Bajaj Mobility AG (BMAG) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the report on the first half year 2024 conference call and live webcast. I am Alice, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Stefan Pierer, CEO of PIERER Mobility AG, accompanied by Mr. Friedrich Roithner, Group's CFO; and Mr. Hubert Trunkenpolz, Deputy Chairman of the Executive Board of PIERER Mobility AG. Please go ahead, gentlemen.

Okay, ladies and gentlemen, welcome to our conference. I'll start with, basically, with the headline, what we did on Friday, on our press release. Economically volatile difficult conditions led to negative result in the first half year. The outlook for the full year confirmed, basically, that's the headline but we have really very tough global conditions. We are working very hard on our program. So basically, working capital is still on a high level. So there's a significant improvements we expect for our end of the year '25. Motorcycles sales also slowed, too, in some regions down due to the high interest rate in the U.S. yes, and the bicycle market, anyway, especially in Central Europe, when Europe is in a transformation phase, because after the overheated corona hype, I think everybody has to do their homework. What's going on in our part for restructuring program? Cost management is the most important activity currently, especially, labor cost increases in Europe, energy costs and all those together. On the labor cost, we are on a very efficient tracks. Just as an indication by year's end, we will have around roughly 1,000 less employees in our group compared to last year's end. We also adjusted immediately in the first half of the year, the motorcycle production, especially here in Austria, very significantly, so that the whole sales channel can benefit out of that end, especially a tough restructuring on the bicycle division. And if we would like to jump on the market conditions globally, I would like to hand over to Hubert.

Good afternoon, ladies and gentlemen. Let me give you some insights in market environment and sales development. Let me start with, maybe, motorcycle -- we have to go back one slide, please, to market environment. So let me start with Europe, because Europe on a first-look looks positive with the total market increase in the first half year by 5%. The downturn of this increase is that the drivers of this increase were very, I would say, price-wise on the low-end positioned entry bikes, mainly coming from China. So the Chinese entry bikes were driving the European markets and premium bikes were suffering a little bit out of that. There was only one segment with the introduction of the new BMW GS, which has a significant growth, but all the other manufacturers in the, let's say, premium segments had to suffer on sales reductions. On the other side, what we see, we could maintain our market share with over 10%. And for the second half of the year, we want to maintain that -- we will see later on, we have considered all these developments in reduced supply to dealers to help them [indiscernible] the stock that they are carrying on their dealer floors. Let me then turn to North America. In North America, the total market has a minus of 4%. Note that the first-look looks worrying. In North America, we have -- we see some potential, especially for the second half of the year. Why this? First of all, we see dealer stock going down significantly in the U.S. So dealers have, again, appetite for product. Second is, especially for America, we have a very attractive product range in the -- especially in offroad, for the second half of the year, supported by an outstanding success in our motor sport activities. We just won the Motocross outdoor championship in the U.S. in the last weekend. So all this makes us look optimistic in the second half of the year. And also the first signs of decreasing interest rates are super important for the American market because most of the retail are financed and interest rate is one of the major elements of supporting retails [ or not ]. Australia and New Zealand, we see the markets are down by 7%. This goes hand-in-hand with, I would say, the global economic development. Also, the mining business, especially in Australia, is affected from that so therefore, this development was foreseeable. Other than in India, India is booming, the relevant market is up by 16%, and we have to make sure that we can utilize that. Next slide, please. So motorcycle unit sales, just briefly, when we compare 2023 to 2024, you see significant reduction in wholesales. This, I would say, is part of the strategy of the restructuring strategy because we had to bring our dealer inventories down what we really successfully did. We almost decreased dealer inventory by 30,000 units and of course, this -- we had to reduce supply, especially with KTM and Husqvarna, we had minus 25% and minus 18%. On the other side, I was mentioning before that the market was driven in Europe by Chinese products. We took over the distribution for our -- from our joint venture partner of CFMOTO for their products in most of the regions in Europe. And together with the new acquisition, MV Agusta, we have a plus of 208%. In absolute figures this means we have sold 4,200 CFMOTOs in the first half year, and 2,600 MV Agusta, what is basically the volume of the MV Agusta sales of the total year of last year. So we already have achieved that by half year. So these 2 brands will drive growth also in the second half of the year. And when we take a look on the regional split, then you see that in half year 2023, North America was accounting for 26% of the sales; this year, 21%. And this, I think, shows clearly where the potential for the second half of the year is seen from us. Next slide, please. So working capital on a high level. Yes, this is, of course, still the case because our focus was in the first half year to stabilize or reduce dealer inventory, what we have successfully done. Now in the second half of the year, we will significantly reduce the inventory in our warehouses due to the massive production cuts that we have initiated. On the other side, even if we have brought dealer stock down, we still have some challenges with that because we have to finance the dealers. We have to help them to dive through to this challenging period and market environment. And of course, therefore, we need to extend dealer payment terms and also support the interest rates with higher discounts. These are more or less the situation that we are facing in the first half year and what finally led to this unpleasant result. On the other side, I would say, we are basically on track with the restructuring. MV Agusta integration is running according plan, introduction of CFMOTO is according to plan. And with the key brands, KTM, Husqvarna and GASGAS we took the measures to really get out of this situation together with our dealers because the dealers are our commercial backbone. And therefore, we have to take care of them and look after them. Next page. [Technical Difficulty]

