Earnings Call: Q1 2020

May 4, 2020

Ladies and gentlemen, welcome to the Q1 2020 Conference Call of Trajan SE. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. And after the presentation, there will be an opportunity to ask questions. I now hand you over to Raul Voila, Head of Treasury and Investor Relations, who will lead you through this conference. Please go ahead, sir. Thank you very much. A very warm welcome here from our side from Munich office. We hope that everybody who is dialed in is in good health and that also your families are well. Together with me here in Munich, sitting in almost 3 different offices are several members of the core team. Of course, our CEO, Andreas Renschler our CFO, Christian Schulz and then we have Claus Schartel, Head of Law Department Annette de Danielski, Head of Finance Julia Kribarell, Head of Corporate Communications and myself. Before we start to give you an update on how Tradin did during the 1st 3 months of 2020, I have make some initial remarks, as you know them. So we hope that you have all seen the material, which we have published in the course of this morning. It should be the press release, the 3 months quarterly note as well as the IR presentation. If you have not received them, you'll find them on our webpage, on the Trade Now website. I should make you aware of the disclaimer, which is on Page 2. And I also wanted to state the obvious right upfront. So any questions on Navistar? You know the proposal is out since January 31 no, since January 30, I'm sorry. And there is no change actually in status. And therefore, we currently have nothing to add to what has been publicly announced so far. And how do we proceed today? First, we have Andreas, who gives us an overview over the current situation. And once he has finished, he will hand over to Christian, who will guide you through all the financials during Q1 and our status outlook. And last not least, we will close the session with a question and answer session, where I would like to remind you that you please limit your questions to 2 to 3 questions per person actually who is asking. Otherwise, it will be a very cumbersome and boring approach here, just having one interviewing all of us. So with that, I hand over to Andreas. Please, Andreas, the floor is yours. Thank you, Rolf. Also welcome to all of you. Before Christian will elaborate on the financials for the Q1, let me make some introduction introducing remarks on the current situation. With the COVID-nineteen pandemic, global economy is faced with an unprecedented situation, even comparable with the global financial crisis more than already more than 10 years ago. Caused by the pandemic, we have seen and continue to see falling demand, supply chain interruptions, temporary closed factories and companies focusing on securing their liquidity. Driven by the standstill of nearly all industries around the globe, the economic outlook for 2020 has been clearly reduced. In some countries, the levels not seen during the Great Depression. This has accelerated the downtrend in commercial vehicle markets globally, even though expectations before the pandemic been already low, in particular for the U. S. And Europe. Furthermore, as global supply chains are not as global supply chains are not restarted in unpredictable frameworks with many unknowns, the bandwidth with the of the listed forecast illustrates the high uncertainty for the weeks months to come. Transportation Research Institute, a leading publisher of commercial vehicle industry data for the North American market, recognized, let me read it 3, there are too many unknowns to form an expectations with confidence. This, of course, affected and it's still affecting us across the board, but we implemented effective countermeasures. 1st, we are assured to protect the health of all our employees around the globe. Suspension of production was in line with the availability of parts given the impact of the corona pandemic, government requirements, the development of sales markets and resulting modes of operation of the plant. Administration, employees working from home wherever We introduced unemployment assistance to strengthen our financial position during the production stop and further focused on safeguarding liquidity by several actions. Just give you some more light into that. We introduced short term work, so called Kurzarbeit, for the majority of our employees at unemployment assistance program. And in Brazil, we entered into so called forced vacation. As the transportation industry is systemically important, system critical, we continued service and replacement parts operations with more than 10,000 employees supporting the daily needs of our customers. Important innovation projects are being continued. We also supported society and joined the effort to overcome the corona crisis with targeted relief campaigns. Drayton, for instance, supports the Dock Stop for European Truck Drivers Association, which provides for an improvement in medical care and working conditions for bus and truck drivers on the road. Meanwhile, we prepared our production for a great gradual safe restart by coordinating the reliable supply of parts by our suppliers as well as the organizations of our own work processes while protecting our colleagues, but also initiate measures to stimulate demand for commercial vehicles. Scania has initially tested the stability of its supply chain and its production line processes in Sweden and the Netherlands successfully and further continued to ramp up their operation at sites in France and Brazil. MIM Truck and Bus restarted its bus and truck production step by step and will continue in the weeks to come. Some holds that the same is valid for Volkswagen Truck and Bus in Brazil, who started the assembly line of its main plant in Resende back into operation on April 27. The plant of Volkswagen Truck and Bus in Mexico is scheduled to reopen today. Last, we are restarting administration function depending on COVID development and regulation in the respective countries. Clearly, for our company, a balance sheet and the necessary liquidity are the names of the game in this crisis and so to say at the moment. In general, our balance sheet position is strong with an equity ratio within the Industrial business of higher than 37% and a net debt adjusted EBITDA ratio of only 0.1x. After the end of the DBLTA between Volkswagen AG and TRATON SA, terminated as of December 31, 2019, EUR 1,400,000,000 were transferred in February 2020. That also holds true looking at our liquidity. We have initiated additional measures in the current environment in monitor liquidity even more closely, identify bottlenecks at an early stage and make additional liquidity reserves available to us. With unrestricted cash for more than of more than SEK 2,000,000,000 and credit lines of more than SEK 5,500,000,000, we are able to safeguard liquidity in these uncertain times. By implementing strict cost management across the group, further reducing operational costs within our plans and reprioritized investments and R and D, we took decisive action. As I highlighted before, we already implemented our gradual Clearly, we as straightened and are well prepared to get back to old output levels, but it is obvious that the pace to get there is determined by a combination of factors. Supply as well as demand disruption can interfere our gradual ramp up and force us to prolong or adjust the ramp up steps from today's the economy can develop. First, the most desirable option, the V shape scenario, where we return to the pre shock level at the same growth rate. That would mean a fast recovery as a catch up effect. 