Saf-Holland Se

XETRA:SFQ

Q1-2025 Earnings Call

[Operator]

Dear ladies and gentlemen, welcome to the SAF-Holland SE Q1 2025 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.

Anything spoken through the unmuted microphone will be processed through 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 the Q&A session and keep the microphone muted. The Q&A session is exclusively for institutional investors and analysts. All other participants of the conference call are kindly asked to contact the Investor Relations team directly if they have any questions. Mr. Geis, the floor is yours.

[Alexander Geis, executive]

Thank you. Good morning, everyone, and welcome to our conference call on our Q1 '25 results. Let me please start with some recent strategic highlights on Page 3. So we are very proud to have presented our new drive2030 strategy at our Capital Markets Day at the end of March. The drive2030 strategy is based on the 5 strategic pillars of customer focus, regional strength, technology as a core enabler, leverage portfolio and drive growth, and operational excellence. And this is underpinned by the 2 cross-cutting themes of people focus and sustainability.

In the coming years, we intend to grow more strongly through specific strategic initiatives in addition to the underlying growth of the commercial vehicle market. The positioning as a system supplier will be pushed and the aftermarket business will be strengthened through digital solutions and further expansion of our service network globally. Another focus will be on adapting products to new application areas, e.g., by selling the Haldex air disc brakes in the truck and bus sector.

But we also see growth potential outside the traditional trailer and truck business. In future, a significant sales contribution will be generated with customers from related industries such as agriculture, mining, construction and the material handling sector. So we expect gross sales to be more than EUR 3 billion in 2030, combined with a strong adjusted EBIT margin of between 10% and 12%.

A first strategic step within drive2030 was the takeover of the remaining 40% stake in our Indian joint venture with the ANAND Group. With this, we were able to better utilize the Indian growth prospects going forward. Among other things, the cooperation with our Indian subsidiary, YORK, is to be intensified with regard to the sales and distribution network to better serve our customers. So also here, we are bundling systems now. In addition, the complete takeover simplifies the localization of the entire Haldex product portfolio in India, such as trailer ABS and also air disc brakes.

Let's move to the next page please to see the financial highlights for the first quarter. So the past quarter was characterized by continued weak end markets. In figures, this means that our group sales fell organically by 14%, which was partially offset by acquisition-related effects and ultimately reached EUR 449.2 million, which is around 11% below the prior year. Nevertheless, despite significantly weaker OE markets, we were able to maintain our profitability on a solid level with an adjusted EBIT margin of 9.5%, while the adjusted EBITDA margin improved to 13.3%.

Moreover, we were able to achieve a strong operating free cash flow of plus EUR 8.2 million in Q1 despite a lower top line development. And our leverage remains at 1.9x. So in a nutshell, SAF-Holland was again able to demonstrate the resilience of its business model in a challenging market environment.

Let me continue with the group sales and adjusted EBIT development on Page 6. You can see that the group sales in the first 3 months of '25 continued to be impacted by slow commercial vehicle markets in all 3 regions. Recently, the North American OE market was affected by the uncertainty caused by the trade policy discussions, which was also impacting the demand in the APAC region. I will come back to this shortly. Accordingly, OE sales were 14.8% below the previous year's level, which ultimately resulted in organic sales decline of 14% year-over-year.

In contrast, acquisition-related sales from Tecma and Assali Stefen contributed EUR 12.7 million to top line. Hence, sales in the first quarter declined by 11.1%. And accordingly, adjusted EBIT in the first 3 months of the year decreased by 12.1% compared to the previous year's level, resulting in an almost stable adjusted EBIT margin of 9.5% and our adjusted EBITDA margin increased from 12.6% to now 13.3%.

Coming on the next page to the sales split by region and customers. So due to the last year's acquisitions of Tecma and Assali Stefen, the sales share of the EMEA region remained almost stable with 48.7%, while the OE market continued to be slow. The Americas region was affected by the weaker trailer and truck market and contributed 39.3% to group sales. Moreover, due to the softer demand in the APAC region, which I will explain shortly, the APAC share decreased slightly to now 12%.