Ladies and gentlemen, we temporary lost connection with the video conference. The speakers are now reconnected.

Yes, I can hear you. So, bicycles, I think, Stefan, you wanted to --

Okay, then let's jump on the market environment for the bicycle to this slide. As I already mentioned in the beginning that our main market for the bicycle, it's basically Central Europe or the German-speaking, DACH area. It's the most effective one. Due to the hype in [indiscernible] corona, we have a total overloaded supply chain from the supplier to the dealer. The demand for bicycles skyrocket during coronavirus and it came down in the years before. So basically, it's a reduction of around 15%, 20% less than throughout corona, it was around 2019, 2020. So the inventories reached record levels. Still we calculated around years -- yearly volume is still in the pipeline. So it takes another year to come down. Reduction of inventories to normal level is still ongoing and it's a logical consequence is the pressure of selling prices. What are the restructuring measurements, what we are doing here? Let's jump on that, if we jump next one. First of all, we have clearly reshaped our strategy, not a mass market. We are focusing on our main motorcycle brands GASGAS and Husqvarna. And on the high end, in the bicycle, we kept Felt. In the Felt, we involved very dedicated, experienced entrepreneurs with a shareholding of around 30%. And on Raymon, we were able to sell it throughout last year. It's completed, the sale of Raymon. And the restructuring should be completed on Felt already, earlier than expected in end of '24. So Felt is already in a positive shape, in a very positive one and the high inventory level on Husqvarna and GASGAS, it will take another year to come down to a normal level. So let's jump on the results on the first half year. Fritz, please.

