The call will be led by Frank Markus Weber, CFO of Globbrandsen and Andreas Spitzauer, Head of Investor Relations, followed by Q and A session together with the other two members for the Executive Board, Doctor. Peter Leier, Head of CVS and Doctor.
Dror Wheeler, Head of RBS. May I now hand you over to Andreas Spitzauer. Please go ahead, sir.
Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. My name is Andreas Schwitzdauer, Head of Investor Relations of Knoebremzdag. I want to welcome you to Knorr Bemps' conference call for the Q2 results of 2020. As a reminder, the conference call will be recorded and is available on our homepage www.knor brembe.com in the Investor Relations sector.
There you can find today's presentation and later a transcript of the call. It is now my pleasure to hand over the call to Frank, Markus Weber, our new CFO of Cholobbenze. Please go ahead, Mr. Vika.
Thank you very much, Andreas. Dear ladies and gentlemen, I warmly welcome you to our conference call for the Q2 results of Knob Ramsey in 2020. This conference call is very special for me as I'm speaking to you for the first time as the new CFO of Knobelbenze. Today's call is made up in 3 parts. First, I'd like to briefly introduce myself.
Then I will present the financial results for Q2. And later, will give you an update of our guidance for 2020 thereafter with my 2 colleagues in the Executive Board, Doctor. Jurgen Wilder and Doctor. Peter Leijer, We look forward to your questions and comments. So turning to Chart 2.
Let me quickly introduce myself. My name is Frank Markus Weber. I am 51 years old and I just recently moved to Munich with my wife and my 2 children. I have a business and financial background and studied Business Administration at the University of Tubingen. After a stint at an auditing company For the past 21 years, I have held various management positions at the Daimler AG overall in the finance and controlling area.
The most important tasks after several controlling positions at Mercedes Benz during my time at Daimlerware. Head of Corporate Development and Strategy, I was able to gain valuable experience outside the financial sector, but at the same time, I was able to contribute important financial aspects. Head of transformation and the driving force behind the efficiency program move with the scope of roughly €95,000,000,000 cost At the Mercedes Benz AG. Last but not least, for many years, I was CFO of Mitsubishi Fuso Truck and Nobremse AG. And later on of Daimler Trucks Asia based in Tokyo, Japan.
The experience I gained in these positions supported my entry into BMC AG. I also headed the M and A department at Daimler for the last 4 years. Looking back on my professional career, I have led many different finance departments in the company that has been listed on the stock exchange for decades. It is precisely this experience and knowledge that I would like to bring to Knobr Ramsay to help develop the company's strong entrepreneurial culture Further, my key responsibilities inside Clubbemse are finance, controlling, IT, legal affairs, investor relations and compliance. My focus will be on fostering and enhancing a culture of high performance, ensuring the continued support by the finance I have completed my first two months at Knob Ramsey and would like to share my first experiences with you.
I was extremely positively impressed by the First, I have been able to get already into a high number of exciting projects. I have found a highly committed and very customer focused team at 2nd, the new colleagues are characterized by a high performance culture and a strong cost focus In the true sense of the word. 3rd, at Knob Ramsey, there are many entrepreneurial people who are located close to the customers all over the globe and have a high level of P and L responsibility. I have also found the following topics that I have Potential to improve and on which I would like to continue to face going forward. Earlier reporting is a standard and is very important to me.
I consider the IFRS migration so far as unstructured and will take care of this going forward. The profitable growth of the company was great so far, but it has to be secured going forward. This means that we have to develop further on both aspects, Growth and profitability at the same time. Our operational excellence needs to be even further enhanced by stringent standardization of Processes and organizational alignment. Even more important, we have to improve our conversion rate on the cash side.
Cash conversion rate is a very important topic for me. So let me continue with the financials of COVID-nineteen pandemic in the past quarter. 1st and foremost, our financial results have been solid in both our Rail and Truck division. They implemented countermeasures against the impact of COVID-nineteen paid off and supported our operating leverage. In this respect, our European and American operations benefited greatly from the experience of our Chinese colleagues.
Our aftermarket business was also affected by the pandemic, but to a much lesser extent compared to the OE business. Accordingly, the sales mix increased significantly in favor of the aftermarket. Overall, we confirm the guidance for 2020, And we feel confident enough to slightly raise the lower bandwidth of the guidance. I will give you more details later on. Chart 4.
Let me continue with the market development in the Q2 of 2020. On the rail side, global markets recovered faster than expected. It is especially important to mention that OEM customers have orders in the OE segment, but we have not received any cancellations. Capacity utilization rates at the train manufacturers' plants are again almost back to pre crisis levels and in their latest press releases, they have tended to publish rather bullish statements. In addition, numerous governments around the world have initiated stimulus packages to provide financial support to the rail industry while promoting green mobility.
On the other hand, our sales development is clearly influenced by the postponement of projects, which will have an impact on the development of RBS in 2020 2021. Long term, however, we do not Any negative sustainable impact on the division sales development. The COVID-nineteen pandemic has certainly had a greater impact on the sales market of Nevertheless, all relevant markets, e. G, North America, Europe and China, recovered relatively quickly, but at different speeds. In China, new records in truck production figures were already achieved in April May.
In Europe and North America, the recovery is proceeding more slowly, but continuously on an upward path. Overall, however, the last two regions I have just mentioned should face significantly lower volumes compared to last year. It was therefore important and the right decision to introduce adequate efficiency measures in the Truck division at a very early stage. I will proceed on Page 5. A lot of things were positively driven at Knob Ramsey in the past few months.
At the virtual Annual General Shareholder Meeting end of June, Mr. Thiele, Mr. Endos and Mr. Weymock were elected as new Supervisory Board members with high approval rates. Thereby, the level of know how and experience in the Supervisory Board increased significantly.
The Rail division won a major order in Egypt for brake systems with a volume in the mid double digit €1,000,000 range. A total of around 1300 passenger cars will be equipped in this populous country until year end 2022. In addition, during the COVID pandemic, RVS was able to clearly demonstrate its modern and intelligent HVAC systems, which can significantly improve distribution, filtering and cleaning of the air in passenger cars. The truck division was able to secure the previous The European legislator wants to make road traffic safer. Therefore, a mandatory turning assistance For buses and trucks is planned for new vehicle types from 2022 and for all new trucks and buses from 2024.
With a retrofitable Turning Assistant Pro Fleet Assist Plus, CVS makes an effective contribution for the truck manufacturers to meet these requirements. Let me continue with the financial highlights on Chart 6. On July 16, Knobenz released preliminary results for the Q2 of 2020, the final results are basically in line with the preliminary figures even slightly better. Overall, COVID-nineteen had a major impact on our results in the past quarter as the pandemic mainly affected Europe and North America, where KnobBrembse generates around 60% to 70% of its sales. Nevertheless, our performance, Especially the divisional profitability was still very solid and showed a high level of resilience.
