Traton SE

XETRA:8TRA

Earnings Call Transcript 2023-Q2

[Lars Korinth, Head, IR]

Good morning, everyone, in the call. Welcome to the Traton Half Year 2023 Results Conference Call, and thank you for joining us today. Before we start, let me first make you aware of the disclaimer. As always, you can find all relevant documents on our H1 and the Q2 performance on our website, traton.com/ir, including, of course, the slides of today's presentation. Together with me today are Christian Levin, our CEO; and Michael Jackstein, our CFO and CHRO.

I'm also joined by Camilla Dewoon, Head of Corporate Relations. Christian will start with an overview on our progress and strategy execution, and Michael will then explain the financial performance in Q2 in more detail before we conclude the presentation with a full-year outlook. After the presentation, as always, we look forward to answering your questions. We will start with the questions from analysts and investors. And in the final 10 minutes of our call, we will offer media representatives the opportunity to ask questions as well.

With that, I hand it over to Christian. Christian, the floor is yours.

[Christian Levin, CEO]

Thank you, Lars. And also welcome from my end to everyone on the call. Let's start with business environment and perhaps the most important part, at least what concerns our industry and our company, the supply chain. The supply chain has stabilized further throughout this quarter, as was the case also in the first quarter, which has allowed us to drive up our industrial output in basically all of our brands. Said that, it doesn't come without continued challenges.

We've had headwinds, especially in North America with delivery disturbances, but honestly, also in other regions around the world. That means that our order book is still very big. And unfortunately, that lead times to customers remain far above what is desirable. On the macroeconomic and geopolitical side, of course, the uncertainty remains, which is leading to a weakening trend in the global economy, but with different regional dynamics. We do see lower transport activity in some markets said that. It still remains on a high level. Of course, inflation pressure has continued with interest rate hikes as a consequence.

And that, of course, comes through in certain businesses as creating difficulties for our customers to get a proper financing. We will talk more about our own financial services business, which performs very well under the circumstances later. Said that and perhaps surprisingly to many, the truck demand in both our most important markets for Traton, which is Europe and North America remains on a very high level. And our analysis comes to the conclusion that this mainly depends on the very high replacement need of old equipment with very high average age, especially in Europe.

The third most important area for the trading group is, of course, Latin America and especially Brazil, where we do see a significant weaker market and test several reasons, but especially the changeover into the Kanuma PA or the Euro 6, if you would like, have had an impact during the first half of the year. Although we saw during the last months in the second quarter, an improvement, particularly based on the incentives that were put into the market by the Brazilian government.

If we change slide and have a first glimpse on our numbers, you see that Traton performed a strong quarter in the second quarter of the year. Incoming orders were lower, and that is mainly due to our own continued restrictive policies on taking in orders because of the long lead times and because of the inflationary pressures, especially in our Navistar company with an international brand, we have not opened the order books yet for 2024. And that has, of course, an influence on the order intake throughout the quarter. Another factor was Brazil, where order impact is lower due to the lower demand in the market.

On the delivery side, we had a very strong growth of unit sales. Of course, the Q2 in 2022 was low, as you remember, especially because of the difficulties in the supply chain. But still, we're very happy with this considerable growth that we are showing. And we expect that to continue going forward. Sales revenue increased, as you can see, by almost a quarter, that is driven both by higher volumes, of course, but also by a good product mix and a very good price realization. And on top of that, we have continued to grow for the profitability, so important vehicle services business.

So our adjusted operating result advanced to above EUR 1 billion, which in percentage gave us a good return on sales of 8.9%. The improvement was all throughout the group. In Scania, we kept delivering a further advancing the very strong double-digit margin. We performed already in Q1. And then we were all super happy to see that MAN is now up in the range or at least close to the range where they should be after so many years have struggled and with the restructuring or realignment program now finally getting traction and coming through the bottom line 1.7% in the quarter, really showing what they are capable of performing under the new setup.

So all in all, I think it's a remarkable performance that we produced both in the second quarter and in the first 6 months. And of course, we are pushing forward with full focus on continuing to deliver. There is more to do. We did lose production volume, as I said, also in the second quarter. So we're not fully utilizing our capacity yet. And we are, of course, aiming to take us up to our strategic targets for the calendar year 2024. I also want to mention that, of course, we continue to follow our strategy and what I introduced the fourth pillar in our strategy execution, so-called strategy execution remains top of the agenda for everyone in the organization.

And I think we achieved a number of milestones also in this second quarter. And that takes me to the next slide.

And one of these milestones was that we followed the announcement in early April, we established now fully the trade on financial services based on the backbone of the Scania Financial Services, we have now a framework agreement with Volkswagen and Volkswagen Financial Services and Volkswagen Bank that we can take over the activities of financing customers of MAN and Volkswagen Truck and Bus. So the scope of this includes the same transfer of the rights to provide financial solutions to these customers, but the existing portfolio remains with Volkswagen Financial Services.

This means that there will be a gradual transition. We will do our utmost to make this smooth so that customers do not even noticed the transformation, and it will start with the 14 markets in Europe with a rollout that we expect to be fully completed in the second quarter of 2025. With this, a number of employees today serving both MAN and Volkswagen Truck & Bus Financial Services will move over and join the Traton financial services. So a big step and a logical one in the development of the Traton Financial Services as a global captive and integrated service business provider in the Traton Group.

We are also looking forward in October to relaunch Navistar Financial Services retail business. And by that, we will have completed the creation of a complete group-wide financial services solution provider that will allow support unit sales, of course, but more importantly, enlarge the range of services, which is just becoming more and more important as our industry is gradually moving into the area of electromobility, but also, of course, so important to the shock absorber in the earnings and the resilience of our group.

Let's move into the next page on the next slide and talk about another important pillar in our strategic framework, the road towards electrified transport. And there were a number of cool things happening throughout this quarter. One was the announcement between Scania and Northvolt of the first battery cell for heavy electric vehicles that can last basically the lifetime of the vehicle, 1.5 million kilometers, which is, I would say, a milestone. And that takes away some of the worries around the business model for batteries, and it will help us to create also a circular economy around not only the battery but the vehicle as such.

