Knorr Bremse AG

XETRA:KBX

Earnings Call Transcript 2019-Q1

[Operator]

Dear ladies and gentlemen, welcome to the quarterly financial report of Knorr-Bremse AG regarding the presentation of the Q1 2019 results. At our customer's request, this conference will be recorded.[Operator Instructions] May I now hand you over to Andreas Spitzauer, Head of Investor Relations who will lead you through this conference. Please go ahead, sir.

[Andreas Spitzauer, Head of Investor Relations]

Thank you, Miss Sanders, good afternoon, as well as good morning, ladies and gentlemen. My name is Andreas Spitzauer, Head of Investor Relations of Knorr-Bremse. I want to welcome you to Knorr-Bremse's conference call for the Q1 2019 results. As a reminder, the conference call will be recorded and is available on our home page, www.knorr-bremse.com in the Investor Relations section. You can find today's presentation there as well. It is now my pleasure to hand over the call to Ralph Heuwing, the CFO of Knorr-Bremse. Please go ahead, Ralph.

[Ralph Heuwing, CFO & Member of Executive Board]

Yes. Thank you, Andreas. And also thank you, Miss Sanders. Ladies and gentlemen, I warmly welcome you to our conference call for the first quarter results of Knorr-Bremse 2019. Sorry for the background noise. First of all, I would like to present the highlights for the first 3 months of the year, followed by a more detailed explanation, especially on the divisional level. Thereafter, I would like to conclude my presentation with an updated outlook for the rest of the year, followed by our Q&A session.Let's start with Chart 3 in our quarterly highlights. Considering the increasing uncertainty in the global economy, Knorr-Bremse's start into 2019 was actually very successful. Our performance was also remarkable when compared to other segments in the industrial goods industry, such as automotive. We continued to grow profitably and managed to push further ahead with our strategic agenda to broaden and deepen our product portfolio in both rail and truck. Orders received reached EUR 1.9 billion, a new record value in a single quarter and an increase of more than 5% year-on-year, a notable performance. At EUR 1.8 billion, revenues were 9% stronger compared with last year's performance. This dynamic development was driven by both divisions and across all major regions. Going forward, a strong book-to-bill ratio of 1.08 and a record order book of EUR 4.7 billion provides good visibility and should support revenue development in the coming quarters. EBITDA margin improved to 19% in the first quarter of 2019, after 18.3% for the same quarter last year. Despite some cost burdens that we already saw in the last quarters of 2018, our operational performance was solid. In Q1 2019, we benefited from the first-time application of the IFRS 16 standard too, accounting for 70 basis points in EBITDA margin.During the third quarter of this year, we have been quite active on the M&A front. The main objective of these transactions, which are displayed on Chart 4, was to strengthen, complement and expand our strong market positions in rail and truck. We're able to broaden our product portfolio, and at the same time, improve time to market and access to customers with new solutions and services. It's important to us that we leverage our market-leading position in innovation and technology for growth in new products and services, which is the foundation of our business success. Especially, the acquisition of the steering business of Hitachi Automotive Systems is an important step to combine steering and braking. Together, those 2 systems will be the key actuators for advanced driver assistance systems and highly-automated driving technology. The closing of the acquisition was end of March, and we will account for the revenues and profits within the CVS segment starting in the second quarter of 2019. In addition, our truck division made a second investment in the field of steering. We took the 50% stake in Sentient, a Swedish company developing software for vehicle motion control and steering applications for trucks. These products assist the driver in avoiding unintended lane departure or resisting disturbances from the road and tires without compromising the steering field.On the rail side, I want to highlight, first of all, RailVision. We acquired 21% stake in this Israel-based company, which is active in the field of sensoric vision and creates visibility for up to 2,000 meters ahead of a train. Based on infrared and video technology, RailVision provides obstacle detection capabilities, which are key for realizing automated driving functions. We also bought the U.S.-based company Snyder, which is an industry-leading manufacturer of -- for example, of service equipment for locomotives. Its knowhow includes remanufacturing of RVS equipment. With Snyder, we will further strengthen our aftermarket revenues in the North American market of RVS. Last but not least, our rail division took a 32% stake in Railnova. This Belgian technology company provides both fleet and maintenance workflow software and telematics solutions for the railway industry.Let me now dive deeper into our results on Chart 5. Our order intake on group level for the first 3 months of this year was up more than 5% compared with the same period last year. Please note that this was predominantly organic growth. The positive FX tailwind contributed approximately 2 percentage points to our order growth. The order book as well increased to a new record level. With EUR 4.7 billion, we have a visibility of more than 8 months, sufficient time to respond to any potential market changes in the coming quarters.Our revenues grew even faster at 9% and came in at EUR 1.76 billion for the quarter. All major regions contributed to this development. FX tailwind added approximately 2 percentage points. The strongest growth contribution, actually with some distance, came from North America. Here, the revenue growth of 27% was clearly outstanding, reflecting good momentum in metro freight locomotives for our rail division as well as content growth for our truck division. It, of course, was also positively influenced by an FX effect amounting approximately to 9 percentage points. The region Asia Pacific delivered