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Ladies and gentlemen, thank you for standing by. I am Emma, your Chorus Call operator. Welcome, and thank you for joining DEUTZ First Quarter 2021 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Christian Ludwig, Head of Communications and IR. Please go ahead.
Thank you very much, operator. Welcome to our conference call on the first quarter of our 2021 results. My name is Christian Ludwig, I'm Head of Investor Relations and Corporate Communications at DEUTZ. With me today is my CEO, Dr. Frank Hiller; and CFO, Dr. Sebastian Schulte; and our Head of Controlling, Tesean Cope. Mr. Hiller will start giving an overview of the key highlights and financials before handing over to our CFO, Dr. Schulte, who will cover the results in more detail. As always, both will be happy to answer any questions we may have in our Q&A session at the end of this call. Also, let me remind you that this call will be recorded. A replay will be available on our Investor Relations website after this call. Before I hand over, please also pay attention to our usual disclaimer that you will find in the presentation. Without much further ado, I hand over to our CEO, Mr. Hiller. Please go ahead.
Yes. Good morning, ladies and gentlemen, warm welcome to our Q1 figures. So we started the year 2021 positive. We have a clear, noticeable upward trend in the market. And a significant new order growth. Orders on hand are up by around 84% (sic) [ 48% ] year-on-year. So also a strong improvement in profitability and free cash flow in the first quarter. And further progress with the implementation of our Transform for Growth program. Target exceeded for take-up of the voluntary redundancy program. We also pushed forward also during the crisis, our initiatives. We made no compromises towards new technology, our service growth and international growth. The full year guidance for 2021 was raised despite difficult supply situation. In the Board, we have now 4 Board members. So Dr. Markus Müller joined as CTO and taking the responsibility for the further development in technology. So yes also further expansion of our commitment towards sustainability, DEUTZ has joined UN Global Compact. Maybe some words about the further progress with our Transform for Growth program. So we have successfully concluded the voluntary redundancy program. So this was taken up by a total of 361 employees. Thereof 96 employees already left the company by the end of Q1. And for the full year, so 2021, you will see, in total, 171 people leaving the company. So the total reduction of the workforce is by 358 compared with the end of 2019. And so more or less, on this point, the program has already successfully delivered the targets. And with the ongoing measures, we are confident that we will reduce the gross cost by the year 2023, so end of 2022 onwards by EUR 100 million per year.Another important topic is our internationalization strategy, especially towards China. So joint venture with SANY remains successful. You remember in the last year, 2020, we sold already -- produced and sold already 20,000 engines. This year, the target is on 35,000 to 40,000 engines, and in Q1 we produced around 8,000 engines. You see it on the right side next year. The new company or new facility will be in place, and the target is 80,000 units. 2022 capacity, which will be installed in new factory is 200,000, and I'm confident that we will fill up the new location within short term. You see a picture of the new facility. So the second picture from the left side here, you can assume a little bit the dimensions of the new location. Then also our activities with BEINEI in Tianjin are running well. So we are in the phase of ramping up the engine 2.9. Other topic in China is the purchasing organization. This is completely established, and we are now working very intensively on the localization. So it will be a very deep localization of components in China with target to lower cost for materials and logistics and also offer us the opportunity to deliver these components also back to our facilities in Europe. Another important topic is service, as you know. And here, the service figures for the first quarter, you can see a very good development. So revenue was increased by 3.2% compared to quarter 1 2020, new orders even higher, 11.5%. And orders on hand increased up to nearly a EUR 32 million, which is a plus of around 50%. So we are on a good way to achieve our target for 2021. On the turnover or revenue side with EUR 400 million. So also a lot of new measures were taken, also some new orders, for example, here, with SAME Deutz-Fahr we will also deliver in the future Xchange engines for this customer. New service concepts, especially here, the introduction of Lifetime Parts Warranty, which is related to original parts, which are built in by qualified and certified service partners. Also, on the network, we are working very heavily. Especially in the U.S., we are in the phase of building up the new DEUTZ Power Center around the area in Dallas. This is planned for the second half of 2021. I'm handing now over to Sebastian Schulte for the figures.
