SAF-Holland SE (SFQ) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the SAF-Holland SE Analyst and Investors Conference Call H1 2020. [Operator Instructions] Let me now turn the floor over to your host, Michael Schickling.

Good morning, and welcome to the H1 2020 Analyst and Investors conference call of SAF-Holland. I'm Michael Schickling, Head of Investor Relations. This morning, we have published our full set of numbers as well as the presentation slides used in this call. Today's speakers will be our CFO, Alexander Geis; and Alf Hospes, our Vice President, Group Treasury. We will start with the presentation followed by a Q&A session. This call will be or is scheduled to 1 hour, and we'll try to cover as many questions as possible. I now would like to hand over the microphone to our CEO, Alexander Geis.

Good morning, ladies and gentlemen. A very warm welcome to our today's Q2 call. This is Alexander Geis speaking, and I do hope that you guys are healthy. On the next couple of slides, we will show you how SAF-Holland navigated through that COVID storm, especially in Q2. I have to admit that I'm happy and very proud of all our worldwide employees, who helped to make that happen. As usual, our presentation consists of our performance and our outlook. So we can start on Page 3, please, with one addition. And before we start with the performance, I would like to introduce my cospeaker today. This is Alf Hospes, our VP of Group Treasury. He will take care of the finance part today. September 1, our new CFO, Inka Koljonen, will be starting. And for sure, she will be presenting then our Q3 numbers in November together with me. Also here in that room for questions that might come later today is André Philipp, the COO of the company. So let's get started on Page 5, please, with a summary. On the upper left side, you can see that our sales for H1 came in with EUR 476 million, at an adjusted EBIT margin of 5.0%. We achieved, in the first half year an operating free cash flow of EUR 11.2 million and our CapEx ratio came in with 2.5%, so a bit lower than the years before. On the upper right side, you can see the summary of basically Q1 and Q2. And despite COVID-19, our adjusted EBIT margin for Q2 came in at 2.7%. Our aftermarket business, of course, safeguards our profitability. A comprehensive cost-cutting program continues, which we already started second half of last year, that pays off now. The management team overlooks a disciplined investment policy. And very importantly, SAF-Holland has a very solid financial profile. Alf will speak about that later on. Areas where we are gaining momentum, but still need to work on are the next stage in operational excellence, execute all SG&A savings programs, further accelerate efforts on inventory and receivables management and free cash flow generation. We will also speak about that later on, when Alf is speaking about the Cash-is-King theme and sustainably improve the quality of earnings. Next page, please. This is the summary. How did the truck and trailer production markets developed in the first 6 months of 2020. Starting on the left side, with Western and Eastern Europe, you can see both truck and trailer with a massive decline, truck somewhere around 45% to 50%, trailer with 35% to 40%, mainly coming from Q2. North America truck down by 50%, trailer by 40%. China truck minus 25%, trailer minus 30%, has also something to do with the pre-buy end of 2019. South America also down now with minus 20% in truck, minus 15% in trailer. And last but not least, India, truck minus 45% and trailer minus 45% as well. Here, we got especially hit in April and in May, where we had to lock down the production facility for nearly 6 weeks in a row, a disaster to summarize it with my words. Next page, please. Now coming to our results of the first 6 months, starting with the group, also starting here with the upper left sales, as I mentioned, dropping from last year's first 6 months EUR 695 million to now EUR 476 million. The adjusted EBIT margin for the first half year came in with 5.0% comparing to 7.2% last year. Sales by quarter, you can see that the second quarter was also, for us, a very challenging one, with a drop from EUR 349 million in 2019 to now EUR 193 million in 2020. The adjusted EBIT margin came in with 2.7%, as mentioned before, compared to a very good 7.2% in last year. On the upper right side, some more comments, additional information, starting with the sales, which was influenced by market downturns, as you all know and COVID-19, the acquisition effects and FX was not that high, very small, but summarizing the organic effect with close to 32% down compared to last year. Adjusted EBIT margins affected by fixed cost progression effect, less sales, inventory write-downs, EUR 5.6 million in EMEA, mainly in EMEA and Americas and positive was the SG&A cost savings. We found it useful to show you the main restructuring expenses, which you can see in the P&L in the appendix, but we thought it's good for you to understand where it's coming from. So basically, starting with some severance payments. We reduced the workforce by nearly 1,000 people compared to the same timeframe of last year, a Corpco wind-down; closure of subsidiaries, which we will be doing; project FORWARD. This is North America, continuing and also the change of the legal form from the SA in