EDAG Engineering Group AG

XETRA:ED4

Earnings Call Transcript 2021-Q3

[Cosimo De Carlo, CEO & Member of Executive Board]

Good morning, ladies and gentlemen, and welcome to our Q3 Earnings Call. I'm here together with my colleague, Holger Merz, who will give you a financial detail on the first 9 months of 2021 later on. As usual, I would like to give you an update on our market environment at the beginning.Overall, the positive trend in our market since Q3 2020 continued as expected and communicated during our last calls. The global economy recovery continues, although new challenges like supply chain disturbs, availability of raw materials and right inflations arise. The automotive markets are heavily impacted by supply chain restraints. Recent forecasts say that about 10 million, 11 million cars cannot be built in 2021 due to the lack of parts. So how does the environment transfers into our market for engineering service providers? Short term, we experienced a high level of utilization. This is mainly baked by the strong order intake that we posted in Q2. Moreover, global OEMs keep pushing their technological development for the upcoming new age of mobility. This includes a high-end, high need of R&D with internal resources, but also without searching partners. Why? Engineering service providers, EDAG's technology accelerator to reduce time to market or help the customers to increase their cost efficiency. As a result of this, high need of R&D, we experienced a very high number of RFQs throughout this year. Moreover, the volume of some of the requested packages is extraordinarily high.For me, this market environment essentially leads to 3 conclusions. First of all, ESP market is not only growing in 2021, but we also do so over the next years. This assumption has also been verified by recent studies from the German Lunendonk Research Group. Secondly, as the size of requested packages grow, bigger ESPs with high project management skills and resources will benefit from these developments. Third, as the new world of mobility requires not only engineering, but also software and digitalization capabilities, our focus on internationalization and mobility is perfectly matching these requirements. These are the facts that keep me very optimistic for the overall market development and the positioning of the EDAG Group.On the other hand, we currently notice a change at our customers in terms of their order placement behavior. As the slowdown in car sales, especially in Q3, affects their ability to generate cash, the placement of orders has slowed in Q3 compared to the previous quarters. In combination with continued presence of elevated price pressure, we remain cautious and observe the current market development carefully. However, I must clearly point out that we consider these conditions to be rather temporary effect as the overall demand is expected to be -- go up again once supply chain concerns start to disappear. We are set to benefit from this development, and we have realigned our capabilities, and we are seamless expanding our portfolio of services according to the future demand of the market.The success of this strategy is underlined by our Q3 numbers. So let's move on to the key highlights of the first 3 quarters 2021. Our 9 month revenues are up by 4.8%. In Q3, revenue growth was even at 15.5%. With this figure, we are one of the fastest-growing ESPs in Q3, not only in Germany, but also globally. All of our 3 segments were growing in Q3. This means that also production solutions continues its recovery. Our adjusted EBIT margin after 9 months is at 4.7%, and Q3 came in particularly strong with a margin of 7.6%.I would like to remind you on frequently asked questions about EDAG's margin abilities. And if we will ever come back to margins above 6% or 7%. So well, ladies and gentlemen, here's the proof. Another frequently asked questions in the past has been if EDAG can manage to grow its software and digitalization footprint. So I'm here more than happy to present you another success story. Over the last 9 months, we were able to grow our software and digitalization revenues by about 22%. This growth has been purely organic. Today, EDAG is considered already as one of the top 20 IT service companies in the automotive industry in Germany, and we will continue to grow in this area.The transition of our company towards a digital company has also been showcased in September when we opened a new engineering hub here in Munich. After 2 years building period, the innovative, attractive and network building complex offers around 600 engineers, 9,000 square meters of space for interdisciplinary and flexing work. We have implemented a new work environment that's not only contemporary, but also increases the feel-good factor and the creativity of our employees. Moreover, we have opened a new E/E test center in Shanghai back in August, 2,800 square meters test area in the direct vicinity of the EDAG China subsidiary. The new E/E test center represents an important milestone for the further development of our Chinese footprint, especially in the field of software and digitalization.So overall, ladies and gentlemen, our strong margin and the disproportionate curve growth in the future competencies show that we are on the strategically right track. Although, we do currently see a temporary slowdown in the order intake, we are absolutely convinced that EDAG Group will continue its success story over the next years. But now we have delivered what we have promised and remain confident that we will continue to do so.So far, from my side, for the moment, please let me now pass on to Holger Merz, who will provide you with the financial details on our 9 months figures 2021. Holger?

