RENK Group AG (R3NK) Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to the Q3 2024 Results Analyst Call of RENK Group AG. [Operator Instructions] Let me now turn the floor over to your host, Ingo Schachel. Please go ahead.

Yes. Thank you, operator, and thanks, everyone, for joining our call today. You will have seen that we published our Q3 numbers this morning. Our documents are available on our Investor Relations website, and we're now hosting our Q3 results call with our CEO, Susanne Wiegand; and our CFO, Anja Mänz-Siebje. We also have our Chief Operating Officer, Alexander Sagel, with us today today. He will be available to answer your questions as well. But first, I'll first hand it over to Susanne to take you through our Q3 numbers.

Thank you, Ingo. Welcome from my side, from our side on behalf of my colleagues and the Board as well. Thanks for joining. We would start with Slide 4. I hope you can all see that. So on this slides, you can see a concise summary of a few key financial metrics and revenue splits. We have disclosed many of these metrics consistently in the past, so I would like to use the opportunity to tell you what has changed. Our total order backlog has reached EUR 4.8 billion, which is EUR 200 million higher than at the end of last year. Our last 12 months revenues, well above EUR 1 billion already and on track to reach around EUR 1.1 billion for the full year 2024. Our revenue growth, sorry, our revenue growth rate has accelerated to almost 20% strong improvement compared to the 10 percentage growth rate, which we have seen last year. In the revenue splits, you can see that our aftermarket share in Q3 has further increased by 3% points to 39%, which is a great development on that end, which has been a very gradual and sustainable improvement during the last 9 months. Furthermore, our share of revenues generated with defense-related business, so predominantly BMS and the Navy business and M&I exceeded 75% from the well-known 70% revenue split, which we had last year, thanks to strong growth in the VMS segment as well as in the Navy business. On the qualitative aspects, we can fully confirm that we had claimed in the previous quarter. We are the #1 player in our market, with a market presence of 75% of the installed base of platforms, and our book-to-bill was above 1 in the first 9 months of this year again. On Slide 6, I would like to begin with you with a summary of key highlights for Q3 2024. Overall, we are very pleased with our third quarter and reiterate our full year guidance. The key highlight for us is the strong revenue growth in the VMS segment, which accelerated to 48% and in quarter 3 this year. We are executing on record high order backlog. So supply chain challenges, and we have discussed this in the last 12 months, that we had during last year and also in the course of this year, were resolved successfully, and our product efficiency and output in Oksburg has improved considerably, thanks to clear operational efficiency measures that we have implemented and also explain to you in much more detail during our Capital Markets Day. Following the role model of our success in Augsburg, we have initiated earlier this year in Q2, improvement measures at our plant in Muskegon as well, and these are being bearing fruits in our operating KPIs already. In Marine & Industry segment, revenues remained at a high level with a slight sequential reduction compared to Q2, but in line with normal seasonal patterns. As we had already communicated, comes in the second half are more difficult than in the first. But for the full year, we are on track to achieving considerable growth in the M&I segment. Thanks to the operational improvement that we had achieved and despite higher investment in technology and R&D, we had narrowed our full year guidance. As you remember to the upper end with our Q2 results, which we presented in August, and confirm this view again. So revenue should be around EUR 1.1 billion, and the adjusted EBIT guidance now narrowed to the upper end is between EUR 175 million to EUR 190 million. In the midterm, we strive for an even higher profit level of EUR 300 million in absolute terms at an organic growth rate of about 15% as market growth is intact and our ability to execute is improving day by day. I'm flipping now to Slide 7, to go with you through our total order backlog development. So compared to the second quarter of 2024, we see a slight increase of EUR 31 million in the soft order backlog which leads to an increase of the total order backlog from EUR 4.7 billion to now EUR 4.8 billion, thanks to strong order intake again, at the VMS segment. In addition, the order pipeline remains very encouraging. You remember that we presented also during the Capital Markets Day, our market view on the pipeline, which is beyond in excess of our total order backlog and which shows in total a figure of EUR 12 billion, including the soft order backlog. And if you take the soft order backlog out, it's still above EUR 9 billion on bottom-up, developed and identified projects on which we are working until the early 30s. Fixed order backlog increased compared to the end of last year, which is also positive development. Backlog visibility is the highest in our VMS segment. This is in the nature of that business, of the fixed backlog about EUR 1.3 billion, which translate to about 70% of group fixed backlog is attributable to the VMS segment. So from the EUR 1.8 billion, about EUR 1.3 billion is attributable to BMS. That said, backlog in MNI has also grown as well and stands at more than EUR 400 million which is predominantly to a very large extent, Navy business. And this roughly 1/4 of the group fixed order backlog. This is up 2% points compared to Q3 last year. And this gives -- the Navy business healthy 2 years of visibility. Slight bearings is a more short cyclic segment. But even there, we had 30% fixed backlog growth over the last 12 months. And currently have more than 7 months of backlog visibility, which is in the nature of that business, a very comfortable situation going forward. The vast majority of our soft order backlog is relating to the VMS segment. We have a good long-term pipeline in the other segments as well. But due to competitive landscape, VMS projects are more likely to meet the strict soft order backlog criteria. We see a large volume of profitable business opportunities in the coming years, beyond the projects that we have included in our soft order backlog and in the total order backlog. I would like to now hand over to Anja for a more detailed look at our Q3 financials starting on Slide 8. Over to you, Anja.

