Earnings Call: Q2 2019

Jul 29, 2019

Ladies and gentlemen, welcome to the First Half twenty nineteen Conference Call of Traitian SC. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. May I now hand you over to Rolf Waller, Head of Investor Relations, who will lead you through this conference. Please go ahead, sir. Thank you very much. Welcome to everyone from Munich. Welcome to our half year conference call on the occasion of the half year results. And together with me in the room is our CFO, Christian Schulz then we have Annette de Danielski, our Head of Finance our Head of Legal Counsel, Claus Schartel Julia Kruber Hille, our Head of Global Communications, via our team and Flo, the assistant of Christian Schulz. Before I hand over to Christian, I have to mention a couple of housekeeping items. The first one is, you should have received the presentation titled H1 2019 results. You should have also received the press release as well as the half year results report. If you have not received it, you can download it from our website and there under the IR link, which is ir.trayton.com. And further on, I should draw your attention to the disclaimer, which is on Page 2. You should already be able to view it via the webcast. I will not read through it, but you should definitely carefully read through it before you continue in this call. This is our 1st analyst and investor conference call as a stock listed company, and you see here very proud people sitting in the room. We hope that the temperature in your locations has moderated down as well as it has cooled off a little bit here in Munich. And with that, I hand over to Christian, who will guide us through the 23 pages. And afterwards, we are, of course, happy to take your questions. Please go ahead. Thank you very much, Rolf. Good afternoon, ladies and gentlemen. Before we go into the presentation slides, let me briefly wrap up our first half of twenty nineteen. We had a good start into the year on the backing of a healthy market environment. Looking at our industrial business, we were able to perform in line or even outperformed some of our core markets during the 1st 6 months of 2019. Our truck deliveries grew by slightly more than 8 percent, while our top line in the industrial business grew by 10% on a like for like basis. Operating profits of the industrial business was up by 28 percent on better volumes and product mix as well on declining R and D and the end of the dual production work from new track generation at Scania. We ended the first half of twenty nineteen at 7.6% return on sales in our industrial business. This represents an increase of 105 basis points to former year's levels. Earnings after tax in the Industrial Business was up by 64%, driven by better financial result and a tax rate well below 30%. Net cash flow in the Industrial Business in the first half of twenty nineteen came in at minus €194,000,000 That was obviously an improvement of €182,000,000 compared to the Q1, where you might remember we stood at minus 3.76 before the sale of Power Engineering. As you can see, we are moving in the right direction with cash flow as well. Our net liquidity position after the 1st 6 months of 2019 improved to EUR 689,000,000 in the industry business. And looking at the Financial Services business, it saw a growth in the 1st 6 months of 2019 and a net portfolio of more than 17% year over year and 9% versus end of the year 2018. Return on equity remained at very healthy levels in the first half of the year. All in all, the trading group came in at 7.9 percent return on sales and passed well above our targeted range for this year, which is, as you may know, 6.5% to 7.5% return on sales. We hereby fully confirm our outlook for 2019 and even think that we could end the financial year 2019 above the midpoint of our target range. What are the factors we have to take into account for the second half of the year? First of all, further softening of the economic indicators, and there we are referring to the latest IMF data, shows that global growth outlook is a little bit more conservative for Europe in particular. The softening order intake, which we at the moment in time qualify as a moderation from previous strong quarters and thirdly, the ramp up of the new truck and bus generation at MIN in the later half of the second half year. Overall, we remain confident for the financial year 2019. To summarize it, flexibility is the name of the game for the second half of the year and the further execution on our synergy plan. With that, let's go into the presentation on Page number 4 and discuss the group highlights. What you can see in here, deliveries up 10% in the first half of the year, split by plus 7% in Q1 and 12% in Q2. While EMEA's dynamic slightly decelerated, Scania saw a strong pickup in sales. Forway, Communist omnibus sales revenue activity as well accelerated from Q1 to Q2. Trade and Group revenue increased by more than 10% on a like for like basis, and operating profit benefited from a slight improvement in gross margins with 20.5 percent in the first half of the year compared to 20.3% in Q1 and 20 7% in Q2. The distribution costs grew slower than the sales after the successful introduction of the new truck generation in Scania, and also admin expenses declined year over year. Therefore, the RAS improved from 7 point 6% in Q1 2019 to 8.2% in Q2, amounting for the full half year at 7.9%. The net income in the first half of twenty nineteen after minorities grew disproportionately to sales revenue and increased more than 60%. Main reason for this is the better financial result, which improved from minus EUR 284,000,000 to minus EUR 31,000,000. Basically, 2 effects there. 