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

Dear ladies and gentlemen, welcome to the SAF-Holland SE Fiscal Year 2024 Results. 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 SE. If a participant does not wish to be recorded, they should refrain from participating in this Q&A session and keep their 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.

Thank you. Hello to everyone, and welcome to our conference call on our fiscal year 2024 results. On Page 3, let us shortly have a look on the main KPIs, starting on the left side. So our consolidated sales reached around EUR 1.88 billion with a strong record adjusted EBIT margin of 10.1%. And moreover, you can see the adjusted EBITDA margin even grew by 1.2 percentage points to now 13.7%. The adjusted EPS, earnings per share, amounted to EUR 2.43 for the full year '24. Our net working capital ratio increased to 15.5%, and those remains within our target corridor of 15% to 16%, right in the middle. Moreover, the operating free cash flow reached a strong level of EUR 146.5 million, and showed an increase of around 3% compared to 2023. So let me move on to Q4 and the fiscal year '24 financial highlights on the next page, please. So what I can say is during the past year, we delivered what we promised. SAF-HOLLAND has a resilient business case. Despite the slowing momentum in the OE equipment market, both in trailer and trucks, we managed to achieve a double-digit adjusted EBIT margin, and that was for the first time ever in the company. We were able to partially offset the OE top line decline with a continued robust aftermarket business, which grew. This resulted in an organic decline of 15.5% compared to fiscal year '23. And additionally, acquisition-related sales had a positive impact on group sales, in total, only 10.9% below fiscal year. And despite this weak environment, we achieved a record profitability, as I said before, of 10.1%. Moreover, we were able to achieve a solid operating free cash flow of EUR 146.5 million, which we will see -- which we will use to further reduce our financial debt as well as to pay a stable dividend of EUR 0.85, which means a payout ratio of 49.9%. So in a nutshell, your SAF-HOLLAND was able to demonstrate the resilience of its business model in the past year. We achieved a strong operating performance despite the market environment. And let's see the group sales on the next page, please. As you can see, sales for the full year '24 amounted to around EUR 1.88 billion and therefore, declined by around 11%. OE sales were 19.6% below the same period of the previous year, which ultimately resulted in an organic sales decline of 15.5% and was strongly impacted by the weakness in the truck and trailer markets, mainly in EMEA and North America. In contrast, aftermarket sales developed -- overall robust and grew by 8.2% year-over-year. And additionally, acquisition-related sales amounted to EUR 103.5 million. Looking at Q4, sales during the last quarter declined by 18% year-over-year. In organic terms, group sales were down by 21.1% year-over-year, but was partially offset by additional sales of EUR 17.8 million from the acquisitions of IMS Group, Tecma and Assali Stefen. So overall, continued soft market momentum and in addition, extended customer Christmas breaks had a negative effect on our top line. They typically close down 2 weeks. Some of them, they close down 4 to 6 weeks. So moving on the sales split by region and customer category, please, on the next page. As you can see here, due to this year's acquisitions, the sales share of the EMEA region increased to 47%. The Americas region, in turn was affected by the weaker trailer and truck market and contributed nearly 40% to group sales. And despite the whittled investments, in the wake of the parliamentary elections in India and the heavy monsoon seasons in Q3, the APAC region was still able to slightly increase their share to now 13.2% of group sales. And taking a look to the customer split. In total, sales from the OE business decreased by 19.6% year-over-year to now EUR 1,164.8 million, which was due to the weaker commercial vehicle markets globally. Accordingly, the trailer OE segment accounted for nearly 49% of sales in '24, which corresponds to a decline of 6.3 percentage points, while the truck segment stayed almost on the same level as in the past year of 13.3%. And in contrast, the aftermarket business grew to EUR 711.9 million and benefited from the solid population growth in the last years. As