Kendrion N.V. (KENDR) Earnings Call Transcript & Summary

Good morning, everybody, here in the Crowne Plaza and on the webcast. Welcome to Kendrion's Capital Markets Day 2020. My name is Joep van Beurden, CEO; and with me here are Jeroen Hemmen, our CFO; Manfred Schlett, who is responsible for the global commercial organization of the Automotive group; Andreas Laschet, who heads our Industrial Brakes unit; and online, we have Telly Kuo, President of Kendrion Asia and responsible for our operations in China. You will hear from all of us over the next 90 minutes or so. Before we start, I want to talk about the timing of this Capital Markets Day. There's a legitimate question if it's meaningful to talk about our medium- to long-term plans given all the uncertainty we are facing. Our answer, however, is clear. We feel that over the past years, we have positioned the company for sustained and profitable growth from several sources: Automotive, Brakes and China. This growth potential will always be influenced by the cyclicality of the overall economy, geopolitical events and the uncertainty introduced by the pandemic. We are not here to predict how the economy will behave or how the impact of the epidemic will evolve over the next quarters. We are here to make sure our stakeholders understand the significant secular organic growth opportunities that we have identified, which in our view, cyclicality and the pandemic notwithstanding, will lead Kendrion to grow substantially over the next 5 years. It's an exciting story, and we are keen to tell it. This morning's agenda, we've structured the presentation following our strategic house. This is the Kendrion house we have built over the past years, and it is the metaphor for the opportunity we have created. We expect this opportunity to inform our actions over the next 5 years and beyond. I will start with a short introduction of our strategy and then move to the foundation of our house, our people, our culture and our supporting systems. Next, the business pillars. Manfred will talk about the substantial changes happening in Automotive, especially the move of the passenger car from a mostly mechanical machine to a more data-driven smart device. This new car has a whole range of new systems, including smart actuators, and we have positioned ourselves to make full use of that opportunity. Next, Andreas will talk about the substantial opportunities we have in Industrial Brakes, where Kendrion is the clear market leader with a full range of brakes aimed at growth segments such as robots and wind power. I will then retake the floor to discuss the opportunities we see in actuators and controls, our so-called cash engine, after which we move to China with Telly joining online. We have grown substantially in China over the past 4 years from 3% of group revenue to well over 10%. Telly will highlight our plans for further strong growth we expect over the coming 5 years. We then get to the top of our strategic house with Jeroen, rolling up our plans and translating them in ambitious and, in our view, exciting targets for the year 2025. And we end, of course, with Q&A with Manfred, Andreas, Telly, Jeroen and me available to answer your questions. Now as to Q&A, because of COVID, we created the opportunity to ask questions, not only here in the Crown Plaza, but also for those attending this presentation virtually. This requires that you actively move the cursor on the screen of your computer and ask your question. Pop up will appear at the bottom of the right side. You can click on this block and submit your question. When submitting the question, please state your name and the company that you are presenting. We will try to wrap things up by 1:00 p.m., after which you are invited to have a COVID-compliant lunch. Before we get started, I would like to draw your attention to the following. Certain statements contained in this presentation constitute forward-looking statements. These forward-looking statements rely on a number of assumptions concerning future events and are subject to uncertainties and other factors, many of which are outside the company's control that could cause actual results to differ materially from such statements. Let's start with the strategic overview and shortly introduce our strategy. The coming 5 years at Kendrion will be about growth. It will be about organic, sustainable, profitable growth. As you all know, over the past 5 years, we have made substantial changes to our company. We drastically simplified our organization, and we've taken out some EUR 25 million in cost. We have focused our R&D efforts on Automotive, Brakes and on China. We have moved from a decentralized company with substantial autonomy at all operating entities around the globe to a unified global group with unity of purpose in our 3 business groups. We've acquired INTORQ, which strengthened us in Brakes and in China and which improved the balance between our Automotive and industrial activities as a natural hedge against cyclicality. Kendrion is a global niche leader. And over the past years, we have identified and invested in those niches where we see an opportunity for sustainable, profitable growth, Automotive, Brakes in China. This represents around 80% of our revenue base. In the other 20%, Industrial Actuators and Controls, we also pursue growth, but only in those segments of IAC where this is available. Now you will be forgiven if you're critical about our ability to grow. Kendrion has had growth targets before. We have also had to deal with substantial pressure on our diesel revenue, a weak auto market from the second half of 2018 and now, the COVID-19 pandemic. We are confident in our plan and eager to tell you the story about our sources of organic growth. A lot has happened over the past 2 years, and we feel our overall position in our markets of choice has substantially improved. In Auto, we have been investing in a range of exciting new products for hybrid and electrified cars. In China, the factory we opened early 2018 is almost full, and we are close to a decision to build or lease a 24,000 square meter factory in Suzhou. And in Brakes, which has always shown good organic growth, our position has substantially improved with the INTORQ acquisition. This, in combination with all the changes to the foundation of the company, means we are ready. We are ready for the next 5 years of Kendrion's journey, and as you can probably tell, I'm very much looking forward to it. Let me say a bit more on the foundation of our strategy, starting with our organization. This organization is in place since January of this year. We believe this structure amplifies our culture, our global and unified approach to our growth opportunities and the right balance between central and local decision-making. It has clear accountability for our business groups with a manager for Brakes, one for our cash engine of Actuators and Controls, and the functional group of the Financial Director, the COO and the CCO in Automotive tasked with delivering on the global organic growth opportunity of Automotive. Of course, China is represented as well. In short, we feel this organization structure is simple and will help us deliver our strategy. Now you may have noticed that IT, group IT is represented on the management team, which is a new addition. Why? Because IT is one of the areas where Kendrion's decentralized approach was getting in the way of making the most of our global opportunities. With so much decision-making devolved to the individual operating entities, you can imagine the proliferation of IT applications, systems and ways of working. You can imagine consolidation of information was difficult and time consuming, and you can imagine that spotting certain improvement opportunities are harder when everybody is using a different way to measure, for instance, manufacturing performance. Without getting into too much detail on this slide, we are changing that very much in line with the overall approach. At the foundation, we have made sure that the tactical, more commodity-type of IT services are standardized across the group and that where possible, they are outsourced. We have reorganized the IT team by removing the so-called local IT organization that many operating companies still had into one centralized global IT organization led from our offices in Amsterdam. And we are working hard to unify all of our IT systems to improve our data insight in, for instance, our manufacturing and logistical organization. An exciting journey and one that will substantially add to our ability to make full use of our global footprint and the growth opportunities we've identified. On this slide, some of the specific initiatives we are taking. We have substantially strengthened the IT organization, hiring new leadership. We've rolled out a comprehensive security framework and well before COVID, fortunately, invested in the mobile workplace, which makes working from home seamless and secure. And as mentioned, we are outsourcing commodity activities, such as the management of our laptops and mobile phones. In the next phase, we will leverage IT to drive business performance, implement data science for intelligent automation, and push digitalization of the back office and manufacturing. We will complete the INTORQ integration from an IT perspective and help deliver synergies. And we will use it to harmonize our processes and increase automation. Next, another important part of our foundation, corporate social responsibility. As you know, corporate social responsibility is an integral part of the way we do business at Kendrion. As you can see on this slide, we strive to make substantial improvements in all 3 pillars that comprise our CSR framework: natural capital; social and human capital; and responsible business conduct. For example, in the natural capital pillar, we aspire to reduce our relative energy consumption and our relative CO2 emission with 15% over the next 5 years, on top of the significant improvement we have already achieved over the past periods. We have similar ambition goals for the other pillars in terms of, for example, health and safety, diversity, our role in local communities and sustainable sources. We have been keeping you informed on the progress we make at our quarterly results announcements and most recently, talked about natural capital and our initiatives to reduce waste. Today, an update on social and human capital, specifically on health. Health is always at the forefront of our CSR initiative and now with COVID-19 affecting the world even more than normal. Since the turn of the pandemic, we have had 10 infected colleagues, 8 of which are fully recovered and 2 who are recovering. Fortunately, we have had no COVID-related fatalities. and in no instance has a Kendrion employee affected -- infected another employee. We have been able to continue production in all of our factories in a safe and responsible way, and we continue to deliver to our customers around the world. This slide, however, is not about COVID. It indicates the overall illness rate at Kendrion in the first half of 2019 compared to the first half of 2020. During the pandemic, our overall illness rate has gone down. And although we have not investigated the root cause, our hypothesis is that all the hygiene measures we have enforced protect not only from COVID, but also from other illnesses like the common cold and the flu. Before we get into our pillars of growth, I want to highlight the final part of the Kendrion foundation, our culture. Of all the changes that we've made over the past years, the most important, in my view, is the change in the way we get things done at Kendrion, the change in our culture. And to paraphrase that change, we have gone from a collection of operating companies each optimizing its own performance to a truly global team of specialists that cooperate to optimize the performance of the Kendrion Group. Over the past year, a team of young Kendrion employees has run workshops in literally all of our locations to try and capture that change in a single sentence. Every word in the sentence carries meaning and has been the result of this global bottom-up effort. We call this the Kendrion Way. It's not just a slogan on a few posters in our offices. We spent significant time in all of our locations, again, led by a team of our employees to ensure that the Kendrion way is driving our behavior. And as Peter Drucker famously said, "culture eats strategy for breakfast." And I'm convinced that at Kendrion, the 2 move closely together, which leads me to the specifics of that strategy, and I'm pleased to hand over to Manfred.

