This is Christopher Helmreich speaking of Wacker Neuson Investor Relations. On behalf of Wacker Neuson, I would like to welcome you to our H1 Results telephone conference. Thank you very much for joining. With us today in Munich are Martin Lehner, CEO, and Wilfried Trepels, CFO. The respective presentation can be found on our investor relations website. Right after the presentation, we will enter the Q&A session. Please note that the entire call will be recorded. I would like to hand over now to Mr. Lehner.
Yeah. Hello, also from my side. Welcome to the conference call. I will start to give you a short overview about our key figures, then I will hand over to my colleague Wilfried to give you details on the financials. Finally, I will end with our outlook. Yeah. Here you see our key figures for Q2 2020 and H1 2020. As expected, Q2 was a quite difficult month for us, with revenues down 25% compared to last year. EBIT margin was 5.6% compared to previous year, 10.7%. Here also some one-off effects already included. Wilfried will go into that in a few minutes. Very positive development on the free cash flow, which was our weak point, especially last year. In the first half year 2020 now, we achieved a free cash flow plus EUR 93 million compared to previous year with minus EUR 185 million.
Even with declining revenues, we were able to align our production and to reduce our inventory. We had also a reduction because of reduced revenues also on the receivable side. Yeah, I think we have also managed quite well also our costs in the company in total. Wilfried will go into that in more details in a few minutes. Our operating costs were reduced by 11% and in the first half year compared to the revenue reduction of minus 16%. Yeah, as we already announced with Q1, we expected that Q2 would be very difficult. We have seen this in April with a reduction in revenues by 42%, where the income was down 58% compared to last year. Then the situation improved continuously. In May, we have seen a reduction in revenues of 24%, and order income was down 33% in May.
In June, revenues were down minus 11% compared to last year. Order income improved compared to last year and was 35% above last year. We have seen continuous improvement. We had in July now, order income was slightly below last year, so no big change to last year. Yeah, situation continuously improved. I think we already managed, as already mentioned, the cost discipline was quite good managed and very positive is the free cash flow development. In our results, we see also the first improvements and results from our cost reduction and efficiency program. Now I hand over to Wilfried to give you more details on the financials. Thank you.
Good afternoon, ladies and gentlemen. We are coming now to the numbers here on this slide regarding revenues and earnings. As Martin Lehner already said, -16.4% half year to the other half year 2019. If you look to the chart on the left-hand side, you see when we compare the Q2 numbers 2019 and 2020, -25%. The sales decline was of course due to the COVID situation. We had different developments in different regions, most severe impacted in the Americas, which we will see later on the next slide. The DACH region was quite stable and thanks to this segment, which is above prior year. Here we can state that our strategy and business model for the DACH region with our direct sales channels helped a lot. The ag business was also performing quite okay, especially in the first quarter.
Second quarter was also a little bit down, but in total for the first half, the ag business was +1% above prior year. If we now come to the gross profit development, it is clear that with the lower volumes, we have a significant lower gross profit. Gross profit is -17.6% year-on-year. We have had a lot of cuts in the production programs worldwide. Most significant in North America, where we are closed now since March. Also, company holidays were brought forward and we used various models of short-time work. However, the gross profit margin is only 0.4 percentage points below the previous year. Also here, thanks to the strong service segment, which improved the product mix. When you have a look to the income statement, the excerpt on the left-hand side, you see there the development of operating costs.
Martin Lehner already emphasized on it. We were able to reduce the operating costs in the first half by 11%. The most significant reduction was in Q2. When you look to the numbers, it was EUR 86.1 million in Q2 in 2019, is now in 2020, EUR 67.8 million, so almost EUR 20 million less in this position here. We have consequently an EBIT which is lower than last year, of course, but we have had also two one-time effects. On the one hand side, we had to book a write-off on the U.S. goodwill. The entire goodwill was written off in North America. That was EUR 9.5 million, which is burdening our bottom line. Furthermore, we have realized already restructuring costs from the Cost Reduction and Efficiency Improvement Program, CEIP, which was EUR 2.1 million, mainly in the U.S., because of the restructuring of the sales there.
