Earnings Call: Q2 2021

Jul 29, 2021

Ladies and gentlemen, thank you for standing by. I'm Stuart, the Chorus Call operator. Welcome and thank you for joining Keyon Group's Q2 2021 Update Call. Today's presenters will be Gordon Ryske, CEO of Keyant Group and Anke Groth, CFO of Keyant Group. Throughout today's recorded presentation, all participants will be in a listen only mode. The presentation will be followed by a question and answer session. Now I'd like to turn the conference over to Mr. Gordon Ryska, CEO of Keyon Group. Please go ahead, sir. Thank you. Welcome to our update call for the Q2 of 2021. As a basis for this call, we will use our Q2 2021 presentation. It's available on quillongroup.com under Investor Relations in the Publications section. We'll be presenting as usual in 4 parts today, and then open up the discussion with your questions. I will begin with our financial key figures for the first half year and then present selected business highlights from the past quarter. This will be followed by a market update. Anke Grote will then provide you with a financial update and we'll close the call with a presentation of our outlook for the financial year 2021 before we turn it back over to you for the Q and A. So let's start with our key financial figures on Page 3. So overall, during the first half of the year, the Keon Group continued its recovery after the pandemic year of 2020. And we did achieve significantly improved KPIs compared to the same period of the previous year. Supported by a very strong rebound within the ITS segment, our order intake for the group grew by 34% to 5 $900,000,000 in the first half of twenty twenty one. Our revenue reached $5,000,000,000 up 26% driven by both operating segments including a successful order book conversion in SAS. Even more pronounced was the increase in adjusted EBIT which reached $462,000,000 in the first half of the year resulting in a great margin of 9.3%. Our free cash flow for the group improved further and came in at €301,000,000 So in a nutshell, we saw a significantly increased profitability as well as continued strong demand that provides us with a good basis for the remainder of the year and that is now reflected in our raised guidance. Moving on to Page 4, let me describe a few selected highlights in the past quarter. We continued to stringently implement our 2027 strategy and further strengthened our position through new products and an expanded footprint. Linde introduced the new line of the Linde X20 to X35 electric forklift models with load capacities from 2 to 3.5 tonnes, these are the 1st electric Linde trucks that are comparable with the performance and robustness of Linde's IC Hydrostats, while offering additional environmental benefits. They represent a real alternative for our demanding customers with high intensity applications. Another feature is the full truck connectivity, so that these trucks offer all advantages of a digitalized industrial truck. Dometic together with our ITS brands, Lunda and Still In the digital campus, we have jointly developed the Dometic conveyor config kit and app that makes configuring a conveyor line at the customer site much easier. The app enables our brands to implement customer requirements even faster and in an even more personalized way in the future. As such, it supports our customers at the start of their automation journey. Last but certainly not least, we have commenced production of our forklift trucks at our new Polish plant in Kowbraszkow. The new plant has the size of Roughly 44,000 square meters, it produces counterbalance trucks that were relocated from Western Europe to Poland and in the coming years will produce products localized in Xiamen, China to speed up delivery times. We expect to invest a total of around $80,000,000 and expect to create up to 400 new jobs by the end of the year 2023. So let's move on now to the market update. On Page 6, the focus on industrial traction shows the global market development by region in the Q2 of 2021. After an already very strong development in the Q1 of 2020, the momentum further increased in the 2nd quarter and resulted In a unit order intake of almost 74% compared to the pandemic induced weak Q2 2020. This growth was predominantly driven by core markets within EMEA and Americas based on the strong carryover effects for counterbalance trucks combined with pull forward orders of customers in anticipation of longer production lead times based on the tight supply situation around the globe. While Western Europe was up by 117%, unit order intake in Eastern Europe increased even stronger At 134%, in North America, the market gained further momentum, almost doubling year on year, thereby expanding further from the very solid levels seen in the Q1 of 2021. This was primarily driven by IC Trucks. Looking at South and Central America, the market more than tripled not only due to the low comparison base of last year, but also due strong demands of IC trucks. In China, where the market was already experiencing significant post pandemic growth during Q2 2020, unit order intake showed a slowing momentum, however, still growing at a plus of 36%. So overall, the global market for industrial trucks reached a new record order intake level of 600 and 25,050,000 trucks. So 625,000 trucks is an amazing number for the first half of the year. Page 7 shows a breakdown of Quion's unit growth by regions. GIL's unit order intake showed an outstanding performance and reached also a new record level of 87,900 trucks Globally. In EMEA, we saw strong growth driven by carryover effects, pull forward effects, but also some prebuying ahead of the announced price increase, which started in effect for July. In our most important end market Western Europe unit order intakes more than doubled, while Eastern Europe recorded a growth rate of 80%. However, we were lagging behind the markets based on some of the ongoing strong competition of Chinese players nonetheless a very, very strong quarter. Looking at China, we were even able to outperform the market with a plus of 82.6%, mainly driven by new product additions and further progress in expanding our sales and service network. Likewise, in North America, Quion's unit order intake increased by more than 300% compared to the prior year based on further implementation of our Quion 2027 strategy, including cross selling new products and an improved footprint. In South and Central America, our order intake almost tripled, driven by core countries, Brazil, Chile and Argentina, and a good performance in the IC segment. In total, Kion saw a very successful second quarter with global unit orders having more than doubled. With this, I'd like to