DEUTZ Aktiengesellschaft (DEZ) Earnings Call Transcript & Summary

Good morning, good afternoon, ladies and gentlemen. Thank you for standing by. I am Frenzy, your Chorus Call operator. Welcome, and thank you for joining the DEUTZ AG First Half 2022 Results Conference Call. [Operator Instructions] It is my pleasure, and I would now like to turn the conference over to Mr. Christian Ludwig, Senior Vice President, Corporate Communications and Investor Relations. Please go ahead, sir.

Thank you very much. A warm welcome from my side to you all joining us today for our H1 call. Please note that this call is being recorded and a replay will be available on our website at deutz.com later today. Your participation in the call implies your consent with this. Joining me today are our CEO, Sebastian Schulte; as well as our Head of Finance, Oliver Nord. As usual, Sebastian will walk you through the highlights of the performance of the group and then hand over to me as I will provide some more details on our financial figures. Sebastian will close the presentation with our current market outlook and our guidance. After this introduction, we'll be happy to answer your questions. Please note that management's comments during this call will include forward-looking statements, which involve risks and uncertainties. For the discussion of risk factors, I encourage you to review the declaimer contained in our half annual report and this presentation. All documents relating to our H1 2022 reporting are available on our website. And without much further due, I hand over to Sebastian.

