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Edited Transcript of SFQ.DE earnings conference call or presentation 9-May-19 10:59am GMT

Q1 2019 Saf Holland SA Earnings Call

May 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Saf Holland SA earnings conference call or presentation Thursday, May 9, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alexander Geis

SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board

* Matthias Heiden

SAF-Holland S.A. - CFO & Member of Management Board

* Michael Schickling

SAF-Holland S.A. - Director of IR & Corporate Communications

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Conference Call Participants

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* Christian Ludwig

Bankhaus Lampe KG, Research Division - Analyst

* Franz Schall

Warburg Research GmbH - Analyst

* Frederik Bitter

Hauck & Aufhäuser Privatbankiers AG, Research Division - Analyst

* Nicolai Kempf

Deutsche Bank AG, Research Division - Research Analyst

* Philippe Lorrain

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Yasmin Steilen

Commerzbank AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to the SAF-HOLLAND SA conference call regarding the Q1 2019 results. (Operator Instructions) Let me now to the floor over to Mr. Schickling.

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Michael Schickling, SAF-Holland S.A. - Director of IR & Corporate Communications [2]

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Good morning, ladies and gentlemen. A very warm welcome also from my side. I'm Michael Schickling, Head of Investor Relations. And I'd like to now hand over to Alexander Geis, our CEO.

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [3]

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Thank you, Mr. Schickling. Good morning, ladies and gentlemen, also from my side. This is Alexander Geis speaking, and I would like to jump right away on our today's agenda on Page 2, please.

Firstly, we will be giving you an update on Q1 2019 at a glance, main bullet points. Going then to the financial performance in quarter 1 then followed by the market development and later on, the outlook for the remainder of the year.

I would like to draw your attention to Page 3, please. On Page 3, we summarized 6 main points to mention, which is firstly, strong organic sales growth and adjusted EBIT margin development, which is on track. Secondly, Americas region, we see first signs of improvement. Thirdly, we have a reporting continued high investment level to support our future growth. Next bullet point to mention is significantly better operating free cash flow, we will report later on. Fifth, we also did some acquisitions with PressureGuard and Stara Group, which strengthened the competitive position on the product and the market side. And last but not least, to mention the 2 big orders for trailer axles in Europe we just got, which are in the low 3-digit million range, both, and they are underpinning our sales and earnings targets for 2020.

I would like now to jump to Page 5, please, which is the financial performance in quarter 1 and starting with an outlook or a report in Q1 for the different markets and the production rates starting with Western and Eastern Europe. We had an increase in the truck business of 3% and the trailer with a minus 15%. Here to mention that European trailer, which we will see later on, is stable for SAF-HOLLAND. That means we outgrew the market and gained further market share, which is also very nice for our future aftermarkets.

Middle section is North America. You can see an increase in the truck business of plus 20%, and the trailer was 13%. And on the right side, China, with a plus 3% in the truck business and a minus 10% in the trailer business. So you can see there's a mixed picture in the different markets.

On the next page, which is Page #6. Reporting South America, on the left side, with an increase of 5% in the truck business and an incredible 35% increase in trailer business, which is a good recovery in our South American market. And most of you might know that we have a company called KLL, and we also can confirm this from our picture in Brazil.

India on the right side. You see truck being a little bit under stress with a minus 6%, and trailer with minus 30%. We have to say here that the first half year is a tough market in India since there is a slump of the trailer market due to restrictions on the maximum payloads and buying restraints ahead of the April, May elections. But we are expecting a recovery in the second half of the year due to prebuy for 2020 when new emissions come into place.

On the next slide, which is Page #7. We would like to summarize the financials, starting with the sales. We were able to increase the sales coming from last year of roughly EUR 295 million to now EUR 346 million, that's an overall increase of more than 17%. And on the right side, we splitted that and can report an organic growth totaling EUR 19.1 million, mainly coming from with the Americas region. Acquisitions is part with EUR 24.2 million, and we also had positive FX effects with close to EUR 8 million.

Coming to the adjusted EBIT numbers, we were able to gain 22.3% coming from EUR 20.3 million to now EUR 24.8 million in quarter 1 '19. That's an increase, overall, from 6.9% last year to now, 7.2%. And this is mainly also, coming from -- in the earning improvements in the Americas region.

On the following pages, we can see the regions in detail. I would like to ask you to flip to Page #8, please. Starting with the EMEA region, we are able to report an increase of 5.4%. On the right side, you can see the splits. Organic growth was 1.1% increase. Acquisitions contributed EUR 8.4 million, in total, and we have to report a negative FX effect of EUR 1.3 million in the EMEA region.

Coming to the adjusted EBIT, you can see that we are coming from EUR 19.2 million last year, to now EUR 17.1 million, which equals 9.7% in Q1 2019. And we have to report here that we have a positive consolidation effect from the elimination of intercompany results. Last year in Q1, we had the warehouse fire in the Russian subsidiary, which increased our EBIT last year in quarter 1. Also, we can say that we see a product mix and material price effect, among others, in Q1 2019.

If you please now flip to Page -- to #9, you can see the Americas region. Starting also here with the sales, an increase of EUR 28.9 million to now EUR 131 million. This sales drive -- this sales increase is based on a strong customer demand for the truck and the trailer components. We can report a strong organic growth of 20.1% to now EUR 122 million. And also here, we have some positive FX effects in the range of close to EUR 9 million.

Now coming to the positive thing, which is the adjusted EBIT. Last year, having a negative EBIT of 0.7%, now jumping to a positive 5.2%, which is a good increase. And we can report here that we lowered our add-on operating expenses, we will see on the next page. We did also sourcing savings, we have a positive effect based on volume, product mix and of course, economies of scale with that increase in sales, and also the contractually agreed price passing on of prior year steel price help to increase the adjusted EBIT.