hand it over to Anke, who will present you with the financial update. Yes. Thanks a lot, Gordon, and also a warm welcome from my side. We start with ITS, so please turn to Page 9. During the Q2, we saw a significant demand for Industrial Trucks, leading to a record order intake of $2,200,000,000 in the quarter, partially also driven by pre buy effects due to our list price increase in July. At the end of June, the order book for the IT and S segment stood at almost 2,300,000,000, which is up by 64% versus December 2020. Revenue increased by around 26% to 1,600,000,000 supported by our new business despite ongoing supply chain issues. On top, our service business also grew significantly. Looking at the operating performance, we generated an adjusted EBIT of EUR 148,000,000, resulting in an adjusted EBIT margin of 9.2%. Let me address here one point. We often done comparison with 2019 margins. So some of you rightfully point to the fact that despite comparable sales levels to Q2 2019, our margins are not yet back to historical double digit ranges. The main reason for that is an increased fixed cost structure. We mentioned several times higher depreciation and our strategic expenses, For example, the Polish factory ramp up, and of course, we see raw material price increases. During the first half year of twenty twenty one, the ITS segment recorded an order intake of €4,000,000,000 revenues of more than €3,000,000,000 and an adjusted EBIT margin of 8.9%. So overall, we can say the ITS segment showed a very strong second quarter and a good first half year. However, we expect the second half of twenty twenty one to be impacted by certain headwinds. We already mentioned increasing material costs and some component shortages. So therefore, the margin expectation for the second half of twenty twenty one is slightly lower than seen for the first half of this year. Turning to Page 10, I want to give you an update on our capacity and structural program. Based on the recently strong, very strong improvement in customer demand, we have adapted our expectations for the financial impact of our program. So going forward, we aim to focus only on the structural optimizations rather than on the capacity needs. Thus, for the program in total, we are now expecting €5,000,000 to €15,000,000 lower savings, which come with €20,000,000 to €30,000,000 lower in our eyes and cash out, which makes the program more efficient. But all in all, we still expect for 2021 around €35,000,000 to €45,000,000 savings around €20,000,000 is already achieved. Moving on to Page 11, that's here we have the summary of the key financials for the segment Supply Chain Solutions. STS developed or showed a strong performance in the 2nd quarter and achieved FX adjusted growth in order intake slightly positive. However, including FX effect of €44,000,000 Order intake was slightly below the record order intake level of Q2 2020, which again 2020 was a record quarter and that in the midst of the pandemic. Regionally, demand remained strong in North America, while it accelerated in Europe. And the order backlog at the end of June increased slightly versus year end 2020, reaching almost 3,200,000,000 of which around half is for conversion into revenue in the second half. Revenue grew significantly, reaching a strong level of nearly $1,000,000,000 in the 2nd quarter, driven by Business Solutions increasing by 69% and Customer Services with a growth rate of around 20%. The high profitability of 12.6% adjusted EBIT margin was supported by volume effects and a disproportionate increase in G and A costs. For the first half year of twenty twenty one, FCS recorded an order intake and revenues of €1,900,000,000 as an adjusted EBIT margin of 12.2%. So overall, again, another notable quarter, especially looking at the successful order book conversion. For the second half, based on the lower volume, material costs and some investments into SG and A. Moving to Page 12, you see the key financials for the group. During the Q2, Kion saw an order intake of SEK 3,300,000,000, up by 40% versus prior year, benefiting from the strong demand you have seen for our products and solutions. With this, the total order book grew to €5,400,000,000 by the end of June 2021, representing an increase of 22% versus year end 2020, mainly driven by ITS. In particular, based on the strong performance of SCS and to a somehow lesser extent ITS, revenue increased by 36.5 percent to SEK 2,600,000,000 in the 2nd quarter. Due to the already mentioned improved performance in ITS and the ongoing strong development in The adjusted EBIT for the group increased to EUR 247,000,000 which equals a margin of 9.5%. For the first half year of twenty twenty one, Kion saw an order intake of around €5,900,000,000 revenues of close to €5,000,000,000 and an adjusted EBIT margin of 9.3%. So in summary, we had a successful second quarter, And the half year results provide a good basis for achieving our uplifted guidance. Page 13 shows a reconciliation from adjusted EBITDA to the net income for the group. Reported EBIT included nonrecurring items of $5,000,000 in the past quarter. Net financial expenses decreased to $9,000,000 or minus 9,000,000 supported by positive interest results from our lease business, lower expenses for pensions and generally lower financial debts. Taxes increased nominally, reaching minus €58,000,000 in Q2, equal to a tax rate of 27 point 3%. And overall, you can see that we ended the 2nd quarter with a net income of €154,000,000 and earnings per share of €1.17 while the first half of twenty twenty one saw net income of €291,000,000 and earnings per share of EUR 2.21 Moving on to the cash flow free cash flow statements on Page 14. We adapted the free cash flow disclosure in this presentation, and we think it gives you a better visibility on how we use our In the first half year, our free cash flow amounted to €301,000,000 of which €39,000,000 were attributable to the Q2. Besides the strong operating performance and a favorable development in trade payables, A further buildup of inventories caused by the continued tight supply situation impacted our free cash flow developments negatively. In addition, we saw an increase in contract assets due to a high level of project execution in the SCL segment. The generated cash was predominantly used for the early repayment of promissory notes. As illustrated at the bottom of the page, this year's free cash flow development does not follow the typical seasonal pattern, Starting rather weak, the beginning of the year with Q4 normally being the strongest as you have seen it many times in the past. If you look at the guidance for the full year, you could question somehow