Thank you very much, Christian, and also from my side, good morning, good afternoon to our first half year earnings and results call for DEUTZ. Yes, let me start, as usual, with some key operational and also strategic developments, which occurred in the last 6 months. Let me start on the new order intake. We improved -- increased again with 5% to now EUR 1.1 billion. So that's a significant milestone achieving here on half year more than EUR 1 billion. Book-to-bill ratio on the entire 6 months period was still positive as we've wandered beyond 1, 1.16. Obviously, the last month, a little sort of slowing down, but still above 1. And also in terms of unit sales, talking here about our Classic engines, which is the majority of our sales, as you know, increased by 20% to a bit more than 90,000 units. And in line, we increased revenue by 21% to EUR 930 million. When it comes to results, adjusted EBIT, now significant improvement also by EUR 26 million to now EUR 42.6 million for the first 6 months. That means an EBIT margin of 4.6%, improving by 2.4 percentage points. And in particular here on the Classic segment in the first half year, we're at 6.8%, improving by 3.5 percentage points. That means when we look at Q2 isolated, we see that later when Christian goes through the numbers in more detail, the group scored 5.6% in Q2 and 7.7% in Classic engine. So here we are -- we're moving in the right direction for sure, but will come off to some of the outlook because it's -- as you know, we're in a highly volatile environment in many factors. On some quality different and strategic points on the bottom part of the slide, we did beginning of March initiate here a new strategy process to sharpen our strategy. We define a couple of priority areas of action, come to that in a bit. On the product side, in this our hydrogen combustion engine, you know that well from previous calls one of the products we're particularly proud of and now what we did is actually we moved this first engine in a genset, and hydrogen genset we took out to the side of our partner RheinEnergie where we launched now the pilot project. So that first genset, that first hydrogen genset is now being operational. On the commercial side, one of the most important initiatives currently ongoing, mostly completed in fact, is the repricing. We said already in the last call, quarter one, we're targeting here 8% to 12% across the portfolio simply to mitigate the cost impact we have on our side. And we almost completed the second round. There's still some accounts open. As usual, they are not so easy ones, but we actually achieved quite a lot. So we'll come to that in a bit more detail as well. And one of the things, obviously, we need to keep an eye on is the whole issue of supply, particularly of gas. We're all having this discussion in Europe and Germany, in particular, what happens if we go to an emergency situation with gas supply. We for our site, we prepared quite well, particularly the Cologne site, in order to mitigate potential outages. We'll come to that in a minute. And looking at our strategy program, we call it powering progress and we have identified 4 areas of action. On the one hand, the priority side, really sharpening the overall strategy. There was some sharpening to be done. There's still to be done, but also describing developing here the road map, that's what we call on the potential when it comes to technology and future markets as well. So that left part is more under the bucket of transformation. Top right, performance, and that's been the focus of the last 6 months, and we'll go through some of the initiatives in the next pages that we're continuing here progressing and improving our performance for the entire company, but also for some individual areas. And we achieved quite a lot already. I think the numbers show that, first proof points are there. But also not to forget passion. Our passion is extremely important for a company with that tradition like us, that we need to put our values into practice improving our culture and coming from a fairly heretical setup. And the way we work and collaborate, we identified need to be approved. And the last 6 months actually showed that we made some good progress here. So -- and that's important, that's crucially important to master the headwinds we're having right now, in particular on the supply chain and on the overall economic environment. But that's something to speak more at a later stage. Yes. Looking into the, first, performance initiatives, we are kicked off. And yes, that is to do with the volatility on the markets, particularly on our supply side. I mean raw materials is a huge thing. We talked about semiconductor quite a lot in the last month, that situation is still not easy although we're getting it better, more and better and better under control. At the moment, big issue, as you all know, is development of energy prices in terms of electricity, but also the gas supply, the potential risk and, of course, logistics. It's not only the cost, it's also the transit times. So that's something which brings quite a few burden on us, but as we also know in our suppliers and also our customers, right? So that's something we need to -- we call it sharing the pain. We need to find a way of dealing with this situation together. So on the one hand, we have to work together with our suppliers. We want to