Knorr Bremse AG

XETRA:KBX

Earnings Call Transcript 2023-Q1

[Operator]

Good afternoon, ladies and gentlemen, and welcome to Knorr-Bremse AG Quarter 1 2023 Earnings Call. [Operator Instructions] Today's representatives are CEO, Marc Llistosella; and CFO, Frank Weber. Let me now hand the floor over to the Head of Investor Relations, Andreas Spitzauer.

[Andreas Spitzauer, executive]

Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. My name is Andreas Spitzauer, Head of Investor Relations of Knorr-Bremse AG. I want to welcome you to Knorr-Bremse's conference call for the first quarter results of 2023.

Today, Marc Llistosella, our CEO; and Frank Weber, our CFO, will present the results of Knorr-Bremse, followed by a Q&A session. The conference call will be recorded and is available on our homepage, www.knorr-bremse.com in the Investor Relations section. Here, you can find today's presentation and later a transcript of the call.

It is now my pleasure to hand over to Marc Llistosella. Please go ahead.

[Marc Llistosella Y Bischoff, executive]

Thanks, Andreas, and welcome, everybody, to our quarter 1 2023 earnings call. We appreciate you joining us today as we have to tell you something.

Let's kick in off of today's key takeaways on Chart #2. An ongoing tough economic environment, especially due to the inflationary headwinds, quarter 1 developed as expected. Revenues increased significantly, while EBIT margin was under pressure. We told you during our financial year results that from a financial point of view, 2023 will be demanding -- but we are fully on track with our full year 2023 guidance, which we confirm today.

All in all, demand in rail and truck is holding up nicely, which underlines the robustness of our business and the activity of our markets. One of our current strategic priorities is to optimize and strengthen our portfolio. We have already made good progress in recent weeks and months. We signed the sale of a foundry from our steering operations in U.S., and the Kiepe sale is doing good progress as well.

I will provide you more details on portfolio optimization and cost reduction opportunities during the strategy update on July 18 this year. In addition, at this virtual event, I will share our ideas for the future direction of Knorr-Bremse.

Let's move to Chart #3. Especially in Europe and North America, underlying demand in the rail market remains strong, driven by governmental support and the unremitting push towards green mobility. Rail is the most eco-friendly mass mobility solution today and of the future, especially of the future. The elevated order books of our OEM customers and the translation into RVS backlogs are a clear proof of this. The market in China seems to be slowly but steadily recovering from 2 very weak years that were driven by economic challenges and the 0 COVID policy.

The end of this policy is positive for all of us and the increased ridership is already showing a positive effect on our aftermarket business. But OE side will take some time to improve again. At the moment, the biggest concern in the rail segment still is the high inflation. As highlighted before, pricing in long-lasting OE contracts can hardly be adjusted. Aftermarket is easier, but we also have our important long-lasting relationships with the operators in mind. We do not want to risk them simply because of some positive short-term financial benefit.

The truck market also faces ongoing good demand in Europe and North America. Truck production rates significantly increased in both regions in the past quarter and are also expected to be at least stable or grow slightly on a full year level. Overall, in terms of demand, we expect the first half year to be stronger than the second half year this year. Truck production rates in China in quarter 1 recovered significantly as expected. CVS benefited from this recovery due to our leading market position and leading positioning in field of technology as well as our successful restructuring activities.

In addition, there are good opportunities regarding content per vehicle, driven by the rather lower safety standards and the move towards innovative and reliable technologies also in China. Inflationary headwinds are also an ongoing challenge for the truck industry. We're confident to finalize the ongoing pricing discussions so called wave 2 with good results. It should enable us to achieve a positive price cost ratio this year for trucks. I would like now to hand over to Frank for the financial insights.

[Frank Weber, executive]

Thanks, Marc, and welcome from my side as well. Thanks for being with us today. Let's have a quick look at the financial overview of quarter 1 and Chart 4. Revenues on group level amounted to EUR 1.9 billion, an increase of 14% year-over-year, driven by both divisions, which both posted double-digit growth. EBIT in absolute terms amounted to EUR 192 million on group level, an increase of almost 6% versus prior year, driven by CVS. This corresponds to an operating EBIT margin of 10% in the first quarter, 90 basis points lower versus prior year driven by RVS while CVS improved.

Orders increased slightly by 3% to EUR 2.2 billion in the past quarter compared to an already very strong previous year quarter. This sound development was driven by another strong performance in the truck division. The very positive highlight of the quarter clearly was the strong order book, which once more reached a record level of EUR 7.1 billion. It provides good visibility and confidence for the months and quarters ahead.

Let's move to Chart 5. CapEx in quarter 1 amounted to EUR 64 million, representing 3.4% of sales. It is stable in absolute terms year-over-year, but lower in relation to the revenues and well below our target range of 5% to 6% midterm.

Net working capital increased by EUR 270 million versus quarter 1 of '22. I will go into more detail on that on the next slide. ROCE for quarter 1 amounted to 16.3% as of March 31, which is slightly lower compared to last year's level, given impacts from both profitability as well as working capital increase.

On Chart 6, I'd like to provide more details regarding our free cash flow. It was negative as expected and came in at minus EUR 199 million in the past quarter, but also an expected some EUR 32 million better than in the previous year. Traditionally, our free cash flow is weakest in the first quarter, and this year is no exception. The biggest impact on the development of our free cash flow still is the higher net working capital. One driver for this is that increased interest rates led to a deferred payment behavior and further increased accounts receivables among some larger customers. At the same time, especially Asian payment patterns burdened us, meaning building up accounts receivables starting already from January and carrying out payments very back-end loaded throughout the year.

In addition, we maintain a high level of inventories in order to be able to act flexible in response to customer requests and to ensure a high degree of supply security. Our customer-first strategy is a cornerstone of our longstanding and successful customer relationship and lies the foundation for our continuously good order intake as well as the basis for price increases. Free cash flow in the coming quarters should improve driven by increasing profits and the reduction of net working capital in relation to the underlying business development. We strongly monitor free cash flow as our important key performance indicator, which represents 20% of our short-term incentives. And we are convinced to improve quarterly free cash flow significantly and to reach between EUR 350 million and EUR 550 million within the full year '23.

Let's take a closer look at the divisional performance in quarter 1, starting with RVS on Chart 7. Order intake of RVS was again strong with EUR 1 billion despite tough comps year-over-year. Book-to-bill in quarter 1 reached 1.17. We are pleased with the high order backlogs of our OEM customers, which will be translated into orders on old books in upcoming quarters with given the usual project time lines at OEMs, a time lag of roughly 9 to 18 months.

