Wacker Neuson SE (WAC) Earnings Call Transcript & Summary

Christopher Helmreich speaking of Wacker Neuson Investor Relations. On behalf of Wacker Neuson, I would like to welcome you to our H1 results telephone conference. Thank you very much for joining. With us today in Munich are Martin Lehner, CEO; and Wilfried Trepels, CFO. The respective presentation can be found on our Investor Relations website. Right after the presentation, we will enter the Q&A session. Please note that the entire call will be recorded. I would like to hand over now to Mr. Lehner.

Yes. Hello also from my side. Welcome to the conference call. I will start to give you a short overview about our key figures, and then I will hand over to my colleague Wilfried to give you details on the financials. And finally, I will end with our outlook. Yes. Here, you see our key figures for Q2 2020 and H1 2020. As expected, Q2 was a quite difficult month for us with revenues down 25% compared to last year. EBIT margin was 5.6% compared to previous year 10.7%, but here also some one-off effects already included. Wilfried will go into that in a few minutes. And very positive development on the free cash flow, which was our weak point especially last year. In the first half year 2020, now we achieved a free cash flow plus EUR 93 million compared to previous year with minus EUR 185 million. So even with the decline in revenues, we were able to align our production and to reduce our inventory. We had also a reduction because of reduced revenues also on the receivables side. And yes, I think we have also managed quite well also our costs in the company in total. Wilfried will go into that in detail -- in more details in a few minutes, but our operating costs were reduced by 11% and -- in the first half year with -- compared to the revenue reduction of minus 16%. Yes. And as we already announced with Q1, we expected that Q2 would be very difficult, and we have seen this in April with a reduction in revenues by 42%. Order income was down 58% compared to last year, but then the situation improved continuously. In May, we have seen a reduction in revenues of 24%, and order income was down 33% in May. In June, revenues were down minus 11% compared to last year, but order income improved compared to last year and was 35% above last year. So we have seen continuous improvement. We had -- in July now, order income was slightly below last year, so no big change to last year. And yes, situation continuously improved. I think we already managed -- as already mentioned, the cost discipline was quite good, managed and very positive is the free cash flow development. And in our results, we see also the first improvements and results from our cost reduction and efficiency program. And now I hand over to Wilfried to give you more details on the financials. Thank you.