To mention also here is that we kicked off officially March 1, our project FORWARD, to drive the turnaround in Americas.

To give you a little meat on the bone, on the next page, which is Page #10, this is a graph showing you the historical add-on operating costs we had in 2017 and 2018. I would like to draw the attention to Q1 2018. So we had, in the Americas, add-on costs of EUR 3.9 million. And the company was able to bring that down to now only EUR 0.6 million in Q1 2019, which helped a lot to drive the adjusted EBITDA.

So we are going in the right direction. And the last bullet point here, also to mention again, is project FORWARD, will bring down further the add-on operating costs in the course of the fiscal year 2019. So here, we are on the right track.

Next page, we can see it, the summary for the APAC region. As you can see, we are jumping from roughly EUR 10 million last year, Q1 to now EUR 26 million in 2019. This sales increase is mainly due to organic growth in that region, which is 8% but mainly driven by our acquisitions, namely York, in that region was EUR 15.6 million. If you see the adjusted EBIT development, we are coming from EUR 1.3 million in Q1 2018 to now EUR 1.9 million in 2019, which is then an adjusted EBIT margin of 7.4% for this year.

The adjusted EBIT margin in APAC, the old structure is slightly below previous year's level. I reported on the Indian trailer market, which is under pressure in Q1 or was under pressure in Q1 2019. And of course, since we added the York Group, we have an overall margin dilution from the inclusion of York in Q1 2019.

Now coming to the last region we have, which is China, which is on Page #12, please. You can see that we were not able to increase the sales further, so we are coming from EUR 16 million to now EUR 12.3 million. This is mainly driven by a declining export business of Chinese customers following the trade dispute between China and the U.S. And coming to the adjusted EBIT, this goes also below the line here. You can see last year, we had a small margin with EUR 0.4 million. And now, we are negative with EUR 1 million in the first quarter 2019. The lower adjusted EBIT margin is mainly due to insufficient capacity utilization at our Xiamen plant. And as you might recall, we are working on a greenfield, so we have temporary cost burdens from the duplicate structures in course of the greenfield operation and the opening.

Here please allow me to report that a German expert team, as we reported before, was sent in April and May to China to safeguard the results for the remainder of the year and also successfully ramp up our greenfield operation here.

I am personally involved in talks and negotiations with domestic customers in terms also of long-term agreements, which we expect to get in the course of this year.

Having said that, I would like to hand over to Matthias Heiden, reporting on other financial details. Please, Matthias.

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [4]

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Thank you, Alex. I'll take it from here.

We're on Page 13 with investments and depreciation. As revealed when we disclosed our 2019 investment plan, the investment level continues to be high with EUR 14.4 million. We're now at 4.2% of sales, which is a reflection of the fact that the teams are executing the plan. This is the EUR 14.4 million reinvestment level in plant, property, equipment and intangible assets, which stood at EUR 7 million in the first quarter of 2018. Both amounts include capitalized R&D expenses of EUR 0.9 million.

Focus areas of investments where, as Alex already mentioned, the Chinese greenfield project and investments in the United States into efficiency gains and expansion investments. The 2 taken together alone amount to around about EUR 11 million out of that EUR 14.4 million.

Given the higher investment level, which started last year, we also see this reflected on the depreciation line as shown, now up to EUR 9.5 million in the first quarter.

Turning the page and looking at the net working capital ratio. Overall, net working capital is up by a total of EUR 36.6 million or 22.7% mainly driven by inventories who were up even larger by EUR 44.1 million, mainly due to ensure timely delivery to North American customers to allow us to capture growth and market share.

Trade receivables only up 5.2% on improved cash collection, and then a successful management of trade payables that were up by EUR 23.3 million compared to the first quarter of last year.

Important to mention in the overall picture, of course, the net working capital ratio, which increased to 14.3% from 13.5%. Whether that is the comparison to the first quarter of 2018 or the fourth quarter of '18 doesn't really matter at this point because both the levels in both quarters were at 13.5%. But what is important because that takes us to the next page already, is that the increase in net working capital from those 13.5% to 14.3% is not as steep as we have seen it. For example, in the transition from Q4 '17 to Q1 '18, which then and now finally coming to Page 15, is also reflected in the cash flow development.

At EUR 8.6 million, cash flow from operating activities was significantly above its Q1 '18 level, where it stood at minus EUR 22.5 million. And despite this renewed increase in sales that we described on earlier slides, the increase in net working capital, as just stated in the first quarter of '19, was significantly lower than last year. And net of the investing cash flow into plant, property, equipment and intangible assets of EUR 14.4 million, the operating free cash flow improved substantially to a minus EUR 5.9 million compared to minus EUR 29.5 million a year ago.

We consider this to be a solid base and a solid start into the year to achieve our full year target of generating positive operating free cash flow. Again, yet, having said that, the full focus on net working capital management continues. And just as much as the expert team has gone to China, we also highlighted when we talked about our annual results in Frankfurt, that we would deploy additional assets on net working capital, that has been executed and is in full swing. But of course, that focus of the organization needs to continue throughout the year.

And with that said, I hand it back to Alex who will wrap it up by giving you an outlook into the markets as we see them today and talking about our guidance.

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [5]

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Thank you, Matthias.

I would like to draw your attention to Page 17, which gives you an outlook for the fiscal year 2019 in terms of different markets. Also here, starting with Western and Eastern Europe. To summarize this here, it's 2% is the market to be expected to grow in the truck business and the trailer business with a minus 10%. The middle section, North America, you see an increase in truck by plus 4% and trailer by plus 3%. And China on the right side, you can see truck with minus 4% and a minus 15% in the trailer business.

Having said that, I would like to go to Page 18 now, to complete the outlook in the markets starting with South America. You can see further increase in truck with a plus 17% and the trailer market with a plus 5%. And India, with the truck business declining by 12% and the trailer with then a minus 6% decline.