a result, the aftermarket business contributed nearly 38% to sales in fiscal year 2024. So speaking now on the next slide about the group adjusted EBIT development. You can see the adjusted EBIT in the past year decreased only slightly, by 5.7 percentage points, compared to the same period of the previous year, resulting in an adjusted EBIT margin of 10.1% or EUR 190.5 million. Main reasons for the improved margin were the higher share of the aftermarket business; the continued strict cost management, including the early cost adjustments in the OE business; as well as the continued synergies from the Haldex acquisition, which amounted to around EUR 8 million last year. So in Q4 '24, we reached an adjusted EBIT of EUR 44.4 million and a continued strong margin of 10.5%. Now let's jump into the different regions on the next slide, starting with EMEA sales and profitability. Here, you can see that the top line development in the EMEA region continued to be strongly influenced by the softer development of the trailer market. That is expected to have declined between 25% to 30% during the past quarter. Our sales fell organically by 21.4% in Q4. For the full year, the decrease amounted to 6.7%. Although the region was able to outperform the important trailer markets, sales declined due to the overall weaker demand in the OE segment. Nevertheless, the aftermarket business continued to develop solidly. And moreover, the recent 3 acquisitions contributed a total of EUR 17.8 million to sales in the fourth quarter, respectively, EUR 59.1 million during the full year. Despite the lower top line development, the EMEA region was able to slightly increase its profitability in Q4 '24 as well as during the full year based on the higher share of the aftermarket business, but also due to a very strict cost discipline in combination with personnel cost measures like short-time work here in the German plants. In addition, the synergies from the Haldex integration also had a positive impact on our margin. So hence, adjusted EBIT amounted to EUR 77.1 million in fiscal year '24 and was even EUR 4 million higher than last year's level, resulting in an improved adjusted EBIT margin of 8.7%. So jumping now to the EMEA region on the next slide. You can see that in the EMEA region, the weaker momentum in the trailer market and truck market continued in Q4. And in addition, seasonal effects negatively impacted the Q4 sales compared to Q3, meaning the shutdowns also of customer plants. Hence, sales in Q4 decreased organically by 23.3% year-over-year, respectively, 19.6% year-over-year during the full year '24. Nevertheless, adjusted EBIT remained strongly in the double-digit percentage range and benefited from a higher share of the aftermarket business; also strict cost management, including personnel costs; as well as efficiency improvements in the production sites. That, in total, minimized the effect from the underutilization in OE. And you can see, as a result, the adjusted EBIT amounted to EUR 84.4 million in full year 2024, which means a margin of 11.3%. So coming to our last region, our APAC region. Here, we have to say that as the quarters before, the last quarter of Q4 was negatively impacted by restricted government investments in infrastructure projects before and post the election in India. So basically, they didn't free up new investments. But nevertheless, first signs of a recovery towards year-end were visible. So we got more orders from the trailer sector. And in addition, softer demand from North America, but also extended plant closures in December in the mining sector in Australia, negatively impacted top line development in Q4. Here's a friendly reminder that the #1 market in APAC for us is India. Hence, APAC sales declined organically by 13.7% in Q4, respectively, 9.4% during the full year. And as a result, total sales declined by 8.5% to now EUR 246.6 million. And looking at the bottom line, the adjusted EBIT in the last quarter was negatively influenced by the weaker Australian mining sector, as mentioned before, as well as a reallocation of intercompany charges. However, we were able to hold a very strong profitability level during the full year with an adjusted EBIT of EUR 29 million and an adjusted EBIT margin of now 11.7% for the full year. The improvement in earnings in China as well as the higher share of the aftermarket business also supported our profitability. And with this, I would hand over to Frank for the key financials and stop for a moment.