Thank you very much, Frank, and good morning also from my side, ladies and gentlemen, to our Q1 earnings conference. Frank mentioned earlier that we do observe a noticeable upward trend in the market. And if we look at the figures in more detail, what we'll do right now, we'll see that clearly reflected. Looking at the new orders, we do see here that we increased from the Q1 2020 to current Q2 significantly by 30%. And this is pretty much across all application segments and almost all regions as well. We see also in the unit sales slight reduction overall, but that comes mainly from the reduction in the unit sales for our Torqeedo business which as we show here sold a little less, coming from 8,500 units down to 6,100 units right now, but on the sort of traditional DEUTZ [indiscernible], we went up from 31,500 to 32,200 engines. And this translates then also into an increase in revenue by 1.1% because as you know our DEUTZ engines do reflect a higher value than the smaller scale Torqeedo electric engines. And it was also mentioned earlier that as a consequence of that high new orders, more or less constant revenues, we see a book-to-bill ratio of 1.35, whereas at the same point last year, we were on pretty much equal 1.0 book-to-bill ratio. And as a consequence, orders on hand jumped up by 48%. So that we have as of March 31, orders on hand in the books of almost EUR 400 million, which is a very high number if we compare that with the history of the company. If you look at the revenue in detail, we see on the left-hand side our revenue breakdown by regions. And if we compare it with the same period last year, we see a pretty constant picture for Europe, excluding Germany, but also including Germany, slight increase, particularly in Germany, 3.5%. If you look at the left part of that chart, we do see a slight reduction in the Americas, 9.5%, comparing with the previous period, but that's also influenced by the difficult temperature situation we had, particularly in January and February in the States. It was a very cold period in the vast, vast majority of the country, which led to some difficulties in delivering motors, but also performing services. So we expect this to improve over the coming weeks and months. But -- and that's quite promising also, our -- it shows [ the growth ] in Asia Pacific, particularly China, does show that this region becomes more and more relevant for us, fits very well to the statements from Frank Hiller on the progress of the China strategy. If we look at the revenue breakdown by the application segments. We do see slight improvements, construction equipment, material handling, services. We see a slight reduction in the stationary equipment, slight improvement in agricultural machinery and in miscellaneous we do see, but on a relatively low level there, when we compared with the overall figures, a reduction. That's driven also by the marine business coming from Torqeedo, where I mentioned earlier, we were falling some 2,000 units short compared to the previous period. From the top line to the bottom line, looking at the development of the earnings, some 3 months ago, we presented here the annual figures for 2020 with a minus EUR 74.7 million EBIT before exceptional items. That's what you see here in gray, obviously, with a significant drop in Q2 last year when the COVID crisis really took off. If you look at Q1 now, yes, well, back in black, with a EUR 0.8 million EBIT before exceptional items. We do mention exceptional items here because we had a small number of EUR 0.4 million as exceptional expense due to the final settlement of our restructuring Transform for Growth program. But the EUR 0.8 million here, as I said, reflect the number -- the operational number, and that leads us to a small but positive EBIT margin of 0.2%. So clearly, the trend goes in the right direction. But we do see -- besides the market recovery, we do see the fruits of the systematic implementation of our efficiency program at this point in time already. We do also have -- obviously, we had last year, at this point in time, we were negatively influenced by some payments to suppliers, which went through insolvency proceedings. That issue we don't have anymore this year. So that also helped Q1 compared to previous Q1. But most important is here what we show in the third bullet point, we do already have achieved -- reduced the breakeven point for the group down to 130,000 DEUTZ engines, which we initially had in mind to achieve pretty much in the -- over the entire fiscal year. We are there already. And that is reflected in the positive result for Q1. Going a little further then, obviously, we see the same tendency in the net loss before exceptional items where -- and we are now still on a slight loss of EUR 0.5 million, but coming from the