absolutely defend our cost position we have, mitigate as much as possible. But unfortunately, with that environment, that's not entirely possible. So we do see significant impacts, which we now assess in a very cross-functional team with our sales, with our finance team, with our purchasing team, so the people are working very well together in several tasks for this end. Yes. In the end, it's also important that we are entering into dialogues with our customers on really finding the right way of sharing it. And we're doing that. And so it brings me in a bit to also the price increase subject. We are here on a good way because in the end, one point thing it's very important, we want to continue supporting our customers in the important path towards green mobility in the future. But for the time being, we need to work that path also together here when it comes on these headwinds, which we foresee. Moving on to price increases. And that was something we announced after the first quarter that we envisaged this range between 8% and 12% for our new engine business in 2022 because, as I said before, energy price development, raw material, logistics and product costs. And we said before that it wasn't possible to immediately pass on the increased costs to the customer due to that high level of order backlog. That still holds true to an extent particular for the first round of price increases we implemented last year. At the end of last year, we were hopping around 2%. I mean I said that was part optimistic from our point of view because then situations got significantly worse. But now we implemented the majority of accounts for the second round of price increases effective early July, some in June and some a little later, but in principle around July, and we focus on delivery, right, not an order, but really on delivery. And with that initiative in mind, we've been working very, very hard on that over the last 3 to 4 months, and that will help us easing the pressure on our profits from the [indiscernible] costs so that we are moving into the second half, let's say, with a solid position, although obviously the end of these cost increases is not necessarily achieved as of yet. But now we have processes in place and good discussions with suppliers and customers that we are beginning to be much better in managing that. Another initiative on the performance side is really to diversify our customer base. We have had a high concentration on a few big customers and we want to sharpen again the surface of our sales activities that we're really expanding our customer base not only in group A, but also in group B and C. So everything is pretty much where we have more than 2,500 units per year. We need to ensure that we reduce the dependency on individual customers, right? It's important to diversify our demand. And we want to also do that with -- together with the customers, very, very clear. We stand to commitments, no doubt on that. But it's important for the years to come, we're seeking '23-'24 as we increased resilience of DEUTZ also on the demand side. So that process is in place and making here first progress. Related to that is the subject of portfolio optimization. When we look at the status quo, we have more than 2,000 engine variants for some customers very many, and they all -- that's all a good reason for that. But in the end the status quo is also there; with 15% of our variants, they cover roughly 80% of our sales. In turn, I mean 85% of the variants cover only 20% of the sales. And out of that 85%, we have even a number of roughly 50% would just account for 2% of engine sales. And with that situation, it's quite challenging to manage the complexity and supply chain, and purchasing and production. And we need to ensure that we are also remaining here cost competitive. And so that's something we want to reduce the variants in the range of 15% to 20% process initiated first steps taken, sales. That's something where we expect also results in the next quarters really to pay off. Looking a bit further towards our green strategy or green activities. I mentioned earlier in the highlight pages our hydrogen combustion engine. And here, as said, we show -- you see a picture of the TCG 7.8 H2 built in a genset, and we put that in service at RheinEnergie, a Cologne based utility company in the area of Niehl, suburb of Cologne. And this product here in the genset combined with the generator will deliver an electric power of up to 170 kVA. We're running that for a test phase roughly 6 months and that's a great test phase. We'll expect to learn a lot about the behavior of the engine, the behavior of the product. And then the second step, we are already exploring that we're trying also to use the waste heat from the genset for heat generation to improve the efficiency further. So that's a good sort of proof point for this technology. And we get a lot of interest from several parts of the industry. We expect that we can scale that hydrogen engine up on higher volume production from '24 onwards. And obviously, we want to develop that further from just the stationary equipment utilization also towards mobility. And so it's a promising product, and we believe we have here a USP in that. So with that as a start in terms of highlights of the first half year, I would hand back to Christian who will guide you through the numbers in a bit more detail.