Yes. 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 reconciliation for the group on Page 12. Despite the top line decline of 10.9%, our reported EBIT for the full year 2024 declined only by 1.4% to EUR 161.4 million and shows improved quality of earnings with less restructuring and transaction costs that were adjusted compared to previous year. In total, restructuring and transaction costs amounted to EUR 5.2 million, mainly for the acquisition-related and integration costs for Haldex, IMS, Tecma and Assali Stefen as well as some severance costs in North America to adjust cost structure to lower capacity required. Depreciation and amortization from purchase price allocation increased to EUR 23.4 million and include now all recent acquisitions. As a result, adjusted EBIT declined only by 5.7% and shows our ability to manage costs through the cycle. Adjusted EBITDA was even only 2.3% below the prior year. Moving on to Page 13, where you see the bridge from EBIT to basic earnings per share. As said before, reported EBIT amounted to EUR 161.4 million for the full year '24, respectively, EUR 34.9 million (sic) [ EUR 34.8 million ] for Q4 stand-alone. After the strong negative impact of unrealized exchange rate effects in Q3, the finance result in the fourth quarter was now positively influenced by unrealized exchange rate effects, and thus, the full year improved slightly to EUR 41.3 million. For 2025, we expect interest expenses for loans as well as in connection with leases to amount to roughly EUR 35 million. In addition, income taxes for the full year remained almost on prior year level, resulting in a tax rate of 34.9% and were impacted by non-capitalized deferred tax assets on interest carryforwards as well as the first application of the new regulations for the global minimum taxation. For the fiscal year 2025, we expect that these circumstances remain valid and hence, we assume a similar tax ratio as in 2024. Overall, despite the significant top line slowdown, our reported EPS declined only moderately by 3.2%. Moving further to Page 14, you will see the dividend development of the past years. During the past years, SAF-HOLLAND has proven a reliable and sustainable dividend policy. Based on the strong operating financial performance in the past year, Management Board and Supervisory Board will propose again a dividend of EUR 0.85 to the AGM, which will be held in May. The proposal reflects a payout ratio of 49.9% and hence, at the upper end of our guidance range to pay out 40% to 50% of the available net income. In addition, it corresponds to an attractive dividend yield of 5.8% based on our year-end '24 share price of EUR 14.78. Moving to Page 15, where you see the development of the equity ratio. Compared to year-end 2023, equity improved by EUR 51.1 million to EUR 527.1 million, mainly supported by the solid result for the period. The equity ratio increased to 30.8% due to the less pronounced increase in total assets and just gained more than 2 percentage points in the past 12 months. Turning to Page 16. I would like to speak about the net working capital development. Net working capital decreased by 2.3% to EUR 291.1 million compared to the end of 2023 and includes a factoring amount of EUR 39.4 million. Despite the latest acquisitions as well as generally higher stock levels for the aftermarket business, inventories decreased by 5% compared to December 2023. As a result, net working capital ratio of SAF-HOLLAND amounted to 15.5% of sales and remained in our target corridor of 15% to 16%. Excluding the acquisitions of IMS, Tecma and Assali Stefen, the net working capital ratio would have amounted to 14.5% and in the range of 2023. However, net working capital is a top priority for us, and we will continue to work on further improving our trade receivable and trade payable management in the coming months, both in the existing companies and in our recent acquisitions. Nevertheless, we see also opportunities that can be supported with higher stock level. In the aftermarket segment, in particular, as well as for markets with long delivery times, customer demand can be better served with existing stock. We are, therefore, planning with a net working capital ratio of between 16.5% to 18% in 2025. And now let me address the cash flow development on Page 17. The net cash flow from operating activities in 2024 amounted to EUR 200.7 million and was positively driven by the solid operating result as well as a significant cash inflow from net working capital in the amount of EUR 29.5 million. In addition, while paid income taxes declined strongly, the cash flow was driven by some structural M&A effects, lower warranty provisions as well as an increase in other assets. Investment in property, plant and equipment and intangible assets amounted to EUR 57.4 million, respectively, 3.1% of sales. And overall CapEx focused on the further automation and modernization of production processes in EMEA and Americas as well as on the preparations for the new plant in Rowlett, Texas. Hence we achieved a solid operating free cash flow of EUR 146.5 million, which we intend to use as always for dividend payment, but as well to refinance at least half of the next maturity in financing in March. Moving on to an overview of the leverage development on Page 18. At the end of 2024, net debt to EBITDA kept stable compared to the end of December 2023 and amounted to 1.9x. The net financial debt increased by 2.5% despite our strong position of cash and cash equivalents and was mainly due to funding of our latest acquisitions. However, we achieved once again the target of reducing the leverage ratio to a maximum of 2x by the end of 2024. Having said that, back to you, Alex, for the outlook and closing remarks.