Yes. Good afternoon also from my side. You can see on this page, the revenue and gross profit development in comparison last half year compared with the first half year '24. You have heard the decrease of the market volumes, and you can see it here in the turnover figures, the reduction to roundabout, EUR 1 billion turnover, and a reduction of gross profit to EUR 67 million. The reason, especially for the reduction of the gross profit is, on the one hand, the lower volume, it's a product mix issue, but on the other hand, also high discounts we have used in the first half year to maintain the structure of the dealer stocks that lead to that development in gross profit EBITDA. We will see later on the split between the 2 sectors bicycle and motorcycle. So minus EUR 102 million EBITDA, which is strong influenced by the negative bicycle result, but also the motorcycle result is not at the same level as we have seen it last year because of the, already discussed and presented, decrease of volumes on the one hand and higher costs, is it the already mentioned discounts, but also the actual costs on the other side. If I go to the next slide, we see the EBIT and EBITDA development, so I'll start with the first half year EBIT '24, minus EUR 195 million negative result. It's a development, which is not -- which makes us not satisfactory, that's clear. But the main driver, and I come back to what I have already mentioned, is the bicycle segment, which brought a loss of close to EUR 120 million in the first half of the year, whereas round about EUR 70 million, EUR 75 million came from onetime effects, devaluation of stocks and pipeline effects, which put the result in such a high negative area. The free cash flow is following the development of the EBIT and EBITDA, as we have seen with minus EUR 615 million. And at the end of the day, this led to a net debt figure of EUR 1.4 billion net debt. This is, so to say, I think the biggest challenge we have. The one issue is the lower volumes we are selling the increased cost, but on the other hand, the biggest challenge we have is the high working capital, and as a consequence, the high net debt. This is a sector where we are working very hard to reduce this figure again because this is a development which is caused, on the one hand, by high stock volume in our books, but also, I would say, relatively high volume in the dealer sector. And we are supporting our dealers because the dealers are working on the frontend and they are responsible for the retail business. And so it's our duty to support in however and in which -- with whatever is possible to do their job and this caused us debt at the end of the day, a high-net debt figure. So jumping to the next slide. You see the split into motorcycles and bicycles. And starting with the motorcycle business, the motorcycle business with a turnover of, roundabout, close to EUR 1 billion turnover. And an EBIT of minus EUR 78 million, it's a negative EBIT margin, this is caused on the one hand, the low volume I already mentioned, but also the product mix. The first half year is seasonally cost, always the challenging half year. The second half year because of the product structure and the product portfolio is the better one. We have seen this, I would say, regularly during the last years. So we expect that -- go some slides forward -- we expect a much better second half year in the motorcycle business at the end of the day. The bicycle result, '24 is a restructuring case. So we expect that with that restructuring stock-wise, it will needs 2 years' time. But result-wise, we will do the restructuring in '24. And this is the reason for the relatively high negative EBIT of EUR 117 million in the first half year '24. And looking to the net debt, you can see that we have a net debt of roundabout EUR 300 million in the bicycle segment. This is cost to the stocks. We have to reduce and we will reduce within this and next year, systematically. So that we can start with our new strategy, focus on lower volumes on higher margin products. And you see the EUR 300 million net debt, which is financed by the motorcycle business. And then the other, you can see the consolidation effect at the end of the day. And this is nothing else, the EUR 264 million than the consolidation of the intercompany financing between the motorcycles and the bicycles. But at the end of the day, so end of last -- end of next year, we expect to be on a very -- in comparison with the actual figures on a much lower level of net debt in the bicycle business, which will support also the motorcycle net debt so that we come back to, I would say, a normal scenario, which is forecast for end of '25. The result development is a development, I said it's very clear, it's not satisfactory. But the good news is that we have a very stable financing structure. We have in our financing strategy we followed a very long-term oriented strategy. That means that the necessary reserves, is in on the one hand, cash but also credit lines, are given to finance this stressed year '24 but also '25. So that on this side, we have a stable situation. And you see, on the one hand, the structure of the net debt, this is financial debt of close to EUR 1.5 billion. The biggest portion are promissory note loans and private placements [ that's similar to ] financing like promissory notes of roundabout EUR 600 million, and EUR 200 million [ EIB ] loans. That means EUR 800 million are very long-term are with a duration of up to 10 years when we took that financing tools, and this is -- this helps us in the actual situation that on the financial side, we are stable. We can realize that cost-cutting program, that stock reduction program, which was also already reported by Stefan Pierer. And looking at the maturity profile, we don't have any significant repayment in '24. In '25, we are talking about the repayment of EUR 136 million. And these repayments are well covered by the positive cash flow we expect because that reduction, I mentioned before, the reduction plan for the working capital is a 2 years program. It's stock reduction on the one hand, but also a reduction of receivables out of the dealer financing support. This will give us enough cash flow potential to do the refinancing of the '25 necessity, but also '26 of roundabout EUR 250 million in total for these 2 years. So on the financing side, we see a very stable situation. And this is, I think, a very important base to do the best on the restructuring programs. Is it cost cutting? Is it a new setup of processes in their product development to get again leaner and quicker as we have been in the past? So the next slide, you see the share development.

That I'll take it because its main shareholder together with Bajaj we are holding 74%, yeah, it's a disappointment. It's reflecting what -- in the situation where we are so soon, it's getting better where I see a certain potential. But currently, it's a tough environment and that it is hard that we have a free float of 26%, so the 74% are facing the same painful situation. But you can trust me, we are on the forefront to improve that. So that's on the share price situation. So just on our -- I would say ongoing transformation restructuring program, maybe some headlines, as I already said, on the cost management, it's one of the most important short-term activities. We have, as I already said, by the end of the year, for sure, we have a total of more than 1,000 people less or employees less, which is ending up for the next year, at least EUR 70 million, EUR 75 million savings. Secondly, all other savings, even in this year, we are also expecting a serious double-digit million savings. That's clear. Then clear focus on our premium strategy, maintaining, enforcing and restructuring the KTM brand. That's the main focus. What's helping us that the strategic-wise to the right decision to take over majority in MV Agusta to led the restructuring process in the right way. It's doing good, yes. So the integration and restructuring program in MV is running well. And the tougher thing is restructuring the bicycle coming back to a profitable premium bicycle division, which has a different size what we had in mind throughout corona, that's clear. But afterwards, you're always more clever, but now let's do our homework. It is as it is. And back on stage as a person I will lead it. So that's on the transformation process, on the outlook, Fritz, please, support me.