Thank you very much, Joep, and a very warm welcome from my side. Let's do a deeper dive into the Automotive context and into our Automotive strategy. You can read today everyday something about automotive in the press. It's sometimes about Elon Musk, who is these days, quite often in Germany. And there was a lot of hype around him being at the Gigafactory performing like a rock star. It could be about electrification, data, Uber, CO2, climate impact, Dieselgate, new battery factories, H2 and many other more. And it feels like change is in the air. Traditionally, when you build a car, you pretty much just took a chassis, an engine, 4 wheels, sometimes a few more wheels, but that was a bit of a dead end. And a bit of other stuff, brakes, a bit of electronics, and you make your car. Now we strongly believe this time is over. And what describes this change? We call that ACES. And there is a very strong industry consensus that ACES describes very well the key forces in today's automotive work and automotive change; a future may be better described by mobility than by automotive, and it opens the door to a lot of new opportunities. We see autonomous, so the A in the ACES. And we expect that by 2025, nearly all vehicles will be equipped with some sort of autonomy. It might be lane control, it might be speed cruise control, something like that, not the full self-driving car at some sort of security methodology will be in. We see the connectivity as a very important factor, V2X, the vehicle to X; vehicle to infrastructure; vehicle to vehicle; vehicle to pedestrian, as very critical aspects. A car in the future will know before you know it, that the pedestrian is crossing the street by interfacing with the smartphone, for example. Now things you see today in the corona apps, you see already the technology behind the same technology supposed to go into vehicles. By 2030, we expect that nearly all cars will be equipped in some way with batteries or electrical motors, electrical engine. We come back later to the details. Another trend, and that's the S in ACES, the fourth major factor, that's car sharing. It's not necessarily in the future anymore that you need to own the car. That's the world of Uber, the world of car sharing models, which are maybe more important in the future than in the past. And those are the 4 trends we see as major trends defining the future of automotive, the future of the entire mobility. Now let's make this a little bit more concrete. When we then look into today's combustion engines and combustion-engine only cars, those which have not -- which are not electrified, today, it's roughly 90% -- above 90%, maybe 95%. There are a few Renault ZOEs on the market, a few Teslas, but the vast majority is clearly combustion only. We expect that this drops to 60%, around 60%, maybe 50% in 2025. So the mid of this decade, and even going further down to 10% at the end of the decade. The electrification continues exactly the other way around. Today, quite low market share. It's growing, but it's still low. It's the Tesla, Renault ZOE today, but accelerating. We expect accordingly 40% in 2025 going further. That's coming from the market data we are getting. Autonomous is a lot in the press, Elon Musk, claiming, and we will come back to that. They are very advanced. There will be quickly something coming by the end of the year. Let's see if that's going to be reality. But we expect that by also 2025, to have this as a landmark year, we also expect that nearly every car will have some sort of autonomy. So that's the time line behind. And Level 4 by 2030. There is a lot of discussion if Level 4 or 5 will come by that time. We expect Level 4, which is not the fully autonomous driving to be market relevant. Now when we take this to the next level and give it a bit more color to it, yes? Think about your writing a letter, and you did that 20, 40 years ago. And you do it today, you do the same thing, but you do it totally differently. 40 years ago, you used a mechanical typewriter. Today, you use a notebook. You pretty much do the same thing. And we see a similar change, a similar jump now in automotive or mobility. You also can compare that or use the analogy of Nokia feature phones or Apple smartphones, it was a similar jump, a fundamental change of architecture. Now you look at combustion engines, they move to electrical drivetrains, fundamental change to the entire industry. The focus on engine management was very strong, especially in Germany, the country of engine management, engine development, engine design and so on. In the next cars, it will be a focus on software. We see mechanical engineering moving to IT-centric software engineering. We see driving performance -- in the past, at least I was buying a car and I was young because of the driving performance. In the future, that more moves to data and service. We see comfort being a key element in the past that's still important in the future, but more moving to things like connectivity. And this change is enforcing the fundamental change of the industry. Why is that the case? When we look at today's architecture, and we have done this the last 40 years. The last 40 years, cars were get equipped with more and more of small complex computers, so-called ECUs, electronic control units. Those 70 to 100 small computers were managing the car. In the S-Class, it's the 100. In the Golf model, 60 to 70, but it's anyway a complex system. We have a very special auto optimized infrastructure, makes everything special. How to control that? Now it is complex on the left side to maintain, evolve, update or add services. Add cyber secure, this is very difficult on the left side. To be very honest, I personally believe it's impossible. This can -- on the -- because of that, the car architecture moves to a totally different and new server architecture, a so-called central car computer, which you see on the right side. The car is not any more controlled by all these 70 to 100 small computers. It's controlled by 2 large central car computers. And this can be controlled, is cyber secure and can be updated and can handle data. The impact to us is quite substantial. The traditional separated mechanical parts, the actuator, how we call them, they have to become smart because the mechanical parts have to integrate those electronics and software to give feedback. They become all smart, right? There is no longer on the right side, too many of those purely mechanical parts. They all become what we call smart. Let me give you a couple of examples. One of the front runners of that evolution is Tesla. Tesla developed the FSD car computer. You can see here on the screen. They have practically [ chucked ] this in the car. There is no further, small, other computer. This is in the -- that's the Model 3. This is all they have. And that's the actual reason why Elon Musk is claiming they are ahead of the race in terms of moving to autonomous driving cars -- fully autonomous driving cars. That's the backdrop. He was the first doing that. Actually, the chips are really developed and done by Tesla in Silicon Valley. Now for us, Tesla is not really the mass market. Let's look at Volkswagen. The brand-new ID.3. The brand-new ID.3 is also moving to the central car computer concept. To be very honest, a little bit slower. They have a bit more legacy, but also, Volkswagen is moving strongly into that architecture. In this case, Continental developed it. It's called ICAS1. This is the in-car application server generation one. And also in this case, it's replacing most of the conventional small computers you find today in most of the car. So this is mass market, and we are at the edge of this new era. Now new era, that's by far, not all. If we look at Daimler, Daimler's CEO had a webcast -- I think it's 4 weeks ago or something like 4 weeks ago, together with the NVIDIA CEO, and they announced a strategic collaboration. And we and Daimler, a company doing mechanical parts in the past, to be honest, steel engines, all these things, cooperates strategically with the company you know from PC games, PC graphics cards. That's how they -- our NVIDIA came up. GeForce is something you may know. But NVIDIA is a front-runner of the central car computer technology for a couple of years. And together, they want to revolutionize the way we interpret cars, the way we see cars. And the car gets upgraded over time. So literally, Daimler's CEO was saying, you buy a car today, and you will have at the end of its lifetime, a different car. And that's how they want to do that together with NVIDIA. So today, if you want to keep the value of a car, you need to maintain it as it was at the beginning. This generation is turning this round. It will upgrade over time and after 20 years, you have a totally different car, which you may give to your children or you might sell to others. It will be literally a different car. Now it's very complex to see -- foresee what all will be changed, but there will be a change of features, maybe it's performance, maybe it's service, maybe it's -- how it interfaces with you. So it's a little bit like the change you see today in computers. And this is a real revolution, and all this is connected to this new in-car electronics system. And let's have a closer look at the market forecast. It's interdependent. We see the market adapting hybrid technologies strongly, the next coming years. At the same time, we see a rise of the BEV, battery electric vehicles, so battery-only, electrical-only. And we expect that the combustion-only to decline and especially decline in investment into new architectures. And that means it will remain on classical components. So if you are investing into a car that's combustion-engine-only, it means there is no new fundamental new technology. There is no innovation anymore. There is no new investment. That's what it practically comes to, yes. We expect the next wave of hybrid cars and especially battery electrical cars to drive the adoption of this new in-car server, central car computer architecture. And this is the growth potential. It means to us, smart actuators, smart mechanical parts. Now how to measure all that? What does it mean value-wise? We did an analysis of our products. Let's look at the products we ship today. And then to the products we ship over time, we develop today and which we intend to ship over time. These products have today, a value. In a traditional vehicle, our products have a combined value, which we could theoretically sell into one car of around EUR 143. This is when we analyze, that's the green arrows, and we analyze what could we theoretically ship into one car. Now we looked into that and the products we develop, what can we sell into a single hybrid car, the value is EUR 253. The battery electric, it's [ 215 ] of the products and the value of these products, we can ship into a vehicle. Now the analysis and the background of that is when we look at valves, and the engine, the valves, we ship into combustion engines, the actuators, the mechanical parts, controlling the combustion engine, for example; the value will remain flat in combustion engine only cars. That means we are not expecting they are higher value or something like that or a big change anymore. That's not expected. That said, gradually at the end of the lifetime, there will be some updates, but there will be no new revolutionized product. In hybrid, it will go a bit down the value because if you drive a hybrid car, the OEMs have a problem. It's getting too expensive. So because they need the engine, the combustion engine, and they need the electric drivetrain, it's a bit more expensive, and customers don't want this. Yes. So you will rarely see a 6-cylinder car where we ship 6 valves. We only go into 4-cylinder cars then -- or 4-cylinder engines where we ownership 4 valves. And that means the value goes down a bit and in battery electrical vehicles, it even doesn't exist anymore. And this is how we evaluate it and looked into all the products we are shipping, and you see the green ones going up. That's the new product. The right ones will disappear. Yes, there is no such product anymore. And the green, there we expect the value to remain flat. Now to mention that again, the IC-only, we saw value for us of EUR 143; in hybrid, EUR 253; and in BEV, EUR 215 for the products currently envisaged. Now when we translate that into business trends, the trend of our portfolio, we could see the following effects. While our traditional products peak in '23, '24, thanks to the hybrid trend, a hybrid car still has a combustion engine, combined with electrically -- it's combining both. And thanks to this hybrid trend. We see our new system then -- our new system products coming in, defining a new upside trend plus the new smart product portfolio, further supporting this trend. And this is, for us, a very critical aspect in the portfolio and revenue trend, the smart products, the hybrid trend and the additional value creation like the system approach and growth segments we are having today. There are various of such, several of such products like suspension products. You may have seen Tesla is supporting the suspension because in battery electrical cars, you need to damper your system in a different way than today. For example, if you drive a large SUV and it suddenly goes a bit down, that's because of the damping system, we are providing some of those, and that reduces your -- that reduces or improves the overall dynamics and you can save battery power. And that's important. So there are a lot of such new systems going into the battery electric cars, and this is pulling this -- supporting this trend. Now let's have a quick look and a quick run through to give you just an impression how these new smart products look like. First, here is our sensor cleaning platform, a combination of smart functions. You see the smart function. It's a small little computer. A traditional water valve block, which is our traditional market segment, our heritage from the past, and that's -- that block is helping customers getting the autonomous driving car faster to market. We are the only ones today who can give already now feedback of the valve block status to the central car computer, and that substantially lower prices and lower price points than the conventional pump system. And this reflects a little bit. We move from a collection of mechanical parts, to smart mechanical parts. And there is a substantial saving for our customers. Now other examples we see here is smart water valve, that's for battery cooling. Also here, the integrated smart function, the valve and the connection to the central car computer do a similar thing to AVAS. AVAS is the acoustic vehicle alerting system, which is needed by all electrified cars, hybrid and battery electric. And when we look here into our engagements, we see that our engagements and our activities, there's a shift into a substantial investment into software activities. We see products like smart sensor cleaning valve, smart battery cooling valves, the AVAS. We see smart clutches, we see smart damping solutions and more to come. And we have today, for those products, serial nominations from 4 leading OEMs in hybrid and battery electrical cars. We have engagements with 9 leading OEMs worldwide and Tier 1s. And important to us here, and this is this increased system aspect, it's not anymore that we just sit here and put up a mechanical part and specify it for Volkswagen or others. We have to create an entire ecosystem, an entire ecosystem of partners to establish the system solution for an improved TCO, so total cost of ownership, because that's the critical element. You see the OEMs are putting up a lot of pressure because the hybrid is getting too expensive. TCO will be extremely critical. The last point I want to mention here is the importance of having established platforms for rapid prototyping, you need to prove it. So we are shifting this industry from a more passive Tier 1, Tier 2 situation, just following the OEMS, innovation moves to companies like us, bringing more value to the industry. All in all, that is, for us, so important that we are saying we have to evolve our culture in this light of disruption. And the vision we create for that, the vision statement is part of the cultural change of Kendrion, Joep was introducing. We see ourselves and drive ourselves towards an innovative and advanced company, and the critical element is that our platforms turn smart. And we enable with that next-generation mobility in every vehicle. And this concludes Automotive. Thank you very much. And I would hand over to my colleague, Andreas, for the Brakes.

