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Edited Transcript of GMM.DE earnings conference call or presentation 12-Nov-19 12:00pm GMT

Nine Months 2019 Grammer AG Earnings Call

Amberg Nov 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Grammer AG earnings conference call or presentation Tuesday, November 12, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Boris Mutius

Grammer AG - Director of IR

* Jurate Keblyte

Grammer AG - CFO & Member of Executive Board

* Thorsten Seehars

Grammer AG - CEO & Member of Executive Board

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Conference Call Participants

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* Christian Ludwig

Bankhaus Lampe KG, Research Division - Head of Research & Analyst

* Harald Eggeling

ODDO BHF Corporate & Markets, Research Division - Analyst

* Peter Rothenaicher

Baader-Helvea Equity Research - Analyst

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the Grammer AG conference call regarding Q3 figures. (Operator Instructions) Let me now turn the floor over to your host, Mr. Boris Mutius.

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Boris Mutius, Grammer AG - Director of IR [2]

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Hello, everybody, and welcome from Amberg. Our CEO and CFO will today present the Q3 numbers of Grammer. And after that, as usual, we will have the Q&As, please.

So I would like to turn over to Mr. Seehars, please.

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [3]

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All right. Thank you, Boris. Good afternoon, ladies and gentlemen, and welcome to our Q3 call, obviously including giving you an update on the first 9 months of the year 2019. In our second call this year, as you'll recall, Jurate and I joined the company in August and took the last 3 months really to understand the business, get to know our people and the locations in all regions of the world as well as meeting customers amongst others, also attending this week's important Agritechnica show, where, we, as the leading seat supplier, are getting a lot of very good feedback on our seats.

Going now to the content of the call. And you'll recognize we changed the format slightly. And we'll, for sure, continue to evolve the format.

I'd like to start with some highlights of the third quarter for the Grammer Group.

Overall revenue increased by 14% to EUR 1.5 billion. The growth was supported by both segments, which is important to highlight. So not only the Commercial Vehicle segment who already had a good start in the first half of this year, increased its revenue to up to EUR 475 million, but also the Automotive segment is continuing to increase, that's for sure, mainly driven by the integration of the TMD acquisition since October 2018, but also by organic growth in the NAFTA region.

Looking at the regional setup, the EMEA region continues to be the largest region for Grammer in terms of revenues. It's close to EUR 864 million. However, and that's important also for our future growth story, the other 2 segments, Americas and APAC increased significantly. We doubled our revenues in Americas to a new height of EUR 457 million. And despite the weaker market conditions in the world's largest automotive market, we rose our revenues to EUR 228 million. And I think that's a very good news and shows about the growth potential that we'll, for sure, enjoy in this important market, including also the joint venture that we have recently announced that I'll comment later on a little bit.

Looking at the bottom line, the operating EBIT for the first 9 months is at EUR 59.2 million, or 3.8%, slightly above the previous year and not fully satisfying to our own attention besides some short-term action that are required. And we'll comment later on about some short works we had in product launches as well as relocation. We are also looking ahead, preparing ourselves for the current market and the future market outlook and have initiated a global efficiency program in the company that, at the same time, will also, as a Board, require to review the strategic priorities. We'll comment those initiatives as well as the strategic priorities during the report of our Q1 -- Q4 2019 call at the end of Q1 next year.

We have signed last week an joint venture agreement with FAWSN Group, which is an affiliate company of one of the largest automotive manufacturers in China, and I'll give some further flavor to that. And overall, looking now at the first 9 months into the year as well as the November, obviously, on a good mood, we are looking into slightly revising our full year outlook to a full year figure of around EUR 2 billion in the fiscal year 2019, so that we were down from the previously announced EUR 2.1 billion. And on the operational margin, we see our result remaining at the current level of the 3.8% for the full year 2019, but it's got to be a little bit shy of the 4.1% that we previously announced.

And with that, I will turn over to Jurate for a further deep dive on the financial figures.

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [4]

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Thank you, Thorsten. So welcome, ladies and gentlemen, also from my side. After these highlights of the Q3, I will guide you through the most important figures and numbers of our group and the segments.