Thank you, Susanne. Let us now have a look at the group performance for the third quarter of 2024, with a focus on our top line. We had a good flow of base orders during the quarter. Similar to Q1, we have shown that we are able to reach a book-to-bill not far away from around 1.0x, even without large orders in VMS. For Q4, we see a good order pipeline. Fixed order backlog has increased by EUR 100 million compared to the end of last year. Revenue growth reached a good level, thanks to strong growth at our VMS plans in Oxbo and Muskegan. Let me continue with a look at our profitability and our key metrics on Slide 9. Our Q3 adjusted EBIT came in moderately above the prior year level. After the first 9 months, our adjusted EBIT stands at EUR 112 million. As we anticipate a higher earnings run rate in Q4 2024, we reiterate our full year guidance of EUR 175 million to EUR 190 million. If you turn to the next page, we have a look at our VMS segment. Revenue growth in VMS continues to be a key highlight for us. From an already strong growth level in past year 1, 2024, growth accelerated further. Both of our key plans in which we produce transmission for military vehicles, Alpsborg and [indiscernible] contributed very nicely to revenue growth. Like in previous quarters, our aftermarket business grew at a higher rate than the new equipment business. The installed base is growing, and we are enjoying growing aftermarket business on the back of this. When you assess the adjusted EBIT development in this segment, we had already said on the Q2 call that the EBIT improvement should shine through with a time lag in [indiscernible] and we are confident in further margin improvement in VMS in the coming quarters. To be clear, the numbers of RENK Elksbook were very good in the third quarter and I would like to thank the team for a great effort. There is work to be done in the U.S., but we are confident that we can make it there too. Let me now turn to our Marine & Industry segment. For the M&I segment, order intake and revenues remained at high level, consistent with our target to generate considerable growth in the full year. In Q3 specifically, order intake and revenues decreased compared to the prior year's level due to the high comparable base in that quarter. The Q3 adjusted EBIT margin is at a very good level, close to 10% and only marginally below the first half year margin despite Q3 being a seasonally weaker quarter. For the full year, we still aim for a double-digit margin in that segment. [ AI ] improvement compared to the year 2023. We continue to take a disciplined approach on the margin quality of our civil business and this pricing discipline is paying off as well in terms of higher margins and higher backlog quality. Lastly, the slide bearings segment continues to experience strong profitability with solid revenue growth. Revenue growth reached a double-digit level again and exceeds typical growth rates in the capital goods sector. The segment management team has achieved capital efficient growth in the right area. Electrification is a key trend driving demand for e-bearings, for example, in generators. Beyond this, Demand for maritime bearings increased, too, and aftermarket clearly outgrew new equipment business in this segment as well. Margins also remained at a very pleasing level during the third quarter and even improved slightly compared to an already strong Q3 2023. Now our adjustment. Our adjustments mainly relate to the adjustments of PPA effects that are very customary across the industrial sector. In Q2, we had adjusted certain expenses related to our ramp-up performance improvement program. We have continued to incur expenses for this program during Q3, but slightly lower than in Q2. Capital market readiness costs decreased to zero after completion of the listing in Frankfurt in the first quarter. Let me continue with a detailed look at our net working capital development. In Q3, net working capital as a percentage of revenues increased by nearly 2 percentage points. This was driven by higher inventories and receivables, reflecting business growth. For year-end, it is still fair to model around 25% net working capital. In particular, we should receive advanced payments, and we are also working hard on reducing inventory level structurally. In the midterm, net working capital should decrease to 20% at group level and it is clearly one of my priorities as CFO to keep the team focused, motivated and able to reduce net working capital and improve capital efficiency. Moving on to our cash flow statement. Overall, many aspects of our cash conversion were good during Q3. Underlying CapEx was low, excluding Kinetic, and cash outflows for interest, taxes and other items, close to normal levels. The increased net working capital has been a drag, but overall, we were still able to generate a slightly positive cash flow in Q3. This is, despite the fact, that we have digested a cash outflow for a payment to our technology partner Kinetic in Q3, which is included in our CapEx number. For Q4, we expect a reduction of the net working capital ratio to around 25% -- Thanks to some prepayments that we anticipate to receive. Let me now hand back to Susanne, who will take you through our outlook for the rest of the fiscal year and give you an update on our strategic priorities for 2024.