The financial result looks also bad if we compare it to 2019. You see a financial result in the profit and loss statement of -EUR 13.8 million, compared to EUR 6.4 million in the previous half year. The effect is mainly preliminary due to the valuation effects related to the sharp decline in the value of several currencies compared to the relatively strong euro. The good news is that the interest result was on the level of the year before. Another item is the tax rate. If you calculate the tax rate, you end up with 38% for the first half 2020, compared to the usual numbers, which is a little bit above 30%. It is higher, and it is because of the aforementioned negative FX effects and the impairment loss, which are both not tax-deductible. We have some write-offs or non-capitalized deferred tax assets, which brought this percentage up.
Coming now on the next slide to the business development by regions and business segments. Here you see the development in Europe, where we have around about -9%. Quite different development. The DACH region was really stable, but in contrary, we saw significant revenue losses, especially in Italy, Spain, but also France, U.K., Poland, and in the Scandinavian countries. The demand, as already mentioned, for the compact equipment was a little bit above the previous year and had, of course, a balancing effect on the development of sales in Europe. Remarkable was the sustainable success, I can say here, with innovation-driven sales. Look to this number here. The revenue with Dual View dumpers grew by more than 60%. Very good news on this hand side. On the other hand side, we have had significant decline in the business with the rental chains.
This brings me immediately to the revenues in the Americas. Over proportional hit here, -38%, and it is a strong decline in the investment activities among the dealers, especially dealers who do rental business. The rental business is okay. The rental chains are alive, but they stop more or less the business with new products. In the last quarter, the report, we said that the key accounts are postponing the orders. We are now seeing since the beginning of July also now canceling orders. They are canceling orders which they have postponed before. A very difficult picture for North America, especially for the future. The revenues in Asia and Pacific were also hit by the COVID crisis, especially in China in the first quarter. Here we see now -24% for the first half.
The production facility in Pinghu, as well as our dealer organization, was standing still temporarily in the first quarter. Now we see that the situation is ramping up since end of March, and we have good news, and this is that the Q2 business volume is above prior year in China. Unfortunately, Australia, we were shocked a couple of days ago to hear that they have again another lockdown there. A quite bad situation in Australia. When you have a look to the left-hand side to the service segments, which you see on the left-hand side corner. On the left-hand side, you will see that the light equipment is down by 29% year-on-year. Of course, a lot of light equipment we sell in North America, so we have here an overproportional decrease compared to the compact equipment, which is -18%.
As I said before, thanks to the good service development, here we have a +6%. Coming now to the next slide, and that was the biggest issue within the last 12 and I can say 24 months: the inventory development. We see now in Q2, first really sustainable development. We are down to EUR 544 million of inventory. When you look to the days of inventory, then you see that we still have 171 days, which is absolutely still too high. We believe that we will, of course, make the EUR 500 million target at the end of the year. The trade receivables are down to EUR 320 million. We see here two effects. One effect is, of course, that we have lower sales volumes.
If you compare the numbers in 2020 with the Q2 in 2019, there we had in 2019 really high levels because we had strong revenue growth, especially in the first half of 2019. The trade payables on the left-hand side at the corner, you see we are declining, this is going along with the decreased production volumes. On the next slide, we see the impact now on the net working capital. Also here we are now on a good way. However, EUR 743 million is still too high. Also here, the percentage points that are very clearly out, 48% is still too high. We have to work here furthermore heavily on reducing this net working capital. The positive outcome here is together with restrictive CapEx, is that we have achieved now a very good free cash flow.
Although we increased in the first quarter inventory, the cash flow in the first quarter was plus EUR 5 and is now plus EUR 89. Together we achieved EUR 93 million positive cash flow. We have also some payments postponed, which are good for the cash flow, it is around about EUR 15 million what we have to pay out of the liabilities. We expect also a significant cash inflow from short-term work which we have not yet collected. Overall, the free cash flow is positive and that has, of course, an impact on the net financial debt. What we see on the next slide. The net debt was extremely high with EUR 513 million. The gearing was at 42%. That was the top number here in Q3 2019. Now we brought it down to EUR 363 million and the gearing is 29%.