a growth rate of 8% and Europe achieved 3% in revenue growth in the first quarter of 2019.Let me continue with the explanation of our profitability on Chart 6. Our EBITDA followed suit with our revenue growth. Group EBITDA came in at EUR 334 million, up 13% compared with last year. This equates to a margin of 19%, 70 basis points higher than during the same period last year. The performance in 2019 provides a solid basis to reach our profitability goal in 2019. This increase in profitability was supported by a change of accounting standards. On a like-for-like basis, i.e., ex the IFRS 16 impact, our EBITDA margin was at the same level of 18.3% as the Q1 2018.Let me highlight, though, that the first quarter of 2018 EBITDA margin was considerably stronger than the second quarter of 2018, which reached only 16.8%. The main reason behind the margin development in the first quarter of 2018 was the reversal of provisions, which took place in the other EBITDA line, the difference between the group EBITDA and the divisional EBITDA. Normally, the underlying other EBITDA line should be negative in the mid- to high single-digits million euro range per quarter, driven mainly by the central costs. In summary, we consider the margin development in the first quarter 2019 to be rather strong.On an EBIT level, we were able to increase margins, too, driven by lower depreciation. The first quarter of 2018 had seen an extraordinary write-off of assets held for sale, which you will remember actually got sold off in the fourth quarter. EBIT margins increased by 140 basis points, with almost no tailwind by IFRS 16. At 15.6%, our EBIT margin continued on the strong level of Q4 2018.Turning to Slide 7. Our operating cash flow in the first quarter of 2019 improved by 9% year-on-year despite the revenue growth-driven increase in net working capital and higher investments predominantly in capacity expansions. In the quarters to come, we expect to strengthen our operating cash flow, mostly by improving net working capital. ROCE was somewhat lower at 32.2% in the first quarter of 2019. The decline reflects the first-time application of the IFRS 16 standard with approximately 7 -- 3 percentage points as well as the higher level of trade accounts payable. For the later topic, we expect an improvement in the next quarters. The increase in CapEx reflects capacity expansion for the continued demand for added space in North America as well as the Munich-based site development.Let's move on to the divisional review starting with RVS on Slide 8. In the first quarter of 2019, order intake of Rail Vehicle Systems was up 10%. For the first time, we were able to post an order intake of more than EUR 1 billion in one single quarter, a new record level. Drivers for the strong development have been several: the high demand from the metro segment in Europe, North America and Asia; additionally, we won several orders for freight cars and locomotives in North America; and finally, order intake in our aftermarket business continued to grow at a healthy rate. Based on the strong demand for our products and services, our order book advanced as well. At the end of the first quarter, it reached a level of more than EUR 3.3 billion. Hence, our visibility stood at 11 months of revenue.Moving on to revenue and profitability for the rail division on Page 9. In the first 3 months of 2019, revenue increased by over 9% to EUR 911 million. In Europe, top line growth was supported by the OE development in the segment's freight cars, regional and commuter as well as metros. In Asia, we realized good developments in our Indian OE business and in our Chinese aftermarket growth. There, we see that increasing numbers of high-speed trains, which we delivered 8 to 10 years ago, are entering the first phase of overhauls. Given that our OE products are often quite captive in the aftermarket business, we expect that our Chinese aftermarket will be an important growth driver for our top line going forward. Currently, we have established 29 service locations in China, which are a clear USP in terms of being close to our customers. Our OE business in China developed solidly.In the region North and South America, revenues benefited from good demand for onboard systems, a strong aftermarket business and a positive development in the freight segment. The development of RVS profitability in the quarter was especially satisfying for us. EBITDA grew by 27% to EUR 200 million and EBITDA margin was 21.9%. Even excluding the positive impacts by IFRS 16, the margin was well above 21%, outgrowing last year's figure. The drivers for this strong performance were: first, positive volume effects with corresponding operating leverage; second, support from our aftermarket business and its impact on mix; and third, the disposal of the loss-making business of Blueprint and Sydac end of last year.On Slide 10, I'd like to continue with the development of our truck division. Order intake for CVS was EUR 859 million in the first quarter of 2019, which is basically on the same level as the year before. Currently, we assess the demand in the truck division by our customers overall as healthy and solid. In the U.S. truck production -- in the U.S., truck production numbers have further risen, and we benefit from a high order book from our OE customers. The Chinese market, just by size and nature of the business, is more volatile. Right now, with a truck production rate down by 1.2% year-over-year, the market is normalizing from pre-buying activities in the past. We expect the new emission standards, however, which will be introduced next year, to be supportive for our order intake in China in the quarters to come. We expect a stable truck production level in the European markets. TPR is still on a high level. In the first quarter '19, our order intake benefited from increasing content per vehicle across the globe but particularly in North America. Especially, the higher demand for products in the field of driver assistance systems as well as the ongoing migration for drum brakes to air disc brakes were the drivers behind our growth. Overall, we were able to book a solid performance from OE orders across all major markets. The order book for our truck division was at EUR 1.38 billion at the