Yes. Thank you, Frank. I'm on Page 20, showing the fiscal year '25 forecast for trailer and truck markets for the different regions. And we can say after record years post the COVID-19 pandemic, almost all markets saw strong growth rates year-over-year until 2023. However, 2024 was a soft year for the CV industry. We saw significant declines, especially in the European truck and trailer markets as well as in the North American trailer market. And moreover, also within Asia Pacific, we experienced softer markets with single-digit declines. For 2025, we expect slight growth again for some markets. We assume that the first half year of 2025 in EMEA and North America will develop similar compared to the second half of '24. We currently expect that the trailer market in EMEA will experience growth again in the second half of 2025, but also here, I can already mention that the order intake in March and for April is getting better. The commercial vehicle markets in North America are currently facing great uncertainty with regards to the proposed U.S. tariffs and the impact on the economic performance of individual countries. Moreover, the easing of the upcoming emission limits in the U.S. for 2027, which is currently under discussion, could drive a lower prebuy effect in '26 and '25. We, therefore, assume that this could have a negative impact on both the trailer and the truck markets. Accordingly, we currently anticipate a decline of the trailer market between minus 5% and minus 10% and a decline of up to minus 5% of the truck market. For APAC, we expect the most important countries to develop differently. While the trailer market in India should grow in the range of plus 5% to plus 10%, the commercial vehicle market in China could decrease by up to minus 5% due to the weak economic outlook. Even though we currently face a lot of geopolitical uncertainties that might impact the global commercial vehicle market, you should be aware that we are equipped, we are well equipped and react quickly and efficiently. And now looking at our guidance for 2025 on the next page, please. In terms of sales, we assume that we will be able to successfully assert ourselves against the competition in 2025 with a product portfolio strengthened by the acquisitions of Tecma and Assali Stefen, a less cyclical aftermarket business and new products. So based on current estimates, the aftermarket business is expected to remain stable in 2025, partly due to the increased population from OE deliveries over previous years and partly due to the robust growth in 2024. Despite that, our top line should be further supported by the acquisition-related sales from Tecma and Assali Stefen amounting to around EUR 25 million. So overall, we expect group sales between EUR 1.85 billion and EUR 2 billion for the fiscal year 2025. And in order to remain competitive, further cost adjustments are the focus also for this year. We assume that increases in personnel costs as well as general inflation-related cost increases and lower capitalization rates of almost unchanged IT costs are unlikely to be offset to the same extent by efficiency and cost savings measures in 2025. Therefore, the adjusted EBIT margin is expected to be between 9% to 10%. Moreover, let me shortly also elaborate on the current situation regarding the U.S. tariffs. As it is currently impossible to forecast with sufficient reliability which tariffs will be incurred in the future, it is therefore difficult to make a precise estimate. But we deal with this topic on a weekly basis and have a range of different measures at our disposal. So in addition to the legitimate means of price adjustments, we can utilize and adapt our flexible manufacturing footprint and our multiple sourcing strategy accordingly. This enables us to compensate for the potential customs effects accordingly, so we are well prepared. Our outlook on the CapEx ratio remains unchanged with up to 3% of sales. So investments are expected to be driven by CapEx for improvements to the production network, such as the optimization of the site structure in the U.S. as well as an automation project to strengthen process efficiencies in our production facilities. And of course, another focus is the further rollout of SAP S/4HANA. So let me conclude with some key takeaways on Page 22. We have demonstrated a strong performance during the past year despite a challenging market environment. Although the market situation is not expected to change in the short term, SAF-HOLLAND is well positioned to compensate for weaker OE demand due to its robust aftermarket business as well as through its diverse regional setup and our product portfolio. We have shown that we are able to manage our costs through the cycle and achieve the record profitability driven by disciplined cost control and the ongoing realization of synergies from the Haldex integration. And we will continue to use the strong cash generation resulting from this strong performance to further reduce debt. In Q1 '25, we will refinance only around half of the EUR 69 million outstanding maturity, and this further improves our maturity and debt profile. Solid earnings and cash generation will support deleveraging in the coming quarters and ensure a solid financial profile going forward. Despite the still muted market outlook for '25, we look forward to presenting you our new strategy, which is called Drive 2030 next week, which sets the framework for further growth. So you're more than welcome to join us. So I would say, ladies and gentlemen, this concludes our presentation, and we now can start with your questions.

