Saf-Holland Se

XETRA:SFQ

Earnings Call Transcript 2020-Q3

[Operator]

Good morning, ladies and gentlemen, and welcome to the SAF-Holland SE Analyst and Investors Conference Call on Q3 2020. [Operator Instructions] Let me now turn the floor over to your host, Mr. Michael Schickling.

[Michael Schickling]

Yes. Good morning, and welcome to the Q3 analysts and investors conference call of SAF-Holland. This morning, we have published a full set of numbers as well as the presentation slides used in this call. Today's speakers will be our CEO, Alexander Geis; and our new CFO, Inka Koljonen. We will start with the presentation followed by a Q&A session. This call is scheduled for 1 hour and we will try to cover as many questions as possible. I now would like to hand over the microphone to our CFO, Inka Koljonen.

[Inka Koljonen, CFO & Member of the Management Board]

Yes. So good morning, everyone. My name is Inka Koljonen, I am CFO of SAF-Holland since September 1, and it's a pleasure for me, for the first time, present the Q3 numbers in this round as a basis then for a hopefully lively Q&A discussion. So let's start with an overview of the 9-month figures. Yes. So we've had definitely a good Q3 and 9 months. If we start with the revenues, the revenues did go down by 30% as expected. But if we compare that to the significant global market drop in regions EMEA and Americas, we performed better than the markets. Then if we look at the earnings or the margin situation, and let's start with the adjusted EBIT margin, which is our main guidance KPI here. The Q3 adjusted EBIT was at 6.4%. This is an entire percentage point or 100 basis points higher than previous year, so we are here better in Q3 than in pre-COVID conditions. If we add all the quarters up for this year and come up to the 9 months number, we are at 5.4%, which is slightly above the full year guidance which was given out. And as updated last night, this is also the main reason why we then uplifted the guidance for the full year. Then coming back to the 9-month margin of 5.4%, the main drivers for this improvement is, firstly, the high share of the aftermarket business. We are, meanwhile, at about 30% aftermarket versus last year, 25%. But moreover, the management took, early in the crisis, decisive actions to cut costs in all areas, and these activities have been continued throughout the year and will continue also into next year. In addition to that, markets are also picking up and we are gaining market share. Then to the cash flow. The cash flow is very positive. Our operating free cash flow is at 64.6% versus EUR 12 million in previous year. Main driver is here the net working capital improvement and also the lower CapEx. The CapEx is at around EUR 16 million versus EUR 37 million in previous year. And with that, we are definitely within our guidance range of 2% to 2.5% of sales. On the next page, we see the revenue and the result of the group on a quarterly basis. And I think this is an important and interesting chart because it shows and indicates how we are trading and how the trends are. So the group 9 months' revenue, as mentioned, dropped by 30%. But if we look at the quarter-by-quarter development, it clearly shows that we have bottomed in Q2, and Q3 revenues are already 20% above Q2. And the same goes for -- also for the margin development quarter-by-quarter. The Q3 margin is at 6.4%, which is significantly above the margin we achieved in Q2 when it was only 2.7%. And again, the Q3 margin is even above previous year. Quality of earnings, a topic I have been and we have been addressed as a company in many discussions with investors and analysts since I've started and also read some brief comments this morning. I would like to talk about this a little bit. So our adjustments or the quality of earnings have significantly improved versus last year. We are, at the moment, at EBIT adjustment of about EUR 19 million versus EBIT adjustments of EUR 28 million in previous year. So there's a clear improvement and we have a road map also to further improve this into 2021. The adjustment of EUR 19 million that I just mentioned refer mainly to restructuring, for which we have provided a breakdown on this page. So you see also here, severance payments, closure of subsidiaries and the company in China. This will not occur in '21 anymore. So already, naturally, the restructuring costs are going down into '21. In addition to that, we will take a more conservative approach to how we treat adjustments and restructuring expenses. Also, no goodwill impairment is included in the adjustments, so the goodwill impairment did not occur and was also not included. And with that, I would like to hand over to our CEO, Alex Geis, for some more details on the regional development.

[Alexander Geis, CEO & Chairman of Management Board]