Thank you, Manfred. Good morning, everybody. Good morning or even good evening on the websites. My name is Andreas Laschet, and I'm the Head of Industrial Brakes. And I also would like to give you some insights, what we are doing. Joep was talking about the acquisition of INTORQ and the way forward, which we are planning to do. So we are actually the brake company within Kendrion. Our core business are electromagnetic brakes for either permanent magnets or springer brakes, and we do this for the automation or drive industry. We are a full line provider for any holding or braking function, which the customers are looking for, and our product portfolio includes this key brake technology, which I just mentioned, permanent brakes or spring-applied brakes. And we serve either small and midsized customers with standard brakes or higher volume -- or high-volume application. We do have individual performance solution, which we are able to provide to our customer. As you know, we have acquired 9 months ago, beginning of this year, INTORQ. And today, I'm actually very proud of the progress we have made during the last almost 9 months, because we have set up a structured integration process with weekly calls with steel reviews. We have completed the way forward for our global growth and a clear defined focus on our markets. And already 3 months later on, the 1st of April, we have been able to announce our global organizational structure. And next, to the ongoing operational integration, we are doing and currently running. We have harmonized our product portfolios and we continue to see identifying possible synergies. If we look at our global setup, the -- our customer and the automation and drive market is global. Therefore, we need to be where our customers are, and that's in Americas and Asia Pacific and in Europe. And our customers are requesting global support, but with local supply and service. We can do this all over the globe, and we offer a perfect global footprint, aiming to serve different markets by established common process in manufacturing, providing the same high level of quality and service. And we are to do this because we do our center of competence in Germany, in Aerzen with INTORQ and filling with the former IDF portion, which are providing the backbone. And from there, we are transferring our technology into this region. So the global setup is definitely a very strong competitive advantage for us. If you look what have changed with, and after the integration, actually, the cornerstones and key success factors are the following: it's a global footprint; our technology, which we are providing to the customer with our product portfolio; our market access; the expertise, which we do have and the skill sets; and our capabilities. And even having, in my understanding, a good level with the former IDS, which you see with the gray dots, I personally strong belief that we have significantly improved our position in each of these areas with the acquisition of INTORQ. Let's talk one by one. Global footprint, I already mentioned in the slide before. Our product portfolio, the acquisition of INTORQ has completed our product portfolio perfectly. The market access, there are markets which we do share with INTORQ, with different technologies. And these markets are developing also in different segments. And a good example, and this specifically, in particular applies for the intralogistics which I will get back later on. The market share as well. This is where we will place our future energy. We do have the global footprint, the product portfolio with already a great solution and the access to the market. Most important for me, at the end is the expertise and the skill set by itself. Here, I personally believe that this is our strongest point. We really have fresh wins with the acquisition of INTORQ, and this is a great opportunity to learn from each other, to understand what they have done, what we have done and at the end, share this know-how and these perspectives, apply them and capture the right synergies. The last cornerstone is the capabilities, and we can now serve our customers better and locally. And this becomes -- especially in corona times and with all restrictions on traveling, we do have a complete different dimension. Beginning with local sales, local application engineering and defined manufacturing capabilities, where needed, we can even serve our customer better than in the past. And all these elements are very exciting, and I do see great opportunities for the growth for Industrial Brakes. In order to be successful in the industrial business, we need to have also a clear strategy with a clear focus. And I'd like to share with you some of these elements. So these are our focused markets, where we -- either both of us or separately, are serving our customers today, in robotics and automation, in all the intralogistics on automated guided vehicles as well as industrial vehicles. We do it in wind power. I will come back to this also. On logistics, in machine building, hoist and cranes and even on the medical portion and in the medical field. So as a full line provider for brakes in the automation and drive industry, we have a strong product portfolio. You see some of our examples of products, all these brakes are available off the shelves. They are built with the proven technology and are based on a mature modular system. And in order to complete the product portfolio, we also serve our customer with clutch and electronic [indiscernible]. So now I would like to share with you some of our focus markets. and our core activities. Let's start with robotics. In most electrical robots today incorporate several motors for direct drive operations. And the need for clutch is eliminated by this approach, but robots still need brakes. And both for holding function or to provide dynamic stopping in the case of emergency. And the market of robots is moving towards China. China is establishing itself as a major producer of robots. And we both have a very strong market position today in Europe, and we have already decide to transfer the technology to China. This was the strategic move. As the Chinese market becomes a major player in this market, we expect a growth of more than 10%, which we are planning to participate. Next market is wind power. In 2019, 60 gigawatts of additional wind power had been additionally installed worldwide. This capacity in wind power is expected to double or even triple in the next 3 years, and this is based on conservative market forecast. And 88% of the markets is in Americas, Asia Pacific or Europe, exactly where we are already located, and we are very well positioned. We have positioned ourselves in this market with the right products, both on the pitch control, as you see on the left, which keeps the blades in position as well as on the ASMO drive, which orientates the windmill towards the wind. We are in good position. We are -- we have new products for higher towers and development. In order also to follow the market trend of bigger wins from our global footprint and the capabilities, we are actually in the best position to profit from this highly and strong growing market. Intralogistic is my last focus market out of the 8 that I would like to share with you. That's the market of the automated guided vehicle as well as the industrial vehicle. And in my understanding, this will be the winner of -- if we can call it, of the corona crisis because this market is the backbone of the growing e-business. We are in both of these areas, and we are one of the key brakes supplier today in Europe. And we are currently expanding in Asia Pacific as well as in U.S. And here in recent years, we have developed products with a clear focus to develop these markets. And our product portfolio is complete for all application, most on AGV as well as the industrial vehicles and highly competitive. So therefore, the market is expected to grow and to double within the next 10 years. And we strongly believe that we will do the same or even better. So in summary, we will double with our revenues with robot application, as just mentioned. We will further expand our market position as a global player in the wind power industry with a market share of 20%. And we are also planning to reach a market share of 30% on logistics. So this means our future revenues and only on these 3 markets, maybe more than 40% of our total revenue within Industrial Brakes. So we will focus -- we need to put a greater focus in these markets, less markets. In order to achieve our growth in all these markets, we will continuously ensure that we develop the right products and offer the right solution to our customer. We do focus our energies into these core markets, as I have explained, and we do this right next to our customer, next door to our customer in Americas, Europe and Asia Pacific. But most important, and I'm actually personally very proud of this, the soft sectors or the human capital because we do have a very strong technical team, sound and proven expertise on both sides. So my team and myself, we are highly committed to these targets and willing to go the extra mile in order to make this happen and to provide this growth. Thank you for your attention. And I'd like to pass back the stage to Joep.