[Holger Merz, CFO & Member of Executive Board]

Thank you, Cosimo, and good morning, ladies and gentlemen, also from my side. As Cosimo already mentioned, revenues after 9 months are up by 4.8%. Let me elaborate a little further on our 3 segments. Our biggest segment, Vehicle Engineering was up by 6.8% after 9 months. In Q3, the growth rate was even up to 17.6%. This growth is backed by a very strong international business, but also by a recovery of our domestic market. Electrics/Electronics posted a strong 10.8% increase for the first 9 months. In Q3, the growth has even accelerated to 19.3%. The demand of our E/E services is coming from more or less all of our customers in Germany and abroad. Production Solutions, on the other hand, shows a decline of 2.7% for the first 9 months. Although this segment managed to return to the growth path with a revenue increase of 2.7% in Q3. We experienced a positive momentum, especially in the area of smart factory and smart cities.At the next slide, we show our revenue split by region. As already highlighted in our half year call, our international business has been very supportive throughout the phase of market recovery. The international revenue share is now up to 45.3%. With this number, we have reached a high level of comfort in our revenue mix with domestic and international revenues. Currently, we do not expect the share of revenues with international customers to grow beyond the current level over the coming quarters as we are expecting a step-wise market recovery also with our domestic customers.Let us move to the next slide where we show the development of the adjusted EBIT. Overall, the adjusted EBIT was at EUR 23.8 million, an increase of EUR 31.5 million compared to last year. The corresponding margin levels at 4.7%. Looking at the segments, we see Vehicle Engineering and Electrics/Electronics posting comparable margins of 5.8% and 5.9%. Production Solutions on the other hand, is still negative after 9 months. But after Q2, has been breakeven, Q3 already saw a margin of 1.1%. So we are on the right track with the segment as well.As Cosimo already highlighted, the margin leveled at 7.6% with the third quarter. This is very satisfying result -- this very satisfying result is mainly owed to the following 3 factors: First of all, a very good utilization in most of our departments based on the solid order intake of the previous quarters. Secondly, full effect of our cost-saving measures of 2020. Third point, Production Solutions returning back to profitability. Overall, the margin in Q3 clearly proves our ability to generate decent margin with our business model.Let us have a quick view on our expenses. There are 3 points I would like to highlight. Net other expenses declined significantly by 3.8 percentage points as a result of our savings program, but also due to the lower travel expenses compared to last year's figures. Secondly, the share of material expenses went down from 6.8% to 4.1%. This is due to the ended contract for a retrofitting of a small series of vehicles with fuel cells. And finally, expenses for external services are slightly up from 6.3% to 7.5%. We are using external partners as additional and flexible resources in order to cover peak demand in certain areas. This helps us to keep costs under control and to react short-term changes in customer demand. Overall, we will continue to closely monitor all costs in order to maintain a sustainable and satisfactory level of profitability.Let's move on to our EAT and equity at Slide 9. Corresponding to the development of our adjusted EBIT, earnings after tax are significantly up by EUR 26.3 to EUR 8.5 million. After Q1 was negative and Q2 already came in with an EAT of EUR 3.5 million, we have managed to generate EUR 7 million EAT in Q4. So we have doubled our earnings after tax quarter-over-quarter. The equity ratio was at 16.5% at the end of the reporting period. The reduction compared to the previous year's figures is based on a longer balance sheet compared to last year, mainly caused by higher rights of use from leasing and a higher working capital. However, since the end of 2020, we have already increased our total equity by EUR 10 million and starts on the right way to further strengthen our balance sheet.Let's move to the development of headcount and CapEx at the next slide. The overall headcount decreased by 139 to 7,874 employees compared to the end of September 2020. Within the third quarter, headcount increased by 110 employees, which is driven