Thank you, Inka. Ladies and gentlemen, good morning, and also a very warm welcome from my side. This is Alex Geis speaking, and I would like to give you a bit more insight into the regions. And I can already summarize that we, as a company, together with our people worldwide, making a huge progress in all the regions. But let's start with the biggest region in terms of sales, which is EMEA. You can see on this page. On the upper left side, you can see in the first 9 months, sales came in with just EUR 405 million. This is a little bit lower than last year but this came in with 8.7% adjusted EBIT margin, which is not that bad in those times. I would like to draw your attention on the middle section, specifically on the Q3 sales. Here, you can see with EUR 137 million in Q3 in the EMEA region, the numbers were very close to previous year, so only EUR 7 million down, which is not too bad. But if you then go a little bit further down and see the adjusted EBIT margin, which came in, in Q3, this year was 10%. That's obviously better than the 8.9% last year. So we, as a team in EMEA, outperformed 2019 in this year. Also worthwhile to mention on the right side that the profitability in EMEA and I also will speak about that in Americas on the next slide, does include inventory write-downs of EUR 4.7 million, which we had to do to the new accounting rules. So this is also included in the profitability. The last bullet point on the right side, you can see that we also had restructuring expenses in EMEA of EUR 2.8 million. This is mainly severance payments and also costs related to the change from Luxembourg S.A. to the SE now being headquartered in Germany. We already announced that we had a strong October some days ago, and I can openly say that in November and December and even January, ladies and gentlemen, we are nearly fully booked so we are quite optimistic looking into the future. Worthwhile also to mention that we gained market share, specifically in axles in the EMEA region with smaller- and medium-sized trailer manufacturers. Now I would like to go on the next page and speak about our second biggest region in terms of sales, which is Americas. Sales-wise, the Americas region got hit the hardest, as we know. This is mainly driven by trailer axles and suspensions, where we are quite strong also in terms of sales. The market went down by nearly 50% in trailer axles or in trailer itself. Truck business also went down as well. But here, we see, since late summer also a good recovery, but I will come back to this later on. Also here, starting with the sales on the upper left side, you can see that our sales went down to EUR 250 million in the first 9 months and that sales came in with 3.5 percentage points of adjusted EBIT margin. If you now go to the middle section, where we have the quarters or the sales of the quarters, you can see that we started not too bad beginning of the year, then we dropped to EUR 69 million in sales in the second quarter, which was quite weak. And also since our main market is -- in North America is in the U.S., we also can see that the last quarter with EUR 76 million was not a really good quarter but it's improving. And as I said also here, we see already an upswing in October, specifically in the U.S. If you now draw your attention to the adjusted EBIT margin in Q3, you can see that the profitability came in with 5.6%, which was slightly better than last year. So here, we specifically optimized our SG&A and this also will last into the years to come. We stopped loss-making sales. We consolidated product portfolios and we now have a good foundation for the future. And as I mentioned, the October was also a very good, I would say, even an outstanding month in terms of sales and profitability. We did our homework and this pays off now. On the right side, also the profitability, you can see that at the section of adjusted EBIT, the second bullet point, that profitability includes inventory write-downs of also EUR 4.1 million, which is included there. The last bullet point on the lower right side, you can see that restructuring expenses came in with EUR 4 million. This is mainly severance payments and costs related to FORWARD 2.0, and the majority of those costs will not reoccur next year. On the next slide, coming to the last region, I have to say this is the last remaining problem chart for us, the APAC region, where I have to say that we struggled in China only, not in the rest of APAC like in India, Singapore and Australia. On the left upper side, you can see that the sales nearly halved to EUR 54 million. This is mainly driven by ceased export business as a result of the trade dispute between China and the U.S. We were heavily focusing in the past on export sales and not that much on domestic sales. We changed that month and also the delayed ramp-up of the new Chinese facility in Yangzhou, where we were not able to send any experts for more than 6 months, we got a hit here. Worthwhile to mention that meanwhile, we have German and Australian operations experts sitting in Yangzhou and helping to finalize the last steps to fully ramp up that plant. Going down to the lower left side, speaking about the adjusted EBIT margin. This looks horrible with minus 9.9%, which is an absolute number of EUR 5.3 million, but we are coming closer to breakeven. Sales in the third quarter of 2020 came in with EUR 20 million, a little bit lower than the year before, also driven, as I said before, with the missing export business, and the profitability came in with minus 15.1%. Main drivers were also low volumes due to the ramp-up delay of our plant, and we also did sell a lot of old stock at very low prices. This was the main reason. I have to say that we now did finish with the last bullet point. You can see the total number of restructuring expenses is EUR 4.9 million. We finished the cleaning of the legacy issues from the past with all the plants and production and warehousing sites we had in China and also finished the consolidation here. So now we are going into a much better 2021. We have a new team. Our robot and painting line in China are running now, and we are able to capture the first bigger disc brake orders from domestic trailer builders, which we didn't have before. Also, our landing leg line is now running and we are producing already 300 sets per day. In October, the APAC region was very close to breakeven and the plan, for sure, for 2021 is to earn some money also in that region. Before I hand back to Inka on the next slide, please let's take a look on how we see the first 9 months year-over-year development of the different markets. So on Page 10, starting on the left side with Europe, we saw the first 9 months coming in, in the truck area with a minus 30% to minus 35%; trailer, minus 25% to minus 30%; North America, you can see somewhere around minus 40% to minus 45%, 50% in both truck and trailer. So we got hit the hardest here. China truck plus 10% to plus 20% and trailer plus 10%; South America, which is very good for us since we have a suspension specialist down in Brazil, truck minus 35% to minus 40%; and trailer with only minus 10% to minus 15%; India, another huge drop and I will come back to this later on, truck minus 70%, trailer minus 60% and we clearly see that India have bottomed here. Before I come back, I would like to hand over back to Inka to speak a little bit more about our investments and D&A, and Inka, please?

