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

Dear ladies and gentlemen, welcome to the SAF-Holland SE H1 2024 Results Call. Today's presenters are: CEO, Alexander Geis; and CFO, Frank Lorenz-Dietz. The presentation slides are available on the SAF-Holland corporate website. The presentation will be followed by a Q&A session. Please note, this conference call will be recorded and published on the corporate website of SAF-Holland SE. Everything spoken through the unmuted microphone will be processed during the online meeting and published on the website of SAF-HOLLAND. If a participant does not wish to be recorded, they should refrain from participating in the Q&A session and keep the microphone muted. The Q&A session is exclusively for institutional investors and analysts. All other participants of the conference call are kindly asked to contact the Investor Relations team directly if they have any questions. Mr. Geis, the floor is yours.

Hello to everyone, and welcome to our conference call on our Q2 2024 results. Let me start with the recent strategic highlight on Page 3, please. 2 weeks ago, we announced the acquisition of Assali Stefen, an Italian manufacturer of special axle and suspension systems. The closing already took place at the end of last month. Assali Stefen is a company known worldwide for the development, production and sale of chassis-related components for trailers and semitrailers as well as other special applications. The company currently employs around 70 people and operates the development and production site in Verona, Italy. And is in close proximity to Tecma, the company we purchased some months ago, and our existing SAF-HOLLAND Italy site. Moreover, the acquisition fits seamlessly into our recent acquisitions, which were focusing on special axle products like KLL in 2016 in Brazil and this year's Tecma in Italy. We are expanding our product portfolio for standard and special applications ranging from standard rigid axles to swivel and self-steering systems. In the course of the integration, synergies from bundling resources as well as cross-selling are expected to further drive the potential of the acquisition. Let me move on the Q2 2024 highlights on Page 4, please. As already indicated with our ad-hoc announcement mid of June, SAF-HOLLAND demonstrated the resilience of its business model in the first half of the year. Let me explain this with a couple of KPIs. Q2 sales ended 8.7% below last year's level. Organically, sales decreased by 10.8% year-over-year due to a weaker OE business, which was only partially offset by the continued robust aftermarket business. The acquisitions of IMS Group and Tecma added 1.8% to sales. Despite this overall decline, we delivered a strong adjusted EBIT margin of 10.7% or 1.1 percentage points above last year's level and was driven by a high share of the aftermarket business on top of our strict focus on costs and early adjustments of production levels. Moreover, together with an improvement of the net working capital, our operating free cash flow came out strongly with EUR 56.8 million in Q2, and our leverage improved from 1.9x at the end of March to now 1.8x at the end of June. In a nutshell, during the second quarter, the profitability momentum even accelerated compared to Q1, and therefore, we raised our adjusted EBIT margin outlook for 2024. Looking at Q2 2024 results in more detail on Page 5. So compared to prior year, all regions were impacted by a weaker market environment and showed declining growth rates. Americas was down by 14.4% year-over-year, EMEA down by 3.6% and APAC showed a decrease of 6.5% year-over-year in Q2 2024. Nevertheless, we achieved group sales of around EUR 507 million, paired with an outstanding adjusted EBIT margin of 10.7%. Our net working capital ratio increased to 15.8% at the end of June, also due to the acquisitions, but was down compared to the end of the first quarter with 16.5%. As a result, we were able to translate this strong operational performance into a solid operating free cash flow of EUR 56.8 million. In a nutshell, the figures for the second quarter of 2024 have shown how resilient our business model can be even in times of a weaker market environment. Let me continue with the group sales on the next page, please. Sales in the first half of 2024 was a bit lower due to the continued softer commercial vehicle market, especially in the trailer segment in EMEA and the U.S. Accordingly, our e-sales were 12.8% below the same period of the previous year, which ultimately result in an organic decline of sales of 9.5% year-over-year. Hence, the second quarter declined by 8.7%. In organic terms, the group was down by 10.8% compared to Q2 '23. However, this decline was partially offset by the additional sales of EUR 9.9 million from the acquisitions of IMS Group and Tecma. Moving on to the sales split by region and customer on the next page. Due to the acquisition of IMS Group and Tecma, the sales share of the EMEA region increased to 46%. The Americas region was affected by the weaker trailer markets and contributed 41.2% to group sales. The APAC region slightly weakened in the second quarter, primarily due to the real investments in the wake of the elections in India, which took place from April to