end of the first quarter 2019. This provides the visibility of 5 months revenue, a comfortable level to adjust capacities if and when needed. Let's move on to Slide 11. CVS posted EUR 846 million in revenue for the first quarter of 2019. Compared with last year's figures, this is strong increase by more than 8%. With this development, our truck division was able to substantially outperform the corresponding global Q1 production rate of trucks, which advanced by a moderate 1.6%. The basis for this outperformance lies in the ongoing growth of content per vehicle and a favorable geographic mix. In Europe, we saw a solid revenue development, too.In the first quarter of 2019, CVS achieved over EUR 140 million in EBITDA at a margin of 16.6%. In comparison with last year's rather strong Q1 EBITDA margin, this was slightly lower, but it continued at roughly the same level that we saw in the third and fourth quarter last year. The drivers for this development were, like in recent quarters as well, material cost inflation and ongoing supply chain constraints, which the whole industry has been facing. We are working hard to address these issues, and hence, have initiated a program to improve our European cost structure. In addition, we witnessed a slightly lower aftermarket share in sales, which was predominantly driven by our strong OE performance.Moreover, we are prepared for the eventuality that truck production rates should fall towards the end of the year. For this case, we have designed our cost program in such a way that we can quickly escalate it to the next level if and when needed. On the other hand, we continue to invest strongly in our future, especially we're focusing on the fields of highly automated driving and advanced driver assistance systems. We believe that these 2 topics will be the key for the future success in our industry. This is actually a good moment to talk about our steering acquisition on Chart 12. We closed the acquisition of the commercial vehicle steering business of Hitachi Automotive Systems, as announced on March 29. In the future, it will operate under the name Knorr-Bremse Steering Systems Japan. As you will remember, our strategic rationale behind this acquisition was: first, to strengthen our position in steering, which is coming closer together with breaking in a highly assisted and automated driving scenario; second, to gain better market access in Japan and in China, 2 important truck markets globally; and third, to expand our product portfolio of CVS and hence, further strengthen content per vehicle.Going forward, KB Steering Systems Japan will be responsible for the development of our global torque overlay system as an important enabler for motion controlling within automated driving for commercial vehicles. For the rest of the financial year, we expect that this new unit will contribute approximately EUR 60 million in revenue and EBITDA margin of approximately 10% and an EBIT margin before PPA of almost 7%. For the time being, this acquisition will dilute our CVS and group margin to some extent.On the Slide 13, we put together the main effects on our top line guidance when comparing 2019 with the previous year as well as the bridge towards our updated guidance following the acquisitions. Last year, you -- remember that we disposed subsidiaries which did not fit to our strategy and were loss making, namely Sydac and Blueprint. Together, these had posted revenues of EUR 68 million last year. Starting from this normalized basis, we expect organic growth between 3.8% and 6.9% in 2019. This is unchanged compared to what we said at our preliminary results and in our annual reports. Also, for purpose of clarity, it refers to the FX rates prevailing in March 2019. In addition, the acquisitions of the last month are expected to support our top line by EUR 75 million in 2019. This leads us to an updated revenue guidance of EUR 6.875 billion to EUR 7.075 billion in 2019.On Slide 14, following the same logic, we have put together the main drivers for our profitability when you compare to those '19 -- 2018 as well as the impact for accounting changes and acquisitions. The onetime disposal and operating losses plus the IPO costs accounted for in 2018 should add 60 basis points to our 2009 (sic) [ 2019 ] margin. The first-time application of the IFRS 16 standard should lift our EBITDA margin by another 70 basis points. The impact on the balance sheet and the respective PPAs has actually been disclosed in our annual report. At the same time, we expect that the acquired companies are not yet contributing at the same level of profitability compared with our existing business, and therefore, we expect a small dilution of 20 basis points. We do, however, expect them to catch up and improve their profitability in the coming years. Putting all these topics together, we expect now an updated EBITDA margin of 18.5% to 19.5% in 2019. In essence, our underlying guidance for top and bottom line is confirmed and just updated for accounting changes and acquisitions.Last but not least, I want to mention that despite the fact that almost all of our business units show a strong financial performance, we are diligent and decisive in addressing signs of weaknesses or underperformance. In this period, we announced the closure of our steering plant's production operations in Wülfrath in Germany last week. We had already flagged potential restructuring efforts in the IPO prospectus. Following the early termination of a large passenger vehicle steering order, the Hitachi acquisition, and a redesign of our global production footprint, it became evident that this step became necessary. We expect a low double-digit million euro restructuring charge to be recognized regarding Wülfrath in the second quarter of 2019. Against this, however, we expect to benefit from avoiding losses also in the tune of low single -- double-digits million euro figure from 2020 onwards. Let me stress, however, that we plan to retain the engineering expertise of KB Steering in Germany, and make this team a center of competence for our R&D and engineering programs.With this final comment, I would like to thank you very much for your attention. I'm now handing back to [ Mrs. ] Sanders, and look forward to your questions.