[Inka Koljonen, CFO & Member of the Management Board]

Thank you. Yes. So then we come to investments and depreciation, amortization. Investments in PPE and intangible assets are at EUR 16 million or 2.3% of the group sales in 9 months, which compares to a number of 3.7% in previous year. So this is within the new guidance of maximum 2.5% of sales. And this is also a discussion we are having on a regular base, and I have -- want to comment that we have, within the Board, we have analyzed this in detail really. The 2.5% maximum is a sustainable level going forward. There has been a high investment phase, which started in '17, continued in '18 and '19. We have invested a lot especially in EMEA and China in the past, where we have a state-of-the-art facility. I'm talking about China specifically. So going forward, 2.5% is a sustainable level and does not only include maintenance investment but also includes some punctual growth as well. Depreciation and amortization is higher as a percentage of sales. This is clear. We have lower sales, this is known. But in absolute terms, we are talking about the number of EUR 27 million in the first 9 months of '20 versus EUR 24 million in previous year. So we are pretty stable here in absolute terms. And as you all know, this is a result of previous investments. Then I would like to come to a positive topic, in my view, the net working capital development. Here, we see the relative and absolute development of net working capital. Previously, focus has been mainly on the absolute development. Net working capital, if you look at the latest bar, the Q3 number is significantly down, both in absolute and relative terms versus previous year. The Q3 '20 number is at EUR 139 million or 14% of sales versus a number of 16.4% in previous year. So a significant reduction also compared to the sales. Main driver here, and this is mainly a result of a program called Cash-is-King. This has been communicated to you. It started already in spring this year and has been executed in a very disciplined manner throughout the organization. The focus of the program or the target of the program was to lower absolute overdues and inventories. As mentioned in the press release, we are more or less already there in terms of achieving our full year targets. And now we need to make sure that we will keep on these current low levels also in the upcoming 2 months and this is what we're doing. So if we talk about the numbers, the receivables are down by 34% versus previous year. Specifically due to the improved cash collection, the inventories are down by 27% versus previous year. So here also with the area of inventories, we are showing that we have been able to adjust working capital to the lower volumes. Cash-is-King program will be continued also into 2021 with an enhanced scope and a focus on inventories and initiatives, which we are running together with my colleague, COO, André Philipp. So be prepared for more to come also from this area. On the next page, I have included a new analysis in the presentation. This is something I show both internally and externally. And it's something where we can really demonstrate the cash generation of the company. And I specifically look at the net cash flow from operating activities compared to EBITDA. This is what I call the cash conversion because at the end, the net cash flow from operating activities is the number that we are able to convert from EBITDA into cash that we can then spend for whatever it is, CapEx, M&A, interest payments and so on. And if we look at the 9 months' numbers, we are almost at EUR 80 million for the net cash flow from operating activities comparing to an EBITDA of EUR 54 million, so clearly above 100% cash conversion. This is a very good number and to the drivers you see directly in this chart. If we look at the 9 months in '19, we had a net working capital cash outflow of EUR 25 million comparing to a net working capital cash inflow of EUR 22 million. So even with the lower EBITDA this year, our cash generation is significantly higher. If we look at further down the cash flow statement, also the operating free cash flow is very good and above previous year with EUR 64 million versus EUR 12 million. And here, the driver is clearly CapEx. And again, we will have, also going forward, a clear focus on net working capital and cash -- and CapEx to improve the cash generation and the balance sheet structure of the company. Balance sheet structure of the company and the ratio of net debt-to-EBITDA, also a question very often addressed to us from investors and analysts. Our target range is somewhere between 2 and 3x at max, really at max. This has been historically achieved. Then looking into this year, Q2, we were hit by COVID and the ratio went up to some 4.4 -- yes, 4x, 4.6x. But if we look at Q3 numbers, we are moving again in the right direction. So for Q3, we have the ratio is somewhere at 3.7x. This is clearly driven by the cash generation and therefore, the lower debt. Yes. So again, we have used the strong cash generation to improve our net debt situation and will continue also, going forward, to look into this very closely. And with that, I would like to hand over back to Alex Geis for the outlook.

