JOST Werke SE (JST) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome, and thank you for joining JOST Werke Q2 2023 Results Conference. [Operator Instructions] Our speakers today are Joachim Durr, CEO of JOST Werke SE and Romy Acosta, Head of Investor Relations. I would now like to turn the conference over to Joachim Durr. Please go ahead.

Yes. Thank you very much. A very good morning from Neu-Isenburg, and welcome to our Q2 2023 Investors and Analyst Call. Today, Romy Acosta and myself will present the results to you, and we will be able to answer your questions, hopefully all in -- after the presentation. Our new CFO, Oliver Gantzert will start on the first of September, and you will get to know him latest in the Q3 presentation then. I'm very happy to -- if you go to the next slide, please, very happy to present to you a very successful quarter for JOST, it's actually the most successful Q2 that we had in the history of JOST. We had record sales of EUR 330 million in the Q2 quarter of 2023. Very strong growth in transport with 13%, and that we were able to compensate the lower demand that we had in our agricultural products that had a minus 25% in sales. Our adjusted EBIT outpaced sales growing to a record level of EUR 37 million in Q2 in 2023. And that leads to an adjusted EBIT margin expansion by 1.3 percentage points to 11.3%. Also, our adjusted earnings per share went up by 20% to EUR 1.80 in Q2 of this year. And I'm very happy also about the cash flow development, and Romy will explain that a little bit in more detail. We've generated more than EUR 20 million in free cash flow in this quarter. So based on these very strong results, we confirm our positive outlook for the fiscal year 2023. If we look at the market developments that we had in Q2, our business was supported by very strong truck market, especially in Europe, trailer markets are somewhat normalized a little bit with a minus 3%, tractor market was quite weak. Overall, JOST achieved a minus 3%, so our growth in truck could outweigh the reductions that we had in the other two sectors. North America continued strong in truck and trailer market, also a contraction in the tractor market. So we were more or less even the minus 1% overall. Asia Pacific, Africa, strong growth in the market, especially due to China with plus 44% and the trailer market plus 15%. We generated 36% higher sales. If you would look at that in original currency, that would be 50% increase, but with the FX effects, it becomes 36% due to exchange rate changes. So very strong quarter. I'm very happy with the development, and Romy will present to you a bit more financial details.