Europe benefited from increased ridership in the aftermarket business, the acquisition of DSB in Denmark and from strong metro business. APAC and order -- APAC order intake developed slightly better, especially driven by China. The main positive driver in North America was aftermarket based on a strong overhaul demand. The order book also increased by more than 20% year-over-year to more than EUR 5 billion. This is an extremely solid foundation for the business development in '23 and beyond.

Let's move to Chart 8. Revenues in quarter 1 amounted to EUR 855 million, an increase by more than 10% year-over-year, driven by aftermarket business, which compensated a slightly weaker OE business, mainly driven by timing of project executions in Europe. All core regions developed generally positive. Europe, our most important market, driven by significantly higher aftermarket business. North America also recorded growing revenues in OE and aftermarket business. From a segment point of view, both freight and passenger cars were up.

Finally, we saw a certain recovery of revenues in China as well as an overall solid development in APAC, which made up for the weaker business in India. The operating EBIT margin of RVS in quarter 1 was 13.1% after 15.7% a year ago. On the next chart, I will provide some more details regarding this development. In the past quarter, 3 major reasons led to the strong drop of profitability. First of all, missing accretive Russian business, which was strong in quarter 1, 2022, but has been stopped on purpose since the second quarter of 2022. Starting from the second quarter '23, this year-over-year effect will be gone. But for this quarter, it finally led to 160 basis points of profitability drag.

Secondly, ongoing inflationary headwinds that cannot be compensated as quick as in truck, for example. As mentioned before several times, the characteristics in rail are different, and we will suffer from a negative price cost ratio in full year 2023. Higher input costs can only be partly offset by higher prices in the aftermarket business. Please keep in mind that 30% of our '23 RVS revenues stemmed from order books we received before the inflation started to strongly increase last year.

Thirdly, in the past quarter, there was also a weaker mix in India, resulting from lower revenues in the very profitable segment of passenger coaches. These 3 negative effects were only partially offset by improved volumes in our PCPP program. As a result, in the quarters to come, we should see better margins supported by higher revenues and the operating leverage as well as by our PCPP measures.

In addition, the planned sale of Kiepe should contribute to this development. Nevertheless, inflationary cost pressure will continue throughout '23. And as mentioned, for the full year '23, we expect RVS margins to be lower than previous year, especially given the delay in pricing.

Let's continue with truck on Slide 10. Incoming orders of CVS amounted to EUR 1.18 billion, which is an increase of 14% year-over-year, well supported by the strong underlying demand in Europe and North America. We are pleased to see that China is significantly recovering as expected. Please keep in mind that the extremely high order intake in recent quarters are extraordinary and should not remain on such high levels throughout the year. We expect that the truck demand in the first half of the year will be stronger compared to the second half.

The book-to-bill ratio in quarter 1 was at a very strong 1.12. The order book of our truck division amounted to almost EUR 2.1 billion at the end of March 23, which is, again, remarkably 14% higher year-over-year.

Let's move on to Slide 11. CVS posted over EUR 1 billion in revenues in quarter 1, which is a significant increase of almost 18% year-over-year. Again, a very strong result. CVS saw a positive development in both channels, OE as well as aftermarket, including an increased development in all regions. Transport volumes and infrastructure activity have continued to be solid in most markets. In combination with the customers' need to renew aging fleets, this contributes to the good demand for our products.

Despite the strong OE growth, the aftermarket share remained stable at 28%. CVS should also be able to further post solid revenue growth in '23. This positive outlook is founded on the strong underlying truck market, especially in China and the elevated order books. In quarter 1, CVS achieved an EBIT of EUR 95 million, which is a significant improvement year-over-year of almost 25%. The EBIT margin amounted to 9% compared to 8.5% a year ago. This improvement is fueled by the first wave of price increases, which were concluded in 2022.

In addition, cost measures and the acquisition of Cojali contributed positively. Profitability of CVS in the full year '23 should continue to improve as we expect each quarter in '23 to be slightly above the prior year figure. Overall, CVS should be able to offset RVS margins decline this year.

I want to finish with the guidance for '23 on Chart 12. Our main assumptions are outlined on the right side of this page. We also expect that all net extra costs due to inflation this year will be once again compensated with our PCPP measures. For '23, we continue to expect revenues between EUR 7.3 million to EUR 7.7 billion and operating EBIT between 10.5% and 12% and the free cash flow between EUR 350 million and EUR 550 million. Despite rather weak operating margin levels in quarter 1, we are fully on track with our full year guidance. The worst should be behind us, and group margin levels in course of this year should sequentially improve.

With this, I hand over back to you, Marc.

[Marc Llistosella Y Bischoff, executive]

Thank you, Frank. Let's go to Page #13. Many different economic and geopolitical topics continue to weigh on our business activities and our profitable level. It ensures that the [indiscernible] all 3 segments. For the full year 2023, we expect another EUR 300 million of net extra costs in our books on top of the prior year's 2022, EUR 325 million.

Just as last year, we expect to fully offset these extra costs with price increases and cost measures, which will show the positive impact of some delays though. We have already successfully implemented efficient restructuring measures in North America and in China to reduce fixed costs. Restructuring of our steering business is also ongoing with the first step of the sale of the foundry at Sheppard, it will continue in the next months to come.

Please be sure that there is more to come. We'll share more on these concrete topics at our Strategy Day Update on July 18.

On Chart 14, I would like to keep you updated on our and my agenda. Onboarding, thanks to the whole executive team, was very smooth. Overall, I'm really impressed by KB's people and the engagement and dedication and competence every day. The Executive Board gets along very well and enjoy maneuvering Nordgelände for these extraordinary times together as a strong team in fruitful discussions based on the open mindset. We have started to work on a common target picture for products in order to create a long-term vision and return to profitable growth. Portfolio review, improvement of our fixed cost base and the rollout of further efficiency measures remain our core operational focus in the months ahead. We call this the brownfields or, I call it, housekeeping.

Together with my colleagues, I'm currently conducting a strategy to resize, looking at both the current setup, but also identifying new potential growth areas for both divisions as well as potentially accretive add-ons that could fit Knorr-Bremse' business structure and DNA. This represents our greenfields. There are many opportunities. And believe me when I say that they -- we will turn around every stone to find out how to improve, sharpen and accelerate our business. First results will be presented at our virtual Strategy Update on July 18.