So to sum it up, sorry, this was one slide much. We can confirm the guidance we published the last information we expect for the second half year, significantly better result than in the first half year is clear on the one hand, I explained that the motorcycle result is seasonally influenced result, and because of that better product mix and higher margins, especially in the offroad segment, we are producing and selling in the second half year. We expect a clear positive result in the motorcycle segment. The bicycle segment, we expect only a small loss for the second half year out of the operations. At the end of the day, for the motorcycle, we see a slightly positive result. In the bicycle, we confirmed the EBIT between EUR 110 million and EUR 130 million for the total year. The revenue will decline between 10% and 15%, also, this range can be, from today's point of view, be confirm. And the working capital and net debt will remain on a high level. We will reduce the number between EUR 200 million and EUR 250 million roundabout, that means we see the first reduction already in the second half year. The next version will come next year. Just to give you a feeling, we are talking now a year-end '24 of about 25% net working capital in comparison with revenues. The target, I see, roundabout in the region of roundabout 50%. So you can see that the additional potential for '25 is to be expected on that side, that the working capital and net debt will be reduced in the second step also in a very significant way to a normalized level. The good message, I already mentioned before, we have a solid funding structure. So from this side, we are very stable and can go our way as we plan it to optimize the next year's strategy to come back on track. Okay. This was the last slide of our presentation. So we are ready for Q&A.

[Operator Instructions] Our first question comes from the line of Christian Arnold, Stifel Schweiz AG.

Just a follow-up question on your last comments, Mr. Roithner, reduction of EUR 250 million you expect for '24, right? So we can expect a net debt position by year-end '24 of around EUR 1.2 billion, that's the target you have. And then looking into '25, you are looking for net debt position being below EUR 1 billion?

I think it's -- it will be, at the end of the day, from the direction it should go this way. This is clear, you know our structure in the past. For sure, we have to finance the losses in between, but this is the direction which we are going, without confirming now any figure because we are in the face of setting up the plan for next year. So we don't want to give a strong indication for next year's final figures. But trend-wise it will go in this direction because this is the biggest burden we have at the moment. This is the high stock. This is the support from the dealer network. And with the measurements we already started, especially the reduction of the product volumes, by roundabout minus of 50,000, 60,000 units. And also, in '25, the number will stay on a lower level. So as a consequence, the net working capital, the channels will be reduced. Is it their own stock on the one hand, is it the dealer stock and the necessary dealer financing, therefore, on the other hand, then that will lead to that development. So the path is very clear for us, and this is the task. So it's a reset, we are doing, on the one hand, as Mr. Pierer explained, it's a very tough cost-cutting program to -- that more than 10 years of success led to 2 complicate structures to high-cost at the end of the day. And we have to use and we use that opportunity now to realize the cost-cutting program, to lean the management structure, it's not only cutting running costs, it's also structural-wise a change. Is it in the administration, is it in the product development processes, we try to get back where we have been in the past, leaner and quicker. And this is the base for our future progress and future positive results at the end of the day.

And in addition to that, basically, it's not our specific task. It's, I would say, a European task for the industry there, because after corona and the deep globalization and all the conflicts, what we have, the demand came down 10%, 15% compared to corona time. That means cost-wise, we have increased in Europe, labor costs between -- especially in Germany and Austria more than 15%-20% and so that means you have to adjust to cut down from, I would say, a level of 2017, 2018 and that's easier. It's a real transformation for the whole industry in Europe. Because competition comes from China, even in our segment, in motorcycle you have seen in Europe, we got an increase of the total market, which is mainly if you look in detail, it's coming from very price-wise aggressive Chinese competitors, especially in Italy and France. Fortunately, we have done the right strategic decision to set up and, I would say, a joint venture and a close relationship with CFMOTO, is one of the Chinese leading brands, so that is helping us in Europe. But on the other hand, if you look on the yearly working time in Europe, we have 1,500 hours net. If I look to China, it's 2,450 or in India at our joint venture with Bajaj, it's the same figure, that means 50% more. And meanwhile, China is at least on the same level status that we are. So don't get scared because that's the reality, and if you want to compete against, you have to do really tough things and to stay very agile.