Thank you very much, Sebastian. Yes, let me pick up here and give you a little more detail on our H1 numbers. I'll start off with our new orders. As already you have been told, we grew the new orders by almost 5% to EUR 1.077 billion. If you look at it in detail in Q2, actually we were basically flat year-over-year with EUR 568 million in growth in the new orders. So we can see that the trend of growth is slowly coming down. And if you look at into more detail, if you look at the different segments, Material Handling was still very positive with up 22%. Also the Agricultural Machinery was up with 13%. But in the Construction Machinery business, we saw a decline of 16%. So we already see that in some sectors, there is already a slowdown in the general industry there. If we have a look at the unit sales, the picture, of course, is still much more positive as we're benefiting from our strong order backlog. We were able to grow unit sales by 16% in the first half of the year, mainly driven by our Classic business. As you can see in Torqeedo engines we're basically flat year-over-year as we already see that, especially for leisure boat sector at the moment, is slowing down as well. On the revenue side, an even better performance. We were able to outgrow our unit sales significantly. And the reason is that we had very positive price mix effects on our Classic engines. Our average sales price in Q2, just to give you an idea, rose to EUR 7,500. That is up 4.7% year-over-year. If we look at our orders on hand with EUR 770 million at the end of June, that basically relates to roughly 94,000 engines that we have in our order backlog, so basically we're sold out for the remainder of the year. And quick glance at our service business. Again, we had a very successful quarter where we started the year positively with a growth of 15%. We had a Q2 with a growth of more than 13%. So after 6 months, we're up 14% which is significantly above the more than 5% that we're targeting for a year-over-year growth. So our new service target of EUR 500 million by 2025 seems well in reach. This is also supported by the new orders we had in the business, which were up by 12%. Orders on hand only grew slightly, but this business turns very quickly. So it's not the KPI that is very important for us at the moment. What is important is we have already announced with our Q1 results that we acquired 2 more distribution partners, AUSMA in the Netherlands and South Coast Diesel in Ireland. And we're looking at further targets as I speak. So I expect there shall be some more deals to be announced in the remainder of the year. Now a quick glance at the revenue breakdown on the regions and application segments. I think there's 3 main takeaways here. First of all, all regions were up year-over-year. But as you can see, Asia-Pacific only 4%. So here, especially the weakness in the Chinese markets played a role. Chinese economy is not growing very strongly at the moment and we also see that in our numbers. On the positive side, the Americas, up by more than 50% here driven by 2 application segments: one, Material Handling and 2, Stationary Equipment or the genset business which are both very strong for our American operations. Then a glance at our profitability. Q2 was definitely a major step forward for us with an EBIT margin adjusted of 5.6%. Drivers were the increased volume of business, bringing economies of scale; the effects of the cost savings; also, of course, the price increases that we initiated in January; and last but not least, we had some positive currency translation effects included in there as well. Important to point out is that the price increases that Sebastian mentioned in the second round did not have any impact yet. But also on the other hand, the strong increase in raw material prices that we're seeing also did not come through very significantly here. So this is something that we expect to offset each other probably more in the second half of the year. For the half year, the EBIT margin before exceptional items increased to 4.6% versus 2.2% the year before. Our net income before exceptional items amounted to EUR 34 million, which led to an earnings per share after 6 months of EUR 0.28. A quick glance and some more KPIs. On the R&D spending side, we increased our expenses by almost 20%, but due to the strong growth in our top line, the R&D ratio was stable at around 5%, and that is something that I would expect to be also the case for the full year. On the capital expenditure side, we dropped by 20%, but that is only due to less investments in leasing business and the brick-and-mortar investments were basically flat year-over-year. I would expect that we see a slight increase in the second half of the year, but not to show -- we should be around the range we had last year for the CapEx for the full year. A little bit different is the picture on the working capital side. Here, we had a stronger increase in the first 6 months of the year. This is mainly driven by our inventories. They are up by more than EUR 60 million. Due to the issues in the supply chain, we have been a little bit more careful with the level of inventories we keep on hand, but also due to issues we have in the logistics sector, we have more engines at the moment on stock than we usually have. This is something that I would expect to come down a little bit towards the end of the year. But the working capital effect is also reflected in the cash flow from operating activities, despite the strong operating EBIT. Our cash flow from operating activities is down year-over-year by EUR 30 million to EUR 14.6 million after 6 months. And this effect then also, of course, is also visible in our free cash flow, which is down by a similar level, a little more than EUR 30 million to minus EUR 25 million after 6 months. And you can see this development as well in our net debt situation. Again, this is mainly driven by the working capital development and I think we will have enough time in the second half to remedy that situation. If we look at our balance sheet situation, it remains at a very comfortable level and our equity ratio is well above the target figure of 40%. As you may recall, we restructured the group's funding in May. And so we still have unused credit lines totaling EUR 155 million as loan at our disposal. Thus, we have sufficient financial headroom for any growth acquisitions that we may want to do. Finally, a quick glance at our 2 segments. I'll start it off with the Classic segment. Here, you can see that the group development is mainly reflected here. We had a growth in new orders of more than 6%. Unit sales were up significantly more with almost 20% to 90,000 units after 6 months. And the revenue development was even better than the unit sales development, as I said before, were an increase in our average price per engine due to positive price mix effect. Especially positive, of course, is the development of our adjusted EBIT margin, which came in at 6.8% after 6 months. If you look at the quarter alone, with 7.7% in Q2, we had a very positive development there, again driven by economies of scale, the price increases we implemented in the first quarter of the year, also our cost effects. And again, we also had some positive FX effect included here, we take that into account. And then a quick glance at our Green segment. Here, as I already said, we had some slowdown in new orders as the other segment for the boat engines is slowing down. Unit sales, nevertheless, was slightly up due to the order backlog and revenues were up even more as we also had some positive price mix effect here. We are now able to sell some more larger project business here on the engine side where we go into carries and small transport and stuff like that, which of course, has a higher value than usual leisure boat engines we have. On the margin side, a similar picture as we had in Q1. Due to the ramp-up costs, we're investing a lot into electrification of drives and also our hybrid drives. We still have a major upfront cost that we have to digest. This is something we will continue also for the remainder of the year and probably also for a couple of years to come until we see breakeven for the Green segment. I don't have it here for you right now. We'll keep you posted as we move on. And with that, I'll hand back to Sebastian.