Luxembourg to the SE Luxembourg. And then finally from the SE Luxembourg to the SE in Germany, which is now accomplished, and the company is registered July 1, 2020. And there are no goodwill impairments so far for us in the group. And by the way, if you are interested in an EBITDA chart in the appendix on Pages 24 and 25, you will find an overview for the group and also for the regions. Next page, starting with the first region, which is EMEA. And you can see the headline says robust adjusted EBIT margin even in Q2. Sales came in with EUR 268 million, also, of course, a drop compared to last year. The adjusted EBIT margin for the first 6 months still at a high 8.0%. Now coming to Q2. You can see we came in with EUR 111 million at an adjusted EBIT margin of still 6%. And given all the customer and supplier shutdowns, I think this is a great team achievement, specifically for the EMEA regions. Also a quick summary on the right side, starting with sales, which was influenced, not mainly by some acquisition effects nor by FX, very, very small numbers. But of course, a decline of about 23% organically. Adjusted EBIT margins affected by OE business, less sales, of course, and that means also fixed cost progression effect, which was negative. We did EUR 2.5 million in inventory write-downs as COVID-19 led to lower turnover rates. And positively, we can see that the SG&A was reduced. Restructuring expenses, as mentioned in the group, came in for EMEA with EUR 2.2 million. This is mainly 2 drivers, severance payments and also the change of the legal form, as mentioned before. Now coming on the next page to Americas. And the headlines has slightly positive adjusted EBIT margin in Q2 despite massive sales decline. North America is still going through the COVID, as you know, not only the U.S. but also Mexico and Brazil are affected. So the sales on the upper left side, you can see came in with EUR 174 million at 2.6% adjusted EBIT. Q2 was a disaster with minus 50% in sales decline. As you can see now, EUR 96 million compared to EUR 141 million last year. But the adjusted EBIT margin still was positive with 0.6%. Important to mention going forward that we adjusted the workforce and the SG&A massively in April and May, so this will have some positive effects also in Q3 in the Americas. Also here on the right side, quick summary on sales, which was massively influenced by organic decline of 37%. In Q2, a little bit of FX, but this is not too much. Adjusted EBIT margin, after margin was positive, OE negative. And so were the fixed cost progression effect negative. We did inventory write-downs also due to the turnover rates due to COVID-19 of EUR 3.3 million, which affected adjusted EBIT. And also here, SG&A cost savings were positive. Worthwhile to mention that the good number Q2 was 8.1% last year of adjusted EBIT margin was mainly due to the passing on of steel prices out of 2018, which has a delay of 6 months normally. Restructuring expenses came in with EUR 2.6 million, also here mainly severance payments and costs related to our restructuring program FORWARD 2.0, which is going on. Last but not least, on Page #10, which is the next one, APAC. You can see that here also a massive sales drop was happening first 6 months, down to EUR 34 million at an adjusted EBIT margin of minus 6.9%. If we now take a look at the middle sections, sales by quarter. The quarter came in with only EUR 13 million and an adjusted EBIT margin of minus 14%. If you do some quick calculation and you take the first half year with the EUR 34 million multiplied by the minus 6.9%, that is a negative number of EUR 2.35 million. If you do the same math for Q2 with a EUR 13 million at minus 14%, that's EUR 1.82 million. So basically, Q1 was only negative EUR 0.5 million. So what I want to say is that we are coming closer to breakeven. On the right side, also here, last but not least, a quick summary on the sales, which was massively influenced by the organic effect with the shutdowns first of all, in -- also continuing in China with some ramp up issues, but also the shutdowns in India, as I said before, 6 weeks. We had shutdowns for weeks in Singapore. And also there is still a big issue with the tariffs between China and the U.S. since we have a big number of export sales. We also see that this is, at the moment, not good for our overall sales development. Adjusted EBIT margin affected by positively aftermarket business, negatively the OE business sales. What we also did is we had some special sales of old stock. They came in at low or negative margins to also get rid of really old material due to the plant consolidations and also generate some cash in the company. The volume effect is still missing, positively was SG&A cost savings. And also here, restructuring expenses of EUR 4.6 million, mainly costs related to Corpco wind-down and the closure of subsidiaries. Another point to mention is that in June, we finally started production of high-value disc brake axles with air suspension, which are mandatory in China since January 2020 for instance for tank trailers. Last but not least, in July, as an outlook, we handed back the old Xiamen facility to the landlord. That means, now finally, we have only one big facility, which is in Yangzhou. And we are focusing on ramping that up. Now I would like to pause a bit and hand over to Alf. Alf, please.