And now looking at the split by customer group. In total, sales from the OE business decreased by 14.8% year-over-year to EUR 279.6 million, which was due to the weaker commercial vehicle markets worldwide. Accordingly, the trailer OE segment accounted for 49.1% of sales in the first quarter, while the truck segment, of which a major share comes from the Americas, was impacted by the uncertainties around tariffs, economic outcomes and inflation. In contrast, you can see the aftermarket business decreased only by 4.4% to EUR 169.6 million. However, it continues to be a resilient pillar of the SAF-Holland business model. And as a result, the aftermarket business were 37.8% of sales in total.

Coming to the EMEA region on the next page, please. So you can see that the top line development in the EMEA region remained slow due to a softer development of the trailer market that is expected to have declined between 25% to 30% year-over-year. Hence, our sales fell organically by 16% in Q1. And as mentioned before, moreover, the recent acquisitions of Tecma and Assali Stefen came in with a sales of EUR 12.7 million in the first 3 months of the year. Despite that, the aftermarket business continued to develop very robustly in that region, in EMEA. And therefore, based on the lower top line development, the adjusted EBIT margin declined to 7.5%, but was also negatively impacted by the higher depreciation ratio due to the recent acquisitions in '24 as well as a onetime FX effect. And while comparing with Q4 last year, please keep in mind that the margin was positively impacted by a reallocation of intercompany charges for the last quarter of '24.

Coming to the Americas. You can see that besides the cyclically lower commercial vehicle markets in North America, demand for the truck and trailer as well as the respective aftermarket business was negatively impacted by uncertainties around tariffs, economic outcomes and inflation. So specifically in the aftermarket, we had some dealers that were really cautious in ordering new spare parts. So we could see a slight decline in aftermarket orders coming in here. Accordingly, sales declined organically by 11.2% in the first 3 months of the year. But nevertheless, adjusted EBIT remained strongly in the double-digit percentage range and benefited from a strict cost management as well as efficiency improvements in the production facilities. And as a result, the adjusted EBIT amounted to EUR 20.1 million, which corresponds to an improved margin of 11.4%.

Coming now to our third region, which is the APAC region on the next page, please. So specifically, the recovery in the Indian trailer market, that emerged at the end of last year, has unfortunately not continued in 2025. This is due to the uncertainties around U.S. tariffs as well as more difficult financing conditions for our fleet operators and trailer manufacturers. In addition, the mining business in Asia and Australia was weak and the commercial vehicle market in China declined slightly. Accordingly, sales in the first 3 months of '25 amounted to EUR 53.9 million and was 15.3% below the previous year, which means an organic decline of 14.8%. Looking at the bottom line, we were able to hold a solid profitability level with an adjusted EBIT of EUR 6.2 million or 11.4 percentage points.

And having said this, I hand over to Frank for the key financials for Q1.

[Frank Lorenz-Dietz, executive]

Yes. Thank you, Alex, and hello to everybody on the line. As usual, I will start with a short overview on the EBIT to adjusted EBIT reconciliation for the group on Page 12. Our reported EBIT for the first quarter '25 decreased by 17.3% to EUR 35.9 million. We benefited from solid operational performance despite a decline in group sales, but it was negatively impacted by lower coverage on depreciation, amortization as well as sequentially higher PPA amortization and transaction costs. In total, restructuring and transaction costs adjustments amounted to EUR 0.9 million, mainly from the integration cost of Tecma and Assali Stefen.

The depreciation and amortization from purchase price allocation was as usual adjusted and amounted to EUR 5.9 million and hence, slightly increased compared to the prior year, again, due to the acquisition of Tecma and Assali Stefen in the second, respectively, third quarter 2024. Adjusted EBIT reduced by minus 12.1%, almost in line with the top line reduction and so the adjusted EBIT margin almost reached the prior year level. Moreover, due to the solid operating performance, adjusted EBITDA reduced only by 6.4% and resulted in an improved adjusted EBITDA margin of 13.3%.

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 35.9 million for the first 3 months of 2025. Unfortunately, due to the weaker U.S. dollar compared to the euro, the final result in the past quarter was influenced by unrealized exchange rate effects, which I will explain you on the next page shortly. In addition, income taxes declined in accordance with our top line development, but were impacted by noncapitalized deferred tax assets and interest and loss carryforwards as well as the application of the global minimum taxation regulation. Thus, the overall tax rate amounted to 35.1% for Q1 2025. Overall, reported EPS was impacted by the lower top line development as well as the unfavorable development of the finance result in first quarter.