[Alexander Geis, CEO & Chairman of Management Board]

Thank you, Inka. As Inka explained, we also did our homework in terms of cash generation and our teams worldwide did a good job here. You can count on us that we will continue this. This is also from my side. Now coming to our production outlook for the whole year of 2020. Also starting on the left side, Europe, slightly better with trucks still being minus 30% to minus 35%; trailer a little bit better with minus 15% to minus 20% in total; North America, also slightly better with truck now somewhere around minus 40% to minus 45% and trailer also 40% to 45%. China, same as '19 in truck with 0 to plus 5%, and trailer a bit down with a minus 5% to minus 10%. South America, truck still hit with minus 30% to minus 35% and trailer getting a little bit better with still a minus 5% to minus 10%. India, as I said before, still very much down with new truck minus 40% to minus 50% and trailer also minus 40% to minus 50%. Please allow me to say that in India, we have now a market share of nearly 55%. That means we are ready for the upswing in the years to come. Having spoken about the 2020 markets, I would like to go to Page 17, please, and revise our 2020 guidance to the better. On the next slide, you can see, firstly, sales remains unchanged with sales, we still see with a decline somewhere around 20% to 30% year-over-year. Secondly, due to the homework we did and the positive market signals, we raised our adjusted EBIT guidance to now between 5% and 6%. And thirdly, our CapEx remains unchanged with around 2.5% of sales. And as usual, I would like to summarize on the next page, please. So your key takeaways are and this is valid year-over-year. Our consistent aftermarket business, with the population we have in all the markets, safeguards our profitability. Our SG&A savings programs will be continued also in 2021. Our Cash-is-King program is on track and we do have a very solid financial profile. And lastly, we keep pushing our operational excellence as a key driver for our future success, specifically in the region Americas and there, the U.S. and also in China. Ladies and gentlemen, thanks for listening to us and we are open for questions now. Thank you.

[Operator]

[Operator Instructions] And the first questioner is Mr. Julien Batteau from Pascal Advisors.

[Julien Batteau]

Surprised that to be the only one to ask some questions, to be honest. Just in terms of rebound for next year, what -- I mean, we see this year's a disaster for both Europe and U.S. If you were to put a number on the rebound in what you see for October and November, as you said that you pointed out that in EMEA, for example, it was a very good month and you were fully booked. Where would you expect the market to come back compared to '19 or '18 basically?

[Alexander Geis, CEO & Chairman of Management Board]

Julien, this is Alex Geis. Let me try to answer your question as follows. Well, I wouldn't say that EMEA was a disaster for us because, as you see, the first 9 months, they came only in with a minus of 17.8 okay? It's still a decline, every decline I don't like, okay? So -- but it was not as bad as in other regions for us, specifically for everybody in North America. It's pretty much dominated the sales in EMEA in the next year by what's going to happen with all the lockdowns, okay? We still face the second wave in all the countries throughout Europe, also an easy lockdown here or a soft lockdown in Germany. We stay cautious. We have our productions ready. As I said before, in November, December and January, we are nearly fully booked. We operate in a 2 shift in 1 plant, 3 shifts in the other plant and also the Turkish team, our Turkish plant is nearly fully booked, which is good for us. But we have to remain cautious. I don't know what's going to happen in -- maybe in March or April but we target a slight increase for 2021 also for Europe. Let me say it in that way. For North America, we clearly have bottomed with nearly 50% of the market. I said that we got hit the hardest specifically in the trailer and -- trailer axle and suspension business where we have a good market share. And this is also the majority of sales we do in North America, which is mainly Americas for us. Here, we clearly see that there might be an upswing of somewhere around, let's say, 15%, 20%, 25%. If we can participate, let's hope that we're able to do that but I'm convinced that we have now the right setup, and we still continue to improve our operational business there and the setups that we are ready for the upswing. And last but not least, APAC region, I elaborated on this earlier. I'm okay with our results sales we do in Pacific. So Australia, New Zealand, in Far East Asia and also in India, which is okay. Where we struggle and struggled is China. We are trending in the right direction. We have to fill our production with domestic sales, and there might be also an uplift now with the change from Trump to Biden, that there might be a little bit of a release in the tariffs. And if this is happening due to our fleet pull-through in the U.S., we can also regain that business additionally on top of the domestic sales we are targeting for the last quarter and also 2021. So to summarize that, we think and we hope that there will be a better 2021 than in 2020. Does that answer your question somehow?

[Julien Batteau]

Yes, yes, yes. It's perfect. And the -- can you comment a little bit on aftermarket versus OEM in the Europe and America region, how it's going? What do you see? I mean, it seems to me that aftermarket in Europe is pretty good because, correct me if I'm wrong, but I guess the margin improvement we see in EMEA is also driven by the mix. But maybe on what happened in America -- because if I remember correctly, in '18 and '19, the aftermarket in America was not so strong because there was a loss of OEM.