why the remainder of the year looks quite soft. So let me comment on that one. First of all, we had a very strong first half year and a rather untypical pattern, as we explained to you also during Q1, we expect inventory buildup due to the supply chain issues. We intend to fund our pension CTA with around €50,000,000 in Q3 or Q4. And if you look at our CapEx, we also expect the payout for our CapEx program to be higher in the second half. So overall, we left our CapEx guidance unchanged. Moving to Page 15, that shows the net debt as well as the corresponding leverage ratios of our business. And you have seen the use of the funds already at the end of June 2021, the net financial debt decreased by €162,000,000 to now 7 €18,000,000 due to the positive free cash flow development. As a result, leverage on net financial debt stood at 0.4x at the end of June 2021, which is down from 0.6x seen at year end. Our net pension liabilities decreased to $1,200,000,000 mainly due to higher discount rates, and therefore, the leverage on industrial net debt decreased substantially to 2.2x, down from 3.1x at December 2020. And with this, over to you, Gordon, for the outlook for the full year 2021. Thank you. I'm on Page 17. As you've seen, we have just recently increased our outlook for the financial year 2021. This updated outlook is based on We achieved results in all key performance indicators during the first half year, which were significantly better than our original forecast. And in addition, we expect that the current positive projections for global economic growth over the year as a whole, as well as the upturn in revenue to continue during the remainder of the year. So for the Keyon Group, you can see the detailed ranges of our updated outlook On the slide, the order intake for the group is expected to be between €10,650,000,000 11,450,000,000 The target figure for consolidated revenues is in the range of €9,700,000,000 to €10,300,000,000 The target range for adjusted EBIT between €810,000,000 €890,000,000 Our free cash flow outlook is unchanged and is expected to be in the range between €450,000,000 €550,000,000 for the reasons just explained. And the target figure for return on capital employed is in the range of 9% to 10 This includes an adjusted outlook for the segment Industrial Trucks and Services with respect to order intake revenue and adjusted EBIT. For the segment, Supply Chain Solutions, we increased our outlook for revenue and adjusted EBIT as well. Our free cash flow guidance remains unchanged based on as we plan additional buildup of inventories respective the working capital due to the ongoing tight supply chains. However, there are still considerable uncertainties in the assessment of our business performance for the remainder of the year due to the unpredictability, the further course of the COVID-nineteen pandemic, the risks They're associated with further development of end markets and raw material prices also with regard of availability of the intermediate products. Our 2021 outlook adjustments are based on the assumption that there will be no further far reaching lockdown measures or plant closures in the course of the year and that the availability of intermediate products will not tighten further. An economic downturn in key sales Markets or worsening of procurement risk could cause the Keyon Group's performance and financial results to deviate in such a case significantly from the outlook. Looking on to Page 19, you see our further financial calendar. Next event is the publication of our Q3 results, which will take place on October 26, 2021. Shortly before our virtual analyst and investor event scheduled for the 3rd November 2021. Until then, we look forward to meeting you at conferences and roadshows. And with this, we'd like to close the formal part of this update call and hand over Back to the operator so that we can take your questions. Ladies and gentlemen, at this time, we will begin the question and answer The first question is from the line of Sven Bair from UBS. Please go ahead. Yes. Thank you. Good afternoon, Anke. Good afternoon, Gordon. The first question is on the truck order intake guidance that you've given. And as you said, It's implying quite a bit of a slower second half, which, of course, I understand you had some pre buy, You had some pent up in the first half, but I was also curious to what extent are you also limiting the order intake because you're conscious of capacity trains conscious of supply chain constraints, is it also kind of voluntary from your side? Yes. I mean, we're a larger company than we were several years ago, but we're not that strong to tell customers no, and I would never tell a customer no. So no, we are not limiting in any way. You can see that Even the strong order book and strong order intakes despite some of the, let's say, delivery promises that are stretched out and customers still sticking with us. So it shows there's quite a bit of patience in the market. But I think you made the right statement. We have pent up demand from last year. People were ordering pre buys. We did have just a huge second quarter. I've never seen anything like it before. I just don't expect that range to continue in the second half of the year. And it already shows in China, mean, 36% between us is not that bad, but I do see some normalization in the second half of the year. Okay. Yes, that makes sense. Second question, please, is on Supply Chain Solutions. I was just curious how the pipeline has evolved between the last quarter and now, is it still as upbeat? Or are you seeing any signs of saturation? Did you maybe have some order slippages more than usual into the Q3? That would be the second one. Thank you. No. Saturation, I'm amazed at some of our customers when they talk about 5 years, 10 years, 15 years. So No, actually the order project pipeline, I would call it, is as full as the last time we talked in the last quarter. I just think the skill set that we've been able to acquire and the expansion into the grocery business and fashion business and so forth and we've increased our presence in Europe and made a lot of progress around the world. It's a fast growing company and a really, really solid market and the pandemic has kind of just all of that and put a turbocharger on customers' behavior that a lot of people will no longer return to Stationary buying and stick with the online business and it's our job to make that as seamless as possible and that is really adding up to a lot of orders. And maybe in that context, Gordon, I saw in the quarterly report that you seem to be buying a company in India. Can you maybe elaborate a little bit on that? I think it's in SCS, right? So