Let me shortly explain you the reported effects from unrealized FX valuations for the reporting period on Page 14. The finance result amounted to minus EUR 15.3 million during first quarter. Although the financial result was impacted by interest expenses from interest-bearing loans of approximately EUR 8 million, which is in line with our forecast for the full year, we saw strong unrealized currency effects, mainly from intercompany loans at the closing rate, which mainly relates to the weaker U.S. dollar. The U.S. dollar alone caused a negative unrealized FX effect of minus EUR 7 million during the first quarter. Against this development, the Brazilian real as well as other currencies in total had a positive effect of around EUR 1.2 million. So in total, the negative unrealized effect remains minus EUR 5.8 million. In comparison, in the first quarter '24, we had a positive effect on the same positions in the amount of plus EUR 3.6 million.

I'd like to emphasize once again that unrealized FX effects are pure valuation effects, not possible to forecast, but do not have an impact on our cash flow. Nevertheless, we are introducing or have introduced several mitigation measures in order to minimize those fluctuations. In general, these FX effects are based on different topics. For example, there is a legacy cash pool within the Haldex entities. As part of the Haldex PMI process, this one will be transferred into the new SAF-Holland cash pool, which will be completed by the end of this year at the latest. In addition, we are going to reorganize our intercompany financing in order to mitigate those effects. Nevertheless, this will take some time, but you can expect this to be finalized in the second half of the year.

Moving to Page 15, where you see the development of the equity ratio. Compared to year-end '24, equity improved by 2.3%, respectively, EUR 12.3 million, to EUR 539.4 million, mainly due to the result of the period. Since the balance sheet total grew only by 1.1%, equity ratio improved further to 31.2%.

Turning to Page 16, I would like to speak about the net working capital development. Net working capital increased by 6.5% to EUR 310.1 million compared to the end of 2024. The increase of net working capital positions was mainly seasonally driven while we were able to keep the net working capital comparatively low, both for inventories, but also trade receivables. As a result, net working capital ratio amounted to 16.9% of sales and was in the target corridor for 2025 of 16.5% to 18%. In addition, factoring amounted to EUR 42.3 million at the end of March '25.

And now let me address the cash flow development on Page 17. Net cash flow from operating activities in the first quarter amounted to EUR 16.4 million and was positively driven by the lower cash outflow from better net working capital performance in Q1 compared to the prior year. In addition, paid income taxes declined along the lower top line development in previous periods. Moreover, investment in property, plant and equipment and intangible assets amounted to EUR 8.6 million, which corresponds to 1.9% of sales.

Those investments mainly focused on the further automation and modernization of production processes as well as on the preparations for the new plant in Rowlett, Texas, as well as the capacity expansion for air disc brake and fifth wheel in Düzce, Türkiye, where we had our opening ceremony for our second plant last week. Hence, we achieved a solid operating free cash flow of EUR 8.2 million already in the first quarter this year.

Moving on to an overview of the leverage development on Page 18. Based on our positive operating free cash flow performance, net debt remained almost at the same level as at the end of 2024. Within the net debt, we were repaying EUR 69 million in financing, due in March, as planned, from our own funds, and included refinancing measures in the amount of EUR 39 million. Overall, the net debt-to-EBITDA ratio at the end of March remained stable compared to end of December '24 and amounted to 1.9x.

Having said that, back to you, Alex, for the outlook and closing remarks.

[Alexander Geis, executive]

Yes. Thank you, Frank. So everybody, I'm on Page 20, showing the fiscal year 2025 forecast for the trailer and truck markets. And as you can see, as the truck and trailer markets have been affected by uncertainties regarding import tariffs, economic developments and inflation in recent months, an adequate forecast for the current year is only possible to a limited extent.

As of today, we expect a weaker development in the Americas region as well as in India, especially in the first half of the year. Accordingly, we currently expect both the truck and trailer markets in North America to be 10% to 20% below the previous year's level, which is also based on the uncertainty around the introduction of the new emission regulation for trucks in '27. Hence, we currently do not expect a prebuy effect in '25.