June. However, APAC share increased slightly to 12.8%. And now looking to the split by customer group, so 3 deal business units. In total, sales of OE business decreased by 17.6% compared to the same period of the previous year to now EUR 312 million, which was mainly due to the weaker commercial vehicle market in EMEA at North America. Accordingly, the trailer OE segment accounted for 48.5% of sales in the second quarter, which is a decline of 5.4%, while the truck segment also declined slightly to now 13.2%. In contrast, you can see the aftermarket business grew significantly by 10.4% to now EUR 194.5 million, in particular because it benefited from the strong OE business in recent years. So we have a huge OE population. In addition, individual sales measures, in EMEA and America also had a positive impact on the aftermarket business. As a result, the aftermarket business contributed 38% to sales. On the next page, you can see the group-adjusted EBIT development. So the adjusted EBIT in the second quarter grew very solidly by 6.7% compared to the same period of the previous year, resulting in an adjusted EBIT margin of 10.7%. The higher share of the aftermarket business had a positive impact, and we also benefited from the early cost adjustments that we introduced in response to the normalized markets especially in EMEA and the Americas. And in addition, the continued synergies from the Haldex integration also had a positive effect on our profitability. So accordingly, the adjusted EBIT grew by 9.1% to EUR 102.8 million in absolute numbers in the first half of '24, resulting in a higher margin of 10.2% compared to the 9.1% a year ago. Let's jump into the different regions, starting with EMEA, on the next page, please. So you can see that top line development in the EMEA region was strongly influenced by the softer development of the trailer market that is affected to have declined between 15% to 20% year-over-year. Hence, our sales fell organically by 8.1% in Q2. For the first half year, the change amounted to minus 7.7%. Although the region was able to outperform the important trailer market, sales declined due to the weaker demand in the OE segment. Despite that, the aftermarket business continued to develop very robustly, but also benefited from initial sales measures of older equipment. So we got rid of older equipment. Moreover, IMS Group, which was acquired at the beginning of the year and Tecma from Italy, which is fully consolidated since the beginning of April, contributed a total of EUR 9.9 million to the sales in the second quarter. Despite the lower top line development, we were able to increase our profitability in the second quarter based on the higher share of the aftermarket business, but also due to a very strict cost discipline and the adjustments of our production capacities. So adjusted EBIT grew by 13.8% year-over-year to now EUR 20.5 million in Q2, resulting in adjusted EBIT margin of 8.8%. So this is going into the right direction. And in addition, synergies from the Haldex integration also had a positive impact on our margins. Moving to the second biggest region, which is Americas, on the next page, you can see that the Americas region as in the first quarter had a weaker momentum in the trailer U.S. market, and this continued also in Q2, resulting in an organic sales decline of 14.7% year-over-year. Despite that, the truck market continued to perform better than expected, and the aftermarket segment grew solidly and benefited from the increasing market penetration of SAF-Holland systems in recent years. So also here, we pumped in a lot of OE business and created population, and now we are benefited in -- benefiting in the aftermarket. Accordingly, sales declined organically by 15.1% in the first half of the year. Nevertheless, we were able to slightly improve adjusted EBIT in Q2, which is due to the higher share of the aftermarket business as well as our strict cost management. In addition, efficiency improvements in production as well as a more favorable product mix for specialty applications contributed to the margin improvement. So the adjusted EBIT margin amounted to 12.2% in Q2. Last but not least, coming to APAC. So as already said, due to the election in India during the second quarter, which held back government spending on infrastructure projects, the region was unable to continue the previous year's growth story. And in addition, the weaker momentum of the U.S. trailer market was negatively impacting trailer business in Southeast Asia, so these trailer manufacturers also export to the U.S. market, which is down at the moment a little bit. So we could not get the sales we were getting last year. Therefore, APAC's top line declined organically by 6% to now EUR 65 million in Q2. And accordingly, sales in the first half of 2024 amounted to EUR 128.7 million, and were 5.4% above the previous year, which causes to the organic growth of 2.9%. Looking at the bottom line, we were able to increase the adjusted EBIT margin to now 12.6%, which is a good achievement. And here, too, the highest share of the aftermarket business led to a favorable mix effect. And in addition, the improvement of earnings in also supported our profitability. And with this, I hand over to Frank for the key financials of Q2.