Let me take you through the most important KPIs. Orders received were at €1,100,000,000 a decrease of minus 32% compared to the same quarter last year. On the other hand, with €4,400,000,000 our order book was only slightly lower compared to the previous year, which is the foundation of Our guidance and gives us a good visibility for these challenging times. At €1,400,000,000 revenues decreased by minus 23% Compared to the Q2 of last year, the development was driven predominantly by CBS. Our operating EBITDA margin decreased, but only from 19.1% to 17.2% in quarter 2.
Given the current adverse economic and market environment, we consider this to be a very solid level of profitability and a proof of our resilient business model. Let me dive deeper into our results in chart 7. Order intake On group level in Q2 declined by minus 33 percent to €1,140,000,000 compared to the same period in the previous year. This development was not supported by the FX development or M and A on a net basis. Therefore, the organic development was Slightly better with a reduction of roughly 30%.
Due to the extensive lockdowns in Europe and North America in April May, Customers of rail and truck were very reluctant to place orders. With the easing of the curfews in June, incoming orders also improved. Our book to bill ratio in Q2 was impacted as well, reaching 0.8 versus 0.9 in the previous year's quarter. The development of the order backlog in the Q2 of 2020 was particularly pleasing. Compared with the previous year's figures, the development of the Order backlog was only significantly lower.
It reached €4,360,000,000 end of June 2020 and increased significantly beyond Q2, 2 more to August. Let me continue with our revenue development on ChartField. In the quarter April to July 2020, revenues from group level decreased by minus 23 percent or in absolute numbers by minus €418,000,000 to €1,430,000,000 On an organic level, we saw a decline in the same magnitude. Worth mentioning was the development in the APAC region, which entered the COVID pandemic first, but gaining most of the experience how to handle it. As a result, APAC was able to grow by more than 4% year over year.
The regions Europe and North America recorded the greatest impact of the pandemic in the Q2 of 2020. Accordingly, our group revenues fell by a clear double digit Let me continue with the development of our profitability on Chart 9. In the Q2 of 2020, Group's operating EBITDA was €245,000,000 after €350,200,000 in the previous year. The operating EBITDA margin amounted to 17.2% after 19.1% in the previous year. This decrease mainly resulted from volume effects of a declining OE business with corresponding impact on the operating leverage.
This margin impact was mitigated by contributions from the accretive aftermarket business. The aftermarket Share increased from 32% in the Q2 2019 to 38% in the Q2 of 2020. In absolute figures, nevertheless, aftermarket business was not immune to effects of the pandemic and recorded a decrease of 8% to €549,000,000 This decrease was more driven by CVS. The group's operating EBIT of €174,000,000 also saw a decline of €112,000,000 at 12.1%. The EBIT margin was below the previous year's level of 15.5%.
The higher deviation compared to the EBITDA of the previous year quarter comes from higher depreciation due to increased investment activities. In summary, we consider Q2 2020 to be a rock solid proof of Knobelbenzer's business model in the currently challenging market environment. Turning to slide 10. While we have initiated a CapEx management program and was spending closely, We realized an increase of CapEx and sales to 4.7% in the Q2 of 2020. Nevertheless, the level of 4 point A substantial amount was invested in supplier tools and future growth options for both divisions.
A large part of the increase year over year derives from the continued expansion of the capacity for air disc brakes in North America to support our market leading position in this segment. We also made strategic investments in further software development in our global gearing business. Net working capital at the end of past quarter showed an increase to almost €1,200,000,000 This development was mainly driven by measures Our corporate policy customer first is very important to us and has been a cornerstone of our business success for decades. Accordingly, we have kept a higher level of inventory to support our In the difficult times and prevented a potential disruption of their supply chains. As a consequence, We also accepted that working capital will be higher in the short term in order to strengthen our long term customer relationships.
Nevertheless, from CFO's perspective, I would like to clearly emphasize that this flexibility towards our customers is over time limited despite our strong balance sheet and we are working consistently to reduce working capital over time. Annualized operating ROCE was impacted by lower profitability and increased working capital, but with 22.2 percent, well above most other companies in the capital goods sector. On chart 11, I would like to continue with the cash flow KPIs rather on the bottom line. Our free cash flow in Q2 2020 was positive, reaching €48,000,000 after minus €61,000,000 in the very first quarter of this year. The year on year decline is predominantly due to lower profitability and at the same time slightly higher capital expenditures and increased working capital.
Based on measures we started already, free cash flow will improve accordingly in half year 2 of twenty twenty. As mentioned at the beginning, the cash conversion rate is very important to me. My definition of this KPI is Free cash flow before M and A means as reported in relation to the respective net income. The level of slightly above 40% achieved in quarter 2 2020, which we deliberately accepted to cope with the pandemic, is not A cash conversion rate of roughly 70% to 80% during a normal growth phase. On Chart 12, I would like to give you an update on the impact of COVID-nineteen on our 2 divisions.
Compared to the Q1 2020 presentation, in which we needed a total of 5 charts for explaining this topic this time, we believe only one chart is necessary. This should also be seen as a sign that we know very well how to deal with the pandemic. Nevertheless, we continue to monitor the situation very closely and are prepared to act quickly if necessary. With the exception of India, demand in the global rain market segment has recovered significantly and our Customers on the train manufacturing sites have almost returned to pre crisis levels. Although the important customer segment of train operators has not yet reached normal levels again.
We see continuous and steady improvements regarding trains in operation and no cancellations of contracts, only postponements So far, what does this mean for our Rail division? Our suppliers have also almost returned to pre crisis level, which also applies to our own facilities. For example, we have ended short time work at RBS in Europe. I would now like to move on to the truck situation. The key sales markets have recorded significantly recovered significantly from the lows and are also showing a steady improvement month after month.
This assessment has been confirmed even after the summer break. Our customers have kept their commitments. Similar to the rail site, only India is still strongly affected by the pandemic. This has a corresponding impact on our suppliers and our own which are also experienced improved capacity utilization or base significantly below the prior year levels overall. Let's move on to the divisional view, starting with RBS on slide 13.
In the Q2 of 2020, order intake of Rail Vehicle Systems was €790,000,000 A decrease of 11% in total and 7% on an organic basis. This development can be attributed primarily to the lockdowns at our customers as sales activities were significantly restricted. This led to postponements of meetings and contract awards as well as calls from framework agreements affecting the OE and aftermarket business. In July August, the situation eased considerably again. Next to it, I would like to remind you that developments in the rail industry with its long cycles do not go well with quarterly reporting.
They are always fluctuating large orders in individual quarters, which make comparisons difficult. Projects in rail are generally independent of seasonality or cyclicity. All regional markets experienced postponements and lower demand, which could not be compensated by the development in China. The book to bill ratio was developed accordingly to the lower order intake, but it was flat compared on an annual basis. It moved from 0.92 in the Q2 of 2019 to 0.93 in the Q2 of 2020.