[Operator]

[Operator Instructions]The first question is from Ingo Schachel, Commerzbank.

[Ingo-Martin Schachel]

Yes, I would have 2 questions. The first one would be on your North American business in Commercial Vehicle Systems. I think in terms of top line growth, it was really a very impressive performance, not only compared to end market growth, but also compared to competitors with a similar product mix, you have a much, much stronger organic growth rate. Of course, you elaborated on certain factors that contributed, but it still sounds to be, well, higher than one would have expected even taking into account some of the technology points you mentioned. I was just curious whether you had any, say, special effects, one-off client wins or short term market share gains because of your ability to deliver, which have impacted Q1 outperformance, specifically? Or whether we might hope that this performance is really sustainable also for at least the next quarters?And the second question would be on your cash flow or net working capital build up, specifically. Of course, it's clear that net working capital goes up in the first quarter. But I think it's this year, EUR 50 million more than in the last year. And I think even last year, you were saying that you were not entirely happy with the first half net working capital build up as impacted by specific factors in Rail Vehicle Systems. Just curious whether you could talk about the, let's say, EUR 50 million or EUR 100 million higher net working capital than normal that we saw in Q1 '19? And then quantify a bit just maybe how much of that is related to Commercial Vehicle Systems' inventory buildup versus Rail Vehicle Systems' payment terms or eventual other factors?