Thanks, Alex. Also from my side, a warm welcome. We're starting on Page 11. The investments. SAF-Holland is closely monitoring the investment process. Due to the COVID-19 pandemic, we have also implemented the CapEx challenge. And additionally, all spending above a certain amount must be approved by the senior management of the company. In the first half year of 2020, SAF-Holland spent EUR 11.8 million or 5-point -- 2.5% of sales for investing in plant, property equipment and intangible assets compared to 3.5% in or in absolute terms EUR 24.2 million for H1 2019. That's a decrease of EUR 12.4 million or 51.2%. The EUR 11.8 million of CapEx spending in themselves went into the Americas, 5.0 -- [ EUR 5.2 million ] into EMEA and the remaining [ EUR 2.6 million ] into APAC. Focus on the investment was the rationalization on automization in the U.S. and Germany, to safeguard our operational excellence. The CapEx spending brings us to a corresponding position in the P&L, depreciation and amortization. The D&A ratio, excluding PPA impairment of goodwill and R&D projects, for the first 6 months was 3.8% or in absolute figures EUR 18.1 million compared to 2.3% or EUR 16.2 million in the first half year of 2019. Responsible for the margin increase is, on the one hand side, higher investments in recent years. On the other hand side, the lower sales, as our CEO mentioned before. If we turn the page, we came to net working capital. The total net working capital was EUR 176.1 million. That's EUR 18.3 million or 39 -- sorry, 18.3% or EUR 39.3 million below previous year. In more detail, networking capital development is the following: inventories minus EUR 41.2 million or 21.2%. Trade receivables going down EUR 68 million or 39.7% on improved cash collections. Trade receivables went down 46.3% or EUR 69.9 million compared with the end of June 2019. Regarding to the lower sales volume, decline of 21.4% lower factoring of accounts receivables with minus EUR 13.1 million compared Q1 to Q2 2020. Net working capital ratio increased year-over-year from 15.9% in Q2 2019 to a current 16.5%. SAF-Holland has taken measures to bring down the net working capital. One of them is the Cash-is-King program started with a dedicated team to bring down, especially the accounts receivable overdues and the inventory. If we turn the page again, we come to the impact of the networking capital on the free cash flow -- on the cash flow. The operating free cash flow increased from EUR 4.8 million in H1 2019 to EUR 11.2 million in H1 2020. The operating cash flow for the 6 -- first 6 months was EUR 22.5 million. In comparison with previous year, it was a decline of EUR 5.1 million or 18.3%. However, if we put in context with a lower sales development of minus 31.5% H1 2020 compared to H1 2019, the company managed it very well. Net investing cash flow went down from EUR 22.8 million in the first half year 2019 to EUR 11.4 million in the current year. That's a decrease of 50%. The total cash flow with an amount of minus EUR 10 million, previous year minus EUR 7.6 million includes also the cash outflow of EUR 21.2 million for the acquisition of the remaining 30% shares finally. If we went back to the balance sheet, on the next page, we see the net debt and the equity. Net debt slightly increased from EUR 256.2 million in March 2020 to a current EUR 278.9 million. This increase of EUR 22.7 million during the quarter was mainly driven by the development of the networking capital in Q2 2020. Ratio went up from 30% to -- in Q2 to 16.5% in Q -- sorry, in Q2 2020 or in absolute terms, an increase of EUR 16.9 million. As mentioned before, we are working hardly on the progress of the net working capital development. Cash and debt positions also currently influenced by the cash inflow of the promissory note, which was issued in March to refinance the convertible bond in September 2020 and the 5-year tranche of the old bonded loan in November. SAF-Holland, as with a cross liquidity of EUR 412 million, EUR 209 million in cash and EUR 202 million as undrawn corrected lines, solid financial profile. We are fully financed through the year 2023. You will find the majority profile in the Annex. On the right side, we find the equity. The total equity was EUR 310 million, EUR 7.7 million lower at year-end 2020. Exchange rate differences from the translation of foreign operations that was EUR 9.3 million, the main effect on the development of the equity. The additional cash for [ debt ] service in Q3 [ includes ] Q4 2020, also affects the equity ratio. If we deduct the extension of EUR 146.8 million, that's EUR 94 million convertible bonds and EUR 52 million of the promissory note. For the repayment, we will end up at an equity ratio of around 35.6%. So that was all from my side. I will hand back to our CEO, Alexander Geis.