The order book, on the other hand, increased by 7% compared to the same period in the previous year to €3,500,000,000 which provides good visibility for the rest of the year and shows the confidence of our customers in the long term trends We assess the order backlog of our rail division as a very solid and do not expect any order cancellations going forward. Nevertheless, we do see selected shifts of tender biddings. I'm now moving on to the revenue For the Rail division in Chart 14. In the Q2 of 2020, RBS recorded revenues of €849,000,000 which decreased by minus 10% year after year, which minus 12% year after year and only minus 9% on an organic basis. Europe, which was affected by the pandemic mainly in the past quarter, contributed about 70% of the year on year decline in the division sales.
Both the OE and aftermarket business were affected by weeks of Closers of customer plants and depots. In the OE segment, only the locomotives and passenger business were growing. In North America, we recorded an overall decline. Lower revenues predominantly in freight could not be mitigated by the almost stable development in the service business. APAC, including China, also The lockdowns had a negative impact on most countries outside China and revenue segments like high speed, locomotives and the aftermarket business.
The very positive growth of the Chinese metro business, which more than compensated for the development in other customer areas, led to an overall growth in China, but not in the entire APAC region. On RBS Group level, Noticeably, lockdowns of depots and significantly lower number of trains on the tracks in the second quarter had a bigger impact than the full effect from the second half of twenty twenty. Overall, this led to a decline in the aftermarket business in the past quarter, but this was significantly less than the decline in the OE business. The profitability of RBS in the past quarter was certainly the most remarkable KPI of all of KPIs. EBITDA of RBS came in at €204,000,000 in the 2nd quarter and was down only minus 6% compared with last year.
The EBITDA margin increased from 2020.5% to 24.0%. This margin improvement is based on the following topics. COVID-nineteen measures had the largest share in supporting profitability in Q2 2020. Please keep in mind that the measures are predominantly of a short term nature. We have sold the loss making power track unit by the end of quarter 3 2019.
Accretive aftermarket share increased in quarter 2 2020 due to OE postponements and some pull in effects. Fast recovery in China supported operating leverage in the country. Many of these positive topics arose specifically in the Q2 of 2020 and will only have a limited impact in the second half of the year. Accordingly, we expect a positive overall development of RBS profitability until year end, but at a more normalized level. Let me finish the rail part with an overview of current market announcements on slide 15.
The rain market is currently still showing a certain degree of volatility. Accordingly, it is still too early to give a longer term outlook. However, there are some indicators in the market that should support a general positive development longer term. In conference to the financial crisis in 2009, the rail market is now benefiting from supportive programs around the world, which are being launched by many governments to contain the pandemic. Many of these measures pursue the goal of reducing CO2 emissions, which can be summarized very well under the term green mobility.
The rail industry, in particular, can make a valuable contribution in this respect as it has by far the lowest CO2 emissions per passenger and kilometer driven compared to air and road traffic. On the right side of the chart 15, I have summarized some examples of this. RBS will clearly benefit from the implementation of these measures. But due to the long lead times between the definition of vendor details and the delivery of our products, we do not expect a significant impact on sales in the next 18 months, but generally the programs will be positive for our rail division. On Slide 16, I'd like to continue with the development of our Truck division.
The order intake for CVS was EUR 346,000,000 in the second quarter, which is a decrease of minus 57% year over year, more or less in line with the organic development. This development was expected and reflects most of all the strong negative effects of COVID-nineteen pandemic in Europe and North America. In addition, the underlying demand in both regions further normalized after a period of strong growth in the last In May June, we saw the first signs of stabilization in both markets, which has continued to stabilize since then. The increases are rather slow, but steady. In APAC, the development of order intake was very well supported by record levels in China, driven not only by recovery demand.
The order book of our truck division amounted to €880,000,000 at the end of June 2020, which is a decrease of minus 32% year over year. Let's move to slide 17. Our CVS division posted €579,000,000 in revenues for the Q2 2020. Compared with last year's This is a decrease by minus 34%, driven by a lower truck production rate in the last quarter. Due to the pandemic, customer demand was predominantly weak in the European and North American truck market.
Both top lines more than 40% lower compared with the previous year's level. The APAC region again recorded revenue growth in the Q2 2020 year over year, well supported by China. Our Truck division recorded aftermarket sales of €168,000,000 in the Q2 of 2020, a a decrease of only 13%. At the same time, the share of sales improved from 22% in the previous year to 29%. In the Q2 2020, CVS achieved an operating EBITDA of €51,000,000 which is significantly lower compared to the same period of the previous year.
The operating EBITDA margin amounted to 8.7% compared to 15.9% a year ago. Considering 34% drop in sales, this is certainly a good indication of the resilience of the truck division. On Chart 18, I have summarized our expectations regarding further market developments in the most important truck markets. These expectations are also the basis for our outlook up to the end of the year. The key message here is that the revenue development of CBS in every major region strongly outperformed the respective truck production rate year over year in the second quarter.
A repeat of the outperformance in the Q1 of 2020. This clearly shows our market strength as well as the support from growing content per vehicle and the solid development of the aftermarket business. In the coming quarters, we expect a positive trend in truck production rates in Europe and North America compared with the low levels in the Q2 of the year. In China, which accounted for roughly 1 fourth Of CV sales in the past quarter compared with around 10% in the previous year, we expect the truck production rate to continue at a good level. Let's move on to Chart 19.
Globbenze closed the acquisition of RH Shepherd and Co. On June 1, 2020, the purchase price amounted to USD 150,000,000. Sheppard is one of the 2 leading manufacturers of steering systems for commercial vehicles in the North American market. With this acquisition, we took the step in becoming a global supplier of commercial vehicles, steering systems by further strengthening our position as a global supplier of integrated steering and braking systems as a basis for driver systems and highly automated driving following the acquisitions of Hitachi's earring business in early 2019. In 2020, we expect A revenue contribution of more than US50 $1,000,000 by Shepherd and a target margin of EBITDA breakeven, driven by the COVID-nineteen pandemic and the fact that the KB way of efficiency is not implemented yet.
The analysts and investors, with all that being said, we are convinced that Knob Premze has proven to be very resilient during this very As market leader with presence in more than 30 countries and high market shares in both divisions we feel well positioned to shape future trends and continue to set standards. We continuously focus on the expansion of our product and service portfolio in order to drive the business. Based on our standards, We are always working on implementing innovative solutions that deliver clear customer benefits and meet industry wide standards for safety, Efficiency and reliability at best quality. To continuously strengthen our position and to address the industry trends in our 2 In the markets, we invest an above average percentage of our revenues around 5% to 6% in innovation. In our Rail division, we are developing solutions that follow the need for increasing the number of trains on existing rail infrastructure, especially against the background of sustainable mobility.
We are clearly focusing on the megatrends, In the CBS division, we focus our R and D efforts on future trends such as traffic safety, emission reductions and e mobility as well as automatic driving. Operationally and technology, both for RBS and CVS, we face the future with broad chest. For RBS, we believe that we can benefit from future stimulus programs predominantly in Europe, which will drive green mobility and long term our strong aftermarkets business, too. For CVS, we see great potential in the area of driver assistance systems. We expect that content per vehicle will grow will continuously grow globally.