Thank you very much, Christian. And yes, as you hear, first proof point of performance initiatives measures paying off, so good results. But again, an outlook which is impacted or which is influenced at least by the uncertainty we see globally from the environment. Brings me to one of the topics which we look at with concern. I guess as most of the company, most of the players in the industry, it's a situation of gas supply, something which overall we cannot influence. But what we're doing is to do our bit in order to make up this company more resilient. And in particular, for our main production site in Cologne-Porz, we have prepared the facility that, if needed, we are able to switch the heating supply and that's mainly for the painting from gas to heating oil in the short term and that's 100%. And when we use at our -- when we look at our gas consumption, that's the main gas consumer there. We are talking about roughly 20,000 megawatt hours. We're also examining different or similar actually measures at the other side, particularly in Ulm. We have a procurement market, not for the gas, but particularly equipment is a little more tense right now. On the other hand, the demand of gas, gas is very low at Ulm. So we are here well prepared for our own production. But obviously, in assessing the situation, we need to monitor particularly our large suppliers closely, which we do, particularly for our Tier 1 suppliers. Obviously, when we move to sub-suppliers or sub subsuppliers, the visibility becomes rather limited. And yes, so that's something we are preparing. And it's obviously -- one rationale for doing that is, yes, sure, to make us more resilient in terms of safety of supply. But we also contribute here as DEUTZ for the situation that might occur -- we hope it won't occur -- when there is a rationing in the country when we have done our contribution to ease the situation within what we can influence. So that's one of the measures we're doing here. And in a similar fashion, when we look at also energy, other energy and electricity, in particular, we are already using green electricity at all our DEUTZ AG sites since 2021. And on top of that, we now installed first photovoltaic system in our Cologne site on the new fire station. We are currently initiating further installations in some of the production buildings. Now that won't cover the entire need for electricity, but again, we'll do a contribution, both in terms of mitigating costs volatility as a contributor. And with our company, with our subsidiary in Morocco, Magideutz, been using already since early of this year green electricity, which is produced entirely in-house by solar and wind energy to serve their industrial energy needs, as I said, at the beginning of the year. So we're making here contribution to combat climate change, yes, on the grand scheme of things, but also on our company individuals scheme of things in terms of resilience against that difficult situation. Looking at the global market development here, our main customer areas across the regions compare the sales -- the unit sales in July versus January. We still see in Construction Equipment, Material Handling, Agricultural Machinery -- these are the big segments for Europe and North America -- an uptick also representing here in the book-to-bill, which we said earlier. China is a bit of a mixed picture. Visibility is still not great. Obviously, a lot of uncertainty still what is the political development as to the year, also how we dealing there with COVID. So that's a little bit of a mixed bag, so to speak. But it makes us positive in a way our exposure to China is, as of today, rather limited. We still see the potential the country has also for us. But we are depending currently in the years to come much, much more in Europe and North America where we're actually participating pretty well in the growth. So here we are rather good position with not having a too big exposure to the Chinese market. Yes, guidance, one of the big topics, what's the outlook of the rest of the year, for the rest of the year. And if you remember from the last call, we put the guidance -- we developed the guidance in February '22, and we put that down on hold, subject to change. We'll keep that narrative for now. But if you go through it item by item, unit sales, we set in February with 165,000 to 180,000. After half -- of the one half, we had 90,000 units. So here well on track, I would say. Also revenue, we developed at EUR 1.7 billion to EUR 1.85, 6 months 930. So also, I'd say rather well on track with still some positive potential to come in terms of volumes, but also pricing. The EBIT margin, the range 3.5% to 5.5% with the half one at 4.6% with positive development from Q2 compared to Q1. So here also in the middle of the pack, free cash flow. Christian mentioned it earlier, driven by the inventory, high transit times of the equipment, but also our safety stock because we want to really support our customers in that difficult situation and certainly not optimize working capital at the cost of closing the production in our -- at our customer site. But again, it's something we need to closely monitor particularly in the second half of the year. So until all right -- looking all right going forward, but the visibility is still low, and in that sense we are still a key subject to change, and we'll update you whenever we have information that are sufficient to put a proper guidance out of the market. So that's going to be then the next step -- one of the next steps in our capital market communication. In that sense, I would like to thank you very much for your attention. And as usual, open for your questions on our presentation. Thank you.