Thank you, Alf. Guys. On Page 16, you can study how we see the markets going forward in 2020. So Page 16, please. Also starting on the left side. This is for the remainder -- for the complete year 2020, starting with Western and Eastern Europe. Basically, we confirm the old fuel, that's also the new fuel, which is truck being down by minus 35% to minus 40%, trailer around minus 20%. North America truck, same minus 40% to minus 50% trader equally. China, truck minus 20% and trailer minus 25%, so a little bit better than we thought originally in May. South America truck with minus 35%, trailer with minus 15%. Where does the difference come from in trailer? The old was minus 35%, minus 15%. We've seen in the last couple of weeks an order -- a good, really good order intake specifically coming from trailer billers in Brazil. So that's led to the new minus 15% only. India, truck minus 40%, trailer also minus 40%. And I would like to summarize it, as you can see on the lower left side, lower volumes in Europe, China and South America and significant declines in North America and India. Having said that, let's turn the page to see our guidance for 2020, please. In terms of sales, you can see we still see a decline by somewhere around 20% to 30% maximum. Adjusted EBIT margin, we guide between 3% and 5% as we did already in May. A slight change in the CapEx with around 2.5% of sales, which is lower than last time with around 3%. As Alf mentioned, we are watching that heavily that we don't overspend and also keep the cash in the company. So let's turn the page to the key takeaways, which are that we have a consistent aftermarket business, which safeguards our profitability that really pays off in those days. Our SG&A savings programs will be continued. Our cash scheme program is on track with more benefits to come in the remainder of the year in both inventory management but also accounts receivables management. SAF-Holland has a very solid financial profile, as we learnt from Alf. And we see operational excellence as key drivers to our company's success. Thanks for your trust in us. On the last comment to a date mentioned on the next page, please, before we go to the question-and-answer session. You can see on Page #19, the financial calendar. And on the lower left side, you can see on November 25, we would like to do original Investor and Analyst Day. On this day, the management team would like to update you on our Strategy 2023, 2025. Update on new cool products to come in the future and give you a deep dive into the CFO and COO words as well as a deep dive into our regions. The official invitations to follow shortly by our Investor Relations team. Having said that invitation, that's from my side, and now we are happy to answer your questions.

[Operator Instructions] And first is Philippe Lorrain from Berenberg.

So I've got like 2 small questions. So perhaps the first one, is the factoring. So what's the rationale behind the huge step down in factoring volume between Q1 and Q2? I think it was like about EUR 30 million decline. Was it just because your sales volume was declining at such extent? And how should we think about factoring volumes going forward?

Okay. I would take the question. Okay. On the one hand side, you're right, we have a factoring portfolio with special customers. And if our volume goes down, the factoring volume goes the same way down, okay? And if our sales are declining, our factoring volume will also decline. We expect the factoring volume on the same level than at year's end 2019, that's approximately EUR 40 million.