So having said that, coming on Page 20 now, please, to the financial outlook for the fiscal year 2019. We already talked about our 2018 results, so I would like to draw your attention to the middle section, which is the outlook for 2019 and reconfirm, firstly, the sales to increase in the range of 4% to 5% over 2014 (sic) [2019]. And most importantly here also to mention, the adjusted EBIT is predicted to be around the midpoint of the 7% to 8% range.

Net working capital, we would like to achieve the 13%, and CapEx reported on roughly EUR 68 million to EUR 70 million in the course of 2019.

Going now to the last page, which is Page 21. You can see the key takeaways, which we would like to give you. So you see there is a mixed picture in the relevant markets. Secondly, which is very important, is North America is well on track with further improvements coming with our dedicated restructuring program FORWARD starting March 1 -- started March 1. Thirdly, countermeasures are in place to improve the Chinese efficiency. And then we have to report, we have our full focus, also as Matthias Heiden mentioned, on the net working capital management. And last but very important, we can say we take back control of our performance.

And having said that, thank you, everybody for listening to us. And I would like to hand over to Mr. Schickling again.

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Michael Schickling, SAF-Holland S.A. - Director of IR & Corporate Communications [6]

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So the lines are now open for your questions, please.

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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 Yasmin Steilen calling from the Commerzbank.

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Yasmin Steilen, Commerzbank AG, Research Division - Research Analyst [2]

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Three, if I may. First of all, on group level. Could you shed more color on the 30 basis points gross margin improvement? Or put it the other way around, could you also quantify the headwinds from the inventory write-down? Which region is affected?

My second question would be on China. I mean obviously, we have limited visibility on what Trump will put up. So there's no visibility on the tariff issue. But could you shed more light on the temporary cost burden from the duplicate structure that you mentioned? So when will the greenfield plant to be up and running? And is it fair to assume a granular improvement already in the second quarter? And also return it into positive territories in the second half?

And the last question on the guidance. Following your Q1 results, your fiscal year guidance of 4% to 5% sales growth looks -- yes, rather cautious. Could you give us some color on what kind of headwinds you expect in the coming quarter?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [3]

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Yes, I can -- Yasmin, thank you for your questions. You've had me pensive there for a second, preparing for the third answer.

And just to keep them in order, your first question was around the gross profit and the investment. And of course, on the positive side, let's remind ourselves, although we didn't have it in this presentation this time, of the visualization as to what impact gross profit in the Americas. So in the gross profit, everything is still included, which also means that as we see improvements past year prices on -- and to take down additional operating costs, there is a reflection -- a positive reflection, this time around, in the gross profit because the impacts has become lower. But you inquired more specifically about the headwind from inventory. And here, we have headwinds. Just to give you a ballpark figure because I ask for your understanding if I don't want to go into too much detail of around EUR 1 million headwind, just to put that into perspective. I hope that helps you.

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Yasmin Steilen, Commerzbank AG, Research Division - Research Analyst [4]

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Thanks very much. That's very helpful.

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [5]

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Okay. Thank you. And then I have to look at Alex who prepared, I think, the next set of questions. Do you want to go into China?

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [6]

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Absolutely. Yasmin, I would like to give you a little bit more light into the Chinese business. So basically, we have 2 different streams of revenue in China, which is obviously the domestic market. But also a good portion of our overall business goes to the U.S. with the so-called intermodal business, that's container chassis. Basically, we have a burden coming from the U.S. Everybody knows that there is some tariff talks between the U.S. and the Chinese government. At the moment, we have a tariff burden of plus 10%. So the U.S. government puts a 10% burden on everything coming from our plants into the United States. This means for us, there is a price pressure not also on us but also on our clients in China, building those components and trailers to be shipped to the U.S.

That's the reason why we increased our focus very much on the domestic market and also the domestic clients, not only the really big ones, but also the medium and the smaller ones to increase, first of all, the sales and also limits the dependency on big customers but also on the export business.

And one more question from your side was, when we are going to open the greenfield. So the greenfield is running at the moment with the installation of robots and machinery. So we have dedicated teams doing this, and we expect the greenfield to be ready in the second half of 2019. This expert team is led by our COO, which has 10 years of excessive experience in China. He was living in China over the last 10 years. So he is there on a, let's say, half-permanent basis to really make sure that we safeguard our Chinese operations.

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [7]

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Yasmin, did we cover them all? Because there were 3 of them, I just want to make sure we didn't miss anything.

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Yasmin Steilen, Commerzbank AG, Research Division - Research Analyst [8]

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Yes. The last one was regarding the guidance. Just looking at your top line guidance of 4% to 5% sales gross, including M&A. It looks rather conservative after the first quarter. But would like to get some more insights on what you expect on potential headwinds that you do not become more positive after the first quarter.

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [9]

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Yes. Thank you for asking that question, which gives us the opportunity to put that into perspective. Maybe we were a little quick on this, but this is what we have included the second set of market development-related slides for in the presentation to convey the message, and we have been consistent about this. Also in the key takeaways, there's a mixed picture in relevant markets. And at this point in time, it's a little challenging for Alex and me to look into the second half of the year because we cannot ignore the signs that we see reflected in the market research, those were Pages 17 and 18, that there is some headwind in some areas of the world.

I think we are well positioned, which is why we still hold onto positive growth overall, but we cannot ignore that. And that is what we wanted to convey with that. And that is why you might think after a good start into the year, this looks a little conservative, but we wanted to put that into perspective by sharing our view on the markets.

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [10]

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Maybe one last point to add here. In Q1 2018, we didn't have all the acquisitions there on our P&L. So they were on this team in the Q2, Q3 and following Q4. So to compare Q1 last year with Q1 of this year is a little bit of a different look than going into the remainder of the year.