So as already mentioned by Thorsten, our group revenue reached the high level of EUR 1.5 billion, which is a plus of 14% compared to previous year's number. And as he said, the positive development is coming from both segments. It is 4% in Commercial Vehicles and 18% in Automotive, but I will come to the details per segment later. A part of this development is also due to the FX. We had a positive tailwind of around about EUR 21 million for the first 9 months compared to the same period in 2018, which is around about 1 -- yes, a little bit less than -- a little bit more than 1% of this increase of 14%.

With regards to the EBIT, group earnings before interest and taxes have more than doubled compared to previous year, reaching EUR 61.9 million in the first 9 months; and the previous year, as you can see, we were at EUR 27.9 million. This translates into an EBIT margin of 4%, which is obviously also much better than the previous year, which was burdened heavily by special -- exceptional effects.

Looking at the operating EBIT, this has only slightly increased to EUR 59.2 million, achieving a margin of 3.8%, and it carries exceptional effects of EUR 1.6 million, which is still mainly some change of control, of course, that have incurred in this year. And currency translation gains of EUR 4.3 million are included here.

Turning to the next page. Net profit is -- yes, based on this positive EBIT development, also the net profit increased significantly by nearly 91% to more than EUR 28 million. It has an significant financial result of EUR 21 million included in there, which is nearly EUR 15 million above the previous year and has a significant impact compared to previous year. And this translated in earnings per share correspondingly, which is now at EUR 2.31 in the first 9 months and represents also a growth of nearly 90%.

Continuing through the balance sheet development, the equity ratio, as you can see, remains more or less unchanged, with 23% as of September 30, 2019, despite the first time application of IFRS 16, which has an effect of more than EUR 60 million year-to-date September. And for the -- yes, the new regulation of the leases and also negative impact from the approval for the pensions that amounts to more than EUR 18 million.

The net debt increased to EUR 339.9 million, which is still mainly due to the effects from the TMD acquisition and also high investments that we are going to see on the next page.

So investments, capital spending of the whole group amounted to EUR 89.3 million for the first 9 months, which is significantly higher compared to previous year and very high level overall due to the accumulation of big single investments in our technology center and new headquarter and also integration of the TMD, but also the already mentioned IFRS leases. So IFRS leases in 2019 for the first 9 months amounted to roundabout EUR 17 million and the investments into Automotive segment, which you can see is a significant part, with 57%, mainly into different efficiency improvement measures such as automation, in-sourcing and expansion of our process portfolio in existing plants.

On the next page, we see the employees, the overview of the employees. The overall number has increased to 14,813 as of September 30, and this increase is primarily attributable to the acquisition of TMD Group. Compared to the end of last year, December 31, the number of employees rose by 140 -- 156. The ratio of high-cost countries has been stable for a long time and now has increased to 36%, again, due to the acquisition of TMD.

Now we are coming to the 2 segments. Let's start with the Commercial Vehicles. Again, the revenue has increased by 4.1% in the 9 first months, but the slowing demand in several business areas has had an effect on the sales volume. In absolute numbers, revenue in the division came to 476. -- EUR 474.6 million, which is EUR 18.6 million up on the same period in the previous year.

Looking to the regions, Commercial Vehicles business in APAC continued to expand, with revenue in APAC achieving the highest percentage increase of 16.6%. This is followed by EMEA, where revenues rose by 2.4% and Americas with 2.2% increase in revenue. The EBIT in Commercial Vehicles Division declined to EUR 40.3 million in the 9 first -- in the first 9 months. This was mainly attributable to the Q3 2019 with a decline in sales in the high-end products, in particular. Furthermore, the seasonal decline in sales in July and August was stronger than we have expected. And also, some one-off effects like results from collective bargaining have impacted the Q3 quarterly results.