Okay. Makes sense. Then on the CapEx as well, I've seen that you've reduced slightly your CapEx guidance to about 2.5% of sales for this year. How should we think about that kind of ratio going forward? Because I guess you still have a few programs that you want to go through over the coming years. So should we expect a pickup in CapEx spending next year and perhaps like to overshoot perhaps like your kind of typical range in 2021 or in 2022? And could you remind us as well of where you would see that CapEx ratio evolving structurally going forward?

That's a really good question, Lorrain. This is Alex Geis. I would like to take that question because we had massive discussions over the last couple of months in the management team as we had it in the previous years. As you might remember, in '17, we started to massively increase our CapEx continuing into '18 and '19. So we -- in all regions, we spent a lot of CapEx to bring the company from a production perspective, but not only from a production perspective, but mainly to the next level to also implement our worldwide operational excellence. So we did spend a lot of money, '17, '18 and '19. And to put that together, I would summarize it as that we spend it to be ready for the future, but we will not see that massive CapEx spend in the years to come because now we spent already a lot. Specifically in China, we have a state-of-the-art facility. We continuously update our facilities here in Germany, and they are really good running. And also in the U.S., we invested already a lot. There might be CapEx. Of course, there will be CapEx but we see it from today's perspective, for the years to come, somewhere around 2% to 2.5% max. Why that, let's say, that range. If we come in with lower sales like around, let's say, EUR 1 billion, for instance, it might be in the ballpark of 2.5%. Once we grow the business again in normal or good years, it will be percentage-wise lower. So EUR 20 million to EUR 25 million is a good number for our company in the future.

Okay. And that includes the pickup that we could expect like following this year that's a bit weaker as well just because we've got that particular situation?

Production is already, we work mainly 2 shifts, 2 shifts. We can ramp up the 3 and 4 shifts. We just need to add back some people. Machinery is there. Utilization can grow or increase, so we are fine from that perspective.

Okay. Perfect and the last question is more on the inventory write-down in your slide deck for Q1, you did not mention anything like this. So is it right to assume that most of the impact has been felt in Q2? Perhaps you can walk us through the difference between Q1 and Q2 on that side?

So the inventory write-downs took place mainly in Q2.

The next question comes from Nicolai Kempf from Deutsche Bank.

This is Nikolai Kempf from Deutsche Bank. I have 2 questions. First, can you give an update on the current trading environment? I think June saw a nice improvement. Do you also see this momentum to continue in July? And my second one would be on the guidance for the full year. Right now, you're between 3% to 5% for the EBIT margin, but after H1, you're [ at ] 5%. So is there a chance to increase the guidance if the momentum continues to improve?

Nicolai, good morning. This is Alex again. I would love to increase the guidance to up to, let's say, 10%, if we are able to do that. Yes, you're totally right. First half year came in with 5.0%. Q2, and you will hear that from, I guess, from all the companies was the worst I've ever seen so far, let's say, the last couple of years. We think that there might be a chance that Q3 and Q4 will not be as bad as Q2, but we don't know it, okay? We all know that coming from the news that the infection rates are going up massively, not only in Germany but also in other regions of the world or in other countries in Europe. If there might be a second wave coming, and we will be seeing another drop, then it might be challenging for all the companies, including us. So that's the reason why we are a little bit cautious, and we just want to see how the markets will be developing. At the moment, Europe is okay. North America is still under pressure. We see infection rates like hell. We have to fight plant shutdowns due to infections nearly every other week. Then we have to close the factory from 1 week, do all the -- test infection things, which we need to do by the rules and then we start-up operations. So what I want to say is Europe at the moment is okay. China is okay. Asia is still under pressure. Australia is still under locked down or again, locked up with Stage 4, so nobody can leave the apartments. We see Singapore still locked up. And then Brazil is still a mess with infection rates in North America, also in Mexico. So please bear with us, but we cannot say how the second year will look like at the moment. But market is still -- it will -- it should be at the upper range of our guidance for sure. This is what I can say from today's perspective. Do we have any more questions?

Yes, we do have. Other question is coming from Jasko Terzic from Bankhaus Lampe.