maybe you can elaborate a little bit on that one as well. Yes. I mean, You've followed us a number of years and the message has always been where do we have a technological white spot or where do we have a regional one. And fact is that many of our big customers and it's publicly noted, so I'm not telling any secrets, have made huge bets on the Indian and have committed Amazon being one of over $1,000,000,000 investment into these markets. And so if our biggest customers are going there and investing in a big deal, we have to follow that and be there to make that we're the ones that then provide the backbone so that all of this can happen. And that's just simply we found a very good partner and we're already In the forklift side, one of the leaders in the market, I'd say right up there at the top. And so we're following as we have all along where our customers are to provide them with very local, very strong presence. Understood. Thank you, Gordon. Next question is from the line of Sebastian Grova from Commerzbank. Please go ahead. Good afternoon, everybody. Thanks for taking my questions. Hi, Anke and Hi, Gorn. The first one is a follow-up to Sven's question on the overall situation in IT and S and then the volume trajectory, the question is more after having seen this pent up demand and certain pre buying or pull forward as you phrased it, Can you comment on the potential impact from the prebuying? So if you could put a number behind it, it would be helpful. And also talk around the margin quality on the orders that you have taken so far. And related to it, I would be interested In the midterm outlook because you are scaling back on the capacity part of the overall improvement program, I would be just interested in hearing your thoughts around your assessment on the underlying market growth in IT and F. So as this has Notched up a bit eventually from a structural standpoint, but things are going extremely well in China, but also obviously in other geographies. If I just look at the market being 40% or so above the 2019 levels, I would be just interested in hearing your thoughts around the kind of structural growth in IT and F. And then I would ask one more around SCF. Yes. Again, we're not pulling anything back In terms of volumes, I know what you mean about our restructuring program because we do have to focus on delivering Our promises to customers, but structurally, and I think we've alluded to it a few times on these calls. I would say we have our core ITS business, especially the brands of Linde and Stihl, which are certainly high profile, high usage, Sometimes we call them premium customers. That is a pretty steady business and has had some sufferings. I talked about it last year when 2020 those went down and that has disproportionately come back in the market. That's the one area. But what We are seeing structurally is a lot of products that hand held small pallet trucks, also legally Ergonomix, people are not allowed to use those anymore. So that's really driving the conversion to electrify that. So that is a structural thing. We call them entry level warehouse trucks that is really moving. We have a partner in China and we have some low cost products ourselves. That's one area that will continue to be very robust. Then we have the whole emissions drive. Today, we are 87%. We just introduced within the big product family that we lost that we launched last year with the first truck was IC truck. Now the electric trucks are coming behind with the same functionality as a diesel truck. So structurally, We would become much more of an electric company and then you put the whole value part of it in with our China effort with Good enough trucks for medium usage type of equipment. And what we see in SCS simply has an effect on ITS over time. More people buy things online. Yes, they need complex distribution centers to do that, but at the end closer to the delivery point to the customer, you simply need more forklifts. There's more packages, There's more parcels. There are more small bits being moved around on pallets and that's structurally driving the market. And so It is a positive area to be in for exactly the type of products and services that we offer. But again, 20 21 Q2 will go down at least in my mind is absolutely outstanding. I just don't believe that that's the norm, But we do have structurally, I think, a great position that we're in to address the further growth trends that I just mentioned. Yes. Sebastian, hi. With respect to your question to quantify the pre buy effect, quite frankly, that's really difficult to say what is now normal customer behavior, what is based on the list price increase we announced, so it would really be superficial estimate and could only be wrong. So no number on that part. Then you asked for the margin quality and what we can see and observe is that we do have a Very positive development of the price assertion. You know that last year was a little bit more difficult with the pandemic, but this year We do see a good price assertion in our order intake. So that's a positive development we can report here. Sounds encouraging. And the other question I had was around SC and S. I keep it really, really short, but they are more interested in the Structural margin potential and outlook. So I'm still surprised, quite frankly, to see that you can earn such good margin while at the same time running the business at negative working capital. I understand that SG and A was a bit below proportionate in the first half, and that is clearly also then I think reflected in your H2 margin guidance. But from a more higher level perspective, is there a certain cap rate for the business? Or if operating leverage was to continue, Yes. How should we think about sort of the structural margin outlook in SCS in particular? Thank you. You have seen in the Q2 that we achieved a very good margin of 12.6%. So we think the business has a good potential for margin improvement and a good potential for Further volume and scale effects. On the other hand, they need to invest also into SG and A and you see it in absolute terms, But we definitely have the ability to grow that disproportionately to the revenue growth. So the 12% is sort of definitely the aspiration level and how these things play out nicely as seen in the first half, it could be a little better. That's sort of the right way of looking at it. But anything in terms of the mix shift? So I think that's also one of the Aspects we haven't touched upon yet, that eventually is also reflected in the H2 margin guidance. I think by nature it is better margin in the Americas eventually lower working capital and the other way around in Europe. So how