Yes. Good afternoon, ladies and gentlemen. We are coming now to the numbers here on the slides regarding revenues and earnings. As Martin already said, minus 16.4% half year to the other half year 2019. If you look to the chart on the left-hand side, you see when we compare the Q2 numbers 2019 and 2020, minus 25%. The sales decline was, of course, due to the COVID situation. And we had different developments in different regions, most severe impacted in the Americas, which we would see later on the next slide. The DACH region was quite stable. And thanks to this segment, which is above prior year, here, we can state that our strategy and business model for the DACH region with our direct sales channels helped a lot. And the ag business was also performing quite okay, especially in the first quarter. Second quarter was also a little bit down. But in total, for the first half, the ag business was plus 1% above prior year. If we now come to the gross profit development, then it is clear that with the lower volume, we have significant lower gross profit. Gross profit is minus 17.6% year-on-year. And we have had a lot of cuts in the production programs worldwide, most significant in North America, where we are closed now since March. Also, company holidays were brought forward, and we used various models of short-time work. However, the gross profit margin is only 0.4 percent points below the previous year, also here thanks to the strong service segment, which improved the product mix. When you have a look to the income statement excerpt on the left-hand side, and you see there the development of operating costs. Martin already emphasized on it. We were able to reduce the operating costs in the first half by 11%. The most significant reduction was in Q2. When you look to the numbers, it was EUR 86.1 million in Q2 in '19, and this now in 2020, EUR 67.8 million. So almost EUR 20 million less in this position here. We have consequently on EBIT, which is lower than last year, of course, but we have had also 2 onetime effects. On the one hand side, we had to book a write-off on the U.S. goodwill. The entire goodwill was written off in North America. That was EUR 9.5 million, which is burdening our bottom line. Furthermore, we have realized already restructuring costs from the cost reduction and efficiency improvement program, CEP, which was EUR 2.1 million, mainly in the U.S. because of the restructuring of the sales there. The financial result looks also bad if we compare it to '19. You see the financial result in the profit and loss statement of minus EUR 13.8 million compared to EUR 6.4 million in the previous half year. And the effect is mainly preliminary due to the valuation effects related to the sharp decline in the value of several currencies compared to the relatively strong euro. The good news is that the interest result was on the level of the year before. Another item is the tax rate. If you calculate the tax rate, you end up with 38% for the first half 2020 compared to the usual numbers, which is a little bit above 30%. It's higher, and it's because of the aforementioned negative FX effects and the impairment loss, which are both not tax deductible. And we have some write-offs or noncapitalized deferred tax equity, which brought this percentage up. Coming now on the next slide to the business development by region and business segment. Here, you see the development in Europe, where we have round about 9% minus quite a different development. The DACH region was really stable. But in contrary, we saw significant revenue losses, especially in Italy, Spain, but also France, U.K., Poland and in the Scandinavian countries. The demand, as already mentioned, for the ag compact equipment was a little bit above the previous year and had, of course, a balancing effect on the development of sales in Europe. Remarkable was the sustainable success, I can say here, with innovation-driven sales. Look to this number here. The revenue with dual view dumpers grew by more than 60%. Very good news on this hand side, but on the other hand side, we have had significant decline in the business with the rental chains. And this brings me immediately to the revenues in the Americas. Overproportional hit here, minus 38%, and it is a strong decline in the investment activities among the dealers, especially dealers who do rental business. The rental business is okay. The rental chains are alive, but they stop, more or less, the business with new products. And in the last quarterly report, we said that the key accounts are postponing the orders. We are now seeing since the beginning of July also now canceling orders. They are canceling orders, which they have postponed before. So a very difficult picture for North America, especially for the future. The revenues in Asia Pacific were also hit by the COVID crisis, especially in China, in the first quarter. Here, we see now minus 24% for the first half. The production facility in Pinghu as well as our dealer organization was standing still temporarily in the first quarter. But now we see that the situation is ramping up since end of March. And we have good news, and this is that the Q2 business volume is above prior year in China. Unfortunately, Australia, we were shocked a couple of days ago to hear that they have again another lockdown there, so a quite bad situation in Australia. When you have a look to the left-hand side to the services segment, which you see on the left-hand side corner, on the left-hand side, you will see that the light equipment is down by 29% year-on-year. Of course, a lot of light equipment we sell in North America, and so we have here overproportional decrease compared to the compact equipment, which is minus 18%. And as I said before, thanks to the good service development, here we have a plus of 6%. Yes, coming now to the next slide, and that was the biggest issue within the last 12 and, I can say, 24 months, the inventory development. We see now in Q2, first, really sustainable development. We are down to EUR 544 million of inventory. But when you look to the days of inventory, then you see that we still have 171 days, which is absolutely still too high. We believe that we will, of course, make the EUR 500 million target at the end of the year. The trade receivables are down to EUR 320 million. We see here 2 effects. One effect is, of course, that we have lower sales volumes. But if you compare the numbers in 2020 with Q2 in 2019, there we had in 2019 really high levels because we had strong revenue growth, especially in the first half of 2019. The trade payables on the left-hand side of the corner, you see, are declining, but this is going along with the decreased production volumes. So on the next slide, we see the impact now on the net working capital. Also here, we are now on a good way. However, EUR 743 million is still too high. Also here, the percentage points that very clearly out, 48% is still too high. We have to work here furthermore heavily on reducing this net working capital. The positive outcome here is, together with the restrictive CapEx, is that we have achieved now a very good free cash flow. Although we increased in the first quarter inventory, the cash flow in the first quarter was plus EUR 5 million (sic) [ EUR 4 million ] and is now plus EUR 89 million. So together, we achieved EUR 93 million positive cash flow. We have also some payments postponed, which are good for the cash flow, but it is round about [ EUR 15 million ] what we have to pay out of the liabilities, but we expect also a significant cash inflow from short-time work, which we have not yet collected. So overall, the free cash flow is positive, and that has caused an impact on debt -- financial debt, what we see on the next slide. The net debt was extremely high with EUR 513 million. The gearing was at 42%. That was the top number here in Q3 2019. Now we brought it down to EUR 363 million, and the gearing is 29%. And on the right-hand side, the net financial debt to EBITDA is 1.6, but we are still here above our own plans where we want to achieve something around 1.0 or better, below 1.0. The equity ratio is at 55%, nothing specific to repeat -- to report here. We have had the AGM at the end of June where the shareholders suspend the dividend for the fiscal year 2019 to secure the liquidity of the company. Coming now to my last slide, which shows the share development on the left-hand side. There you can see a minus of 12% in the course of the year 2020. Positive is that now when you look to the right-hand of this share development, that we are now back in a parallel development with the SDAX and the DAX and the peer group. We have been always a little bit below during the course of the year 2020. On the right-hand side, also nothing new, the dividend development with the suspension of the dividend payment in 2019. The coverage is quite positive with recommendations mainly on buy, and they are quite new from July. No change in the shareholder structure. Family still owns 58%, no news here. And the free float is consequently 42%. Now I would like to hand over back to Martin for the outlook.