by the very good growth rates in Vehicle Engineering and Electrics/Electronics. Our CapEx is slightly up to EUR 13.2 million. The CapEx ratio levels at about 2.6% of revenue. We expect a step-wise increase in CapEx over the next month. For the full year, we will remain in our target corridor of below 4% of revenue. Looking a little bit further down the road, we do expect a higher CapEx ratio for 2022 as we are facing some bigger investments in our digital infrastructure.At the next slide, we show the development of our trade working capital. As we carried out in our last call, the recovery in our overall business leads to an increase in working capital. Accordingly, our trade working capital by the end of September is up to EUR 46.8 million.At the next slide, you will see the adverse effect in our cash flow. Compared to the previous year's figures, operating and the free cash flow have significantly decreased. As we have communicated several times, this effect has been anticipated as a consequence of the overall market recovery and its effects on our working capital. However, I would like to point out that the very positive development in Q3 has not only limited to the revenues and EBIT. Although, our operating and free cash flow turned positive in Q3. For the full year, we nevertheless expect a negative free cash flow, well in line with our communication of the previous quarter.Before coming to our outlook, we show the development of our net financial debt at the next slide. Overall, we do see the market recovery also in these figures. After a massive reduction of our net financial debt by the end of September last year, we have slightly increased the numbers at the end of the current reporting period. The net financial debt, including leasing at the end of September was up by EUR 24.1 million to EUR 154.6 million. The net financial debt without leasing went up by some EUR 14 million to EUR 4.7 million. With a net gearing of just 4.2% and available credit lines of EUR 106 million at the reporting date, EDAG is in a very comfortable and strong financial position.Finally, let us come to our outlook 2021. We have not changed our revenue outlook. So based on the expected continuation of the global economic recovery, sales are expected to increase in a range of around 3% to 5% for the full year 2021. As a result of the cost-savings measures implemented, we continue to expect a notable improvement in adjusted EBIT in positive territory. Based on current estimates, the Group's adjusted EBIT margin is expected to be at the upper end of the range of around 3% to 4%. So we become slightly more optimistic in our earnings outlook for 2021. Of course, this assessment remains largely dependent on the further development of the supply chain disturb as well as the corona pandemic. As a globally operating company, the EDAG Group is closely monitoring further developments and is prepared to take all necessary countermeasures in close contact with our customers.Ladies and gentlemen, concluding, please let me state the following. With our last year's Q3 call, we gave out the goal that our company shall emerge from the pandemic stronger than before. We have now witnessed a very strong third quarter with a double-digit growth in revenues and a very solid margin of 7.6%. Since the highest margin since the third quarter 2018. We have proven that we took the right decisions and measures in order to get the EDAG Group back on track. We as management team and the whole EDAG Group pursue the aim of being reliable partner, not only for our customers, but for all of our stakeholders. The key success factors for such reliability is honest and clear communication. This is why we took the opportunity of this call to precisely stress the future market potential, but also the currently slowed order intake and the change in customer behavior.Overall, we expect a few new challenges ahead of us, which are owed to most likely temporary external effects. On the other hand, opportunities from growing project sizes, increased outsourcing and new customers arise. Throughout the last year-and-a-half, we have proven that we can manage challenges. But more important, we have also proven that we can overcome challenges by taking opportunities. A clear strategy [ give us ] actions and honest and clear communication both and will be the basis for our future success.Ladies and gentlemen, thank you for listening to our report on 9 months 2021 figures. We are now looking forward to answering your questions.