[Ralph Heuwing, CFO & Member of Executive Board]

Yes, Ingo. Thanks for your questions. We are indeed happy about the North American CVS revenue development. I can't really point to any special effects that accrued in 2019 first quarter, but I would say that the first quarter of 2018 was, relatively speaking, weaker. If you now look at the development over the 4 quarters of 2019 -- '18, I'm sorry, then second, third and fourth quarter were quite similar in revenue, but Q1 was actually a bit weaker. So we are comparing a particularly strong Q1 '19 with a weaker Q1 2018. But if we push individual quarters aside, I can just confirm that growth momentum is keeping on, and we are particularly happy that this is not just driven by truck production rates but by content as well.On the working capital buildup, yes, you have put the finger in an area for improvement. The buildup of working capital has been almost exclusively on the rail vehicle side, only to a small extent from CVS. And there, it's a combination of receivables and inventories. Clearly, with the strong growth, it has -- at least its mark, also on the working capital. You have seen that our growth rate in RVS was stronger than in CVS. And our average working capital days is actually higher on RVS. So there's also a mix effect that is coming into play here. But we have initiatives underway, which are both addressing receivables and inventories. And as we have shown last year, we hope that we show over the next quarters a gradual improvement in our working capital ratios.

[Ingo-Martin Schachel]

Okay. And just maybe as a quick follow-up on the U.S. market question, just on the air disc brake investments that you had disclosed in your CapEx number for Q1. Can you remind us what the total planned investments, some of the timing of those is going to be?

[Ralph Heuwing, CFO & Member of Executive Board]

Yes, we -- remind is a good word because we didn't mention it earlier, how much that would be. We have told the market that our air disc brake capacity is actually at its limit, and we needed to expand following the increasingly growing transition from drum brakes to disc brakes. And for that purpose, both in the locations in Huntington and Bowling Green, we're expanding our capacities. The total amount will be something like EUR 40 million in those locations. And we have recognized maybe 30% of that in the first quarter.

[Operator]

The next question is from Akash Gupta, JPMorgan.

[Akash Gupta, Research Analyst]

Ralph, I have a couple of questions as well. My first question is on China and particularly on Rail Vehicle Systems side. So maybe if you can talk about book-to-bill that you have seen there in Q1 and how is the pipeline there looking for the rest of the year? And also, if you have seen any change in customer behavior there? So that's question #1.Question #2 is about financial impact that you mentioned that you will take low double-digit restructuring charge in Q2, whether that will be taken above the line or below the line? Just to get some clarity on how it will be treated in financials.And my final question is on -- given we are towards end of May, if you can comment anything about Q2 trading that you have seen in first few months -- first few weeks of Q2, particularly on order intake side?

[Ralph Heuwing, CFO & Member of Executive Board]

Yes, Akash, firstly, on Rail China. Our revenue development in -- and let me be maybe a bit more general, if you allow that -- was positive from the first quarter of 2018 to the first quarter of 2019, and we grew by roughly by double-digit figure actually in revenues. Our book-to-bill for the region was somewhere around 1.3, actually, so it's been rather positive. But within that, I would say aftermarket has shown a particularly dynamic development and metro would be the second in line, and high speed would be the third in line. So our composition over the years will probably shift more towards aftermarket and more towards the metro segment.Change in customer behavior. I mean, everybody is always asking about level of competition. Yes, we are experiencing competition, no doubt. But on the other hand, we are also well entrenched, and we are participating in the China investment phase that everybody is experiencing.On your second question, restructuring charges. To be very honest, we haven't fully decided the way of disclosure yet. It also depends a bit on the size. There are some negatives and some positives, which we are still in the process of negotiating and in order to protect that negotiation, we don't want to get into a deeper level of disclosure at the moment. It will, however, be shown in the second quarter.And then in terms of the second quarter trading. Of course, I cannot talk too much about it, but April and May have felt like good months. So we are continuing to experience positive development. No change in sentiment, let's put it this way.

