made the press release indicating that it is about Kiepe, all about Kiepe, Now it's about closing that finally and close the business combination agreement, so to say, in the end. So this was signed, the business combination agreement by them. So it's about basically this and to provide us also with a certain amount of guarantees, which are closing conditions. And it seems also at the NASDAQ where the spec is supposed to be listed or is listed it's not that cozy currently. So we expect to do it as soon as possible. It's not depending on us. It's more on the buyer side, so to say, where we have some process timing issues. But we intend to do it as soon as possible, the closing.

That's very clear. Thank you both.

Thank you, Sven.

Thank you very much, dear ladies and gentlemen. If there are no further questions in the Q&A session anymore, I'm handing back over to the host.

Thank you, operator. Yeah, thanks for your time, for your questions. If you have further questions, please let us know and we wish you a great afternoon. Thanks and bye.