On the right-hand side, the net financial debt to EBITDA is 1.6, we are still here above our own plans where we want to achieve something around 1.0 or better below 1.0. The equity ratio is at 55%. Nothing specific to report here. We have had the AGM at the end of June where the shareholders suspend the dividend for the fiscal year 2019 to secure the liquidity of the company. Coming now to my last slides, which shows the share development on the left-hand side. There you can see a minus of 12% in the course of the year 2020. Positive is that now when you look to the right-hand side of this share development, that we are now back in a parallel development with the SDAX and the DAX and the peer group.
We have been always a little bit below during the course of the year 2020. On the right-hand side, also nothing new. The dividend development with the suspension of the dividend payment 2019. The coverage is quite positive with recommendations mainly on buy and they are quite new from July. No change in the shareholder structure. Family still owns 58%, no news here. The free float is consequently 42%. Now I would like to hand over back to Martin for the outlook.
Thank you, Wilfried. Coming to the outlook. You see here on the left side, the top, the business climate index for construction, which is bouncing back in July, but still far below where we were in the last few years. You see also agriculture bounce back is already stronger, but also still below the previous year's level. There is still a lot of uncertainty. Everyone is expecting that the business is coming back. The question is how fast and in which shape, finally. For sure is that the impact in agriculture will be much lower than in the construction industry. We have seen this already in the first half-year, where we have seen a stable or even slight increase in revenues.
In construction, the situation is very different country by country, especially in the areas where we have a higher percentage in revenues with national or international rental companies. We are affected much more because they stopped their investment activities at the moment. In the regions where we have our direct sales organization, we are very stable. Also here we were able to have a slight growth. Also, service revenues is stabilizing and also increasing. A very mixed picture. You know that in mid-April, we have withdrawn our original guidance, which was between EUR 1.7 billion and EUR 1.9 billion in revenues, and EBIT margin between 6.5% and 8.5%. Also, after the first six months, we are not able to give a guidance for the financial year 2020. The reason is still, we don't know what is the further development of the COVID pandemic globally.
We see in the last couple of weeks still rising cases globally, also in Europe, in some countries, cases are increasing once again. It's very difficult to predict what's going on. Do we see any further shutdowns, even on a regional level, maybe in the second half or not? The big question is also, when are the infrastructure programs, investment programs really coming? For sure, everyone is discussing about that, already some countries already announced infrastructure programs, this will, for sure, have a positive effect on our customer base and then finally, also on our business. Also here are still a lot of uncertainties. Also in the construction business is in many countries behind the original plans because also municipalities and government offices were closed a few weeks in the second quarter.
Also here, projects are still not released or had to be postponed. That's the question, how is really secured that our customer base has a further order income in the next couple of weeks? What is the order income because of these infrastructures? Still unpredictable effects and for sure what we can say is that we expect and we will have considerably lower revenues and also a lower EBIT margin compared to previous year. Investments will be around EUR 80 million below what we have originally planned. But we have also some investments which doesn't make sense to stop where we have planned extensions in Kramer and in Weidemann. That's already ongoing. All investments are under question. We try to secure liquidity. That's our top priority so far in the first six months. This was managed quite well.
I think we have the operating costs quite good under control. Also net working capital is developing in the right direction and will be end of the year considerably below previous year. That was my last slide for the outlook. Now we are open for your questions. Thank you.
Thank you very much, gentlemen. We'll enter the Q&A session now. I would like to hand over to the operator who will give you a brief introduction.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star one to ask a question. We will now take the first question from Martin Comtesse from Jefferies. Please go ahead.
Yes, good afternoon, gentlemen. Thank you for taking my question. My first question would be around the American market. I think it is very obvious that the drop there was the steepest one. You mentioned that your facilities have been closed since March. Is it correct that they are still shut or are you producing here again? What is your sort of feeling that you get from the rental chains? Do you probably think there's some return in the second half, or do you feel that this is only going to be postponed into 2021? The second one would be on the German market, which has been surprisingly robust. Do you feel that there is probably a deferred effect that's coming through in the third quarter in some sense? Do you get any signals from clients? The third question would be on inventory.