Another milestone was the successful test of the first in the world megawatt charging system at Scania facilities, a satellite together with ABB E-mobility. And you know that this system moving from 750 kilowatts up to 1.2 megawatt will take down the charging time of heavy commercial vehicle down with 50%. Scania will be able to offer this and it's still a prestandard because the prep standard will hopefully be concluded during the end of this year or beginning of next. So it's a prestandard connector, you can get already from starter production in 2024. In MAN, we are preparing the start of series production of the e-truck in our Munich plant, which will be then a full-fledged 40-tonner prepared for long-distance transport in Europe.

I should add that we are collecting pre orders for Scania we have already more than 500 in our order books. As a consequence, we are also training our employees and 2,600 over MAN employees have already been trained in the usage of the high-voltage technology in the vehicles. Another highlight from the MAN side was that this vehicle that we also showcased at the ER in September last year, won the so-called Red Dot Award in the month of June this year. From our friends in Brazil, Foxconn Truck & Bus, we can report that the e-Delivery truck that was launched earlier, is now fully integrated into the assembly line mixed in with the ICE vehicles and are hence ready for volume or if you would like, serial production.

On the next slide, there are a few more examples from our different brands. You see that both competitive products are coming through. That is one crucial element for customers to switch over. The other crucial element is, of course, the infrastructure of charging. We are expanding the product portfolio, and we continue to do so in the upcoming years. And with that, we also see demand increasing. And here are a few highlights. You see the logistics service provider of Duvenbeck is to deploy 120 MAN eTrucks by 2026. That is transports for the Volkswagen Group Logistics, and this will be one of the first customer to receive the new M1 40 tonner.

Another pilot customer for this truck will be the logistic powerhouse DB Schenker, that plans to operate 100 new MAN eTrucks by 2026. And the first vehicles will be delivered already in the beginning of 2024. Navistar has delivered the first international TMV series. That's the medium-duty vehicle to the global food service distribution company, Sysco and Scania finally received an order for 100 battery electric trucks. The first Scania regional haul battery electric 4 by 2 tractor units that will be used in the UK. This, by the way, was part of the huge order that we announced earlier this week by 2,500 trucks. The rest of them delivered with the Scania Super driveline that was successfully launched 1.5 years ago. So just underlining that the transformation towards zero-emission vehicles starts to become a reality and where it's most pronounced is in the public transport space, where the high demand for electric city bus solutions are starting to show in Europe.

And also here, we continue to deliver and especially with our MAN brand. where the VHH, Verkehrsbetriebe Hamburg-Holstein order with a fourth contract for buses from MAN. They ordered another 100, Lion City E and the first 48 buses are scheduled to be delivered already at the turn of the year 2024.

Another part of our strategy is the focus on value creation and really executing on the programs we have in place. And here, one of the most important part is MAN. Now, I'm on the next slide. The realignment and that has continued in a very successful way throughout this quarter. The plant expansion in our Polish plant in Krakow was successfully completed in May. And with that, we are driving up production numbers. Before we could only manufacture the heavy range there, but we have now also transferred in the medium and the light-duty trucks to track up.

And we continue to ramp up production. And until the end of 2023, we expect to be at a daily rate of up to 300 vehicles and of course, also cabs that we manufacture there, which is roughly 3x more than what was previously the capacity of this plant. And to do this expansion and to move production capacity away from Austria, and the Sky plant is a key building block in the transformation of MAN to be a profitable manufacturers. And with this, around about 2/3 of all MAN truck and cabs will be assembled in Krakow. Next Page again, please.

And here, it's about the Scania bus business, where we took an important decision during the quarter to reshape the way we drive our bus and coach business. You know that bus and coach was heavily impacted by the pandemic, much more than truck business. And even if it is picking up, it is picking up rather slowly, and we do not expect it to come back to the levels that we had before the pandemic. We also see much tougher competition. We have now more than 40 competitors only in the European space, where we were used to work with less than 10. We see further challenges in terms of upcoming legislation that requires massive investments in new technology.

So with low volumes in Scania, less than 10% of our bus sales are with our own body. We decided to reshape our business model and focus on working with partners. Meaning by both with building parties. And with that, provide customers with competitive and sustainable solutions at the same time as we can provide a secure profitable growth for Scania as a brand. So the decision might sound dramatic. We see body production at our chassis and body plant in shops in Poland, and we will be gradually ramping down until the end of the first quarter next year, where we completely close. We continue, of course, to focus on chassis production, such as is production is not affected. So underlining that it's an updated strategy.

We stopped our own body, but we continue to offer customers complete buses and complete coaches and rather build on our strength, which always was the modular system, reusing truck components, an extensive service network and an even stronger partnership with our bodybuilder partners. On the next page, Page 12.

A few words about our journey to become a more sustainable company. Now the turn has come to Navistar following first Scania and then MAN. We now signed a commitment to develop size-based initial reduction targets aligned with the SBTI organizations criteria. By now, the commitment has been approved by the SBTI, I'm very proud of that, and that means that now we're starting to submit binding targets within the upcoming 2 years. And this is, of course, supporting our ambition to cut emissions in half before 2030. And of course, also support the Paris agreement.

Also in the second quarter, Scania took a massive step towards the carbonizing supply chain by placing the first order for green steel. So we have signed a contract with Scania green steel to provide Scania with sustainably produced steel. And this is a key element in our brand strategy to phase out the main sources of H2 emissions from the most emitting production materials and batteries in supply chain until 2030.

So last page in this block. And for me just to summarize the quarter. Traton keeps on delivering both in operating and financial performance terms, but we also continue to drive our strategy execution forward. We continue to succeed in a very demanding and quite unpredictable market environment, and we deliver a strong both top and bottom-line performance. Our Traton brands strongly increased deliveries throughout the board, supported by the improved supply chains and hence higher production volumes. And global truck demand remains at a high level in our key markets, and we continue to be restricted in order intake.

So while successfully managing our short term, we’ll focus on the long term, and we continue our strategy execution with full force, and we made further progress along all our strategic priorities.

So with that, that’s an introduction, I would like to hand the word over to Michael Jackstein, our CFO and CHRO, to take us later into the financial results. Michael, over to you.

[Michael Jackstein, CFO]

Thank you very much, Christian. And with having said that, directly moving on to the analysis of our performance in the second quarter. Incoming orders reached 56,800 vehicles, corresponding to a book-to-bill ratio of 0.7 and a 17% decline compared to the prior year. I will come back to this in a minute. Unit sales were significantly up by 20% to a good level of 83,500 vehicles and growth across all brands, with the exception of Volkswagen Truck & Bus due to the market weakness in Brazil. This was, in particular, driven by a further stabilization of supply chains and its impact on our production.