And with these words, I would like to thank you very much for your attention, and let's start now with the Q&A.

[Operator]

[operator instructions] The first question comes from Sven Weier, UBS.

[Sven Weier, analyst]

It's Sven from UBS. The first one is just to follow up real quick on the -- to help us to frame our expectations for the 18th of July. Should we also expect you to talk about midterm margin targets at this event? Or is it going to be mostly focused on brownfield actions for the brownfields? Just wondering how comprehensive the agenda will be for the day?

[Marc Llistosella Y Bischoff, executive]

Thank you. I will take it. And what you can expect is a clear view in terms of products where we want to go. We will give you not absolutely imperfection, which kind of portfolio we have -- which our target portfolio will look like because otherwise, we spoil the targets which we will eventually acquire. But the adjustment of the portfolio will be one of the major information and major infos what you will see on this day. What we will also say is that we have an organizational, I would say, overmatch here, we are over-organized. Currently, we started with 146 legal entities. And you know by your own organization, the more legal entities you have, the more SG&A costs occur. And the more complexity you have, the less focus we are. So that means, currently, we have deducted it already to 126 organizations, and we will go further and there is a clear target, which has to be achieved. So this kind of message is relatively clear will be given. What will be not given is which kind of target assets we have in one.

[Frank Weber, executive]

But for short span, we will also add to, say, the financial direction which we target going into the future as well.

[Sven Weier, analyst]

My second question is just on talking cash flow. And you mentioned again some payment delays in India and China. Could you just kindly update us on the situation with the Indian customer, where I think there was some tech issues on the freight side, where you stand on that and if that's behind the delay in India? And also more broadly speaking, you think that you also have to identify further self-help measures on the cash flow side that you could update us on in July? Or do you feel you are on track with the measures you have already taken?

[Frank Weber, executive]

Yes. Thanks, Sven. I assume you are referring also to the news report that you're seeing, which is one incident, of course, these kind of incidents happen in the rail industry globally, so to say, not only in India and with elements of trains where we also supply products towards what happened is normal course of business, so to say. In this case, so to say, we are in discussion with the Indian colleagues. We talk about, so to say, the way how to fix the issues that Indian rail has with their wagons. Please be informed that we are not the system providers, the complete system provider. So we're just delivering some components there. So we are part of these discussions, and that's the solely, so to say, guy on the table that is somehow being blamed. This is not the case. We're in good discussions, but it led to the situations that they have also been withholding some payments in regards to AR.

They have now released the payments, again, starting with May. So this is a good sign. We're in good talks with them, and this should definitely contribute then positively for the cash flow development throughout the remaining months of '23. This element of your question, the more general, I mean, yes, we have several levers at hence that we are pursuing. We, of course, strive for inventory reductions, which is one big element in the respective assembly plants that we are having. We have a detailed plan of what needs to be achieved in each and every month in order to take now the situation where revenues should be increasing going into the new year or in the months to come. We should take this tailwind of being able to bring them the scope of days down for inventories, which is the measure this is -- with the operational experts and procurement in combination underway.

Second lever is, of course, claim management improvements that we are driving within the company in order to bring accounts receivables back to the levels where we want them to have and to bring more discipline, so to say, to the customers' payment behavior. Of course, this is not always kind of a lever that you alone have in your hands, you also need to have the customer understand it and be willing to pay in the end. And so I would say those are the big levers that we would have. And of course, we will give you in July also an update on that where we stand and what we perceive as our path forward in regards to working capital management and ROCE.

[Operator]

The next question is from Akash Gupta, JPMorgan.

[Akash Gupta, analyst]

My first question is also on the event on 18th of July. I will keep the details for the day, but I'm just wondering, Marc, if you can walk us through the framework that you are using for portfolio reviews in terms of what are the KPIs that you are assessing each of the business unit? And what should we think about like the level of -- or amount of assets that could potentially be reviewed, which needs to be turned around either way or maybe a set for disposals? That's question number one.

And the second one is on your policy of writing down receivables. I see you have some receivables, which are overdue for quite some time. Can you walk us through what is your policy on writing down receivable? And also, can you tell us how much of the quality or quantity of these receivables, which are deferred since quite some time.

[Marc Llistosella Y Bischoff, executive]

So thanks for the question, Akash. I will do the following. Otherwise, the 18s will be obsolete if I am now coming too much into details. I understand your curiosity on it. I would love to give you now already some of my deep thoughts on this, but I'm warrant here not to do that. Otherwise, nobody will show up when it comes to the 18. I give you only one response to the portfolio. We have currently roughly EUR 1.4 billion of revenues where we have a deep dive in terms of revenues of last year, where we have a very clear direction, either it has to be fixed in a reasonable time frame or we have to make a very clear decision. That's all to the topic of portfolio. And the portfolio, by the way, derived also from the target picture of products. You have to always to know where do you want to play? And then the question is, what you play, how you pay.

The second question, which you raised in terms of accounts receivables. There's one comment I would like to make, and then I will hand over to Frank because otherwise, he's very mean if I get into his territory, you know that. It is very, very protective here. The thing is -- and that has to be also something which we call our active expectation management. There is a change. And the change is especially with China, China is very aware, especially in rail, what kind of position they have worldwide. They are combining roughly 40% to 55% of the global market annually, and this is one country. And they know that everybody wants to play in the field. And this is what they use.

So their payment terms, their payments in terms of duration when they pay it, this is something which we could observe not only with us, also with other companies everywhere in the area where we see that they exceed by far the normal permit terms. And that is something where the question is also to you, how you could imagine to change that when the key customer of the world is just doing what he likes to do. And that is something which we have to live with. And with this very generic more philosophical point of view, I will hand over to the terms and the conditions of our accounts receivables to Frank.

[Frank Weber, executive]

Yes. Thanks, Marc. Of course, not everything we said, I'm not getting mean, and I appreciate if you take over part of the question. The more serious elements. I mean what Marc said is absolutely right, Akash. We've been talking about this since at least I'm with Knorr-Bremse that the payment terms in Asia are much longer than the ones in Europe, given our revenues that we are making in Asia. This ends up to EUR 300 million plus overall of accounts receivables that we would be having in our books with longer payment terms than the average that we see in the business.