should we think about that total structural regional mix shift to put it that way? Yes, you are right. So the regional shift could have a slight impact because We often spoke about the lower margins in the European markets and the European demand has really accelerated. So that could be a slight negative impact. But if I look at the margins for the second half of the year, that is really driven by the slightly lower volume we are guiding on the midpoint as well as the material cost headwinds. So SPS is not as affected as IPS, it's lower component, lower material. But still, it is affected and you will see that in the margin development in the second half of the year. Okay, good. Thanks, Paul. Next question is from the line of Philippe Horan from Berenberg. Please go ahead. Yes, Good afternoon. A couple of questions. I start with ITS. Would you mind sharing with us whether the share of service within the ITS order intake was extremely high perhaps in Q2 2021 versus normal levels. The reason I'm asking is Because I'm stretching a bit my head because if I'm doing some kind of back of the envelope calculation around your ITS order intake, I come to the result that the price mix effect on the year on year growth of the order intake in value must have been actually huge. I've got something like plus 30% year on year or so, assuming some kind of rounding errors. So on the one hand, you've got the mix shifting more in favor of counterbalance trucks. So that must have helped anyway. But you said actually that the price increases that you are pushing through are going to be only effective from July on the order intake. So I'm wondering what could be the reasons explaining such a strong price mix parameter. To give you an indication to do my calculations, I'm just assuming that the service order intake equals to service sales, which is perhaps the wrong way to doing the current trading environment. So that's the first topic. Hi. Quite frankly, we would propose to discuss your calculations offline. It makes a lot To then go really detailed through your assumptions, through your calculations and to help you with It could take a little bit too long now doing that in that call, if that is okay for you? Yes, yes, that's pretty fine. I guess it's quite complex anyway. So then I'm going to jump to the second one. In the R and D section of the report, you mentioned the leader warehouse manager as a tool helping customers to start using digital warehouse management. It seems like an interesting add on for SME customers from my opinion. And I guess it's all about getting the foot in the door for getting them perhaps to switch and purchase more comprehensive solutions also from SCS when the time comes and their operations change. So can you tell us a little bit more about that, for instance, like the perceived value for the customer, the competitive position, especially since you mentioned that the competition is picking up in trucks, especially with the Chinese players and parts as well where the revenues and profits for such business are going to be recognized. I understand that it's brought to the market via the Linde brand, which means that Twanctiv customers should be receptive to the ID. So, yes, so if you have like anything on that, that would be great. Look, as a general trend, our whole Software add ons, whether it's in the truck business or in the SCS business, For our side, efficiency and for the customer, ease of doing business. And you know in the ITS business, much of our fleet out there that we sell these days is on some kind of lease contract, 3 years, 4 years, 5 years. And we have to be extremely competitive with the monthly rates. So the more information and the more data we have to make these things easier, the more correct we can be on our on our pricing. What we are not doing yet, perhaps someday because we're not that big in the subscription models and those types of things. What we're not doing yet is listing the software revenues out separately. That's the thing we've bounced around internally and we're still talking about how to do that. Maybe that comes at someday, but that is not a revenue stream that we publish separately. But Filip, that means you'll find it in the IT and S segment And it will be part of or it is part of the service revenues. Okay, understood. And then Bart, just as a follow-up also to on the topic of R and D. Could you add a little more color as well to the 4 projects that you mentioned in the report as part of the R and D partnerships? I think one that I found like really interesting was for instance like the robot grips? Yes. The gripping part is kind of the last frontier of how to be able to fully get to a lights out warehouse. It's one thing to move 400 packages through a sortation system per minute, but it's another thing to put an individual iPhone or whatever into a box. And so we are trying to find more ways to automate that and It's still too expensive, but that is where research is going, all companies to fully be able to automate this part of the I call it one of the last frontiers to be able to have a lifestyle warehouse. Yes. So that's Basically, if I understand that correctly, that's basically shifting from AGVs towards at some point even like AMRs, like mobile robots We have we are one of the larger mobile automation suppliers with a lot of AGVs and The AMR, as you know, we have the equity participation in Quicktron, which we announced last year, I believe, yes. And we don't just announce it, we actually do things with these acquisitions that we do And starting to put those into real life applications and practice so that you will see much more of in years to come is the automated forklift driving around and autonomous driving vehicles in the warehouses. That will have a bigger, bigger presence in the years to come. Okay. I'm excited to see that. Thank you very much. I'm back in the queue. Next question is from the line of Akash Gupta from JPMorgan. Please go ahead. Yes. Hi, good afternoon, everybody, and thanks for your time. My first question is on IT and S. I think you have raised prices since 1st July. The question is that, are these price increases to offset the raw material headwinds that we have seen in the first half of the year or would you need additional price increases later in the year or maybe next year to fully offset that? And the second question I have is on SCS demand, you said demand is quite strong and you commented that COVID-nineteen has kind of turbocharged demand. Can you tell us where this new demand is coming from in particular context of Micro fulfillment center, I think it last year at your CMD, you presented your micro fulfillment center plan. So