We also expect the commercial vehicle market in Brazil to develop in the range of 0% to minus 5% due to more difficult financing conditions. In India, as described before, trailer production is expected to also develop in the range of 0% to minus 5% compared to '24. Our market expectations for EMEA and China remain unchanged. In EMEA, we currently expect the recovery to start in the second half of the year. And I can report here that we also see some good signs in the second quarter of this year. Even though we currently face a lot of geopolitical uncertainties that might impact the global commercial banking market, you should be aware that SAF-Holland is well equipped to react quickly and efficiently.

Having said that, that brings me to the guidance for '25 on Page 21. So basically, our guidance remains unchanged for all KPIs. If the markets perform as explained before, we assume our group sales to come in between EUR 1.85 billion and EUR 2 billion. We have set up a comprehensive action plan to compensate for any potential negative effects in the short term, including production and supply chain adjustments or price adjustments, means we feel comfortable with our profitability guidance and continue to expect an adjusted EBIT margin between 9% to 10%, and the CapEx ratio to remain up to 3% of group sales.

Let me conclude the presentation with some key takeaways on the next page, please. So although the global commercial vehicle market is currently subdued, we were able to achieve a solid first quarter, also thanks to robust aftermarket business. And with a margin of 9.5%, we almost reached the previous year's level and we're even able to further expand our adjusted EBITDA margin, thanks to our operational strength. As a result, we achieved a solid operating free cash flow, and we were able to further improve our financial profile. So SAF-Holland already proved last year that it's resiliently positioned and will also master the current challenges in 2025.

So ladies and gentlemen, this concludes the presentation. We can now start with your questions. Operator, the first question, please. Thank you.

[Operator]

[Operator Instructions] And the first question comes from Yasmin Steilen, Berenberg.

[Yasmin Steilen, analyst]

I have 3, if I may, and I will take them one by one. So the first one on the guidance. I just tried to get my head around the unchanged guidance, in particular on top line, while you became more cautious on the U.S. trailer market and much more cautious on the U.S. truck market. So maybe you can walk me through what are the offsetting effects just to remain confident on the guidance? That's my first question, please.

[Alexander Geis, executive]

Yasmin, good morning. This is Alex speaking. As I mentioned before, we already see some really good signs in April and May order intake for specifically the EMEA OE markets, and this is basically mainly the OE trailer market looks very promising. So we were fully booked in April, we were fully booked in May. So we did not do any 3 days short time work, which we used to do in the first 3 months of this year. So we couldn't do that because, as I said, booked out. Good order intake for both, not only for the SAF product family, but also for the Haldex product family.

Please don't forget, in that godown, we not only produce the trailer air disc brakes for SAF, but also our very big customers in the trailer industry, having their own axles. And we are quite happy to report now that we see a good order intake and also sales already in April and in May. And so the recovery in the EMEA market could come earlier than expected. We expected that in Q3 and in Q4. So also Q2 is quite good. Aftermarket development is quite robust, and we have some projects coming along, specifically some unusual product groups like swivel axles, low-bed axles coming in Q3 and Q4. This makes me very, I think, looking promising that we are going to achieve our guidance for this year.

[Yasmin Steilen, analyst]

Okay. Perfect. Maybe just to follow up, could you share some more color on the other regions as well in terms of order intake and development. So basically, your indications on the EMEA market were also kind of confirmed by Knorr-Bremse today. So they were also referring to surprisingly robust development in the truck market. So maybe you can just give me more color also on your order intake development dynamics on the EMEA truck side? And then also with regards to the other regions, that would be highly appreciated.

[Alexander Geis, executive]

Well, you know that the main portion of OE business in EMEA comes from the trailer business. Truck business is not as strong as it is in the U.S. In U.S., it's like 50-50 roughly when we talk truck and trailer, both OE. The truck market in Europe doesn't look bad, I have to say, okay? So we get orders in. We started last year supplying the first truck OE manufacturer in Scandinavia with our air disc brakes for their trucks. Orders are coming in. We get some new inquiries from other truck manufacturers coming in. So our fifth-wheel business is developing okay, I have to say, in air disc brake business also. So I'm not worried about the truck market in Europe, I have to say.