So there's a general drag always kind of throughout the year and payments come in usually very late in the fourth quarter, usually. You know that pattern and you see it always in our free cash flow development. The explicit one -- second element of your question, Akash, the explicit elements that have been somehow delayed more recently, slightly above EUR 100 million in quarter 4 and which still represents a drag in the first quarter and where we're getting now partially releases. But be assured, Akash, we have not a single euro right at this point in time and not in the past, had of general defaults. Just that you know that.

[Operator]

The next question comes from William Mackie, Kepler Cheuvreux.

[William Mackie, analyst]

China, can we just dig a little bit more into what your observations of a recovery for RVS in the first quarter and perhaps some of the signals that you're receiving from your customers about expectations on build rates or fill rates for the aftermarket business going into Q2, Q3 and building on how that will support RVS. And the same for trucks. I think we started with an assumption of about a market for 750,000 units in China as a base. Where do you see that evolving for this year?

[Frank Weber, executive]

Yes. Thanks, William, for that question. Let me start with rail. I mean, looking -- so first of all, Juergen Wilder, our Head of RVS, needless to say being always very close to the customers. He was over in China just several weeks ago. And we have been seeing photos of the production ups of 1 or 2 major plants of our core customers, and they were completely empty.

So basically underlining also a bit the hope of a very speedy recovery in regards to the OE market development throughout 2023. So this was really kind of interesting to see that really the plants are empty. OE business, we therefore expect only a slight increase in demand throughout the year with the quarters to come. It should start kicking in rather later in the year 2023, but only on a slightly improvement basis.

In aftermarket, ridership levels are really good. The record levels have reached in the first quarter already the ridership levels of 2019, so the pre-COVID levels. On the high-speed and commuter side, it's slightly below the levels of 2019. But overall, this is a really good indication and should support us going through into the year. But aftermarket, not immediately coming in, so to say, if ridership levels increase, first of all, ridership levels increased and the number of trains on the track increase, then the trains -- those trains running reach a certain level of mileages and then they come for maintenance and overhaul and wear and tear of course starts.

So in general, this should help us as the year goes by and the months goes by throughout this year in aftermarket more than in OE. We expect for Metro some 5,300 vehicles for the full year, which is a minor, minor increase compared to last year's level of roughly 5,200 metros and high speed -- roughly 100 high-speed trains compared to last year was around 90. So only slight increase there as well.

On the truck side, we do see the market of the -- market for the heavy duties only. This is the figure that you are referring to of above 700,000, but we are still a bit cautious. It's been a good quarter 1 with 17% TPR up for trucks, but we see some 700,000-plus potentially not that bullish like some other players in the market rather take then the tailwind once it really comes along. But we are seeing that a good TPR development in the first quarter, and we are hoping also for a good second half of the year than in China. But of course, the bridge once you reach it, I would say, towards June, we see clearer, I think.

[William Mackie, analyst]

Then my second question, and then I have a follow-up related to the inflation slide, which you highlighted on Page 13. You called out EUR 300 million of incremental cost against the EUR 350 million last year. But when we look at the world, a number of those inflationary factors are now reversing. So can you help us perhaps a little bit with your working assumptions around how the EUR 300 million headwind breaks down? And how perhaps it's changed from last year through the supply chain or other factors on your raw material, energy or component costs?

[Frank Weber, executive]

Yes. Thank you. Good question. And indeed, in order to be precise, the last year's figure was, I think, EUR 325 million. And this year, on top, yes, come another roughly EUR 300 million, and they are fundamentally completely different when it comes to the ingredients. Last year -- will not talk again about last year. But this year, it's basically driven by energy cost increases and personnel cost increases. Those are the 2 major drivers in '23 in the wrong direction.

And the positive direction, there is raw material this year, but to a large extent, of course, as I just said, offset by those other 2 elements. So you're right, raw material indices, if you look at the bigger ones coming down, iron, steel coming down, aluminum coming down, coke coming down, plastics coming down. We -- of course, we have to watch that carefully. But what needs to be said in regards -- in order to prepare your production for the year 2023, you have to ensure a certain lead time. And that lead time also means you have to have your inventories, your raw materials, your half-finished goods what have you right before you start, so to say, selling those on board which means that you are still with a time lag behind in regards to the cost inflation.

So we have still, so to say, in our working capital, a good sitting and raw materials sitting with cost levels of the year 2022, needless to say. And this is one effect why we are not completely yet seeing a full just a spot rate reduction that you would see if you look at indices. But overall, in general, you are right that the raw materials should be at minimum a wash for us. It should be a tailwind.

But the big chunk comes from energy. And with energy, you have to distinguish between our own, so to say, energy cost that we are having, which is still in a double-digit million range only. The total energy cost of Knorr-Bremse group are still below EUR 100 million. And this inflation or the cost increase that we see here is some roughly EUR 20 million year-over-year. But the big element of those EUR 300 million is according to our estimates, the amount that our suppliers, Tier 2, Tier 3, Tier 4 knock on our door and ask for material cost increases because you would have in the supply chain, of course, kind of a lot of energy intense subsuppliers in the system. And this is the big chunk of what we expect. And the next big chunk is personnel cost.

And to give you -- to round it up with roughly 2 numbers, I would say, roughly EUR 150 million to EUR 200 million out of that, which stem from the supply chain is kind of energy cost increases and also personnel cost increases on the supplier side. And the remaining, I would say, EUR 70 million is the big chunk of personnel costs on our premises around the globe, and there are some other minor cost increases, but those are the 2 biggest elements. Long answer. I hope this gives you some more insights on this figure for you.

[William Mackie, analyst]

Great detail, very useful for us all. The last one is perhaps quick. I note that in your statement today, you highlight that there is now an establishment of the Thiele Family Foundation after long waiting, but there's also a clause at the end that you received a claim from a request concerning 59% of the equity. I think, first of all, just to clarify maybe the translation in the text -- in the English text, what that means. But more importantly, can you share with us your understanding of the foundation's intent longer term with its portfolio and particularly with the Knorr-Bremse share.

[Marc Llistosella Y Bischoff, executive]

So I assume this goes to me. So in regards of the foundation, I think last time when we met the question was, what's your governance? What's your structure. Now we are settling the structure. We have now all the positions. Positions are placed. If I think you heard this morning that also the supervisory board of the [ Stiftung ] is now settled. We could gain excellent candidates from ex-CFO from BASF. He's taking care of that. We have also now the Chair of the Executive Board of the [ Stiftung, Mr. Storm ]. So now we are settling the whole thing, not only that the foundation is founded. I think this was first week of April. Now we have also the people who are running it. This is number one. That's good news for us.