Yes, thank you, Wilfried. Yes, coming to the outlook, you see here on the left side, the top, business climate index for construction, which is coming -- bouncing back in July, but still far below what we were in the last few years. And you see also agriculture is bounce -- the bounce back is already strong, but also still below the previous year's level. So there is still a lot of uncertainty. Everyone is expecting that the business is coming back, but the question is how fast and in which shape finally. For sure is that we will -- that the impact in agriculture will be much lower than in the construction industry. We have seen this already in the first half year where we have seen a stable or even slight increase in revenues. In construction, the situation is very different country by country. And especially in the areas where we are -- have a higher percentage in revenues with national or international rental companies, we are affected much more because they stopped their investment activities at the moment. And in the regions where we have the direct sales organization, we are very stable. Also here, we were able to have a slight growth. Also, service revenues is stabilizing and also increasing. So a very mixed picture. And you know that we -- in mid of April, we have withdrawn our original guidance, which was between EUR 1.7 billion and EUR 1.9 billion in revenues and EBIT margin between 6.5% and 8.5%. Also, after the first 6 months, we are not able to give a guidance for the financial year 2020, and the reason is still we don't know what are the, obviously, further development of the corona pandemic globally. We see in the last couple of weeks still rising cases globally. Also, in Europe, in some countries, cases are increasing once again. So it's very, very difficult to predict what's going on. Do we see any further shutdowns even on a regional level maybe in the second half or not? And the big question is also when are the infrastructure programs -- investment programs really coming. And for sure, everyone is discussing about that and already some countries already announced infrastructure programs. And this will, for sure, have a positive effect on our customer base and then finally, also on our business. But also here are still a lot of uncertainties. And also, the construction business is, in many countries, behind the original plans because also municipalities and offices -- government offices were closed a few weeks in the second quarter. And also, so here, projects are still not released or had to be postponed. And that's the question, are we really secured that our customers -- our customer base has further order income in the next couple of weeks or what is the order income because of these infrastructures. So still unpredictable effects. And for sure, what we can say is that we expect we will have considerably lower revenues and also lower EBIT margin compared to previous year. Investments will be around EUR 80 million, below what we have originally planned, but we have also some investments which doesn't make sense to stop where we have planned extensions in Kramer and in Weidemann. That's already ongoing, but all investments are [ under question ]. And we try to secure liquidity. That's our top priority. So far in the first 6 months, this was managed quite well. And I think we have operating costs quite good, under control. And also, net working capital is developing in the right direction and will be, end of the year, considerably below previous year. Yes. That was my last slide for the outlook, and now we are open for your questions. Thank you.

Thank you very much, gentlemen. So we'll enter the Q&A session now, and I would like to hand over to the operator who will give you a brief introduction.

[Operator Instructions] We will now take the first question from Martin Comtesse from Jefferies.

My first question would be around the American market. I think it is very obvious that the drop there was the steepest one. You mentioned that you've been in -- or that your facilities have been closed since March. Is it correct that they're still shut? Or are you producing here again? And what is your sort of feeling that you get from the rental chains? Do you probably think there's some return in the second half? Or do you feel that this is only going to be postponed into 2021? And the second one would be on the German market, which has been surprisingly robust. Do you feel that there is probably a deferred effect that's coming through in the third quarter in some sense? Do you get any signals from clients? And the third question would be on inventory. You were guiding for a EUR 44 million further inventory decrease in the second half. I'm just trying to understand, is this -- or how much this is dependent on further top line development. Is this the best case scenario? Or is it even possible that if there's some demand bounce back in the second half, that the inventory drawback is even stronger?