[Operator]

[Operator Instructions] We will take the first question from Mr. Marc.

[Marc-René Tonn]

It's Marc-Rene Tonn from Warburg Research. The first one would be on the order intake and the situation you currently observe, whether you can give us some split perhaps on where you see, let's say, the -- a bit of a stronger slowdown in pricing of new orders? Is this more on the supplier side? Is it OEM side? Is this more domestic or more international? Or is this something, which is across the board due to the lower production figures in the industry overall? And perhaps you could give us some kind of an update about October, November, whether you still see, let's say, a bit more hesitation in placing new orders or whether that may have already taken place some improvement from what we have seen in the last quarter? This will be the first question. I will follow-on this with some more questions after that, please.

[Cosimo De Carlo, CEO & Member of Executive Board]

Okay. Thank you, Marc, for your question. So as I said before, the current environment is characterized by higher than normal level of volatility and uncertainty. As explained during the call, this is solidly due by the fact that there is a -- there is a cheap crisis and the lack of raw materials. So we observed that our customers are, of course, try to protect their cash flow. And that's the reason why there are a little bit more slow in, let's say, giving us orders and so on. This is, for me, a short-term factor. As I said at the beginning, globally, midterm, I see a very good potential because the number of RFQs and the size of RFQs is very high. And the volume is sometimes really extraordinarily high. So we are -- we feel to be a little bit more cautious short-term after what we have seen in the third quarter, but we remain absolutely optimistic concerned midterm because the potentials are there. And you know that the way we also manage our order intake. So we are quite cautious in showing also our order intake figures because we have a certain, let's say, also risk management will never show something which is not really sure. That's the way we always act in the past. And as Holger said before, we want to be honest and clear also in relation to that.On the other side, I really feel you see also the numbers, our strategy of internationalization and the strategy of digital transformation is evidently right. And we see also in the numbers of Q3, and we see, as I said, midterm high potential. In terms of -- you asked if there is something that occurs at the OEMs, Tier 1s. So it's mainly an effect of OEMs because, of course, they need to protect their cash flow in order to reach the results at the end of Q4. But globally, the demand is really -- is still very dynamic and promising for us.

[Marc-René Tonn]

Coming back to the international business. I think we still see, let's say, a lot of -- let's say, new companies coming, coming to the market or joining the stock market. On the other hand, I think we all are aware of the problems ever run, obviously, has the base and then now the present situation is looking there. What -- how does your business develop in such a scenario? Do you still see, let's say a lot of -- let's say, new customers, which are also completely new to you, let's say, having requests and showing up on your radar? Or is this, let's say, that's the case and that has been perhaps one or 2 years ago?

[Cosimo De Carlo, CEO & Member of Executive Board]

So let's say like this. It's a combination. I would say it's a combination of different customers. So our international business was always part of our strategy. And in this international business, we have one side, the classical established OEMs outside Germany, which are becoming more and more important in our portfolio from one side. On the other side, as you, of course, notice, the international market is very dynamic with the newcomers in the automotive industry. And we at EDAG, we always had this -- we have this [ USP ] in terms of that. We are able, with our 360-degree approach to develop a complete car. And this knowledge is experience the capability of our company to manage international projects from scratch is one of our USP. And as I said also during my last call, we are always one of the best address, let's say, to ask if a new [ auto shop ] that is coming to develop a new car from scratch because of our 360-degree capabilities experience and also our ability to manage very complex projects on international level. So it's a combination of both. And of course, we will further increase our market share by using these dynamism on the market in the automotive industry.

[Marc-René Tonn]

Thirdly or the third question would be on Production Solution. Congratulations for being, let's say, for bringing a positive margin here in the third quarter. Do you think that this will now continue to gradually improve? Or is there a certain risk of, let's say, this business, as they getting back into the red figures? Or is it more expected to trend around breakeven from here? And what -- let's say -- if let's say, the profit is not expected to improve further measures, would you, let' say, consider to do here?