Now jumping to the other region. The second biggest region is Americas. Aftermarket was paused a little bit in March due to the tariff uncertainty. So people were holding back with orders. We didn't ship as much as we thought we would be shipping. But I'm pretty sure that in the course of the second quarter, all tariff discussions will be going away and the government is releasing, let's say, all the tariff issues for the better.

Our U.S. truck was also not too bad, I have to say. Orders are flying in for both fifth wheels, which is our biggest product portfolio there, but also for suspensions for the trucks. On the trailer side, we still have to say that specifically the container chassis market is still dead. So there was last year already nearly minus 60%, minus 70%. It's still the case. So everybody is holding back with new investments. So the trailer is weak, truck is okay, I would say, and aftermarket is also okay.

And now jumping to the APAC region. Well, China doesn't play a big role for us, which is sometimes good, sometimes bad. But here we are profitably now in our both plants. We're having the old SAF plant and the old Haldex plant. So they are both doing good with sales and profitability. India at the moment has the biggest market for us in APAC. The investments are all back, specifically in the mining sector, because there is less demand for all the products coming from the mining, and also the financing at the moment is a little bit of an uncertainty. And Australia, they were waiting for the election. Election is done last weekend. So the old party is still new party which is in power, which is a good thing. Also here, I have to say nothing specific to worry except India is struggling at the moment a little bit.

[Yasmin Steilen, analyst]

Yes, that's very helpful. And just finally, a housekeeping question. Is there any specific reason for the 16% year-over-year and 7% sequential increase in factoring? And what should I expect for the remainder year? That's my final question.

[Frank Lorenz-Dietz, executive]

Yes, I can take this, Yasmin. Last year, we did factoring more in a kind of spot factoring procedure. Now we implemented it as a sustainable running factoring, as it has some benefits as well in terms of financing costs. And the EUR 40 million you have seen in this quarter is basically a running level that you can assume as a stable level for the year.

[Operator]

And the next question comes from Jorge González Sadornil, Hauck Aufhäuser Investment Banking.

[Jorge González Sadornil, analyst]

I also want to make you some questions on the different regions and the trends. Sorry if it's a little bit repetitive. The first one is on the aftermarket. So it went down around 4% in the quarter. And I was wondering if there is a specific reason for this, if there is some lower stocking levels at the dealers, or if the comparable was too high last year? Is there any event here that we are missing? Because if I'm not wrong, you were expecting a stable development for the year. Is there any change to this, please?

[Alexander Geis, executive]

Yes, absolutely. So if you see, well, basically, we do not report the aftermarket numbers for the specific regions. But what I can share is in EMEA, the aftermarket was quite stable. We got a little bit of a decrease in aftermarket sales in the first quarter in the Americas region and here specifically in the United States. So Mexico was still running, Canada was running, South America anyhow. But in the U.S., the dealers were holding back.

And if you compare Q1 '24 in the aftermarket versus Q1 '25, it was a very strong aftermarket quarter also in '24. So we are comparing a very strong quarter last year to a little bit weaker quarter in this year. And so we did a little bit less sales in the aftermarket. And the only reason was that the dealers were a little bit cautious because of Trump announcing the tariffs, specifically for China and other regions or other countries. And they were watching their net working capital and inventories and basically reduced their levels of inventories by like 2 weeks or something like that. That's the main reason. I personally talked to 3 of the top aftermarket dealers in the United States, and they just said nothing to worry. We're just reducing a little bit of inventories.

[Jorge González Sadornil, analyst]

Okay. I see. And then on the specific regional guidance or market numbers, I think you said that you are expecting, when you were referring to the new numbers in North America, and I want just to clarify if this is your numbers or ACT research numbers, or...

[Alexander Geis, executive]

This is a mix of our numbers and also external data and sources and we put that together. [indiscernible] negative, okay? We don't trust the numbers. They are always too negative. So this is a mix between external sources and our internal knowledge and our talks with our customers.