1 is the remeasurement of the put option and compensation rights for minorities, which were included and the €190,000,000 positive from a reversal of impairment losses in our investment in Sinotrak. Net cash flow in the Industrial business after first half totaled EUR 1,784,000,000 However, this includes, as you might remember also from Q1, the €1,978,000,000 for the sale of Power Engineering. Adjusted for that, as I said before, cash flow in first half of the year was minus €194,000,000 and shows a significant improvement between Q1 and Q2. Other than that, obviously, as Rolf has pointed out before, since almost 4 weeks now, we are a listed company. Our free float now amounts to 10.3%. Let's have a look into the Industrial business, which is, to a certain extent, part of the overall group then. The order intake continued to soften and declined by 5% in Q1 2019 and close to 7% in Q2 2019, bringing it now down to 6% after the 1st 6 months. The order intake for trucks went down as well. The order intake for buses declined by 12%, mainly driven by the European Union, in particular declines in Germany and substantial reductions in the UK, which were partly offset by other markets. The demand grew in Brazil in the wake of the economic recovery, resulting in a substantial increase in order intake down there. There were also substantial declines in Russia, India and Turkey. As far as order intake in the bus business is concerned, for the first 6 months, it was 11,283. Order intake in the EU region was noticeably higher than in the previous year as well as in South America, especially in Brazil. The overall decline of the orders for buses is mainly driven by Mexico, Iran and Saudi Arabia. The book to bill in the industrial business after 6 months remains on healthy levels and stood at 0.98. If you remember, it was 1.13 by March 31, and it declined to 0.85 in Q2. We're going to have a look at the brand development later. But it's fair to say that Scania in Q2 has concentrated on margin rich business, which was the main driver for the decline in the book to bill. And however, when it comes to the overall group, we think we are still talking about moderation in demand. After some very extraordinary quarters that we have seen in the recent past. And as mentioned, being a cyclical company, we are used that the cycle will come sooner or later anyway. So we focus a lot on the flexibility in our business system and prepare for other things that may come in the future. Looking at Financial Services. Net portfolio was up 9%, penetration rate still above 40%. Revenue outpaced net portfolio growth slightly and was up by 10%. If you go to Page number 5, here you can see our revenue development. If you take Q2 2018 to Q2 2019, you can see that we increased 8.7% for the first half of the year. As you can see on the right hand side of the chart, it's 7.4% overall. If you go further to Page number 7, which is the group deliveries, one can see that in Q 2018, we were on 58,900. That has substantially been increased by 12.3% on a level of 66,100 and 73. All over now at the first half of the year, we are trading on 123,336, which is a 10% increase. When it comes to the markets, we've picked on Page number 8, the core markets that we do see for Trading Group, which is obviously Europe, which has seen substantial growth and also we are performing quite strongly in the market. Then also Germany, there's a very solid position. Brazil with a strong recovery as outlined in the introduction. On Page number 9, when we talk a little bit about the order intake, as you can see in here, the development compared to previous year, it is slowing down quarter over quarter, then it's minus 6.7% compared to Q2 in 2018. As you can see here in the gray shadow on the left hand side, it's the 1.13 that we still had in Q1 when we met you in this call, but this has now softened down to 0.85. Overall, we, as I said before, think that this is a moderate slowdown. Keep in mind, we've seen quite strong quarters with Scania leading the segment above 16 tons in the European market for the 1st 5 months of the year. So that to a certain extent, this is also a normalization. But as I said before, economic indicators are slowing down, and we also see that the demand is a little bit going down there as well. When it comes to the deliveries, though, on Page number 