2nd, the U shape, where here we could expect the growth at lower level than before but at the same growth rate leading to a delayed recovery. Last and most unfavorable is the so called L shaped scenario. This scenario would mean to end a period of growth at a much lower growth rate, which then can be summarized as no recovery or recession. Beside the mentioned 3 scenarios, of course, further manifestations are possible like the V shape or W shape scenario. Overall, the next weeks months will show how the combination of the different scenarios, test out productions. We still have a good order backlog that we can use now and then depending on the order intakes that we can see the next couple of months, how we can run further and increase production rate. With that, I hand over to Christian, who gives you more detail on the financial figures. Thank you, Andreas. A warm welcome also from my side. Let me briefly summarize our 1st 3 months of 2020 from a CFO's perspective before we go back into the presentation. And operating profit despite an expected weak market environment for Europe. However, starting mid March, the decline in European market accelerated and led to a disproportional decline in operating profit in the Industrial Business in Q1. The net cash flow in Industrial Business, however, improved year over year, amounted to minus €167,000,000 and was therefore better by more than €200,000,000 compared with the Q1 of 2019 if you adjust for the sale of the Power shut regarding the duration and the severity of the disruptions, the impact resulting from COVID-nineteen on customer demand, the supply chain and production can currently not be accurately forecasted. Therefore, an updated prognosis on our business development in 2020 is still not possible. However, with operations almost completely shut since late March, we achieved to gradually restart our production operations at the end of April. With the continuation in May being a further month of stepwise ramp up of production, we expect a substantial drop in sales revenues in 2nd quarter, which will affect all other key figures negatively. So what can we say? We started from the very beginning on to have close look at cash of credit of credit lines. So I think it's fair to say that this gives us some freedom to address the challenges ahead with determination. With that, let me return to the presentation and to Page 8. Unit sales were down by 20% to 45,009 190 units in Q1. But as you know and we already discussed, we have seen a deceleration in the overall trend, which already started back in the second half of last year. The reduction in Q1 was mainly driven by the truck business, with markets down as expected in the Euro27 plus free region. The impact of COVID-nineteen in March further accelerated the decline and curbed the growth in Brazil and Argentina. Scania and MAN saw double digit percentage declines, whereas volumes were stable at Camunis compared to Q1 2019. Trade and Group sales revenue decreased by minus 11% in the Q1 and fell less than unit sales, mainly due to product mix. Sales revenue in the Bus business showed an increase of 11%. The after sales business posted and €61,000,000 but it is still positive. Operating leverage arising from the volume declines and increasingly difficult used vehicle businesses, together with higher depreciation and amortization charges as well as costs in relation with the rollout of the new truck generation at MAN Truck and Bus led to the margin decrease. Looking on return on sales by brand. Scania return on sales was coming in at 8.6% compared to minus 240 basis points to Q1 of 2019 and Cambiones Omnibus at 3.1, both resilient in that environment. Whereas the operating leverage was higher at MAN, TRAC and bus, we expected MAN to be weak in Q1 because of the dual production cost, as we have discussed, coinciding now with the decline in the European truck market. But COVID-nineteen led to the deterioration of the situation in the second half of March. And by this, operating profit margin declined to -3.4 percent, a significant reduction compared to Q1 2019. Profit after tax declined to CHF 96,000,000 as a consequence of the low operating profit and less favorable financial results and an increasing tax ratio of 27%. Last, as you can see, cash flow in the Industrial business was EUR 167 minuteus versus EUR 1.607 in the year before. As said in my intro, please have in mind, last year's investing cash flow was supported by the sale of Power Engineering with 1,978,000,000 euros Excluding this effect, industrial cash flow year over year improved by more than €200,000,000 despite the slump in operating profit. Just a word to the Annual General Meeting. We decided to postpone the AGM for fiscal year 2019. It was previously scheduled for May 28. Due to the strong spread of the coronavirus, we will now announce a new date in the due course of time. Let us have a look into the 2 segments. I'm on Page number 9 now. You can see Industrial Business, the 1st 2 months of 2020 were on track despite the expected weak European truck market. Key figures in March were then negatively affected by COVID-nineteen. As you know, March is seasonally the strongest month in the Q1. Incoming orders softened and declined by minus 16% year over year in Q1. The incoming orders for Trucks went down by 18% in Q1. Looking at the incoming orders with the Truck business, there was a considerable decrease in the European region, driven in particular by the economic downturn and the acceleration due to COVID-nineteen in March. A similar trend was visible in South America, especially in one of its main markets, Brazil. Incoming orders increased in the Middle East and Asia Pacific regions. The incoming orders in the bus business were up with a strong increase in January February, but a significant reduction in March