Nevertheless, we continue to experience headwinds and selective disruptions as well as tight logistic capacities, all of which still holding back Traton to reach its full potential. As a result of strong unit sales and relatively low incoming orders, we were able to reduce the order book size. However, the overall order book continues to be on a very high level. 2023 production is fully covered and orders reached well into the year 2024, with differences between the brands of the Traton Group, which leads me to the more detailed analysis of our order intake.

As you can see on the next Slide 16, incoming orders for Scania and MAN continue to be supported by the overall high demand in key markets. Book-to-bill at 0.8% in the second quarter remained on a reasonable level for both brands, largely a result of the continued restrictive order intake management. In addition, we are starting to see a somewhat lower transport activity and a normalization of demand in some markets, also against the background of more difficult and expensive financing for our customers. This holds true for the North American markets as well, while customer demand in the region stayed on a robust level.

However, order intake of Navistar was extraordinarily low, especially in the second quarter with a book-to-bill ratio of 0.2. First, output has been increasing due to improving supply chains. In addition, our order backlog is very robust with almost all available production slots for 2023 filled with little flexibility to expand. Second, the order book for 2024 has largely not been opened throughout the first half year. This was due to the brand's intensified efforts to reduce to long lead times. Meanwhile, Navistar started to selectively take orders for 2024 and expect to increasingly open the book throughout the third quarter. Volkswagen Truck & Bus, as expected, was affected by the emission regulation change in Brazil as well as the overall economic weakness. The good news is that we start to see signs of stabilization and recently an uptick from a low level.

On Slide 17, you can see our sales revenue development. Sales revenue increased by 23% in the second quarter to EUR 11.7 billion. This development was in particular driven by the strong growth of new vehicle sales and favorable mix effects. In addition, we continued to benefit from the successful realization of higher vehicle prices. Please bear in mind that last year's quarter was heavily affected by the war in Ukraine. Another factor supporting our top-line growth was the vehicle services business, while sales revenue increased by about 3% year-over-year. Demand for spare parts and repair and maintenance services remains high given aged fleets and strong utilization. Moving on to Slide 18 and the bottom line performance.

As you can see, the Traton Group continued its strong earnings momentum, both in absolute and relative terms. The adjusted operating result advanced to slightly more than EUR 1 billion. This corresponds to a very strong adjusted return on sales of 8.9%, up by 470 basis points year-over-year compared to an admittedly exceptionally low comparison base in the prior year quarter. The positive development was in particular due to the higher utilization of our production capacities, increased vehicle deliveries and the associated better-fixed cost absorption.

In addition, thanks to the successful execution of pricing initiatives for new vehicles across all our brands, we were able to compensate for the significantly increased prices for energy, raw materials and broaden components, not to forget our strong focus on cost management. Overall, a very encouraging development, which impressively underlines that the Traton Group is on track towards the strategic return on sales target of 9% by 2024.

Let us now have a closer look at the performance of our brands and segments. In the second quarter, all brands except for Volkswagen Truck & Bus benefited from higher volume and improved production capacity utilization. Sales revenues in the vehicle services business continued to expand strongly at both Scania and MAN, while Navistar recorded a decline. This, however, was due to the sale of MAN in late 2022. Another common theme across all our brands with different dynamics with successful pricing initiatives, which helped to compensate for strong input cost pressures. On brand level, Scania achieved again an outstanding profitability level with an adjusted return on sales of 13.6%, confirming the strong performance in the first quarter.

After an already strong first quarter, MAN Truck & Bus recorded another impressive step up to an adjusted return on sales of 7.7% in the second quarter. Navistar showed a robust performance at a return on sales of 6%, confirming the margin levels achieved in the past quarters. Volkswagen Truck & Bus faced extremely challenging market conditions, especially in Brazil and recorded a remarkably strong return on sales of 9.4% despite significantly lower unit sales. This is another proof of the brand's ability to master stormy markets with its highly flexible business model.

Finally, Traton Financial Services recorded a double-digit percentage growth on the back of an expansion of its portfolio and increased interest income. Higher funding costs and lower spreads had a counteracting effect on profitability. And this leads me to our net cash flow development on Page 20. Traton operations recorded a robust net cash flow of slightly more than EUR 1 billion in the second quarter, bringing the first half-year figure to plus EUR 1.75 billion. It is important to note that this number includes the proceeds from the sale of Scania Financial Russia of EUR 400 million and the positive effect from the intragroup sale of the Scania Financial Services business to Traton Financial Services for EUR 499 million.

We had already indicated both effects in previous results calls. Excluding these effects, net cash flow of trade and operations amounted to EUR 855 million in the first half year, reflecting the strongly improved operating performance. Nevertheless, cash conversion was once more held back by an increase in working capital. EUR 1.2 billion cash was tied up in the first half of the year, largely due to higher inventories as a result of the strong expansion of production volumes and ongoing logistics shortages. This also ensures that we can keep our delivery promises to our customers to optimize working capital and to reduce our net debt position remains a key priority for us, which brings me to the next page.

During the first half year, the net financial debt of trade and operations, including corporate items, improved by about EUR 600 million to EUR 7.1 billion as per end of June. Main driver was the strongly improved operating performance, which was partly compensated for by cash tied up due to a further buildup of working capital, in particular on the inventory side, while the net debt position benefited from the EUR 400 million proceeds from the sale of Scania Finance Russia early in the year, the impact from the intragroup transfer of Scania Financial Services was neutral. Also important to note is that we paid out the dividend for fiscal year 2022, amounting to a cash out of EUR 350 million in the second quarter.

With that, back to you, Christian.

[Christian Levin, CEO]

Great. Thanks, Michael, and then I will take you through the expectations and outlook for the total markets on trucks 2023. Here, we have done an improvement. This is now our own expectations and not based on a general market forecast. So let me start by saying that overall, the global truck demand remains at the high level. It continues to be supportive and mainly driven by replacement needs. We, however, see starting to see, I would say, a normalization of some of the most heated markets. So starting by Europe and North America, we expect growth. We expect the growth in the range of plus 5% to plus 20%. We see a slight improved outlook compared to what we did in the Q1 call 3 months ago, and that's mainly due to the higher production levels, meaning that, supply chains are stabilizing, and it's not that demand itself is growing stronger.