Looking to the Automotive Division. The revenue has increased by 18%, thanks to the acquisition of TMD. In absolute numbers, it is EUR 169.6 million, reaching the EUR 1.1 billion in the 9 first months. Correspondingly, the revenue in Americas climbed from EUR 157.4 million to EUR 399.3 million. And as mentioned already by Thorsten, EMEA remained, by far, the largest region within the segment in terms of business volumes despite the decline in revenue in this region from EUR 614.2 million to EUR 548.8 million, which is in line with the big passenger car market conditions in Europe. As a result, the EBIT in the Automotive segment came to EUR 34.3 million for the 9 first month -- for the first 9 months of the year. That's comfortably over the previous year of EUR 26 million. It means that the TMD overcompensated -- overcompensating the negative volume impact from the traditional Grammer Automotive Division and the decline in Europe that we have seen. Accordingly, the EBIT margin of the Automotive segment came to 3.1%, surpassing the same quarter of the previous year, which was at the level of 2.8% despite the customary post-acquisition depreciation. And operating EBIT reached EUR 31.7 million. In the previous year, it was at the level of EUR 24.6 million. We will continue, obviously, to closely monitor the market and the economic developments. And as already mentioned by Thorsten, we have comprehensive action plans in place to cope with the capacity optimization and also boost the productivity and efficiency in all divisions.

And now I'm handing back over to Thorsten, who will continue with the presentation.

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [5]

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Right. So here's the picture from last Tuesday, where we had a really impressive signing event and as well a customer tech show with the FAW Group and some of the associated companies. So that's a -- the first step here, on the signing, obviously, that should -- joint venture help and support a significant acceleration for Grammer for our market share in the Automotive Division in China, with this partner being one of the leading OEMs.

So just to recap on the market, China is and remains despite the recline that they have seen this year, with 29% share, and to see a report in 2018, the largest car market in the world. And amongst the Chinese OEMs, you can see the FAW Group and its partners with more than 3.2 million units being produced in 2018, being among the top 3 for the segment. So partnering up with a company like FAWSN, being an associated affiliated company of the FAW Group, will, for sure, provide us a very good base to penetrate this FAW passenger car market and the potential second step also, the truck market within FAW Group, where we'll have also to notify that FAW Group is among the top 3, currently being ranked 1 domestic suppliers for heavy-duty vehicles.

So what this joint venture is going to be about? It's the next steps to new customers for Grammer. We already have a good base also an operate -- well-operating plant in Changchun in the north of China. So we'll, with the joint venture, be able to introduce our technologies, including the functional plastic products on our last year's TMD acquisition into the Chinese market into famous car brands such as the FAW car, the Hong Qi brand that's very well known there; the truck business, FAW Jie Fang; obviously, the joint venture partner, Volkswagen, the longstanding joint venture partner that's already one of Grammer's existing customers and should also allow us to tackle Toyota, who is, so far, not really high in our list as one of the largest passenger car makers through this -- and their joint venture with FAW in Changchun as well.

From a setup point, we're going to use and utilize existing Grammer infrastructure in Changchun for the start-up phase of the joint venture and also to limit our cash exposure and the cost exposure and for their platform and our existing R&D facilities that will keep us in the Grammer organization that should be a very good base to grow the business with FAW and the associated parties with a target of ourselves to double the size of the business that we have currently.

Looking at the market and the full year outlook for 2019, it's obviously a little bit of a mixed picture. We see a global decline of roughly 6% for the worldwide car market, China down by 9%. However, if you look a little bit deeper into those numbers, customers such as BMW and Daimler, which are key customers for Grammer there, still continue to perform very well, which you have also see in recent -- in the numbers we have reported, so with less impact from the overall decline of the market. And we can also see that in Europe and the U.S., we're predicting some decline of roughly 4%. However, again, there's a mix factor that's also part of the numbers we have reported to you.

Looking at the Commercial Vehicles segment, which, for Grammer, consists mainly about the truck business, the agriculture business, construction machinery and the material handling business. We see, on the truck side, still a strong Europe, at least in the first half of this year, with a softening now since the end of the summer holidays. We do see a very strong market in North America, a recovery in Brazil, albeit at still lower volumes compared to the record highs in the early years of 2010. And we see a downturn in China. However, this downturn in China is again less of a relevance for Grammer. As with our new truck fleet, we are yet starting to penetrate the market for the higher technology, and hence, the higher content of euro per truck, will be something that should enable us to fulfill the growth in the coming years.

Looking at the agricultural segment, as I mentioned earlier, the Agritechnica is running this week, and we're getting very positive signal for our innovation that we have presented there. And we are hearing also from our customers that flows seem very stable and good a expectations for their business in Europe as well as in North America.