Thank you, Anja. I will continue on what is that, Slide 17. Based on our solid progress in Q3, we reiterate our full year guidance, which we have narrowed to the upper end with the Q2 results. I said that already. We came originally from EUR 160 million to EUR 190 million and narrowed to the upper end of the EUR 175 million to EUR 190 million. On the top line, we expect around EUR 1.1 billion in revenues. Growth in the first 9 months was higher than the midpoint of the initial full year guidance had suggested. So we don't expect this close to abate in light of strong demand growth as well as operational progress. You recall that the revenue and the top line growth for us is predominantly dependent on our ability to deliver. So to execute orders and is not a reflection of the market growth, which we see more in the pipeline and the order intake side of things. Gross prospects remain good across all of our three segments and also in all regions, which we address. And please also keep in mind that we can generate higher revenues as our ability to execute, as just said, is much better than in the last 12 to 18 months. Supply chain challenges have been overcome. I'm really happy and glad that I'm able to say that here and operational improvements have been achieved, achieved significantly in the Oxford plant, specifically on the VMS side. and with good progress also in Muskegon, which is, at the end of the day, crucial for our profitability performance. We also reiterate our full year EBIT guidance for the EUR 175 million to EUR 190 million adjusted EBIT. Regarding our midterm revenue growth and respective EBIT targets, growth in the defense sector will last for longer. We discussed it several times, and we don't see any change on the market side. And again, our ability to also execute those orders have significantly improved in the last month. Hence, we have hiked our midterm targets and now expect 15% annual organic growth on the top line and an adjusted EBIT of about EUR 300 million in the mid-term. Flipping the page to Slide 18, I would like to conclude with some thoughts on the upcoming months of 2024. Our first priority this year was, as you know, the output increase at our main production plant in Augsburg in Germany during the third quarter as well as the month of October. We were very pleased with the progress there. We were also very pleased with the product mix we have seen in Augsburg on the VMS side, with the increased growth of our aftermarket share, specifically there which gives a good contributor to the overall EBIT performance for this year. The monthly run rate of production has been above 60 transmissions in September as well as in October. The adjusted EBIT contribution of the transmission unit and outlook was notably higher than in quarter 3 last year. We have increased the performance level in [ outsport ] and anticipate further growth from there. Our second priority is the operational excellence in RENK America in Muskegon. We discussed it many times. Naturally, we will see the effects of the program, which we are conducting there with a certain time lag, also to what we have seen in Augsburg, the challenges in making are simpler. We discussed it already that Muskegon is structurally much more easy than Augsburg. So we have a 2 product side with basically 3 customers and 5 contracts. Augsburg is much more complex with respect to the variety of different products and customers and also timelines. So we have a strong team on the ground in the U.S. also with the latest changes of our management team, which we have executed that we make good progress in Muskegon, and also the expert team out of Germany is spending much more time in the U.S. to accompany and to support the improvements and measures going forward. We are confident that we will be able to replicate the success we had in Augsburg, also in Muskegan. And the improvement so far is already visible for us in certain performance metrics, for example, the daily output rate of transmission out of the factory. And we could see that also in the recent months on the revenue levels generated by RENK America. We have added in that slide, growth in the sense of future technological applications, not just general growth, but really the focus on innovation, on new technologies, for example, hybridization solutions, digital solutions, and this is one of our key priorities. Our colleague, Alexander Sagel has presented on our progress during the Capital Markets Day. And this includes clearly that we advance in our technological leadership in our segment. We are consequently and disciplined investing in hybridization of our product. We have added intellectual property in the area of advanced mobility technologies. Our fourth priority is net working capital optimization. Anja has just presented the figures. We had a good start in Q1 this year. However, we are back to a level of almost 29%, which we regard as much too high. So we are not happy with the development of the net working capital figure. However, we are rather confident, as Anja said, that the year-end ratio will be lower again in the area of 25%. And thanks to rather structured approach now on managing and looking at inventories as well as our good performance on advanced payments that we are also expecting in Q4 this year. Based on that, we see a further better development into the right direction by the end of the year. On our fifth priority, which is order intake, we're really pleased with the performance during the first 9 months and believe in a strong finish in Q4 this year. The defense super cycle, as you know, is in full swing and will last for longer, the result of the election in the U.S. is putting much more pressure on Europe to speed up here, so for our business development, definitely a positive factor. This is clearly visible also in our order intake in our pipeline as discussed already, I said that before that at our Capital Markets Day in September, we have given you more color on the order pipeline with the EUR 12 billion, including the soft order backlog and the more than EUR 9 billion, which is beyond an excess of our already strong total order backlog in the next years to come. So the sales teams are standing ready to secure those orders for RENK. I would like with that, to hand over back to Ingo for our, let's say, financial calendar and then starting Q&A session.