Just wondering if this MFC offering is accelerating your overall supply chain solution growth or is it still coming from Standard solution? Thank you. So Akash, I think your question was if we intend To go for a second price increase this year, if I understood it right, the material cost headwinds? The question was that the price increases that you have done, is it enough to offset raw material headwinds, given Raw material has been quite volatile and keep on increasing in the first half of the year? Or do you need more at some stage to fully offset No, it won't fully offset the headwinds we see this year. We have increased prices for the 2nd time, 1st July. But somehow you see the price increase in the order intake. But Until we produce a truck and ship it to the customer, it will take a time a while. So we have lead times. So no, this year, you won't see that we can balance the material price increases out with our list price increase. So on the SCS demand part, Yes, we do have a couple more micro fulfillment centers that we have sold and are putting into on stream, especially in North America, with some long standing customers, but the demand is quite broad based. If I would pick One area out that has started to make a difference, we started several years ago with our end caps For the grocery automation business, we have the 2nd generation. We have the new multi shuttle generation coming out now that's available in the market. So we have focused a bit of attention and had some good wins and bigger customers for the grocery automation. But overall, we are seeing simply this trend to automate large scale warehouses very broad based regionally as well as from the customer segments that we address. So we don't have any particular one other than grocery that has had an uptick in the past half a year or so. Thank you. Next question is from the line of Katie Self from Morgan Stanley. Please go ahead. Hi, good afternoon. Thank you for taking my question. So I'll give my first one on ITS and then second one on SCS. So the first one really is around the component shortages or the supply chain issues that you've mentioned in the release. I think you've previously talked about a particular engine supplier where you're struggling to get the control panels. I just wonder if you could comment on, is it still really 1 or 2 suppliers that are having issues? How broad based So how widespread has that tightness come now? And then my second question, just on SCS. I was hoping we could talk a bit about your Count sensitivity. I know in the past, we've kind of talked about the impact that, for example, an Amazon order could have in terms of like the lumpiness of order intake. Is Can you give us an indication of how the nature of that business has developed as you have scaled up so significantly in the last couple of years? For example, what proportion of your top 10 customers account for in terms of the number of orders or any kind of qualitative sense of how much the business is driven by large key accounts versus a tail of smaller customers would be great. Thank you. Okay. On the ITS business, I don't want to disappoint anybody. There's good news and bad news. Some of the things have started to get better. So this engine topic is still there, but we're managing it through and the electronics part, We have had some pickups. On the other hand, due to very strong demand of certain things, The suppliers that are having trouble is a bit broader than it was half a year ago. We have a number of people on-site supporting our suppliers with 3rd parties. The team has done a lot of work to find second sources, even some of our customers have helped us in certain things. So it's not just The 1 or 2 from batteries, do we have enough batteries for our warehouse to Do the factories that have made some adjustments based on closing scenarios that were decided last year 2020 and now we figure out, gee, We need twice as many tires as we had planned. And so now because of labor shortages and rubber shortages, we don't have enough tires on time. So it is a bit more broad, but all things we do have under control because we're not alone. So in this case, Customers are being quite patient because all options of all of our competitors are affected in one way or the other. So it is a little bit broader, but I would say our scope and our understanding of it, our workarounds are also keeping up with the problem and that's why we're quite confident If things don't get much worse, as I said in my opening statement that our uptick in the guidance, we should be able to deliver that through 2021. So on the mix? Yes. STS, that's, Katie, a very interesting and Far reaching question. The whole customer, I would say, diversification Indeed, something which is important for the business. We have seen throughout the pandemic, the high share of e commerce customers by the pandemic. But also in Q1, we have spoken about substantial increase in order intake from grocery customers, and Gordon also just has spoken about it. So we have seen now in the first half of the year, I would say a stronger diversification of the customer base than last year with grocery, general merchandise coming back very strongly. Also, April is ordering very strongly. And from a region perspective, we already have that Europe has accelerated. So we are strong in North America. We keep to be strong in North America, But also the European market has shown a very strong increase in orders. So I think the whole customer base, regional diversification is on a very good track with respect to the business. The order size is also is very different quarter by quarter. So we have seen a lower amount of large orders in the Q1. In the Q2, again, it is a share Well above 50% in our order intake. But still it needs to be seen if the trend of last year continues where it was really a tendency towards the very large orders. So Q1 was a little bit more balanced towards small orders and Q2 is now back more gearing towards the larger orders. But all in all, I would say the whole development of SPS, the whole order intake, the customer verticals, The diversification, the geographical footprint, that all is very healthy and very well balanced. Just ask about the dependency on customers. We have disclosed or started to disclose last year The revenue was 1 major customer in the SCS segment, and we have also related that customer to the e commerce segment as you might remember. And it was in the first half year report, you can also find it. So the share of revenue of that single customer is around €890,000,000 for the first half of the year, which is nearly the number of the full year 2020. So you can also see that we spoke