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Yasmin Steilen, Commerzbank AG, Research Division - Research Analyst [11]

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For sure and I completely understand this. But just looking on the organic growth, it was still at 6%. So it gives you at least some cushion for the remainder year?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [12]

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We're working hard on it.

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Operator [13]

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And the next question comes from Christian Ludwig, who's calling from Bankhaus Lampe.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Analyst [14]

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A couple of question from my side. I'll just pick up where, basically, Yasmin left off. Could you just give us maybe an indication how Q2 is currently running, especially with respect to Europe? And as -- I mean the market predicted some minus 10%, you said in Q1, you were basically flat. Sort of nice market share gain there. How do you see the second quarter, so far, developing in Europe, would be question #1.

And then a more detailed, you gave us a very positive -- for sure it's a very positive fill on the net working capital development. I sensed that your free cash flow -- operating cash flow improved nicely. But looking at your report, I saw that at least part of this improvement was due to the fact that you've increased your factoring by EUR 10 million, is that correct? Or did I overlook something there?

And then last question, just to round it off. You have pointed out that part of the miss in EBIT in EMEA in Q1 was due to the one-offs you had last year in your numbers. But I looked at last year presentation, there was no talk about any one-off in that number. So I'm a little bit puzzled where that pops up now or why and -- or at least, give us the size of this one-off that you had included in last year's EMEA EBIT.

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [15]

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Maybe I'll start with the third question. Christian, it's Matthias. What we wanted to avoid today, and I'll give you the number in just a second, what we wanted to avoid today because this is the experience that we've had in past calls or when doing roadshows and one-on-one, is that each and every time the EMEA margin only moves just a little bit downwards, we have this question from the community, being so concerned around the market development in Europe, which is why we just wanted to make sure we don't have that discussion again today.

The EMEA business is in good shape. The profitability is in good shape, and Alex can comment on Europe, qualitatively in Q2 in just a second. And so we just wanted to highlight that in the previous year, there is at least EUR 1 million in there on the consolidation effect from Russia. We also have included that in the Q1 report. But you are correct, Christian, we didn't make a big thing out of it in the reporting -- on the PowerPoint in the first quarter of last year. I hope that helps. And maybe Alex can build on my thoughts around the European business and talk a little bit about his observations there.

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [16]

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Absolutely. Christian, we would like to give you -- of course, I cannot mention data or figures, but I could give you a little bit outlook into 2019 for Europe. There are different views depending on the product lines. So basically, if you see the standard trailer segment, which is at the moment, under pressure, okay, we see that the order intake is not as strong as it was last year because last year in Q1 and Q2, it was an absolutely record year, not only for us but also for others in that segment. So this is one segment which is, at the moment, a little bit under pressure. Why the trailer decline is recorded to be 10% for the whole 2019? If you see the tankers, silos, they are already booked out into the middle of 2020 so you cannot get any vehicles in this year.

Also the low-beds and specialty trailers, they are totally booked in 2019, and everybody's taking orders into 2020 already. So yes, a mixed picture. Saying again that we had a record year in 2018. So if the market only would be dropping by a 10%, that would be still a very, very good year. But as I mentioned before, a couple of years ago, we started with the strategy, not only to target the big ones but also the medium and the small trailer builders with a specialty business. This pays off now, since we gained market share, especially with those, and with the new contracts with also 2 big ones we mentioned and we released a couple of weeks ago, I think we are quite satisfied with that. And we don't have a big fear for the remainder of 2019 in Europe.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Analyst [17]

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So just so I understand, you do not see, at least for SAF, a 10% decline of trailer -- European trailer business this year?

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [18]

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Well, Christian, we reported Q1. Q1, we increased a little bit so that means we outgrew the market. And of course, market will be under pressure from the statement of today. If there would be a decline, we would do our very best to also further outgrow that because we have so many customers we can compensate and actually, we are compensating.

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [19]

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That leaves us with your third question, and I really appreciate that question because it's fun for CFOs and the team that you guys actually manage to read footnotes in the report because your question arises from the footnotes of the consolidated cash flow statement and the quarterly statement.

You're absolutely right. As part of the focus activities on net working capital management, and this was also transparent in the full year report already, I had accelerated because we signed another factoring contract with a banking partner, the factoring program, and at this quarter, it was EUR 42.9 million versus EUR 30.5 million in the year before. So that is true.

I don't want this to be misunderstood in such a way SAF-HOLLAND is just resorting to factoring to drive up the cash flow. It is overall around the acceleration and improvement of the cash flow -- sorry, of the cash conversion ratio and thus, the availability of liquidity to the group at an earlier point in time. This is to be seen in combination of the full program that we're running internally to keep the organization focused on cash collection at the same time.

So when I said earlier, on improved cash collection, it is certainly impacted by factoring, but on the other side, we are also really accelerating our assets. And we're going after some of the things that, in the past, we haven't really been too focused on and that is part of the focus group that I am leading that was assigned to me from the Board. I hope that helps, Christian.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Analyst [20]

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Could you just give us an indication, what you believe your average factoring rate for the full year will be? Is this EUR 40 million a good number? Or do you believe it's going to rise actually further to, I don't know, EUR 50 million, EUR 60 million, further?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [21]

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No, I think it is a little difficult to sort of look into the crystal ball here. But I think the EUR 40 million should be around about a good number, give or take. I hope that's a fair answer because I have no plans up my sleeve at this point to prudently accelerate this into one direction just to make it look nice. Because what is important, that we substantially refined, if you like, for lack of a better expression, the cash flow generating capability that is inside this company. We have lost it for a moment in '18, which is reflected in the numbers, but the idea is to get back to those levels but not based on factoring alone. So the EUR 40 million should be a good yardstick for you.