10, you can see that we basically on the strong of the on the foot of the very strong order book we have seen in the past, the total deliveries were increased, and we put it in here as a sake for completeness to the book to bill. When it comes to revenue on Page number 11, you can see that sales revenue in the Industrial business increased by more than 10% in the first half of the year, said before, plus 9.4% in percent in Q1 and another 11.3 percent as you can see in here in Q2. Operating profit benefited from the improvement in gross margin. Distribution costs grew slower than sales after the successful introduction of the new truck on the Scania side. And therefore, the RAS improved from 7.3% in Q1 2019 to 7.7% in Q2, amounting to the referred 7.6% after the 1st 6 months. When it comes to primary R and D costs in the first half year, it was around EUR 663,000,000 or 5% of sales, about 70 basis points below first half of twenty eighteen. And basically, that was for this page. If you go on Page number 12, a little bit more detail when it comes to the brands. Let's take MAN first. You see in MAN Truck and Bus, we saw sales revenues increasing by 6% in Q2, whereas deliveries were up by 8%, basically driven as a main as one of the main effects by the TGE. Bear in mind that the TGE, from a mix perspective, is dilutive to sales and also RAS terms. The return on sales for MAN in Q2 was on the level of 4.5%. Scania, as you can see, saw sales revenue increasing by 14% in Q2, whereas deliveries were up 16%, mainly driven by the truck business. The return on sales in the second quarter was on a level of 12.2% and therefore, on a like to like basis, meaning industrial truck and bus, benchmark in terms of profitability in our industry in Q2 2019. Camunis and Omnibus sales revenue increasing by 34% in 2nd quarter, as deliveries were up 23%. The RAS in the 2nd quarter was 2.2%. If you go over to Page number 13, which is the net liquidity, you can see that the net liquidity has improved to EUR 689,000,000 after 6 months. It's still on EUR 604 when we discussed on the 31st March. The improvement was driven by the net cash flow, which was positive in 2nd quarter, as I said before, on €182,000,000 The driver for the better net cash flow compared to Q1 was better earnings before tax and some improvement working capital on a year over year basis. The main driver for the improvement in the second half of the year will also be working capital as we have extensively also discussed during Q1. If we go on Page number 14, obviously, you can see the highlights on the MAN side. We could see that vehicle sales have been up 10%. Order intake, as I mentioned before, a little bit softening in the first half of the year, and the operating profit declined by 11%. Basically, what we could achieve in higher sales revenue was offset by higher expenses, mainly depreciation as well as the first things that we have in mind now for the new truck generation in Q3, Q4. And please keep in mind that if you compare to the quarter in the previous year, there was an effect when the Rio business was acquired by 1 of the Trading Group companies from MAN. If you go a little bit on Page number 15, you can see order intake at NIM was down 15%. However, the delivery is up by 8 percent and the book to bill is on a level of 0.86 percent. Sales revenue up 6% and operating profit, as I said before, declined in the view quarter over quarter. Return on sales, 4.5%. And by this, as we have said in London, MAN still focuses on a stable level of its performance, which they also could then somehow prove in the Q2. Scania, Page number 16. Unit sales in trucks up 14%, growth mainly driven by strong growth in Europe and Brazil, with some headwinds again in Russia and substantial lower Middle East. Order intake declined 2 effects there. 1 is the general, let's say, situation in the markets. The second one is that especially on the skyno side, you have seen a little bit of a peak already in the 1st 4 to 5 months, which is now just normalizing. Operating profit increased by 34%, benefiting from higher volumes and also price mix and positive effects on the FX side. As you can see here drawn on the chart, there was a positive effect of €57,000,000 What is also very important for us with the introduction of the new truck generation in Latin America by the end of Q1. We now can say that we have fully introduced the new truck generation. And last not least, Scania and especially the R450 have received the Green Truck 19 award. On the profitability, just to round it up here, order intake, as I said before, 3% down. However, you can see delivery significantly up 16%. And to a certain extent, I think it's fair to say that Scandinavia was a victim of its success in the delivery as well when it comes to the book to bill ratio here if you keep the delivery numbers in mind. Return on sales, 12.2%. And there also, you can see what we said in the beginning of the year and in our Q1, you can see that Scania is on the road to recovery. And as a matter of