Okay. Thank you, Alex, and hello to everybody on the line. As usual, let me start with a short overview on the EBIT to adjusted EBIT reconciliations will improve on Page 13. Reported EBIT increased by 38.4% to EUR 46.3 million in the second quarter 2024. The amount for depreciation and amortization PPA slightly increased to EUR 6.5 million in the second quarter due to the last acquisitions of IMS Benelux and Tecma. Therefore, we raised our expectation for the full year level to around EUR 25 million, which includes already a first assumption for Assali Stefen. We will update this as soon as we have finalized the PPA. While the adjusted full restructuring cost in total of around EUR 8 million in the first half of 2023, including expenses for post-merger integration increase of Haldex and as well, EUR 4 million for the cyber attack, you may remember. Now in the first half 2024, adjustments amounted only to EUR 1.4 million, what considers acquisition and integration costs for IMS and Tecma and some follow-up expenses related to Haldex PMI. Overall, as Alex already explained, reported and adjusted EBIT increased strongly during the second quarter 2024. Moving on to Page 14. You can see the bridge from EBIT to basic earnings per share. As said before, reported EBIT amounted to EUR 46.3 million for the second quarter 2024 and grew strongly by 38.4% compared to prior year. Finance result amounted to minus EUR 11.9 million and deteriorated by EUR 7 million compared to the second quarter 2023. The difference versus previous year was driven by higher interest expenses in connection with interest-bearing loans and bonds. And in addition, by FX valuation effects, mainly on IC loans at the closing rate. These effects are subject to change up and down depending on FX development, but without any cash outflow impact. Additionally, as information, the half year financial result is now at EUR 18 million, which confirms the expected run rate for going forward with about EUR 9 million per quarter, while finance income can fluctuate from quarter-to-quarter due to FX rate development. The tax rate of 29.6% for the second quarter 2024 is significantly below last year's level of 37.2% that was caused by lower noncapitalized deferred tax assets on loss carryforwards and some subsidiaries as well as by a reduction of losses for which no deferred tax assets were recognized. For the full year, we continue to assume a tax rate between 30% and 32%. Overall, basic earnings per share grew significantly compared to prior year, due to the lower adjustments compared to the second quarter 2023. The adjusted earnings per share declined by around 7% to EUR 0.69 for the quarter, but for information for the half year period, also adjusted earnings per share grew strongly by 7.5% from EUR 1.28 to EUR 1.38. Moving to Page 15, where you see the development of the equity ratio. Compared to year-end 2023, equity improved by EUR 16.3 million or 3.4% to EUR 492.3 million, mainly supported by the high result for the period, including a negative impact from the dividend payment in June. Since the balance sheet, total even grew higher by 3.9%, mainly due to the acquisition of the IMS Group as well as Tecma. Equity ratio only reached a level of 28.7% and to slightly lower than the level at the end 2023. In a 12-month view, we improved from 25.7% in June 2023 to 28.7% in June 2024, improved our sustainable performance in terms of profitability. Turning to Page 16. I would like to speak about net working capital development. First of all, I'd like to report that we moved net working capital back into our target corridor as promised in the last corridor -- in the last call, and including the recent M&A, we managed net working capital down from EUR 350.9 million to EUR 332.4 million in the last 3 months. Compared to the end of 2023, net working capital still increased by 11.6% to EUR 332.4 million. Inventories rose by 1.4% compared to December driven by the consolidation of IMS Group and Tecma. We were working on reducing our inventory to the lower production level during the second quarter. Nevertheless, please keep in mind that the higher aftermarket business comes with higher inventory needs, which leads to a generally higher stock level. In addition, an increase of 9.7% in trade receivables was recorded at the end of June, mainly due to the acquisitions. As a result, the net working capital ratio of SAF-HOLLAND amounted to 15.8% of sales. We are working on improving it further in the next months. Net working capital management is and remains a top priority for us. Now let me address the cash flow development on Page 17. The net cash flow from operating activities in the second quarter amounted to EUR 69.5 million and was especially driven by the cash inflow from an improved net working capital in the amount of EUR 21.5 million as well as by the strong operating result. As a result, the net cash flow from operating activities in the first half year amounted to EUR 62.6 million, an increase of 43.6% year-over-year. In addition, while paid income taxes were almost stable in the first 6 months compared to the prior year, the cash flow was burdened by several effects that predominantly refer to unrealized currency effects as well as valuation effects from pensions and noncash effective positions. Investments in property, plant and equipment and intangible assets amounted to EUR 20 million in the first half year, reflecting 2% of sales. Overall CapEx focused on the further automation of production processes in the EMEA and Americas regions, as well as the preparation for further capacity expansions, for example, in Turkey and Americas. As published mid of July, we had our official plant opening for our new plant in Mexico on July 17. Finally, the operating free cash flow amounts to EUR 44.3 million for the first half year 2024. Now let's turn to Page 18 for ROCE development. ROCE the end of the second quarter amounted to 22.6% and was mainly driven by the disproportionately high increase in adjusted EBIT in the last 12 months. With 22.6%, we once again demonstrated the efficient use of capital employed and to our stability to sustainably increase the value company. Moving on to an overview of the leverage development on Page 19. At the end of June, the net debt EBIT ratio was unchanged compared to the end of December 2023 at 1.8x. The increase in net financial debt by 9.4%, despite our strong position of cash and cash equivalents was mainly due to the increase of interest-bearing loans and borrowings to finance the latest acquisitions as well as the dividend payment. However, we achieved once again the target of reducing the leverage ratio to maximum of 2.0x by the end of 2024. In the upcoming months, we will also implement a new by cash pooling program to achieve a further improvement in the use of free available cash. And having said this, back to you, Alex, for the outlook and closing remarks.