You were guiding for a EUR 44 million further inventory decrease in the second half. I am just trying to understand how much this is dependent on further top-line development. Is this the best-case scenario, or is it even possible that if there's some demand bounce back in the second half, that the inventory drawback is even stronger? Thank you.
I will start with your first question regarding America. America is mainly, our plant is not completely closed, but it's mainly closed, since April or the end of March, beginning April. Because we have, and you can see it still, that we have still a lot of inventory and also in U.S., we still have high inventory. We have still the possibility to do business without a lot of production. We do some. We have a certain production, but on a very low level and also changing or modifying machines or finishing some machines, but no real mass production. We don't expect significantly orders also in the second half from the rental companies in the United States. Hopefully in 2021, but in the second half, so far, we don't expect any significant order income from the rental business in the United States.
We'll be also second half on a quite low level. In Europe or the second question, Germany. It's not only Germany, it's the DACH region. It's Germany, it's Austria, it's Switzerland, where we're even slightly above last year in the first six months. It's quite stable. That here, the big, well, the very positive development is also connected to our direct sales organization. Here we reacted quite quickly. We have some reduction in sales of new equipment, but we have an increased business in rental. What we can offer our customers, and that is also different to traditional rental companies, that they can rent, actually the equipment they need today or tomorrow from us. Then finally, they can decide in two months, in three months, or even in four or five, six months, to transfer the rent into a sale.
That they buy the equipment finally, they get a credit note for most of what they have actually paid for renting the equipment. That's quite attractive and reduce the risk a lot for our customers so far. To predict the development in Q3 is very difficult. Actually, we don't expect any big change in the DACH region because our customers have still good orders on hand for the full year. The question is really midterm. Do they get enough business also for the following years? That is really the question now and is related to what infrastructure programs are coming and when they are coming. Short-term, we don't see any big impact in the DACH region as long as the uncertainty continues on the customer side.
They will prefer, they will love our offers to start renting the equipment, what they need, and decide a few months later, probably buying or bringing the equipment back or renting it further, whatever they want to do. That is really stabilizing and helping our business here. Also in Europe, what is stabilizing our business here in January is agriculture, as already mentioned. Agriculture, COVID has a much lower impact in the agriculture business. In the agriculture business, the weather is much more important than compared to COVID-19. Yeah, so far we have a good development in agriculture, as already mentioned, also here with a slight increase in the first six months and still good orders on hand on agriculture. Also here we don't see a big change in the next couple of months.
For inventory, for sure it's we see also with the continuous development and what we have actually in revenue. Even with not a big upturn in revenues, there is a potential for further decrease on inventory. Not clearly defined. The target is really now already in reach, and we will continue to closely steer and monitor the development because, as Wilfried already mentioned, we're going in the right direction, but with the reduced revenues, inventory and percentage to revenues is still too high. Here we will take further actions for further reductions.
Thank you.
Thank you. We will now take the next question from Jonas Blom from Warburg Research. Please go ahead.
Good afternoon. Thanks for taking the questions. I got three, if I may. Firstly, I was wondering with regards to the prolongation of the European Stage V emission regulations, if you could just give us some color here on what might be your potential cost savings, if there is any, because I mean, I remember you agreed on major long-term purchase contracts by last year due to a peak cycle in the construction equipment business. That's number 1. Number 2, you were also talking about cash effect from short time work, which you did not receive yet. Could you just also quantify this effect and when you expect to receive it? Just finally on your Americas business, you had a goodwill impairment here. You also had some write-offs or write-downs on accounts receivables. Is there a further risk ahead in H2?
You just mentioned that the business, you're not really expecting it to recover in H2. Are you considering currently perhaps changing your strategy there? Is there something in your heads? It would be helpful to share. Thanks.
I will take your first question regarding Stage V, then I will hand over to Wilfried. Stage V, there is not really any cost effect related with the prolongation. European Union decided in July, that the Stage IV engines or IIIB engines, the older emission-regulated engines, could be used in production for a further 12 months. This is helping the companies, the OEMs, to produce the machines with the engines they had already in stock because there were a lot of pre-buy because the engine manufacturers had to produce these IIIB engines or Stage IV engines until December 2019. The engines were already in stock at the OEMs in the first half of 2020. The OEMs were affected quite differently. If you see also the peer group or other OEM construction equipment manufacturers, how they were affected.