based on the COVID-nineteen pandemic outbreak. The Coach business came to an abrupt halt. Unit sales, as already mentioned, were down by minus 20% compared to previous year. The book to bill ratio in the Industrial Business for Q1 was up to 1.2. Sales revenue in Q1 in the Industrial Business was down by minus 12, less than unit sales decrease. The operating profit was down €135,000,000 down to €135,000,000 and the RAS stood at 2.4 Return on sales was impacted by declined sales revenue, additional cost due to the rollout of the new truck generation in MRN Truck and Bus and an increasingly difficult used vehicle business. In addition, measures taken in connection with COVID-nineteen, in particular, the closing of all our plants, had a negative impact on sales revenue. We already mentioned the net cash flow. Let us now focus on the Financial Services business. Our net portfolio in Q1 was up by 3% and the penetration rate was at a level of 39%. The Financial Services operating profit was down by €7,000,000 to €26,000,000 driven by lower margins, higher operating expenses and bad debt provisions. Page number 10, very briefly, you see sales revenues and return on sales quarter over quarter comparison. This is for your reference. If we go to Page number 11, as you can see and as I mentioned before, European truck market developed according to our expectations in the beginning of the year. But as you see in March, it declined significantly. The growth in Brazil slowed significantly as COVID-nineteen pandemic started to spread in March. Russia and South Africa also saw declining truck sales. Overall units followed the trend and declined by 20%. TGE units on the MAN side, one more time up with 10% growth year over year in Q1, but in that environment not continuing the strong growth rate over the last year. Lastly, bus unit sales were lower with minus 4%. The European region was slightly down, and we saw a slightly positive development in Brazil. If you go to the next page, looking at this chart, we have to note that the comparison is not always like to like as we are mainly heavy duty truck but not exclusively and a time lag between deliveries and registration might be possible. However, taken as an indicator, it gives us quite good feeling of how we trend. For the Q1, as already indicated quite a while ago, European markets for heavy duty trucks were down in the 1st 2 months as expected and the downtrend further accelerated in March. Our unit development was a notch worse with 35%, largely due to the rollout of the new truck generation at MIN as planned and discussed before and the time lag that I mentioned on deliveries and registrations. A singular market trend was visible in Germany being down minus 26% versus our volumes minus 32%. In South America, where Brazil is about 80%, we grew by 4%. Looking in detail into the Brazilian market, the market declined minus 5% versus we increased unit sales by +5 in comparison. The incoming orders declined but but remained on a relatively stable footing in Q1. March incoming orders in HDD Trucks were down about 20% from February, cancellations only a bit higher in Q1 than one would expect normally. However, incoming orders in April contracted significantly. Our order backlog should last for several months when operations restart properly. And as we said, we will watch the difficult situation in the European market as well as other major truck markets very, very closely. Our book to bill by brand for Q1 reads as follows. Book to bill was 1.3 at MAN, plus 13 basis points, better than in Q1 2019, followed by Scania on a level of 1.14 for Camillus and Omnibus. Page number 14 is for your reference only. As well, very briefly only on developed further after sales grew slightly in Q1 with a share of more than around 23% of overall sales. We already focused on the levers on return of sales before. Page number 16. This leads me to the discussion of the bridge by brand. Sales revenue was down at all brands in a similar magnitude and then up to the 12% revenue decline in Industrial Business. Regarding return on sales, as mentioned in the beginning, Scania will be most resilient, still showing 8.6% return on sales in Q1. Volkswagen, Communisomnibus at 3.1% and MIN showed the biggest deviation, driven by the effects that I've further mentioned. It was the introduction of the new truck. It is an increasing burden of the used vehicle business, and it is on higher operating leverage. Let's now focus on Let's now focus on financial indebtedness and net liquidity within the Industrial Business. The net financial indebtedness increased by €1,600,000,000 mainly driven by the cash outflow of €1,404,000,000 from the end of the domination and profit and loss transfer agreement with Volkswagen AG for the fiscal year 2019. I think we all debated it lengthy in the due course of the capital structure discussion in the IPO. So you should be aware of that effect. Other than that, you can see in the bridge that there are no bigger unexpected swings and this let us end up at EUR 162,000,000. If you go to the next page, you can see our leverage ratios comparing by the quarters and over the year. And on the left side, we see that our gearing ratio increased to 1% as it was negative at year end 2019, meaning we had net cash instead of net debt. And in general, we show a strong balance sheet position in the a strong balance sheet position in the Q1. On the right side, we see a net debt adjusted EBITDA ratio with 0.1 times only positive. And again, at the end of the domination and profitloss transfer agreement with Volkswagen AG for the fiscal year 2019, it is mainly explaining the change in those ratios. From the overview now to the Financial Services business, you can see here sales revenues at 31st March were up 6%. Return on sales was at 12% as operating profit decreased by 21% to a level of €26,000,000 Some more detail about the decline in operating profit. Well, our portfolio growth was positive. That there was a negative effect, 1st, from lower margins secondly, higher operating provisions. Because of that coronavirus outbreak, our customers' payment ability has started to deteriorate. We are working closely together with them to support them in these tough times. On the next page, the year over year net portfolio grew on a sequential basis, declined by 6% versus 2019. The main driver for the decline was exchange rate. The penetration rate was sequentially down by 237 basis points to 39% in Q1. And the Financial Services book value of equity decreased compared to year end to €933,000,000 compared to 9.7 1,000,000 in 2019. Again, here financial the fixed rate was the effect of the the chance to exchange in a Q and A and giving a status update in a heavily volatile time. The