Looking at the construction machinery, with all the building work that's going on in all region of the world, demands also continue to be steady on a good level, so we also expect here a good level on demand for the remaining weeks of that year. And only on the forklift side of the material handling business that we are getting also a little bit of a mixed picture from customers. They're seeing a small decline in the market.

So taking all of that together and looking at the full year outlook in terms of revenue and EBIT, we are a little bit more cautious in our full year outlook and expecting total sales to be in the neighborhood of EUR 2 billion for the year 2019 with, again, the Automotive segment benefiting from the last year's acquisition of TMD, the growth that I mentioned, which do offset the market decline that we're also seeing and the -- being exposed to here and Europe.

On the Commercial Vehicles side, with those 4 segments -- 4 [PMS] we're operating in, we still continue to see a little bit of a growth despite the third quarter of this year where we had lower revenues than expected. Overall, looking at the EBIT, on the absolute side, we are on target, and we expect to achieve a good EBIT for the Grammer Group in 2019, being significantly higher than last year's numbers of EUR 48.7 million. On the operating EBIT margin that I commented earlier on, we see the company remaining at the current level of 3.8%. And overall, we have a good base. From the customer side, we definitely do have some actions to be taken and short-term focus areas in our plan, looking at some of the product launches and the relocations that didn't go so well, while at the same time, we have initiated this program that we'll comment early next year to prepare ourselves for the -- for market development that are yet really difficult to predict given all the uncertainties that are out there. But more to come here in the next quarter call.

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Boris Mutius, Grammer AG - Director of IR [6]

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Yes. Now we can please open the floor for further question.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Mr. Peter Rothenaicher from Baader Bank.

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Peter Rothenaicher, Baader-Helvea Equity Research - Analyst [2]

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Yes. So could you comment a little bit more on the development in the third quarter for Commercial Vehicles? So a decline in sales of almost 4% in the quarter definitely comes as a surprise and then -- and also the quite low margin of 5.5%. So what happened exactly? Because if I think, at your major customer groups, I think, in terms of sales for your key customer groups, construction machinery, forklifts or agricultural, we have not seen that downs being so far. And also, truck deliveries, I think, have had not slumped so much.

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Boris Mutius, Grammer AG - Director of IR [3]

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Thank you.

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [4]

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May I answer the first one?

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Boris Mutius, Grammer AG - Director of IR [5]

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Yes, please.

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [6]

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Okay. So I can comment a little bit on the third quarter. And Thorsten, feel free to jump in if you have some additional comments. So overall, over the 9 -- overall, the 9 first months, we are still in a positive development with 6%. And you're right, the quarter -- the third quarter was the -- was less positive than we have expected due to the summer break, actually, in August but [5] was already lower than we have seen in the previous years. So we have seen here a little bit of changed behavior in ordering and especially in the aftersales market. So this is on the sales side.

When we come to the results or the revenues, the EBIT side, we had, first of all, this product mix that has impacted the bottom line significantly but also losses in productivity due to 2 bigger relocation projects. And with this, it goes together the costs that are associated with it for the start-up and also material bottlenecks in the supply chain. And these were actually the main 3 impacts on the bottom line.

Overall, yes, overall, we are still pretty confident when it comes to the fourth quarter of the Commercial Vehicles. We think it will -- the demand will still mostly be stable for the top line.

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Boris Mutius, Grammer AG - Director of IR [7]

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Yes, please. Are we waiting for further questions, please?

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Peter Rothenaicher, Baader-Helvea Equity Research - Analyst [8]

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Yes. Questions regarding the Automotive division. You mentioned that your business with key customers like Daimler was more -- was stable. Nevertheless, sales in Europe or in the EMEA region were down heavily for you. So which was, here, the reason? I know that the marketing in Europe for Automotive is definitely not strong, but how does this fit together that you mentioned the business with customers like Daimler is more stable?