minus EUR 10 million in the previous year, led pretty much only by the improvement in the EBIT. And that translates into -- on an EPS basis, from minus EUR 0.08 to EUR 0.00 EPS in Q1 2020. If we move on, on the -- on some selected figures. Looking at R&D spendings, we are now -- we have spent EUR 20 million in net R&D in Q1, reflecting 5.9% of sales, going down slightly compared to the previous year. It's a result of the reprioritization we did -- we undertook earlier already as an answer -- as a response to some changes in our product development path due to the COVID crisis. So that reflects here in the numbers, without harming our main growth initiatives and programs. Similar picture on the CapEx side. The first glance, it looks like a significant reduction, 62%. But if you look a bit more in detail, we have to make sure, we have to be clear that last year, we had some EUR 15 million due to leases recognitions, IFRS 16. So if we take them out in -- we come from EUR 14 million down to like EUR 10 million. So reduction also a result of the responses which the company took on the second half last year, in particular, when reprioritization certain CapEx projects as a response to the crisis in order to be a bit more cautious on cash spending. Working capital increased slightly, up 3.7% from EUR 235 million up to EUR 243.7 million, mainly driven by the increase in stocks, due to the increase of business volume, but also due to some prolonged freight routes, freight times, particular towards the States. On the receivables side, we are pretty confident, [indiscernible] of EUR 110 million that we are managing quite well to keep the discipline here in collecting our receivables. And the payables, we managed to increase a bit. It's a combination of increased business volume, but also more stringent work with our suppliers where we are trying to improve sustainable here our cash conversion cycle with a lot of measures across our regions. And if we move on now to the cash flow side. We do see here in the cash flow from operating activities, quite a promising and positive development, coming from EUR 11.9 million negative now to EUR 17.1 million. That is mainly thanks to the earnings performance I mentioned earlier. And also, the net working capital or the working capital has helped here quite a lot as I mentioned earlier also that capital expenditure well below that, so this is the clear result here, which we show both in the operating cash flow as well as in the free cash flow, and consequently, also in the net financial position, we show here the numbers with and without lease liabilities. And you see on those numbers, we are pretty constant coming from EUR 83.8 million overall, increasing the net financial debt slightly to EUR 87.2 million as a result of the factors I mentioned earlier. And if we look at the -- at some selected balance sheet ratios as well as the financing situation, we do continue -- we continue to have here quite a healthy balance sheet. We came from 44 -- 45% at the year-end And we're now at 44.3%. So I would say that is pretty much the same number, giving us here the comfort and confidence that the balance sheet is by far not any problem and not becoming any problem to us.Same applies to the financing situation. We are comfortably positioned here right now. We do have syndicated credit lines, we have our KfW backed loan facility of EUR 150 million, which we are not using or have not used and are not intending to use. This line is available until November this year. If we needed to we could prolong, we're not envisaging to do so currently. And our slightly longer running [ loan ] facility of EUR 160 million, here, we're using up currently EUR 65 million. So we are well positioned in this sort of situation right now. Long-term bank loans, also, we have the repayment profile, that's EUR 10.8 million need to be repaid within a year, another EUR 11 million between 1 and 5 years and over 5 years here, we have nothing to repay. And just one point which comes up often and usually in part of the questions, we do still expect an exceptional item on the cash side as well as on the profitability side of some EUR 60 million from the payment of the final installments of the purchase price for the sale of the land of the DEUTZ [ area. ] We do expect this to happen still in 2021. There are still some uncertainties, not -- that the money is owed to us, but when the money is exactly being paid to us because there are some approval missing from the City of Cologne towards the new owner of the land. We are constantly working together with both the city as well as the owners to ensure a smooth payment [ for the ] course of this year. Yes. Having said that, quick looking back on the Q1 figures. I would hand back to Frank who will talk about the guidance.