That also means that overall truck lead times are slightly shorter, still low, but slightly shorter, and there is a significant catch-up demand. South America, the market is expected to decline further and in particular, in Brazil due to the PROCONVE P-8 emission standard regulation, but also a general market weakness. So we expect a minus in the range of minus EUR 20 million to minus EUR 5 million, so a slightly weaker outlook. And more recently, demand has started to improve, and we believe that is mainly a temporary effect from some quite minor, I would say, government incentives introduced here at the end of Q2.

So all in all, we need to say that uncertainty continues to be high. So the key factor such as our supply chain, but also logistics, shortages and, of course, economic uncertainties makes it particularly difficult to predict the market going forward, which, of course, means that we need to continue to be prepared to react quickly to any change in our environment.

So with that outlook, back to you, Michael, for the guidance.

[Michael Jackstein, CFO]

Thanks a lot, Christian. So based on the strong results in the first 6 months, we largely confirm our full-year outlook, which we had upgraded in May with the release of the Q1 results. Based on the higher order backlog and improved supply chain, we continue to expect to grow both unit sales and sales revenue by 5% to 15%. While we confirm our forecast of an adjusted return on sales of 7.5% to 8.5% in the trade and operations business area, we raised our expectation for trade and financial services and now expected in the bandwidth of 13% to 18%.

Overall, for the Traton Group, we confirm our forecast for the adjusted operating return on sales of 7% to 8%. Also, the forecast range of between EUR 1.8 billion and EUR 2.3 billion for the net cash flow of trade and operations in the full year remains unchanged. Please bear in mind that the effects from the Scania Financial Services intragroup transfer and the sale of Scania Finance Russia are included. However, on the back of a strong financial performance in the first 6 months of the year with an adjusted return on sales of 8.6% and a net cash flow of EUR 1.75 billion in trade and operations, we expect to end the full year closer to the higher end of the respective forecast ranges.

With that, back to you, Christian, for the final remarks.

[Christian Levin, CEO]

Thanks, Michael. So before entering into the Q&A, just let me make a short summary. I said in the beginning of the year 2023 will be the year where we enforce execution of our take way forward, and we deliver. And I think we can, after 6 months now summarize that this is exactly what we do. I think year-to-date, we have delivered a strong performance across all brands and all segments with a very clear focus on our customer needs and the market trends. We mastered the persisting challenges in markets and vigorously drive our strategy execution. There is a strong momentum in our top line and underlying earnings and particularly driven by Scania's performance, but also MAN starting to deliver a very good result.

Net cash flow and net debt position is having a positive trend. But of course, there is still a big room for improvement. And finally, we confirm our positive outlook for 2023, where we target the upper end of the forecasted range for the adjusted return on sales. The net cash flow of the trading group and the trading operations respectively.

So with that, we end our presentation part and hand back to Lars for the Q&A part, Lars?

[Lars Korinth, Head, IR]

Excellent. Thanks, both of you, Christian and Michael. Let us now open the floor for the Q&A. As I said, we will start with questions from analysts and investors, and we'll take questions from media in the final 10 minutes. [Operator Instructions] With that, let us open the floor, and I can see that our first name in the line is Klas Bergelind from Citi.

[Klas Bergelind, Citi]

Klas at Citi. So the first question I had is on the guidance and the implied trading for the second half. The upper end for the full year, looking at the margin, 8%, still looks pretty conservative given that the benefits from Krakow in MAN is yet to come through on the ramp and with Scania now delivering almost a mid-teens margin. It’s obviously sensible to be conservative. But can I ask Christian, if you would highlight what you think could impact deliveries and margin negatively here? Is it price concessions? Do you think cancellations are likely? Do you see increased cancellation somewhere at the moment? And I’m asking, as you’re fully booked for 2023, any demand weakness will only impact more 2024. I’ll start here.

[Lars Korinth, Head, IR]

Yes, right. Thanks, Klas. The first question will be taken from Michael from guidance, and I think that Christian will be more than happy to talk about the cancellation part.

[Michael Jackstein, CFO]

Yes. Thank you very much for the question. As just mentioned, we expect to end the year towards the higher end of the forecast range of 7% to 8% for the return on sales. Also, as already said during the Q1 conference call, the quarterly results cannot be simply extrapolated to the full year. When we look at the typical seasonal patterns, especially when you look at the summer breaks during the third quarter. We remain on the conservative side, and this is actually due to various reasons that we see. On the one hand side, we see high macroeconomic uncertainty still with the low predictability. We still see a still vulnerable situation in the global supply chains we see tight logistics capacities, and we see movements in the prices for energies, raw materials and components. So if we summarize all that, then we remain on the conservative sites, taking all these reasons into account.

[Christian Levin, CEO]

Christian here. Yes, I think the supply chain is the remaining main risk we have here, where it continues to be troublesome and we constantly have still disturbances in the supply chain affecting our production and hence, the output. But also to add, because there are no cancellations. We're still talking a handful of cancellations per week. And there are no price concessions. The order book is there and is stable. But what we have is, of course, Brazil. So we have a global production system. But unfortunately, as the world is moving towards less globalization, we have actually more and more difficulties to find markets, which we can source out of Brazilian production system when we cannot fill with Brazilian orders.

So even if we have more than 60,000 trucks on order book in Brazil, we are not fully sold out in the production system. So that's the remaining risk, and that's one of the reasons why we also want to stay conservative. But again, constellation and pricing, there is no change whatsoever from the previous quarter.

[Klas Bergelind, Citi]

That's good to hear. My second one is on the timing of the order book reopenings for 2024. Clearly, the week orders in Navistar, you haven't opened there, but I think you're opening up a bit selectively. Am I right to assume that you still see this is in discussions with customers? You still see North America stronger than Europe, no major trade-ins on the used side. Obviously, owner-operators struggling more than fleets. But if you could comment there, Christian, on the differences between North America discussions and Europe?

[Christian Levin, CEO]

Yes, exactly. So you got it exactly right. Demand in Europe, it takes a little bit longer time to close the orders and specifically with smaller customers, whereas in the U.S. as soon as we open up, we sell. So to explain a little bit why Navistar has been so restrictive with taking on orders. First of all, Navistar is the brand with the biggest problems with the supply chain. We also have a new factory. We're ramping up in Texas, which will, of course, eventually give us much more capacity, but it is creating quite a lot of problems for us. And short term, and that makes it very hard to promise a delivery date, and you don't want to make customers disappointed again, so to say.