[Jorge González Sadornil, analyst]

Okay. That's interesting because I was going to comment you that the trend in trailer for North America looks positive in comparison to the truck. It started really bad on a bad note. But in March, specifically, it was quite strong. So yes, I was going to ask you if you are not seeing some improvement, because I think the accumulated demand in North America for trailer is around 10% down, but in the last 2, 3 months it's clearly somewhat like kind of a switch between truck and trailer with dealers cutting CapEx, but maybe investing a little bit more into trailer. Are you not seeing also this trend?

[Alexander Geis, executive]

We see this, I wouldn't say the last 3 months, but the last 2 months. So in April and in May, we see this. There's a slight improvement, but still on a very low level. And specifically, I mentioned before, the container chassis market, which is also our business with all the slide boxes we are selling. There is a recovery, because it was already down, as I mentioned before, 60%, 70% last year.

First quarter, it was down by nearly -- it came to a still stand. We see recovery. We get more orders in and new inquiries, which is pretty good. And there are some bigger tenders now on the market. But it's too early to say that Q2 will be like a hockey stick. I'm not saying this. A slight improvement. We think there is a slight improvement in Q2 and a much better improvement in Q3 coming.

[Jorge González Sadornil, analyst]

Okay. And my last one is maybe 2 questions in one. So taking this into account and that you're basically drawing a more conservative scenario in your original guidance for North America, but not more optimistic in EMEA. And I think the tone was that things are improving a little bit. Why you have not changed the EMEA guidance? I know it's the most important ones maybe. And what do you see -- now with this picture, where do you see the guidance more at the lower end or still at the midpoint?

[Alexander Geis, executive]

Jorge, to be honest, it is too early to say. When Trump announced all the tariffs, with this overview of the different countries and everything, we had to do our internal work. Also what does it mean as an impact. Lucky us, we have a very good production network all across the NAFTA region with Canada, Mexico and the U.S., so we can shift around that. It is at the moment too early to say. We typically report -- we stay cautious. We also would like to stay cautious today.

Hopefully, Washington, D.C. is bringing some light into the tariff situation in the course of the second quarter. This is what we're expecting, and also our people in the U.S. are telling us. It's simply too early to say. If there is a positive trend continuing, then of course, we would like to update our guidance in Q2.

[Operator]

The next question is from Nicolai Kempf, Deutsche Bank.

[Nicolai Kempf, analyst]

It's Nicolai from Deutsche Bank. Two, and I will also raise them one by one. Maybe again, staying in the U.S., there have been a lot of talks about tariffs. Now there are also some tariffs considered to the truck industry. But I think you should see an impact from higher tariffs on steel and aluminum. Can you just give some color how this could impact you in Q2 and maybe going forward? That would be my first one.

[Alexander Geis, executive]

Yes. We don't see that impact in aluminum or steel, because we buy in North America for North America. So we don't buy any products coming from Europe nor from China. So our impact is very limited. When you see the rest of the portfolio, it's also quite limited because we have a dual or triple sourcing strategy. And so basically, our teams are not allowed to buy a product from 2 suppliers out of the same region or the same country due to risk mitigation, and we just shifted it around. So our impact is quite limited. There is a little bit of an impact, but we were able to also already give some price indications and price adjustments to our customers for this small percentage of higher costs coming from those tariff situations. We reacted and also [indiscernible] extra cost to our customers in all 3 segments, trailer, truck, and in the aftermarket.

[Nicolai Kempf, analyst]

Okay. Understood. And you mentioned the comments about the U.S. truck industry, that you did good orders in April actually for fifth wheels. Just wondering because the overall order intake for April for trucks was very soft. So was there maybe a specific segment or a specific effect that actually drove your rather good numbers in April for the U.S.

[Alexander Geis, executive]

I didn't say great or good. I said okay numbers. So it was okay for us. We have the broadest product portfolio with all fifth wheels we are doing and other components we are supplying to trucks. So we are not only supplying fifth wheels, but also truck suspensions, our new way product line, which is for off-road, heavy-duty and specialty trucks. And so we got some good orders, not only for fifth wheels, but also for other components, pintle hooks, truck suspensions. So the broad range we are doing also from the Haldex portfolio, which was okay. It's not super, surprisingly. It is okay.