Yes. Thank you. Coming to the guidance, group guidance for 2021. So we raised the guidance in April [ 19. ] So now we are planning to have a unit sales of 140,000 to 155,000 engines. So this is related to -- purely to DEUTZ engines. Torqeedo is not included in that figure. Revenue of the whole group will be on a level of EUR 1.5 billion to EUR 1.6 billion. EBIT margin, between 1.0% and 2.0%. Free cash flow, and here, taking into account also the final installment of the purchase price for the Cologne-Deutz site is -- so we take into account a free cash flow negative low to mid-double-digit million euro amount. Also, we have the situation, and this is also here in our considerations, that the supply chain situation right now is quite difficult in the whole industry. You know that also from the automotive industry, so -- especially electronics are short, but also plastics and steel. We are handling the situation, I would say, quite well. For sure, we have to cut some shifts. We have to replan in the production, which more or less ends into inefficiency. But the situation is much better than in the automotive industry. We have [ not ] shut down for several weeks our production. But this is -- I would say, this is a challenge. And not having this challenge here in the year 2021, for sure, results could be even better.Looking at the midterm target for 2023-2024. Nothing has changed. Our targets are more than EUR 2 billion turnover of revenue and 7% to 8% EBIT margin. So all this is in place. We are following our strategic initiatives, on the one side, alternative drivetrains, pushing our service business further and also internationalization, especially China, but also U.S., now with the cooperation with John Deere, is a clear step towards more internationalization. Also, our Transform for Growth program will help us with the annual cost savings 2023 onwards. As you know, the program is addressing staff costs, and operating costs, and the optimization of the global production network and also the reduction of complexity more or less so far. So we are looking very positive in the year 2021. And for sure, we think that also on the supply side, supply chain topics, will be improved or will be less important by the end of the year. So a quite positive outlook for the company. Thank you very much. And we are now open for your questions.
Operator, could you please open the line for questions?
[Operator Instructions] The first question comes from the line of Frederik Bitter with Hauck & Aufhäuser.
I would have 3, and perhaps we could do them one by one, excuse me. The first one would be, you might have expected it already for me, but could you provide an update on current trading in April and also perhaps early May, of course, only a couple of days? But just to explain like how demand momentum in terms of order intake has developed over the last couple of months going into Q2. That would be very helpful for us to understand situation a bit better from you guys.
Yes. Maybe on current trading. Yes, I think also Q2 is developing according to Q1. So there will be a -- the order intake will be higher than the revenue. So we'll have a ratio higher than 1. The problem is now really shortage on the supply side. So market is running very well. Also, looking a little bit deeper into Q1 on the different segments, we can tell you that especially material handling is picking up, with a very good book-to-bill ratio. So orders are more or less 48% higher than revenue. More or less same level as construction equipment, 46%. On the agricultural side, it's 20%. So more or less all in good shape, and we see no change for second quarter.
I guess that's a strong indicator. Obviously, the numbers given [ there were for Q1 ]. So you see similar growth rates, [indiscernible] clearly double-digit year-on-year going into Q2, right?
Yes, it's quite early stage. So it's just April. And I would say in April, there's no big choice -- no big change to the first quarter.
Yes. Okay. Well, I guess it's excellent. Great. And then on the supply chain, just excuse me trying to figure out a bit more like how the situation has also developed in the last few weeks, say. And what are your expectations for the next couple of weeks, couple of months? I mean you obviously noted that you -- you mentioned earlier that by the end of the year, you think sort of normalize. What are you seeing currently in sort of your more short-term expectations, also in terms of the material cost inflation and how you want to mitigate those effects now?
I think we have the situation since the beginning of the year. So we are dealing with that situation since more than 3 months. The economy is ramping up, and everything is now a little bit screwed up. What started maybe with the electronics, now you have it also on plastic side and you have it on steel. Also, wood is short, which is not relevant for us. But I think all the markets are ramping up, and now it takes some time. So we expect that this will be a topic also for the Q2 and Q3. And we'll see improvements in Q4 by ramping up capacities on the supplier side, but also having, I would say, more stable supply situation. Also, if you are looking on the time -- the delivery times and transportation time, so this -- these are longer than in the past. For example, harbors are completely full hands on. I think it will really be a challenge for Q2 and Q3. Do we -- so far, we have it quite good under control.