Our truck division with its innovative product is well positioned to support the truck OEMs in meeting future regulatory requirements. As a result, since the IPO, Let's move on to Chart 21 by concluding slide and potentially the most interesting one for many listeners. Overall, Knobbrandsen performed strongly in the very turbulent first half of the year. Our rapidly implemented countermeasures We're very well able to cushion the market downturn in both divisions. In the second half of twenty twenty, we expect that the Positive market trends will generally continue, albeit to a moderate extent.
For the Chinese drug market, we expect A normalization in half year 2 after a very strong quarter 2 2020. In Europe and in North American region, We've seen a market recovery ongoing, but still well below last year's level. The rail OE market is almost back at 19 COVID levels, which should continue in the second half of twenty twenty. Please keep in mind that there were some cooling effects In the rail aftermarket business in the first half of twenty twenty, and therefore, we could see slightly lower aftermarket sales in the second half of 2020. We also expect the positive OE aftermarket mix to change slightly with the corresponding impact on the development of revenues and profitability of the rail division in the second half of twenty twenty.
We published a new outlook for 2020 together with the preliminary figures as pandemic and the resulting negative impacts on the business up to the end of the year, we now expect revenues of €5,900,000,000 to €6,200,000,000 and an operating EBITDA margin of 16.5 to 17.5 percent in the full year of 2020. As you can see, we have slightly raised the lower bandwidth Of both KPIs, as the market environment and our expectations have continued to improve slightly since July. Last but not least, in these challenging times, we continue to focus, apart from cash flow and cost, on the people around us. The health, safety and well-being of our colleagues and our business partners remain our first priority. And I would like to acknowledge all of them for their dedicated efforts in this unprecedented quarter.
With this, I would like to Thank you very much for your attention. Now Mr. Leier, Mr. Bilder and myself are looking forward to your questions.
AG. That before making your selection. One moment please for the first question. And the first question we received is from Philippe Laurin of Berenberg. Your line is now open, sir.
Please go ahead.
Yes. Thank you very much. Philippe Pourran from Berenberg here. I've got 3 different areas to cover. The first one on CVS, then that would be RES and then a bit more general.
So I'm going to start with CVS. In the outlook section of the interim report, You mentioned truck production forecast numbers. Are these truck production forecast numbers that you mentioned the ones that you get from market forecasters or are these your own estimates? And also are these numbers then used already in your current outlook?
Hello, Philippe. This is Peter Lajer speaking. Just to answer that, As traditional in Knob Ramsey, we use inputs from the markets together with own sites and create our own TPRs. So the TPRs which we have indicated here are based on official Institutes and additional information which we receive out of different sources, including economists. And we have reflected them in our outlook.
Okay, perfect. So the question that I have here is basically regarding this truck business. How should we think about the content related growth for this year as a whole because you've posted a very strong outperformance in revenue terms versus The specific truck production rates in the different regions in Q2. At the same time, you're just increasing the low end of Your guidance range. But if I understand that correctly, the TPR outlook has Significantly improved probably over the past couple of months.
Maja, at first, we need to say, If you look to our business in the related markets, we have the OEM business and the aftermarket business in those markets. So if we compare truck production rates with our business development, we have as a first part the resilience of aftermarket, which is helping us in the respective markets. In addition, you're right. We gained market share specifically in China, which is helping us. You see that very well with the TPR development on the others On the one side in the related CBS revenue development.
Beside this market share gains, specifically in non European regions, Content per week was helping us, and that is coming mainly from new regulations coming into place.
Okay. Perfect, Scott. But just to come back to this question on the volumes, Yes. I mean, it seems like the volume trend has since you published the preliminary numbers for Q2 That it has improved like by quite margin. However, you're not like really turning extremely bullish, if I understand that, on the previous revenue outlook.
Is that correct?
Yes. What you need to take in mind, Philippe, is look, Just to do a short recap of what happened in the last few months. When COVID-nineteen crisis hit the different markets, What we have seen in our figures, which are orders from customers, You could not rely at all on that. So we had to adjust the figures from the beginning. And we are still in a period where The figures in the systems are volatile, not as volatile maybe as in Q2, but they are still volatile.
And what you need to have in mind is we have in The moment the actual figures which we are seeing, we have some bounce back effects due to The situation in April, we had in Europe and North America, none of the truck we produced Without some few exceptions. So it's very hard to predict the truck production rate for the remainder of And we have taken some increased assumptions into account for Q3. For Q4, it's still a little bit volatile, and we reflect here our own perspective in there by considering as well that we The overall GDPs and in relation to that as well transportation volumes lower than pre COVID crisis.
Okay. So it's not like you are taking that number very strictly and you just like mathematically increase the whole forecast just because these volumes go up?
No. We adjust the TPRs and recording The volumes according our best guess based on the inputs I explained before.
Okay. Then the second question on the rate business. So on Slide 15, it seems like you expect these stimulus programs to only help the situation to go back to normal. And also you mentioned that you don't expect like a major boost within the next 18 months. I do appreciate that the long term growth potential for the division It's a little difficult to call, but do you expect still these stimulus programs to, let's say, bring the trend line of the RAS revenue up over time versus the base scenario that we had last year?
Or is it more kind of a one off
Well, it is a little bit of both, so to say. I mean, first of all, You need to keep in mind that the tender cycles and the awards in the rail sector, they are all long term. Yes, they go tenders take sometimes a year or something like that to be structured and to get into the market and to be awarded. So Short term reaction in the rail sector is always, at least on the OE market, very difficult. And we also had the times during The months in the Q2, for example, in Europe, as you might have realized when you took a train or something like Those trains were still running, but they were mostly empty.
There were times when you could choose Which car you would like to take a seat because they were all empty. You can imagine that that led to major losses on the operator And those stimulus packages to a certain extent whether it's U. K. Or whether it's Germany or other countries, They have to ease that situation because it was so important for also governments, let's say, and individual states to Keep up that infrastructure running. That costs a lot of money.
And therefore, there was A lot of stimuli or stimulus money are required. The good thing for us is that also, yes, if you You put it a little black and white that also empty trains need to break. And therefore, there is continued service business And also infrastructure planning, so basically the procurement of trains Rather long term. I think whether there will be additional trains to be bought or not really depends on the ridership that we will see over the Coming years whether that is really going to improve dramatically or not. We have seen as we pointed out before Also during those crisis months that we could benefit at some point or at some spots even from that because There was a time when operators said, I'm afraid that I'm running out of spare parts.
I don't know how the supply chain will develop. So let's basically buy additional parts and that's also the reason why we benefited in the first half of the year. But mostly the question to your answer whether it will, so to say secure The numbers that we have mentioned before, that is more the case than, let's say, in the next 18 months additional Potential or something like that. That would be my clear answer to that.