[Nicolai Kempf, analyst]

But okay is still better than what we see for the broader industry, which was very soft. So it sounds better than the overall industry.

[Alexander Geis, executive]

Let's say it's better than the overall order intake for the truck industry.

[Frank Lorenz-Dietz, executive]

And if you compare to first quarter '24, we need to remember that we had first quarter '24 good sales, but already lowering order intake, because we went into this decline for the second half last year. And comparing this also, you see that it's okay.

[Operator]

[Operator Instructions] And we have a follow-up question coming from Jorge González Sadornil.

[Jorge González Sadornil, analyst]

One question on the emission standards, new regulation in North America from '27. You mentioned that you are not expecting pre-buys anymore in '25. Do you have a view when the government is planning to announce anything regarding the EPA '27? And if you see any haircut or the cancellation of it?

[Alexander Geis, executive]

Well, I wish to have a call with Mr. Trump to tell me when this is coming or not. Unfortunately, he's not answering my phone calls.

[Jorge González Sadornil, analyst]

He is too busy. You know better.

[Alexander Geis, executive]

Yes, we don't know. We plan for the worst. If it's coming, better; and they are still implementing the new Euro norms by 1st of January 2027, even better for us, because typically, whenever a new emission standard is in place or coming, we have 18 months of prebuy. So basically, then '26 would be very strong. And since all the truck manufacturers could not then supply all the orders within '26, we expect normally that the last 6 months of '25 also would then see a really good increase in orders coming from the truck manufacturers. We are planning for both scenarios. So we have sufficient capacity.

Frank mentioned that we are now in the process of finishing our new production facility in Rowlett in Dallas area in autumn of this year. We can then, if needed, close the old facility, move everything to the newer one. We can keep both if it's needed, okay? And we still have, or we have now for more than 1 year, our brand-new fifth wheel facility in Piedras Negras across the Texan border on the Mexican side. So we are ready to whatever scenario is coming. At the moment, we are playing that emissions might not come. If they are coming, we are ready, which would be even better, because then '25 would be even better than expected. To be honest, it depends on the U.S. government.

[Jorge González Sadornil, analyst]

Okay. So there is no any specific date when there could be an announcement or any specific time frame for giving an answer.

[Alexander Geis, executive]

We think the tariff situation will be solved in Q2. But for the emissions, we don't have precise data when the government is deciding this. But if they are going to decide, I'm pretty sure they are investigating everything thoroughly and then they come to the conclusion. If they are deciding too late, that the truck manufacturers cannot build all the orders in '25, '26. So my personal opinion would be that they are also coming within the next 3 to latest 6 months with that decision. But this is just my guess.

[Operator]

The next question is from Miro Zuzak, JMS Invest.

[Miro Zuzak, analyst]

I have 2 at the moment. I would like to take them one by one. The first one is regarding the cost lines and cost development. You mentioned that -- obviously, you have the production footprint in the U.S., but also in Europe, we still have the effect of some new tariff agreement, which will kick in during the course of the year. On a like-for-like basis and maybe focusing on wage costs, how much do you expect the wage cost to be higher for the group now in 2025 compared to 2024? On an all else equal basis, the wage increases?

[Frank Lorenz-Dietz, executive]

Yes. Thanks for the question. I can take this. If you look into our footprint, we have our main production in Germany. So that was a quite okay agreement starting with a small wage increase in April. What is okay for us, the internal target is always to find productivity ideas to offset wage increases and overall in our P&L. Salary, it has not a really big impact. So we don't expect a big pressure or something that you would note in our P&L. And same applies for the other big market, Americas. As Alex mentioned, we opened our new facility in Mexico, having a good answer on wage increases in the U.S. So overall, I think this is nothing that makes us nervous. So it's all under control.

[Alexander Geis, executive]

It's priced in.

[Frank Lorenz-Dietz, executive]

It's all in. So no surprise expected.