[Akash Gupta, Research Analyst]

And just a follow-up on CVS segment. So if I look at your -- if I look at your revenue development there, 8.4%. If you can say how much of that is driven by your volume against -- and also content growth? I mean, you say truck production is up 1.6%, but your volumes might be different than global truck production.

[Ralph Heuwing, CFO & Member of Executive Board]

Yes. This is, of course, mostly a question of exposure to the different end markets. The 8.4% growth also benefited, frankly, from FX, yes? We -- as you know, we have a stronger exposure in North America in the CVS segment and if you sort of normalize for FX developments, the organic growth would have been 5.6% and not 8.4%. So this is maybe one important aspect to consider. Other than that, I would say the outperformance has been pretty much in -- you can just take the 5.6% and the 1.6% and you get roughly the outperformance in terms of content per vehicle.

[Operator]

The next question is from William Mackie, Kepler Cheuvreux.

[William Mackie, Head of Capital Goods Research]

Ralph, Andreas, can I go back to the organic growth first as the first question? I mean, you've achieved good growth in both divisions, but can you perhaps walk through the core assumptions in each division that you're thinking that put you in the range of your 3.8% to 6.9% organic growth for the full year in terms of what are you thinking in CVS related to TPR levels in each of the regions? And in rail, when we look at the OEMs have record backlogs and in many cases, ramping up activity levels. So what are your thinking with regard to volume growth in rail versus CVS this year? And looking at such a strong quarter and having had a good start in Q2, should we think that it's more likely you'll be to the top end of that guidance within organic growth? That's my first question around that area.The second is within CVS, perhaps more detailed. But when I look at the relative growth of the aftermarket within CVS on an absolute basis reported compared to the OE business, it almost seems as if the aftermarket business was flat year-on-year when you -- the way you've split the revenue disclosure. Can you perhaps explain a little bit more of why that's flat and where the trends are with regard to perhaps growth in CBS aftermarket versus perhaps contraction? Where are the puts and takes?

[Ralph Heuwing, CFO & Member of Executive Board]

Yes. Well, as always, sharp questions. So let me first say that the developments year-to-date haven't caused us to change our guidance with respect to organic revenue growth. So we -- and it is, of course, early in the year. Things can happen. Therefore, we have basically said, however the first quarter has gone, we will stick to the full year guidance from an organic perspective."The second point is, if you take the midpoint of our growth in RVS and in CVS for the full year, then we were indicating that RVS would grow by 5.4%, and CVS by 2.8%. So there is a clear growth differential. And this is, as you remember, without any FX changes. So we would basically see a clear differential in growth between the two segments, which if you normalize for FX effects, we also saw in the first quarter. So from that perspective, I think we are in line.Now your question about the core assumptions behind RVS and CVS. I would just say that we are not expecting a big push or tailwind from truck production rates this year. They have started strong, but they have the potential of weakening over the course of the year. Not confirmed, but this is also what other industry participants are expecting. And therefore, we believe that the full year growth rate might, currency adjusted, be in the range that we guided. So on top of the TPR projections, we assume that we will benefit to the tune of 3% or 4% from content per vehicle.On rail, I would say, again, our outperformance that we have demonstrated historically, plus the underlying 2% to 3% market growth, leads you to where we have guided. Now again, it may turn out that actually the full order books of our customers also provide further potential for us, but we feel it's too early in the year to correct our guidance in this respect. On aftermarket, CVS, yes, you are actually right. We have seen a flattish aftermarket development. This is quarter-on-quarter '18 to '19. I have to, however, say that we had some push over from last quarter '17 to first quarter '18 because of some supply chain constraints on the truck side, where we couldn't deliver in the first quarter -- in the fourth quarter of '17 and therefore, we had an increased revenue in aftermarket in the first quarter '18. And we are comparing now '19 with that reasonably strong first quarter '18. That's why it was basically flat. And on rail, we actually had quite the opposite development, a very strong development in the aftermarkets, clearly double-digit growth.

[William Mackie, Head of Capital Goods Research]

Just one short follow-up. When I look at the P&L, you highlight a 220 basis point increase in the cost of materials, which you have been able to offset with personnel costs and other expenses. Firstly, perhaps you could explain a little more of what was driving the cost of materials. Is it across the group? Or is it concentrated in one of the divisions? And really how sustainable the personnel savings or -- relative -- or the other cost allocation savings are to continue to offset that as the year progresses?