Number two, the first exchange we have with [ Mr. Storm ] and also with the other colleagues of his is very clear. They're very interested in keeping their position as it is. There was no indication at all that they have any form of change in the strategy or the shareholders.

Number three, they represent 59% of the shareholdership of Knorr-Bremse. So that means 59% of the 162 million shares are represented and hold by these guys or by this foundation. So everything else, what is now their plan, is there any change to come? We are not sitting there. So for us, it's, of course, an important shareholder, but we are not involved in their thinking and thought processes, but we have not at all any indication, not any indication that they want to change anything for the time being. More we can't tell you.

[Andreas Spitzauer, executive]

Let's come to the next question, please.

[Operator]

Yes. The next question comes from Gael de-Bray, Deutsche Bank.

[Gael de-Bray, analyst]

Good afternoon. Can you talk a bit about the portfolio review and the EUR 1.4 billion of revenue that is the subject of the EBITDA at the moment. Is there any way you could help us understand 2 things? First, perhaps the average profitability of this EUR 1.4 billion of revenue. And second, the magnitude of the potential restructuring spend and impairments that could come out of the process. So that would be question number one.

[Marc Llistosella Y Bischoff, executive]

Okay. Again, like I said to Akash, I should be fair if I tell you then Akash will never talk to me again. So I should be careful now. The question understood. The thing is the criteria to get into this EUR 1.4 million bucket is a non performance in terms of EBIT for the last 5 years. That's the criteria #1. The second criteria for getting into this EUR 1.4 million is that nobody could really, really prove that there's cross-selling really happening. Because that's an explanation that could be an excuse for your nonperformance in terms of EBIT line that you say, yes, because we are a contributor in a different way.

By selling us or by getting our product to the customer, we can do other business, which is very profitable. If this is the case, we call it profitable cross-sell. If this is the case, you have an excuse, we evaluating excuse but it will not last forever. And number three is, if the nonperforming, whatever it is, units, products, product group, is there a plan by the management to recover to EBIT levels, which we aim, and you can imagine, everything more is not double digit, has a very difficult life today.

And that means if you don't come up with an internal business plan and convince us, we will not come up and convince you. So it's very simple. We will be the first cascade to make sure that this kind of business plans, which are not prepared, we want to see it, and we're going to see it you're even more rushing than us because you clearly told us everything marked, what is not coming in the next 24 to 36 months, we're not really interested.

And of course, you can understand some of them, they're coming with 60 months of duration long-term supervision and to views. Long story short, these are the criteria to come into this EUR 1.4 million. The EUR 1.4 million is dynamic. If they come up with a very convincing business plan in the next weeks to come, it will go down eventually to EUR 900,000 or EUR 1 million or eventually light slightly up.

And next question number 4 is what would be, if you would already do what you are aiming, what will it be then? What is the effect in terms of revenue, the effect is clear, it's just a deduction. But the alternative is always for a, keep it and fix it, but fix it within 2 to 3 years. Some tell me 5, 10, 15 years. forget or exit it.

Now you understand if I want to exit it, if I tell this to straight and too clear to the market, nobody ever would buy it. So that means I can can't in the interest of you as a shareholder, give you the information as an interest of an analyst because then the thing which we identify is unsellable. So we can give you slightly directions, and we can tell you what kind of effect it will get, but we cannot give you a list of names, let's say, ABCDE.

The only thing is what we can say so far, the effect is really interesting in terms of 200 to 300 basis points [indiscernible] . So that is very interesting. And you understand why I'm so keen to make this kind of portfolio discussion and adjustment because without changing anything, we can go in this direction but we have to be very stringent. We have to be smart, and we have to be in time tech. It is a sequence, which has to be following a long. So hopefully, I know it was vague and Akash. You can claim me later that I gave -- not this information, but you understand exactly because your portfolio manages how you want to do it. You don't claim what you sell tomorrow.

[Gael de-Bray, analyst]

Yes, fair enough. Look, I had a second question related to RVS. What is the share of your backlog today that has escalation clauses? And is it becoming more of a norm now when in your bidding processes and in the pipeline? And how do you expect this share of the backlog with indexation closes to evolve over time?

[Marc Llistosella Y Bischoff, executive]

Yes. Frank, this is -- do you want to take that?

[Frank Weber, executive]

Yes, I'll take it, Marc. We already had in the times before the high inflation kicked in last year already more than 50% of our contracts in rail with price indexation clauses or with price lighting clauses, so to say. As you know, alone, 50% of our business in a nutshell is anyhow aftermarket driven. We also have elements in the OE business, which are much more product business-oriented and the sheer project business that we would usually see in the big with the big OEs in rail, which is the freight business.

So a big chunk of the business also in rail already followed back in the days, a similar logic like the product business. So we have a big amount, which we extended. The colleagues over the last year were able to improve the number of contracts with price sizing clauses, they were even able to improve and include further elements into the price sizing clauses, make them stricter. And I think those were good results that have been achieved in regards to the quality of the underlying contracts and the systematic approach within contracts, how to tackle inflation.

I think they have done a good job on that. Nevertheless, the situation remains tough, especially when it comes to OE contracts to further improve them. Of course, the new order intakes that are coming in are having now the actual cost in the price calculation. So the good news is -- the really good news is that the newly -- coming in order intakes are really with a good profitability.

That is the good thing. And as I said, I think also in my speech, please keep in mind that we have had last year an order book end of 2022, an order book of roughly EUR 5 billion for rail, out of which roughly EUR 1.8 billion to come from orders before the war, which leads to the situation that, again, I said before, 30% of our revenues in 2023 are a bit burdened for those contribution margins.

And this amount will significantly shrink going into the year '24 and then basically be wiped out towards '25 only a minor element will remain then in '25, and that is also the reason why we believe in increasing margins in the Rail business, given that effect alone.

[Gael de-Bray, analyst]

And just out of curiosity, this 30% of revenue, is it rather linear? Or was it a much higher number in Q1, for example?

[Frank Weber, executive]

That is -- that should shrink roughly over time, should be a bigger hit in quarter 1 and then shrinking towards year-end and in '24, similar.

[Operator]

And the next question comes from Calvin Chen, Credit Suisse.

[Calvin Chen, analyst]

I've just got a question on your pricing. So you mentioned the company is establishing a mechanism in terms of pricing for the rail division. I'm just wondering how is this process doing right now? And also in terms of numbers, should we expect, say, 3% or still we should expect below 3% for pricing for rail this year? And also a follow-up on that, will your sales going into a customer chasing for price increase, will that affect your payment terms or cash payment terms in terms of -- for the profile of your business, please?