Yes. Thank you, Frank. I'm on Page 21, showing the fiscal year 2024 forecast for the trailer and truck market. So in recent months, I can report that the commercial vehicle market moved more or less sideways in some markets, which was also due to the high interest rates, which led to investment hesitation by fleet, especially in the trailer market in Europe and the U.S. Based on these latest developments, SAF-HOLLAND now assumes that European trader market will decline by around 20% this year compared to 2023 and those 5 percentage points lower than expected in May. for the European truck market, a decline of only now 12% is expected compared to a decrease of 50% in May. In North America, both trailer and truck markets are predicted to further soften after strong previous years, and are forecasted to decrease by around 26% and 9% for the truck market. In China, both trailer and truck markets are expected to continue to grow. However, the truck market is expected to grow by around 5% this year. And those 5 percentage points lower than forecasted in May. Speaking of India. So as for India, following the conclusion of the elections, the government infrastructure projects are expected to continue now. Nevertheless, following the decline in production in the first half year of the year, SAF-HOLLAND expects the trailer production to stabilize at the 2023 level, also for this year as a whole, which also was a record year last year. In the markets for heavy trucks, which is less important for us in India, production figures are expected to decline by around 13%. 2024 will therefore be a subdued year for the commercial vehicle industry. However, we currently expect the North American and European markets to recover by beginning of 2024 latest. And now on the next page, looking at the guidance for the fiscal year 2024. Although, we are facing a market decline this year, we continue to improve our profitability in the second quarter as described earlier. And we raised our annual forecast for the adjusted EBIT to around 10% from previously 9% to 9.5% on June 17 of this year. Moreover, the '24 guidance on sales and CapEx remains unchanged. Hence, based on the current order situation, the recent acquisitions and the market developments described before, we continue to forecast sales of around EUR 2 billion. This means that we do expect a slightly lower second half in terms of sales compared to the first half of 2024, which reflects the latest OE market expectations that include a lower truck and trailer market in North America and a continued weaker European trailer market. Hence, we will continue with a strict cost management, of course. And in addition, we also expect to continue to benefit from a favorable customer group mix with a higher share of the aftermarket business as well as from a continued realization of the synergies from the Haldex acquisitions. So let me conclude on the next page, the presentation with some key takeaways. Although we continue to face a weaker OE market environment, we have benefited from a strong aftermarket business recently, which is expected to remain robust in the coming months. Thanks to our diverse customer mix, we were able to further increase our profitability despite lower sales, but also through strict cost management. And as a result, we raised our adjusted EBIT margin guidance well before the end of the first half of the year. And our robust business model shows just how resilient as SAF-HOLLAND is today. And on the basis of this solid operational performance, and the resulting solid cash generation, we will continue to work on improving our leverage despite the bolt-on acquisitions. So ladies and gentlemen, this concludes the presentation. Thank you for listening to us. And I guess we can now start with your questions.