[Operator Instructions] The first question goes to Fabio Holscher of Warburg Research.

Can you hear me well?

Yes.

Okay. Great. So two questions from my side. First, on your market outlook, European or EMEA trailer plus/minus 0 is the one that stands out to me the most and seems quite conservative. It's your biggest single OE market after all. Shouldn't replacement needs become a thing now after more than 2 soft years? Or are you saying you're trying to stay conservative because the potential recovery is back-end loaded and you don't fully see it in your order books yet? If you could guide us through your thoughts on the European trailer market, that would be helpful. And then secondly, on margin guidance, you're saying aftermarket is stable, but you're guiding for a 60 bps margin drop in midpoint besides the higher OE mix, which is obviously dilutive. What are your assumptions? If you could maybe walk us through the bridge what the cost factors you expect to weigh on the OE part of your margin compared to 2024.

This is Alex. I will take the first question in regards to the trailer EMEA market because I'm really deeply involved with all our customers and the different scenarios. So first of all, let me go back to the year 2022, which was -- we had the highest output we ever achieved. Also, '23 was still a really good year. So both years are record years. Then we saw the drop of about, let's say, 20%, 25% overall, in the trailer market in 2025, overall trailer market. To be honest, we didn't see that coming in '24. We thought it's going to be like minus 10%, minus 15%. The people are very uncertain. And the biggest driver for the European trailer market is still Germany as the biggest market with the biggest key players and the highest sales in numbers. I still have to say that speaking to trailer OE manufacturers, the owners, but also to a lot of big fleets in Germany, the German-speaking areas, the people are still unsecure what to do. They want to wait until the election was over. Well, election in Germany is over, but there's still no new, let's say, party ruling. They just wait. They're not waiting months, I have to say. They wait until Q4 -- Q2. However, we see first signs of a recovery. So the order intake in March was really good. That means, for us, we don't have to do short-time work of 3 days. So we only do 3 days short-time work per month, selected months, not all the months. So we will not have any short-term work in April and most likely not in May because we have a growing backlog. And of course, we would like to be able to supply to our customers. But coming back to your question, why we are so conservative in the guidance of the trailer market. Well, we thought already that the market is coming back in Q4 2024. It did not come back. Q1 is [ so lackluster ], not as on record highs like in '22 and '23. We hope that it's getting better in Q2, but for sure, it will get better in Q3 and Q4. But please don't forget that Q1 and Q2, or specifically Q1, in 2024 was still a very good quarter. And from there, the order intake declined, weaker Q2, 2 weak quarters in the second half of '24. So we would like to stay conservative with the European trailer market. If it rebounds quicker, then, of course, it's going to be better.

Yes. And I will take your second question related to the margin guidance. From 10.1%, we are calculating in the middle of our guidance to 9.5%. First of all, we are in the beginning of the year and not reporting achieved actuals. So there's a bit more uncertainty than we have in a year-end closing number. We have to face, again, inflation. We have to face wage increases. And delivering productivity in a low utilization point in the plant is a bit more difficult as productivity in a ramp-up phase. So we have a lot of plans in operations to further improve productivity, but it's becoming a bit more difficult in this utilization situation. And as well, if you look into our market forecast, we do expect a little bit better improvement in Europe and a little bit reduction more in the Americas, and this will give us also a little bit of pressure in the regional business shift in margins. But overall, you noticed also from our conferences, 9% to 10%. This is our corridor where we feel well always in every market condition, and I think this is also reasonable to put this as a guidance.

And the next question goes to Nicolai Kempf of Deutsche Bank.