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Operator [22]

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The next question comes from Frederik Bitter who is calling from Hauck & Aufhäuser.

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Frederik Bitter, Hauck & Aufhäuser Privatbankiers AG, Research Division - Analyst [23]

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I would like to inquire a bit more about the Americas region. And if you could share as you've obviously been there a few times, in the last couple of weeks, and now we have project FORWARD where you're targeting this plant consolidation and the operating structures there. What is -- would you think is a reasonable midterm operating margin target?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [24]

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Yes. This is the couple million-dollar question. Thanks for that. And maybe I take a stab at that.

I believe it is too early to talk about reasonable midterm margin target. And I'm saying that for a couple of reasons. Number one, I don't really like to guide on regions, that's not something that we do; and number two, you have seen us do this last year, a couple of times, and then we ended up in negative surprises. And you heard during the annual conference in Frankfurt from both Alex and me, that we want to focus on execution and improving the overall picture.

Now with that said, as an introductory statement, that sounds a little bit like I'm trying to avoid the answer, which I'm not. I think midterm, right, we need to come out of this. And midterm, in the Americas region, and you know the weight of the region in the financial model, will contribute to us making the 8% margin target.

Now whether it will be -- at which point in time, I should say, it will be non-dilutive to the group margin, that is too early to say. And I would rather be held accountable, together with Alex, on this in the future. But what we see right now is that the plan and the financial model for '19, and I'm wording myself very carefully because it's only 1 quarter gone, but it seems to be working out at this point. And if you look at something that Alex mentioned earlier already, but on Page 10, we showed further decline in the add-on operating costs. If I may just come back to that for one second, those EUR 0.6 million are composed of expedited freight and logistics surcharges, still very few compensation payments and debit notes from 2 -- or from customers and much lower planned efficiency -- inefficiencies than in the past. So what I'm trying to say is the improvement in the Americas' margin has those elements that Alex highlighted, but we also slowly but surely see improvements at plant level kicking in. And depending on the speed at which we can execute that, you will have that at margin improvement. But given the scope of the task and how we failed at it in the past, please allow me to not sort of nail it down as to a specific quarter in the future and one specific margin target. I hope that is acceptable for you.

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Frederik Bitter, Hauck & Aufhäuser Privatbankiers AG, Research Division - Analyst [25]

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Yes. I know you, obviously, you give a lot of details where I could read some things from at least. So that's already helpful. And thanks for the clarification, Matthias. That's quite helpful.

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [26]

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Maybe let also one addition from my side so we can speak about the history. So historically, that region was, in some years, already somewhere around 8% to 9% adjusted EBIT. This is a good number. You like that? Okay. What we are going to do and what we did already is we push our focus on the fifth wheel business to further increase the aftermarkets. So we had a dedicated team now looking into that. So we are pushing a lot and we have the highest market share of all of the suppliers in that industry.

And secondly, we see a further increase of disc brake technology in the United States and Canada and also in Mexico. This is our bread-and-butter business, this is where we are good at. Worldwide, we are increasing our production to fulfill the demands of the big fleets. We gathered some big fleet orders already last year but also this year, and we are -- draw our attention mainly also to this product group, which is a good product group and is a good contribution to the overall margin.

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Frederik Bitter, Hauck & Aufhäuser Privatbankiers AG, Research Division - Analyst [27]

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And then you're talking about operating margin but this time in APAC. Could you comment a bit on how the York integration is actually developing? Obviously, it was still margin dilutive in Q1, but where do you see this business in terms of margin in the future?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [28]

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Yes. Frederik, overall, the York integration has progressed very well, both on the business integration side, meaning addressing the joint customers and the new customers that we acquired but also with regard to the synergies that we baked into the business case on the sourcing side, number one. And number two, from the legal entity integration, some of those smaller legal entity integrations still take some time until they have the last tick marks from the authorities because here we are in a region where you need a couple of approvals and not just one. But that is very well on track. What we have seen though through Q1 now is that, as Alex described, we've been hit by a downturn in the Indian market, which obviously drops through the P&L and just impacts the overall margin of the York business and then now, the stand-alone region.

What I have said in the past is the following in terms of enabling you to bake this into your model. We show a 7.4% start into the year, mainly driven by the reasons stated on the slide. But I said that the overall target for APAC mid-term, and hopefully also already at the end of the year, is that it is non-dilutive to the 2020 margin target of 8%. And this is how we manage the region on the adjusted EBIT line. We now just need to make sure that we work successfully through the situation in the Indian marketplace. But that's how we look at York being obviously one of the cornerstones in the APAC region.

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [29]

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And to add also here from my side, basically the biggest market for our company, York, is India. In India, we grew the market share, meanwhile, to roughly 50% of all the trailer production in India. And what we saw is a totally underdeveloped aftermarket there. So basically, we didn't have a dedicated team taking care of the aftermarket. And this now also is under evaluation because this also shows a big potential for us in the years to come.

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [30]

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So with that focus on the aftermarket, we will be able to leverage those 200-plus service stations that York has across India already that we acquired that were very attractive to us when we went after the acquisition. We just now need to refocus them onto serving the installed base.

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Frederik Bitter, Hauck & Aufhäuser Privatbankiers AG, Research Division - Analyst [31]

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That's very clear. And the last one I had is just a small housekeeping question also on the finance side though. What's your guidance for PPA and restructuring and transaction costs in 2019?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [32]

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That should be in line -- based on what we have at this point, in line with what we have seen in the past to where I said that you should assume probably a run rate of EUR 2 million per quarter. I have touched on that in previous quarter calls, where it was a little bit higher because we had that step-up on inventory from the York acquisition, where it was somewhere around EUR 2.3 million as a result of that. But for the full year, without meaning this to be guidance but just to help you in your understanding, it should be around EUR 8 million for the 2018 acquisitions. And then there is a little impact, like a small impact from the small acquisitions that we did in '19. But from the '18 acquisitions, it's EUR 8 million.