Thank you, Sebastian. Operator, please open the line for questions.

[Operator Instructions] First question is from Jorge Gonzalez Sadornil from Hauck Aufhauser Investment Banking.

Congratulations on a strong set of results. I have 2 questions. And apologies if something has been already commented, there are like 3, 4 calls at the same time. So my first question will be regarding China. Can you update us how was the evolution of the inventory with SANY during the quarter and your expectations for the rest of the year? And my second question will be around the view for the rest of the year and maybe 2023. So with these results, you are in a very, very good position for even beating the upper guidance of the initial guidance that you abandoned before polishing it. So I was wondering what is making you to be conservative at this point? Is it because you have any expectation of cancellations last minute in the last quarter? Or what is the reason for not confirming the guidance or even increasing the guidance? And regarding next year, I know it's very difficult to have a view on 2023. But can you give us your first vision on how next year could be in terms of the mix of the products that you have, if you expect to sell more bigger engines, for instance, less Material Handling, more Agricultural? I don't know. Is there any trend there that is going to help you to absorb any economic slowdown?

Let me start with China regarding the joint venture with SANY. So we had a -- we reported last quarter already that we had a slight loss in the first quarter with the joint venture on our net income basis. On the equity investment, the second quarter was pretty much breakeven. So it's stabilizing on a very low level, I have to say that. Last indications we got from China from SANY were positive, but they haven't really materialized yet into numbers, yes. So that's for SANY. Our other operation in China, Tianjin, we had a couple of months is where production went up, but still not on the level we want to achieve because here, the limitations from the supply chain were actually massive. But since the lockdowns in the country have recently been relaxed a little bit, we see now it normalizing at least we are now on the supply chain side. But the question of demand is a little bit of a mixed picture although the signals we get from SANY are rather positive than negative. But here, we are a little bit cautious and conservative. And so it's pretty much the same story like where we talked also in our last equity or road shows and conference. So we look at it cautiously optimistic. That's China. In, yes, second half outlook, sure, from the numbers, right, particularly the order intake, order backlog, that's solid. That's clear. It's a very high number. So -- and we also don't expect short-term cancellations right now because we talk to our customers on a regular basis, and the majority of them, in particular, Agricultural, but also Material Handling, they still have a long order pipeline themselves with their end customers. So that looks all very positive. But when we look at the rest of the year -- let me start with that before going in '23. So the rest of the year, I don't see so much of a risk of demand. I'd rather see the risk of supply. So it's like if we see the recession coming in, it's not going to be demand course, it's going to be supply course. And that just makes us very conservative in a way or cautious, I think is a better word. That's been for '22. Ingredients are clearly there with a high order backlog in terms of volume. Risks on the supply side, we see a significant adverse developments on the electricity side, for example. We have now -- we have no daily rates of more than 400 per megawatt hour. That is something we haven't seen for a long, long time. And also some of the suppliers, they are facing very difficult, very strong in orders. So that's why we are rather concerned on the cost side. But at least on the price side, with our most reliable customers, we have already reached agreements and we still have some issues here with some remaining accounts, but we are confident that we'll also solve that because in the end, as I said at the beginning of the presentation, it has to be a partnership approach, and we're going to be there for the customers. We expect them there for -- to be there for us as well. In '23, that is, yes, also a very interesting question, a very good question. So we see at the moment what we -- the signals we're getting from our customers are fairly positive in smaller engines still. And the larger engines, it's an all right picture, no significant slowdown of demand. But this is all very early stages. So very cautious to make any statements on '23. It's too early for that. I suppose we're just going to go -- we're just going to guide us through the third quarter. And by the end of the third quarter, we'll probably have more clarity on that. But so far, the individual situation, sort of the signals we at DEUTZ receive from our customers, are certainly not as negative as what the general markets keep telling, but that's something we need to be cautious about. I hope that helps a little bit, but it's -- as I said, it's a difficult point in time to make predictions for '23.