Yes. I will start with your first question regarding America. America is mainly -- our plant is not completely closed, but it's mainly closed and it's because -- since April or the end of March, beginning April, because we have, and you can see it still, that we have still a lot of inventory and also the -- in U.S., we still have high inventory. So we have still the possibility to do business without any -- without a lot of production. So we do some. We have certain production, but on a very, very low level and also, changing or modifying machines or finishing some machines, but no real mass production. And we don't expect significantly orders also in the second half from the rental companies in United States. So hopefully in '21, but in the second half. So far, we don't expect any significant order income from the rental business in United States. So we'll be, also second half, on a quite low level. In Europe, or the second question, Germany, it's not only Germany. It's the DACH region. It's Germany, it's Austria, it's Switzerland, where we're even slightly below -- above last year and the first 6 months is quite stable. And that year, the big -- or the very positive development is also connected to our direct sales organization. And here, we reacted quite quickly. We have some reduction in sales of new equipment, but we have an increased business in rental, and what we can offer our customers, and that is also different to traditional rental companies that they can rent actually the equipment they need today or tomorrow from us. And then finally, they can decide in 2 months, in 3 months or even in 4, 5, 6 months to transfer the rent into a sale, that they buy the equipment finally. And then they get credit notes for most of what they have actually paid for, for renting the equipment. So that's quite attractive and reduced the risk a lot for our customers so far. The development -- to predict the development in Q3 is very difficult. Actually, we don't expect any big change in the DACH region because our customers have still good orders on hand for the full year. The question is really midterm, do they get enough business also for the years -- for the following years. So that is really the question now and is related to what infrastructure programs are coming and when they are coming. But short term, we don't see any big impact in the DACH region. As long as the uncertainty continues on the customer side, they will prefer and they will love our offers to start renting the equipment, what they need and decide a few months later, probably buying or bringing the equipment back or renting it further, whatever they want to do. So that is really stabilizing and helping our business here. Yes. And also in Europe, what is stabilizing our business here generally is agriculture. As already mentioned, yes, agriculture -- corona has a much lower impact in the agriculture business, that weather is much more important than -- compared to COVID-19. And so far, we have a good development in agriculture, as already mentioned also here, with a slight increase in the first 6 months and still good orders on hand on agriculture. So also here, we don't see a big change in the next couple of months. And for inventory, for sure it's -- let's say, we see also with the continuous development and what we have actually in revenue. So even with not a big upturn in revenues, there is a potential for further decrease on inventory. But -- not clearly defined, but the target is really now already in reach, and we will continue to closely steer and monitor the development because as Wilfried already mentioned, we're going in the right direction, but with the reduced revenues, inventory and percentage to revenues is still too high. So here, we will take further actions for further reductions.

We will now take the next question from Jonas Blum from Warburg Research.

I got 3, if I may. Firstly, I was wondering with regards to the prolongation of European Stage V emission regulations, if you could just give us some color here on what might be your potential cost savings, if there is any. Because, I mean, I remember you agreed on a major long-term purchase contract by last year due to a peak cycle in the construction equipment business. That's number one. Number two, you were also talking about cash effect from short-time work, which you did not receive yet. Could you just quantify this effect and when you expect to receive it? And just finally, on the Americas business, I mean, you had a goodwill impairment here. You also had some write-offs or write-downs on accounts receivables. Is there further risk ahead in H2? I mean you just mentioned that the business, you're not really expecting it to recover in H2. And are you considering currently changing your strategy there? Is there something in your heads? It would be helpful to share.