So that is one main reason why we have been very restrictive in taking on orders. The other is the introduction of the super driveline, what is in Scania called the Super driver, which will be called S13 in Navistar. We did actually open up specifically for the S13 capacity or at least what we expect to be the S13 capacity during July, so after the closing of the second quarter and immediately sold these units out. And we are now considering here during the month of August to open up also for the rest of the product program. But you're right, there is a very solid demand in North America. And I see that as a very good sign also moving into 2024 for the U.S., where we have previously said that, here, we see some cloud, but yes, it seems to be very solid. And the IRA is, of course, the inflationary reduction act from the vibe admin is, of course, supporting demand all over, I would say.

[Klas Bergelind, Citi]

Quick final one. The third one is on MAN and I’m thinking a bit further out. Do you think you’re over-earning here a little bit, i.e., is pricing running ahead of cost inflation a bit. And the reason for asking is that doing the margin here very close to the 8% through the cycle target, with the benefits from Krakow, other efficiency measures yet to come through. It feels almost like the margin can go higher than 8% over time. And Michael, I totally understand the seasonality going into the third, but interested in new thoughts there.

[Lars Korinth, Head, IR]

All right. I think Christian will take the question, I think, on MTB and the profitability part and as well…

[Christian Levin, CEO]

I can take that one. Thanks, Lars. But, yes, there is, of course, some kind of overshoot in terms of pricing versus costing. And in general, we see, especially in Europe, that costs are actually lower than our expectations on some of the important raw materials. On other areas, we see a little bit higher cost than we expected, amongst other logistics, by the way. But that's good for our business model that our customers are making more money. But will this prevail, that's hard to say. And that's, by the way, another reason why we are restricted with order intake when it's getting harder to take orders, of course, prices are generally put to question in competition with other brands.

And if you then make concessions, you also have to adjust the orders you have with these customers in the order book. As you know, our customers buy regularly and put new orders monthly. So that’s another reason why we are restricted. So in terms of MAN, yes, there are a lot of goodies coming our way in terms of lower costs and lower fixed costs. And that should eventually transform into better margins. But again, given the uncertainties on the cost side and the supply chain side, we remain conservative in our outlook for the remaining.

[Lars Korinth, Head, IR]

So the next name on the line is Hampus Engellau, Handelsbanken.

[Hampus Engellau, Handelsbanken]

Can you hear me?

[Lars Korinth, Head, IR]

Yes.

[Hampus Engellau, Handelsbanken]

That’s excellent. Sorry. A couple of questions from me. First question is on your service business. If you could share some light, if we adjust for price increases, how did service volumes developed during the quarter? I’m talking about Europe and North America. Second question is on range on the outlook for North America and Europe markets for this year. Provided that we would be at the 20% and North America would be about 370,000 units and Europe would be at an all-time high [356]. I’m talking above 16 tons or not the medium duty that maybe you included in your outlook. What risks do you see in 2024 if that happens? Maybe not a number for that, but more sense of your feeling because how much of the replacement need would we be adjusting for if you are in the upper end in Europe and North America? I’ll stop there and then take maybe the last question, then we’ll discuss these 2 questions.

[Lars Korinth, Head, IR]

I think we'll start with the question on market at ‘23 and especially the risk on 2024. I think that's something Christian is perfectly situated to answer. And then, of course, we have another question on the service business. And I am right, if they get it right that you asked for especially the Navistar part, which has been negative in the second quarter and why that is?

[Hampus Engellau, Handelsbanken]

It was a general question, but just to get the sense on the activity in the service business.

[Lars Korinth, Head, IR]

Yes. Okay. But then just one quick comment before Christian answers the question probably on service business as well. There is a technical aspect in the North American market because of the sale of the MWM engine manufacturer effective November last year. And if you would adjust Navistar numbers for that deconsolidation effect, service business was actually up in the first quarter. So that is a consolidation effect. But yes, Christian, over to you, sorry.

[Christian Levin, CEO]

Yes. Hampus, on the total market development, so I'm -- yes, our numbers, by the way, are from 6 and 16 as you are used to from Volvo and Scania, so 6 and upwards numbers, I'm more positive for 2024 today than I was maybe 3 months ago. The order books are solid. They are growing. We're seeing good demand. We're seeing good underlying transport activity, both in North America and in Europe. The replacement need, we have perhaps even underestimated historically. And just looking at the volumes that were lost during the pandemic years because of first because of the pandemic itself and we will shut down production in 2020 and then the subsequent lack of capacity because of the semiconductor prices and then later on, the general supply chain I think one could expect that 2024 would be only based on the replacement at least a good – and I will not give you a number, but at least a very good year in terms of total market, both in North America and Europe. And if you would have asked me 3 months ago, I would have been a little bit more shaky on that one, but I feel a bit more confident now that we're going to see a good ‘24.

[Hampus Engellau, Handelsbanken]

[indiscernible] number, but just to get a sense of the lead times. And the lead times, have you managed to shorten the lead time sequentially second quarter over first quarter? Or do you typically remain on similar levels? And if you have a number for the lead times, I would happy to get that.

[Christian Levin, CEO]

Yes. The way we have managed these last very same years, this last almost 3 years now is that we have allocated volumes per market. So as a market, you get a certain volume to work with and then you prioritize your customers to the local best, let's say, optimization based on many different things, of course. And that means that it's not -- we cannot say that we have a general lead time. But we have, in all our brands close to 1 year of sales in the order book. And that then translates in some markets to 6 months and in other markets to more than 12 months. And that's where you start to get beyond 12 months, that's where we are getting restrictive. And for intention, we have not accepted orders going longer than that. Said that, yes, the situation has improved as we have been able to ramp up production. And yes, as the pressure on the orders is also lower. Both these things have improved the situation and especially in some markets.

And then you have exceptions such as Brazil where, the lead time is back to normal where you get the truck within 3 to 4 months. So it is to get the picture. And what we need to do now is we need to get away from these allocation systems and get back to where we were before in 2019, where first come first serve principle is put back into place, but we can only do that when we have full control of our supply chain. And that is what is still haunting us. And back to Navistar, that’s why they are particularly, I would say, careful with taking on your orders. I hope that gives you a bit of a flavor of the situation we’re in.

[Lars Korinth, Head, IR]

So the next question comes from the line of Miguel Borrega from BNP Paribas Exane. Miguel?