You will find also companies with revenues reduction in the first six months by -35%, some with -50% or some also with -60%, compared to Wacker Neuson with -16%. That means we were not really affected, or we had no really issue with Stage V. Even with no prolongation, we would have no really big problem because the engines, what we had already in stock for agriculture, were already transferred in the machines in the first half year because we had orders on that. We have not built all machines with Stage V in the construction division, but we could have used these engines also in other countries outside of Europe in the next 12 months or 16 months, or 18 months.
For us, was not a big effect and no really big cost saving because of this prolongation, because no one can buy additional engines anymore. That's anyway gone. It's only a solution to help the OEMs to bring the engines which they had already in stock, finally into the market and not necessarily scrap these engines.
Okay, coming to your second question, Wilfried Trepels speaking. The overall effect for short time work and state subsidies, which are more or less the same than the short time compensation, that was altogether around about EUR 12 million. The state subsidies are mainly paid, because they go directly to the employees.
From the outstanding amount, which still will be paid, is around about EUR 3 million-EUR 4 million. Not a big amount, but a certain amount. Your third question was regarding the accounts receivables. You're right, we have had write-offs in the first half of, in total, EUR 4.2 million. We divided them in different reasons, one reason is the COVID situation, and that was together EUR 2.4 million spread all over the world. There were also others, especially in Latin America, with EUR 1.2 million, which have nothing to do with the COVID crisis. There we have an issue with a big dealer over there. In total, EUR 3.6 million out of the EUR 4.2 million.
Your question regarding the development in the next six months is difficult to say, but I personally believe that we will see also some more accounts receivables getting write-offs in the next month, because that's always the case. However, we have our accounts receivables quite good under control. We had 75% in average being not due, and 25% being overdue. That was in the month March, April, May. It was down to 65%, there we saw already that payments were postponed. Now, end of July, we are back to 75% again. From this perspective, question mark as always. It will depend how the year goes down the next months. I don't know.
Thank you.
Does this answer your questions?
It does.
Good.
Thank you. We will now take the next question from Mark Gabriel from Bankhaus Lampe. Please go ahead.
Good afternoon. Thanks for taking my questions. With regards to the Americas business, the demand for your machines in the U.S. is still on the plan. You started to pre-finance the machines and still there are no signs of improvement in the U.S. business for you. How long do you want to keep this situation up? What is the strategy going forward, and what are the goals for your overseas markets in, let's say, the next 12 months? How do you want to return to profitability in both markets? Asia-Pacific, although there I have some better hopes, but the U.S. situation is really getting worse. Maybe you can elaborate a little bit more on your thoughts here for the U.S. business. A second question, just probably I missed that. How was the order intake in July?
What is the situation, especially in the ag business, which did quite well? Do you think that the strategy to do more in agriculture with John Deere is still valid, or do we see also clouds on the sky? Thank you very much, and congratulations to the good results overall in that difficult environment.
Thank you. For sure our weakest point is United States, as you already mentioned. As already mentioned, we don't expect a fast improvement in the market environment in the next couple of months. As already mentioned, we don't see any further big investments in the next couple of months from the rental companies, though the business will be very difficult. What we are doing already and what we have already started in Q1, and this will go on further also in the next couple of months. We are consequently restructuring our organization. We are preparing that we also can live with a much lower revenue in the United States. That's the only possibility at the moment, and that's consequently done at the moment.
We are preparing a final business plan also for the next several years with much different expectations what we had a year ago. That's ongoing now, and that will be ready until autumn. After Q3 here, we have a clearer picture, but we continuously reducing our operating costs and also our labor costs consequently in United States that we can live with the business on a much smaller scale.
Perhaps I can add something to North America. We have now the final approval from the bank as well as the final approval from the supervisory board. We got it on the 30th of July, a couple of days before this date today. It is smaller than it was initially. It's now EUR 150 million, and the term is one year. We have a very good percentage negotiated here regarding the interest.
We are here a step further, which will help us also regarding the pre-financing that we now have a tool where we can get that out of our balance sheet.