Yes, I will take your first question regarding Stage V, and then I will hand over to Wilfried. Stage V, there is no really any cost effect related with the prolongation. European Union decided in July that the Tier 5 -- the Stage IV engines or IIIB engines, the older emission-regulated engines, could be used in production for further 12 months. So this is helping the companies, the OEMs, to bring -- to produce the machines with the engines they had already in stock because there were a lot of prebuy because the engines -- the engine manufacturers had to produce these IIIB engines or Stage IV engines until December 2018 -- 2019, sorry. So the engines were already in stock at the OEMs in the first half of 2020. And yes, the OEMs were affected quite differently. If you see also the peer group or other OEM, construction equipment manufacturers in the first -- how they were affected, we will find also companies with revenues reduction in the first 6 months by minus 35%, some with minus 50% or some also with minus 60% compared to Wacker Neuson with minus 16%. That means we were not really affected or we don't have really -- we had no really issue with Stage V. So even with no prolongation, we would have no really big problem because the engines, what we had already in stock for agriculture, were produced -- or were already transferred in the machines in the first half year because we had orders on that. And yes, we have not built all machines with Tier 5 on the construction division, but we could have used these engines also in other countries outside of Europe in the next 12 months or 16 months or 18 months, though for us was not the reason -- a big effect. And so no really big cost saving because of this prolongation. Because no one can buy additional engines anymore. So that's, anyway, gone. It's only a solution to help the OEMs to bring the engines, which they have -- already have or which they had already in stock, finally into the market and not necessary scrap these engines.

Okay. Coming to your second question, Trepels speaking, the overall effect for short-time work and state subsidies, which are more or less the same than the short-time compensation, that was altogether round about EUR 12 million. The state subsidies are mainly paid because they go directly to the employees. And from the outstanding amount, which still will be paid, is round about EUR 3 million to EUR 4 million. So not a big amount, but a certain amount. Your third question was regarding the accounts receivables. And you're right. We have had write-offs in the first half of, in total, EUR 4.2 million. We divided them in different reasons, and one reason is the COVID situation and that was together, EUR 2.4 million, spreads all over the world. But there were also others, especially in Latin America, with EUR 1.2 million, which has nothing to do with the COVID crisis, that we have an issue with a big dealer over there. So in total, EUR 3.6 million out of the EUR 4.2 million. And your question regarding the development in the next 6 months, it's difficult to say. But I personally believe that we will see also some more accounts receivables getting write-offs in the next month because that's always the case. However, we have our accounts receivables quite good, under control. 75 -- we were always -- we had 75% in average being not due and 25% being overdue. That was in the month March, April, May. It was down to 65%. So there, we saw already that payments were postponed. But now end of July, we are back to 75% again. So from this perspective, question mark as always. It will depend on how the year goes down the next months. I don't know. Does that answer your questions?

It does.

We will now take the next question from Marc Gabriel from Bankhaus Lampe.

Also with regards to the Americas business, I mean, the demand for your machines in the U.S. is still on the plan. You started to prefinance the machines, and still there is no signs of improvement in the U.S. business for you. How long do you want to keep this situation up? And what is the strategy going forward? And what are the goals for your overseas markets in, let's say, the next 12 months? How do you want to return to profitability in those markets, Asia Pacific, although there, I have some better hopes, but the U.S. situation is really getting worse. Maybe you can elaborate a little bit more on your thoughts here for the U.S. business. And then second question, just probably I missed that. How was the order intake in July? And what is the situation especially in the ag business, which did quite well? Do you think that the strategy to do more in agriculture with John Deere is still valid? Or do we see here also clouds on the sky? And congratulations to the good results overall in that difficult environment.

Thank you. Yes, for sure, our weakest point is United States, as you already mentioned, and we don't -- and as already mentioned, we don't expect a fast improvement in the market environment in the next couple of months because as already mentioned, we don't see any further big investments in the next couple of months from the rental companies though the business will be very difficult. So what we are doing already and what we -- where we have already started in Q1, and this will go on further also in the next couple of months, we are consequently restructuring our organization. So we are preparing to -- that we also can live with a much lower revenue in the United States. That's the only possibility at the moment, and that's consequently done at the moment. We are preparing a final business plan also for the next several years with much different expectations what we had a year ago. That's ongoing now, and that should -- will be ready until autumn. So after Q3 here, we have a clearer picture, but we're continuously reducing our operating costs and also our labor costs consequently in United States, that we can live with a much -- with a business on a much smaller scale.

Perhaps I can add something to North America. We have now the final approval from the bank as well as the final approval from the Supervisory Board. We got it on the 30th of July, so a couple of days before this date -- today. And it is smaller than it was initially. It's now EUR 150 million, and the term is 1 year. And we have a very good percentage negotiated here regarding the interest. And so we are here a step further, which will help us also regarding the prefinancing that we now have a tool where we can get that out of our balance sheet. And if the situation in North America will become better, there's a clear intention also from the bank to go back to the initial amount, which was EUR 300 million and a term of 3 years. So we have prepared this already in a letter of intent so that we can start immediately when the situation in North America gets better.