about e commerce and the order intake in 2020. We are now delivering on the orders, so the revenue share in the first half year is quite high. That's great. Thank you very much. Next question is from the line of George Featherstone from Bank of America. Please go ahead. Hi, good afternoon. Thanks for taking my question. Just one for me. Clearly, the growth in SCS over the past couple of years has been very And I wondered if you could help us understand what you think penetration rates are for warehouse automation, both on a global And also then by the regions. Yes. You mean, how many of the global warehouses are automated? Do I Yes. More cases, the Turkey addressable market as you see it today, where are we at in that cycle of Yes. That's a pretty difficult one to predict because there are also new warehouses coming up every month, but it's still less than 50%. So there is still a lot of potential and we have some customers in the grocery business that are just starting it even if they have 50, warehouses around the world, there is still a lot of manual labor being taken and fully automated is probably less than 25%. So if you go into a modern warehouse today, the smallest amounts in the world are fully automated. You will more likely see a mix. Some things are high speed parts are fully automated and you still have a lot of manual. So there's The upside of that is there's still a huge potential even in brownfield sites for SCS in the coming years. Okay, great. Thanks for the color. Next question is from the line of Martin Wilco from Citi. Please go ahead. Yes, thanks. Good afternoon. It's Martin from Citi. Just a question on the Technology in IT and S, and you have a target for lithium ion penetration by 2027. Just to understand where you are in that journey. And related to that, we are seeing, particularly in the U. S, it seems to be a bit of a more preference for fuel cells rather than With the mine, and I'd be interested to hear if you agree with that. But if it is the case, is there more investment that needs to be made For you to make your trucks more fuel cell compliant or is it sort of an agnostic power source you can plug in either lithium miner fuel cell, can we change kind of how you develop trucks and so forth to hit that 2027 targets? Thank you. Yes, very good question. And the fact is that the best solution is not always the right solution for our customers. We see the Asian market going for these types of products full speed ahead on lithium ion simply because it costs and efficiency. Lithium is still the most efficient Power source with a fuel cell to get hydrogen, you need to put 100% energy in and you get 70% out. So it's still not the most However, if you can do it with green energy, then it's at least 0 emissions. So as Kion, we are have addressed and we have our own R and D research departments for all of the technologies, lithium ion fuel cell and let's say, lead acid batteries and combustion engines. Having said that, 87% of all the trucks that we deliver in the world today are already electrically driven. So I think that's a clear sign of where the direction is. And to us, it doesn't really matter that much. Is it a lithium power base or is it a fuel cell power base? We have delivered both and you're right, the U. S. Market has a different Subsidy and different view on fuel cells and because in the U. S. You have atomic energy plants, which you can use then to create hydrogen fuel, which in Europe, especially Germany is a no no. So there's a whole different cost basis there. And so that drives that a bit. But we are delivering fuel cell trucks. We have Weichai Power, which has a cooperation and equity participation in Ballard Power, where we are developing fuel cells with for the Industry for forklift applications. So we are in all of the propulsion fields very well ahead of the game to be able to deliver what is for the particular market the most reasonable and sensible solution. Thanks. And related to that, your service business, given that you're already heavily electrified and obviously you make Servicing from hydraulics and all these things that wouldn't change depending on the fuel source, is it reasonable to assume that the technology is also agnostic for your aftermarket and service business as well? Well, a diesel engine where you have a lot of consumables has more consumable parts And the fuel cell also has many, many more moving parts than a battery driven truck like lithium ion. So over time, if you did nothing, it would have an effect. To compensate that for a bit, the electric truck In general, our vertical integration is much higher. So we make our own electric motors. We make half of our electric power amplifier, so that puts the energy into the electric motor. We have, as you know, announced a joint venture, which is now in production with BMZ, Z, a manufacturer of lithium ion. We make the electronics control system. So our value add, which means then exclusive spare parts going forward is quite a bit higher on an electric truck When it is on a combustion engine truck, we buy the engines. Great. That's very helpful. Thank you. Next question is from the line of Alexander Hauenstein from Dansett Bank. Please go ahead. Yes. Hello, Alex Hansen, Deutsche Bank. Thanks for taking my question. I have two questions. First of all, Given what you know today, could you please provide an update about the expected quantified impact of raw material cost increase and supply bottlenecks For IGS and SCS separately, please? Yes. We can do As we did it before, we have not quantified it really. We have qualified it somehow. But yes, we can do that. So for the full year basis on a group perspective, we up until now all We have said that we expect mid double digit EBIT impact from material cost headwinds. From today's perspective, we would say mid to high Double digit EBIT impact on Keyon Group in total, and that would mean as to as somehow low mid double digit and EPS of mid double digit impact. Okay. So I understand this is unchanged, right? No. I think we are gearing a little bit More towards the higher end, and before we have said for the group, it's mid double digit. And today, I would say it's mid to high double digit. So it's slightly higher, but not substantially higher. Okay. Thanks for clarification. And another thing coming back to the cooperation with Weichai. What are the contributions there For your success in China, maybe you can give us some color here about the success so far and what has successful, what could be more improved going forward? How is the role in the planned expansion of the sales network in that context in China? And maybe also looking for your additional production capacities. I understand they have a 5% Mistake in that facility, but maybe apart from that, maybe you can give some color here about the cooperation status and then what you're planning going forward? Thanks. Yes. I mean, first of all, there is no Operative running business. We run our business. They have a much bigger business in the engine and on highway truck. Having said that, they are one of our biggest customers. They have lots of warehouses and Sinotruck is one of the largest truck manufacturers. They're the number one transmission manufacturers, so it's a good customer for forklifts and for SCS. So that's a very good thing. Second thing is the heavy truck business in China as well as the world moving towards 0 emissions. That's a good partner they have for fuel cell technology as we just discussed Any other questions? So there we have some R and D teams that work very closely together. 