[Cosimo De Carlo, CEO & Member of Executive Board]

Let's say like this. First of all, our objective was, as we stated in the last quarters to bring this unit breakeven. And I think we did hear a very good job, first of all, by decreasing the cost. And secondly, also with our differentiation strategy because as I stated also in the past, they know our Production Solutions is also very interesting for other industries. And we could really benefit from our differentiation strategy and also transformation process. As you know, we will have in the future, less derivates. So the classical business in Production Solutions will change the future, that could be a reduction of the business. On the other side, the new technologies like production IT, like Industry 4.0, are for us a potential, a big potential for the future. And that's the reason why after having managed our cost situation at last quarter, we think that we can go ahead with our transformation process in the Production Solutions. Our objective is, of course, to maintain this breakeven very good level in the next quarters. That's for sure, our objective, and we will do that step-by-step because it's a long transformation project. And of course, last year with Corona, we had some delays in delivering that. But the fact that we could be positive in Q2 and also show you a very low margin, positive margin in Q3, show us that we are on the right way.

[Marc-René Tonn]

Okay. And lastly, on Q4 and let's say, taking your guidance and I appreciate that you have become more significant and, let's say, targeting the upper range. However, it would still imply, let's say, a rather significant sequential decrease in profitability for the fourth quarter. Is this more something where you say, okay, you really want to be on the cautious side and let's say, bandwidth of 3% to 4% may not necessarily end at 4% but it could be even a bit more than 4%. Or is it really that you expect December to be a very weak month in this year with the corresponding negative effect on earnings in this specific group?

[Holger Merz, CFO & Member of Executive Board]

Okay. I will take those questions, Marc. I think these are revenue growth after 9 months at -- was it 5.1%. So we are still in our guidance with sales growth of around 3% to 5%. Yes, our adjusted EBIT stood at 4.8%, so slightly ahead of the guidance, which says a margin of around 3% to 4%. But we know that December is not a very good month for EDAG, the Christmas season and a lot of vacation and so this month will get a little bit weaker. And so we are cautious optimistic in our guidance. And yes, so we feel very good with the guidance, which we provided to you.

[Operator]

We will take the next question from Yasmin.

[Yasmin Steilen, Analyst]

This is Yasmin Steilen from Berenberg. Actually I have two, and unfortunately, I have to come back to your guidance. So just looking at the strong Q3 results, your guidance implies at the midpoint a slowdown of the growth. So basically around 2% growth in the last quarter. And you already mentioned the same is also true for the year adjusted EBIT margin. So even if you would end up at [ 4.44% ] adjusted EBIT margin, this would imply a decline by around 400 basis points Q-over-Q. So you mentioned, obviously, the normal seasonality. And we also have the issues of supply chain shortages, which should not affect you immediately. Is there anything we should consider? Or is it really kind of, in particular, with regards to the adjusted EBIT margin decline Q-over-Q, is it just normal seasonality? Or should we consider anything else? Thanks [indiscernible] for the first question.

[Cosimo De Carlo, CEO & Member of Executive Board]

As I mentioned before, December is Christmas season and December is always a little bit of weaker month. But we are also aware of the delays in the supply chain. And although this has some impacts for EDAG because our customers are more reluctant to give orders to suppliers because they have to save all the cash. And we are also aware of the current corona situation. And that's, yes, why we are cautious optimistic for the fourth quarter. And as we mentioned, third quarter was the best quarter we had since 3 years since 2018. And so traditionally, our fourth quarter is a little bit weaker than the third quarter.

[Yasmin Steilen, Analyst]

Okay.

[Cosimo De Carlo, CEO & Member of Executive Board]

I hope it answers your question.