[Alexander Geis, CEO & Chairman of Management Board]

Yes. Let's try to give a little bit more meat on the bone to also to the aftermarket. Our profitability is not mainly driven by aftermarket because also in EMEA, we increased over the last couple of years the profitability, due to the fact that we did not focus that much anymore on the big key accounts or only on the key accounts. We were ramping up our sales in the last couple of years to the medium-sized and smaller trailer builders. Yes, that adds a little bit of complexity, but the teams here in Europe are capable of handling that but that comes with a little bit higher profitability. So the mix between having a strong aftermarket and also focusing more on medium- and smaller-sized customers helped to increase the profitability. On the Americas side or on the U.S. side, we have mainly the U.S. market. We have the Canadian market where we have up to 80%, 85% market share in fifth wheels and in landing legs in the aftermarket so we are quite healthy there. If we talk about the U.S., we have also a very healthy sales split between OE and the aftermarket. In the aftermarket, I have to admit there might be a little bit of an uplift also in the future because with the ramp-up of the disc brake technology in trailer axles, we build and create a higher population of trailer axles equipped with disc brake. And the disc brake aftermarket is more profitable over a drum brake market. So the more population we build in the U.S. or North America, the more we can generate a profitable or even more profitable aftermarket sales in the years to come. And this is the clear target. As a reminder, the split of drum versus disc in the -- in North America is somewhere around 85-80 to 15-20.

[Julien Batteau]

That's the installed base, right?

[Alexander Geis, CEO & Chairman of Management Board]

The installed base, which means also then the base for the future, so disc market is slightly increasing. If there might be a new regulation coming up maybe in 2 or 3 years, that will give us a huge boost in this because we are a market leader in disc brakes. As you have seen, for instance, in China with the regulation of disc brake technology for dangerous goods trailers -- or roughly 2 years ago and the add-on of suspension with air suspension, so the combination disc with air from beginning of 2020 on, that gave a boost in disc brake axles also in China. If this is going to happen also in North America in the future, this will be a great thing to complete my saying. If you go back now to Europe, the split between disc versus drum is the opposite. So it's likely 75-25 or even 80-20.

[Operator]

The next question comes from Mr. Nicolai Kempf of Deutsche Bank.

[Nicolai Kempf, Research Analyst]

Yes. Nicolai Kempf from Deutsche Bank. So my question would be also on Europe and let's say that this is a very strong number you showed us here in Q3. And can you give some more color what drove this number? You mentioned the aftermarket but also do you need customers on a small [ class assessment ] And also can you say a bit more on the upcoming months because you stated that you booked out until January. Is it driven by truck or by trailer or a special market? I probably [indiscernible]

[Alexander Geis, CEO & Chairman of Management Board]

Okay, yes. So as I said before, aftermarket business is continuously strong. Yes, we got a little bit of a dip in Q2. That was mainly driven by a lower transportation volume, specifically in Q2 because nobody knew what's going on with this COVID thing, and also the bigger spare part dealers did reduce also the inventory to collect a little bit cash into the company. So we bottled in Q2. Q3 was already nearly back on 2019. And with our installed base and the excess we pumped in the market specifically in '17, '18 and '19, this will also be growing in the years to come. Secondly, once again, OE business, we were focusing much more on smaller- and medium-sized trailer customers throughout the EMEA region. So that goes from Moscow to, let's say, to the stan countries down to even to South Africa, where we gained some market share in various markets. That was good for the profitability and to also explain what is the difference between our North American and our European business, if you see the split between trailer-related products versus truck-related products, in Europe, it's like 90%, it's trailer, and only 10% is -- so even less than 10% is truck. Truck for us means fifth wheels. We have about a market share in Europe of 25% to 27% in fifth wheels. In the U.S., we have about 60% of the total sales or e-sales is trailer-related. So axles, drum axles, disc axles, we are #1 in mechanical suspension in North America and only 40% of the total OE sales is truck-related. Truck-related for us in North America means it's both, it's fifth wheels where we are the clear market leader with more than 50% market share. And secondly, truck suspensions. So the truck manufacturers in the U.S., they also purchase from suppliers truck suspensions, whereas the truck manufacturers in Europe, they do the own production in-house, so they don't buy outside. Does that answer your question?

[Nicolai Kempf, Research Analyst]

Yes. And top for Europe. So it's mainly trailers but it's...

[Alexander Geis, CEO & Chairman of Management Board]

90%. Yes, 90% of our OE sales is trailer, roughly 10% is truck related. And since we are market leader in trailer axles specifically, in disc brake axles, of course, we have synergies in terms of sourcing. We are the biggest consumer of disc brakes worldwide with all the axles we manufacture and this also helps to save cost. And secondly, as we mentioned the last time, we did sign with all the workers and people working for us here in Germany, a supplemental agreement, which was effective March 1, which will last the next -- close to the next 5 years. And this also helps to keep the SG&A rate, let's say, at a level where we think it should be.

[Operator]

The next question comes from Mr. Frederik Bitter of Hauck & Aufhäuser.