[Miguel Borrega, BNP Paribas Exane]

The first one on your order intake. We’ve seen a couple of quarters now with consecutive order decline. I’m assuming you’re not taking orders in Europe fully for 2024, selective in the U.S. But how does this shape up in terms of production, your production outlook for 2024, I know it’s still early, but what are you essentially assuming? Are you assuming lower production at higher value? Is that how you’re thinking? Or the other way around? So more broadly, if you’ve been restrictive on order intake because of supply chains, now that supply chains are, let’s call it, easing, not quite there, but easing, shouldn’t you be more comfortable with long lead times, especially if raw materials are also not going up?

[Lars Korinth, Head, IR]

I think that's the question. Thanks, Miguel. Perfect for Christian.

[Christian Levin, CEO]

Yes, I absolutely think that's right. Yes, we could perhaps a little bit more comfortable with the raw material prices coming down and with our supply chain is getting a little bit more in order. So what are we expecting in terms of production. We are not at all utilizing the production capacity we have installed. So both in Europe, Scania and MAN, we did not manage to fill production despite full manning. So there is still a rather big upside there. We have not fully utilized crop of yet. And in Navistar even further, we have, by far, not utilized the plant in Texas. And again, it is really the supply chain that is playing games with us.

So I see a good chance that we could increase our production output in the second half, of course, but also in 2024. Of course, when we start to come into 2024, we do not know how the order situation will develop, especially going into the second half of 2024. But as it is right now, we're not planning any decreases of production capacity. We rather hope for the opposite. I stop there on that one.

[Miguel Borrega, BNP Paribas Exane]

That's great. And then can you provide some early indications of how you're pricing the new orders going into 2024? Is there any pricing pressure either from customers or perhaps from competitors that everyone is not seeing a weaker macro environment, so perhaps your competitors want to lock in lower-priced orders? Or you're not seeing that at all, everyone still quite booked out. So pricing should be sustainable at least for now?

[Christian Levin, CEO]

Yes. Should I take that one as well, Lars?

[Lars Korinth, Head, IR]

That would be perfect.

[Christian Levin, CEO]

Yes, we have introduced further price increases in all our brands, starting with 2024 production, less hefty increases than last year, I should admit, but nevertheless, we have introduced gross price list improvements. And then you never know what is coming out after negotiations, of course. But what we see right now is very good price discipline in the market. And that is, of course, a very general statement. But in general, we see that all the big players are careful, let’s say, and probably have very good self-confidence in the negotiations. So that’s good for the industry.

[Lars Korinth, Head, IR]

So we get to the next questioner. And next in line is Daniela Costa from Goldman Sachs. Daniela, we can't hear you.

[Daniela Costa, Goldman Sachs]

Hello. Can you hear me?

[Lars Korinth, Head, IR]

Yes.

[Daniela Costa, Goldman Sachs]

Now it’s working, perfect. Sorry for the trouble. I have 2 questions, one more on the short term and one on the long term. Just on the shorter term, going back to what you’ve been talking about regarding the regulation change and the impact that, that’s happening in terms of the order pattern into the U.S. Do you think that can translate into some catch-up in the coming months? Is that what you’re seeing in terms of as you look for the next few months, maybe more than just underlying demand? Is that maybe will drive some of the orders? And how significant can that be? And then just more into the long term. Now it looks like in Europe, that internal combustion hydrogen engines might be allowed. Does that change how you think you about technologies and powertrain shift going forward and where to allocate capital? Or you’re still very much battery is the way to go?

[Lars Korinth, Head, IR]

Yes. Both nice questions, Daniela. Thank you. And both nice questions for Christian, I think.

[Christian Levin, CEO]

I have to ask a clarification then. The first one, Daniela, are you thinking about the CARB24 when you talk about legislation in North America? Or what was your thinking about what could be driving short-term order intake?

[Daniela Costa, Goldman Sachs]

I was asking regarding what you mentioned, that has been one of the reasons why we've seen some invitation on the, I think, design commentary that you mentioned in the release and whether we could see the reverse of that, that as we get clarity, you get…

[Christian Levin, CEO]

Yes. More our own limitations. Yes, the answer is yes, I expect to see a strong order intake as we release the order books for Navistar in the upcoming months for deliveries in 2024. And on your second one, H2, you are right. That was a surprise in a way that the EU proposal that in the measure amount of C2 reductions, so vehicles that use a combustion engine, but burn hydrogen are allowed to be counted as the emission vehicles and hence has no CO2 impact. What does that mean for the industry? Well, first of all, if we talk about the technology briefly, this is then an engine that is even less sufficient than the fuel cell.

So if you take all known technologies in the commercial vehicle industry to propose vehicles, you start with the battery electric vehicle, which is the most efficient, meaning most of the energy, the original energy is transformed into kinetic energy, pulling the load, so to say, the least efficient you can find is burning hydrogen. So that's just the fact. So one could then say, well, let's roll out that technology. But it's not that easy. The interesting thing here is that with this proposal, the whole industry could reuse much of the infrastructure and the CapEx that we have spent over the years in building gas vehicles. So vehicles proposed by natural gas is invested biogas because to transform a biogas engine into a natural -- or into an H2 burner, it's not that big a deal.

You need to work with higher pressures. You need another compressor to push the fuel into the combustion room, the capacity chamber, but this is rather small investments, both for the manufacturers and then also, of course, for the customers because they normally then have already infrastructure to fill up gas. So even if it's unefficient and even if the cost per kilometer will be very high energy costs, I think that there could be a market for this type of product as a complement to the battery electric vehicles and maybe, but just maybe, it will then be more competitive than the fuel cell vehicles, where there is, so to say, no infrastructure invested by any of the big manufacturers, at least not as much as on the conventional gas eyes. So let's see, it's an interesting and it was a bit of a surprising proposal from the commission. But let's also wait until this turns into law. And then we will follow this closely, and we will continue to report to you how we make our strategic choices.

[Daniela Costa, Goldman Sachs]

And maybe as you mentioned Carbon, can you actually comment on that? Do you see an impact on orders from that?

[Christian Levin, CEO]

No, we're still analyzing what it really means this agreement between Carbon and EPA, but that seems to be a very positive one, meaning that we will just have one standard to relate to in the U.S., but then with an even higher demand, so emission vehicles. And that fits our strategy perfect, if that is the case. But I'm still waiting from our U.S. team for a more thorough analysis, but it seems to be a very good thing.