Okay. Thank you very much. And the last question is for Mr. It's about the free cash flow conversion target. If I remember correctly from the time of the IPO, the target range was more something like 80%, ninety percent.
And if I did understand you correctly, you mentioned something like 70% to 80% in this call today. So I was just And And the second question here would be as well whether your free cash flow definition will include the lease payments that were previously included in the KPIs prior to the adoption of IFRS 16 since it doesn't seem to me like it's the case right now?
Thank you very
much, Philippe, for your question. I do say, first of all, the range is 70% to 80 80% to 90%, somehow in the same similar ballpark, but of course, 10 digit points away from each other. In regards to the definition, I was not considering to, so to say, readjust the strategic targets going forward Lower level. Just wanted to make sure that somehow and sometimes free cash flow and cash conversion rates I used in different definitions what my internal definition and focus area inside The company definitely is all about. And I will, of course, ensure that there will not be a readjustment that is lowering the aspiration levels of free cash flow generation going forward.
I think that's a very important message, so to say. 2nd of all, in regards to the definition in the end, when it comes to free cash flow, it's basically Somehow an all in figure that you usually look at. And also, I'm not a fan of Excluding and adjusting too many items going forward as it makes things too complicated once you want to really Completely implement a certain philosophy of KPI steering in the company with the management, with the colleagues, With the employees all over the globe, so I'm rather looking for a figure that is rather simple, But fits to the point of having basically all aspects in. Okay.
Thank you, Filip. Maybe moving to the next one in the line. It would be great if you could limit the number of questions to 2, please.
And the next question we received from Sven Weier of UBS. Your line is now open, sir. Please go ahead.
Yes. Thank you, and good afternoon, gentlemen. Thanks for taking my questions. So the first one would be on your order intake guidance. I saw in the quarterly report You gave an order intake guidance for the year, where you basically say you expect the backlog to be up somewhat year on year and that order intake should fall less than revenues.
So of course, in the first half, if we had the complete opposite, right, the order intake was more than €300,000,000 lower The revenue level. So my question would be, of course, this major turnaround in the second half then, is that driven by both divisions? And should we see order intake exceeding revenues in Q3 already? That's the first question. Thank you.
Thank you very much for your question. May I answer from my point of view first? To my understanding, we have no guidance anymore out there for order intake For the year 2020, we have just had in since July the renewed guidance on the revenue side, on the EBITDA Margins side and we renewed that for the Knobenz AG or the group level just now. So we have no order intake guidance. It's I think a figure that you referred to from the annual report, which is already from the very beginning of the year 2020.
Nevertheless, so to say, Let me answer your question content wise. I think, yes, you're right. We have order books Currently reaching €4,300,000,000 But to tell you, order intakes looking at the months July August have risen compared to the levels of 2019. So our order book in total has was positively impacted, and we are now Back by the end of August to a level that is very close to €4,500,000,000 again. So other intake in July August There was overall some 'twenty was even slightly more than 20% higher Then the order intake that we received in the year 2019, which I think is a very strong result And also very strongly driven by CVS.
So it's a Very good situation. We think we are currently in looking at this summer months.
Yes. I was referring to the quarterly report in the Page 17 in the middle of it. So If I understand it correctly, there's a guidance on order intake. But yes, yes, let's maybe leave it there. And then as far as your commentary on aftermarket was concerned, the pull forward effect that you mentioned was a slide one.
I mean, was that more in Q1? And would you actually expect your aftermarket revenues in Q3 to be lower than in
Well, maybe I want to answer that. It's Jurgen here. On the rate side, at least I can say that The impact of the crisis on the operator, the first reaction, so to say, very Practically speaking is, what they are concerned at the beginning of how do I keep my fleet running, yes? And that is what Impacted them at the end of Q1 and also during Q2. And the second concern that they had was I'm not really sure whether during those crises how the supply chain will develop, whether I'll be able to get all the spare parts, for That I will need when I need them at the time.
So there was a time that supported the aftermarket business We are operators say, for example, I better Put some extra spare parts on the shelf, so to say, then facing the situation later on that I might run out of them and then I'm in trouble. And then there was another impact of it, where in the overall business, so to say, There was less utilization of the trains. And when you have, so to say, A little bit of a backlog in terms of maintaining those strengths. That was a great opportunity to do it at that point in time. That also happened during Q2 and partially Q1.
And as a result, of course, since we took all kind of measures In terms of being able to deliver when customers need anything, I think that was a very successful Initiatives that we had in Klubbenze, we were able to deliver and we happily delivered and that was a benefit for our aftermarket business. And then the supply chain maybe did not, let's say, was not as difficult as one or the other expected it to be. And therefore, those spare parts still are partially on the shelf. And the result in the next few months is a little bit that There might be fewer demands on the spare parts level for the second half year. So you have a little bit effect that during the COVID months or the peak of the COVID months, you had a higher demand and later on you have a little bit of a lower demand.
Now I'm not saying that that is a dramatic effect, but it will be an effect that can be noticed, yes? Let's put it that way. That will be my answer to it.
But is it an effect you still expect? Or is it something that you Now that we are almost at the end of September, have you seen that in July August actually happening in reality that The demand is
lower? No, we see that to a certain extent a little bit, and we also expect that for the rest of the year To a certain extent. But that is essentially reflected also in our guidance. That's what's common in there. To the best of our knowledge, what might happen there, yes.
And in CVS, this was not really a major factor.
No. We have seen in regard of aftermarket a little bit A similar behavior as said in specifically the month of May partly, but we see aftermarket being back on normal aftermarket business Was, as I mentioned before, for us the stability factor in Q2. But for sure, You have a situation when transportation volume is going down, and we had transportation volume reduction in Q2. You see that as well in aftermarket Demand, that's why April was weak. Why is April not so good?
Because a lot of Garages were closed. So and if garages are closed due to legislations in different countries, you cannot make so much revenue. And then there is a little bit The kickback effect. But overall, aftermarket, we see stable as well for the remainder of the year. There is some seasonality in.
So Q3 is usually a strong aftermarket or stronger aftermarket quarter because of the distributors are filling The pipeline for the winter season and winter season is usually higher aftermarket demand than in spring and summer.
Okay. Thank you. You're welcome. Thank you.
And the next question we received is from Ingo Schachel of Commerzbank AG. Your line is now open, sir.
I think the first one would be, despite the obviously very nice numbers on your CEO search and situation, Whether you could give us a quick update on where the process stands, what your impression is or understanding how the process works, whether it's primarily run by Mr. Mangold's or the other board members like Weimar and us are actively involved as well. Yes, just to get a quick update on
Yes. Thank you very much, Ingo. As we just also talked recently, there is a very professional process, such process, which is led by the Chairman of the Supervisory Board, Mr. Professor Mannwold. And there is, I think, demanding already a long and promising list, Which will be now narrowed down over the next coming weeks towards a shortlist.