Thank you, Andreas. Now let's talk about Industrial Actuators and Controls. First a short introduction, IAC is the combination of our former ICS and IMS business units, is active around the world with presence in several sites in Europe, in Suzhou, Mishawaka, Indiana. As we have said before, in IAC focuses on profitability and cash generation. And we sometimes refer to this business pillar as our cash engine. That's a deliberate choice of words. It's a cash engine, emphatically not a cash cow, as we want this engine to keep generating cash and profits. But that doesn't mean that we will not grow in IAC. IAC is active in a whole range of niche segments, depending on how you define such a segment, up to 30 different ones. All these segments are profitable. And in all these niches, we have a leading position. This is the unit where, for instance, we produce products as diverse as flow control valves for medical equipment, locks for industrial washing machines and safety devices for high-voltage power transmission. And within the 30 segments, we have identified 3 areas where we see good opportunity for organic growth: electrical automation; infrastructure; and appliances, both medical and nonmedical, these appliances, I mean. And of course, we go after those opportunities. In electrical automation, we capitalize on the increasing degree of automation with specific actuators, control electronics and solenoids. For instance, we're excited about a newly developed electric inductive heating device that has the potential to replace heating methods, such as oil, gas and steam in applications like the industrial baking of waffles and cookies. And we see increasing demand for integrated functional safety solution for robots, which dovetails nicely with our focus on brakes for robotics that Andreas has just talked about. We also see opportunity in infrastructure. We see growth opportunities for high and medium-voltage circuit breakers and disconnecting switches. This is a highly integrated market, where all big players, such as Siemens, Schneider, ABB and Eaton, are moving into China. And as the Chinese government invests significantly in infrastructure for their electrical grids, for their railway system and renewable energy sources, and our team in China is focused on that. And the last segment, in medical appliances, we're seeing strong COVID-related demand for breathing, dialysis, polymerase chain reaction testers and other medical appliances. We have pressure regulators and valves for oxygen and other media in development. And on the non-medical side, we have opportunities in washing machine and other locks for appliances for various appliances. So even in our cash engine, we are looking for growth. Our estimate is that the 3 growth areas I just talked about represent around 30% to 40% of the IAC revenue base, which brings me to the final source of growth of our business, China, which will be presented virtually from Suzhou by Telly Kuo, our President of Kendrion Asia. Telly, can you hear me?

Yes.

Please go ahead.