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [9]

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No. The point I made, to clarify, was on the Chinese market segment as the Chinese market is down year-over-year 10% or up to 10%. However, Grammer is not down in terms of revenue as we have seen -- as you can see from our quarter report. So there we can benefit, and do actually benefit from 2 of the big German OEMs. So good sales in the [B] segment. The question that you are referring to with regards to Europe, where we are impacted in the -- in all of the segments we are supplying besides the premium OEMs offer to some of their high -- well, high -- without giving a car name right now, some of the, let's say, mid-segment cars that are usually being produced in high volumes for some of the Germans -- for volume, for some of the Germans -- one of the German OEMs, the third one, actually not yet to be named, where we are seeing a drop in demand, and hence, also having a reduced revenue with that customer.

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Peter Rothenaicher, Baader-Helvea Equity Research - Analyst [10]

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Coming back to my previous question. You mentioned that one of the problems in Commercial Vehicles was some supply bottlenecks. This is something where I'm a little bit wondering because I know this was clearly a topic second half last year. But in 2019, and particularly, in the second half of 2019, I have not heard about any companies here complaining about bottlenecks in supply. What is here the special problem?

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [11]

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The topic was actually right from the -- Jurate was -- we were talking about both the 9 months as well as the third quarter. So as you said, the first 6 months, we are impacted by the still high demand from the customers like the drop, these shortages in the supply base. However, on the third quarter itself, so looking at July to September and the year-over-year comparison, it's a -- one is a topic on the product mix side. So we see some -- have seen reduced sales in the aftermarket compared to a very, very strong Q3 2018. That makes up for one portion. And the second one is that we did have some delayed ramp-up with one of our Chinese heavy-truck makers.

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Peter Rothenaicher, Baader-Helvea Equity Research - Analyst [12]

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Okay. Perhaps one general remark. It would be more helpful for us as analysts if you could concentrate in your comments more on the actual quarter. So I think we all know about what happened in the first half of the year, and this would make our work easier if you could perhaps more concentrate on the third quarter.

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Boris Mutius, Grammer AG - Director of IR [13]

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Okay.

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [14]

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Will do.

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Boris Mutius, Grammer AG - Director of IR [15]

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Understood. Yes. I would like that, too.

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [16]

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Because we're so excited about the first 9 months of our company.

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Boris Mutius, Grammer AG - Director of IR [17]

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But we were trying to give that full picture. And for the full picture, please, it's obviously several months. So you understand how the business works. Yes, please.

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Operator [18]

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The next questions come from Mr. Christian Ludwig from Bankhaus Lampe.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [19]

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I also have a couple of questions also based on the quarter. So indeed, that's what's of interest for us. I'll kick it off with an easy one, hopefully. Could you give us the contribution of TMD in Q3, or 9 months, whatever is easier, so we can work out what's your organic growth and what is the acquisitionary growth.

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Boris Mutius, Grammer AG - Director of IR [20]

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Mr. Ludwig, you were, today, so very kind to write it down, actually. And if I read it right, you have written EUR 67 million in your research tax. And I think, you're very good in it, and you're close to it. Yes.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [21]

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Okay. That -- so that is a good -- so okay. And second quarter -- sorry, second question. Could you give us a number for your order intake in Automotive? Hello? Are you still there?

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [22]

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We're sorry. We are still here. We're arguing whether as you expected the Q3 number as we are really not -- as a Q number for an order intake is a little bit of a difficult number, I'd rather look at the full year number. So...

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [23]

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9 months number is fine as well. Yes.

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [24]

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Okay.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [25]

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I'll take that, too. That's fine.

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [26]

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Yes. So on the full year number, I'd say we are slightly behind in the target that we have set ourselves for the company. We have seen 2 major OEMs, 1 in North America shifting nominations for a current project we are on to early next year. So that somehow benefits us, of course, because we're already on this project. And the other one is some of the German OEs also have postponed their Q3 sourcing into Q4. So I would say, overall, we have a bit of a gap to our target, but still confident to get a couple of nominations booked in the fourth quarter of this year.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [27]

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I mean -- I think initially, the target was -- if I correct it right, EUR 1.7 billion for the full year?

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Boris Mutius, Grammer AG - Director of IR [28]

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Again, Mr. Ludwig, you're very much spot on. But we have learned early on, when we were talking about the [Hauf Store] story, if I may mention, it is very difficult if you look quarter-by-quarter. So it makes much more sense to go on the full year. And I would prefer that we really do that and later look at the full year because otherwise, all the earlier and the latest that makes -- somewhat sort of a very mixed picture. So we will be coming back on that, please.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [29]

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Okay. But would you say today that you feel confident with the EUR 1.7 billion target? Or might it be a stretch now?