And again, as mentioned, besides the cost the reduction of volumes there in the stock, is it on the dealer floor, is it in our own stocks. This will help us to come back to healthy relations regarding net working capital, 25% roundabout we expected the year-end is too high. It will be a double-digit figure that will be the case. But so in a normal scenario, it should be between 14%, 15%. So you can do your own calculation, what does this mean. This will lead to reduce net working capital and reduce the net debt at the end of the day. In comparison with the past, we had to finance especially the losses in the bicycle. That's the case, but the cash flows will come back again in normal scenarios, so to say, starting '25, '26. And we see on the long-term run, again, at '24, '25 are years of lower revenues, that's a decision we took very seriously and very consequent. But at the end of the day, KTM can grow, but it's not growing alone. We will grow in high-margin segments. And this is the main focus of future strategy of the future strategy approach.

And in addition to that, what we did in the right time, we set up R&D and the strategic partnership in China and India. So the 790 or 800cc engine, even the 950 new one, we are doing that program in the future, mainly for the Maersk market in China. And the new under-developing procedure, the 500 cc twin in India, it's also becoming a - Maersk market in China product for the KTM. So in that, we have already the right, I would say, supply structure in the right areas at the right of assembling footprints. And the [indiscernible] in Europe or in Austria we are focusing mainly on the premium end of 1,300 bikes [ on offer ] it is specifically European product with the supply chain, what we have here in Europe.

And what is also important to mention is that it's necessary and then very important that the hedging of the stocks are in a healthy structure, and this is the case. So on this, we are working the reduction for sure, the quicker, the better, but we have to be patient to reduce step by step, but parallel to the reduction, also this hedging structure has to be stable and healthy one. And this is the second important task we have to follow. And this we support with discount programs so that they're hedging here not only '24 but also '25 stays in a very good shape.

And a question on the inventories. I mean, they also went up at your side as well as at the dealer side, and you want to decrease the inventories. So in the in the balance sheet, the EUR 938 million, here, we are just talking about your inventories, right?

Yes.

At your place. And you want to reduce that significantly on the back of your production decline plans. Is that enough because the dealers network still have above-average inventories, right? So how easy is actually to reduce your inventories? Is it just because --

Maybe I'll answer this question.

Hubert, please.

Yes, the measures that we put in place in terms of volume or production cuts are aligned with exactly the expectations that we have in wholesale for the rest of the year. So therefore, there is a plan behind. And I would say we did a radical -- really radical cut in production volumes. So therefore, our stock decline is, for sure, a realistic one. On dealer level, I would like to mention that we decreased more than 20,000 units in dealer stock during the course of the year. And 120,000 giving the product range, the brand portfolio and the number of products and dealers that we have is, I would say, absolutely normal figure. We will not see less than 120,000 in the future because then I think the dealers are getting rather under-stocked. The main thing is the quality and the hedging of the stock. So Fritz was already referring to that. And you can expect an increase in dealer stock for sure, by the end of the year again because this is a normal development that we will see towards year-end. So at the moment, dealer stock is, I would say, in a good condition. It costs -- it was really expensive to bring it there, as you can see in the financial figures. But as I was saying before, we have had to make sure that we go together with our dealers through this challenging situation, because the dealers are the backbone of our business and therefore, we have to make them survive.

The stock reduction, as Hubert mentioned, so we will -- this is not the visual thinking we are doing here. So we have a clear program how to feed the market, how to sell the products out of their own stock, and the reduction at the end of the day will lead to a reduction down to 50% of the half year's stock volume at the end of the day, the year-end. So this is what we expect. And this is what is the plan, and this is not -- as I mentioned before, it's not the target we have to reach is clear, it's the consequence of a clear program we are following.

And on the interest expenses, you had EUR 51.5 million in the first half. Is that something -- same size we can expect for the second half?

The second half year will be similar to the first half year. So it will be, for sure, that the net debt will be reduced. So at the end of the day, the interest costs will be reduced a little bit on the other hand. So we see in the one or the other credit facility, an increase of margin. But at the end of the day, we have to expect, so we are roundabout EUR 45 million interest in the first half year, and we expect a similar figure for the second half year.