[Frederik Bitter, Analyst]

So good morning, Ms. Koljonen, Mr. Geis. Great results and obviously, the share price is up accordingly, I should say. A few questions from my side. The first one, I would like to understand a bit better the market share gains. You had, not only in the first half, but also that you must continued it now in Q3 in North America and also EMEA. In EMEA, you obviously -- you were talking a bit about axles already. But just some more details on where you took those market shares, and do you think those gains are obviously sustainable, or even are further increasable? That would be my first question.

[Alexander Geis, CEO & Chairman of Management Board]

Okay. So as we just heard in Europe, the main business we do with train axles, which is 90% of the OE business, here, we were able to keep up a short delivery time to our customers. To all our customers, doesn't matter if it's a bigger one or smaller ones. What we also were able in the course of 2020 that we re-signed long-term agreements with trailer manufacturers, bigger ones but also medium-sized ones. And those came in with the highest share of the total axles being used in their production. And what we also did, we did not cut back, for instance, application engineering, so our response time to new applications from our customers, doesn't matter if it was bigger ones or smaller ones, was very much in time. So we were able to gain some more business in trailer axles, which is for us also suspensions. And on the North American side, what we did and what we really did the last 2 years was the restructuring program. We have new team members in quality, for instance, sourcing, we upgraded. And specifically, our operations teams in our manufacturing plants in the U.S. are now capable to react much faster to the demand. So for instance, our OTDs, the on-time delivery, we were able to dramatically increase to the positive, which was good for our customers. And also what we did not do, we did not cut back our fleet approach. So that means we have a dedicated fleet team in North America, so both in U.S. and in Canada and those guys are just calling on fleets. And since we have, for instance, for fifth wheels, a premium product, which holds 55,000 pounds, over just 50,000 pounds of the 2 other suppliers into the industry. We are called the premium supplier and the fleets, they calculate lifetime costs and everything. So we gained with some dedicated bigger fleets, we were able to convert back to our Holland fifth wheel.

[Frederik Bitter, Analyst]

That's great. That's very helpful. And I think it's also a strong message, obviously, with the setup you have, particularly the new setup in North America. And then a question on this topic actually. Because if I look at obviously, a margin of 5.6%, and it includes inventory write-downs at the sales level of like EUR 76 million, which is far from a normalized sales level, this is an amazing result. But the question obviously would be where do you see a normalized margin level post the plant consolidation and also the improvements you've done to the product portfolio? Is it something around the EMEA mark, say? Or is it -- where could it be?

[Alexander Geis, CEO & Chairman of Management Board]

Frederik, this is a very tricky question you're asking, of course, which I will not answer directly, right? But you said it was impressive margin or something like that, not in my view because even if we are somewhere around 5% or 6%, this is not the margin I would like to see for the Americas region. We are a clear market leader in Canada, as I mentioned before, in the aftermarket landing legs, fifth wheels, couplers, we have somewhere around 80% to 85% market share. So check mark. In Mexico, we are really strong in margins. With KLL in Brazil, we are very happy. We are supplying suspensions for trucks and buses. We gained that big order from Volkswagen for the e-truck, for the light e-truck, which is good. And we will see that also the next 5 years to kick in with higher sales. So our thing is the U.S. What we did in the course specifically, and we drove that further in the course of 2020, we took out loss-making sales. We had a lot of sales, which was really negative, not low margin, it was negative. And we were not able to change this by maybe increasing slightly the prices, working on the foundation, on the cost base also with the help of sourcing. We stopped that. Give you an example, bumper tubes. This is the end of a trailer, right? This is a product you use about 3,000 square meters in the production facility. You have to bend, you have to drill holes. This goes for $50 and you make $5 profit, right, gross profit. But at the end, you don't earn any money. So we skipped that business. We will see in the future. Maybe in the midterm, a little bit lower sales but more profitability. And I have to say that again, even with 6% in Americas, I am not happy with that result and we should come back to normal levels very soon. I would maybe delay that question and the answer to that question to next week because on the 25th, we have our Analyst Day, and we also give out a margin guidance for the years to come.

[Frederik Bitter, Analyst]

Okay. That's good to know. So then I hold my horses and I'm going to ask you again next week, that -- just for clarification, what I meant is the 5.6% relative to the low sales volume of EUR 76 million, which I found is quite impressive. And if I think about where you've been historically at EUR 100 million or so per quarter, so EUR 400 million easily. And because the market is really good, also could be EUR 500 million. So just the fantasy is obviously, you have to [ reach ] to a margin, which is clearly high single digit, if not, let's see next week.

[Alexander Geis, CEO & Chairman of Management Board]

Yes. But in the 5-point-something percent, I'm not happy with, that should be higher. And we are working on that.

[Frederik Bitter, Analyst]

Yes, perfect. And then just perhaps more for Miss Koljonen. What's your guidance on -- or could you give the guidance on one-offs in Q4? What would you expect or what something you have booked already or -- just faster modeling purposes?