environment continues to be characterized by substantial uncertainties regarding the duration and the severity of the disruptions. As stated in the beginning, the impacts resulting from COVID-nineteen on customer demand to supply chain and production can currently not be accurately forecasted. And by this, consequently, an updated prognosis in our business development in 2020 is still not possible. I mean, we need now to see how April is coming in and most probably also May, the second quarter with the ramp up of the production gives us a better feeling how the markets overall will develop. Nevertheless, we expect a substantial decline in unit sales for the current quarter, and this will for sure affect all key performance indicators. Another two topics at the bottom of the chart to mention regarding the proposal to acquire all outstanding common shares in Navistar, there's nothing to be added to what has been publicly stated on January 30. And the merger squeeze out of the noncontrolling shareholders of MA and on externals. For everybody, it's a glass bowl, and we need to see what the Q2 tells us here for the outlook of the remainder of the year. So Slide 22 and 23 are not containing any updates. With that, we are happy to take your questions. And I would like to get back to Rolf in order to the discussion. Yes. At this time, it is a little bit different actually than usual. I will try to moderate the question and answer session with regards to the questions casted, just simply because we are sitting here in 2 different rooms and can't see each other. So don't feel reminded of old Volkswagen times, but this is just for the sake actually of handling this properly. So moderator, if you could start actually with the Q and A, that would be great. Thank you. Ladies and gentlemen, we will now begin our question and answer session. And the first question is from Klas Beguelen, Citi. Your line is now open. Please go Yes. Good afternoon, Andreas and Christian. It's Klas from Citi. I hope you're both safe and are keeping well. The first one is on the margin there at Scania ex DFINCO. So if I back out the currency, I get the drop through or operational gearing to around 40% on a 10% organic sales decline. That's a bit bigger than I thought. It's despite ARPU and services being strong in the quarter, and there's no major impact from cap R and D. And obviously, get that you have write on the second hand trucks, but it should be a little bit more at the MEN side. So my question really is, I'm trying to get a sense for that margin in March, the exit rate at Skane. Is that a breakeven number or better? I will start there. This is for Christian, I would say. That's very easy. Yes. I think if you look on both MAN and SKALIN, you can basically say that even without corona, MAN would have been negative. So you could consider 50% of what you see in Q1 on the MAN side being an effect out of the COVID-nineteen market decline. On Scania, I would say it's a bit better than breakeven, and they're managing very well. As you say, we have a couple of effects when it comes on used trucks. That's also into the bad debt increase that I mentioned on Financial Services. But overall, I think you can see Q1 was still very substantially positive on this Garnier side. And MAN was a little bit more affected, of course, given the situation they were in anyhow with the ramp up and the issues around that, that we have discussed before, Klas. Thank you, Christian. My second one is on orders and deliveries at the start of the quarter. I guess, two questions in one. I suppose it seems like orders in April must be trending down at 60 percent. Could you please break that down maybe between Europe, Brazil, Asia? I guess, I mean, Asia is very strong. Europe maybe near 0, Brazil down 70%, 80%. And then on deliveries, you say that you have backlog for a couple of months, but deliveries on undershot my expectations and can be down more than what the backlog suggests that big parts of Europe is closed for business. So a feeling also for deliveries in the beginning of the quarter would be great. Well, giving detailed outlooks here is difficult. I would rather like to have that myself to give the Capital Market an update on the prognosis. I would say, generally, you can say we see the Asian markets recovering a bit with an increasing demand from Taiwan, Korea and China. That gives some positive feeling from that end on the coming months. We do currently, as you have rightly said, see, of course, a significant reduction in March and also April being very difficult when it comes to order intake. As we have stated in the press call this morning, we see, let's say, stability in the order program for a couple of months. Now is it 3, 4, 5? Quite honestly, it's hard to tell. And as I said before, we need to see now April May how they are doing. One thing for sure, Asia heads a little bit more on the Scania, and MAN is a little bit more focused on the European market and thus has a little bit more difficulties from the market side as you have rightly estimated. Okay. My very final is for Andreas on fleet renewables. You talked about during the press call, what is the feedback so far from the government versus you guys now lobbying for it? Just to try to get a sense where in the order of infrastructure investments in tunneling, road network versus truck renewal programs, where would we sit? It's obviously a very solid proposition, but just to get a feeling on the feedback in your discussions on the with the different parties. I think, first of all, it's not only for the investment good truck that we recommend this to the different governments on the European level and also on the German level. It's a program that will help to increase the investments in different areas. It could be in the equipment, machinery and what else. Because I believe totally, if we don't manage it, a lot of countries have managed this pandemic from a health point of view pretty good. Now we can argue back and forth. But basically, I think we see in all these decreasing numbers, so they have done pretty good. And we have to make that same intention when it comes to the economic situation that we are not going into a real recession. So for that, my recommendation to them is always look at investment contribution to all of these industries. And one part of it could be for us a truck renewal program that we can increase the number of trucks with Euro 6D in this case and with Euro 6 euro norm, of course, that we can really improve also the CO2 and also the NOx emissions. And that means at the same time, we can do something for the overall climate. But at the same thing, we see there we are pushing them, that could have a good input or it's a good driver for in the economic