[Ralph Heuwing, CFO & Member of Executive Board]

Yes, to be honest, a lot of this development goes back to mix effects, both in terms of aftermarket to OE in truck, but also in rail. You see that aftermarket in truck went down. You see that aftermarket in rail went up, and those basically shifted the cost structure in terms of consumption of material on the one hand, and the use of labor, on the other hand. This is actually most of the reason. It is not really structural, except, of course, for the disposal. That is a more structural change. And you could also see at the end of last year that we reduced our headcount in a sizable way because of the disposal. So that came to bear as well. But I want to over interpret quarterly cost compositions to be fully understood as structural changes because a lot of it is, as I said, mix driven.

[Operator]

The next question is from Ben Uglow, Morgan Stanley.

[Benedict Ernest Uglow]

Ralph and Andreas. I have 2. The first is on the RVS margin. And if we look at it, it's gone from 18.8% to 21.9%. If we adjust for the IFRS, it's about 240 basis points. Could you give us a rough sense? And really, I don't -- you know, as rough as you like, on how big the mix effect is in that margin improvement? What I'm trying to understand is mix versus volume and how they kind of shake out in that healthy RVS margin. So that was question #1.Question #2. On China, if we look at the development of the aftermarket, you mentioned that there was a sort of, if you like, some of the OE sales of a few years ago were beginning to come to fruition. Am I right to assume this is retrofit and basically upgrade on some of the high-speed contracts we were seeing a few years ago, 3, 4, 5 years ago? Or is this something more broad-based? Those are my questions.

[Ralph Heuwing, CFO & Member of Executive Board]

Yes, Ben, mix -- the impact of mix effect on the margin, well, it is actually quite consistent with what we even said back at the IPO. What are the drivers for margin expansion going forward? It is, of course, to a good extent, a growing aftermarket. And this is a fact. But at an organic FX-adjusted and also disposal-adjusted growth rate of 10.7%, you can bet that there's also operating leverage network. And yes, it'll stay at that level. We have -- you may just say that we have sorted our arguments in that order: first, operating leverage and performance improvement; second, positive OE/AM effect. I think they are roughly similar in size. It's not a huge difference between those two.On the aftermarkets in China, there is -- yes, I would rather call it overhaul than retrofit, but maybe it's the same thing in your language. It's basically more trains actually getting -- and becoming of age, in a way so that you have to take them back and completely overhaul them before you recommission them. And this is always a chunkier business then just the replacement of consumables or repair and maintenance work. And we have always said that this will be a growth driver and we are experiencing that it is.By the way -- there's even a nice study that you will know, I'm sure, which actually has some more detailed description of what is happening in the Chinese aftermarket and also what do we expect. Of course, everybody has now an opinion on the future development of those, but it will be a key driver of growth for us.

[Benedict Ernest Uglow]

And this is obviously -- you would assume that this is something that's going to continue the next couple of years. This isn't a sort of onetime effect in the next 6 months?

[Ralph Heuwing, CFO & Member of Executive Board]

Yes. And not just a couple of years. Those trains will be there for 3 or 4 decades, and they will go through these cycles again and again. And so as long as we add additional volumes, we will see that growth.

[Operator]

The next question is from Sven Weier, UBS.

[Sven Weier, Executive Director and Analyst]

Yes, actually 4 quick ones, if I may. We'll take them one by one, if that's okay? First one is just referring to your content per week mentioned on the U.S., and I was just wondering if you could give us a sense where we are now on the disc brake penetration rate and the order intake that you see and how quickly you see that going to a high double-digit level, maybe? And you haven't mentioned AMT trucks as a driver, so I was just wondering if that transition, do you think, is already completed? That would be the first one.

[Ralph Heuwing, CFO & Member of Executive Board]

I think both trends still have a nice runway. I would say the runway is even longer by quite some distance on the air disc brake. What we see is that maybe 25% penetration has been reached, and it is continuing to rise, which has caused us our investments that we described. And this, even in a scenario where maybe volumes, truck numbers would be flat or even slightly decreasing. So we do see a continued demand for air disc brakes as we're building this capacity.