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [30]

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With a shift of the 1 business nomination that is a 3-digit program, in terms of revenue, over a lifetime for us, it is clearly a stretch. I would even say it's realistically not achievable. I would say we are probably somewhere in the edge of EUR 210 million to EUR 300 million shy of that overall target.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [31]

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Okay. Then again, based on the quarter and your outlook, you're guiding for a 3.8% operational EBIT margin, I believe, for the full year, which kind of implies that Q4 will be around that number. You only posted 2.3% margin in Q3. Where do you take the confidence that in this -- with this still very difficult environment, you'll actually see a pickup in your margins in Q4?

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [32]

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First of all, we are expecting, again, a little bit better, just looking in the numbers, revenue than in the Q3. So this is giving a little bit of a buffer with a better product mix, again, and the mix between the segments and the divisions. And as I said previously, we had some performance issues in the Q3, which we do not aim to repeat again.

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [33]

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So confident that, clearly, we had...

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [34]

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It's equally distributed between both divisions, both Automotive and Commercial Vehicles? Or do you see one segment specifically improving versus Q3?

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [35]

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No.

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [36]

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The Commercial? Maybe a little bit because there, we have the 2 plant relocations.

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [37]

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Yes.

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [38]

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Well, that's, for sure, something that's mostly behind us right now.

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [39]

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But yes. We have...

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [40]

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Speaking of [TMD].

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [41]

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We had also some impacts in the Automotive segment, too. So it will be spread over both segments.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [42]

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Okay. Great. Then another one on the quarterly performance. If my math is right -- and I had to do some calculations here because you didn't put it in your report. The operating cash flow was minus EUR 63 million and your free cash flow in Q3 was minus EUR 107 million. I was a little bit surprised by that kind of weakness. What happened there? And what does that mean for the full year? Will we see a significant negative free cash flow for the full year?

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [43]

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You are right. From the cash flow perspective, the operating cash flow in Q3, single quarter, was really not good. But in our view, single quarters from the cash flow perspective, are not representative. So therefore, we monitor more year-to-date numbers. And we had a high investment cash flow coming in, in Q3. And basically, actually, we are more or less done with the investments for this year, so we are not expecting much more cash flow from here. And the operators cash flow was less optimized in Q3. I would put it that way.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [44]

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So do you still believe you can turn a positive free cash flow for the full year?

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [45]

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Sorry. I was not sure whether we are on mute or not on mute again. We expect a positive free cash flow for the remaining quarter, for the last quarter.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [46]

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For the last quarter, but not for the full year?

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [47]

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For the full year, it might be -- it will be...

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [48]

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Slightly negative.

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [49]

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Slightly negative.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [50]

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Okay. Okay. And then the last question, an easy one. For the new Chinese joint venture, how do you -- or how do you plan to consolidate it? Will it be at equity? Or will it be part of your P&L?

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [51]

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It will be fully consolidated.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [52]

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Oh, it will be fully consolidated. Okay. But -- I mean is it fair to assume that we won't see any impact on the P&L for 2021, realistically?

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [53]

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Exactly. Realistically, we will have only -- yes. Sales in Engineering activities starting pretty soon, but the revenue will start from 2023 -- '22, '23. So there's no significant impact soon.

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [54]

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On the revenue side, but we are bidding on a couple of projects right now, with target SOPs early 2022. So main activities next year and beyond is going to be purely project work, program works, engineering and sales exposure. As I said early on, however, as we rely for a good portion on the existing infrastructure from Grammer in Changchun, however, we should actually benefit and at least not see an additional burden for our P&L next year as we'll have a partner share some of these expenses in 2020.

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Operator [55]

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Then the next question comes from Mr. Harald Eggeling from ODDO BHF.