[Miro Zuzak, analyst]

Okay. Cool. Then the second question would be, basically, you mentioned that you expect in H2, or even Q3, a significant acceleration of your top line. Could you please tell me what -- because there is a lot of uncertainty at the moment. We hear basically across the board, we hear that there is softness everywhere where you look. The person who asked the question before told about the Class 8 order intake, which is, I think, down 50% in April. So what is your bullish statement for Q3 and Q4 based upon? I mean I understand European trailer, you mentioned that one, but maybe you can repeat again what are the tangible signs that you see that would hint towards an acceleration in Q3 and Q4?

[Alexander Geis, executive]

Well, Miro, I didn't say there will be a hockey stick in Q3. I said that there will be a recovery in the trailer segment. And I also reported that we already see -- when we see the order intake for both the SAF axles in April and May and also the air disc brakes for trailer axles -- for other trailer axles in the market, that we got an increase of orders coming in, which is a good indication for both, that first of all we are keeping our market share or even increasing our market share in Europe for SAF axles and suspensions, but also the indication for, let's say, the 2 big trailer manufacturers who have their own axle, they also run mainly on our air disc brakes. So they're sending more orders and more orders, and they wouldn't do that if they are not confident that they have also their order book filled within the next 6, 8, 10 weeks.

And we speak to everybody and see that a lot of people, specifically also in the DACH region, were waiting for the German government to come into power. So knock on wood, they are now, since yesterday, in power. They're going to change and there will be a fresh wind coming. So we see the mood of our customers, both our OE customers, trailer manufacturers, but also the fleet owners, it's getting better. And this is a very good indication that the market is coming. And combined with our order intake in April and May and also our production output for April and May, I'm quite confident that Q3 will be -- there will be a recovery in the trailer market here in Europe.

In Asia, we are working very hard to get more market share and specific projects kicking in. And I also mentioned that I hope and see that the trailer market in U.S. is slightly getting better. So to summarize, we think second half of the year will be better than the first half of the year, but it's not like a hockey stick. So we're not doubling our sales, but it will be much better.

[Miro Zuzak, analyst]

Okay. And just a third one, if I may, regarding the gross margin, which was obviously super strong in Q1. And you wrote in your report that this is also due to the first-time consolidation of Tecma, the increase. Is this a level that we should assume also for the full year, the 23.4%. Because if I look at last year, you had 21.5%. And then with the consolidation of Tecma, it jumped by roughly 1 percentage points. You also mentioned 1 year ago the Haldex synergies. In other words, is the 23.4% a sustainable gross profit margin for the future?

[Frank Lorenz-Dietz, executive]

First of all, I think Tecma, if you look at the overall price of Tecma, Tecma consolidation cannot have a big impact on the complete group. It is maybe one small piece of it. Gross margin improved from the synergy from Haldex consolidation. We do have really a strong operational performance and productivity improvement. And also the improved aftermarket share is bringing us a big contribution on the gross margin. And having now almost 38% aftermarket share of total business, this is the main contributor for gross margin development. And if we would keep the sales structure, OE aftermarket in that way, this can be also a good sustainable number to extrapolate our numbers. If we get a stronger recovery in OE, mathematically, it's clear that the gross margin in the mix may get a little bit down, but overall, EBIT will improve.

[Alexander Geis, executive]

Yes. It's the mix, it's the product mix, because if you have less OE, which typically comes with a much lower gross profit than aftermarket parts, then you have a little bit shift. But of course, we're working hard in all regions to increase the gross profit and also to increase further our adjusted EBIT. I like single digit -- double-digit adjusted EBIT margins. We showed that we were able to bring that already last year. This is why we have our guidance between 9% to 10%, but we are working towards increasing also our margins, of course.

[Miro Zuzak, analyst]

Congratulations again. It seems like you're doing a great job in terms of customer wins and product-specific growth. Well done.

[Alexander Geis, executive]

Thank you.

[Operator]

[Operator Instructions] Okay. If there are no further questions from the audience, I would like to hand the floor to CFO, Frank Lorenz-Dietz, for closing remarks.

[Frank Lorenz-Dietz, executive]

Yes. Okay. Thank you, everyone, for attending the call and for your questions. The Investor Relations team is available in case you have any follow-up questions. We will potentially meet on the road in the next weeks and months attending conferences or roadshows. And I look forward to see you there in person. Thank you very much.

[Alexander Geis, executive]

Thank you, guys.