Also welcome from my side. I'm very happy today to give you the deep dive into the financials for the second quarter. I will be focusing on the second quarter numbers as usual, and we will start with the European region. As Joachim just mentioned, in Europe, we saw a decline in sales, a slight decline by 3% to EUR 178 million, which reflects the development in the underlying markets, a very, very strong development of the truck markets that almost managed to compensate for the weakening in the trailer markets and in the agricultural markets. We did have a very robust development in the aftermarket, which is a typical development that you see when first-fit sales starts to go down as we saw in the trailer and the agricultural products. And we had a bit of headwinds from the currency exchanges, especially from the Swedish krona, adjusted for that, actually, the decline in sales could have been only 0.6% compared to prior year. Despite this slight decline in sales, what was very positive was the strong development in profitability and adjusted EBIT, which grew in the quarter by 15% to EUR 14.3 million, which was great improvement compared especially to the prior year, where adjusted EBIT margin was 6.8%, and we managed to achieve this quarter 8.2% adjusted EBIT margin in the European region, despite Europe bearing the headquarter cost for the region. Of course, last year, we had a very strong impact from the outbreak of the Ukraine war. And if you remember correctly, a lot of our truck OEMs were affected by the lack of wiring harnesses, which disrupted the supply chains as well as we had a lot of input costs that sky rocketed due to the war especially the supply chains, we are happy to see, have stabilized at the end of the fourth quarter, but also continuing so in the first quarter and now in the second quarter of the year and sea freight rates have gone down significantly, which is very positive for the development of profitability in our Ag business. So despite the decline in sales, we saw a very strong development of profitability in the agricultural business due to the fact that a lot of the products that we sell in Europe are pre-produced in China, and those the -- one of the major input cost factors is logistic costs. So that overall was a very good development, and we are seeing Europe going back on track to the profitability levels that we saw in the past, and we will continue to work on this in the future. If we move to North America, here, we see a bit of the same picture, very strong transport markets. Here, not only the truck markets were good, also the trailer market continues to be very strong in the North America region. However, the decline in the agricultural market was also stronger than it was in Europe. And the reason for that is that if you remember, last year, we had a very strong boom in the so-called compact segment for the tractors, which is no longer the case in 2023. So that here is where we saw the biggest decline in sales in agriculture, compensated almost completely by the strong development in the transport sector and also very good aftermarket. Headwinds for the first time, I think in like 2 years, the translation effect of the dollar to the euro player has worked against us in a set -- for us so that we have a 2.3 percentage point headwinds from currency exchanges. Adjusted for that, we would have seen growth in the North America region by 1.7%. Also here, when you look at the bottom line, adjusted EBIT grew outpaced in sales by 8% to EUR 10.3 million. And what we are quite happy to showcase is that our adjusted EBIT margin continued to be at 10.5% higher than last year, but on the same level as the very strong quarter of -- the first quarter of this year, which is the highest adjusted EBIT margin and profitability we've ever achieved in the North American market. So we are quite happy with this development here to what we are seeing is on top of the efficiency measures that we've put in place to compensate for the high cost that we saw last year that with the stabilization of the supply chain and the reduction of logistic costs, these measures are able to unfold further. And of course, North America, that's not beared the headquarter costs, so you see a major impact as well of this profitability development. And with that, I go to the next region, which is the highlight for this quarter, the Asia Pacific Africa region grew by 36% to EUR 55 million more as a EUR 50 million more than in Q2 of last year, but also higher than the Q1 of this year, in which we had sales of EUR 50 million. And that's despite the fact that currency exchanges worked against us in all regions for headwinds of 13.7 percentage points. Adjusted for that, as Joachim mentioned, it would have been almost 50% growth. Here, too, we see the very strong development that we've already saw in the prior quarters of India, Southeast Asia, the Pacific region as well as South Africa, but more important, we are seeing the slow recovery of the Chinese market. And that, of course, boosts sales for JOST because we are well represented in that market. The profitability also developed quite nicely, growing by 31% to EUR 11 million in adjusted EBIT and adjusted EBIT margin was 20 percent points -- sorry, 20.1%, which is still beyond the 20% despite the fact that China is coming back. And if you remember from the past, China, does tend to have a different product mix that we see in the other regions -- in the other countries in the regions with more on-road products. But despite of this, we are still enjoying a very good and strong profitability in the Asia Pacific Africa region also driven by the better utilization rates in our Chinese production plans. And with that, I'll move on to the group overall, the second quarter, as Joachim mentioned, the strongest second quarter we've had so far with sales of EUR 330 million total, growing by 2.6% compared to prior year and adjusted for the negative effects that we saw in all regions that growth would have been 6.4%. Transport developed very, very strongly both especially trucks and of course, the Asia Pacific/Africa region overall growing by 13% compared to the prior year quarter, whereas agriculture decline by 25% to EUR 67 million. So overall, the -- we are quite pleased with this development. You see it also in the adjusted EBITDA profitability was increased by 16.3% in the group to EUR 37.3 million and the adjusted EBIT margin in the quarter was 11.3%, which is higher than prior year. But even if we look 1 year further back when we did not have the impact of the war and all these skyrocket in supply costs and supply chain issues that came with the war in the second quarter of 2021, our adjusted EBIT margin was 11%. So we managed to actually improve open that. And I think that showcases the strength of the business and how we are positioned, the fact that the markets that are doing really well this year, which are trucks and the Asia Pacific, Africa regions where markets that last year were doing less well. If you remember, we had a lot of disruptions from truck OEMs and Asia was very down due to China. Those are the markets that are now pushing the growth. And this highlights one of the key factors that we mentioned at JOST and is that actually, the fact that we are very widespread geographically and have a very wide product mix and different business lines, help us to cope with shifts in demand and that also reflects in the development for the overall group. So in conclusion, when we look at the numbers year-to-date, sales grew by 6% to EUR 672 million, and adjusted EBIT grew by 16% to EUR 77 million with year-to-date adjusted EBIT margin of 11.5%, which is something we are quite pleased to report to you today. And with that, I move further down the P&L to the net income and earnings after taxes. Reported net income went up by 19% to EUR 45 million and you see the typical adjustments that -- sorry, we add taxes on that and then financial net income -- sorry, the financial result and that was less -- so that developed negative compared to last year. Last year, our financial result was only minus EUR 3 million. This year it is a minus EUR 8 million, mostly due to the much higher interest payments for bank loans that we are seeing due to the fact, of course, that interest rates have increased. If you see here the numbers, also interest rates payments were up by -- to EUR 6 million compared to EUR 2 million on the last year. And then that brings us to the reported EBIT of EUR 62 million, we are at the PPAs, which developed -- depreciation and amortization for PPAs, which developed in line like in the prior year's EUR 12 million, other exceptionals went up to EUR 3 million, and that's also in line with what we had last year. This year, they are mostly coming from the India production plant, and that brings us to the adjusted EBIT of EUR 77 million, I mentioned before. Then we will down the bridge subtract the finance result and the adjusted taxes and come to an adjusted net income of EUR 56 million for the first half of the year, up 14% from last year and adjusted earnings per share of EUR 3.79, which is the highest we've managed to achieve in the first half of the year. So also here, a very strong development of the P&L that also reflects, again, on the development that we see in the balance sheet items with ROCE going up to 19.8% compared to year-end, driven by the very strong development in adjusted EBIT, a very good equity ratio at 37.2%, also an improvement compared to year-end despite the dividend payment and when we look further down to the net debt here, I too would like to highlight that cash remained very stable at EUR 80 million compared to year-end despite the fact that we did pay EUR 21 million in dividends in the second quarter of this year. And despite this payment, net debt remained very stable at EUR 197 million, so that the leverage was down compared to year-end to 1.18x on the same level as at the end of the first quarter. And the reason for this strong development is, of course, the cash flow. And here is what Joachim mentioned before, something that we are quite proud to show free cash flow double in the second quarter to EUR 20 million compared to the EUR 9 million that we saw last year. And if you look at the year-to-date numbers, that's even more impressive because our free cash flow was at EUR 33 million year-to-date compared to almost minus EUR 4 million negative free cash flow in the first half of the prior year. And our cash conversion rate has also doubled to 0.8x as from free cash flow relation to adjusted net income, and it's very close to coming back to the onetime that we actually have as our target. And this development, we managed to achieve that despite higher CapEx expenditures of EUR 7.5 million compared to the EUR 6.4 million in the prior year, all well within our guided range of 2.5% of CapEx compared to sales. We are in the second quarter at a ratio of 2.3 percentage points, and the fact that it went up compared to the prior year has again to do with the investments in the Indian production plan. The reason, of course, for this very strong development in cash flow comes to working capital, the measures that we have implemented through the past quarters are showing effect. We see especially a very strong and positive development in the inventories, which have gone down by EUR 28 million compared to the prior year. We are well below the EUR 200 million threshold and also further down that the EUR 199 million in inventories that we had at the end of the first quarter. Also, trade receivables have gone down despite sales growing. And the only thing that it's different is the -- or is a typical or it does not impact positively the working capital would be the decline also in trade payables, but that has to do with the measures that we've put in place to reduce inventory if we are trying to continue to reduce the safety stock that accumulated due to the supply chain issues over the past quarters, and those are not repurchasing as much materials as before, and that's the reason also for the decline in trade payables -- sorry, in trade receivables. So overall, the relation of working capital to sales went down to 19.3% compared to the 21.2% of the prior year and also better than 20.6% that we had at the end of the first quarter, and we are very close to achieving our target for the year, which is to be below the 19% threshold. And with that, I've gone through all the financials, and I will give it back to Joachim to speak about the outlook for the year. Thank you very much for your attention.