My name is Nicolai Kempf, Deutsche Bank. And let me start by saying congrats to a well-managed year, a lot of volatility. Probably also two questions from my side. First of all, it would be interesting to understand if the mix impact would have a lot of impact on your full year margin. So I'm talking about the shift from less aftermarket to more OE business. Is that something you factor in this year? Or could this have a large impact next year? And then my second question is on the U.S. trailer market, which has contracted a lot last year, and you're again guiding the market down. I mean we understand the reasoning behind tariffs and uncertainty and the potential EPA water down. Anything else we should keep in mind for the U.S. trailer market this year?

Okay. Then I would take your first question related to the mix impact. I'm repeating a bit what I mentioned before. We feel well in the margin corridor of 9% to 10% in any point of the cycle, meaning if we have low OE business, we, for sure, have a good mix contribution from aftermarket, but we also have to manage cost on the OE side down to the low volume point. On the other side, if OE will increase, you are right, mathematically, there is a negative mix impact from the lower OE margin, but as well a lot of realization of economy of scale because we go into better utilization of equipment if we would go from 2 to 3 shift model. So overall, we have this through-the-cycle margin quota from 9% to 10%, where we will be always independently if we are at the peak or at the low on a cycle.

Good. Then I would take the U.S. trailer market uncertainties. Well, last year was not a good year for the U.S. trailer market, specifically, the container as they dropped by 80% to 90%. So it still stands that the whole market was dead. But we supply a lot of sliding boxes into that segment. So that was the biggest hit we got overall for this specific segment. And this container chassis business is still, I have to say, dead. A lot of parked new trailers are there available. And there is also a reduction of incoming containers from overseas. And if you don't have enough containers coming from overseas, you don't need the container chassis. So the whole market is, at the moment, a bit in a waiting mode, I have to say, also like in Europe, but specifically for the incoming sea freight containers. And then on the positive side, there is a little bit light coming up because the U.S. customs took some trailer manufacturers from Asia under supervision if they're going to, let's say, dump the prices into the U.S. market. And if they succeed and if they put super tariffs on it, like they did on one Chinese customer, a trailer manufacturer from China, some years ago with a tariff of more than 230% on that, so basically, they lost a lot of business, if this is coming, that would shift the production focus more to the United States or to the former NAFTA region back. And this also would support us because we supply to all trailer manufacturers in Americas, and specifically in the U.S., but this is still under supervision. But the main driver is the container chassis market and there is less sea freight containers coming in due to the increased tariffs, specifically coming from China. So there is a little bit less load in that segment, and this also drives our business there.

And the next question goes to Jorge González Sadornil of Hauck Aufhäuser Investment Banking.

So my first question is around, again, this expectation of a flat development in Germany and Europe for trailers. I was wondering how you see the effect of the new budget plan in Germany, the so-called bazooka for maybe '26. I understand that this is your most important market when the cycle is normal. And also, I think that this market could even be good in terms of mix, in terms of the mix of heavy-duty normal type of axle. So I would like to get your feedback in this regard, if you are optimistic with this investment plan in Germany, if you can take advantage, you can be -- if you can benefit from it. Also, if you can give us your view on the potential reconstruction of Ukraine. In the past, trailer manufacturers in Germany have been one of the main suppliers for the Eastern Europe. So I was wondering if you see some interest from your clients to be ready for this event. That would be my first two questions.