And on the taxes, you had a tax credit actually of EUR 65 million in the first half. Is that also something we can calculate with going forward or is that something extraordinary here?

No, at the end of the day, there is nothing else than deferred taxes coming out of the negative side. And so we are not following a tabulation of the losses in the second half year. So the taxes will follow the net result at the end of the day. And as I said before, the motorcycle segment will be much better, and we turn the total result into a positive figure. We see a slightly remaining loss of the bicycle, up to EUR 120 million, EUR 130 million, however, so that figure will follow the net result at the end of the day.

Our next question comes from the line of Miro Zuzak, JMS.

Yes. Can you hear me?

Yes.

Yes, we can hear you.

I have a couple of questions. Shall I take them one by one? Or shall I just list them up?

Maybe one more on then it's more effective.

So the first one is an easy one there. I just realized that the stated H1 2023 unit sales, they have been revised down a bit. So in the H1 report last year, they were a bit higher. Could you please remind me there probably was some kind of deconsolidation happening also just a couple of thousand but lower?

Yes. I would expect that this coming out of a deconsolidation, maybe from the bicycle sector. But we can have a closer look to that and come back with the answer.

Hubert, this year, we deducted the e-scooters in the last half of the year, that's the reason why.

Then the second one would be on the COGS line. I read in the presentation that you had like a EUR 65 million charge from the bicycle restructuring. And the question I have is, is this the only special charge that you have in this line because I just see in terms of relative to sales, it went up still, if I'm correct further EUR 65 million by quite a large degree. I could imagine that there were additional one-off charges?

No.

Sorry, was that the answer already?

On which page?

That's the COGS figure in your P&L, like the cost of goods sales, 940.2. And in the presentation, I'll have to look it up again, but its --

It's a -- so the reason for this is the restructuring, the onetime effect of the restructuring in the bicycle business of EUR 65 million, the EUR 70 million. This is the onetime evaluation effect.

And was there any other onetime effect in the cost goods of sale --

No, we don't see any valuation issues on the motorcycle business, neither in the first half year nor in the second half year. And also in the second half year for the bicycle segment, we don't see further needs for such evaluation losses.

The next question would be on your guidance. So the minus 10 to 15. So I -- what I can see is that the comparison base will be much easier in H2 compared to H1. But still, like even the minus 15% seems to be quite a stretch against the backdrop of what currently happens in the market, mainly in the U.S. market.

This goes without saying. This will be a challenge and it's everything else than easy, but also we analyze that really in detail, and we still believe in it, even though we know that we have to give it a really, really heavy push in the American market, in the U.S. market, especially because there, we see the potential. And as I was mentioning earlier in my presentation, when you see also the regional split, then you see that there is space. There is also dealer stock were significantly down in the U.S. So in combination with what we consider as a very attractive product line. And hopefully, less uncertainties after the elections, we still believe in that we can achieve that.

And secondly, [indiscernible] spontaneous effect, it's that the Fed announced that the interest rate will come down in September. That is also a message for the consumer confidence. So that in U.S., we have a serious hope.

And do you already see that as well from your dealers? Do you see the signs? I mean everybody understands that lower interest rates are supportive. Do you see a pick up --

I updated last week, I'm going to enter tomorrow what we have so far. Hubert, has no close contact but it's my personal experience and expectation. Interest rate is -- the U.S. market is driven by retail financing. Everything is retail finance, even down to your [indiscernible] item. So and that is a big hit, every 0.5% is a big help.

What is also a good indicator for us -- what for us is a good indicator is the preorders of the dealers and they really look good. So therefore, we see that the dealer has appetite for products. And if you take a look on the measures that we took in, especially for the American market, then you see that they were really tough to the heart. They were to really get confidence of the dealers back and see that they've not let them alone. And therefore, yes, what can I say? It's everything else in a walk in the park, but we believe in it.

I can also see from the numbers that you have presented that the average price per vehicle actually still went up versus last year. Is it fair to assume that you don't reduce prices?

We did not reduce prices at all. We supported sales by promotions. So supported financing costs supported stocking costs, but the prices we did not reduce.

Then the next one would be, again, regarding the P&L. All the cost lines basically selling and racing, but also and also G&A, they were a bit worse compared to last year. I mean R&D was a bit down fair enough. But the other ones, especially selling and racing was up by quite a large degree despite the restructuring efforts that you basically undertook already during H1. Was there any onetime effect in the selling and racing? Or was it really because of the discount payment?