Yes, that's really reassuring. And perhaps for Dr. Schulte. If you could talk a bit about the associated material cost inflation and how you'll be -- are you able to pass on part of it, like a large extent perhaps? So what are you -- what is your strategy to mitigate this? And obviously, there were -- you made changes to supplier structure post Halberg insolvency. And also now, you talk about China ramping up procurement there. But obviously, that's not going to help you very short term, I believe. But just some more, I guess, details how you mitigate the situation to basically -- will get to your margin target ultimately, right? [indiscernible]
Yes. I mean there are a lot of factors. And on the one hand, and that's what you mentioned, obviously, the shortages in the supply chain make it more difficult than usually to really go and renegotiate with the suppliers, get costs down, because when your main interest is to get the supply then, this is not the priority. However, having said that, we are currently already changing quite significantly our efforts in the procurement from managing these severe shortages we had in the -- particularly in the first month of the year, now to also go a bit more deeper also into negotiation and to address costs or improve payment terms, a combination of that, using all the levers which are available. That's one aspect. The other aspect is, in certain supplies where we are, we do have also effects, positive cost effects for us coming from the ramp-up of volumes. We have there -- we have contracts in place where this helps us as well. And on the other hand, when you come to -- when you mentioned increases in certain raw materials, which sometimes the supplier will hand over to us and as part of their contracts, we do have with certain customers similar contracts as well. So we're trying to not only pass on these costs but ideally as you said, improve here the margin [ on our ] side. The other aspect you mentioned, regarding China, I mean the increased relevance of China for our customer side also means that we are more and more changing our sourcing strategy, where possible that we're using -- utilizing Chinese suppliers at a higher extent. It becomes more attractive for us the more we also sell into China. And that means that we're trying with these deep sourcing activities also to shift, as I also said, more and more there, obviously, at improved costs as well. We have quite a few promising initiatives on that side. So overall, I'm pretty confident that having all these difficulties in the supply chain, which Frank mentioned earlier, it should not lead to the situation that in the end our cost situation becomes worse, I think there are quite a lot of opportunities in there.
The next question comes from the line of Richard Schramm with HSBC.
Yes. Two questions from my side. One concerning the R&D spend, which you have scaled back. Maybe you can elaborate a bit on this. What kind of projects have been reduced here? Is it more your own, let's say, basic research? Or are there customer related projects hit by this measure? And have you been able to be, let's say, somewhat selective? And what kind of projects if it was customer-related [ has been canceled ] so that you might also then keep some more promising ones in your portfolio here?
I think, overall, we will not see a different -- total different picture in the year 2021 to 2020 in the full year. So we are driving our activities for sure. We are cutting costs more on the combustion engine side, and we are investing more on the electrical drive, and also hydrogen is a big topic for us. So hydrogen engine, we are building up right now the first prototype. So it's more a shift in different technologies than, I would say, a change in the amount. So year-end, more or less, we'll see more or less the same amount, plus, minus.
Okay. Understood. And just in respect of this very fashionable hydrogen topic, can you just tell us where you stand here and what the time line is for first, yes, test to the market for your prototype you're just -- have under development?
Yes. Well, we see a big potential to really use the hydrogen for the combustion engine. And we have the first engine on the test rig, but it's really prototype. To come up with serial products will be another 3 years. But there are projects going on, especially in the field of railway. This is a good opportunity, and also for stationary equipment. We are working here together with a local energy provider who takes the responsibility for the hydrogen infrastructure. And we are coming up with the hydrogen engine, and there will be the first installation. It's a test installation for sure. This will be done within the year.
Within one year, so next year would be [ realistic?]