[Yasmin Steilen, Analyst]

Yes. So basically, 400 basis points is your definition of kind of a slight decline Q-over-Q, which should be in line with the seasonal patterns and also reflecting the supply chain shortages. Okay. Well understood. Then another question. You and your co-German competitor referred to larger buy tenders of more than EUR 100 million from the German OEMs that we've never seen before. And you have been more cautious or less optimistic on the development than your competitors. So the large orders could also be an indication that the OEMs are just testing the water and the final tender might be distributed among several players. Do you have in the meantime more insights? So have your seat has been confirmed? Or might we see some upside risk in case the OEMs are also willing to place larger orders? This will be my last question.

[Cosimo De Carlo, CEO & Member of Executive Board]

Yes. I take the answer. Yasmin, as I mentioned before, we have always, let's say, very cautious when we show you our order intake. So it's -- what you said is totally correct. In the market, there are very large RFQs, especially from the German car manufacturers. Abroad, I think the fact that we are dealing with very large RFQs, it's, I would say, normal for us. Internationally, we always dealing with very big projects at the moment also in the past. Concerning the German tenancy, yes, we have a very large RFQs. But at the end of the day -- at the end of the day, let's say, we will not -- is not sure that you get all the big RFQs.So the tenancy of our OEMs is to say to test little bit the market to see what is going on. And then at the end of the day, a split between different suppliers is very common at this stage. And also, if we win all the big contracts, we never show that directly in our order intake because we are dealing with what we call framework contracts, let's say, a sort of letter of intent. But it's not guaranteed that this contract will be called in the same amount, which is within the contract. So you'll have an amount of orders, which will be less or equal to the framework contract. And the way we show our order intake is exactly that. We don't -- we never show such a framework contract. We only show the calls from this contract, and we show that, let's say, step-by-step, month after month. In order to avoid, let's say, negative surprises that could occur. In case the customer says, "Oh my God, now I have to protect my cash. So I will -- I want to reduce my orders for a quarter or for a month." So that's the way we do. I think it's in line with what Holger said before, honest and clear communication. And this way, we can guarantee that we can always deliver what we promise.

[Operator]

We will take the next question from Harald.

[Harald Christiaan Hendrikse, Managing Director]

So just a quick question. Slightly longer term, really. But between what was an incredibly good quarter in terms of margin recovery, and I really appreciate you getting those margins back to 8% in Q3 and then obviously, the seasonality in Q4. It becomes a little bit difficult to have a very clear picture for '22, '23. Is the Q3 performance something that we should think can be repeated? Or how exceptional was it? You've had a lot of cost restructuring. Obviously, volumes getting up. So you're getting some operating leverage. But it's a little bit difficult between the 2 quarters to now understand what the sort of run rate margins could be in '22, '23. Can you help us on that at all please?

[Cosimo De Carlo, CEO & Member of Executive Board]

So let's say, thank you for your question. The first answer I give to you the performance of Q3 2021 is something that can be repeated. Can be repeated. That's the reason why I was also stating that at the beginning. I think all the structure measures that we have put in place last year, the dynamic of the market, the combination of both can give us, let's say, the possibility to, of course, to repeat this performance in Q3. Consider the next years, of course, it's a matter of a new guidance and the new guidance, we will provide that during Q1, when we will, let's say, provide our financial year result of 2021. As I said at the beginning, I would say this, the short term we see a potential risk because of these raw material crisis and the chip shortage crisis. On the other side, we remain optimistic for midterm development of the market and also midterm development of the performance of EDAG.

[Operator]

[Operator Instructions] I have right now Katharina.

[Katharina Werner, Research Analyst]

This is Katharina from Deutsche Bank. I have 3 questions. My first one would be on the CapEx. You just mentioned that you plan to spend some more money next year on the digital infrastructure. Can you give us some information on what exactly you mean by this? And with which amount we can calculate here? So I guess it's over 4% of the sales as you have had targeted right now?