Yes. Thank you. Good morning to our investors in Europe. And my name is Telly. I'm the Head of Kendrion China, responsible for business operations in China. So let me start to share what we have done and what we are planning to grow in China. Next page. Starting on this page, actually, the overall strategy we are doing in Kendrion China is try to integrate all 3 major force. Initial by our capital investor from the Netherlands, then focus on joint strength between Germany and China. And with that, we use our expertise from Germany, especially on quality and technology. Then we want to fully utilize our local capability here in China focused on manufacturer and speed. Then we can grow our business much, much bigger than before. So let's share what we have done in the past 4 years. Next page. Following by our CEO, reviewed the overall corporate strategy by simplify, focus and grow 4.5 years before. We follow up this overall corporate strategy then fully implement an execution in China, starting from simplify 4 years before. Actually, we already integrate all Kendrion organization in China into one organization because 5 years before, while we have 5 business units in China, in our group, we also have all different, separate organization from BU in China. So there is something -- this is like a separate figure. So we want to integrate the 5 figure into 1 fit to be more powerful. So it will [indiscernible]. And therefore, we actually already demonstrate a much more powerful and speedy organization in China. Then we also focus on the 2 strengths or 2 major strengths from both Germany and China. From Germany, we already have our leading technology and also our excellent quality and confidence of trust from customer in market, which already really deliver our proven success in Europe for many years. So therefore, on top of that, we leverage our strength from Europe then fully implement in China by our fast speed and competitive costs, et cetera. So therefore, in the past -- in the first 3 years from 2016 to 2019, we already organic growth for roughly about 100% growth in China, only within the 3 years. Then we -- before fully we grew our business in China, in the past 2 years, we identified a short period that we call [ SPEC ] China, which provide us a little bit more -- a couple of time to establish a more capable team here and also prepare for some facility investment, et cetera. And also -- fortunately, also, in the beginning of this year, we also had already acquired INTORQ together. So by our team, facility, plus the new acquisition of INTORQ, we're already ready -- as the CEO mentioned, we are ready to grow. Especially in China, I think we are even more ready. We are already delivered our fast growth, and we are also quite confident. In the coming 5 years, our growth compared with the previous 100% could be even surprise to all of us. So next page. The Suzhou [indiscernible] is actually the so-called our new factory because in year 2017, we decided to grow our business in China. So therefore, we found -- we've got -- we're building the new building actually already 3x bigger than our first factory. This is our so-called second factory in Suzhou, then we moved in -- the middle photo, it is showing here some decoration. We move in our second factory in Q1 2018. Unfortunately, after our fast growth, actually, within 2 years, 2 years later, this year -- beginning of this year, we already fully -- almost fully occupy our space, roughly about 93% already is fully occupied. So therefore, we already deliver our huge growth here, nice growth here, and we are going to do even more growth in coming years. So let's share some -- what we have done. Next page. The left-hand side chart is showing our monthly revenue comparison between last year and this year, before we -- I think if we compare with now INTORQ acquisition. So in left-hand side, you can see the chart. Actually, China is the first country to be hit by COVID-19, especially in January to Feb to March. So therefore, our monthly revenue performance actually is only -- compared with last year, it only declined in the first 3 months. At the [indiscernible], actually, we already organic the recovery and even that organic growth already. So we foresee our remaining months in this year, we believe we even came to later than last year. Even if the COVID-19 ceases everywhere in this year. So we expect that we can factor 4% of organic growth even as the COVID-19 impacts. This is a size number for our reference, and the various number is showing according to the INTORQ acquisition, we even become much bigger because the yellow line is showing included INTORQ number this year, and the lower line showing the last year number without INTORQ. So even we are going to be even -- doing even much better on top of our 100% growth after -- within 3 years. We will be even better. So next page, please. And the reason why we are so confident we are going to have significant growth in China. It's just because the market here is actually too big to us. So we'd like to share to number for our reference about how big China market is to Kendrion. Within Kendrion, we are concentrating on 2 major markets. First one, we talked about Automotive. So therefore, in the left-hand side, we have to refer how big the China market is For Automotive -- for automotive market. And the red line, in the left-hand side is the China annual passenger car manufacturer quantity, which in general, every year, here in China, we have more than 20 million cars annual manufacturer production quantity. Compared with the #1 large Eastern car manufacturer countries in Europe, which is Germany, is roughly about 4 point times figure compared with the automotive market size as in Germany. So which means we are aiming -- [indiscernible] why we are quite encouraging, we should be, in the low one, we should be even able to have more revenue in China compared with what we have in Germany. So this is why we put an aggressive growth here. Then also for the second market, Kendrion, our focus is industrial application, industrial market. So the market size information also encouraged us. The red line in the right-hand side is showing manufacturing GDP from China. And the other 2 lines is another 3 key countries in Europe. So therefore, we can see the market size of industrial further, we can say roughly about 6x is in Germany, 13x is in Italy, 17x is in France. So both the 2 markets actually encourage Kendrion to do much more business in China than before. So next page. So based on the opportunity, we also like to utilize the local business opportunity here to grow our business here. So therefore, the 2 mentioned strategies are our corporate assignment from CEO to our China team here, we will build the 4 major capability here locally. The big local business activity here, starting from a commercial capability, we already -- actually, in the past, for years, we already gotten nomination revenue for more than EUR 300 million in lifetime revenue in the past 4 years. And right now, every year, we set a minimum EUR 100 million lifetime revenue as our nomination target. So we will keep doing that. And the second, about the local R&D. To capture the more local opportunities, R&D capability is also essential. So therefore, we are fielding the local R&D here by cost and mentoring by our quality from Germany, which we already deliver our excellent quality and technology in Europe. So we've got a good feature and to learn and to implicate our capability here in China. Then we also still reinforce and build our strong local supply chain. Because China already got 2 major huge markets from Automotive and Industrial, so therefore, the entire supply chain base in China is also quite mature. So we try to leverage the local supply chain and to enhance our competence. And of course, we are so proud of our Germany quality. So we definitely like to deliver the same quality as what we are doing in Europe, also in China. So by the 4 strategic action actually [indiscernible] will be our local team assignment and try to deliver based on the capability to deliver the better results from China. So next page. Actually, on top of that, we are also quite confident to do much better than before. Because actually, Kendrion in China in Suzhou, we are well -- we are the only one facility, we think Kendrion combine all business units together. Therefore, we even act as even stronger position, try to leverage all Kendrion resources and strength together to catch the big local opportunity. For example, as the CEO of the division, we are going to grow all major business, i.e., in Automotive market, also in Industrial Brakes. And of course, in all the major business unit, we all focus on the growth from China. So therefore, in China, we've got the top opportunity and advantage. First of all, all business units, we got a bigger market here to [indiscernible]. Moreover, on top of individual BU organic growth and business activity, we even got the opportunity to try to all BUs today. For example, for Brakes, for Industrial Brakes, we actually -- we had the local design in a couple of quarters, which potentially will be used into the electric vehicle like the Tesla. The new application function automatically opens front door, means with the kind of brake. And in the past, we used to have quite separate market for Industrial and Automotive. However, in China, since we integrate all relation together, we even find more and more business opportunity, we get business across different business units, like what we are seeing in Industrial Brakes to electric vehicle. Also, same logic, we are also seeing that IAC products to the touch screen behind the passenger car as we call high touch automotive haptic [indiscernible] which is a brand-new function and the first initial on China. So therefore, we set the [ sole ] opportunity even to grow our business across different BU. So this is why we are so confident and we already -- we can share the next page. Next page, please. Then to share with all of us. In this chart, we can see actually starting by CEO, the overall strategy, we already grow our business in China for the first 3 years. We already grow every year for more than 20% organic growth. And this year, beginning of this year, we even add on one more unit from INTORQ acquisition, but even add on the INTORQ becomes the largest space. We are also confident we can keep the same growth speed at more than 20% every year. So actually, we are quite confident and are quite aggressive to deliver this best opportunity from here. So next page. So therefore, we've got a plan for our new factory. Right now, we already have manufactured space for about 13,000 square meters. And for the add-on, the new growth business, we actually -- we needed another 11,000. So it means totally in China within 5 years, we will require 24,000 square meter. Again, which will be another triple gain about our space [ initiative ]. So therefore, we already have internal evaluation, try to make a decision shortly, either by building or by leasing new facilities. So basically, this is what we have done in China, and we are also confident to do even better in China and following CEO's statement in the beginning, we are ready and we will do our best to deliver the best results from China. Thank you for your attention, and I'd like to hand over to our CFO, Jeroen.