[Frank Weber, executive]

First of all, let me just to make it clear, Andre. I think we didn't say we now introduce this systematic, so to say, link between inflation and prices for the first time in rail. We are improving it. I said before, we already had price lighting clauses before high inflation kicked in. And we're now improving it as, of course, the pressure rises.

So first of all, I think that's important to mention. I think second point is, yes, I mean, we have also said that we will, again, in '23 overall, be compensating the inflationary cost increases with EUR 300 million. And we also aim to achieve a kind of balanced cost price ratio throughout the group, at least in 2023.

So that means we should also find in a similar direction, price measures. And therefore, similar like last year, 2/3 of those price measures will be implemented in the Truck division and the third in rail. And if you take a third out of roughly, so to say, EUR 300 million, you end up at EUR 100 million. And there, in the end, you're not far away with the 3% that you grossly indicated -- so I can confirm that this is the year-over-year figure that we are aiming for in the rail division to achieve. Can you please help me out on the last element of your question or the third element of your question. I think it was Andre...

[Calvin Chen, analyst]

Yes. It's actually Calvin here. Yes, the second part of that question is when you go for price increase to your customers, would that affect their demand on the cash payment terms over the short term or midterm?

[Frank Weber, executive]

No. We don't expect that. No. We have not given in over the last weeks and months on any kind of payment terms in a kind of negotiation for higher prices.

[Calvin Chen, analyst]

Got it. And also, my second question is related to the working capital and cash. So you have around minus EUR 199 million free cash flow for Q1 and then targeting $350 million to $550 million. So -- and also, you mentioned Q4 has affected Q1. So if we think about Q2, in particular, the cadence, do you expect the deferred payment by your customers in Q1? Do you expect to collect them in Q2? Or that's more of a gradual collection throughout the year? And also how will Q1 affect Q2 free cash flow, please?

[Frank Weber, executive]

First of all, to the general pattern topics that I mentioned before, the more Asian ones. This is rather, so to say, a more back-end loaded quarter 4 kind of payment behavior that we would expect. So it would not ultimately turn into cash already in the second quarter. First. Second, to the more explicit element we talked about the discussions in India.

I expect at least partially relief in the second quarter already, whether to the full extent, I doubt a bit. But as negotiations are kind of always kind of longer lasting, so maybe ultimately done via the third quarter, this would be there the expectation. In general, we expect free cash flow in the second quarter will be significantly better than in the first quarter, but not a positive the third quarter positive and fourth quarter, very good, so to say. This is somehow the rough indication of how it should go throughout the year.

[Operator]

The next question comes from Lucas Ferhani. Jefferies.

[Lucas Ferhani, analyst]

So my first question is also just continuing on working capital. If we think more on a medium-term basis, historically, you are doing 45 to 50 days. And that's also the target that was set on the medium term. Do you see a change here in terms of what you can go back to given some of the changes you have in your kind of portfolio and your regional exposure. Yes, that's the first one.

[Frank Weber, executive]

You were talking about your estimates on scope of days, right? Lucas?

[Lucas Ferhani, analyst]

No, that's the kind of the target that was set in your prior medium-term presentation, 45 to 50 days for the working capital.

[Frank Weber, executive]

I understand. Yes, I mean, the guidance that we have been given there for the midterm was obviously at times before, so to say, the China market dropped before the Russian war over Ukraine and definitely before the high inflation ultimately kicks in. We do think that in very general, we stick to that kind of scope of days targets going into the future.

But with adjustments for, of course, inflation because inflation kicks in, in AR and in inventories as well as in payables. And we are currently, so to say, working on all those impacts, how they would, so to say, impact those targets midterm. Secondly, we have to take out, so to say, our scope of days for Russia is this we don't plan with Russian business anymore.

So those 3 adjustments, I think, basically need to be done. A fourth element is, of course, that we have to, I think, react over time quite flexibly. We, of course, see, as you also see with other companies that the OEM behavior in regards to what they expect from the suppliers when and to which extent to deliver, there might be slight adjustments in the general business model between an OEM and the supplier when it comes to working capital and to have your product at end.

And this we will adjust as well. So I can't give you the concrete figure as of now. We will do so by July what we target here, but expect those 3, 3.5 adjustments to the prior figure that we have had. Could don't necessarily all go into the same direction. There might be some pluses and some minuses just to say that.

[Lucas Ferhani, analyst]

Okay. Perfect. And my second one is on pricing in CVS. Do you think that could be more of an issue in a tougher volume environment in H2 to kind of ask for the price increases? And also just in your guidance for the positive price versus cost by the full year. Is this mostly driven by kind of carryover pricing? Or do you need to have further price increases and further negotiation in CVS?

[Marc Llistosella Y Bischoff, executive]

In fact, just 2 questions, not one. The one question, which in regard is, how is our pricing position when the volume increase in the CVS market will no longer last? It's very clear. We have here currently a price cost ratio, which is more and more getting favorable. That's for sure. number one, that's for this year. When we -- assuming that the market will go down globally, then of course, we could see 2 effects.

The one effect is that the positioning what we have given us is now based and integrated in the contracts, which is absolutely in our favor. So if it comes to real decrease of the market, we will have a certain form of delay of this effect in our profitability as we had it with the inflation, this is the same what comes. So it's always something like a tailing and were, however, flexible you are, you have this in the bad side, but you have it also on the good side. So on the good side is, if the market goes down, the question is, is it going down constantly? Or is it just a slight dip for a slight dip -- we do not see any impact on us.

If it's a dramatic decrease, like, for example, in China, we had in China seen, and that is something which at least I can refer to, and hopefully, this gives you a response to your question. In China, we had a collects of the market from 1.5 million to 1.6 million trucks in 2021 to a market which came down to 650,000 to 700,000. Still in this market, even if it was collapsing by nearly 55%, CVS was profitable in China.

So that means, yes, we are hammers , but we are not hammered as anyone else because, first, we have a contractual base, which is lasting and second, you need us. And that is the very, very good selling proposition which we have. That's the good thing with car. You cannot just substitute us. And in rail, it's even worse or encouraged of the customer even better for us because the exchange our system is not possible.

So this is the strong message then also for this year and for last year, even while having increased the prices in some cases, by more than 27%, steering Japan, where customers had to accept. Now you can say, yes, but then when it is so easy, you could have done it. We have to be careful because if you are too strong at this point and to general on this point, it could happen that some customers, especially in rail, they just can sit and say, listen, if this is a consequence of our expectancy, we make sure that the dependency will not last any longer.