If the situation in North America will become better, there is a clear intention also from the bank to go back to the initial amount, which was EUR 300 million and a term of three years. We have prepared this already in a letter of intent that we can start immediately when the situation in North America gets better.
Our focus must be in the next couple of months, really to get a much higher portion in retail sales. We were growing quite fast and good with our anchor dealers, but this business is related and this growth is related to rental. In this environment, actually, they stop investing and that's affecting heavily our business. We will consequently adapt our organization operating costs to be able to live with a much lower turnover. Regarding the question of order income in July, I already mentioned it. In July, order income was slightly below last year. Not a lot, but slightly below last year. In June, clearly double digit above last year. In July, slightly below. For sure, we are constantly following this development week by week. Actually at the moment, we don't see any signs for big changes, upside or downside.
Agriculture business, as already mentioned, developing very well and is already increasing. Agriculture has in the first half year, 19% in portion on our revenues. Two, three years ago it was 15% or even slightly below. That's continuously increasing. Part of that is the cooperation with John Deere, but it's not only John Deere, also our own brand, Weidemann, is developing extremely strong and the growth in the first half year is strong on the Weidemann side and on the Kramer side, where we have the cooperation with John Deere. Both are developing very well and also with the cooperation with John Deere, there are further possibilities to extend the cooperation step by step to other countries. We're starting now in Eastern Europe and probably also in Australia and New Zealand.
Also here, still room for growth and in general the cooperation is developing very well and much better than both parties expected at the beginning of the cooperation.
Thank you very much. Maybe one follow-up. You expect further losses in the U.S. for the second half? Probably you come in Asia Pacific towards a break-even situation towards the end of the year? Or is that still a little bit too aggressive?
For sure, in United States, we still have to adapt the organization. There will be clear for sure losses also in the second half. Because also consequently adapting the organization, that's not finished. We already booked close to EUR 2 million in the first quarter. That was mainly related to the United States and here will come some further restructuring costs in the second half in United States. In China, also I think we will have a loss also here in the second half. Yes, we make progress now in Q2 where we had also a growth. As we already mentioned in Q1, we have issues on some products where there's really a price war in China, where local Chinese manufacturers are fighting with extremely low prices. Volume is increasing and prices are decreasing. That's somewhat crazy, but that's the situation in China.
Also here with some products we have a very good development and also profitability is okay, but I think it's too early to say that we come to a break-even this year in China.
Okay. Thank you very much.
Thank you. We will now take the next question from Norbert Kretlow from Commerzbank. Please go ahead.
Good afternoon, ladies and gentlemen. I had a couple of questions regarding the environment. I understand that due to uncertainties you can't give a guidance, but maybe you could shed some light on the latest development in your client base in terms of, say, sort of a channel check. Has there been any change in the mood of your clients? That is, of construction companies with now a second wave fears being discussed and infection rates being partially up in Europe. The second question would be on the infrastructure project impact on the equipment market.
I wonder if you have any, say, indication of whether or not there might be only upside or also there is a risk of downside from the expectation of infrastructure projects in the sense that maybe some of your clients might have prepared or might have tried to anticipate infrastructure projects, which, if they come later or if they come in smaller than expected, that then we might even see a negative impact from related disappointments should they be there. As a general note, overall, I remember the 2008, 2009, 2010 crisis. Then I would have expected that roughly 60% of the peak sales levels in construction equipment in Europe had been attributable to expansion, 60%, and only 40%, roughly speaking, to replacement. Do you have any indication regarding what the current levels had been in 2019 to have an assessment of trough risk?
That's very interesting questions, and I would be quite happy if I could answer this or if we would have answer on these questions. Roughly to say or difficult to say, first of all, the mood in our industry, if you look at the OEMs, the mood is now on the OEM side better than 2 months ago, for example. We see, we have monthly survey in the construction at the OEM side, in the construction equipment industry and also in the agriculture equipment industry. We do our own surveys with close to 400 dealers globally. Also here we see that the situation, the confidence is slightly coming back and improving. On an average, we see that the expectations of revenues reduction in the agriculture side is 50% lower than what we have on the construction side.