fact, in Q2 was the benchmark for the truck industry. Camionis Omnibus. Briefly, situation in Latin America is improving. We could also see that unit sales are up 15% in the first half of the year. Nevertheless, export sales have declined. Demand was sluggish in some export markets other than when it comes to Brazil. Operating profit has benefited from the increased revenue. Nevertheless, we saw that we had a negative ForEx effect and also have had higher depreciation charges, which impacted the 2nd quarter. We also had a positive effect by the release of a restructuring accrual that was done in the Q2. And besides those effects, we think that Brazil and Camuto is going to be on the stable track for the second half of the year. Goods Financial Services, Page number 12 20. Sorry, if you look there, as I said before, sales revenue by the 30th June, up 10.3%. This reads as a 13% growth in Q1 2019 and 8% growth in 2nd quarter. Return on sales very satisfying levels close to 17% in the first half of the year and 17.1% in 2nd quarter. Page number 21. Net portfolio, you can see, grew 17%. Penetration rates, as you can see, remained at a very healthy level, and the equity ratio for the Financial Services business was at 8%. On the following pages, I would like to draw a couple of words on the outlook. If you see Page number 22, this is how we see the world on the market, and that basically means our picture remains unchanged. If we look for the total year perspective, we see Europe slightly decreasing in 2019 Germany, which represents about 1 5th of the European market, is still slightly up. Brazil, we do expect substantial growth, especially in the second half of the year twenty nineteen. And I think if you look on the page, that's not very much different from what you have heard elsewhere in our industry in other talks. Page number 23 leads us now to the outlook for the trading group and would like to fully confirm our outlook for the year 2019. We expect a slight increase in the deliveries, our sales units for 2019. We expect group sales slightly above prior year and the group return on sales in the range of 6.5% to 7.5%. And we see us above the midpoint in 2019. I alluded to the main reasons for our confidence in the introduction. With that, I would like to conclude my presentation, and I hand back to Rolf, and we are happy to take your questions, though. First to the moderator, and then actually we are happy to take your questions. Sorry. Thank The first question is from Graham Phillips, Jefferies. Your line is now open. Yes, good afternoon. I had three questions, please. First of all, on Scania. Can you talk a little bit about the outlook for second half and the decline, albeit modest in orders in the second quarter? And were there any costs left in there for the new truck generation as you rolled out across all regions? I'll follow-up with the other questions, Joven. Okay. So first of all, on scania, as I said before, you saw scania very strong in the 1st 4 to 5 months of the year, given that, as we discussed last time, Graham, that we have had the supply chain stability in the Q4 of 2018. So there was a spillover effect. And what you see now for the second half of the year, to a big extent is the normalization of that spillover effect in the first half of the year. Other than that, it's in line with my comments on the market outlook for Europe. Secondly, as I said, the new truck generation was now introduced also in Latin America. By this, we made huge progress in the Q2 with the cost of the dual ramp up production that faded away, and this effect will be completely gone by the end of the year. Okay. So you're not planning lower production in Europe in the second half? We will, at the let's say, in the second part of the second half year, have some reduction in the working days on the scania side. But as I said before, that's mainly driven by the extraordinary demand we had before. So we will have some adjustments there, but that's really minor. Okay. And then on MAN, and I apologize if this is actually buried in the releases somewhere, but was the Rio profit sale in the Q1 or the Q2? And again, ramping into the end of the year with the introduction of the new truck generation, what's the timing on that? Okay. So first of all, it was the Q2 last year in 2018 on the amendment side, the RIIO effect, the EUR 19,000,000 And the introduction of the new truck generation will be started at the end of Q3 in the due course of the Q4 with the introduction of the truck into the market in February with Spain. Okay. Thank you. And just finally on VWCO. So if we take away that provision release, the business actually was in loss because we understood that this is very asset light business, very flexible. Why has that swung into loss? And what's the outlook in the second half? So I mean, first of all, I tried to say before, we had an FX effect there around $10,000,000 ish, and that was one effect. And the second one is depreciation of the new truck generation that is in there. We