Thank you, Romy, for the details. And let's look at how we expect the rest of the year to unfold. And these are the numbers now for what we expect for the total financial year 2023. So Truck, we expect a very strong year in Europe, 10% to 15% above the level of 2022. Trailers somewhat weaker, I would say, to a normalized trader level. Tractors also weaker than the year before. In North America, still a very high level, little growth expected in Truck and Trailer for the overall year, a little less in Tractors. And Asia Pacific, Africa, you've seen earlier that we had big growth rates in the first half year. So those are expected to come down a little bit so that the overall year will be at 15% to 20% in Truck and in Trailers. So overall, it should be a strong year, but somewhat normalizing the high growth rates that we've seen in the first half year. What do we expect for JOST out of this? We confirm our positive outlook. So we expect growth in sales. Last year, we had EUR 1.265 million, and we expect a low single-digit growth year-over-year. We also expect growth in adjusted EBIT, somewhat outperforming sales also in the low single digit range. Last year, we had EUR 124 million EBIT, so that the adjusted EBIT margin will increase over the 9.8% that you've seen last year. And based on the very good first half, we think that will certainly be a double-digit number. CapEx, Romy mentioned already, we usually stick to the 2.5%. And that's the way we operate. And that's also the range that we expect for the overall year 2023 and our working capital will be below the 19% of sales that we've -- that you've also seen last year. So to sum it up for the first half year over Q2, we had a very strong demand for trucks. We had the recovery of the Chinese market and the high demand in North America, and that continues to be the growth drivers for our business in Q2 of this year. I cannot stress enough the operational flexibility, how important that is to us. And I think the fact that with a minus 25% in our agricultural business, we were able to increase the overall profitability is a testament to that flexibility. So with that flexibility, the increase in profitability and the strict working capital management, we were able to support our strong financial performance and our continuous profitable growth in Q2 of 2023. The market expectations for the overall year continues to be positive. The softening that we are seeing in the agricultural demand, we are able to offset with a stronger demand in transport. And based on those strong operating performance, we confirm our positive outlook for the year 2023. And we're now happy to take your questions. Thank you very much for your attention.