In the construction side, our dealers in the last survey, they expected an average of 15, 16% reduction in revenues. With a very heterogeneous picture. Some see stable revenues, some see declines above 20%. Very difficult to predict, but expectations are now better than they were 2 months or 3 months ago. I think, in our customer side, in the construction business, the construction companies, if you see the business climate index in Germany, here the confidence is lower actually, because the questions are now when the investment programs are really coming. We see now after 3 months ago that was not really clear how long the situation will take, how will be the impact. Now everyone sees there will be a heavy impact. The question is when are the new programs are coming?
I think here the uncertainty is higher on the construction company side compared a few months ago. Still, as I said, many companies, especially in the DACH region, have very good orders on hand. All these orders get finished at some point, the question are the new orders already in their hands or not? What was your last question, or what's that?
The last question was on, say on a general note, when you look at peak sales levels 2019, do you have an assessment of which percentage of sales in the industry and also regarding Wacker sales have been attributable to expansion and which percentage has been attributable to replacement CapEx? When it's getting tougher, then markets tend to drop back to the replacement level.
These figures are not available. I can't give you really an answer, and that's very difficult to answer. For example, generally you can say as more your business is related to rental, the effects or the reduction in revenues will be higher.
You see, if you look, as I already mentioned, there are several OEMs which have reported figures already for the first half year 2020, and you see reductions down up to -60% in the first six months. All companies are producing construction equipment, the reductions are between -15 down or -10 down to -60%. It's an extremely heterogeneous picture. It's related if you are really strongly close to rental companies, you are highly impacted. Our impact in our revenues in total in the group with rental companies is far below 10% in the group. That's also the reason why our business is much more stable. We are more dependent to rental business in U.K., in France and U.S. In the other countries where we are, we have a very strong retail business.
Retail business and also direct sales business, this is much more stable than doing business with rental companies. To say what was investment and replacement, that's really difficult because we don't get this information. If a rental company is buying now equipment from us and also in the first half we have delivered to rental companies, especially in Europe and especially with our new product, with our innovative products like Dual View dumpers. We were even growing in the rental business in the first half because Dual View is really an innovative product. Everyone wants it and customers are requiring it. Rental companies are really forced, even in difficult times, to fulfill the customer wishes. We don't get the information. If we get an order, have they now replaced some equipment from another OEM or is this an extension investment?
No clue how to give here a clear answer or figures to this question.
Thanks.
Thank you. We will now take the next question from Alexander Holler, from Hauck & Aufhäuser. Please go ahead.
Yes, good afternoon. Thank you very much for taking the question. Maybe just a general one in terms of your flexible rental business. Do you feel like this allows you to get involved, and maybe win new customers that, otherwise, you wouldn't have business with? Or do you feel like it's mostly the customers that you have as your customers already?
Yeah. For sure, it's a mixture. That's our target, but I can't give you here now a clear figure how many business we have done now with completely new customers. I don't have a figure, actually. For sure, this is a quite unique business model what we can offer in our direct sales countries to offer the customer, start with renting the product and then decide later on after two months, after three months, after six months, we will take the machine back or you will buy the machine. For sure, this is helping us. We won also certain orders also in the first half year because we were able to deliver products. To offer availability.
On that side, our stock helped us because some OEMs had really big issues, especially in the second half because some were much higher affected from the shutdowns in the supply chain than we were. We were able to win some orders or customer orders also from competitors because they were not able to deliver in short time.
Thank you very much. Also on the financing facility, this EUR 150 million that you have secured, can you share what the plan, how much will go towards the offloading receivables from the balance sheet, and what would be then supporting for the growth?
Yeah, of course. Actually, we believe that we can load around about EUR 60 million out of our balance sheet, and the rest then will be available for new business.
EUR 90 million will be available for the growth.
Okay. Thank you. Finally, can you remind us what are typical lead times for your backlog?
Pardon? Can you repeat it? I didn't get it.
The lead times.
Lead time for products?
Yeah. On average.
That's also.
I understand that it varies very much.
Yeah, that varies very much depending on light equipment. Normally we deliver from the shelf. Because customers expect they need a rammer or a small plate. They order it today and they get it tomorrow. Here we normally order from the shelf. In compact equipment, also here is the target that we are delivering addition models, so standard models with a certain specification, within two weeks. Let's say, Alexander, for compact equipment, it's between two and eight weeks, roughly.