[Sven Weier, Executive Director and Analyst]

And on the AMT side. Where do you stand there?

[Ralph Heuwing, CFO & Member of Executive Board]

I think this is, if I'm not mistaken, beyond 50%.

[Sven Weier, Executive Director and Analyst]

Okay. Good. The second question was just on the book-to-bill in CVS. You mentioned, obviously, it's 1.02 for the division as a whole. I just was wondering if you could share the number for us just for the OE business because we spoke about the sales trends on -- between OEM and aftermarket, but not in the order intake. So just wondering if that one was also above one for the OE side?

[Ralph Heuwing, CFO & Member of Executive Board]

Yes, I would say so because, as I mentioned, the aftermarket actually went down. So if you consider this, we may have 1.04 or something like that? Yes, around about 1.04 on the OE side.

[Sven Weier, Executive Director and Analyst]

Okay. The next one was just, obviously, you are now closing the Wülfrath site. I was just wondering if anywhere in CVS or RVS you still have other loss-making units where we could see further restructuring actions this year or next?

[Ralph Heuwing, CFO & Member of Executive Board]

Let me answer more generally. We do rigorously and with diligence review every single unit to make sure that we're always staying ahead. And as any portfolio, you have the stronger ones and you have the weaker ones. And I cannot disclose any particular candidates for the moment. But I wouldn't exclude the possibility that we will find 1 or 2 more such candidates.

[Sven Weier, Executive Director and Analyst]

Okay. And the last question...

[Ralph Heuwing, CFO & Member of Executive Board]

Which you consider -- sorry, which you should consider as good news, because there's always the question, where does the additional potential come from?

[Sven Weier, Executive Director and Analyst]

Yes, I was just wondering if there's any obvious things, right? That's -- not sure how obvious Wülfrath was to the market, but was just -- if there's anything really imminent maybe as well now?

[Ralph Heuwing, CFO & Member of Executive Board]

Not to a level of concreteness where I would like to disclose this right now.

[Sven Weier, Executive Director and Analyst]

Okay. And then the last question is just on the CEO departure. Sorry, I wasn't on that call back then. But I was just wondering, in terms of the job description of the CEO, you see also a possibility that the job allocation within the Board changed a bit because as far as it is now, obviously, all the divisional responsibilities rests with the divisional Board members, and it seems that a bit an uneven allocation? Or do you think that's potentially changing? Or is it completely flexible?

[Ralph Heuwing, CFO & Member of Executive Board]

Firstly, this is, at the end of the day, a question that needs to be directed to Professor Mangold. But I would just like to clarify, HR has actually -- has been allocated to Dr. Wilder, who is otherwise in charge of the rail division and our initiative Knorr Excellence, so for example, the Knorr production system, but also the initiative, the cross-divisional initiative on digitalization has been allocated to Dr. Laier. So it is not just a, let's say, central versus divisional setup. And I think as always, there is a profile that is being looked for, and then there is a candidate, and then there's -- there are specific capabilities and then one would look what is the best team set up, like in any other sports.

[Sven Weier, Executive Director and Analyst]

And there was obviously an article in the Manager Magazin last week that Mr. Thiele is now more actively seeing clients again. Would you confirm that? Or...

[Ralph Heuwing, CFO & Member of Executive Board]

I would not say that Mr. Thiele's interest or activity has changed because of the departure of the CEO. Mr. Thiele has a consulting relationship with our company, in particular with the Executive Board, and there are, as has been in the past, there will be in the future opportunities where he can add value to the best interest of both the value of his stake in the company as well as the value of anybody else's stake in the company.

[Operator]

At the moment, there are no further questions. [Operator Instructions]There are no further questions. I would like to hand back to you, gentlemen.

[Andreas Spitzauer, Head of Investor Relations]

Okay. Thank you very much for your participation. If you have further questions, please contact us, and we wish you all a very nice afternoon. Thank you, and bye-bye.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.