Yes. Thank you so much, Susanne. Thank you, Anja. On the next slide, you will see a quick summary of our upcoming Financial Calendar [indiscernible], we will be on the road and also a few key conferences. So hopefully, we'll see many of you there. But to also answer your question on this call. I would like to hand it back to the operator to take some questions.

[Operator Instructions] And the first question goes to George Mcwhirter from Berenberg.

Just on RENK America. You mentioned we should expect an improvement in EBIT in Muskegon in the coming quarters, but with a time lag. So what is the incremental EBIT that you expect from Muskegon in Q4 and also over the long run?

George, thanks for your question. I would start to take that question. I'm please accept that we are not giving any guidance on EBIT on that level of legal entities or specific sites. But RENK America generally is able to perform EBIT levels well in the 2 digits. And we see that company coming back to that level in the next 3 to 4 quarters. So to give you an idea, they are typically performing on the level of the VMS segment. So they are neither materially diluting or increasing the level of the VMS performance.

And the next question goes to David Perry of JPMorgan.

A couple of questions. One of them -- we talk about double-digit margin for the year for Maritime industry. And I think slide bearings is fairly stable. It looks like over the year. So by implication, if I take the midpoint of your EBIT guidance, you probably need to do a 30% margin in VMS, if my math is correct in Q4. Can you just talk about how you achieve that, what your confidence is in that? Because I don't think you've had a mind in that part in the short history that we have of RENK. The second one is just whether you've got any update for us [indiscernible] investment you're going to make, I think, about GBP 50 million over several years, how you will account for that? And then can you just check the [indiscernible] Italia, is that to be a supplier to the Leonardo Rymatal JV that we're expecting? And are you the guaranteed supplier there on any links that they may [indiscernible].