had some extra effects there. But as I said before, for the second half of the year, we see that gone. And also in the Q2, we had some costs that have been inflated. So all overall, a mixed second quarter, but when it comes to the remaining half year of communisomnibus, we see it progressing. Okay. Thanks very much. The next question is from Daniela Costa, Goldman Sachs. Your line is now open. Hi, good afternoon. Thanks for taking my questions. I have 3 as well, if possible. So the first one, wanted understand when we look at the MAN margin change year on year, shall we think about that as ballpark what we should expect over the coming quarters given the dual production and the introductions? That's my first question. The answer is somewhat yes. As I've given also in the discussion in London and also in the Investors Talk and outlook, I mean, MAN is now in that phase of the introduction of the new trucks. So if they are in that corridor between 4, 4.5, 5, that's, I think an achievement. So that's pretty much what you have there. Okay. Thank you. And then I wanted to get to see if there's any updated thoughts regarding Financial Services for MAN and where is your thinking standing at the moment regarding that? Well, we are in constant discussions with Volkswagen on that. Project team is working jointly with FAOVE on that. Keep in mind, it's just 4 weeks that we were listed. So everybody was very much focusing on that. Progress is made already here, but nothing where we now can say that's the impact on funding and this is how we do that. It's a little bit too early, so it's work in progress. Thank you. And then finally, also on MAN regarding minorities, if you can give us an update on the intentions there. Of course. Pretty much what we have said in the prospectus, there are basically 3 options. Don't touch it. 2nd one is the financial squeeze out. 3rd one is the, let's say, merger option as outlined in the prospectus. There is no updated information or decision on that. When should we do you have a time line on when should expect that or completely unpredictable for the time being? Nothing to add on what I said. We are in discussions. Okay. Thank you very much. The next question is from Timur Koffa, Deutsche Bank. Your line is now open. Open. Yes. Good afternoon, Christian. Good afternoon, Rod. Thank you for taking our questions. I would also have 3, please. The first one is just to really understand your comments about the economic slowdown that you're seeing, Christian. Is that something that really worries you? And in your experience, how long does a cyclical weakness like this persist? And have you taken any measures to prepare for this? Or is it just something that you're watching carefully and then may react to it? That would be the first question. As I said before, we see signs of softening. We basically look a little bit more closer now into the second half of the year. Question is always, how does your order intake develop? I refer to that in my presentation. 2nd one is, what do we see in 3rd Q4 then on used trucks development? And the 3rd indicator is what happens to the order intake in the U. S, which is coming down, which is an early warning indicator also for more substantial decline that may come in future. In Europe, for the time being, I would see kind of a normalization effect on our end, as I said before, with slight moderate indicators, but we will monitor that closely. And of course, as I said before, as a cyclical company, we need to be prepared if a cool off comes in the market. So what we do have is we have extensive time accounts for the time being. We have flexibility in our plants in Sweden, in smaller France and also here in MAN with flex workers. So basically, we have our flexibility toolkit in place. And as I said before, we are prepared if things would go worse, but we do not see that yet. As I said before, the order intake shows a little slowdown, but not something where we say there's no big depression. Okay, great. Thank you. You spoke again about the used vehicles. You also said it this morning already on the press call and says it in your highlights. Can you just update us again how that really impacts you from an operating perspective? And what is causing this weakness at the moment? Well, I mean, it's in our case, we have just had the changeover in the new truck generation in Scania. We have now we are at the edge on changing our MAN. So basically, we do see that couple of used trucks are coming back. We just watch how long do they stay there, how are prices developing. So far, as I said before, something where we manage. It's not something that we say there's a huge issue coming up. But it's something where we see that the movement has shifted compared to last year, for example. Okay. Great. And finally, just coming back on VW Brazil again. Graeme already touched on this, and you already said in the second half you see some improvements. But given how this business model worked in the past, if you would have seen growth similar to that you have now seen in H1 or even in Q2 when we talk about 34% growth, you would have seen substantially different profit margins. And I know there is a number of factors here. Will all of them disappear over time? Or do you think just given that the market is still at a relatively low level despite all this growth, it will just simply take a longer time to come back to higher margin levels as you frankly also indicated during the IPO process? Let me put it that way. I think first of all, it's important to remind ourselves that we have the consortium modular. That means you have a lower vertical integration. So the moderate swing down you have seen in the vertical integration, that's one effect. 