Thank you, Telly, and yes, good afternoon also on my behalf. So in the last hour or so, you have heard from Joep, Manfred, Andreas and Telly about the various growth opportunities we see in Automotive; Industrial Brakes; Industrial Accurate and Controls; and in China. So I will now present how this all translates into financial results and a new set of ambitious medium-term targets. Since we set our existing medium-term targets of 15% EBITDA margin and 20% return on invested capital by 2023 and a dividend payout between 35% and 50%, 2 things have happened. First, we have acquired INTORQ. This impacted the amount of nonoperating assets, such as goodwill and other acquisition-related intangibles on our balance sheet, but also significantly strengthened our position in Industrial Brakes and as such, has changed the profile of Kendrion, which is now around 50% industrial. Second, the COVID crisis impacting economies and businesses around the globe, and which impacts Kendrion in 2020 and possibly also in 2021, Despite having been impacted by down cycles in our main end markets and the COVID pandemic in recent years, we were able to win substantial business in Automotive and have further improved our market position in other focus areas, Industrial Brakes and, of course, in China. In Automotive, for example, our Lighthouse Projects increased the potential content per car based on the trends towards electrification and autonomous driving. As explained by Manfred, the content per car is expected -- the potential content per car is expected to increase with 50% from an existing car to the future electric car and even 75% when we talk about a hybrid car. We also expect to benefit from a higher uptake of high-end solutions such as active damping. In Industrial Brakes, we realized the majority of our revenue in markets with above average growth. This is fueled by increased uses of electro motors that drive industrial automation. Andreas has shown 3 focus areas where we see opportunities to realize even higher growth via the diversification of robotics, brakes for ABBs in logistics and in wind power. And in China, as you just heard by Telly, we expect to continue to realize high growth, but on an increasingly high revenue base with China now representing approximately 10% of our revenue. So based on this, we aspire to realize an annual average organic growth of at least 5% until 2025 based on the actual revenue level of 2019. For your reference, the 2019 revenue, including INTORQ, would have been around EUR 467 million. We expect that both the user and the automotive units will contribute to the realization of the group target. With respect to profitability, you can see on the graph that up to 2018, we were on track to reach the 15% EBITDA margin target based on the combination of growth and significantly simplifying the organization. The mentioned down cycle in automotive and COVID-19 have caused the margin to decrease to around 11% in recent quarters. So with the revenue growth we expect in the coming years and our ongoing focus to maintain further -- and further improve our cost base, we do aspire to grow our EBITDA margin to 15% before the end of 2025. The majority of the almost 4% margin improvement is expected to come from operational leverage with around 1% margin increase coming from additional efficiency measures, improvements in Automotive and the synergies in the Industrial Brakes and also in IAC. We further target to reach a return on invested capital of at least 25% by 2025, when excluding acquisition-related intangibles from the capital base. By focusing on operating assets only, so excluding intangibles arising from acquisitions, we will ensure that the 25% target will remain consistent and also sustainable in case of any further acquisitions going forward. So the first graph shows our total invested capital as per the end of June, which is EUR 358 million. Of this, EUR 158 million relates to goodwill and other intangibles arising on acquisitions. Of the total EUR 200 million remaining operating assets, around EUR 140 million exist of fixed assets, such as machinery, buildings and leased assets, and the remainder is the net working capital. The allocation of our invested capital between Industrial and Automotive is approximately proportionate to the revenue in Automotive, representing 48% and Industrial, 52%. The return on invested capital, as per the end of 2019 on a like-for-like basis, so based on the new definition, was 12%. Operational leverage and the ongoing lean cost base that drive the targeted EBITDA margin improvement, in combination with scale effects on fixed assets is expected to contribute to the realization of the significant step-up in invested capital -- in return on invested capital. And finally, to sum up our medium-term targets, we aspire to realize at least 5% average annual growth with 2019, the actual revenue in 2019 as the base, an EBITDA margin of at least 15% by 2025, a return on invested capital of at least 25%, also by 2025. And we maintain our existing dividend policy of distributing between 35% and 50% of net profits. That concludes our presentations of today. I thank you all for your attention, and we now open up the lines for questions from the audience and listeners to the webcast.

Thank you, Jeroen. So we start with questions here from people present here, Frank. Hold on, it's important, the microphone for the webcast and also for Telly.

Yes. Frank Claassen, Degroof Petercam. First of all, on your margin target of 15%. Could you give us an idea how much would that roughly be for Industrial? And how much for Automotive? Will it be a big difference? Do you think that Industrial will be exceeding the 15% and Automotive activities below? Or what is your view on that?

Without guiding you too specifically, typically in Industrial, indeed. Certainly also, because some of the IAC products will be part of that industrial mix, will be slightly north of that 15%. Automotive, typically a little bit lower. And maybe in addition, we talked a bit about it at our Q2 results, starting in the first quarter of 2021, we are going to report the 3 business groups individually, so Automotive; Brakes; and IAC. So to give you also a little bit better feel of how the cash engine varies from the more growth-focused areas.

Okay. And then looking at Slide -- what is it, 61, on the invested capital. It seems that you, more or less, want to keep the invested capital flat versus first half 2020, looking at the graph. But of course, there will be, hopefully, quite a bit of growth -- top line growth and margin growth, so my question, more or less is, how can you do this? Don't you need more working capital for this, for instance? So yes, what is your view on, indeed, the working capital developments in this -- baked into this invested capital?

Okay. So there's one thing on the graph. So you're right. But there is -- so all the years on the graphic are basically the end of the year -- of the calendar year, with the exception of the first half year of 2020. And then you have a seasonal impact, and the seasonal impact is especially on working capital, which is quite low in December, which is, yes, between EUR 10 million and EUR 15 million, typically around EUR 12 million. So that is a bit distorting, that conclusion. And if you then look going forward, then working capital will grow with revenue. So we expect a bit better percentage than we currently have, but no major impact there. But we do expect scale effects on machinery and obviously, also on buildings. So it will increase, but with less than the revenue.

Okay. And then on the investment in China, could you give us an idea if you would build it on your own, what kind of, yes, CapEx, are we talking about? And what is the time frame to build such a plant?

Yes. So I would -- I won't -- I'm not going to speculate on exactly how much that would be. As Telly indicated, we are weighing the 2 options. It is going to be purely a financial decision, whether it's better to lease it or whether to build it. We will be very dispassionate about it. The timing will be that we'll take the decision shortly next month and the months thereafter. We'll break ground in '21, and we will come online in '22. Please note, just as an additional clarification. So the 90% occupancy rate, that is in Suzhou, of course, we also have a factory in Shanghai. And also, please realize that there's quite a few new lines there that are still ramping. So it doesn't mean that if we start the revenue growth for 2021, it's hampered because we don't have the capacity on that floor there.

Okay. Then maybe finally for me now. Of course, focus is now on organic growth. What is your view on acquisitions? Will that be fully off the agenda in the coming 5 years? Or will that -- if there will be opportunities, will you still look at it? What is your view on that?

Yes, it's unchanged. So we said, as you well know, for quite a few years -- also when we were not acquisitive, that for acquisitions, we're always looking at it. The first filter or the first thing to assess is will it improve our position in our strategic direction. I think INTORQ is a great example. We have 3 areas of growth. This hit 2, so that is then -- it made me say hey, okay, this is interesting. So can we strengthen ourselves in Automotive, specifically in the areas that Manfred has highlighted? Can we further strengthen themselves in Brakes? Is there an opportunity for us to step up in China through an acquisition or a partnership? Box #1 to tick. Then you get, of course, into all the others like, is there a cultural fit? What's the quality of the target? Can we afford it? Is the -- are the financials correct, et cetera, et cetera? Now that's a long list of boxes to tick. We are -- I'd like to think of ourselves as being quite disciplined in this matter. But as you have seen with INTORQ, if there is something that we feel fits, we will move quickly. And I don't think that will change.

Tijs Hollestelle, ING. In your opening speech, you mentioned that Kendrion substantially improved its market positions. I think there are 2 sides of that there. I mean, we all know that you have done a lot in improving the efficiency simplification, and we have followed that throughout the years. You redirected R&D, identified growth markets, all these things you acquired into our camp, which also gave you a better position, but there's also the other side. And how are the clients reacting to your new offerings or do you have examples that existing competitors no longer can catch up with their innovations, that new clients are coming to you in order to work with you or longer-term commitments on, let's say, joint venture developments going forward? Because ultimately, that will give you above-average industry growth if you are actually able to take market share. So can you give us a few examples of that happening and where that exactly is happening?

Let me give you a few sentences, and then I will ask Manfred to comment on that, being very close to that specifically in automotive, which I think you're alluding to. So my remark is that, as you said, we've substantially improved the position. One of the things that I'd like to highlight is the fact that these Lighthouse Projects are not new. We've been talking about it for quite a while. Starting a couple of years ago, we didn't quite call it Lighthouse Projects. But we did call it smart actuators. I started using the word mechatronics for the first time a few years ago, as [indiscernible] remembers. So that part of that positional change is that we -- this is not -- you saw the pictures. These products we talk about are real, and we are sampling them. We're working on them. So that is an introduction. Manfred in terms of competition, our traction with clients, maybe you can give a bit of color.