Actually. Yep.
Thank you very much.
Thank you. We will now take the next question from Jean-Marc Mueller from JMS. Please go ahead.
Yes. Thank you for taking my questions. I have a top-down question. Let's assume consensus is correct and Wacker Neuson achieves, generates some EUR 1.6 billion in sales in 2020. That would imply that the second half develops roughly the same as the first half, so around EUR 800 million in sales. Is there a reason why we should assume the gross margin to be very different in the second half compared to the first half, and yet 25.7% gross margin? If you were to achieve EUR 800 million in sales in the second half, is there a reason why the gross margin should vary a lot from what you've seen in the first half?
Yeah. I think there is no big change to be expected, because we are still in a closing mood in North America.
We will not open the production before October from today's perspective. This is always the same every year, that we are closed in August in many production companies, as well as then in December. From this perspective, I think that there will be no big impact, no significant impact on the gross profit margin.
Okay. An add-on question. We've seen great cost control in Q2, the OpEx costs were down considerably, not only year-over-year, but also compared to Q1. The EBIT was very strong with EUR 21 million. Let's say, if the sales were EUR 800 million, if the gross margin is actually somewhat at levels that we've seen in H1, we should probably see all the benefit of lower OpEx costs than in Q3 and in Q4. We probably wouldn't see the one-offs that you had in H1, like the receivable write-downs and the goodwill write-down, et cetera. On that basis, and I'm not wanting to put words in your mouth, but just if I do this math, EBIT in the second half would actually be higher than the first half.
Yeah. That's probably a right calculation you do. On the other hand side, you need to see that we have had effects which are, let's say, just an effect in the month where we do the action, it will not happen again. This is, for instance, a one-time effect, the reduction of accruals for vacation, because first of all, the people went into vacation
They had short time work, or the reduction of the accruals for flexible work time. They were brought down significantly before we went into short time work. We postponed a lot of hirings for people who quit or went into retirement. We have deferred salary increases. When you look to the travel costs, travel costs are significantly below usual numbers.
I personally believe that we are not going back to the same travel level we had before the crisis. That will be sustainably reduced, but not in this size.
Marketing and entertainment costs were reduced because there were no fairs where we went to. There will be, of course, also here, a part of this reduction will be sustainable, because also in the future, the electronic marketing is, and that's what we see in our days, is getting more and more important. So if I take these numbers together, yes, we have had a good OpEx situation. We have had them really good, under control. Just the few numbers I mentioned, count together for around about EUR 10 million, which are not-
Okay
sustainable. Yeah.
Yeah. Understood.
From this perspective, your mathematics is, of course, right, but you need to consider also these effects which I just mentioned.
Mm-hmm. My final question along a similar line. You mentioned the further reduction in inventory, which will obviously help free cash flow. There were some other effects which then helped cash flow in the first half, which will have a negative effect in the second half. Still, on an all-in basis, is it fair to assume that you would expect net cash, basically, the EUR 363 million net cash position, you would expect that number to go even lower by the end of the year? Not including now the EUR 60 million receivables off balance sheet through the ABS structure, just based on basically operational cash flows.
Yeah. The balance is in our favor, of course. Just as you said, the reduction of inventory, if we would meet the EUR 500 or even more-
It would be EUR 40 million already.
Yeah. On the other hand side, I said also that we have postponed payments, like VAT payments.
Yeah
Income tax prepayments were delayed. There was also a certain effect on this side. Overall, the balance is positive to be expected for the second half.
The EUR 60 million, the receivables that you will take basically off balance sheet in the ABS structure, that will happen in the second half?
Exactly.
Okay. That comes on top, basically.
That will come on top, of course.
Okay. Very good. Thank you very much.
Thank you.
Thank you. There are no further questions in the queue at this time. I would now like to turn the conference back to your host for any additional or closing remarks.
Thank you very much. Okay. I'd like to close the call. Thank you very much for joining. Thanks for your interest. If any other questions come up, please do not hesitate to contact the investor relations team. Thank you, and have a good rest of the day. Bye-bye.