[Operator Instructions] The first question comes from Jorge González Sadornil from Hauck Aufhäuser.

Can you hear me?

We can hear you and see you loud and clear.

So Romy, Joachim, I have 3 questions. First one is regarding your outlook for the rest of the year. I'm surprised about the trailer outlook for the second part of the year with this decrease of 10% to 15%. So I was wondering if you see a collapse here, in the second part of the year, taking into account that the first part -- the first semester only saw a 6% decrease more or less in volumes, 5%, 6% decrease. And also taking into account that your other competitors are still expecting very modest decreases for the second part of the year, so if you can elaborate a little bit on this figure here. And also on the North America outlook, again, other estimates from other companies are pointing more to 10% growth. So yes, just wondering if you see some weaker end of the year here in the region or if there is any other assumption that we should take into account for these numbers? And then regarding APAC, I was wondering if you can also provide us with the [ weight ] that you are expecting the share of China in APAC for the full year. What percentage do you think is going to represent China at the end of the year? And how do you see also China next year? Do you think this growth could continue? Or if we should be just cautious with the region.

Okay. Okay. Well, thanks for your questions. On the market outlook, we are using the numbers from the prognosis institutes and those are the numbers they are establishing. I would interpret them such that I would say, the trailer market is normalizing. And I agree with you, the minus 15% to minus 10% is probably a little bit exaggerated from their view. So we don't see a collapse at all. I would call it a normalization of production in the trailer market in Europe. But it's also true that we had a very strong year last year. The -- you remember that and Romy mentioned that the truck suppliers last year, they had a lot of constraints with wiring harnesses and electronic components, computer chips and so on. The trailer industry never had these constraints. So they were able to follow the demand last year better than the truck industry. That's why they're not recovering as much as the truck industry in this year, and that's why you see a little lower numbers. So you would have to look at them over the course of 2, 3 years. And the trailer industry has just been very strong in Europe, especially last year because of those effects that they could follow the market much more than the truck industry. For North America, yes, I'm positive on North America and everything that I'm hearing is that the second half of this year will still be quite solid. So overall, we will probably have somewhere, I would say, between 0% and 10% growth in North America. Some of that is -- depends also on the pricing level. They have -- there's a certain inflation in fact, of course, in there with material prices. So I don't think we're far away. And as I said, it kind of depends also on which institute you work with to make your assumptions. So from the -- we certainly don't see a collapse, I would call it a normalization in all these areas.