It's a very interesting question. And it's unfortunately, also a little bit complex. It comes in different flavors, colors and so on. And what we see is that, especially in talking of automotive, the automotive industry sees some consolidation if the market is declining, the pressure on the suppliers is going up in a sense that everybody asks you for savings, everybody asks you for lower prices or even to exit your market. So we have been very strong already in 2019 to secure slots where the actual business model from today's OEMs are falling apart. So when you look, for example, into companies like JLR, they have totally different business perspectives than 5 years ago. Being nearly like a company like BMW, so they're more a candidate having problems on the market. So the volume perspective changed massively. In such cases, we were quite successful to secure the whole pack and the whole volume for those customers, which was split up before among different competitors. So by looking much more into that direction, we were able to secure several slots, which are now fully belonging to us, giving us the scale and giving us the capabilities to serve this market also in the future and sustain the business. Other elements are where we are moving into innovation. And those are very challenging in the sense that the future is very disruptive and very evolving. And COVID-19 was delaying some of those. So we see customers are reevaluating what they do. So earlier in February, March, they were not there anymore. For 2, 3 months, they were just not in the office, so you couldn't even reach anymore the engineers in some of the OEMS. So we see here a bit of a delay, but we see a very good traction for all the new products, customers coming to us. And we see that in leading OEMS. We see that in the high class, but we also see that increasingly in the mid-class cars, which then lead to a higher volume. So we do have those activities. We see that and both trends give us the positive environment we currently feel we are in. So this is why we expect the growth rate we are putting up. That's why we expect customers are increasingly coming to us. So the innovation and the very strong push towards higher volumes and securing those slots, these are the 2 key elements we, at the moment, see.

Yes. Yes, that's exactly what I'm looking for because I understand it's under pressure. But indeed, if you feel comfortable with your market share, that's quite important going forward looking on the recovery. Yes. And then another question is basically the same then for the industrial part on Slide 34. You see a portfolio of end markets. I appreciate that you highlighted several of them, which are most important. As an analyst, I'm not so keen on these wind power predictions here because that is based on total generated electricity. But yes, the turbine is also getting bigger. It's a bit of a wobbly market. But I very much like, for instance, the automated guided vehicles market. So are you able to give also a bit more business case on -- is this a 1 million business or a 20 million business within Kendrion? Because I do believe that, that will grow very fast. That would be very meaningful. And also if you analyze whether you are selling into the market leaders who in the end produced the little robots in the warehouses. Is there an opportunity to get other big players in there? Because also here, that means that you will outgrow the average of this market if you commercially also make your inroads. That's a bit of a long question, but I think you get the point, yes.

Yes. Andreas, you want to take a stab at that?

Yes. Thanks for the question. I personally believe that, and I gave a number that we are planning to grow in this market in the logistics portion, both from AGV as well as in the industrial [indiscernible] to 30%. We today have a little bit more than half of it. So we are positioning ourselves well with also the key players which are globally active. And as also stated, especially on this, we are also increasing our capabilities or manufacturing capabilities in China because we are strong today in Europe. We are moving towards China, we are in almost daily discussion. Telly, I think you can reconfirm how we are making sure that we are also able to localize our production or we can we make sure that we are doing this transfer with the same level of quality which we are able to provide also from Europe. But of course then providing better prices and being able to be very, very competitive. So I personally believe we are positioning well also with a key market player there. And you're right on the wind power. I mean that's also kind of oscillating markets, depends a lot on the subsidiary which are given in the country. Currently, we are actually having a quite strong windfall in China as the subsidiaries from the government in China are strongly supporting this. But we are also positioning ourselves well in this market with good solution, also with bigger windmills. So I'm expecting also that we're growing in this market.

Telly, do you have anything to add on the market for industrial brakes in China?

Yes. Actually, for the [indiscernible] 34, the major -- a couple -- actually a couple of major applications are -- probably China is the biggest market. So starting from wind power, right now for the wind power or in the engine or -- and actually, China is the #1 manufacturing country in the entire Asia, and actually, right now, let's put it this way that in the -- that we -- the background why we are confident that we power application, the market will keep growing. And because right now the average we call the energy cost per unit of from wind power actually already refused to be much close to traditional, we call, biopower generation. And because wind power is more clean and more environmental protection, et cetera, so in the past, even governments has the huge subsidize so as to subsidize the kind of -- the energy cost is roughly about 20% to 25%. But right now, also according to the economical scale become bigger and bigger of wind power, the government thinks it is more as we -- they don't need to subsidize anymore. So starting from this year, we already foresee -- first of all, government will subsidize but on the other hand, which also means we empower the market competition become more fair competition. So therefore, we foresee there's a market in a long run. And just also highlight, within 5 to 10 years, we'll be roughly about a double or even triple. Let's put it in this way right now in China. Only in China, we are the greater -- we are paying to this application, I think, is more than EUR 5 million. It's more than that. But actually we are not allowed to give you a specific number, but [indiscernible] already representing quite some portion. So we foresee that will become also high growth. And also in other markets, we mentioned about the ATV, which China supports also the bigger market, according to the Internet shopping. Because as we know, China recently, in the past 10 years, already -- also again, this is 17 years before, we have 1 also -- Asia clearly is called SARS which is exactly is very similar to COVID-19 today. At the time [ epidemic ] start in 2003, then a bigger Internet shopping company in China become very strong, we call Alibaba. Alibaba Internet is shopping because during 17 years before we start [indiscernible] in Greater China area, people don't want to go out for shopping. So Internet shopping and delivery become -- become more and more popular. And today, we see a similar situation because the entire Internet is shopping infrastructure in China become very mature. You can -- you can order from Internet in China. And out of the more than 90% of [ safety ] you look at you're shipping within 2 days, even most likely, you get that within 24 hours to get your product. So quickly already become very well open an infrastructure. And ATV is the kind of a good tool work with small robot or a small vehicle for the warehouse management because if we want to run the kind of entire infrastructure to do the Internet shopping delivery, you need a big warehouse. And to relatively the same area what we call the building cost or land cost in China relatively is still quite high. So people [indiscernible] many flow and also high -- with quite high in the warehouse cost. So you needed a kind of ATV to pick up the product when picking then deliver to customers. So the market is just starting, therefore ATV is what you see in the warehouse. You have the main worker mainly to pick up the 1 coffee or 1 glass [indiscernible] But right now, become more and more automated. So the ATV is also -- we foresee that the annual growth rate on this market could be even more than 50% to 100%. So then those markets, which is, I will want to say, are [ returning ] only -- even only [ per sale ] is a couple of million euros. The board in the -- we can talk about me and million euro business. And also like Novartis, which is the annual growth rate, I would say definitely much, much higher than double digit. So this is also the big 1 why we are so confident on our bigger goals in the world.

Thank you, Telly. The other thing in terms of the dynamics of brakes as compared to automotive was you have a lot more standardized products that are applicable to many different applications. So it also gives you more flexibility to go there where the growth is. I happen to agree with you on the AGV. Wind power, as Andreas said, a bit more cyclical today, very strong in China, maybe next year, a bit less, but ultimately, I think, also a growth market. But this is not about, okay, I'm developing brakes specifically for this market. And now if it doesn't take hold, I'm stuck. That's -- it's a little bit different dynamic. So these 3 segments that Andreas picked are not the only segments. We have 8. We didn't want to present all 8. But you can basically take your product, and that's the strength we have now with INTORQ. We have such a broad product range that effectively we can zoom in on where the growth is, and that's what we'll do.

One final comment. I appreciate the explanation on the industry dynamics of the end market, but I also like to see Kendrion taking market share, destroy your competitor, announce a new -- yes, because put out a press release, if that's happening, because then it's also for us giving us more comfort. But I fully agree with the long-term prospect.

Thank you.