David, Susanne speaking. Thanks for your question. I would take question number 1 and number 3, and Anja will elaborate on your last SAP IT question. Your math is correct with respect to the required let me put it that way, EBIT performance VMS has to bring in the fourth quarter of this year. Why are we feel confident that we reach the, let's say, guided EBIT results. We have quite a good predictable situation on the other segments indeed that they contribute to what they have to contribute to reach there on the VM side. Elsburg is, let's say, performing much better than we originally planned at the beginning of this year is able to compensate quite a little bit. And we have also obviously seen in the last weeks, the improvements in the U.S. That's why -- this is one point. And the other point, obviously, is that we were able to manage also to come to agreements with the customer in the U.S. to, let's say, increase our pricing a little bit or to put it the other way around, to are not punished with the full burden of discount. But with less discount than the customer would be entitled to get. So we get some improvement here. We have still discussions with our auditors how to bring that into the figures. So this is the remaining uncertainty where we exactly end by the end of this year, but we can assume that some of this, let's say, negotiation success will be visible also in quarter 4. And this brings us to the strong firm belief that the segment will be deliver what you have calculated and what we are expecting. But you are right, it's rather back-end loaded. It's not a nice walk along the same, but it's hard work every day. And there is, let's say, some remaining rest risk of how much and what do we get into the figures in Q4 and what is accountable for in 2025. So the agreements with the customer are in place. This is the very good news and how this hits our figures when exactly in which quarter is something to find out. But our confidence is high that we get the performance in VMS ready, specifically thanks to the very solid performance of [indiscernible], very solid performance and more than [indiscernible]. And this, together with the improvement in [indiscernible] will bring that result. With respect to Italy, I think for us, good news, the Italian Army is insisting on RENK, but also Leonardo, who has in the joint venture agreement with [indiscernible] metal, the responsibility for the power pack. So the responsibility for the Powerpack is with Leonardo and Leonardo is also confirming and insisting on RENK solutions in the vehicles, not just in the main battle tanks, but also in the infantry fighting vehicle, which will then replace the [indiscernible] platform in Italy. And this was also the reason why we decided not the only one, but also one of the good reasons why we decided to establish [indiscernible] in [indiscernible] close to the Navy, but on the site and premises of Leonardo in the Otomilaga facilities and respective agreements are in place with Leonardo, which gives us all the, let's say, comfort that we are set in those platforms going forward. I would hand over to the [indiscernible] to Anja.

David, it's Anja speaking. Thanks for your question. So at the moment, we are basically in the planning and evaluation phase. So we're looking at time line costs and then also on what actually do we need to get, yes? So -- and there are certain options. So you -- in these days, you can either buy software as a service or you have an on-premise solution. And obviously, if you look at both of them, you have a different accounting way to treat them. And -- if we look at our security standards and security necessity of data and data security topics, we're most likely to come up with an on-premise solution. and not of software as a service. So therefore, we will have steps and pieces which we will be need to capitalize, but we also will have OpEx topic because there are certain costs which you can capitalize in accordance with IFRS. And if you look at that. So it's going to be a mixed accounting not probably, but all this really depends on how the contracts will be drafted and signed. So therefore, it's very tough to give you a very clear picture at the moment. But what we can say at the moment is going to be OpEx and CapEx. So it's both.

Okay. Do you mind if I ask just one follow-up on question one on this discount deal with the customer. Is that just the benefit -- will it just be the benefit for Q4 that's booked in Q4? Or is it like a multi [indiscernible] taken in Q4.

This is a very tricky thing which we could debate now for weeks and months with Red wine or without [indiscernible] -- this is what we do with our auditors at the moment as well. So there is lots of versions how to see that, whether this discount is just something for the future or whether this needs to be distributed over a longer period of time in reflection of the contract structure. So there is no clear answer. And if we had the answer, we would tell you, we don't know today -- that's why in Q3 figures, there is nothing in because it's still under debate. I think this is worth to mention that Q3 is 0 impact of that agreement in -- so the -- my assessment, Anja assessment and the high likelihood is that we have distribution of that funds over the quarters. So it will hit some of that in Q4 and probably the majority next year. But how the distribution of that exactly will be, we don't know yet.