Okay. So in general, your conversations with OEMs and your backlog is saying something different to these numbers. More optimistic, you have a more optimistic view.

Yes, yes, yes. These are the overall year numbers. And what we typically do is that after the vacation period, when we get the new recalls from the OEMs, then we revalidate that. So right now, I would also say that the numbers that we've received so far are a bit more optimistic than what's shown here. And we will now see when they come back in September and they update their call-offs and then we'll have a clearer picture.

And I was wondering for the agriculture sector, if you have any view on next year, if you think there's going to be some stabilization for the compact sector? Or if it's too early to really have a view on '24.

Well, if we're talking about sectors, the compact sector was very strong right after COVID because it's these little tractors with the loaders and the bigger in the back and everybody wanted to be self-sustained and everybody who had the need for one was getting one after COVID. So you have a double effect. Now everybody has one. So that means the market in the future will be lower. And the double effect that we're getting this year is that the dealers are reducing their stock level. So once those are reduced, we will come back to a more normal system, more normal flow. So that's why I don't expect that weakness to continue that much because it's right now, it's a lower market, lower underlying markets that is explained by the onetime investment that have been done after COVID, but it's also the reduction in inventory at the dealers, and that will end at a certain point in time. So it's too early to say, obviously, but the agricultural sector is this year already weaker, the compact much more than the regular size tractors. And -- but it's fueled also by a reduction in stock and that will probably be healed by the end of this year. And then for next year, we will come back to a more normal level.

It is, again, the profitability of agriculture above the average of the company.

Yes, it continues to be the case, yes.

Okay. Maybe last one from me for now. How are you doing with your M&A plans? Are you -- have you targeted new companies for the agricultural business? Or is there any progress that you can't comment on?

We are continuously working on opportunities. So we're in discussions with a lot of targets, but we've continuously been in discussions with a lot of targets. And you know our strategy, we're trying to grow Overall, we want profitable growth overall. And as I said, I'm very happy that this quarter is another testament to that. And therefore, we have very high standards when we talk about M&A. We're focused in developing Ag markets for Asia and also for South America. In Asia, Romy mentioned that we are investing in our own plants. In the other areas, we look at own investments. We look at M&As continuously, but there's nothing to report at this point in time.

You did have one question that you forgot, so I'm going to bring it up, to China. I do have the answer for you. And I think if I remember correctly, it was the China [ weight ]. And if you remember in the years when China was booming, it was almost 50% then compared to the total Asia sales. It went down tremendously last year to below 30%. And we believe that this year, it will go up beyond the 30%. It will not still be as high as it used to be because the recovery is quite slow, but it's still positive. And we are seeing much more growth in the other countries in the region, which in other years, tended to be lower. So that's a mix effect. The other regions continue to be very solid in their growth. And China is coming back slowly. So it will be probably beyond the 30% at the end of the year for the Asia Pacific/Africa region. And -- but it will not go back to the normal level that we used to have of 40%, it was how it used to be before the big boom that happened in the year 2021 as in the first half of the year due to the regulation effect that changed. So it used to be in the past around 40% and probably between this year and next year, it could go back to that, but not this year yet.

And the next question comes from Nicolai Kempf from Deutsche Bank.

Nicolai Kempf from Deutsche Bank. And well done for a very good second quarter. I have 3 questions. And my first one would be that many truck OEMs have [ frequency ] highlights to be sold also this year already. Can you share how many months ahead you are fully booked in Europe and North America? My second question would be on pricing. Do you intend to further hike prices in the months to come in the second half of the year? And the -- my last question will be on the guidance because, I mean, in the first half, you grew sales by 6%, earnings by 16%, but your guidance is just looking for low single-digit growth in both areas. So your guidance looks a bit cautious. What are the drivers for this in the second half? And should we expect kind of a slowdown to come?