No. No, no. You will see that this year, but it will be a test environment. And really, the first serial products, this needs another 3 year to have really a robust engine in place. And it's not only the engine itself, it's also the infrastructure. You have also to make up your mind about the storage of hydrogen. A lot of topics has to be -- have to be clarified around the engine itself.
Okay. And another question, just to check on the customized solutions, which have seen a decline here in sales in Q1. Was this related to the weather conditions, especially in the North American market, which you mentioned? And should we therefore expect a clear catch-up effect here over the next quarter?
[ Obviously, ] when you look at the customized solution, if we compare it with the previous quarter, we have reductions in almost all application fields here. It is partially related to what you mentioned to the situation in the U.S., that's true. And we do expect a pickup here in the coming quarters. But it is also true that some of the increased volumes we see comes from the compact engines at the moment, which are pulling a bit stronger from the market there.
So this means you're just prioritizing the compact engines at the moment and customized solutions has to stay a bit back here.
No, I don't think -- we are not -- it's not what that we are prioritizing, it's what we're following here also the market at the moment.
Yes. So Mr. Schramm, you have to see that the customized solutions in the last year 2020, even during the crisis, was quite stable. And now from the market side, especially the compact engines are picking up. And for sure, we also have some shortages in our production and the pressure customer side is very much on the on the compact engines, and in some cases, capacity goes more into compact engines activities.
But maybe one key figure to add also, I mean we talked a lot about book-to-bill. And we do have overall the book-to-bill of 1.35. But if you also look at our customized solutions ratios, we also have here a book-to-bill which is above 1.3. So the outlook on that segment is, I would say, equally positive as the outlook of the overall business, just to give you a comfort on that. There's nothing we are deprioritizing. We have to follow a little bit the market, but the pull comes here now going forward in a similar fashion.
[Operator Instructions] The next question comes from the line of Charlotte Friedrichs with Berenberg.
I have one follow-up question about raw material shortages, et cetera. And if I recall correctly, you said at the beginning of the year that you think it's about 10,000 engines that you could have produced in the first quarter if there hadn't been the shortages. Is that still the case? And what do you expect now that you're going into Q2?
Yes. That's right. I think the effect on the first quarter around 10,000 engines. And now our outlook for the full year of this 140,000 to 155,000 could be, for sure, higher if there would have not been restrictions by the supply chain. I think it would have been -- it's difficult to say just multiply it by 4. That's maybe too high the figure. But I think for the full year, if there would have been no constraints, maybe 20,000 more could be possible for the whole year.
I mean it's nicely reflected in the book-to-bill ratio. It's not that we're holding back production because we want to push book-to-bill high. I mean that's not a self-purpose at all. So in the end, the way -- we want to give us and you the confidence that the demand is there, and not only demand, but even firm orders. And clearly had we been able to receive more of components, raw materials, et cetera, we wouldn't have such a high book-to-bill ratio, but we would have had higher revenues and probably the same volume of new orders or even slightly more.
The good thing is that we will not lose these engines. So this will end up in a higher or a longer upward trend.
And I may have missed this because I dialed in a little bit late. But with regards to the conversations that you're having with your customers at the moment, do you get the impression that Q1 had a lot of pull-forward effects that you're now seeing, to some extent, reverse in the second quarter?
No.
No. Not really.
Not really. We still -- if we look at the current trading, I mean, April as well as what we currently see for May, this pattern continues.
The next question comes from the line of Hans-Joachim Heimbuerger with Kepler Cheuvreux.
Yes. So this was also my question, whether you are seeing customers placing orders more or less twice to ensure supply. But the second question which was not yet answered is, generally, when you look on China and the profits you generate within China, how easy is it to transfer these profits to the outside, so that more or less DEUTZ Group and the shareholders [indiscernible] you can pay them out as dividends.