Maybe getting back to your statements you just refer to the guidance. Maybe to phrase the question a bit differently. Aside from the risk that COVID might return, do you currently see that your customers are more likely to be preparing an increase in production? Or do you see that they are now also pushing again on the brakes? Or to ask you a bit different. Do you think in September, there will be no short-term work anymore and production will get back to former levels?

That's a very valid question. Speaking of Europe, we see that most of our customers, and you know that our sales is mainly driven in Europe by trailer sales, so axle and suspensions that kind of stuff, a little bit less by the truck fifth wheel business. We see that our trailer manufacturers are back to work. But here also, I would like to distinguish between the big 2, big 3, mainly producing standard curtainsiders, standard curtainsiders are still very much down. In the peak of Q2, somewhere around April, May, standard curtainsider production was down to up to 90%, 9-0 percent that was like in the first quarter 2009, that was massive drop. They are back at about minus 40% to 50%, so still a massive drop for us. All the other trailer manufacturers, focusing not only on curtainsiders, but on tippers, on tankers, silos, flatbeds, they didn't have so much of a drop, maybe somewhere around 10% to 20%. This business is solid, it's stable. We have -- after the shutdowns of Italy, for instance, all the trailer manufacturers back in production. Some of them only one shift. Others are 2 shifts back. But overall, we still watch European, let's say, business. From today's perspective, it will not be as bad as Q2. This is what I can say. But please bear in mind that normally, minimum 2 weeks of the productions are closed in August. If you go to the southern countries of Europe, Italy or Spain or also France, they close between 3 to 4 weeks. And this is what's happening because you have to maintain your production facilities. September, yes, we will see that we are still in a good mood. But as I said before, if now a second wave is coming and the governments are requesting us and our customers to close the facilities, that will be another story. And as I said before, going over the ocean to North America, our second biggest region, it is still a mess because you have the infection rates in most of the states, East Coast, West Coast, we have telecons every other day with our big trailer manufacturers, but also truck manufacturers. Here, I can report that the demand is going up slightly, surprisingly. But trailer is still very much down because the people do not want to invest at this stage today with all the infection rates. Does that answer a little bit your question?

Yes, that's very helpful. And maybe also, another question in that respect. You said that in April, you managed to not to be breakeven despite the heavy drops. And since now, demand seems to pick up slightly. How likely do you think is the risk, in your opinion, that there will be another month with a loss for the remainder of the year, so that the lower end of the guidance could become possible?

Well, traditionally, if you see the different months over the year, August is always a very weak month because of the plant shutdowns. You not only have that in Germany. So we -- actually, we have the plants closed for 2 weeks, both plants here in Bessenbach, Germany, they are closed at the moment, and we will reopen next week and the week after. We also have plant shutdowns in the U.S., North America, and Canada due to summer breaks. This is typically a weak month due to the much lower sales coming from OE. This is one thing. On the other side, as you know, December is always very low since all the customers are shutting down the last 2 weeks or a minimum the last week, first week in January, as well. So they are driving down the inventory. And basically, that's also Week 1 September is typically a good one, October as well. November is okay, but the 2 weakest -- traditionally weakest month in terms of sales is typically August and December, but we are not in a typical year with COVID in 2020. So we don't know how the December will look like.

Okay. And the final one is again on the CapEx statement. Did I understood you correctly that you think EUR 25 million is enough to maintain the business basically?

What I said is somewhere around EUR 20 million to EUR 25 million. This is good enough to maintain the business for the years to come, maybe not in 10 years again, but for the next coming years, EUR 20 million to EUR 25 million is -- it's pretty sufficient because we invested heavily in the production the last -- over the last 3 years and we have a lot of new equipment.

At the moment, there are no further questions. [Operator Instructions] And the next question comes from, let me see, it comes from [ Dana Friedman from Ascendis ].

It's 2 questions from my side. The first one is on the Chinese market. Maybe you could comment a bit more on your efforts for gaining a stronger foothold on this Chinese market, mainly the domestic part, how is the order pipeline looking that you're negotiating? And the second question would be on the aftermarket. It has been down something like 20% in Q2. Could you give us an outlook for the second half whether this Q2 is reflecting only a lower driven mileage, of course, by trucks and trailers? Or whether there are other factors to watch?