Okay. Thank you, Nicolai, for the questions. So your question is about utilization rates, I typically don't think in utilization rates because our operational flexibility that we're very proud of means that we will follow our customers and the call-offs that we're getting from them is we get a yearly call off more or less 12 months ahead on an uncommitted level, and then we get 4 to 6 weeks on a committed level. The truck manufacturers, especially in Europe, they have been getting everything they have been calling off and I should say like this, they have met their call-offs, which in the last years, they always had other constraints and never really met what they initially had asked -- had plans to produce. So this year, they have been successful in producing really what they had in their programs. And I expect that to continue and it continues to be at a very strong level. Talking to those customers, they are sold out for the rest of the year. And they also have orders for 2024. So the order intake is not growing as much as it was, and they're probably in a slightly negative book-to-bill ratio. Our customers, I'm referring to but it's -- but they still see a very strong market demand and a strong replacement demand. So I don't expect that they will grow in the next year over what they've achieved this year because this has been an extremely strong year for them, but they have enough orders to pull through this year. And then I can go to the guidance. And I agree with you that looking at the first half year, that guidance may look a little bit conservative. What we typically do is that we talk to our OEM customers in transport, that's mainly the truck and trailer customers, the OEs and also in agriculture, the agricultural tractor OEs after they come back from vacation, and then we evaluate what the outlook should be and based on that strong year, I agree with you that it may appear a little cautious, but we will investigate that once they're back in September and then see if we have to adjust something. But in any case, we will certainly be able to follow their demand due to our operational flexibility. Pricing -- Pricing depends, to your question about pricing, a lot on the energy and especially material cost. We have quite flexible pricing agreements meanwhile, on the supplier side, but also on the sales side with our customers. And that means that if our prices for energy and material continue to be at the high level, then those will be factored into the sales prices, but we will also pay those prices, obviously, to our suppliers. And so the judgment you're asking before is more or less were the material and energy prices continue to be at the level. We'll probably see a small decline in those prices, but I don't expect big variations so that there will not be a huge impact in the turnover driven from the pricing effects.

And there are currently no more questions on the phone. So I hand to Romy Acosta for the written questions.

I actually cannot access them from here, so it would be great if you could read them out loud for us.

So we have one written question coming from Klaus Ringel from ODDO BHF. The question is, what's your view on pricing in H2 '23? Is there more to come through your P&L?

I think you almost answered that one, but not quite.

Yes. As I said, the pricing, we expect to be more or less at the level that we're seeing. The -- I don't expect a huge impact from the material prices in the second half of the year. Will there be more in the P&L? I mean you've seen over the last, I would say, 4, 5 years, that we've continuously improved our margin levels. And if sales went up or down, we were quite resilient. And I think right now with the shift between agriculture and transport, we're also seeing that resilience. So of course, our target is to continuously improve over the previous year and we have a track record of meeting that. So that maybe the answer to the question about the P&L, but those are continuous improvements that we're trying to take in optimizing our flexibility in our cost structure, but not so much pricing effects. Anything to add to that?

No, I think that's it.

Okay. So I hope that answers the questions. Are there any other questions in the queue?

Exactly. One question came up by voice as well from Pierre Castela from Fox Asset Management.

Just a quick one on India. Can you please give us an idea of how significant this new plant is going to be for the JOST in terms of maybe, I don't know, in terms of turnover, would you expect the turnover to be 2, 3 years out coming out of this block? And the second question still regarding India would be regarding the ramp-up phase. Is that going to have an impact in one way or another on your EBIT margin for the group? Can you give us a feel on that?

Okay. Yes, that plant in India right now is booked for business that is happening with customers outside of India. So we will be supporting the business that we have in North America and a little bit of the business that we have in Europe with that plant. So you will see the impact not on the APAC sales, but you will most likely see it in North American sales. But there will obviously be an overlay with the overall market development. So it is designed for new business that we have won and additional business that we expect to win in our agricultural business, but it will mainly be reflected, as I said, in North America. The overall impact on the sales side, as I said, is an overlay with the overall market development. So we will not be able to give you a clear number on that. If you would ask for market share, it certainly is designed to increase our market share with the top OEMs in those markets.

And in terms of the ramp-up impact on the margins, is that going to be nonexistent, significant? I mean, what do you expect?

I would say it will support our margin structure from the beginning despite the fact that it's a new plant that we need to obviously still optimize. We will -- you can expect that we will operate with the existing margins when we start in that plant.