Maybe Hubert Trunkenpolz you will [indiscernible] selling.

So selling is -- of course, in selling, you see also a part of sales promotions, yeah. And they also shown in debt cost on the other side. Yes, racing for sure, it took some breaking time to bring the costs there because you have programs fixed and agreed with teams and et cetera. But I can confirm to you that already by the end of this year, we will see a significant cost saving programs in racing, especially for next year, even more. And with bringing demand and offer in balance again, that means producing the right products in the right quantities, we will also see significant cost reductions in selling.

And on racing, in the current season, you're running existing contracts and existing series. So to reduce costs short term in racing is always based on a yearly base. So for the next year, we have cost savings between EUR 10 million and EUR 15 million in debt.

Only in racing, yes?

Only in racing.

And so I can infer that basically the improvement in the result will basically come through the better like an improvement in your COGS compared to the sales line. Is this the main driver basically of --

It's a product mix issue. We sell in the second half year were off-road models and the off-roads models -- you know that the off-road has the highest product margins. And this is the reason why the result this half year is much better than in the first half year. And together with the first cost effects, we will see in the second half year, we will come to that positive result in the H2 in the motorcycle business.

And then maybe another one regarding the high net debt, which you had mentioned in the presentation, the EUR 1.4 billion. And the question about covenants and the potential capital injection. Is this a topic for you? I mean, what would you think would be a level where you would ask the market for a new capital?

Now you have to -- if you look to the equity ratio, the equity ratio is much lower than in the past. But this is strongly caused by the balance sheet total figure. So that means with reduction of the working capital and net debt, the EBIT, the equity ratio will get better again. For sure, as I mentioned, so the loss financing in the bicycle segment that costs equity. But at the end of the day, so we will come back in future again in positive results, and we will build up equity again. This is the one issue. The second issue is that we are especially looking to our bonded loan structure. There are no covenants agreed. We will increase the cost by 50 basis points because of covenants, but we have no cancellation covenants agreed on. And in the European investment bank financing, we are discussing the long-term orientation, the long-term development. And also in that area, we see no covenant bridge issue. So that means that this is the reason why I said that the good news under this stressed situation is that the financing is a stable one. And this was where we have a very strong focus in the past on the one hand, structuring the financing in a long-term way, which gives the company stability. It was not foreseen that we are at the stress situation now. But this is at the end of the day, bicycle has 2 directions, it's 10, 12, 14 years, it went up. Now it's going down. And we have set up the base for that development also to go through it. And at the end of the day, this is the base for future positive developments. You have to see covenants are no issue. Everything is under control.

Two last questions, maybe quick ones. You have a lot of capitalized R&D on the balance sheet. Is there any reason to assume that there will be some kind of impairment to this at the end of the year because of the, let's say, market or --

No. We have to have minor development, capitalized development costs on the bicycle segment. They are written off. This is done in the first half year. In the motorcycle segment, we see no need, therefore, also not in the second half year.

And on the bicycle, we don't have activated R&D costs, they're already written down.

And the last one, Triumph announced the motorcross for roughly 10,000 price, that's 10,000, that's roughly 20% below your price. Any reason to be afraid of Triumph from your point of view?

No.

No. It takes 2.5 years, a very nice copy of our current existing but next year, replaced Motocross bike. So there are always a generation behave. And if you look on racing who is leading, it's just KTM, the Husqvarna, and in some segments the Honda. So just yesterday or on Saturday, we won the outdoors in the U.S. so very [indiscernible] coming from.

We have a question coming from the line of Marc Possa, VV AG.

I would have only 2 questions basically since many have been asked already. The first one would be in terms of technological obsolescence. Can you remind us of the cycles that you see in off-road and road bikes? Is this like 2, 3-year cycles like in the past? Or have the cycles kind of fasten because of innovations and things that would make the existing net working capital or dealers kind of obsolete or partially obsolete? And then the second question would be -- or do you want to ask -- to answer this question maybe?

On the off-road side, I expect it's -- it will stay maybe due to the global pressure that maybe is a little bit expanding, but it's not becoming shorter. On the street, for sure, we expect a longer life cycle because the huge demand on the different technologies, especially on the high-end street bikes, it needs a longer life cycle. It's not just a -- that's my personal expectation. So off-road stays as it is, a little bit slightly longer depending on the regions. But on street, I expect extension.