2nd one is, we have a vertical integration. That's one effect. 2nd one is, we do see, especially in Brazil, that the extra heavy market is going at the moment to improve, which is not typically the market of communis and omnibus, which is more light and medium duty. So as far as the Q2 effects that I described on will maybe fade away, we need to see what will happen in Brazil now after the first reforms have been approved by the Parliament. Will that give a, let's say, impact on the economy as well that also light and medium duty transportation will see a recovery. And by this then, you will have a momentum also for Communist omnibus. Great. Thank you very much, guys. Thanks, Tom. The next question is from Michael Rabe, Kepler Cheuvreux. Your line is now open. Hi, everyone. Michael Rabe, Kepler Cheuvreux. Also got 3 questions. First of all, the last time we spoke with your official reporting, I. E. Q1 2019, you mentioned that the fresh product of Scania started to unfold favorable effect on your pricing. Are you continuing to see this? Secondly, in terms of the cost flexibility you claim to have, how much by how much, let's say, in percentage terms, would you be able to reduce your costs within a 3 to 6 month timeframe, if required? And then finally, getting back on the side of a potential economic slowdown you mentioned as seeing, when it comes to the decision making for reestablishing financial services for MAN potentially, would any slowdown impact your decision making either in terms of timing or perhaps in terms of, let's say, the construct or the type of solution you would go for, please? Okay, Michael. So let me take the first question then. The pricing we referred to in Q1 is still valid. So we still see, yes, that is the case. Secondly, when it comes to the flexibility, we do not comment in detailed numbers, let's say, when it comes to flex workers or flex accounts. The only thing I can say is that we are prepared, given the good business we had, that our time accounts are filled up and that we do have a good flexibility to what we see is ahead of us in the next 6 to 9 months. When it comes to your third question on Financial Services, I mean, we are in very good discussions there. And I think this will not be immediately delayed by discussion if volumes would cool off because that's a more substantial long term decision that a successful drug manufacturer should have in any event, the Financial Services division. Because theoretically, you could imagine a situation where you're basically, let's say, hypothetically assuming again Financial Services for MAN and you're doing this right into a downturn, which typically has negative ramifications for residual values. So just wondering, all right. Okay. Thanks. Thank you. The next question is from Dorothee Cresswell, Barclays. Your line is now open. Yes. Hi, there. Thank you for taking my question. I have 2 actually with regards to MAN. The first is, I wondered if you could give us an update in terms of market share development in Europe. If I look at Slide 8, it looks like you're still gaining share, but it's not quite at the same pace as it was in Q1. And in particular, it seems like the outperformance in Germany just isn't there anymore. And perhaps you could also give us an update on the other European focused markets? And then perhaps you could also give us a feel for new truck pricing for MAN. I know you referred to the used vehicle market already and that's a little more challenging, but what are the dynamics of MAN in the new truck business? Thank you. Okay, Dorothy. I mean, if you go and compare it to the ASEA official data, you can see that when it comes to the first half of the year in Germany, MAN was on 11.7%. When it comes to France, slightly below the market in Europe, strong gains in France. When it comes to Italy, we are making small progress there. All in all, it comes back to what I said in the Q1 discussion. You need to have a new product. And this is now at the doorstep in the next, let's say, 3 to 6 months. And then it's important that we come in these markets with the new sales strategy, with the new truck. And that is the key for the growth. I mean, keep in mind, the truck we are currently working there in these markets is still the almost 20 year old product lineup that we do have. And we need to