So our focus must be in the next couple of months really to come -- to get more a higher -- a much higher portion in retail sales. We were growing quite fast and good with our anchor dealers, which -- but this business is related and this growth is related to rental. And yes, in this environment, actually they stop investing, and that's affecting heavily our business. So we will consequently adapt our organization operating costs to be able to live with a much lower turnover. Regarding the question of order income in July, I already mentioned it. In July, order income was slightly below last year, not a lot, but slightly below last year. So in June, clearly, double-digit above last year. In July, slightly below. And for sure. We are constantly following this development week-by-week. So -- but actually, at the moment, we don't see any signs for big changes, upside or downside. Agriculture business, as already mentioned, developing very well and is already increasing. Now we are close -- we already -- agriculture has in the first half year 19% in portion on our revenues. 2, 3 years ago, it was 15% or even slightly below. So that's continuously increasing. And yes, part of that is the cooperation with John Deere, but it's not only John Deere. Also our own brand, Weidemann is developing extremely strong, and the growth in the first half year is strong on the Weidemann side and on the Kramer side, where we have the cooperation with John Deere. But both are developing very well. And also with John -- this cooperation with John Deere, we will extend -- there are further possibilities to extend the cooperation step-by-step to other countries. We're starting now in Eastern Europe and probably also in Australia and New Zealand. So also here, still room for growth. And in general, the cooperation is developing very, very well and much better than both parties expected at the beginning of the cooperation.

Maybe one follow-up, but you do not expect that U.S. -- you expect further losses in the U.S. for the second half, and probably you come in Asia Pacific towards -- a breakeven situation towards the end of the year. Or is that still a little bit too aggressive?

For sure, in United States, we still have to adapt the organization. So there will be clear, for sure, losses also in the second half. Because also consequently, adapting the organization, that's not finished. We already booked close to EUR 2 million in the first quarter that was mainly related to United States, and here will come some further restructuring costs in the second half in United States. In China, also, I think we will have a loss also in -- until end -- also here in the second half. Yes, we make progress now in Q2 where we had also a growth. But as we already mentioned, in Q1, we have issues on some products where there's really a price war in China, where local Chinese manufacturers are fighting with extremely low prices. So volume is increasing and the prices are decreasing. That's somewhat crazy, but that's the situation in China. And also here, we -- with some products, we have a very good development and also profitability is okay. But I think it's too early to say that we come to a breakeven this year in China.

We will now take the next question from Norbert Kretlow from Commerzbank.

I had a couple of questions regarding the environment. And I understand that due to uncertainties, you can't give a guidance, but maybe you could shed some light on the latest development in your client base in terms of, say, sort of a channel check. Has there been any change in the mood of your client list of construction companies with now second wave fears being discussed and infection rates being partially up in Europe? And the second question would be on the infrastructure project impact on the equipment market. I wonder if you have any, say, indication of whether or not there might be only upside or also there is a risk of downside from the expectation of infrastructure projects in the sense that maybe some of your clients might have prepared or might have tried to anticipate infrastructure projects, which if they come later or if they come in smaller than expected, that then we would -- might even see a negative impact from related disappointments should they be there. And as a general note, overall, I remember the 2008, '09, '10 crisis. And then I would have expected that roughly 60% of the peak sales levels in construction equipment in Europe had been attributable to expansion, 60%, and only 40%, roughly speaking to replacement. Do you have any indication regarding what the current levels had been in 2019 to have an assessment of a trough risk?