What we are doing is with that lean program, lean target in the development processes, we want to get quicker again. We have been quicker in the past so that we can react to market developments in a quicker way, and it's not the reason to speed up the target is to be better than our competitors. And this is -- this was a big advantage in USB in the past of KTM and this should be wound back again. That's the reason why we are working hard also on that development processes. But it's not the need because of the reduced life cycles of the products.

And Marc, maybe some information. What we are more or less for -- so anyway, we have a strategy by doing the number or the size of R&D and the headquarter will come down due to nearshoring. So we have a very efficient operation in Barcelona, where the labor costs are 25% less than we have here in Austria. And in Barcelona, in Spain on Friday, they are still on work. I don't talk about work-life balance here in Austria, Germany, maybe in Switzerland. So that's one thing. And secondly, we have middle class in China. We are -- finally, we are just doing project steering. We make the concept. We make the project management but the detailed engineering is done in China and similar with the new 500 platform in India. So currently, we have around, in total, 800 still here in Austria. If you sit together in 2 years' time, maybe it's 200 less. But don't -- please don't communicate it, but that's the real story of what we have to do in Europe.

And this will lead at the end of the day. So this development and the product development cost structure, this will lead to reduced CapEx figure in the past. So in relation to turnover because we --

In the future?

In the future. Because getting quicker, getting cheaper, this is the target. And this will lead to reduced for the same product -- for the same product quality, reduced CapEx figure and so that relation CapEx to turnover will get better again in the future. This is the main focus we have on the product development sector.

My second question would be about market shares. We haven't really heard a lot about market share developments. I think lately, you had said that in the U.S., you had lost some market shares again. Can you maybe update us on that context for the different continents? And --

Hubert, please.

Yes. Look, our target, and this was also communicated was to maintain a double-digit market share. When it comes to markets, you have 2 impacts. The one is certainly the market size, where the market size is going down, we have a lot of movement in -- also in market share. But the main thing are the number of market participants. And here, we have seen a tremendous change over the last years because some Chinese makers are coming, other manufacturers were expanding into segments where we have been in like Triumph and Motocross even if the numbers are very low, but there's a lot of movement in the market itself. Nevertheless, we won't give in and we are keen to maintain this double-digit market share in the major regions, especially in Europe and also in the United States. But market share growth is something that you eventually has to buy for a really, really high price. And this is not what we want, yes. Of course, we want to have the double-digit market share. But the main thing for us is to be premium with the brands that we have in the portfolio, especially with Husqvarna, with KTM, with Husqvarna, MV Agusta, with GASGAS and CFMOTO, a little bit different direction, but we still call it entry premium. And therefore, the focus is on maintaining that strategy and maintaining and going back to really good margins and earnings.

And maybe one last question. Concerning the participation in the MotoGP circus. Can you remind us of your stake that you have in there and how that will be valued today? I mean taking current kind of TV streaming revenues and other measures, where would that stake be value at?

So the direct media value is more than EUR 100 million, and in direct, when we consider all the social media clicks and everything is more than EUR 400 million. So still, we're considering a gross investment of EUR 70 million, it pays off. On the other side, we are not satisfied with the results at the moment. There are a handful of Ducatis still ahead of us. And we want to change that because this would, of course, improve significantly the media value again because when you finish in the top 3 and you are part of the podium ceremony, if you're part of the interviews, post-race interview, et cetera, et cetera, you have a completely different awareness. Also, for the future, we have a strategy change. Everything in concern with high-end motorsports will be executed by KTM. So therefore, we will step out with the brand GASGAS from MotoGP by next year. And we'll have 4 KTMs on the grid. Same in other high-end motorsport activities like the American Supercross and MXGP Motocross World Championship. So we will refocus on what the brands are standing for and take aim with the ready to raise brand contact with its attributes, we consider is the right brand to do high-end racing activities. Nevertheless, of course, we will do some off-road raising activities still with Husqvarna and GASGAS, but with both brands, we will step out of road racing.

That was the last question for today. Gentlemen, back to you for any closing remarks.

Okay. Thank you.

Thank you very much.

And in a week's time, we'll tour in Zurich in Switzerland, and to have one or the other investor call. Thank you very much.