[Inka Koljonen, CFO & Member of the Management Board]

Yes. So for the first 9 months, we were at EBIT adjustments of EUR 19.6 million, of which EUR 11.7 million was restructuring. We gave the detailed breakdown in the presentation. So for full year, we're looking at the restructuring number of, let's say, 14 -- around EUR 14 million to EUR 15 million at max.

[Frederik Bitter, Analyst]

Okay, perfect. And then would you be able to give a guidance also on other extra costs? Or is it something you come by see so over the year...

[Inka Koljonen, CFO & Member of the Management Board]

[indiscernible] This is the only extra cost that we see for the months to come.

[Frederik Bitter, Analyst]

Yes. Okay, that's perfect. And then 1 I had also was, where do you see working capital at the end of the year? I mean, we're below EUR 140 million now, which looks a very good level. But given that end markets are recovering, you're fully booked, would you see that increasing towards year-end? Or what -- where would you see it?

[Inka Koljonen, CFO & Member of the Management Board]

Well, working capital towards year-end, I mean, normally, the inventories are going down at year-end, so that's kind of when we talk about trends into year-end. And that's actually at the moment, all I would say on that topic. Yes. Again, the 9 months' working capital was very good. Inventories are going down. Of course, we will manage our payables like all companies do and receivables are mainly also driven by the revenues.

[Frederik Bitter, Analyst]

Yes. Okay. No, that's perfect. It was good to confirm that because obviously, when you're [ having trailers ] are picking up, you see an increase of inventories, of course, and the likes. Okay, that was great. It's great to know you underline your efforts there in managing working capital. Last 1 and then I shut up. Is the tax rate guidance for 2020. Obviously, for the first 9 months, you were 22%. Where do you see it the full year?

[Inka Koljonen, CFO & Member of the Management Board]

Yes. So for the full year, we're talking about the effective tax rate. I would see it somewhere around 25-ish, 25% to 27%, let's say.

[Operator]

And the next, we have Mr. Philippe Lorrain from Berenberg.

[Philippe Lorrain, Analyst]

Philippe Lorrain, Berenberg. Just wanted to come back a little bit on the strong EMEA adjusted and also adjusted EBITDA margin in Q3. Firstly, I did not catch exactly what you're mentioning with regard to the accounting effects there. Secondly, to come back generally to the margin, that's really a strong performance. I mean, I calculate with 13% or 13.1% adjusted EBITDA margin in Q3. Could you shed a bit more light on the sustainable underlying margin improvement that you have there? Because I guess in Q3, you probably had much less short-term work and this kind of support that you had probably in Q2. So you've been mentioning a little bit like the mix between the aftermarket and the new business. You've been also mentioning the market share gains that you have, especially in smaller trailer manufacturers. So is it all coming from the mix here? Or is it coming as well and perhaps like principally from the recent investments that you have done, especially in terms of automation?

[Alexander Geis, CEO & Chairman of Management Board]

Philippe, Alex Geis here. That's a very, very good, tough question you are raising. First of all, of course, we are not guiding EBITDA, okay? What we did in the appendix, we just wanted to give you a little bit highlights and insight into the what is adjusted EBIT versus adjusted EBITDA because our adjusted EBITDA in the group as well in the regions is very good in my point of view. As I said before, it's not 1 or 2 things. For instance, the short-time work in Germany, we had in some other areas. This is a one-off for 2020, okay? We don't see it. Still a possibility and it's given by the German government that we can extend that in 2021. From today's point, we don't see that. As I said before, the next 3 months, we are nearly fully booked. And we have also a plant closure the last week of December and the first week of January in the German plants, so I don't think that we have to work short time. What I would like to say is the majority of those improvements and the stable adjusted EBITDA is coming from the mix of, firstly, aftermarket; secondly, a much higher share of medium-sized and smaller customers we have; a good product mix, so profitable, small things we are selling, okay, which also add to that. We have also gained improvements in the plants where the teams are constantly working on and also the automization we did, so the investments we did in '17, '18 and '19, of course, helped to counterbalance increased costs we had, on the one side, but the automization helps to counter-balance that. And as I said before, for the next 5 years, we have that supplemental agreement for the 2 plants here, for the axle plants. We're also going to have that from next year on for the fifth wheel plant down in [ Singham ] which is 10% of our total OE sales as I mentioned before. So this is a big mix of all smaller items which helped to keep that profitability in both adjusted EBIT and EBITDA.

[Philippe Lorrain, Analyst]

Okay. So it's fair to assume that actually, like if I net out like the increase in cost with the efficiency gains that you get from the investment, that would be probably like relatively neutral as an impact? And then you get [ next year ] on top a little bit of the mixed tailwinds that might reverse at some point over the coming years. So it's not like, let's say...