Okay. I will wait.

Yes, we need to wait exactly same on our side, but I think worth to note is nothing in Q3, so Q3 is not somehow positively influenced or impacted by that agreement. The agreement is signed. The agreement is still contingent to another contract modification, which we need to sign. So that's why it's anyhow something we have to consider in Q4 where we will sign the other modification, which is linked to that. So it's a little bit more complicated, but the good thing is -- the Army is supportive. The Army is giving us some money in some funds, which is, let's say, improving the overall situation, which is basically a great one that we have this record high calls of the frame contract, more than 1,000 transmission. So the backlog is full in the U.S. and the execution guys can really concentrate on efficiency and processes and make the best out of it. and the customer is even supportive with money. So there is basically nothing to complain. We just need to finalize the paperwork and come with the auditors to an aligned view on how to read that and how to put that into the accounting. This is where we are.

And the next question goes to Christophe Menard of Deutsche Bank.

Yes. I had 3 questions. The first one is on the free cash flow in Q4. You highlighted the working cap as a percentage of sales at 25% being the target for the full year. In this, you have the prepayment. Do you expect one large prepayment or a series of repayment? Why are you so sure that you will achieve that target of 25% because it's quite essential to you attaining your free cash flow targets for the full year? Second question is more technical. It just looks like tax rate has been on the P&L, really high in Q3. Can you just tell us whether it's pure timing and what it relates to? And the last question is on Kinetic. You mentioned the payment in Q3. How should we be looking on our side on the benefit of that venture in terms of extra revenues in the future? Obviously, you cashed out some money, so when are you cashing in some benefits on this [indiscernible].

Susanne speaking. I'll give it a start. [indiscernible] can probably take over. So indeed, we are expecting some down payments and prepayments in Q4. How can we be so sure that we bring the net working capital down to 25%. This is at the moment our best knowledge of where the projects are and where the agreements are? Is it 100%? No, nothing in life is 100%, but our confidence is nice. It's not just one big down payment it's, let's say, 3 to 4, which are in the rank world and for us sizable. However, there are 2 which are clearly both in the 2-digit figures. So not just something which is below EUR 10 million, but above that. And that's why this would be, let's say, probability, I think, is very low that nothing of all of this is coming. If one of the big ones is not coming. Obviously, we can't compensate this the small ones, but our confidence level is high because all has been agreed. I think in one project, there is a certain rest risk that the customer is paying by the very end of this year, and the bank is booking the money on our bank account only on the second of January of 3. So that we just missed so to say, the 31st of December. That's why can we promise something at the end of the day? No, but we are sharing with you very transparently. And honestly, that there is 4 bigger ones clearly in the planning and more than, let's say, following up every day and pushing the customers to execute. And hopefully, then the money is booked on our bank account is still in a timely manner this year, then the rest risk which we have but there is no risk concentration on just one big one. And I think this is the good news here and we expect down payments in a considerable amount beyond EUR 40 million, EUR 50 million. So -- and this would really then bring the net working capital not just 1% point down from this much too high 29, which we had by the end of quarter 3. So this is the background and the reasoning behind that. The Kinetic question, tax rate, I'll leave it to Anja, honestly, but kinetic, maybe generally what the strategy do we have. So the development Kinetic has done is not just interesting, but we think it's a crucial technology, which has been developed with funding support of the U.S. government of BAE and kinetics. So these guys have spent altogether in the last years a rather high 2-digit figure of millions. And we were able to, let's say, get those patents and technologies to, as we think, we negotiated price out of Kinetic. Why have they done that? All these guys have not the ability to manufacture industrially those transmissions. And I think they were maybe before the times of the market with the development, the market was not ready to take that up for us. with the own development on the [indiscernible] on 1 side, which follows a specific, let's say, design principle together with those technologies, which we have now taken over by kinetics we are covering a rather broad range of serial parallel and different approaches of hybridization of the transmission. So the market is getting rather narrow and tight for other players since we have secured technology with our approved registered patents. So the downside is that not all of the patents have a long remaining, let's say, rest period to go. There are some would run only a few years, some longer. However, I think we were able also to considerably close the market for other players with our patent rights. This was also part of the strategy and taking over those patents was a package deal in the broader relationship and a broader technology development partnership with kinetics to develop things also at -- in the market of UGVs, for example, where our home colleagues on the suspension side were already part of and we're extending the scope in those applications within our, let's say, abilities of the portfolio. And taking all of this together, we think it was a good move, and we are convinced it was a good move. Yes, we still have to find that, let's say, customer base, who is buying that technology, but we are rather confident that together with kinetics, together with BAE, together with the U.S. government, who have all contributed to the financing and development of the technology. There are some use cases going forward. Can we promise an exact date? When do we see money back? No. This wouldn't be prudent, honestly. But my best assumption is that in the next 24 months, we should see concrete projects on the table, which are ready to take up those technological steps and solutions. I don't know, Alexander, whether you want to add on that. Otherwise, Anja would take over the tax question.