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Frederik Bitter, Hauck & Aufhäuser Privatbankiers AG, Research Division - Analyst [33]

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Yes. And what about restructuring and transaction costs?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [34]

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Restructuring and transaction cost is something that I cannot forecast at this point, given that the overall, as Alex said, we will see restructuring cost arising from project FORWARD in the future as well. And that is -- and forgive me for that, that is something that I cannot necessarily forecast at this point because we will work with external help and consultants to help us on our way. If I tell you that restructuring and transaction costs in Q1 were EUR 3.5 million at this point, then that is something that is not necessarily super helpful because it might not be indicative of the quarters to come. So bear with us on that one.

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Operator [35]

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The next question comes from Mr. Nicolai Kempf, who's calling from the Deutsche Bank.

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Nicolai Kempf, Deutsche Bank AG, Research Division - Research Analyst [36]

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It's Nicolai Kempf speaking for Deutsche Bank. One question on your largest region, Europe. You mentioned negative product mix effects. Can you specify them? And also maybe your product mix in the U.S., how does that improve?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [37]

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Yes. Maybe I can start and then -- from a financial analysis perspective and then Alex can chime in if he likes more from a bottom-up, from a customer-facing perspective. Overall, when we include the phrase on the product mix side, it can mean 2 things. But in this case, specifically in EMEA, it means that the OEM business was a little stronger than the aftermarket business, which obviously has a margin impact at the same time. And then sometimes what can happen, that within the product mix that you sell, that you sell products that are slightly less profitable than in the previous quarter because you sell some more standard rather than variants. That is the root cause of that.

In the Americas, we have that structural growth driver on the trailer side. So we did grow and gain market share because we see a good movement and momentum in the U.S. trailer business that we run. The demand for the disc brake is there so that is on track. But at the same time, we also performed well on the Americas aftermarket because we've actually managed through the increased efficiencies, for example, to further reduce, although it was not a massive impact, but to further reduce the aftermarket backlog in the U.S., which obviously helps on that as well.

Then just to sort of repeat something that we tried to explain in Frankfurt during the press conference, something that we have also executed which is impacting the margin in this distribution, are the exercises around analyzing the product portfolio and the customer relationships, meaning that we stop selling products at negative margins and review individual customer relationships to make them more profitable. And that is then obviously also contained in the term product and/or segment mix. I hope that helps, Nicolai.

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Nicolai Kempf, Deutsche Bank AG, Research Division - Research Analyst [38]

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Yes, that's clear.

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Operator [39]

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The next question comes from Franz Schall, who's calling from Warburg Research.

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Franz Schall, Warburg Research GmbH - Analyst [40]

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I have really one last question regarding your margin, especially in the Americas. Can you probably specify the impact of the lower steel price we saw in Q1?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [41]

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You find us digging and turning some pages on speaker. The one thing that, at this point, and I don't mean to answer with a return question, but the impact of the lower steel price in Q1 is not all that significant for us on the purchasing side. What is more important is that we have passed on the historic steel price increases from the second half of '18. Because under those price index clauses that we have in customer contracts, we had a cut-off point with the 31st of December or the 1st of January. And if I now say that there was a small benefit from lower steel price increases, that would distort the picture because the impact of raising prices with the historic -- or based on the historic steel price movement outweighs that or as to that, I should say.

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Franz Schall, Warburg Research GmbH - Analyst [42]

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Okay, that's clear. But going forward, is there some trend that we'll see, let's say, a smoothing-out of the steel prices for the next few quarters and that the impact probably was the highest in Q1?

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [43]

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Let me try to answer your question without giving you too much details here in the steel prices. If you see the effects driving the margins up in Q1 in the Americas, steel price effects had some contribution to that, yes. But it was not the main driver. Main driver was efficiency of sales because we increased the output that we had a lot of savings from the sourcing side, which we gained traction in Q1 already, starting end of last year. So we benefited from that in Q1. We'll also be benefiting for the remainder of the year. Steel price only has a small portion of this.

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Franz Schall, Warburg Research GmbH - Analyst [44]

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Okay, that's clear.

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [45]

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And with regard to the smoothening-out front, let's just recall -- and that is why you caught me thinking here, let's just recall the mechanism. It is a little difficult obviously for us to forecast the steel price. I do a lot of reading and researching around it. But it's a very interesting market because we don't just source that one kind of steel, if you like, but several. And then we feel that scratch steel price is a good indicator. But depending on how that develops over the first half of '19, we then have another cut-off point towards the customers for the second half. So that is just the cycle, the mechanics in the customer contract. And that is why your question is a little bit difficult to answer. As of today, you would think that there is a little bit of a smoothening-out. But it's difficult to say that going into the second half.

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Operator [46]

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The next question comes from Philippe Lorrain, who's calling from Berenberg.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [47]

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Philippe Lorrain from Berenberg. A couple of add-ons from my side. Just to bounce back on your comment on the fact that you are reviewing some products and also some customers in the Americas in order to take out products that were generating negative margins. Did that already happen in Q1, if I understand that correctly? And how is your thinking with regard to that? How long will that process actually take to be completely worked through? That's the first one.

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [48]

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Okay. So basically, what we did, we started reviewing right in the middle of Q1. I did that by myself. And if -- when we say that we are reviewing product groups and customers does not necessarily mean that we stop selling those products. So we go in both directions. First of all, we ask the question, is that product being manufactured at the right cost? If not, then we have to track down the cost, either by manufacturing smarter or with the help of our suppliers. And in the other direction, we have an open dialogue with our customers and really discuss those matters. And in most cases, it does not mean that we stop selling the products. But basically, we get a higher margin or a higher sales price we feel comfortable with. So summarizing that, we started mid-Q1 already. But it will be on under full steam, Q2 and Q3.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [49]

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Okay. Great. So it's a topic only for 2019, if I understand that correctly, more than 2020?