have the new product in order to get the better position in there. And with regards to the pricing? Same thing. I mean, it's important now we've had the model year 2019 that was introduced a couple of weeks before with the new engine update, and this is performing okay. So price mix is positive there, which is a good base then for the new truck that might then come from Q1, Q2 next year onwards. Thank you. The next question is from Graham Phillips, Jefferies. Your line is now open. Thank you for taking my follow-up. Just reflecting back on your confidence now that you think you could be above the midpoint, know you did sort of indicate a few things, but perhaps you could just be a little bit more specific. What's changed perhaps over the last 6 to 8 weeks that's now given you that confidence on now thinking you can exceed the midpoint? Well, first of all, we now got approved by the second quarter with our performance there and see that the first half of the year, obviously, is on the level of the 7.9% for the group. So that's the first thing. And when it comes to the second half of the year, even if we see markets on the scania side still a little bit, let's say, normalizing, Keep in mind, what I said before, the IMF, as I said, you never know what happens in Q4. You see we are at the edge when it comes to the introduction of the new MAN truck. So you can't simply say, let's take 1st and second quarter and just multiply it by 2. And there is that order intake that I've referred to in the beginning. So this is why we say, look, we have actuals on 7.9 for the first half of the year. We are quite confident. But still, we cannot give a different guidance in an upper segment because we still need to watch out the softening of the market and see how we ramp up the new truck generation brand. Thank you. And I guess it also does include the provision release now for the Brazilian piece in your guidance? Yes. Okay. And just finally, sorry, one housekeeping. The $57,000,000 FX positive, can you give us an idea of the split between 1st and second quarter? 28, 29, Okay. Ben, sorry. Thank you. That's all right. Thanks very much. The next question is from Kai Muller, Bank of America Merrill Lynch. Your line is open. Hi, thank you very much for taking my question. The first one is on your deliveries in Europe. We've heard from one of your competitor that there was before the introduction of the new Tahoe meter switchover sort of a pre buy. Can you give us a bit of color on how much that affected you specifically in the market both on MAN and Scania as well? And how you see that then coming through in July, August, especially in Q3 in terms of the softness? The second point in terms of your working capital, you now said obviously on the Scania side, you're now fully up and running on the new trucks. How much working capital release that you've shown is related to that? And can you give us a bit of color if you have still any working capital issues with regards to the ramp up of the new truck generations in MAN? And then as a last commentquestion, there were some comments from your team about no intention at the moment to buy Navistar. And at the same time, savings are progressing very well. Can you give us a bit of color in terms of where we would actually see them coming through? Or are they more coming on the Navistar side and you then see them through your associated earnings benefiting through that? Okay. So let's take it this way. The digital telegraph that is somehow baked in, in a, let's say, pre buy effect in Q2 is hard to grasp and say the effect in Scania is X and the one in MAN is Y. So that's simply impossible for us to grasp, yes? So I need to disappoint you on that one. When it comes to working capital, I mean, we have seen improvement in the Q2. But still, we have our challenges on both MAM and Scania currently in the second half of the year to come back on our cash flow. We need to continue the work that we have done there. And but the pipeline, especially on the scania side, is easing up. And also on EMEA, we are making progress in Q2, as you can see with the positive cash flow, which is quite some progress to Q1. And when it comes to Navistar, well, look, I mean, I cannot speak for Navistar here, obviously. But if you listen to Troy Clarke and Walter Bors, they have indicated that the purchasing joint venture effects have been in their favor and that they were satisfied with that when they had their last Capital Markets Day. So that was pretty much on their end. Then when it comes on our end, of course, the nature of the strategic alliance is that you get agreement on components, and there you have shared funding and you have added volume to your platform, which is obviously then material cost optimization for the leading brands in Triton. So those effects are baked into the components. And this is something we do not disclose yet because it's also on the discretion of Navistar to announce at a certain point of time which components of TRATON they will use and when