Yes, that's very interesting questions, and I would be quite happy if I could answer this or if we would have answer on these questions. But no, the -- but roughly to say -- or difficult to say. First of all, the mood in our industry, if you look at the OEMs, the mood is now, on the OEM side, better than 2 months ago, for example. So we see -- we make -- we have a monthly survey in the construction -- at the OEM side in the construction equipment industry and also in the agriculture equipment industry. We do our own surveys with close to 400 dealers globally. And also here, we see that the situation, the confidence is slightly coming back and improving. On an average, we see that the expectations of revenues reduction in the agriculture side is 50% lower than what we have on the construction side. So in the construction side, our dealers, in the last survey, they expected an average of 15%, 16% reduction in revenues, but with a very [ heterogeneous ] picture. Some see stable revenues, some see declines above 20%. So very difficult to predict, but expectations are now better than they were 2 months or 3 months ago. I think in the -- in our customer side in the construction business, the construction company, if you see the business climate index in Germany, here, the confidence is lower actually because the questions are now when the investment programs are really coming. We see now after -- 3 months ago, that was not really clear how long the situation will take, how will be the impact. Now everyone sees where there will be a heavy impact, and the question is when are the new programs coming. So I think here, certainty -- uncertainty is higher on the construction company side compared a few months ago. But still, as I said, many, many companies, especially in the DACH region, have very good orders on hand. But although these orders get finished at some point and then the question are the new orders already in their hands or not. Yes. And what was your last question, Norbert?

The last question was on, say, on a general note, when you look at peak sales levels 2019, do you have an, say, an assessment of which percentage of sales in the industry, and also regarding Wacker sales, has been attributable to expansion and which percentage has been attributable to replacement CapEx? Because, I mean, when it's getting tougher, then markets tend to drop back to the replacement level.

Yes. But these figures are not available, so I can't give you really real -- really an answer, and that's very difficult to answer. So for example, if we -- and generally, you can say as more your business is related to rental, the effects -- or the reduction in revenues will be higher. So you see -- if you look -- as I already mentioned, there are several OEMs which have reported figures already for the first half year 2020, and you see reductions down up to minus 60% in the first 6 months. All companies are producing construction equipment, and the reductions are between minus 15% down -- or minus 10% down to minus 60%. So it's an extremely [ heterogeneous ] picture, and it's related -- if you are really strongly close to rental companies, you are highly impacted. Our impact in our revenues in total in the group in -- with rental companies is far below 10% in the group. So that's also the reason why our business is much more stable. We are more dependent to rental business in U.K., in France and United States. But in the other countries where we are, we have a very strong retail business and also direct sales business, and this is much more stable than doing business with rental companies. And to say what was investment and replacement, that's really difficult because we don't get this information if a rental company is buying now equipment from us. And also in the first half, we have delivered to rental companies especially in Europe and especially with our new product, with our innovative product like dual view dumpers, we were even growing in the rental business in the first half because dual view is really an innovative product. Everyone wants it, and customers are requiring it. So rental companies are really forced, even in difficult times, to fulfill the customer wishes. But we don't get the information, if we get an order, have they now replaced some equipment from another OEM or is this an extension of -- extension investments. So no clue how to give you a clear answer or figures to this question.

We will now take the next question from Aliaksandr Halitsa from Hauck & Aufhäuser.

Maybe just a general one in terms of your flexible rental business. Do you feel like this allows you to get involved and maybe win new customers that otherwise you wouldn't have business with? Or do you feel like it's mostly the customers that you have as your customers already?

Yes. For sure, it's a mixture, yes. But that's our target, but I can't give you here now a clear figure how many business we have done now with completely new customers. I don't have a figure actually. But for sure, this is a unique -- a quite unique business model what we can offer in our direct sales countries to offer the customer start with renting the product and then decide later on after 2 months, after 3 months, after 6 months, take -- we will take the machine back or you will buy the machine. So for sure, this is helping us. But we won also certain orders also in the first half year because we were able to deliver products, to offer availability. On that side, our stock helped us because other -- some OEMs had really big issues, especially in the second half because someone were much higher affected from the shutdowns in the supply chain than we were. And so we were able to win some orders -- or customer orders also from competitors because they were not able to deliver in short term.

And then also on the financing facility, this EUR 150 million that you have secured, can you share what's the plan? How much will go towards the offloading receivables from the balance sheet, and what would be then supporting for the growth?

Yes, of course. Actually, we believe that we can load round about EUR 60 million out of our balance sheet, and the rest then will be available for new business.

So EUR 90 million will be available for further growth.

Okay. And finally, can you remind us what are typical lead times for your backlog?

Pardon? Can you repeat? I didn't hear...

The lead times?

Lead time for product?

Yes, on average. I understand that it varies very much.