[Operator Instructions] The first question is coming from Yasmin Steilen from Berenberg.

I have two, if I may. So first on your aftermarket business. So in the second quarter, you have reported an impressive 38% aftermarket share of sales. Could you elaborate a bit on the reasons behind the increase? So your sales campaign and what you expect for the second half? And the second question is on EMEA trailer, you mentioned during your call, the Q1 call that OE tenders should return in the second quarter for July, August, providing some confidence in the H2 development. Could you please update on the current order pattern or any feedback you received from customer discussions, that will be much appreciated?

Yes, absolutely. Thanks for asking the question, Ms. Steilen. I would start with the aftermarket, of course. Second quarter was a very impressive aftermarket quarter for us, I have to say, while there are a couple of reasons. So first of all, we have a lot of years -- recent years with a high OE population, which we created. So we pumped a lot of OE products into the market, trailer, axle, suspensions, fifth wheels. And of course, they come in different years with aftermarket needs. So we were increasing the OE population, and we are now benefiting from that. What we also did, we checked all our inventories in all the warehouses across the globe, so not only in Europe but also in the Americas and also in Asia did the ABC analysis, so slow moving parts, and we said to the guys, "Hey, guys, you have a lot of slow moving parts. Just sell it off. Do some fire sales." And that worked out impressively. So we had a lot of millions, which we could turn in all areas of the world that also helped. So this has 2 effects. First of all, higher increased aftermarket sales, but also lower inventories of slow-moving parts. That was good. And we also increased our so-called A2 trend product line. The A2 product line is, for instance, for Europe, it's our seller product lines. This is for older trailers and trucks. So basically, when the trailers or trucks are like 10, 12 years old, we have customer groups that are not willing to spend the money for OE aftermarket components. They would like to have a more cost-competitive product to replace the trailers or components on the trailers and trucks, and we also are pushing this and further increase the sales. That I think is it is for the aftermarket. And the second question was related to the OE trailer production in Europe. We thought it's getting a little bit better. So we are coming from a record year in '22 and '23. There was a clear hesitance which we could see from the fleets to invest in Q1, but also now in Q2. We are getting orders in. The big tenders are still not there. Here and there, they are increasing the trailer manufacturers, and I spoke personally with a lot of them just visit one this week on Tuesday. They're setting that they're increasing their production rates slightly, but not a lot and they are waiting for more bigger orders coming from the big fleets and also from the medium fleets. So we hope that DIA, which is now taking place next month. And also, the Automechanika for the aftermarket will bring more momentum, but we do not expect that we then increase our capacity again within 1 month or 2 from, let's say, 30% to 40%, this will not be happening. So in a nutshell, fleets are still waiting and the trailer manufacturers are ready. They're increasing here slightly a little bit, but not enough that we really could, let's say, do another shift or something like this. So we are waiting for the fleets to reorder in bigger scale. Does that help?

The next question is coming from Nicolai Kempf from Deutsche Bank.

I have two. First one is a bit on the seasonality you have because I think typically H1 is a bit stronger versus H2 last year, that seasonality was not as pronounced because end markets were just pretty some in the last year. So my question is around do you see the second half profitability be a touch weaker versus the one in this first half? Also, given that you have stated that you have potentially slightly lower sales in H2? And my second question is about the finance expenses. They have reached almost EUR 29 million in H1. Should we expect them come down in H2?