[Michael Jackstein, CFO]

Maybe one additional comment, Daniela, from my side lastly. It’s by far, the #1 reason for the order intake development at Navistar is the order book full stop. And then there were some, of course, some headwinds from uncertainty around the future design of the CARB 24 emission regulation in North America, which have been solved meanwhile, more or less, and which have been, of course, also having an impact on the order situation and the ability to take orders into 2024, but that’s only a minor aspect in the overall order intake met of Navistar.

[Lars Korinth, Head, IR]

So the next question comes from Himanshu Agarwal from Jefferies.

[Himanshu Agarwal, Jefferies]

Himanshu from Jefferies. I just wanted to come back to the guidance. So despite the headwinds, you have mentioned seasonality, et cetera. The top end of operations margin guidance implies 7.5% margin in second half versus 9.4% in first half, which is quite a sharp deceleration. It seems like volumes will be flat sequentially. And also, you have mentioned no price concessions or cancellations. So I’m just trying to understand what is causing this. And also, you have increased the market outlook, but kept the unit sales guidance at 5% to 15%. I would have thought you would outperform the market in Europe, given production problems at MAN last year and Navistar continues to gain share. So that’s my first, and then I have one more question.

[Lars Korinth, Head, IR]

I think the guidance question will be taken from Michael.

[Michael Jackstein, CFO]

Yes. Thank you very much. Happy to answer this. Let me start with the unit sales guidance here. So in the first half year 2023, as mentioned, we increased the unit sales by 22%, which was, as already mentioned a couple of times before, supported by the stabilizing supply chains. In addition, you have to take into account that the relative performance benefited here from a really low comparison base in the first half year of 2022, where we come from a level of, let's say, only 137,000 units given the significant effects from the war in Ukraine in 2022, especially in the second quarter of 2022. So when you put this into contrast, the comparison base in the second half is significantly higher with 168,000 units, which is a similar level then as in the first half 2023.

Overall, as already mentioned before, we continue to have a very high order backlog and the production slots for 2023 are filled, which overall supports output in the remainder of the year. Nevertheless, and this accounts for the unit sales guidance as well as for the return on sale guidance. As mentioned, we see still a vulnerable situation in the global supply chain. When we talk about the guidance regarding return on sales, I can more or less, let's say, repeat what I have said before. Yes, we remain on the conservative side taking into account the various uncertainties. And again, one more time, the quarterly results cannot be simply extrapolated to the full year. So we see the Q3, especially with the summer breaks. And overall, we have in this conservative guidance, and we think we end up at the upper end of the guidance.

[Himanshu Agarwal, Jefferies]

Your calculation was right. And the second one on Europe. So one of your U.S. peers have repeatedly highlighted that they are the only ones in Europe to have trucks available that comply with the mass and dimensions regulations introduced a few years ago and potentially enabling them to gain market share. So just wanted to hear your thoughts from Scania and MAN perspective if you have similar compliant trucks. And what do you think about that?

[Lars Korinth, Head, IR]

I'm not sure whether I got the question right. But Christian, can you answer?

[Christian Levin, CEO]

No. I'm sorry. Either which competitor you think or what they are claiming. Can you give us a few more clues?

[Himanshu Agarwal, Jefferies]

Yes, sure. I'm referring to PACCAR yesterday on their Q2 call, they talked about that they are the only ones having mass and dimensions regulation-compliant trucks in Europe, which is good for the aerodynamics and i.e., leading to better savings on the customers' side, which is also in high demand and hence gaining market share.

[Christian Levin, CEO]

Yes. Okay. Then I understand. And we have all seen their new prolonged cap at, I think that's what they're talking about. I don't think they mean that none of the others are compliant. But let me not speculate on what for PACCAR assess you have to ask them what they mean. Do we have competitive vehicles? Do we have compliant vehicles? Yes, of course. Do we have the super Driveline claim fuel leadership? Yes, we do. Do our customers confirm that? Yes, they do.

[Himanshu Agarwal, Jefferies]

And just a last small one. At the OEM level, there is the UAW negotiations to you this year. Is it something that's due at Navistar as well? Or does it impact Navistar?

[Christian Levin, CEO]

So you mean the industry organization employ represents a year in North America. I don’t have information about that. I would have to follow up on that, I think, if that’s okay.

[Lars Korinth, Head, IR]

No, I also cannot answer that straight out. We have to get back to you. We have the next in the line from Jose Asumendi from JPMorgan.

[José Asumendi]

Three quick ones here. On the first one, and I'm talking about efficiency gains, how should we think about this in the coming quarters? What is there to be booked additional goodies that you mentioned that could be harvested in the coming quarters? Second, a bit more philosophical, what has changed in the industry to have such an elevated heavy-duty truck market in Europe and North America? I don't want to make the conversation very long, but I used to understand the cycles going back a few years, I don't understand them anymore. I think we're running clearly above replacement.

But maybe could you compare us some color as to what you’re seeing in the market? And then three, free float of the company, not sure if this is the right conference call for this question maybe for Lars in the next conference call. But obviously, the company is delivering higher margins, you’re delivering the efficiency gains you promised on the main Traton Bus, Navistar is going through a major product mix improvement. Is this still part of the discussion to increase the free float within Traton? Or is this completely out of the discussion currently?

[Lars Korinth, Head, IR]

Excellent. So then we start with the last part and the last question, which Michael taken over, and then I would leave the floor for Christian to answer about efficiency targets and the stuff and the more philosophical part of the discussion.

[Michael Jackstein, CFO]

Yes. Thank you for your questions. Regarding the free float. First of all, I think we have to say that clearly, we cannot comment on the plans of Volkswagen. And this question mainly goes to our major shareholder who had to answer this. But let me put it that way. We think it’s fair to say that the common feedback that we received from the investor side is that the relatively low trading liquidity of the share is hindering many of you to get engaged.

[Lars Korinth, Head, IR]

Christian?

[Christian Levin, CEO]

Yes. But of course, also to add to that last one, the whole management is remunerated in the long-term incentive scheme based on the share price development of trade on. So you can imagine what we would like to see. But it's not our decision, but we have a very clear opinion. Second, on the MAN goodies, what I'm thinking about is predominantly that we will get completely out of this tire, very expensive industrial setup in Austria. Here, after summer, I think it's during the month of September now that we finally produced the last vehicle there and shift that over to Krakow. That will take down the product cost on all these vehicles.