situation. So from my point of view, this makes some sense. So it's not only for the overall investment industry. And we can do, in addition, something to renew all the old fleet. And I think 1 third of the fleet in Europe is still Euro3 up to Euro5. So we have some potential there. The reaction of the government is so far okay. They listen. Of course, they are much focused in how they can solve the issues at the moment, but they are starting a discussion or they months are bringing in this field. So there is a kind of willingness. And I'm not judging how China dealt with the pandemic overall. But how they are doing to support the economic situation at the moment, I think that could be also a kind of a good indication for our governments to do certain things. Thank you. Our next question is from Hampus Engelhardt, Handelsbanken. Your line is now open. Please go ahead. Thank you very much. Three questions from me. Maybe starting off on LME and the drop through during the quarter. I guess that most of the run rate was planned for maybe 50% drop in Europe this year. Would it be possible for you to discuss the drop through if we adjust for the launch cost? And maybe if you can also quantify the launch cost? Cancellations in April? I how much of Q1 orders were canceled in April? And or have customers like wanting to postpone delivery? Or how should we think about that? And on the last question is more related to the service business. I know the service development during the Q1, but we have heard rumors of activity being down 20%. How that does correspond with your view of the service business looking at April? I'll stop there. Thank you. Okay. So Hampus, thanks for your questions. First, I would say on AML, I tried to say that before. Without corona, I think AML would have been already if you take 50% of the loss in Q1, that would have been the performance. We do not communicate on detailed orders. That level. When it comes to the orders, these are net orders. That means the slump that you see already in April was on the level that we have discussed in class questions on the level of 60%, 70%. And now the question is, what will April and May tell us? We have seen a couple of cancellations, but not in in a magnitude yet. And the third one on parts and services business, we have seen, obviously, if you have less transportation, a certain effect also on aftermarket and parts business. Of course, on the level of Scania, parts and performance is always a little bit stronger given the high level of vertical integration in that the impact now needs to be seen also if Europe is ramping up again in production and everything and then you see how the trucks are moving, that will for sure also then give us some information on how parts and services business is going to improve? Or is it going to remain on the current level? I think it's very important to know, we are looking with our connectivity to a lot of trucks and how much they are used. And in the top of the crisis in Spain and Italy, it was 40% of the trucks were not running. So in the meantime, this improved already. It went to 35%. It went to then I think, actually, it's between 20% and 25%. So with this number, when it increased, you would see a recovery on the service as well. So it depends everything on the economic development. If there is no service as well. But at least it looks like that when they are restarting also in Italy and Spain, that we can see some more mileage on the trucks again, and that help us, of course, also in the service business. Thank you very much. The next question is from Damian Flowers, Commerzbank. Your line is now open. Please go ahead. Hi, thanks very much for taking my question. The first one is going to be on working capital. So now that your plants are reopening and I think you've given us some good information about how Can you talk Can you talk about how the working capital has developed since the start of Q2? Obviously, Q1 was okay. And how do you view the maximum working capital risk for the upcoming quarter? And then secondly, just on the dividend, how do you think about paying this year's already declared dividend? I think Volkswagen is a bit unclear about what exactly it's going to do. Maybe you can confirm that you will still pay it when the AGM is fine and rescheduled? Thank you. Okay. Thanks, Damian. Let me take the questions. Question 1, we've improved working capital last year, second half, as you can see. Inventories, in particular, went down in Q1. Now we saw that we managed on the ordinary business as well in January, February. But as I said before, the used truck environment continues to be challenging. And by this, we already saw now in March certain effects. We despite all measures we are taking at the moment, we have the ramp up of production, we see the biggest drain on the working capital side in the Q3 of the year 2020. Of course, it's very high on the agenda in the brands and also in the truck board. But having all these ramp ups also then in M and A and with the new truck and everything and if market is coming back, we expect in our current scenarios, most probably Q3 to be the hardest on the working capital side. When it comes to the dividend that we have indicated, as you know, and your general meeting will decide about the dividend payment. We do continue to keep on our level of 30% to 40% of our net income. We'll propose this for discussion. And then at the Annual General Meeting, once it is taking place, we'll decide on that. Okay. So maybe just to follow-up briefly then. So on the P and L, would you see the maximum launch cost impact in Q2? And then on the cash side, you said it's Q3. It's not only the launch because it was an example for the working capital ramp up. I mean, in general, you see, I mean, our plants have been down. We are ramping up now currently during May. We need to see if there's a second dip from the infection rate that will lead to more restrictive production. And then most probably, if the market is coming back in Europe in certain levels, if then the production is ramping up, if you have your supplies. If you have the launch costs in MAN, you will most probably see the highest drain in working capital overall and in there particular on the ramp up. The next question We can't hear you at the moment. Perhaps you're still on mute. Can you hear me? Yes. Please go ahead. Yes. Hi. Good afternoon. I wanted to ask 2 medium- to long term questions. The first one being, can you update us on how you're thinking regarding the MAN Financial Services has evolved over the last few months? And then the second thing I wanted to hear from you a little bit about how you're thinking around fuel sales is on the Okay. Maybe on MAN Financial Services, we have continued