I would take the first question with the expectation on the adjusted EBIT. Nicolai, we just reached the guidance a couple of weeks ago. So we are pretty sure you know us, we are conservative. We don't do distribute things. We are calculating in detail. We have just filed a round of forecasts around the globe. We are very, very confident that we will not touch our adjusted EBIT guidance for the remainder of the year. So in a nutshell, second half is expected to be as good as in the first half. We are now in the first half year at 10.2%. Our guidance is around 10%, which is in the ballpark of 9.7% to 10.3%. We feel very, very confident that we will hit our adjusted EBIT guidance for 2024.

And I'll take your second question. I think you are referring to the financing side. Second quarter was EUR 11.9 million. As I explained, we do have some FX impact.

Nicolai, I think you have -- can you put yourself on mute just for a second because you have some backroom noises?

So we have EUR 11.9 million in the second quarter and the first quarter, finance result was about EUR 6 million. In total, it's EUR 18 million, what is basically our also guidance for our finance results for the full year, if you take it times to the EUR 9 million per quarter. What we do have and cannot really forecast is the impact on our internal FX exposure coming from intercompany loans. That is always subject to new evaluations quarter-by-quarter. It was positive impacting us in the first quarter with EUR 3 million. Now it comes back with a negative EUR 3 million in the second quarter. So for the half year, it's balance, but this is something we cannot forecast. The real important topic is the cash relevant part of the financing side, what is the interest payments, what is part of our guidance. We give EUR 9 million per quarter.

And the next question is coming from Jorge González from Hauck Aufhäuser Investment Banking.

The first one, following a little bit on the guidance and the market trends and also taking into account that you are the leader in Europe. I am wondering, driving between lines is what you have already commented to my colleagues, the production run rate that you have now, look even conservative for the rest of the year, taking back on the competition you are having with some OEs. So this means for you that the 20% maybe that the market forecasters are providing for this year is a little bit negative or -- why are you so successful apart from this special campaign for the aftermarket to really turn around this negative development to just achieve a wonderful result of that is just -- it's just a moderate decline in EMEA. What is the magic that you are applying here?

Well, we speak with a lot of owners of the trailer manufacturers basically, and you know that the majority of our OE business in Europe is coming from the trailer business, and the smaller portion is coming from the truck business. We get orders in, but I clearly also speak with bigger fleets, and they really have been -- we have this thing now going on in the Middle East. You don't know what is going on in the near future. And we also have elections in the U.S. So the people are a little bit in waiting mode. First of all, they would like to have the Middle East to be stabilized soon as we all wanted, of course. No new outbreak. Elections are coming in the U.S. in November. And don't get me wrong, even if the market is minus 15% or 20%, it's still an okay year. It's not a bad year. So if we see the run rate of our extra production and fixed wheel production, so we can clearly see what the truck manufacturers and trailer manufactures are producing, it is okay. So I've seen many, many more worth years. But this very positive momentum at the moment, I cannot see you when talking to trailer manufacturers and the fleets. They are a little bit in the waiting mode. Orders are coming in. Our production is running, but it's not as good as the people would be fully investing. So what would clearly help is another decrease in interest rates in both areas of Europe and by the fact. And people, as I said, they are in the waiting modes what's going to happen in the Middle East and also by the -- for the election in the U.S. No, I just want to say that in the aftermarket. Well, in the aftermarket, we will be further increasing our sales in the years to come. This is simply a mathematics due to our OE population, which we created in the last 5, 6, 7 years in trailer and in truck in both sides of the big markets like Europe and North America. So we will be increasing, you see that the absolute sales, which we announced for H1 or the different quarters increased. And as I said before, to also, Yasmin, when she was asking the question what we did in Q2, we were going through all the way in our subsidiaries, the production facilities for the -- dedicated for the aftermarket, and which simply got rid of all the material. And this also got another boost. So we increased organically due to the old population, but made some special sales actions for older material, which is good for sales, but also to get rid of old material, which reduces the inventory. But there is still a decline in the trailer market in Europe and in North America, and we cannot feel that big gift because trailer market in the U.S. accounts for roughly 50% of our OE sales, the other 50 is truck. And here in Europe, it's like 90:10, 90 accounting for the trailer market, and we cannot simply compensate that. We gained another market share in Europe, but we cannot somehow compensate 15% to 20% decline in the trailer market in Europe.