And then we have basically finalized the realignment program, and we officially close it by the end of the year. We have a few more people who will unfortunately leave the company as part of this program, and these costs have already been taken and reserved for that, that's another good year that should be realized throughout the second half. And then our strategic target, as you know, is to take the group up to 9%, and we're targeting 2024. And that means, of course, during next year, we will have to come out with what is the next step on the Traton journey then going forward, and then we will probably do that through a Capital Market Day where we will be talking more about how we see the potential in our different brands in terms of both volume and profitability going forward. But it's clear, it's been a very long and difficult journey in MAN, and we see now the best results in more than 15 years.

And of course, that's extremely good also from a motivational point of view for the team that has been truly, I wouldn't say depressed, but it's tough to work in a company that keeps performing badly quarter after quarter after quarter. So it will be, I think, also an effect here going forward, and it's hard to measure, but you're suddenly part of a winning team. And I think that's fantastic to see. I already see a sense of -- or another spirit in the company. And of course, the leadership of Alexander Vlaskamp and the whole Executive Board has been crucial in turning this company around.

It's not just the realignment program. It's so much more in terms of being closer to the customer, having the self-confidence to put the right price there to be focusing on the important things and not on everything and so on and so forth. As Chairman of I, I'm really proud to see the development in the last 1.5 years. Your philosophical question there, where the European market is supposed to be? With the growth or relatively small growth, but still growth of the economy that we've had also in [indiscernible], I think we need to see a market around about 300,000 heavy commercial vehicles.

That means EUR 350 roundabout, including the medium range long term. And if you use that as your basis and then, of course, there will be ups and downs around that curve. But my conclusion is that we shouldn't be too worried about 2024 at least. But we can have a longer conversation on that, Jose, when we meet next time, it's more philosophical.

[Lars Korinth, Head, IR]

So we have another question on the line from Shaqeal Kirunda from Morgan Stanley. [Operator Instructions]

[Shaqeal Kirunda, Morgan Stanley]

Shaqeal from Morgan Stanley. So Christian, with your positivity around 2024, could you give us an idea of the type of customers, which are driving this? Is it truckload? Is it vocational? Is it U.S., Europe? And how much market share do you guys have in the NAFTA vocational market also because with the IRA and IIJ coming in, some of your competitors are talking about almost 40% market share in U.S. and Canada. So really, how much can you guys benefit from that?

[Lars Korinth, Head, IR]

You're referring to the S13? Did I get it right?

[Shaqeal Kirunda, Morgan Stanley]

Correct. Yes. For the NAFTA vocational.

[Christian Levin, CEO]

I must admit, if I should answer, Lars.

[Lars Korinth, Head, IR]

Yeah, you must.

[Christian Levin, CEO]

I must admit that I don't have top of mind in the vocation segment. What is our current market share? But whilst Lars and Michael and the team is looking that up down in Munich, I can just say that we have seen a good recovery in market share, basically slightly higher than planned, and we're now in the Class 6 to 8 above 15%, all in all, trucks. And in our targets, there was to take 1 to 2 percentage points per year because taking more than that means that we're probably using the price weapon too aggressively. But we continue to have this ambition. And we will not let anything stop us, so to say, until we're back to where Navistar ones was and where we belong. And the S13 driveline overperforming our current Navistar Driveline with 15% in terms of fuel efficiency will, of course, massively support this journey.

So if we could take now 3% during this year, which, let's say, where the year ends, but we are again setting out to take 1% to 2% market share next year. And yes, the IRA is heavily supporting the total market development. So we would be surprised if there's not a strong market 2024 to harvest from. I hope that answered at least in part your question.

[Shaqeal Kirunda, Morgan Stanley]

Yes. And just if I could follow up on the kind of customers you are giving you confidence about 2024? Is it truckload? Is it vocational? Is it U.S., Europe? Where is it coming from?

[Christian Levin, CEO]

Yes. Sorry, I forgot about that at. But in the U.S., it’s all over the range. So we see good demand from all types of customers, both on-highway off-highway, vocational and traditional. What we see in Europe is a little bit more scatter picture where we see more hesitation from the smaller customers with a shorter investment horizon and more interest from the big fleets who have a longer planning horizon and also probably longer contracts with the transport buyers. We also see clearly in Europe that the construction sector is slowing down. So construction material transport and construction vehicles are calming down and that market is shrinking. Now that’s a relatively small, that’s between 10% and 15% of the European total market. So it’s not having that big impact. But there, we also see a clear decline.

[Lars Korinth, Head, IR]

We have a final question then for the call today from Anthony Dick from BHF. So far, we have no questions on media representatives, but just a case, if you would like to ask a question from that side, you know how to do it. [Operator Instructions] So Anthony, I would say the floor is yours.

[Anthony Dick, BHF]

Yes. Just one on the margin guidance, margin outlook for 2024. I’m just wondering what kind of volume assumption is baked into that guidance? Or maybe another way of asking the question is, what kind of market decline, if any, could we see in 2024? And could you absorb in order to still achieve that guidance that you have?

[Lars Korinth, Head, IR]

Yes, maybe I'll take that one. You know that we don't provide formal guidance for 2024. So that's for sure. We can provide you with a directional optimistic outlook directionally and how we see market environment and customer demand going on next year, but it's too early to speculate about potential KPIs, including unit sales production for the year 2024. I think we are going to provide a new financial guidance for that year and with the publication of the full year results early next year. So nothing to share today when it comes to our assumptions for next year. Sorry for that, Anthony.

We have actually one name in the line now from the media side. And so that's yours to ask the final question of this call. This is Markus Klausen from Dow Jones News GmbH.

[Markus Klausen, Dow Jones News GmbH]

I would like to ask once again regarding the drop in order intake by quarter. Is this due to the extraordinary high order intake in the previous year? Do you feel it’s general reluctance from customers in view of the uncertain economic environment? Or is the main effect of full stock for new orders at Navistar perhaps you can elaborate a bit?

[Lars Korinth, Head, IR]

Maybe that's a nice question for Michael.

[Michael Jackstein, CFO]

Actually, we don’t see a slowdown here, let’s say, in the demand from customers. This is really based on our restrictive intake order policy. So we are, as mentioned before, more positive when we look at the upcoming months anyway because of our order book, but also when we look into 2024, but no decrease here when we talk about the demand.

[Lars Korinth, Head, IR]

Excellent. Thank you and everyone on the call. So that concludes our H1 results conference call. As always, please reach out to the teams at Media or Investor Relations in case of any further questions. Thank you for joining us today. I wish you all a nice remaining day, and goodbye.