Yes. This is Alex. First of all, of course, that the -- well, in our respect, the new free-up of capital from the German government, or the government to be, is a really good sign that reinvestment is coming. So first of all, they are going to invest in military equipment, which also then would drive our business because every heavy military equipment needs to be transported and it needs to be transported in heavy-duty trailers. And they most likely are equipped also with our axles in that respect, swivel axles or heavy-duty axles. So this is good for the SAF product line, that's good for the Tecma product line and for the Assali Stefen product line. I can also say that we already won a tender in the heavy-duty segment for '25 and '26. So it's a long-time delivery plan, which goes in that segment of the new investments of the German government. The second one, it's good for the infrastructure because a lot of that capital that gets reallocated to the infrastructure means roads, buildings and bridges renovation in Germany, which is good because you need tippers. And whenever you have a tipper, most likely by like 40%, 50%, you also have a SAF axles. So the more tippers that are needed, the more SAF axles will be produced and other components, of course, which we have. That would be a good sign. That also goes with the Ukraine, that's a huge potential for us as well because specifically, the Ukrainian or the whole area, most of the trailers being built and sold came from Poland. In Poland, we have a market share. We are by far the #1 leader in axle supply. And our trailer manufacturers there in Poland, they suffered a lot in the last 3 years because they didn't sell to the neighboring countries also to the Ukraine. And at the moment, there is no money coming in for rebuilding our infrastructure. And first of all, of course, the war has to stop. There has to be freedom. And once the freedom is there, if they're going to rebuild that country, that would make a huge impact for us because they all run -- or most of them, they run on our axles and specifically the Polish manufacturers, we have a huge market share. So that would be also very beneficial. But when, we don't know. So hopefully, let's wait that this is going to happen, that the war ends and rebuilding will start. That would be very beneficial for us.

Very interesting. In fact, I have just attended another call for another German industrial company. And one of the comments was that some OEs for the construction final machinery products are starting to be worried about bottlenecks for the second part of the year. Do you have similar conversations with your clients? Orders are still not here, but are you having some questions regarding your capacity to restart your production at some point in the second part of the year?

What do you mean with restart? We came from a 3-shift operating model in '23 to now a 2-shift. So we still work from 6:00 to 10:00 in the evening. If we have to add another shift, so a third shift, we can do that easily within 4 weeks. Also, from a material supply perspective, that is very easy because we have a multiple supply strategy. That means we are not relying on only one source. So we have a minimum of 2; better, 3 sources. They have also the capacity and everything can be ramped up within 4 weeks, as I said, if we need to go from 2-shift to 3-shift and then even to a 4-shift, which means 24/6 and 1 shift on a Sunday night, which is the utmost we can do, which is the 19th shift, we can do that within 4 weeks. So I don't see any bottleneck to come even if the market would explode. Plus, our increased capacity in Turkey. We also managed -- and we didn't speak about that in '24. We are not only able to manufacture air disc brake axles in our Turkish plant. We also added now the drum brake axles, which is another capacity increase that is pretty good. And we are going in April to open a new neighboring facility in Turkey for air disc brakes for trailers and also for fifth wheels, which will add an additional capacity also with those product groups. So I'm really convinced that we can increase whatever quantities are coming. We are very confident. And we showed that in the past that we are capable of doing this. We have to say we also now have Assali Stefen in the house and Tecma for specialty axles and standard axles. So also there, they work 1 shift. If we have to go from 1 to 2 shifts, it takes us another 4 weeks. So we can add also there another capacity increase. That would be really beneficial for us.

No, I'm sure your flexibility is -- I mean, you're already reactive. It was more if clients were checking if you were ready for it. But it's good, the detail, that you, of course, are ready for an increase in volumes and you can increase your production very fast. That's amazing. My final question, if I may, is on the American market. There are -- obviously, the situation is very difficult to read. There is not a clear solution on the next emission regulation. And I have been -- I have seen that the order intake for trailer in February, in fact, was good, was okay. So it is more resilient than it looks like. Maybe the starting of the season was weak, but now it looks quite solid, I would say, taking into account all the uncertainty. But I'm wondering how you see the mix for this year, if maybe the fact that there is less investments in trucks supports trailer demand at some point. So taking out the experts that you are mentioning in your slide that obviously have said -- what is your view on the next emission regulation in U.S. in terms of how it could help or not, if it will, the Poland product? And also if you see maybe the fleets to go back to invest in trailer, taking into account that maybe there is less need of investing in the truck assets at this point?