Yes, that varies very much depending on light equipment. Normally, we deliver from the shelf because customers expect they need a [ rema ] or a small plate. They order it today and they get it tomorrow. So yes, we normally order from the shelf. And in compact equipment, it's -- also here is the target that we are delivering edition models, so standard models with a certain specification, within 2 weeks. So let's say, [ answer it ] for compact equipment, it's between 2 and 8 weeks roughly, actually.

We will now take the next question from Jean-Marc Mueller from JMS Invest.

I have kind of a top-down question. Let's assume consensus is correct and Wacker Neuson achieves -- generates some EUR 1.6 billion in sales in 2020. That would imply that the second half develops roughly the same as the first half, so around EUR 800 million in sales. Is there a reason why we should assume the gross margin to be very different in the second half compared to the first half, [ and you had ] 25.7% gross margin? If you were to achieve EUR 800 million in sales in the second half, is there a reason why the gross margin should be -- should vary a lot from what you've seen in the first half?

Yes. I think there is no big change to be expected because we are still in a closing mood in North America. We will not open the production before October from today's perspective. And we have -- but this is always the same every year that we are closed in August and many production companies as well as then in December. And so from this perspective, I think that there will be no big impact -- no significant impact on the gross profit margin.

Okay. Then an add-on question. I mean we've seen great cost control in Q2. And I mean, the OpEx costs were down considerably not only year-over-year, but also compared to Q1. The EBIT was very strong with EUR 21 million. I mean if the gross margin -- let's say, if the sales were EUR 800 million and if the gross margin is actually somewhat at levels that we've seen in H1, we should probably see all the benefit of lower OpEx costs than in Q3 and in Q4. And we probably wouldn't see the one-offs that you had in H1, like the receivable write-down and the goodwill write-down, et cetera. So on that basis, I mean -- and I'm not one to put words in your mouth, but just if I do this math, EBIT in the second half would actually be higher than the first half.

Yes. That's probably a right calculation you do. On the other hand side, you need to see that we have had effects which are, let's say, just an effect in the month where we do the action and it will not happen again. So this is, for instance, a onetime effect, the reduction of accruals for vacation because, first of all, people went into vacation and then they had the short-time work, or the reduction of the accruals for flexible work time. Also they were brought down significantly before we went into short-time work. Then we postponed a lot of hirings for people who quit or went into retirement, and we have deferred salary increases. And when you look to the travel costs, travel costs are significantly below usual numbers. I personally believe that we are not going back to the same travel level we had before the crisis. That will be sustainably reduced, but not in this size. Marketing and entertainment costs were reduced because we -- there were no fairs where we went to. There will be, of course, also here a sustainable -- part of this reduction will be sustainable because also in the future, the electronic marketing is, and that's what we see in our days, is getting more and more important. And so if I take these numbers together, yes, we have had a good OpEx situation. We have had them really good under control. But just the few numbers I mentioned come together for round about EUR 10 million, which are not kind of sustainable. And so from this perspective, your mathematics is, of course, right, but you need to consider there are also these effects which I just mentioned.

And my final question, along a similar line. I mean you mentioned the further reduction in inventory, which will obviously help free cash flow. Then there were some other effects which then helped cash flow in the first half, which will have a negative effect in the second half. But still, on an all-in basis, is it fair to assume that you would expect net cash basically? The EUR 363 million net cash position, you would expect that number to go even lower by the end of the year and not including now the EUR 60 million receivables off-balance sheet through the ABS structure, just based on basically operational cash flows?

Yes. The balance is in our favor, of course. Just as you said, the reduction of inventory, if we would meet the EUR 500 million or even more...

Will be EUR 40 million already.

Yes, yes, yes. But on the other hand side, it says also that we have postponed payments like VAT payments or income tax prepayments were delayed. So there was also a certain effect on this side. But overall, the balance is positive to be expected for the second half.

And the EUR 60 million that, the receivables, that you will take basically off-balance sheet in the ABS structure, that will happen in the second half?

Exactly.

Okay. So that comes on top...

That will basically -- that will come on top, of course.

There are no further questions in the queue at this time. I would now like to turn the conference back to your host for any additional or closing remarks.

Thank you very much. Okay. So then I'd like to close the call. Thank you very much for joining. Thanks for your interest. If any other questions come up, please do not hesitate to contact the Investor Relations team. Thank you, and have a good rest of the day. Bye-bye.