I see. I was wondering, now it's more important the slight recovery of the freight volumes in Europe or the aftermarket is also supported by the aging fleet, the growing unspecific time aging fleet. What is more important at this point for the aftermarket in Europe?

Well, the transportation, of course, is also impacting the aftermarket sales because the more the people use the trucks and trailers, the more they need spare parts after several years, that's clear. But of course, the aging fleet is, in my point of view, a bigger factor, which drives the aftermarket sales.

Okay. Great. So this trend, you see continuing now next year as you're commenting now because the fleets have grown a lot. And there is no reason with potential freight volumes to increase to see aftermarket turn into negative. I mean, this is a trend that should remain positive in the end of this quarter.

No. Aftermarket business is really stable. If you go back to really bad years like in 2009 and 2020 where we had the COVID year, the aftermarket only reduced by 5% overall. In crisis years like that where OE was down 30%, 40%, OE is very -- aftermarket is very stable. And to be honest, see if the fleet are sitting on older trailers and trucks because they don't -- they are hesitant to invest in new equipment the more, they have to buy aftermarket components because at a certain point of time, they are not running anymore if you don't repair the break or the suspension or other running here. So for the aftermarket, I'm 100% sure. And I'm coming from the aftermarket for like a decade, still very much involved in the discussions and the strategy of the aftermarket. So be assured that our aftermarket is running like a big, big frame.

I understand. Last two questions. One on APAC. These margins were really high, taking into account that India was not supporting the quarter as much as before. Is this sustainable, these levels of margins in APAC for the rest of the year and maybe in the future? And my last question on the CapEx for the year. Do you have now a better view on how much is going to be on relation to sales, so maybe narrow a little bit the number for us, please?

Yes, absolutely. Well, I'm very happy to -- with the development of APAC, while you are guiding us for many, many years now, you remember as when I had unfortunately report negative adjusted EBIT of 10% or 11% for the APAC region, those times is over. I'm very, very convinced that this region will continue to be double digit, okay? I'm even forcing the team to go the next mile and we are growing in all regions, and we have another big benefit that was our weak China business. The last time I announced that it's getting better, so it's even getting better now. So one of the bullet points in the presentation showed that also improving China profitability is one of the cornerstones that we were able to further increase our profitability in the overall APAC region. We are not there where we have to be, to be honest. So China for us is still dilutive, but they are now getting better and better. And once China will be there where they have to be, that means also double digit that is another kick for our APAC region. The team is there that can easily add another EUR 100 million, EUR 200 million in the years to come with the same team. So the SG&A would stay relatively the same. So I'm very, very convinced that our most profitable region APAC will continue to be our most profitable region.

On COVID results.

Okay. To your second question, for CapEx, our upper limits remain 3% of sales. This is the fixed limits, we will not change. And we also -- and there's no reason to do different. We continue our initiatives for capacity increase for improving our footprint in engineering, developing the products, we need in the next years and as well our IT activities. So it's all in line under control and the 3% is the maximum we have for the group, 3% of sales.

And the next question is coming from Holger Schmidt from DZ Bank.

I have 2 questions. Yes, we have seen a couple of acquisitions in the recent past year. Are you finished now? Or is there more to come? That's the first question. And the second one is regard the announcement of Krona Group at the end of June. As far as I can see, Krona Group has entered into a partnership with Miller Group. And to what extent is this a risk or an opportunity for you?