as we have set the discussions also with Volkswagen, which is currently providing that for MAN. We have gained progress in there. We are currently assessing on pilot markets where we can do something together with Scania Financial Services. So those are progressing. Of course, Daniela, you will understand that in the current situation with COVID and with the ramp up of the new truck. We need to be careful which markets we take in order to start up pilots. But the strategy is unchanged, and we work towards this direction. And we have a very good exchange with Volkswagen Financial Services on debt. Secondly, I don't know if Andreas, you would like to take the BEV questions or should I refer to fuel cell? What do you think? I can refer to the fuel cell as well. So I think, as you know, we have a very, very good and also for a longer time now, a good alliance with our Eno colleagues. And we believe, of course, in the fuel cell technology long term, and that's the reason we are working very good together with Hino. And as you know, Hino has is connected with Toyota. So we are working in the fuel cell business together with, let's call it this, we're the most sophisticated in this industry when it comes to fuel cell, and that's very good. So we are fine with that one. And the same is on the best thing. We are looking into our global alliance partners and working together in these solutions. We are looking into modular systems for all of our different kind of trucks. And I totally believe this will be, at least for the next couple of years, the mainstream that we are following when it comes to alternative drivetrains, not for all applications, but for a lot of applications. And in addition, then we can see in end of the century maybe some other things in fuel cell. But we are looking from that one in a good economic of scales already, and it's much easier to develop something from scratch instead of using existing one, and you have to combine that one. So in both things, we are good positioned when it comes to potential economic scales in the future. The next question is from Tim Wojster, Deutsche Bank. Your line is now open. Please go ahead. Yes, good afternoon. Thank you very much for taking my questions. All three of you, Andreas, Christian, Walt, you have multiple experiences with crisis in the past. Andreas, you said this one is unprecedented, and I think everyone would agree with that. But do you still see that the playbook, I. E, your reactions to it and how you manage them, is roughly the same as it used to be before? Or did you have taken any steps that you would have never taken the past and that are new to you? Secondly, we had this discussion a couple of times in the past, but when I discussed with investors in light of the prelims that we had already, the biggest disappointment still comes out of MAN. It was a big part of the equity story to turn around this business. Now you said percent of the negativity, Christian, came of the negative development came from COVID-nineteen. That still leaves a fairly disappointing development on underlying basis. And I understand right now it's difficult to talk about restructuring in the current mind and you probably don't want to do this at the moment. But what are you what is your thinking post being back in a more normal situation again? Do you see that the demand for restructuring is increasing? And also, does this impact the ideas that you had launching the new truck generation on the MAN side? And then finally, Andreas, maybe for you specifically or Christian as well, your previous colleague, Martin Daum, gave a fairly upbeat interview over the weekend, actually talking about being back at almost full capacity by the summer already. That obviously doesn't too well with you asking for incentive programs on the same morning. I think a lot of people in the industry asking themselves where he takes that optimism from. Can you help me to understand it? Let me answer the last one. It's the better thing you ask him. I know our figures. And my statement before that I see not a lot of positive developments without incentivization. Incentivation will help the economic situation, and then we will see. It's a different kind of question until when can you achieve a certain production utilization. With auto with like Christian mentioned before, the order backlog we have and it's not a big undertaking. If you have the health measurements in place. And if you can do it, then you can achieve close to full production maybe before June or July. But it depends at least on the order intake. And I would not see it like that so far. It depends on April May and what happens in the overall situation economic wise. So the best thing is you ask him, and maybe he can tell you then in detail where he gets it. You asked with MAN. Of course, our strategy was and is, 1st of all, we found here an organization that has the oldest truck in the industry. So we put the 1st restructuring program into place very early. And then we said now we have to do much more. And that was the first step was the new truck generation. And this was done now successfully with the organization. And with this new truck generation, we can change all the processes. And that's still valid. Besides corona, that had nothing to do with corona. And this allows us to make the next big step. Of course, it's now a little bit postponed, yes, because if you have the people at home either way, it makes maybe it makes no sense to start this one. But we are there not in negotiations, but we are there in talks. And we're looking in the development of the next couple of weeks months, we will see there. And this program is already on yes, in a working process. That means we know what to do, and we have our ideas. And now we have to look at this comes one step further in the next couple of weeks months, like I said. So things are valid. And of course, you can always question what is most important. If you have a totally efficient company without a new truck generation, you could not change the processes. So the question was always, what is more important after the first program? We said very clearly the first that we need a new drug generation to change processes. That goes now in a very detailed, you have to change product documentation, production kind things to change the sales process. And for that, you need such a new entrant. And now we look into the next big step of the to bring Your question about playbook, this is a very, very good question. I thought very often about it. Of course, you can use some measures you have taken there. But the big difference, and this was the first time in my years now of working in this auto industry, that the whole world was shut down. Nothing happened any