[Alexander Geis, CEO & Chairman of Management Board]

No you cannot say this is -- this 1 single thing which helped us. It's really a huge mix of different things. And what I also have to say, we have a very dedicated and specialized sourcing team and we are constantly working on efficiencies, in sourcing. We also added some more suppliers with consignment stock that also will help our net working capital in the years to come because it reduces the, let's say, the length of the freight or logistics and this is pretty good. So I'm quite optimistic that we can continue to do this also in the years to come. Specifically, knowing the EMEA market, which I was running for the last 5 years so I'm very, very confident here in EMEA.

[Operator]

And the last question comes from Mr. Julien Batteau of Pascal Advisors.

[Julien Batteau]

Just a few questions from my side. The first 1 is for Inka. You mentioned that you received some, I would say, objection to the adjustment on the EBIT side. Would that mean that you would prefer to stop adjusting anything and just [ release ] the margin as a whole?

[Inka Koljonen, CFO & Member of the Management Board]

No. I said that we've had discussions on the quality of the earnings and on the adjustments. And I think we have already proven with the first 9 months' numbers, which are much lower than last year in terms of adjustments that we are improving, underlining, so the need for the adjustment is becoming lower. And what I said also, I will definitely have a more conservative approach when checking topics which could potentially be included in adjustments. But this is something then for 2021.

[Julien Batteau]

Okay. That's very clear. Second 1 also is for you. You say that you expect more capital to continue improving and that you were -- you had your eyes on it. Which element of working capital do you think there is potential the most? Because if I look at inventories, they have been -- they had increased a lot in '18 and '19. So is there still some potential here to reduce the structural level going forward? Or how hard is it to do it with the rising market?

[Inka Koljonen, CFO & Member of the Management Board]

Yes. So maybe just a couple of comments on that. Also in my previous lives, I have a lot of experience in managing working capital, increasing cash focus and it's in industrial companies and this is exactly what I'm going to do at SAF-Holland as well. Also, the previous management has started with the Cash-is-King program actions in this regard. The focus here was mainly on quick wins and it was the right focus. The focus was to decrease the absolute level of overdues and we've managed to do that quite significantly. Inventories also went down to some extent but not as much as the overdues. So what we're planning right now is to do, I would say, restart or an extended project on the inventories but to look really more here on the midterm and long-term process improvements. This is -- this was -- the Cash-is-King so far was really a program focused on short-term and quick wins. And it was done well. Now it will be more focused on midterm and long-term process improvements. So it's about inventories but it's also about integrating the entire networking capital management with all its levers into the organization as part of the steering, as part of reporting, as part of forecasting with the entire cash culture.

[Julien Batteau]

And then very last for me. You said you want to stop losing money in APAC in 2021. Or is that depending on the market behavior? I mean, do you need some tailwinds from the market to achieve it? Or do you have the leverage if the market was not coming back?

[Inka Koljonen, CFO & Member of the Management Board]

Can you repeat your question?

[Julien Batteau]

It's about the -- you say that APAC should try to break even in 2021 against the loss in EBIT this year. How much is that dependent on markets being better, basically?

[Alexander Geis, CEO & Chairman of Management Board]

Well, actually, to be breakeven, to give you an idea, in China, we only, okay, only in brackets, have to manufacture around 25,000 to 30,000 axles, which is nothing we manufacture, in good years, somewhere around 550,000 axles. The majority of that is disc brake axles. China is by far the biggest trailer axle market in the world, in good years, up to 1 million axles. Out of those 1 million axles, it's about 25% to 30% is in the premium segment. So we only need to get 10% market share in the premium segment to be positive. This is why we have challenged the team. This is also why our COO, André Philipp, is the President of China now overlooking the team, André has been living for more than 11 years in China. Knowing the market, he was head of Manufacturing there of the plants, knowing the domestic rules and everything. He's overlooking the team, and we have a new team since the beginning of this year and mid of this year dedicated on sales. We need to get domestic sales. And if this upside potential might come, that U.S. lowers the tariffs into the U.S., that would be a major boost for us. And we have seen in previous years, we have been positive also in China.

[Operator]

And no further questions. Back to you, Mr. Geis.

[Alexander Geis, CEO & Chairman of Management Board]

So the last thing I would like to mention again, as I did before, next week on Wednesday, we have our Capital Markets Day, which is November 25, and we'll give you much more insight into our strategy midterm, which goes then until 2025. And also here, we will speak about the margin guidance midterm and much more fancy stuff we are coming up with, with new technologies, smart steel and great ideas. So I would like to invite everybody to join us there. We will also do deep dives into the regions with the regional presidents for EMEA, for Americas and also André giving a deep dive into China and the rest of Asia. I would like to see and hear you there, and everybody, please stay healthy and trusting us. Thank you.