And we are overall, I would say, very convinced that the supervisory board will find a good And we will let you know as soon as, so to say, the company has found 1. Please accept that I cannot elaborate further on that process. Only to say it's in the professional lens of our The Chairman of the Supervisory Board. Thank you, Ingo.
Yes, sure. And maybe just and of course, Mr. Weber, we will give you a bit more time before you have to take strong Strategic few points on very specific matters, but I guess with the background in M and A and in the commercial vehicle sector and of course steering Systems being very important area of M and A for Cloramza in the last year. So I was just wondering whether you already have view on whether the portfolio that Klubbenze has put together is the right one to tackle the, let's say, technology shift in the future? Or do you think You need to be present in more geographies or with an even stronger market position or maybe even with a broader product offering or deeper product offering in this area?
Yes. Also, I think very good question. What I have found, so to say, coming to Knob Ramsey that there is Professional team in very close alignment with the divisions already focusing on Not only the organic side of the business and searching and seeking for growth options, but also on the inorganic side, so on the M and A side, We have, I think, a pipeline of more than 140 potential targets Screened and but I have to say that our current focus is more on the adjacent Businesses side, so there are currently no silver bullets in regards of The big growth additions to the company, but we are very professionally managing and discussing the, I'd say lower double digit number of potential targets going forward. You also know that we have A very profound balance sheet liquidity situation in the company. So the company per se is felt Needless to say going forward, but there is nothing at this point in time that I would specifically highlight Neither on the technology side of things nor on a specific region or a Specific division, we are as a team of 3 very closely studying, discussing And making our decisions going forward on that, taking it very serious, the growth aspect in both dimensions, organic and M and A wide.
Great. Thanks very much.
You're welcome.
And the next question we received is from Akash Gupta of JPMorgan. Your line is now open, sir. Please go ahead.
Yes. Hi, good I have one question on rail and one question on truck. So maybe if I start with rail first, so this is for Doctor. So maybe if you can talk about if you have seen any of your customers and maybe customer's customer or I mean by Rail operators who are asking to were potentially asking to delay deliveries because of running out of cash. I mean, you earlier said some of the customers have received bailout money, but I'm just wondering whether they have received enough money to also cover for their CapEx as So anything you would like to add on that, Frut?
Yes.
I mean, of course, we have Gotten some customer reactions just because of the COVID crisis and the closure of their manufacturing sites temporarily And the schedules of deliveries are adjusted, but what we have not really seen is customers approaching us They are so short on cash that we need to majorly postpone Projects or something like that. As we have said before, we haven't seen any cancellations on orders. That seems to all go rather stable. The disruptions that we might have had in terms of deliveries, they are for other reasons. They are for very temporary reasons when the Workshops and the plants were closed and just trains were not built for a certain period of time and it was very Different from customer to customer, I would say.
Some customers were almost not facing any plans and others Depending also where the plants were, they were facing, let's say, extended times, extended meaning weeks Of plant closures. But by now, they are all up and running, and we haven't heard of cancellations or anything like that because of cash problems.
Thank you. And my second question is for Doctor. Lyle and this is on hydrogen. I mean since we last spoke at Q1 results And there is a lot of hype surrounding hydrogen on both sides of the Atlantic. And I'm wondering how this move to hydrogen in the medium to long term would impact your scope of truck side, particularly if you look at your portfolio Outside of braking systems.
Like I mean, I think one of the things we got is that this hydrogen truck is going to be quite expensive. So is there any opportunity for you to growing that side to increase your truck or pay contained for vehicle substantially? Like any thoughts on that front would be great.
Yes. Thanks, Akash. I would like to answer in that way. At first, very general, I think the next Decade in 1.5 decades in truck industry is characterized by a mix of powertrains. You will see still combustion engines, you will see battery electrics and you will see hydrogen trucks.
Here we have to distinguish Between fuel cell and hydrogen engines, I assume if you talk about hydrogen, you talk about fuel cell. If you look to battery electric vehicles or fuel cells, the only difference is where the energy is coming from. It's both electric driven. And that's why for us and our technologies where we are in, there is No difference if there is a fuel cell truck or a battery electric driven truck. We have an Electric motor and based on that, we have some changes in requirements of trucks.
And I think in our last couple of markets, they already showed to you that we are Preparing on the one side our product portfolio for that, where we are, I think, very successful with example was, I think, last Our compressor strategy where we have now e compressors, which we are bringing into the market very successfully, could give you more. And on the other side, as I mentioned, we are investigating growth opportunities In electric motor driven trucks and buses, for that we have built up A special activity which we call the EQ Beta. The EQ Beta is an engineering team which we separated from Their standard approach and activities into separate building, we are building up the team right now To work besides this adaptation of product portfolio on growth opportunities in the e mobility arena. And we are working in that regard as well very close with our customers right now and discussing with them where They maybe are seeing further interactions with Knorr besides the existing product portfolio.
But overall, do you see there is an opportunity for Knob to increase its truck I have contained per I mean contained per truck or do you think it would be like how do we see contained per week an opportunity when it comes to both hydrogen and electric trucks?
In principle, There are that depends on the technology changes. I'll give you an example. If you look to steering, for example, Steering is still hydraulic power steering, as you know, in trucks. So the question is just, is the truck industry moving Similar like the PESCAR industry some 10, 12 years ago from hydraulic steering into electric pure electric power steering. If so, does that mean that electric power steering is maybe more expensive per unit Then hydraulic power steering, then you would see an increase in content per truck.
You see with the ifs in there, yes, there are opportunities To grow content per truck further, yes. But that depends very much on principal technology decisions. And those decisions will be taken By the truck manufacturers, maybe together with their system suppliers like us in the upcoming 18 to 24 months. And I just can tell you we are in extremely close discussions with all the customers about those technologies.
Thank you.
You're welcome.
And the next question received is from Alexander Hauenstein of DZ Bank. Your line is now open, sir. Please go ahead. Yes.
Hello, Alex von Steyn from Deutsche Bank. I have also two questions, please. First of all, let's start with RBS. I would like to come back to the Q3 discussion here. I understand that the reversal of the positive mix and also the brought forward aftermarket from Q2 and Q1 is obviously an issue here.
My question is, how should we think about the margin development path here for in Q3 and Q4, are we probably looking for similar margin levels in both quarters at around 20th level? Or are we going to see, let's say, more of a margin impact on the downside in Q3 versus Q4? Maybe even vice versa and why? Is that possible to give a certain flavor here?
I mean, First of all, I would say the margin development from quarter to quarter It's like we always won't be tired to emphasize that really depends on the Business mix we see in that quarter, yes. So we'll see slightly different margins in the 2 quarters, Most likely because of the different mix we can see there. But I would really caution To extrapolate from that a certain trend or something like that because it has much more to do with Mixes that we see, is it so what is I mean, as you know, in rail, we have Very different portfolio. We have brakes. We have doors.