Johan van den Hooven, Edison Group. A few questions about your organic growth revenue target. Just if you guess if I understand everything, the base for 2019 is including INTORQ. So as of 2020, the organic growth of INTORQ is calculated in the average. The first question is, in the first half, you reported about minus 20% organic revenue growth that wasn't including INTORQ. Do we have a comparable figure to include INTORQ?

Here, we have, but I think for the -- so for the target, the 5% average target, so you count as from 2019, EUR 467 million, including INTORQ. So yes, you can do the math where we target to end up in 2025. So yes, you simply have to check the reported revenue in total compared to the EUR 467 million. That is the actual revenue growth. And obviously, 2020 will not be a good year in that sense, so you can also calculate what we target for 2021 to 2025.

Yes. That was my next question because I do remember the previous 5% target you said in 2016. And I think you started the first quarter with minus 6%, which obviously doesn't help the average. But I do understand that taking into account the minus, whatever, 10%, 15% to 2020. So we have to compensate for that in the next 5 years.

But the other thing is, as you know, we've talked about this quite a few times. What will not change is that there is cyclicality in our business. So you will see some quarters that the year-over-year comparisons are not going to be at 5%. You will see other quarters where all of a sudden it's double that. I would always repeat and say, look, don't model a great quarter. Don't extrapolate a bad quarter. Don't extrapolate. It is an average. We purposely put 2019, because 2020, of course, is such a strange year. We purposely put INTORQ to basically also take that uncertainty on how we actually -- what actually we mean out of it. So as Jeroen says, we start with that number that we gave. At least 5% per year will give you a target in 2025. The disclaimer about cyclicality, geopolitical events of course is always present, we don't control that. But we are confident that if you look at the underlying business, the growth -- the sources of growth, as we talk, as we try to illustrate here, will take us there.

The other question about the business, if you expect China, which is 10% of total sales to grow by more than 20%. That already delivers apart from 2020 to at least 2% growth. So the other 90% is sort of, on average, 3.5%, purely if we do the math.

I didn't do the math. But clearly, there's going to be -- within the sources of growth, there's going to be differences. China, as you know, Telly I think eloquently illustrated has been a growth story basically since 2016. The base is now, because of the organic growth and the INTORQ acquisition, quite higher. So the relative importance of China, both in terms of our growth, but also in revenue content of -- as a percentage of the total company will absolutely go up, that is clear. Now the other part to say is there is also more growth available in China. I mean if you look at the size of the markets, I mean that one slide Telly presented, how many cars are being sold there, what is the GDP of manufacturing, I mean, it's a very rough indicator, obviously. But there's lots of targets there. We have a filled pipeline. We're going to enlarge, again, the manufacturing capability. So yes, you're right. If we hit the 5%, and China takes more than 5%, then, of course, the rest mathematically will be a bit less.

Last question for now. What kind of level of CapEx do you need/expect for the next 3 years?

Actually, we -- so currently, we are still reducing our CapEx to safeguard our cash position related to COVID. In the coming years, you will see a step-up again to slightly above depreciation. [Audio Gap] nation percentage to materially increase in the coming years.

Maarten Verbeek, the IDEA!. Firstly, concerning your EBITDA margin target of more than 15%, in my view, a bit disappointing for exactly -- actually, it's lower compared to your previous one since this one is based on IFRS 16 and the other one on IFRS 17, so that's already a reduction. On top of that, you enter into more added value products. And you also have the acquisition of INTORQ which had an EBITDA margin ahead of the 15%. So why this EBITDA margin target?

Well, the first thing to say, well, we say at least and the other thing is, of course, that I think if you see where we are today, also the current situation where we're at, if you know you look at the total because you can single out 1 certain specific target. But if you hit -- or you combine these 4 targets together, I think it is actually quite ambitious and exciting as we said in our remarks. Now if we can do more than 15%, of course, we will.

With respect to your ROIC, return on investment capital, target, you exclude the intangibles, which have arisen from acquisitions. That includes all intangibles, so not just the goodwill.

That includes the goodwill and also the allocated -- the purchase price allocation, as you say that, so valued customers, yes.

So for example, when I look at the INTORQ acquisition, of which you had total consideration of EUR 64.5 million, then EUR 62 million is more or less excluded.

No.

Because when I look at things, you have intangible fixed assets of 26% and goodwill of 35%.

The total intangibles, the goodwill and intangibles of INTORQ by heart is 55% and the total consideration was 78%.

Okay. So you get, which should answer that, okay. Okay, okay. Concerning automotive, the value, the content per car will increase. At the same time, you said that with the systems perpetually be updated, cars will last much longer. What do you reckon the average age of a car will be? Ultimately, you predict that number of car sales will steadily come down.

Not necessarily that the lifetime of a car becomes longer. That's something we have to see. I would say that the lifetime of a Tesla is much shorter than a [indiscernible] today, just by the nature of early adapter cars. Quality is not the key element. It's today not clear how long that will take. The upgrade is a lot software feature. A feature where you can use data, services and so on. So as we move into this more software-centric, data-centric activity, the way a car is updated will not be the same as today. It's not yet a clear statement how long the electrical drivetrain will last, because a lot of electrical components where the industry has today no experience how long the batteries will survive, how long the motor will work. It's a big surprise that, for example, the Tesla batteries are much better after 10 years than expected. Initially, the idea was well after 7, 8 years, it will not be so strong anymore. But the batteries of used Teslas are surprisingly good. So this equation is not yet clear, but you're right. This lifetime of the over next-generation of cars will have a strong impact on the total volume of a car.

Maybe to add to that. So a couple of things. One is that when we look at the forecast of the total volume of cars, we use IHS. We're not getting booked down in our own analysis and our own assessment of how the lifetime of the car, if it expands, how it will affect the overall volume. The second point to make, maybe obvious one, I think Manfred eloquently compared the move in the car with -- between the typewriter and the laptop, but also we talked about phones. Phones are being updated, as you know, over the year, all the time. I don't necessarily think that you stay with your phone much longer because of it. You're still replacing your phone every 2 years because you want the bigger screen, you want this, you want that. So it's very speculative, if you like. But the trend towards the central computer, the smartness of the mechanical elements that you need to have, the fact that the more sensing, the more processing power you have, the more actuation you need, which we try to operationalize with an assessment of how much of these actuators are then in a single car, I think that's unmistakenly happening. We're excited about it, and that's basically the road we are traveling.

A question for Telly concerning the number of nominations. Does the EUR 300 million mentioned, does that include the nominations of INTORQ as well?

Telly? Did you hear that?

No. No. No.

Did you hear it or is the answer no?

Yes. Yes. The answer is no. With the same -- so you mean -- so you have your [indiscernible] nomination, I mentioned is in the past 4 years, we -- the total nomination -- nominated project we got from both automotive, especially by a [indiscernible] from both the automotive market and industrial market, everything together. And the revenue we count is for lifetime revenue. In automotive, generally, generally, it is product will last for about 7 years. And for industrial which is also even longer, but we also come by 7 years in average. The EUR 300 million nomination for the account is before INTORQ. It's not including total acquisition.

Okay. Okay. As a follow-up on that, you mentioned 2 years ago at your latest CMD presentation, August 2018, EUR 240 million of nomination. So actually, in the past 2 years, you've added between brackets only EUR 60 million, which is clearly below the EUR 100 million per annum you target. Could you put some color on that?

I need to reiterate this is not the entire April to April because the -- the pipeline nomination we mean is before May production. But the 2 years before, we talked about EUR 240 million. The question is -- but for example, we have 1 project from local carmaker called [indiscernible] and the revenue, if I remember well, it should be somehow like EUR 30 million to EUR 40 million lifetime revenue, but already put it into mass production in 1.5 years before. So while any project move into mass production, we will remove from the nomination list. Nominating this will only come before mass production.

The other thing is -- obvious thing to say, you've seen the growth present. You've, of course, heard the story and the confidence about further growth in the future that is driven by existing pipeline in combination with a very target-rich environment for our businesses.

And then lastly for the moment, including INTORQ in China, what was the contribution of China pro forma 2019 on revenues?

On revenue in 2019?