they would like to release that to the market. But there, the improvement is on both sides, obviously. And have you already seen some of that coming through? Or is that more a story that's still continuing and helps you more for next year? We do see that also down the road because so far we're discussing which components might come and obviously then working on contracts. So those haven't been yet baked in because deliveries are not yet with the new components established. So this is something you will see in future as Navistar takes the decision to take a component or not. Perfect. Thank you very much. Welcome, Kai. The next question is from Adam Hull, MainFirst. Your line is now open. Hi, good afternoon. Thanks for taking my question. Really just wanted to dig a bit deeper on free cash flow. So you've turned a bit positive in Q2. But if I remember correctly, I think you were talking about 30% to 40% cash conversion for the full year. Just update us if that's still in place and really help us through in terms of some of the key levers there. Is it working capital inflow in the second half? Is it lower cash CapEx, R and D, etcetera? Maybe really help us because clearly that is a big important factor here. And maybe just in terms of midterm, is that a normal 30% to 40%? Or can you really increase that significantly in the next 2 to 3 years? Just to get a feel on the cash flow. Thank you. Okay. So first of all, the question you answered is answered with yes. We're still aiming for the 30% to 40%. If you see second quarter, you could mathematically derive that cash conversion was around 50% for the Q2. One side, as I said before, the earnings improved. 2nd is working capital, especially the inventories. And this is where the major lever comes in the second half of the year. We have introduced both in Scania and MIM cash flow task forces, and you could see already trucks coming down in Q2. And now we will see that also in Q3 and Q4. And down the road, I mean, it's a question we will work hard on our synergy targets and on our profits. And if profits go up and if you manage your working capital, you have a good position to also improve your cash conversion in the midterm. But would you say at the moment, I mean, our inventories and your working capital, it is clearly too high. Is that how you see it? Or is it just to do with the sales level? I mean, if you look at those days of selling sales, etcetera, is it just it's got a it's run away a little bit, if I can put it that way, or not? I mean, it still is below from last year. I mean, we talked about in Q1 and also in London that we've had our challenges in the supply chain with the ramp up of the new truck generation in Scania. Since now in Q1 of this year, we still have introduced the truck in Latin America with 6 weeks being down in production in the changeover. So inventories are on the Skane side, is still quite high when it comes to the ramp down there. We worked that off in the Q2. And then obviously, with everybody in Sweden pretty much going into the summer break, almost starting in June, I mean, also the June is not a strong month for inventory reduction. So this is what you will see coming down. I would not say that what we have seen as inventories in the first half of the year is normal level. We still need to work our challenges down there. Okay. And just maybe follow-up on MAN. I mean, with the new truck coming on board, as you said, Skynyrd disruption. When putting aside the market potential movement and coming down potentially, when would we think the low point operation of the launch period as it were? Is that sort of the latter part of 20 20 or into early 2021, just in terms of that movement of bringing in the new truck, which normally hurts you when you see a bit of new and old truck at the same time? I mean, my gut feeling would tell me that, that might be in the later part of 2020. But keep in mind, I mean, we learned a lot of things in the Scania ramp up. So what we have now is Scania people working in MIM. We're making progress when it comes to the maturity of the program. So I mean, we have already planned in our plan that we will have certain hiccups in the production in there and have prepared for that. But I would say we need to see that quarter by quarter openly. Okay, great. Thanks very much. Welcome, Adam. There are no further questions. I would like to hand back to Mr. Wohler. Thank you very much. That was 45 minutes, so very good for the second time. And yes, we wish all of you hopefully a very refreshing summer break and hope actually it will be not as hot as it was here in Munich over the last couple of weeks. Latest, we will talk to each other on November 4, when we have our 9 month results released. And in the meantime, whenever there is any question not clarified, please get in touch here with the people in Munich, with Helga, with Thomas or myself. Keep us employed, and we wish you a very refreshing holiday. Thank you. Thank you. Bye. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.