We have HVACs. We have aftermarket. We have all of that. And As you can imagine, they don't have all similar margins in there. They have different margins.
And That is not because they are performing very differently, but it is because with those different portfolio elements, you can earn different kinds of Money in the market, so to say, yes, if I say it's very simple. So and it really depends on what the mix will be in a certain So I would expect slightly differing margins In the 2 quarters to come. But I would really caution to derive from that trend or interpolated into the future or something like that, that would be very difficult.
Yes, I understand that. And that's also where I'm coming because it's difficult to see whether there will be a relatively sharper drop in margins from almost 24 percent down to maybe 20% and then from there on maybe a slight recovery or the other way around, is it more of a smooth development going step by step A bit more to the downside without, let's say, deriving from anything for 2021. But yes, That's why I'm asking here. So yes, that's where my question is coming from. Yes.
Alexander, if you allow and if I may add, Frank Weber speaking, I would not assume that we will have in the second half of the year such a steep decline On the margin, EBITDA margin side on the Rail business based on the descriptions that Doctor. Willer has just given, I would say, As you can also calculate, there will be mix effects in those two quarters coming up, But the reduction will not be that significant. Just to be a little bit They are guiding you throughout Q3 and Q4, will not be 'twenty. But As he explained, we will have some effects that will occur going forward.
Okay. Thank you. That is helpful. Then I come to my second question, please. It's also for you, Mr.
Weber. I'm wondering what do you personally see as your most pressing 3 tasks in your new role here? What is the focus on in order to bring Knobsen to the next level here?
Thank you. Very good question. I personally think number 1, very clear, which is the highest priority of us Going forward, keeping the profitability level and improving that profitability level going forward of Club Bense AG improving the excellent standard of this company by improving the contribution margins and the cost Positions going forward, you know that articulated that we want and will Improve on our margin side going forward. So this is number 1. Number 2 for me is clearly Seek for any kind of growth options that we could find I'm joining with my colleagues.
So grow the company and based on what I just said prior to that, Profitably grow the company into the future. 3rd, I would say, is improve the focus And also the groundwork in the company and throughout the company on cash flow, put cash flow, Cash flow work into focus and I think there we got a lot of elements that we can trigger here. So If you ask me for 3, this would be the 3 points.
Okay. Thank you for that. And yes. You're welcome.
Thank you.
The next question we received is from Iris Tang of Credit Suisse. Your line is now open.
My first question is to Mr. Weber. And let me say for the run through of the first impressions and those are the key areas of focus. They're really useful. And if I can check this, at the Q1 presentation, I remember there was some like 200,000,000 measures related to cost and cash mentioned.
And is it possible for us to get an update on that and if some of those measures may have been reversed now as situation is turning better? And also on the 2020 guidance, it looks like it's based on the FX as of mid of July and we've had Some FX movements since then and wonder what's your latest beyond that. I mean, if it is not available then if you can maybe run less side of the business, I. E, if we see any further euro against dollar movements, then how that would have an impact on the margin?
So in regards to the first question that you raised, we have and not the colleagues have. I have not done it as I was not part of the company. The colleagues have very early and very decisively Started cost programs in both divisions, one roughly with a volume of €130,000,000 and the other roughly €60,000,000 Which you cannot immediately calculate and draw the conclusion that one has only half of the aspiration level than the other It is a different base. But these are the €200,000,000 that you talked about. Those programs are on very good implementation levels So far, and we already saw a significant amount of positive effects implemented cost measures Starting in the Q1 already, but specifically also in quarter 2 and quarter 3 in quarter 4 to come.
So will bring us with those respective measures throughout the year 2020 And further things to come. Partially, of course, as you also know, some of the cost measures where you would also Get the support of the government like the Kurzarbeit measures in Germany Would be measures that would not be sustainable for many quarters or even years. I think that is pretty clear. But the vast majority of the cost initiatives driven by the colleagues and initiated by the Colleagues are very good on its way.
Could you please repeat the second question, Iris?
Yes, sure. Just on the guidance for 2020, because I see on the presentation slides, the assumptions are based on the FX rates as of mid of July. So I'm just trying to get a view if we use the latest assumptions then if it's going to have any implications on the margin side.
No, I think as we are pretty close to what is written there as the date of The assumptions, I think you know we're having of course don't know the hedging situation that we are having. Of course, we have Translationary issues going forward. But we, at this point in time, feel rather comfortable That we will not, so to say, see significant deviations as of now compared to what We considered in end of July when we had the outlook where we based our forecast and guidance upon. So I think to answer your question, at this point in time, I don't see a significant change based on that Premises that we
outlined. Yes. So we're going
through July.
Yes. And if we see any further movement on euro against the U. S. Dollar, It's going to have any maybe impact on the margin just mechanically from your hedging and transactional Right?
You know the business model of KNOB REMS due to your experience, potentially even better than myself, just here for 8 weeks, but you know that we have a very global and decentralized The footprint of Knobenzell all over the globe and also in the United States, we have a very high level of value add In the country or in North America. So the level of natural hedging that we have all over the globe and North America is Quite high. So I would and based on also the hedging rates in regards to the U. S. Dollar For this year, close to 100 percent already at Knob Premze.
I see very So to say, impact out of that. And as I just mentioned or you asked before my forecast, Currently, we rather think towards the 115,000,000 direction.
Okay. That's very helpful. And then my next question is on the truck side to Mr. Lai, if I may. So I appreciate that you've mentioned your M and A aspirations and currently there's no big maybe deals to be announced at this stage.
But if you could maybe give us a like longer term picture and what do you see is the maybe the end game you see for Knorr as the world is transitioning towards autonomous? And do you think if steering plus braking will be a good enough offering or you think in order to maybe get a bigger share, then it will be Logical to add some other assets? Or at the moment, staring plus rating is what you're looking for?
Yes. That's a relatively difficult question to answer because that It means that first, we need to take in consideration how automated driving need to be split up. Automatic driving, you have and obviously explaining that with 3 levels. You have the perception level, The level where the truck is looking around and getting a picture of what is going around the truck. Then you have the decision level Based on your perception around the truck and the way you want to go forward and the target you want to go for, you decide Where to move and how to move there.
And then you have the actuation level where you realize what is coming from decision level. We as Knob Ramsey are coming from the actuation levels. And both main actuators To have vehicle dynamics under control is braking and steering. Based on that, We always build our base on that and move that a little bit upwards to decision level where we said we have a special layer of truck motion Control where we have a combination of braking and steering. We have the full vehicle dynamics under control.
Based on that, we think we are here in a perfect position with our steering and braking position To participate on the growth opportunities of automated driving. Besides that, You maybe remember that I talked several times about the related so called redundancy requirements. So in Automated driving mode, we need to have the opportunity to move the truck further Even if one of the safety relevant components is failing, you cannot just let them stay on the highway on a lane or something like We need to move them to the next garage. This redundancy concept was something where we developed heavily on in the last few years. And we have Here now a concept with our braking and steering and clever combinations of that, which is highly accepted at the customers and We got 1st awards in that direction as well for redundancy concepts.