First -- coming to your first nasty question, I have to say. To be honest, of course, we cannot say anything about further M&A while we acquired IMS Group, which was an easy one because the IMS Group was our partner -- distribution partner for almost 4.5 decades, for the Benelux, so we know that people know us. That was a check mark. It's done. PMI is done. We are now growing the business also with the steering systems, which we didn't do before as a Group. The second one was the consolidation starting from April 1 of the Tecma Group. Tecma, one company in Italy, Verona. A very good team, also a very specialized in specialty products. So lower volumes but profitable. We want to increase this. And also now the recent acquisition, which is being consolidated starting now from August 1, Assali Stefen. Also a good team, good products, also niche markets, good market shares in Scandinavia and Northern Africa, which we were not really good, as I have followed before. And also in -- of course, in Italy and in New Zealand. And this is like a triangle, if you would like to take a look on the Telemap Verona. So as I fallen Italy, Tecma and Assali Stefen is just 15 minutes away from each other by car. So 15 one-way or the other where it doesn't matter. So of course, we are working on consolidation, and our teams already started with the PMI for Tecma, and they will be starting now next week and also will be in Italy next week for 3 days, speaking with all the teams driving the further consolidation. So some synergies is to be expected to come in this year and also next year, and also increased sales, of course, because then we can focus on niche markets and specialty products. But at the moment, for further M&A, of course, we cannot say everything. But what I can say is I think for this quarter and the next quarter, we have a lot on our shoulders to manage with integrating the great people we have now in addition to our crop coming from Tecma and from Assali Stefen to be part of the group and drive the business further. So nothing on the plate at the moment. The other thing you asked about the krona getting with [ STEYR ], which is the biggest Austrian manufacturer of trailers where we also have a high market share of axles. We have a running contract for years to come. I have to be honest. We also talk a lot of crony because we are one -- basically, we are the largest supplier to krona when it comes to the air brakes for their own axles, okay? We are in discussions to expanding that business. As far as I know, this deal is not done yet because Antitrust approval is still missing. And we had some talks that it will last until end of the year, then we will see, of course, if it's happening, I think it's going to happen, of course, but it will take some time. We have good relationships with both great trailer manufacturers, the krona as one of the biggest ones in Europe. And of course, with the best one in Austria, and we are in constant dialogues that I think, even they are coming next week to us for some deeper talks, we will see.

[Operator Instructions] And the next question is coming from Miro Zuzak from JMS Invest.

I'd like to take them one by one and not many. The first one is could you please remind me of the sales impact of growth changes in the upcoming quarters? I've seen there were EUR 9.9 million in Q2. Now, with the additional acquisitions done so far, what will be this number in Q3 and Q4 according to your planning at the moment?

Well, the impact on -- from IMS and Tecma will continue to the next 2 quarters. And in addition with the announced Assali Stefen acquisition, we will add another approximately EUR 15 million, for the remainder of the year, as we consolidate them starting in August. So from August to December, we will add EUR 15 million.

Okay. And the other 2 were around EUR 10 million, right?

Yes.

Okay. Then secondly, I noticed your excellent gross profit margin, 22.6% in Q2. Was this primarily due to a mix effect in the favor of aftermarket sales? Or was there any other effects impacting the gross profit margin?

It's a lot more effect. It's as Alex explained on the EBIT development. First of all, the ability to flex down cost to lower volumes in the OE segment, but is really where we are strong in all the regions in the Americas and in EMEA. Secondly, is we continue to leverage on the synergy from the Haldex transaction; and thirdly, for sure, the favorable product mix and the high aftermarket share, but it's the 3 topics in combination.

Okay. So it's fair to assume that you're going to keep this margin level going forward? And as long as the aftermarket mix is basically staying the same, because the other 2 effects, the Haldex synergies and the flexible cost structure, this is going to stay, right?

Yes. Yes.

Okay. Then you -- as we updated your EBIT guidance 10%, obviously, also due to the strong margins that you have posted now. You still have this midterm guidance with 9% to 9.5% EBIT. Is this still valid? Or would you say from today's perspective, that you would see a higher margin level for 2027 as realistic?

I think we mentioned this already in the Q1 call. We have to -- we are updating our strategy, and we also have to build a new strategy for 2030. We are looking in this process internally this year and will finalize this by end of the year, and then we will come up beginning next year with the Capital Markets Day to present your updated strategy with a new updated long-term guidance.

Mr. Geis, there are no further questions.

Okay. Then thank you, everyone, for your questions. The Investor Relations team is available in case you have any follow-up questions. We will be on the road again attending conferences in the coming weeks and look forward seeing you there in person. Have a good day, and bye-bye.

Thank you, guys. Bye.