I think the so much to [indiscernible] thank you very much for the short introduction. But just to underline it, Kinetic is a perfect fit to our overall hybridization strategy, as just mentioned by the summer. And I think we explained it already during the Capital Market Day. There are 2 legs. One is the hybridization technology as just perfectly explained. And the second one is really to consider synergies on future markets for example, such as the UGV, where we're really going by joint efforts in autonomy capabilities, remote control capabilities. And as I try to explain on the Capital Markets Day, especially on the [indiscernible] market below 20 tonnes going down low up to 5 tos, we see a considerable market developing beyond 2030.

Taxes is basically driven by local regulation. Let me just give you 2 examples to add a little bit of flavor. In the U.S., we had last year, calculated a research development tax credit. However, in this year, it turned out the project went a little bit different. So when we then prepare this year -- the last year's tax return and looked into that with our tax advisers, it turned out that the tax credit wasn't as high as anticipated. So that's one topic. For example, and I can give you another example. That's also U.S. tax driven. We have a loan in the U.S. in one of our companies and the interest, there is a cap of the interest which you can deduct in your taxable income. In the U.S., we have a similar topic in Germany. It's called [indiscernible]. Sorry, I can't really translate that into English, but it really means you can only deduct a certain amount of interest for that loan. And this is also driving basically this interest because we are now above that cap basically, and therefore, we cannot anymore tax deduction. We are already looking into that topic, and we hopefully come to a solution. I hope that adds a little bit flavor to our tax situation.

And the next question goes to Carlos Iranzo Peris of Bank of America.

I actually have 2, if I may. The first one, in the presentation, you mentioned that you expect large orders to pick up in Q4. So could you elaborate a little bit more on this? And then the second one, based on what you mentioned in the call about the joint venture of Remote and Leonardo, just wondering if the potential opportunities arise from this June are already included in your midterm guidance?

Absolutely, Carlos, it's Ingo. Just on the first question on order pipeline for the fourth quarter, so we've not yet specified any particular customer names, but we do of a pipeline, which also includes, I would say, 2 to 3 larger orders, which would really make a difference. As you know, a large order for us would be high double digit, low triple digits. And I think if you see the base order level generated in Q4, which was more than EUR 200 million without large orders, if you imagine at least 1 or 2 large orders on top that gives us confidence that the Q4 pipeline is high, and that's basically what we are trying to say with this statement.

I'm taking over the question number two, Carlos, business out of Italy and the JV [indiscernible] not part and considered of the guidance. However, there is proportionately a part covered in our to [indiscernible].

The next question goes to Victor Allard of Goldman Sachs. First one is regarding EBIT. If we look at the past couple of years, adjustments that have been somewhat significant and kept on increasing in recent quarters. Looking at 3Q specifically, I was hoping if you could share a bit more color on what was the nature of the costs associated with the efficiency plan and the drivers to recognize them as one-off. The second question is if you could share some color on how much of revenue recognized so far this year were accounting under the POC method. And what is your expectation for the full year? I think in the past couple of years, you had disclosed revenue recognize over time an accounting for around 25%, if I remember well. So I was wondering whether there was a relationship here with DSOs, which have been increasing somewhat versus last year.