3rd one is being such a large player in this market, in a very diverse market, it's very helpful sometimes to open doors. For instance, in our project in Jinan, where we are now halfway through or 3 quarters of the way through in building our new Facility being a 5% shareholder, we were able then to get all the necessary normal approvals for building permits, etcetera, hiring people and all these discussions that you have with the local governments just as you would in any other country that has been able to expedite that process significantly. So there are a lot of different levels on where we do work together. So it's been for our success in the China market extremely helpful. And we see that moving forward as the world becomes More electric not only for the forklift business, but also for the on highway truck business. Okay. And anything that could even improved further? No, I think we've addressed all those All the issues and then we're in constant contact with each other. So that's, let's say, an ongoing partnership relationship and business relationship that has led to good results and I expect that will be the case in the future also. Sounds good. Thank you. Next question is from the line of Arsalan Obaidula from Deutsche Bank. Please go ahead. Hi, good afternoon and thanks for taking my questions. Just first of all, in terms of the pre buy effect And just the broader market response, just to understand. So is this sort of price rise that you've sort of indicated in July, is that something that is being seen across the board? Or is that sort of unique to Keyon in terms of at least from what you can see? I guess What I'm trying to understand is when I'm looking at the kind of the performance versus the market, whether that kind of it comes out in the wash, whether that's effectively inflated the performance and whether that's also that pre buy, if it's sort of equal across regions or Whether you're seeing more in some regions than others, that's my first question. Hi, Arsalan. Thanks for your question. Yes, the pre buy effect, I would say that could be particular for Kion as we have increased prices 1st July and announced that beginning of June and therefore our customers have reacted potentially to that. And again, we cannot really quantify that effect as we have already such before. But we assume that it has an effect on the figures we have seen, especially again the June figures after the announcement of the price increase. And if our competitors are seeing this as well or the whole market, it depends when they are putting their share prices up and communicating it. So I cannot communicate on that one. And I would say it's especially for the EMEA region, not so much for the other regions. Okay. Thank you. And my next question is just on the sort of the new electric product in terms of the Just the early kind of demand and sort of suggestion again how they're being received by the market. So the X-twenty 25, I think you mentioned, How is that sort of going in terms of any orders and suggestions of how that's going to play out? And also, again, Is that something you sort of definitely see as a unique sort of offering that other companies aren't offering and you have a sort of competitive advantage with that? Well, the first part of the question, I'd like to deliver everything that's been ordered. That would be nice. That's not the case. So we have a good order backlog. Second thing, everybody is working on a solution like that to be able to fully replace I see trucks. I don't think it's going to happen in all applications because you do need a charging system. But at the moment, we do have a, I think, somewhat unique product there that has The full power, the full reach, full speed, lifting capacity like a typical engine driven truck. So I do think we have some competitive advantages, let me call it that, in this segment right now. Perfect. And then just finally, if I may, I noticed, obviously, there wasn't sort of a slight reiterating your kind of medium term targets. I'll So take that as an assumption that sort of those haven't changed or they're not under review. You sort of talked about, let's say, for example, in ITMS, It's sort of growth sort of a KV of about sort of 4%, I think, if I'm correct, between 2019 'twenty three. Is that something that you sort of are still sort of looking at? Or do you think that's actually potentially now is given the strong sort of Sort of year you've seen do you sort of see sort of upside to that? Or is that still something under review? Yes. I mean, 2022, 2023, don't want to get ahead of the game here. We're still in 2021. Every time I look at the numbers, 2017 and 2018, we're all surprised that these double digit growth rates is the first time we're seeing in big markets triple digit growth rates. That's not a normal thing. So we do expect, as I said before, that Things will normalize some way somewhat in this traditional slightly better than GDP, 4 Gross rate, I think that's a very realistic number, especially if you perhaps carve out some of these special effects like these Mechanical devices being turned into electrical devices and because they have electrical motor on it now become part of the statistic. I think We have to work that out a little bit for you, clear to the analysts so that that's much more transparent than it is today. Thank you very much. Thank you. In the interest of time, we have to stop the Q and A session. I would like hand back to Mr. Gordon Ryska for any closing comments. Please go ahead. Yes. Thank you all for participating in this call after this Quite astounding Q2 2021 and raising our guidance, and we look forward to talking to you again when it comes to Q3 and a couple of months and the roadshows and investor conferences that we have ahead of us.