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [50]

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This is a process which should be done on a regular basis to at least twice a year. And this is a process now we implemented in the all -- also in the Americas region.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [51]

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Okay. Great. So an ongoing process, great. And then the second question is actually based on your guidance. I think if I take the annual report, when you were mentioning the 4% to 5% year-on-year growth that you are expecting, you mentioned actually a confident scope and FX, so confident scope meaning that you've got the acquisition effect that we've seen in Q1. But is it still valid that when you guide for the 4% to 5%, that's also excluding any FX benefits during the remainder of the year and also the ones that we've seen during Q1?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [52]

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No, that is not correct, if I understand your question correctly, Philippe, that is. What we normally do, just like any other company, is obviously that we build the financial model and guide them in the budget process based on assumptions around FX. And if those assumptions hold true, which is always the footnote on the guidance slide, which doesn't specifically mention FX. But obviously the result of the deterioration in the environment is also reflected in FX, then the guidance wouldn't hold true. What I haven't included in any guidance calculation also when I review is a headwind or a tailwind on the FX side. I look at the overall picture of the company and then I deal with FX as part of my hedging activity, if I do hedge that is, and that's part of the ongoing business. So I hope I understood your question correctly there.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [53]

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Well, I mean just in the annual report, you say this forecast is based on the assumption of constant exchange rates and an unchanged scope of consolidation. So I mean just after Q1, what you say is basically a still unchanged FX environment, so we take whatever was [guide in 1]. And now we reflect the fact that the underlying market development is a bit weaker. So we keep, overall, the 4% to 5% in reported terms.

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [54]

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That's correct. Yes.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [55]

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Okay. Good. And then to bounce back also on that guidance, in the 4% to 5% growth that you've got in the top line, would you share with us how much of that roughly is coming from the fact that you're passing through, slowly but surely, this raw material inflation that you had last year, i.e., what's the contribution there? And also if the 4% to 5% growth that you assume actually really reflect 1:1 the market conditions that you've shown in the Slides 17 and 18? I try, basically, just to understand what kind of outperformance you are generating versus the market. And is that outperformance is related to market shares or just like content afforded these kind of items and how that might evolve going forward?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [56]

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That's a very complex question that you're asking. I'll try to keep the answer crisp. And as much as the -- if I heard the first element of your question correctly, you asked about how much of the sales growth would come from passing on raw material prices from the past, which means you sell the same product at a higher price, which basically means you are in a steady state, but you kind of artificially or technically increase your sales. That is not baked in like that in the financial modeling that we did. We looked at -- in the process, we looked at market and customer opportunities. That is where that growth comes from. If there is something that helps us on the raw materials, that is good because that obviously drops through to the bottom line. But there is no assumption that x percent must come from steel price increases because, let's face it, what is it that you do in a difficult customer situation, where the customer pushes back and all of a sudden doesn't accept that increase? Then my modeling would be destroyed, where in fact, I would then say to the organization, "No, you need to go out and compensate that with another customer." That's one thing.

The other piece is if you look at the revenue distribution across the regions, with still the main revenues coming from the Americas and Europe, while the other 2 regions are certainly delivering a higher revenue share than in the past, then I believe Alex described it perfectly well that we feel that we are well positioned in Europe and that our performance in Europe for '19 should be better than what the market development is forecasted to be. And you saw yourself on the data and the performance that we feel we are well positioned in North America as well.

That leaves me with the last piece because you asked about how much is coming from market share gains and so on. Well, you saw, and maybe Alex should comment on that, but you saw on the 2 press releases that we managed to sign those long-term agreements with the 2 customers. We penetrate those 2 customers more deeply than in the past and have secured a future business as well just as much as we safeguarded the 2019 business, for lack of a better expression. So at the same time, having said that, if you penetrate the customer more deeply, you increase your share, which obviously means somebody else is losing it and I'm winning market share. Is that fair in response to your question?

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [57]

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Yes, sure. I understand then that's also reflected in this 4% to 5% growth. I was just meaning what should we expect then in the years ahead? Should we expect, for instance, if we say market is evolving at x percent that realize x percent plus another y percent factor? Because you're penetrating your customers much better than in the past and increased the share of wallet taken because market share as well. So is that an ongoing trend that you observe here? Or is it more like kind of a one-off gain and once you ramp up these contracts, that's going to be already in the financials and that's it?

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [58]

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Well, basically, if a market grows by 2% and we are also only growing by 2%, this is not satisfying for us. So satisfying for us and what drives us is to outgrow the markets, doesn't matter where in the world. Also a very good aspect of the whole thing is with the growth of market share is an increased population base. And as you might know, I also focus a lot of the aftermarket. The more population we create, the more aftermarket gains we have in the future. So we already put pressure on gaining market shares and increased population over the last couple of years, and we see also an increased market share here. This is the whole story behind that concept. But basically, if a market only grows by x percent and we also only grow by x percent, this is not why we are here. It has limits, of course, because if you grow your market share to like 60%, 70%, 80%, then you have to have a sweet spot where it make sense to further grow by defending. But defending maybe means it costs money. So we're always looking for the sweet spot in terms of market share.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [59]

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Okay. Great. And if I may just, in Q1, it is roughly 6% of any growth that you had. Just to bounce back on the comment that you made at the beginning with regard to the steel price, it was not really baked in the guidance. And I understand that because it depends on customer discussions which are not guaranteed in advance. But in the 6%, you probably still had a little bit of a tailwind as well coming from -- at least from [my sense], through at least in the States. And I was just interested to know if you can roughly quantify that effect, just to give us a little bit more color how you actually perform in volume terms versus the market.