Based on that, we see ourselves very well positioned In regard of system supply, I clearly want to say that similar Like in PESCAR Business, the systems for automated driving will be realized in consortia with different partners in there. And we are getting invited by a lot of those discussions right now that shows our attractiveness. And so I'm quite convinced that we are here as well in a good position.
Okay. Thank you, Iris.
This is very helpful. Thank you.
I was maybe coming to the next in line would be good. Sorry to interrupt here.
The next question is from Felicitas Bismarck of Deutsche Bank. Your line is now open, madam. Please go ahead.
Yes. Thank you very much. I hope you can hear me. One question. Could you give an outlook for your free cash flow expectations for this year or give an indication of the key drivers that you are seeing in
Thank you, Kiely. If I got your name right, Felicitas. Felicitas.
Felicitas. Felicitas. Felicitas. Felicitas. Felicitas.
Felicitas. Felicitas. Felicitas. Felicitas. Felicitas.
Felicitas. Felicitas. Felicitas.
Felicitas. Felicitas. Felicitas. Felicitas.
Thank you so much. I think, needless to say, the second half of the year twenty twenty will be dramatically better on the free cash flow side than the first half Of the year, I think we will still, within the next month, work on the working Capital side, on the days of inventory outstanding, days of receivables outstanding or days of It's outstanding also on the DPO side significantly, but Whether we can achieve the original targets towards the year end like in a clean year where you would be able to implement Product Excellencies on the Material Management side and the Supply Chain side remains to be seen. So we are a little bit cautious on that. Potentially some inventories for Brexit, precautious measures. And so answer is we will significantly improve on the working capital side compared to the status that we have as of Going forward, that should give us a significant uplift towards the second half of the year.
And I think also on the CapEx side, we are still prioritizing The biggest capital expenditures projects throughout the company. So this should give us some tailwind going forward. So having said this, I wouldn't in addition to the losses that we might be facing on the EBITDA side, you might need to deduct some more on the working capital side In order to come to a cash flow delta for the full year. So we will lose on the free cash flow side maybe a little bit more Then we lose on the profitability side. That's more that more I don't want to say at this point in time.
I don't want to mention a concrete figure. As you know, We are already, I think, pretty precise at an early stage of the year with July mentioning our EBITDA and revenue targets or guidance. So I don't want to be more precise or can't be potentially also more On those figures, but this would be my direction.
Thank you. Thank you very much. And another question It's on governance, and I'm sorry, but I'm struggling a little bit with the understanding what a new CEO could bring to the table that would be Like considered a good fit for all parties involved. And I'm just wondering if you could give us any indication what he needs to bring, so to say. And Like generally more generally, maybe are you also considering an internal solution?
And might you also even consider a joint leadership solution in
Yes, Felicitas, if you allow, we ask Our ELL had to answer that for you, Mr. Spitzau.
Yes. Thank you, Mr. Viva.
No, I think What we have shown already last year is that we are even only with 3 board members are very active, bring forward the company, bring down the cost And as you can see, we are doing so already right now. As you know, the first started for a 4th board member and this is how we'd like to move forward. And as Mr. Bieber had mentioned before, There's a shortlist in the next couple of weeks. This will be narrowed down to a small from a longlist to a shortlist.
And I think we're on a pretty good way. And yes, we have enough things to do here and looking forward to the situation and welcome a new CEO once in the future.
Yes. Maybe I can ask it a little bit differently, but do you think there is like a real room for separate group CEO next to all of you, like the CFO and the strong division ahead?
I think it will be reaching too far right now. I think we have shown that we are working fine, that we have good results, and that's what we're working on.
But please remind me.
Let's put it this way. We enjoy them the question When we have the announcement, I'm happy to share with you our thoughts.
He has the room next to me. There's a free chair, at least. Yes.
Thank you
so much.
Okay. Thank you, Felicitas.
And the last question for today is from Alfred Glaser of ODDO BHF. Your line is now open, sir. Please go ahead.
Yes. Hello. Thank you for taking my questions. I wanted to ask you again on the business outlook in the railway business. Currently, as you underlined too, there are Fewer trains running, the occupancy rate is low too.
Do you see a risk there that this is ultimately Your aftermarket and service business, having just fewer trains running and therefore fewer mileage, fewer hours Of train usage. And my second question relates to hydrogen in the Rail business. Do you see any kind of particular change to your the way you do business or your product offering in that context? And conversely, would you see some new opportunities for either product Development or acquisitions related to the emergence of hydrogen powered trains.
Well, starting with your first question, do we will we see an impact I mean, This year, obviously, we already see an impact in terms of days and also to a certain extent, of course, in order entry based on the Right. But as I said before, you could think of a model where the biggest impact, first of all, of that is with the operator, Yes. Because they feel lack of ridership right away in their revenues that they have. But we are pretty much in Most of the countries that the regions back to a certain schedule, maybe a little bit of a sent out Schedule in rail operation and that helps, of course, the development of our business. If you apply a model Where you will see when we'll be back where we were pre COVID times in terms of ridership That might take a little while.
That might take even another 1.5, 2 years or 2.5 years. It's really hard to predict. But that does not mean really that we see on that same time line the impact because the trains are still running, Tenors are issued, further trades are ordered. So we see this short term impact right now. But we expect that The long term outlook in the rail business, as we pointed out before also, is very, very positive.
A CO2 discussion won't go away just because we had a COVID virus that will all come back And that are very, very good outlooks, mid term and long term outlooks for the rail business and also for our development. I would say Whenever they would be. But I would say there will be a point in time in the future when we will look back and say, okay, there was a COVID I mean, from a point of view of our business, I'm talking only. There was a COVID-nineteen crisis, but we have pretty much overcome it and now we are going back onto the growth track. That's what I really see long Yes.
2nd question, hydrogen, if I remember correctly, hydrogen technology. Well, Obviously, there's a discussion that still, let's say, in some parts of the world, also in Germany, there's Non electrified lines, 40% or something like that of the overall rail network. And there are still A lot of diesel locomotives or even some diesel multiple units that are running around those tracks. And of course, with the sensitivity towards CO2 emissions. There is also opportunities for us to, For example, our keeper business to put in more modern traction systems, Hybrid traction systems in those locomotives or trains that's also business that we pursue.
Hydrogen, of course, is another trend where the rail industry is experimenting right now with. We need to see where that goes. But the components that we offer towards strength, they are mostly not that dependent on that. So we also serve that market, of
course. Yes. Those trends still So thank you for everybody taking part of the call. Have a great afternoon. Unfortunately, we have to conclude because we have To continue with other things to do, we wish you a great afternoon and looking forward to staying in touch with you.
Thank you very much.
Thank you, everyone. Dear ladies and gentlemen, thank you for participation. This Call has been concluded. You may disconnect.