[Holger Merz, CFO & Member of Executive Board]

Your first question was regarding the CapEx in the infrastructure. It's because next year, we have 2 new locations. We move in Ingolstadt from Gaimersheim, our former headquarters of E/E segment to Robert-Bosch-Strasse though we had to do some more investment in the digital infrastructure, hardware, software and things like that. And also, we had a big movement in Munich. Our testing center will move to another location. And so we also have to invest in this new location here in Munich. What's again your second question?

[Katharina Werner, Research Analyst]

If you can give a rough idea of how much you target to spend. So as of now, it's -- your target is at 4% of sales. How much does that might increase?

[Holger Merz, CFO & Member of Executive Board]

Yes, I would say at our end of our corridor, 3% to 4%, we will see. We are currently at the business planning. And so I give only a guidance in 2022, and it's -- right now, it's too early because we are in the middle of our business planning.

[Katharina Werner, Research Analyst]

Okay. My second question is regarding the profitability for next year. So I guess, you also see some headwinds from inflation and also from travel which is coming back. Can you give us an idea on how much this will impact your profitability, your margin?

[Holger Merz, CFO & Member of Executive Board]

Yes. I think about what Cosimo already mentioned, we are quite confident for the next year. But as you know, right now, we don't want to give a guidance for 2022 -- exact guidance for 2022, but we are quite confident that we can keep or increase our current margins. I mean, right now, we don't know if there are any surprises. We don't think that there will come up any surprises for the next year. We are quite confident.

[Katharina Werner, Research Analyst]

It's good to hear. And my last question would be regarding software and digitalization. You mentioned that your revenues are increasing quite strongly. Can you give us an idea on how much revenue you generate in this segment and what's the profitability?

[Cosimo De Carlo, CEO & Member of Executive Board]

Yes. So it's, let's say, without -- it's not a segment in the way we declare a segments to you. It's -- for us, it's an agile organization, which covers all different segments. So we decide to use or to put in place this organization because it's very important for us, let's say, to have -- to respond to the future demand of the automotive market in these areas. So we are doing quite well. I will say today, nowadays, we have more than 500 employees in Germany only dealing with software digitalization. As I said at the beginning of the call, we are growing about 22% after the 3 months.Profitability is very high. And let's say, we are -- generated just to give you a rough number after the 3 quarters, we generated already EUR 50 million, five-zero million of revenue only in Germany with that. I'm quite confident in the future because we do want, of course, to enlarge this organization, and we were able to hire also specialists in these areas. Sometimes, so -- the market is now quite difficult for some players to get the right talent. We were able to onboard the right talents in these areas, and we did that in Germany. And for the next quarters, we foresee a further growth, which could be really continue to be disproportionate because we will use, of course, also our international facilities to, let's say, increase our deliverables and to increase our capability, let's say, to deliver these projects. So this trend will continue. As I always state in my -- always state, the future of the automotive industry is in this software. So there will be more than 40% of the value-generating in the car. And as EDAG, if you want to continue to be the first player in this ESP market in the automotive industry, we have to be, of course, the specialist in hardware and also in software. And I think this journey is that we started 3 years ago, is going ahead quite well. And we'll be -- we are quite confident that we will continue to enlarge this unit in the upcoming years in order to really -- to become a specialist, not only in the hardware development of the car, but also in the software development on the car and also so that we can maintain our leading position in this automotive industry.

[Operator]

[Operator Instructions] It appears that there is no further question at this time. Mr. Speaker, I'd like to turn the conference back to you for any additional or closing remarks. Please go ahead.

[Cosimo De Carlo, CEO & Member of Executive Board]

Okay. Thank you very much for listening, and thank you very much for your attention during this call. And thank you for taking your time and looking forward to the -- having the next call together, which will be at the end of the first quarter next year. So we take the opportunity, of course, Mr. Merz and myself, to wish you a Merry Christmas, of course, happy new year to all of you, with the same optimism like we show today because as Holger said at the beginning, we will -- we are quite confident about the next years. So thank you very much again, and have a good day.