So we have to -- it's a walking on the line. In trucks, it's very clear. We have a competition there, but also the competition is very, very interested to bring up the pricing system and to keep the pricing level. So especially in Europe and America, we see no deterioration of pricing at all, not even when it is going down. What we can say is in China, there is a tendency that more and more local suppliers are trying to get into the market. So that's the answer to the question number one. Question number two was -- can you just rephrase that?

[Lucas Ferhani, analyst]

Yes. If you need more price increases this year in trucks to cover inflation? Or it's just mostly carryover from what you have already negotiated and agreed.

[Marc Llistosella Y Bischoff, executive]

It's carried over. It's carried over. And this is -- we call it the Wave 2. And we announced the [indiscernible] with our customers, our big customers, with Volvo, with [ Traitan ] with Daimler. So -- but it is not generically done. Everybody gets the same. This is on the customer specific, but there was a first wave one and now we are ongoing wave 2. And this wave 2, of course, gives us better results because you could say, and I'm pretty sure you did already the math and said, oh, very good organic growth.

But the organic growth was not that super profitable. And that is an effect, still the effect of the inflation and still the effect. But this kind of diluting effect, we will see less and less by quarter to quarter to quarter. And I can tell you now, Mr. Spitzauer , how I -- looks very angry on me, but I can tell you that in 2024, you see RVS nearly adjusted from this dip. And then you see the real profitability level of this business.

Because all the time, we have to discuss with you, we have to explain, we have to excuse, we have to show how the inflation is absorbed. In the end of the day, '23 is a transition year for RVS. It's a recovering for ready for CVS and it's a transition for our bids. '24, assuming that we see no other horrible events in Asia, for example, then we can say, the contracts that have all the inflationary numbers included -- the cost-cutting effects are also included.

So this is very promising then for RVS in 2024. They recover -- we see '24 internally as a clear recovering year for RVS. And we are working on that to even uplift this kind of effect with some portfolio adjustments. In CVS, I would say we are at least 3 to 4 quarters ahead. Here, we could be faster. Here, we see the effect faster coming into the game. And here, we see eventually also quicker-than-expected portfolio adjustments coming into place.

[Operator]

The next question comes from Marc Zeck, Stifel.

[Marc Zeck, analyst]

Yes. First one, just a quick clarification also related to the July. Evan, you said that EUR 1.4 billion of revenues are under review, I guess, in the -- during the full year results, you said that 10% of the portfolio is under review. And if I'm not totally wrong with my calculator, EUR 1.4 million equates to more than 10%, 20% of the portfolio. So did I get that right that the amount of revenues you're currently considering has just doubled within like 2 months or so. Yes, would be the first question.

[Marc Llistosella Y Bischoff, executive]

Thank you for the question. We took -- for your calculator, you take please the assumed revenue of the year 2023, which is assumed to be in the range of, let's say, EUR 7.5 billion. From the EUR 7.5 billion, we take really close deep dive is currently EUR 1.38 billion. So this is -- you're right.

It's no longer 10%, it's closer to the 16%. -- number one, right, well calculated. Number two, it's a dynamic process. So what we see is red-yellow increase, this is how we cluster the whole product and company portfolio of programs. Everything what is not a contributor is a diluted in terms of EBIT is in the red. Everything what is not to our extent of EBIT margin is in the yellow.

And everything what is either on the line or above the line is green. So you can imagine that the [ 700 ] which I spoke at the very beginning when we met, this is the red and stack orange, very dark orange to red. And what is now additional to that is in the yellow. So this is where we say, can we fix it? Or do we have to exit it? Or that's, by the way, the third option. Do we have to do a strategic partnership with someone who can massively help us to get this business back or eventually on the level which we wanted. So this is in terms of the accuracy of the numbers. Hopefully, this is now understood.

[Marc Zeck, analyst]

Yes. Perfect. Second question would be on CVS. And I guess, referred from some European OEMs in trucking space, that they saw an uptick in product cancellation in trucks, not a big one, but let's say, an uptick from no cancellations briefly. Can you confirm this that you've also seen this? And is this also true for non-European trucking OEMs. That will be the second question.

[Marc Llistosella Y Bischoff, executive]

If it's fine me, I would like to take it because trucks, as you know, is my territory and even Frank agrees with that.

[Frank Weber, executive]

I do.

[Marc Llistosella Y Bischoff, executive]

What we have seen last year was an exceptionally run, especially in Europe and America on trucking production slots. This is very common in America because there, we have a cyclicality of the market, which is exceptionally high 30%, 50% up and then next 4% to 20% down.

So the cyclicality leads to a certain form of purchase behavior. The purchase behavior in America is very, very similar, always over the last 30 years, and we know it also for Freightliner. When something is a rush, everybody wants to get a production slot and they just cover it to take it. When this is then a binding or a really binding purchase and you know it, especially in America, it's not the case.

So the cancellation here, the up and down, this is normal business. This is why you remember when the numbers were so significantly up in the quarter 4 and quarter 1 last year and this year, we were always a little bit decent and modest. We said, yes, the markets are good, but we don't want to be now -- yes, we don't want to celebrate it before it comes to real execution.

In terms of Europe, we see one thing, and we said it also, we see that the trailer market, which is not really correlating to the truck market, not really correlating -- so you can't say if this goes down, the other thing goes down also only with a delay of 3 or 4 months. But the trailer market is relatively modest. By the way, in China, it's the opposite. The trailer market in China is extremely bullish.

In Europe, it's very modest and slightly going down. So this gives us -- and this was always for us the reason why we said whatever kind of orders we see with the trucks OEM, we are a little bit careful. What we can see so far is some of our customers, they even locked the books in November last year and said we opened the books only 3, 4 months after because we cannot come up with the production.

Now we see that some of the slots which were taken by big and huge customers lead are just postponed shifted, whatever you call it in Europe, not in China or not at all in China. There, the run is real. In America it is getting stable. And in Europe, it is still positive. So that means for us, our assumption is still valid. We see a slight increase. We see positive market. We see our demand, which is in our favor, but we don't see an exploding market, and we don't see any including market. And I speak about this [indiscernible] , I mean, 20% up or 20% down.

[Operator]

And now we have a follow-up question from Sven Weier UBS.