Yes. So Heimbuerger, that's obviously a key precondition for us to grow in China that we are able eventually when we want, when we need to transfer the money to the parent company and the mechanisms put in the contracts between us and the joint venture partner, SANY in particular, allows fully for the -- for dividend payments towards the parent organization. And then we need to obviously go through the coming months and years in order to generate the profits to really prove that it's possible, but we have -- we are here in constant -- or we have it diligently checked by our -- also by our local legal department that this is possible. We're pretty confident that should be no harm to get the money out to the parent company.
We have a follow-up question from the line of Frederik Bitter with Hauck & Aufhäuser.
Yes. The one I [indiscernible] to pose anymore, was really obviously noting that Dr. Müller has become or will become CTO now, and I think we met him, 2018 was the last Capital Markets Day also and really had a good impression from him, very ambitious. But just what will be his main tasks and his main focus in this role? Why did you create it? What he will be focusing on? What initiatives you would like to push? That will be super interesting to know.
Yes. I think we are a technical company, and for sure, technical topics were always in focus within the past. But right now, coming up with all, I would say, alternative solutions, talking about hydrogen and electrification, so this was more or less the decision to place an additional Board member, having a clear focus on the technical -- on the technical things. So there are a lot of new projects going on. And also, the acquisitions we made within the last years, Torqeedo, Futavis, all technology-driven companies. So he will take care about all these topics and to bring new technology in serial production. That's his main focus.
Maybe as an add-on. And obviously, you're not -- I'm sorry -- maybe as an add-on. Like given obviously fairly moderate leverage level -- financial leverage level of the company, is it fair to assume that you will foster more cooperations, strategic stakes in entities, maybe acquisitions even on that front? Or will it be more, say, internal efforts, if you want?
It's both. It's internally, for sure, we have electronics and mechatronics plays a completely different role than in the past. So I would say these are internal topics. But also, as an example, our cooperation with John Deere, which we build it up within the last year or last 2 years, this is also a topic, and we have further discussions. What we also see is that there will be further consolidation especially looking into combustion technology. And also here, these are topics which will be driven by Markus Müller.
The next question comes from the line of Roland Könen with Value-Holdings.
Yes. Only one regarding the efficiency program and your targeted savings of EUR 100 million from the end of 2022. Could you elaborate a bit on the run rate for this year and 2021? How much of this EUR 100 million do we see in this -- here and the next year? And from today's point of view, what will the real net savings effect? As you were saying, this is a gross annual cost savings target of EUR 100 million.
Okay. Yes, sure, we can do that. As you said, we're talking about gross cost savings by the end of 2022 of around EUR 100 million. We compare this always with the baseline 2019 on -- in order to have our first [ quarter ] stable baseline and also have a sticky capacity utilization of 190,000 engines here set in stone in order not to have moving targets. Well, what can compare -- we can divide that mainly and roughly 40% is a decrease in staff costs, but also -- and that the other 60% were -- it's about reducing operating as well as warranty costs. And then -- the -- we currently see this EUR 100 million, we see very, very positive that this will be achieved, with a bit of luck and hard work, potentially even a little earlier, but that's something we need to -- obviously, we need to obviously keep working on that. When we talk on -- yes, the majority, I think, in terms of people, that's also quite relevant for you probably that we're talking about -- we have succeeded a lot with our redundancy program. We have in total agreed with 361 employees as part of this Transform for Growth redundancy voluntary program that they leave the company. And as of March 31, some 100 employee have already left. And by the end of this year, in total, 170 employees out of that program will have left the company. So then you see -- you will see that a significant part of the personnel cost savings will already be achieved by that part -- by that point in time. So in total, we are well on track with the run rate on -- of that program, and we'll keep up -- we'll keep you updated on a regular basis where we stand there.
[Operator Instructions] There are no further questions. So I'll hand back to Christian Ludwig for closing comments.
Well, thank you, everybody, for joining the call today. Should there be any follow-up questions after call, don't hesitate to contact the Investor Relations department. We're happy to answer any questions you may have in the meantime. With that, I wish you a good remainder of the day and talk to you at the latest with our H1 results in August. Good-bye.
Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.