No, very helpful, Sebastian. Maybe a follow-up. So if I understood well, so the main risk that is making you to prefer to be cautious for now is that we can see maybe not cancellations, but postponements maybe in the Q4 because of the situation of your suppliers, combination of the supply chain, and the new issues we are seeing with electricity and all of this?

That's going to be around postponement from our side than to the customers, right? The customers are very keen in reserving capacities. And that's also a statement for next year already. I mean first customers are asking us to reserve capacities, and we are now carefully evaluating how we do that in the best way without harming 1 and 2 customers in particular because there might be in certain engines, there might be more demand than supply. Yes. And for Q4, there could be postponements due to restrictions in supply chain. That's very clear. Let's see how it goes. Keep you posted on that.

The next question is from Charlotte Friedrichs from Berenberg.

The first one would be around pricing. I'm sorry if I've missed this. I've had the same problem as Jorge. There's too many calls at the same time. But can you talk about how the price adjustments for your backlog has been going? What's the customer feedback here? And then on the Green segment, I'm guessing breakeven for this one is not a possibility this year, right? And on the order intake for the Green segment as well, can you give us an idea of how much of that is related to boat orders and non-boat/machinery?

On the price increase, let me start with that. Obviously, these are difficult discussions. That's very clear. I mean, no one likes to accept increased prices and that holds true for our customers as well for us when we discuss with our suppliers. But what has happened in the last month is that the situation, the inflation development, that's not a secret, that's known to all of us. So it's not like it used to be in the past a discussion about if there is a price increase, it's more like what is the price increase. And we went in the first round last year already on a very low level, roughly 2%. And now we are going in significantly higher numbers, as said in the presentation. And we are going to differentiate it because, obviously, the cost impact on the different engine types are also differing depending on what engine we are -- we have, we sell. And what we observe is that with the majority, the vast majority actually of customers we have in the end, we achieved good agreements because for them, it's also very important now to continue the business with us and the same it for us. So we find good solutions. Some of the discussions are a bit rougher, but I'm very confident that we'll also conclude them shortly. I don't want to mention here particular customers for obvious reasons. But in principle, tough time, but oriented for results. And Christian will continue a bit on the Green segment.

Yes. Charlotte, on your question on the Green breakeven, so it's definitely not going to happen this year. And I'm not going to give you a year here when we will finally breakeven because it really depends a lot on what our customers are going to. And as we said in calls before, at the moment, for the alternative drivetrains, we're putting a lot of money down to be ready when the market demands pick up, but we're not seeing really the pull from our customers just yet. The hydrogen engine will go into serial production by 2024. So that's also still 2 years out. So we don't have a lot of volume at the moment to offset our R&D costs that we're pouring into that. So for the next 2 to 3 years to come at least, I guess, we will still be investing there to be ready when the market is ready for our alternative drivetrains.

Okay. Understood. And one follow-up on the performance initiatives. I missed this session of your presentation where you want to reduce the number of -- or the variation of units that you do. Over what timeframe are you planning to do this? And when can we expect an impact on your P&L and how big could that potentially be?

Well, that is the timeframe is 2 to 3 years until we have achieved a reduction because you have to obviously do that together with the customers and also time that with the point in time when their end applications are being overhauled. So that has to be a continuous process. So -- and also that will -- we will see the impact in the course of those 3 years to sort of pro rata balance in the P&L. We'll give an update on that as soon as we have something -- rather something measurable, but we expect indeed quite good efficiency gains, particularly in production and in purchasing because some of the parts we need to procure on are also very low run of products from our suppliers. And they're facing exactly the same situation like us. They also want to enjoy economies of scale as largely as possible. And it doesn't help anyone if he develop, if he delivers to us like 10 parts per year. And in that sense, it's also like a hand in hand activity between our suppliers and our customers.

[Operator Instructions] There are no further questions at this time, and I hand back to Christian Ludwig for closing comments.

Thanks very much. Thank you all for listening, and thank you for your questions. If any additional questions should follow up, please contact us at the IR team. We'll be happy to help you out. And for the rest of you, I wish you a nice rest of the summer vacation and talk to you at the latest with our Q3 results in November. Goodbye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.