Yes. Well, for sure, as we have seen in the past, whenever there was an emission regulation popping in the year, specifically the 12 or 18 months before that regulation came in, normally effective January 1, there was a prebuy effect specifically in the truck business. We also have our capacities ready and our products ready, also new products ready for that prebuy if it is coming. If it's not coming, then I assume that the prebuy effect will not be as strong as we thought it will be, plus then combined with a drop in '27, if that would come. So you have a peak in '26, then a drop in truck purchases in '27. Well, I cannot predict what the government does, I have to say. We have to wait until they make a decision. But for sure, we see that there is business going on, but there is a lot of uncertainties like here with the new German government to be. So our clients, and I also visit and speak a lot with our OE customers and the big fleets, ordering then our products directly and make sure that our products are equipped in their trucks and trailers. They're also waiting at the moment. They wait until they have clarity what is going on with the emissions, but also with the tariffs, okay? For instance, for us, we are at the moment building a new plant in Texas, which is 8 to 10 miles away from our Wylie, Texas facility, where we do the fifth wheels and specialty fifth wheels. We're going to keep now that one. We're going to move the specialty fifth wheels and the truck suspension in the new facility by end of the year. We have the new facility in Mexico. There is no need to sell the old facility. We still keep it. So whatever happens, we can shift back and forth over the Mexican-U.S. border and produce what we need. And also 40%, 45% of all fifth wheel needs are in Mexico because the truck manufacturers also produce a lot of trucks in Mexico. So we are flexible. We have the tariffs on a weekly call, what are the scenarios. We are super sure that this will not have a huge impact on us. And if it would have, then we would also put the prices in the market as everybody else would need to do. So from that perspective, we are super safe. But the uncertainty, of course, how the decision looks like -- will look like in the emission '26, '27 year, we cannot predict.

And I'd like to add on this on the operations view. From an operations perspective, it's not that bad if there would not be a prebuy because in the next year, I also don't have to manage capacity again down to the least minimum. So I would rather prefer to have a steady growth with the transportation demand and take a little bit of cyclicality out of this market development. If then the fleets do not invest in trucks in the prebuy year, they do have some CapEx available to maybe the new trailers that we will also participate. So I'm not looking quite nervous on this discussion about the emission regulation.

And a further insight, while talking to the trailer manufacturers in the U.S., we get also the question how quickly can you ramp up new shifts in terms of higher orders we would like to place. So this also goes into what I just said before, the fleets are in a waiting mode. Whenever they feel confident that they can reinvest, then it goes quickly. And delivery times normally do not exceed like 4 to 6 weeks in the U.S. when it comes to trailers. So they're already asking us how quickly can you ramp up. So this, I think, is a positive sign because they are calculating and they are waiting.

A quick follow-up, and I'm sorry for extending myself. How do you compare in terms of brakes and axles in U.S. with the competitors in terms of exposure to Mexico? Would you -- I mean, is it neutral? Or can you basically pass through the tariffs to the clients?

Well, if we have to pass through the tariffs to the clients, as we did in 2019 when the U.S. government put in the 25% tariffs on our products coming from China, we did it as well, so you make a calculation and you tell them that X percent of the total cost is tariff-related, then, of course, you have to pass it on. That's clear. But all our competitors in our CV area have the same issues. They also manufacture in Mexico. Also the trailer and truck manufacturers, they manufacture there. But we can jump between our plants. As I said before, with the fifth wheels, we can push a little bit more back from Mexico, which is fully automated. We have less than, I don't think, 20, 25 people in that plant. We can put it back to Dallas, which is just across the border. So from that perspective, we are good. And we can also do that for other product groups because we still have a lot of plans also in the U.S. We are in Canada and in Mexico, so we can shift back and forth within 4 to 6 weeks.

[Operator Instructions] Okay. At the moment, there seem to be no further questions. So let me hand it over to CFO Frank Lorenz-Dietz for some closing remarks.

Yes. Thank you, everyone, for your questions. The Investor Relations team is available in case you have any follow-up questions. We will hold our Capital Markets Day in Aschaffenburg next week, on March 27, where we will present you our new strategy, Drive 2030. We look forward to your participation and see you in person. Have a good day. Bye-bye.

Thank you.