Thank you, [ Dana ], for the questions. I will start with China. Looking backwards, if you see our sales, we did in '17, '18, '19, roughly 80% was export driven. So we have the fleet pull-through in the U.S. A lot of the fleets buying container shutties manufactured by [indiscernible] in China, they wanted to purchase our equipment. So they basically told the trailer manufacturers to use SAF-Holland equipment. That was about for 80%. 20% was domestic China market. This was very much depending on export, which is not good due to the tariff situation between the U.S. and China. I personally don't think that we will see a lift or a release in the years to come. So we are not focusing on the export. We still supply a bit, but not much. Our focus is mainly domestic. And here, we are in the premium sector as we have, in my point of view, of course, the best axle and suspensions in the world and lightweight. And we finally managed to PPAP and bring a new product for China. We, first time ever manufactured that in June, so 2 months ago, which is a disc break axle with air suspension, which is, as I said before, mandatory for dangerous goods trailers since January 2020. And we started to ramp that up, and we are in negotiations with a lot of local trailer manufacturers, not focusing on export, but doing sales domestically. And we think that we can gain our market share in the future here as well because we, at the moment, have very low market share. This is on China. On the aftermarket, here's what typically happens. We have a crisis like in 2001, 2009, everybody, as we are focused on cash as the aftermarket distributors did in the second quarter. So depending on the different customers and the big customers are the independent aftermarket distributors around the globe. They have a DOIs or days of inventory of somewhere, depending on the cash situation, 6 to 9, sometimes to 12 months. So huge stock to be in the position to supply within a couple of hours or days only. So what they did in the course of Q2, they reduced their safety stocks, that led to not reordering that much because they had sufficient stock. And on the other hand, some data, I can share, if you compare the transport volume, the second week of March, which was still prior to corona and the second week of April, the transport volume dropped down by 26%. So the people did not [ repair ], plus the distributors reduced their stock levels. So having said that, they continue to do that, roughly 3 to 4 months. Basically, in our case, we see somewhere around 3 months. Because at a certain point of time, first of all, the transport volume came back. So it got better in that perspective. But on the other hand, they reduced the safety stocks to a level they cannot manage anymore to make a really 100% supply to their customers. Customers are fleets and workshops. So now we can see it's an increase of aftermarket. We had roughly a drop in Q2 of the aftermarket of 20%, roughly, plus/minus. And now we are back to -- it's still a little bit behind last year, but it's much better than Q2. And if the markets continue like today, I don't see a further drop of 20%. Of course, if something happening like a second outbreak or second COVID lock down, then that might be a different situation.

And we have a follow-up question from Philippe Lorrain from Berenberg.

I just wanted to make sure that I understand that correctly with the CapEx spending of EUR 20 million to EUR 25 million annually, that includes everything, including the capitalized R&D, intangibles and so on. So that's a [indiscernible].

Just a second.

So CapEx always includes capitalized R&D. So the figure we disclosed the 2.5% includes capitalized R&D. And therefore, the guidance 2.5% for 2020 and the years to come is including capitalized R&D.

Since we got 3 questions on that now, let me clarify one more thing, okay? From today's perspective, as I said, if you would have -- or if the company would achieve EUR 1 billion in sales, then we would see roughly 2.5%, which would equal EUR 25 million. If we would be increasing to, let's say, again, EUR 1.3 billion like in '18 and '19, then it would be dropping to 2%, but the absolute numbers with about 25% would be the same. If we increase the company in the years to come to roughly from a calculation standpoint, to EUR 2 billion, then we would stay with the 2%, which then would be EUR 40 million, okay? But the range is we create in the management team in the years to come because we did sufficiently spent CapEx in the last 3 years, around 2% to 2.5% of sales.

There are no further questions. So with this, I hand back to Michael Schickling.

So ladies and gentlemen, thank you for your participation and your questions. If you have any further questions, please do not hesitate to contact Investor Relations. Have a good day. Goodbye and take care.

Thanks for listening to us, guys.

Thank you.

Bye.