[Sven Weier, analyst]

Quick follow-up questions. The first one was really on the China METRO market. Because overall, I remember in the past, you said you're likely to lose some share there because the share was very high in the past. Now what we observe in the market, the metro market is not so bad, but we see a shift from under to overground. And I was just wondering if that also relates to the market share situation, whether you have a stronger market share in the subways or if there is any difference in that?

That's the first one.

[Marc Llistosella Y Bischoff, executive]

So as everybody points to me, I will try to do my best. In terms of the metro markets, I think whether this is underground or on the ground, this is for us no difference. And by the way, to be very honest, I currently in this minute, have now the information to split the metro market between the low and above. I don't have it. Eventually, when you have it, and I can speak with Jorgen builder, whether he sees a difference here.

I assume, and I assume very strongly that there is no difference. What we see is -- and that is also something expectation management here, to be very clear. Our forecast so far for this segment of the market is very positive. We see an increase of roughly 20%, 25% to last year by knowing that last year was a horrible year.

It was a very bad year for the overall market because in '19, we had roughly 6,500. In 2020 we had nearly 8,000 metros. And they're coming now with a number of 5,300. That's our assumption for this year. What we see in the market is as more as this market is standardizing. The more the Chinese standard is getting also in this segment, we have to fight.

That means currently, the more differentiation we see from municipality to municipality, this is in our favor. This is our business concept also in Europe. The more differences we have, the better for us. The more it gets standardized like in the high-speed train, the more it gets to the burden of the margins. Now we can say but you're no longer really significant in the high-speed train. Number one, the high-speed train numbers, absolutely, they came down by 75% from the highs of 2015 to '16.

And we are now currently in the market assumption of 80 to 100 trades, right? So this is really a fraction of what it was. What for us is important is the after sales. What is important for us that we are coming still with components into this business. And what we are seeing and what we are working on is to be perceived as a Chinese supplier. The more we are perceived as a non-Chinese supplier, we will be taken out.

This is the reason why we are very happy with our joint venture structures, which we have there. And this is why we are considering that China itself, we have this China for China. And this is a strategy which you not any only hear from us. This is also what we have to do in the near future and also in the metros because if you are not doing it, we are facing significantly disadvantaged in the play. And this is not only cost business regulations, this is tariffs, this is barriers, which we are even not perceiving.

So this is why we need to Chinese more our business in China to make it more independent. And I give you one example. We have a lot of internal contribution that means we have a lot of supply from Europe to China with components that intercompany supply. We are facing in Europe inflation, right? The Chinese translation currently is in the range of 2%. So that means price adjustments in China because of imported products is not negotiatable.

So it's not easy to do that. So you could say even in our favor that the market for high-speed trains was so poor because one thing we sure couldn't -- if we could not just proceed what we did here in Europe and America, just forwarding the inflated prices, we could not because they would say, listen, we don't have the inflation in China.

So in fact, you could say the weakness of the market was for us an upside because when we come back to a stronger market, then demands are high, supply will be eventually shorter, and then we can make the price adjustments, which we had to do anyway.

[Sven Weier, analyst]

Yes. That's interesting insights, Mark. I appreciate that. The second follow-up was just real quick on the CVS order intake sequentially in Q1. And the EUR 130 million something increase. I was just wondering was that entirely driven by the bounce in China? And also on China, you still sound a bit more muted on the year, which I would probably agree with because when we look at the recent monthly developments, March and April was not so strong then. So it seems to be, indeed, a very volatile recovery in Chinese truck markets. Is that also what you've observed in the last couple of weeks?

[Frank Weber, executive]

Yes. First of all, a bit Sven, in regards to the first element of your question. I mean, the one reason why also kind of the order intakes were higher than what you basically had as the consensus is driven to a large extent by what Mark said before the closure of older books of some of the OEMs last year, reopening them in November and then everybody joining in, in order to secure certain slots within '23 for production, and we don't expect those order intake levels to stay within '23.

We expect them to decline again. That goes, of course, needless to say, hand-in-hand with our revenue expectations, where we are also a bit more bearish like we discussed before. So we see it as well, if you look at the months so a similar view on things like [ you said].

[Operator]

And the next question is a follow-up from Calvin Chen Crédit Suisse.

[Calvin Chen, analyst]

I just got one more question on your China JV or partnership Synergy. So just as you plan to probably expand or further develop your JV or partnership in China despite for that China for China strategy, could you give us a bit more dynamics on the corporation with the China partner there?

And whether that will affect your kind of technology advantage in your product over time? And also in terms of the JV partner, I presume it's not -- it's more local companies, not your key competitor in China like [indiscernible] . Is that correct?

[Frank Weber, executive]

Yes. Let me maybe first start what you're potentially hinting at also with that question. I mean, we have been quite often discussing with new colleagues in regards to the joint venture strategy within China and whether, so to say, more kind of connected linked business set up with our partners could somehow solve the issues of reduced market shares that we have been facing over time and can avoid that going into the future.

We have to say that the joint ventures are like we are currently set up, which are quite some working well, working extremely well. We are very long lastingly respected partner for the Chinese give you one example as a proof point. CRRC has won over the last year, some roughly 20 projects in Europe, where basically in 100% of those projects that they have won in Europe, we are in as cobrand brake systems and doors. So they are relying on us. I mean you can also say that clearly, it's potentially not intrinsically motivated that they want to have us in Barba they would have their subsidiary supplying the brakes, but you see here the name and the image, the perception that we have in the market as the market leader as the technology leader accounts in the Western world, so to say, and the end customer in the end, defines them the relevant supplier, at least for the safety elements of a train, which is a good indication that the joint ventures are running quite well.

Second is to say, we can't, of course, strategically just go and, so to say, call out for a bigger joint venture with CRRC without discussing on IP rights and how technology would be then still globally for Knorr-Bremse. So this is, of course, a big, big issue for us because needless to say, Chinese partners would like to have a certain access to IP rights for the products, which is, of course, a big hurdle for us to jump over. It's not so easily solved that issue, but our joint ventures, despite those potential bigger moves in China are running quite well still. -- is go for truck division. Are we allowed to ask them questions? No. Credit Suisse and UBS we should not ask.

[Andreas Spitzauer, executive]

Okay. Then thank you very much for your time and for your questions. If you have further questions, please reach out to the IR team, and we wish you a great afternoon. Thank you very much.

[Frank Weber, executive]

Thank you, colleagues. Thank you...

[Marc Llistosella Y Bischoff, executive]

Thank you.