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Harald Eggeling, ODDO BHF Corporate & Markets, Research Division - Analyst [56]

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Yes. So one question, please. As you elaborated or at least named the global efficiency improvement program. And in combination with a review of the strategic priorities you state, to me, this is pretty unclear. So could you probably give a bit more color here, please? So you state improvement. So is a target behind in terms of growth, EBIT margins or capital returns or whatsoever? What does global mean? Is it mostly focused on Europe? Or what should we think here? And review of strategic priorities, I remember the metrics you had in the cars with the bubbles inside with regard to center consoles and headrest and so on. And can you comment on this, please, as well?

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [57]

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I will start with the last one first. I'm not precisely sure what you mean with the bubbles. So maybe you can explain that further. But to give some flavor on these programs, we are looking at the Grammer Global setup. As I mentioned earlier, Europe is, right now, our strongest region. But I mean, looking at the different market segments we're operating in, it's a very mature market, upside only expected driven by technology and not really by number of cars or number of commercial vehicles rising. So you may rather think about a consolidation within Europe as a thought process here. However, looking at the Americas, with the TMD integration as well as the China, and not only with the joint venture but also with our own activities, for sure, will provide a lot of growth opportunities for Grammer. So that will light us the progression to put more focus on the regions in terms of maybe also our setup that we have today providing services on site, but -- so that's yet a little too early to focus on. And at the same time, obviously, as I stated, looking at the current manufacturing and R&D setup, again, in order to provide a better customer service but also looking at underutilized plants that we may see if the market will not continue to upswing in the next year, which I think none of you and none of the other automotive companies do expect right now.

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Harald Eggeling, ODDO BHF Corporate & Markets, Research Division - Analyst [58]

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Okay. With regard to the strategic priorities, I have in mind that you, in the past, at least, were stating that headrest business probably was not the best one to reach your mid-term margin goal. I think it was 7% or so and rather would focus on center consoles.

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [59]

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Okay. Thanks for the clarification. We are, for sure, looking at all the different product segments of the company, but it's yet too early to comment on those.

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Harald Eggeling, ODDO BHF Corporate & Markets, Research Division - Analyst [60]

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Okay. So my takeaway then is simply that you are looking at your plant footprint with first steps mainly to be taken in Central Europe with probably relocating to best-cost countries, right?

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [61]

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I have to disagree. We're looking at the global landscape for Grammer and the opportunities we have in China and North America and what that requires in order to be more successful in those regions. Looking at the European market, I said it's a mature market. Not expecting significant growth here, even so driven by innovation. So it's rather going to be looking at how to grow best on the current footprint we have. But yet too early to comment on what that means and what that could mean.

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Operator [62]

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There are no more questions. (Operator Instructions)

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Boris Mutius, Grammer AG - Director of IR [63]

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Okay. I see we don't have any more questions, but you can always reach us if you have any other remarks or questions.

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Operator [64]

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There's one question from Mr. Christian Ludwig again.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [65]

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Yes. If there's -- I would like to use the opportunity. I know -- I mean it's early days, and the guidance is nothing that I expect. But from what you see from your customers, looking into 2020, could you give just some color, you believe that the market is going to be flat, it's going to be weaker, it's going to improve in Automotive and Commercial Vehicles? Do you have any kind of feeling what the demand is going to look like next year?

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [66]

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It's yet too early to comment on all those numbers for full year 2020. However, looking, I would say, at the coming weeks and most likely months ahead, I guess, don't forecast any significant or any upswing in the market on the Commercial Vehicles side. As I mentioned earlier, there are some segments still performing on a good level. However, on the, let's say, the truck market, for example, we see some decline in -- going into the next year. Material turf on a similar scale. And looking at the Automotive segment, I'm not really seeing a significant upswing but rather still expecting a level -- a sideward step or a slight lower color from the OEMs in the next few months.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Head of Research & Analyst [67]

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Okay. I know it's difficult, but I'm trying to get your feel of what you believe the market is going to move like.

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [68]

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Yes. I think that.

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Boris Mutius, Grammer AG - Director of IR [69]

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Okay. Thank you very much, everybody. And if anything else is open, please always contact us, and we look forward to hearing from you again at the next opportunity. Thank you very much. Goodbye.

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Jurate Keblyte, Grammer AG - CFO & Member of Executive Board [70]

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Thank you.

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Thorsten Seehars, Grammer AG - CEO & Member of Executive Board [71]

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Thank you. Bye-bye.