One of the positive effects of going to India, and that's the reason also behind it, especially if we use it to shift products to North America is that we will have less tariff imports for steel products that we are currently having in North America. So even though at the beginning, of course, you usually have a ramp-up phase, the fact that a lot of these products will be free of the tariff from the steel import will actually offset that effect so that you will not see that negative an impact at all.

And I would assume that labor being reasonably cheap in India that I would have thought that if you are going to sell into North America and Europe and -- or your quite expensive agricultural equipment, I would have thought that margin-wise, it will be positive. But -- maybe I'm wrong -- I'm probably wrong.

No, no, no, no. I mean we are investing in India because it's a positive business case for us. If not, we wouldn't make those investments. But you've been asking for ramp-up costs. And of course, at the beginning, you have to recover investments and you have -- you don't have the full efficiency from day one. But as Romy said, that will be compensated by positive effects that we are reducing tariffs of some products that come from China today. And that's why the short answer is you can assume the same profitability level when we start in India that we have today.

And a final question still on India, I'm sorry about that. It's the logistics because you spoke about the freight rates going down between China and rest of the world. But how organized and how volatile is the pricing on logistics out of India into Europe and North America? Is it well organized.

No, it's quite well organized. It's not -- obviously, it's not the same level and the same volumes in terms of containers that are being shipped, as you see between China and Europe and North America, but since we are in Chennai, Chennai is one of the biggest harbors in India, and there's a lot of material flowing in and out, so it's on a level where it's very well established and therefore, no concern on that side. Even though the volumes overall are obviously smaller than the traffic that we see between China and North America and China and Europe. But on a very well-established level.

And we do have one follow-up question from Jorge González Sadornil.

Regarding the comments you did about the next year for the expectations of your clients, the truck OEMs. I was wondering what's your opinion on the potential pent-up demand on the aging fleet. Do you still think that there is some -- it is still going to support a little bit the demand in the following years, a fleet that is still above the average age that it had in the past. And well, that will be my first question, please.

Yes. I would say so that there is still a slight effect that will carry into next year. We had a huge effect of pent-up demand because especially the truck producers in North America and in Europe could not follow the markets in 2020 because of COVID, in 2021 because of semiconductors, in 2022 because of wiring harnesses and so on. So this is the first year where they are really able to follow, and they are reducing their pent-up demand. That's what I mean when I say the book-to-bill ratio is probably negative for them right now that the pent-up demand is being reduced. But I still think that there will be pent-up demand that carries into 2024, especially the more price-sensitive customers will have moved some purchases. The fleets that are still at a very high -- relatively high age. I have some need to replace also the rental companies. They have not replaced everything over the course of this year. So their fleets are being a bit older, so if the base demand, industry production and all of that remains, then there will still be some pent-up demand to be worked on in 2024.

Also in inventories at dealers are also very low because of the pent-up demand that too will drive demand as well as they start to normalize.

So with what we can see at this point, maybe there -- maybe we are going to see some declines, but not a collapse now in the demand. And my last question, please, is regarding the trailer market in Germany. One of your competitors commented that they were expecting some incentives to be approved at the end of the year for trailer. And I was wondering if you also see this. It was commented that these incentives are going to cover up to 20% of the cost of a trailer, and is basically targeted to the fleets. So is this something that you also see that could happen? And what do you -- how do you think this can impact demand for next year?

It could impact demand for next year. For us, the planning for next year is just at the beginning. So we don't have our volume planning totally determined for next year. We're only looking more or less on the underlying market right now, and that's -- those are the comments that I've made. So we will probably come to a conclusion on that once we have analyzed all of our volume planning and our turnover planning.

So there are no further questions at this time, and I hand back to Joachim Durr for closing comments.

Yes. Thank you very much, everybody. Thanks for your interest and your attention in our Q2 results of this year. We're very proud, as I said, to have once again increased our performance and especially about the cash flow we were able to generate. So why -- I hope we have answered all your questions. Thanks for your interest and we're looking forward to a fairly good remainder of the year and talk to you soon with the Q3 numbers. Thank you very much. Bye-bye.

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