longer. The logistical chains went down. We saw this from a global perspective. And this was, of course, something totally new. In the financial crisis, you still had some markets that could deliver, let's say, 40% to 50% of the demand. But this time, it was from acceptable demand. January, February, middle of March was better than expected. And then it was coming down to Suro, Something like that, this was an experience I never had before in my life. And so of course, you can look to certain things and countermeasures you have taken in different prices. And it's right for the truck industry. It's always up and down, and we had a lot of crisis in the history. And so I'm pretty sure that we have all measurements to overcome this, and you will use some of the kind of things you made experience with it, and you will have to define some new ones. And this is what made me very yes, brought me to a more positive attitude as I saw last week already that the planned start up, that we could do it with the supply chain, that we still have a lot of suppliers in Italy and in Spain, and they are producing already. That logistic is starting again. So the motivation of the people is very high. So we can do it now. It depends really not only on the order backlog. That's But and like Richard said, cancellation is very limited. But we have to now to look how the economic situation is developing. The truck businesses, if the economic is doing good, we are doing good. If there is a lot of transportation. If it's not and we only have to transport toilet paper for the toilet paper for the German customers, it will be not enough for our fleet. So this is the the issue that I wanted to raise again. With this kind of economical support, I think we will see in the industry of investment of the whole industry of investment goods, I think there would be a good chance to stabilize the situation. Thank you. I really like that reference of you with the toilet paper. And I will check with Martin and let you know what he says, Andre. Thank you. And the next question is from Xing Liu, UBS. Your line is now open. Please go ahead. Hi. Xing Liu for UBS. Thank you for taking my question. Firstly, on Scania orders, I think it declined over 60% in Latin America, I think, which is a lot more severe than the market. Was this due to high comps? Is it due to weakness being more skewed towards heavy duty sites in Scania in Latin America? That's the first one. Secondly, do you see any delays to the joint common based engine that is originally planned for next year? And lastly, for MAN, could you maybe comment on the reception so far? I appreciate that it's been pretty tough times, particularly in March, but even before COVID, how have customers been talking about your new truck generations? Thank you very much. So maybe start briefly with Brazil. I mean, you remember last year, we have discussed thing that Camino is not improving like Scania was because Scania is just heavy duty, and this is now this year turnaround. The heavy duty segment has been under pressure, and this is why you see the effect on Scania being than to what you see for the overall market in Brazil. That might be the point. If not, I think we can specify more in detail afterwards with Rolf and the team. Secondly, I think Andreas, the joint engine is not for disposal. It comes as it is planned. We planned it for 2021 in Scania, and this is also the part of the investments that we do not touch on. And finally, maybe you can refer to the new heavy duty truck on demand, Andreas? The new truck generation was received very, very good. A lot of interest from the customer that came also to the order book. It's not only interest, but the most important thing is that they order trucks. Of course, now we had to postpone the ramp up a little bit. But in the new kind of re ramp up after the crisis, the slowly start up production, we tried to fulfill, of course, with the new truck generation, the demand of our customers. So the acceptance pretty good. And this new truck helps us again to change processes. And this is, for me, similar important than the new truck generation. With these new processes in the sales area and other things, we are positioned much better. And maybe one word to Brazil because you mentioned Brazil. Brazil has, of course, also the corona crisis. But the second thing is that they have, at the moment, a political crisis as well. As you know, the president fired a lot of very well accepted people in the 2 ministers, I think one for health and the other one for legal question, police or whatever. So in addition to all this kind of issues with the corona, they have, in the meantime, a political crisis. So we have to watch this really the next 6 to 8 weeks what will happen there. So this is a very, yes, very severe situation because a stable political situation will help me much better than to handle such a big crisis. But this on top is not easy to foresee what will happen in Brazil. Thank you. The next question is from Kai Mueller, Bank of America. Your line is now open. Please go ahead. Hi, thank you very much for taking my question. The first one is really on the used truck pricing that you mentioned. You said there's been significant or definite pressure that you've seen from now on. Can you give us a little bit of a magnitude? And what is really the driver? Have you seen that even before COVID? Or is it really COVID in the starting point of that pressure? A second point is on your dealership network. Some are captives, but also on the independents, I think, we've obviously seen in the automotive industry many dealers struggling really under the lockdown situation. Is there any idea or have you had dealers asking for help on that side, which you would then help on some sort of working capital terms potentially? And then again, I know the question was asked earlier, but just sort of a clarification again. On your aftermarket business, we've obviously heard one of your peers talking and saying that aftermarket revenues will go down over the coming quarters because of lower activity. Can you give us a little bit of a magnitude or if you think you have the similar effect? I know you mentioned Spain as an example in terms of how much it was lower and then you've seen that ramp up. Should we expect that to be hurting your margin again in Q2 or maybe even also all the way into Q3 in the back end of the year? Okay. Thanks, Kai. Let me take it that after sales first. I mean, we also see it coming down. We do expect 10% to 15% over the next quarters. But as I said before and the question that I received in the beginning also from Hampus and the other colleagues, it depends on how market will come back in 3rd and quarter and if transportation, as Andreas has