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [60]

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So I think, Philippe, I was about to say the wrong name, sorry. Philippe, don't expect this to be a significant contribution on the top line that we would hide behind and say, "We have improved in the market," and so on. Consider this to be not even reaching the EUR 2 million.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [61]

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Okay. Interesting. Okay. And then I've got for you like 2 very quick housekeeping questions. So the first one on the add-on operating costs in North America, EUR 0.6 million in Q1 seems like it's not very high level now. I mean probably over time, it's going to go down further to 0. I'm just interested if, at this point of time, you kind of observe that and say the development might be a little bit volatile in the quarters ahead or if we should expect it to gradually trend down.

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [62]

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Well, the goal, of course, is for it to gradually trend down over time. But given that we are accelerating our efforts by introducing and executing this project FORWARD, I wouldn't exclude just to put ourselves on the safe side that there could be a little bit of a fluctuation, in case, for example, we run improvements in the plant under full steam and capacity, where we might need to incur, for example, higher expedited freight because the improvement project could potentially delay a delivery to the customer, that we would then need to catch up on by spending money on getting it to the customer on time. Because I've tried to explain a few times, not in this call but in different conversations, that the challenge has been in '18, and this is what we're finally tackling now, the challenge has been to run those improvement projects in the plants while you are at 100%-plus of your capacity. And so that is why I'm saying there could be a little bit of volatility, but our clear objective is to reduce it gradually over time.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [63]

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Yes. And that's exactly what I meant. And really then the last one, just to bounce back on the factoring question, so if I read correctly, actually the effects from factoring in Q1 was just another EUR 1.4 million because we should take into account the fact that you actually increased, really, the factoring volume in Q4 last year. Is that right?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [64]

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That's correct. We had discussed this, I'm not sure who asked the question, when I went on a roadshow in Frankfurt. But that is correct, and thank you for pointing it out if I wasn't clear on that. Already in Q4, there was a higher contribution from factoring. I had said in my answer to Christian that I had signed a new program with a factoring partner and had accelerated those efforts in the second half year. But you're right to point to the Q4 number because it is reflected in there as well, yes. But Christian's question was obviously year-over-year.

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Operator [65]

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(Operator Instructions) Okay, Mr. Schickling -- we do have one more question actually. It's from Christian Ludwig, who's calling from Bankhaus Lampe.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Analyst [66]

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Yes. Sorry, just 2 quick follow-up questions. One for Alex. You mentioned that, historically, the Americas had an adjusted EBIT margin between 8% at 9%. It was always my understanding that, that was also helped by some project orders from the U.S. military, so that should be a level that most likely would not be achievable again with your run-of-the-mill commercial vehicle business. Or is there -- has there something changed that you believe you can make that again?

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [67]

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Well, it would be great if we would get another good military contract like we had couple of years ago. But that was less than 10% of the overall volume we had at that time. And then the adjusted EBIT was even higher than the 8% to 9%.

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Christian Ludwig, Bankhaus Lampe KG, Research Division - Analyst [68]

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Okay. Understood. Great. And then finally, Matthias, the depreciation run rate of around about EUR 9 million that we had at beginning of this year, is that something that we could take as a quarterly run rate? Or should we also model in the slight increase quarter-by-quarter?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [69]

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Well, given that the investment levels go up and the share of depreciation in terms of sales is going up compared to previous years, there could be -- that will obviously be quarter-over-quarter, year-over-year increase in that. But I would turn to the slide, we're a little bit above 4% right now in terms of investments related to sales. That is the run rate that we anticipate overall. It depends a little bit now obviously on the phasing of the projects, but I have tried to describe this question or tried to answer this question in such a way that you should assume that for every EUR 10 million CapEx, you have about EUR 1.3 million additional depreciation in terms of the modeling. So you could also express this more eloquently than I just did. But that gives you a hint as to what the average lifetime of the assets is in our own financial modeling.

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Operator [70]

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We have a follow-up question from Philippe Lorrain from Berenberg.

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Philippe Lorrain, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [71]

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Directly bounce back on what Christian was asking, do I see that correctly that in the EUR 9.5 million depreciation that you had in Q1, we have as well some effect coming from IFRS 16, i.e., you increased your lease liabilities in the balance sheet by about, I think it's between EUR 15 million and EUR 20 million? And it seems to me like we should now view the operating expenses as depreciation in the P&L. And that's also seen then in the cash flow statement, in the financing cash flow as a EUR 2 million payment for these finance leases instead of the nearly 0 that we had 1 year ago exactly?

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [72]

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So it's funny that you asked that question, Philippe, because I kind of anticipated somebody challenging me on IFRS 16 this morning. So I went and spoke to my people again this morning. While I knew the overall answer, I wanted the detail. So the IFRS 16 impact on the balance sheet is an extension of the balance sheet by EUR 17.9 million, to be very precise because we put those leasing liabilities on the balance sheet. When we then look at the impact on the P&L, this is not material for the group. So that is something that is very, very low, given that the kind of contracts or the structure of contracts that we have and given the current interest environment. That's the information that I got, but that also reconciles with the numbers that I looked at. Should there be a need to follow up, we'll be happy to do that after the call.

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Operator [73]

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Mr. Schickling, there are no further questions today.

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Michael Schickling, SAF-Holland S.A. - Director of IR & Corporate Communications [74]

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So thank you very much for your participation. If you have follow-up questions, please do not hesitate to contact the IR department. Thank you, and goodbye. Have a good day.

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Alexander Geis, SAF-Holland S.A. - CEO, Chief Procurement Officer, President of EMEA & Chairman of Management Board [75]

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Thank you very much.

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Matthias Heiden, SAF-Holland S.A. - CFO & Member of Management Board [76]

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Thank you, everyone.