rightly said, is going to pick up. But 10% to 15% on after sales is something that we would maybe imagine in current scenarios. When it comes to dealers, what we do currently see, I mean, we have a way higher range of captive dealers within Scania, but also in particular some of the captives in MEN. For the non captive, we do see rescheduling, of course, as we see it with other customers. That's one main impact. And when it comes to financial strength and to liquidity, we are in discussions via our dealer network operations. And I think we handle it at the moment still very well and do not more effect in there. But the one or the other might come there on the agenda, but it's probably monitored by a demon network management. For the used truck, you saw in Q3, Q4, when you look into our inventory documentation that we put on the IR website, that it was a little bit a trend that used truck was already going up with markets being closed, in particular, in the Middle East and on the ship routes. I mean, of course, now with the situation in transportation industry, you have customers that return their vehicles. And depending on situation, like Andreas has referred this morning in the press call and also today, is how you pick up demand. You will also see a correlation, obviously, to use truck business in there, pretty much a European subject. And we do see in our scenarios that the ramp up will go up, like I discussed before, on the working capital question, where we do see most probably an impact also during Q3 also in when it comes to market pricing, I think there are a couple of external analyst companies where one can see how differential the tractor prices are between main competitors. I do not want to refer to our fellow competitors in here, but this data, I think, is available. There is some difference when it comes to the tractors in Long haulage highway. But we are all coping with the same issue basically. The question is, how do you assume the market to go and to continue? Okay, perfect. Very helpful. And maybe just to follow-up, just on your truck business. In MAN, obviously, with Scandinavia, you own the Syncor. How is the risk sharing with the VW SynCo and your MAN business? Are you taking all the hits in your MAN business? Or is there a sharing agreement in terms of if there are defaults or delays on payments? We take it. You take it. Okay. So the Volkswagen are simply a financer and they're not taking the risk? Yes. There is a complicated model behind that. That's a nutshell, yes. And either side, in my next slide, I will be also in the financial service area with no risk and have a lot of money. Okay. Let's go to this one. Thanks, Guy. Thanks a lot. Thank you. And the next question is from Jose Asomami, JPMorgan. Your line is now open. Please go ahead. Thank you, Jose, JPMorgan. Hi, Christian and Andreas. Andreas, can you talk please about 2 topics, please? The first one on OMI. You mentioned some of the measures you're taking on the brand. Could you mention maybe give us an overview please of some of the structural measures you plan to take to improve the profitability? Maybe as much as you can talk about this headcount reduction and any measures you could take around this topic? 2nd, can talk a bit about Navistar collaboration, the latest where do you stand on collaboration with Navistar? And as you think about a potential full merger, are there any projects that you think you are not able to achieve in the current shareholder structure? Or do you think you're able to tackle all of the projects? That would be the second one. 3rd, Christian, can you help us a bit on the leverage into the second quarter? I know it's difficult, obviously depends on outlook and the market and Q2 demand, etcetera. But can you talk a bit about leverage and which levels do you think are you feel comfortable with? And what kind of scenarios are you thinking about for 2020? Thank you. Okay. Jose, maybe let's take Novista question first. I mean, as we have discussed, the Alliance projects continue to go very well. We discussed last year on the procurement joint venture on the components, and nothing that is on the table there is impacted on the other discussions. So the Alliance project is going to continue as it is planned. As we said before, I mean, the offer is on the table. There's no new information currently. And please understand that we do not communicate to running discussions and transactions. When it comes to the Q3, I would love to have my sales and revenue for the next two quarters being identified. We work with scenarios, obviously, among those that Andreas has explained in the morning with the VEU and L shape and what that means for operating leverage in the Q3. But giving all indicators we see at the moment, it's for sure most probably into a negative direction somehow, but it's very difficult to make forecasts there. Maybe Andreas, you can take the question on the AML measures, if you would like. Yes. I think maybe that question was already answered. I think like I tried to explain a little bit before, we started with a restructuring program called PACE. After that, we concentrated on the new truck. And the new truck generation allows us in a lot of areas to improve the costs. And talking about process changes that will be gives you a kind of a direction. It will be more a majority whatever we do in the indirect phase that with in other words in the white collar area. Because with the new processes, we are able to be much more efficient and have a different kind of potential there. So the majority of everything what we are doing is in the indirect or white collar area. But still, we have to look in other fields as well. However, like I said, we are in early talks with our labor representation. Now it was postponed a little bit because of the kind of situation we had the last 2 months. They are working further on it. And hopefully, very soon, we can announce this then and tell you in detail what kind of measurements we will take. But basically, it will be majority in the indirect or white collar area. Thank you, Jose. There are currently no further questions. So I'll hand back to speakers for closing remarks. Yes. Thank you very much. Thanks for the very lively discussion we had. Yes, interesting times. I hope or we hope that you're all staying healthy. And we are very much looking forward actually to answer any questions which might pop up in the after month of this call. And if we don't speak, then we hear us latest when we're going to announce our half year results, which will be in August. So thank you very much, and have a good rest of the day and good rest of the week. Thank you. Bye bye. Thank you. Bye. Stay healthy. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.