Kuka's (KUKAF) CEO Till Reuter on Q2 2016 Results - Earnings Call Transcript

| About: Kuka AG (KUKAF)

Kuka AG (OTCPK:KUKAF) Q2 2016 Earnings Conference Call August 3, 2016 5:30 AM ET

Executives

Andreas Spitzauer - Head, IR

Till Reuter - CEO

Peter Mohnen - CFO

Analysts

Sven Weier - UBS

Sebastian Growe - Commerzbank

Lucie Carrier - Morgan Stanley

Oliver Gleeson - Investec

Jawahar Hingorani - Bloomberg

Graham Phillips - Jefferies International

Operator

Welcome to the Q2 2016 Financial Results Conference Call. Today's conference is being recorded. And at this time, I would like to turn the conference over to Mr. Andreas Spitzauer. Please go ahead sir.

Andreas Spitzauer

Thank you, Operator. Good morning, ladies and gentlemen. My name is Andreas Spitzauer, Head of Investor Relations. And I want to welcome you to Kuka's conference call for the second quarter 2016 results. As a reminder, this conference call is being recorded and will be available for replay on our home page www.kuka.com/investor-relations. You can find today's presentation there as well.

It is now my pleasure to turn over the call to Kuka's CEO, Dr. Till Reuter.

Till Reuter

Thank you Andreas. And also, my side, dear ladies and gentlemen I warmly welcome you to the presentation of our financial results of Kuka for the second quarter of 2016. The past few months have been very eventful and successful for us here at Kuka. Demand for our products and solutions accelerated in the past quarter with correspondingly dynamic growth. Midea submitted a takeover bid to all Kuka shareholders and Kuka recommends accepting the offer.

The bid is a confirmation that we have been successful in developing Kuka in the recent years. In conjunction with the takeover bid, we have managed to represent the interests of all parties involved. We have a very attractive takeover price. We have data security for our customers. And we have even greater opportunities for Kuka to grow in China. And we do have long term guarantees regarding location and shops.

Let's come first to the highlights of the second quarter. And I think clearly highest level of orders received in the Company's history. In second quarter of 2016 we recorded orders received totaling more than €890 million, by far the highest quarterly value in Kuka's history. This means that we were able to sell as many products and solutions in a single quarter as in almost the full year 2009. Clearly you have to take out Swisslog, did not belong in the Kuka 2009, but we received orders, same number, as in 2009 for the full year. Compared with the prior year quarter this corresponds then to an increase of 28%. And taking out our disposals from 2015, HLS and Tools and Dies, the growth would have been around 32%. All divisions have contributed to this outstanding result with double-digit growth rate.

On the sales side we were down year-on-year from €758 million to €704 million. And including the divestments of the two businesses the decrease was at 4.2%. The main reason for the drop in revenue is particularly related to systems and Swisslog that customers are tending to make call-offs and execute major orders in the second half of this year and therefore also we confirm our guidance of €3 billion. The operating EBIT margin for the past quarter before purchase price allocation which was in the second quarter €2.7 million and before extraordinary expense for the Midea takeover of €20.7 million was 5.5% operating EBIT margin. The comparable operating value for the prior quarter was 6.4%. And here again also operationally on revenue and EBIT we're fully in line with our guidance and what we talked to you in the past quarters.

As already announced at the annual accounts press conference, we're planning to invest up to €20 million more in new products, so smart factory and solutions for Industrie 4.0 in 2016. In the past quarter we additionally invested more than €3 million in the feed of R&D after almost €9 million in the first quarter of 2016. Coming now in more details in the figures, key figures for second quarter, the gross margin developed very positive in the second quarter, quarter-on quarter it rose from 24.6% to 26.3%. This was attributable, particular to the disproportionate decline in the cost of sales, due for an example, to an improved cost of materials ratio and lower amortization charges for the purchase price allocation.

One example, Swisslog profited from this development to a particular event -- extent, in this division the gross margin improved from 14.2% second quarter 2015 to 25.4% in the second quarter 2016. CapEx was almost unchanged over the past quarter totaling €22 million after €23 million in the same quarter 2015. All in all, the investment ratio in the second quarter 2016 totaled around 3% of sales revenue which corresponds then to the lower end of the range of 3% to 4% given in our long term guidance.

We really believe that this is one of the key strengths of our business model that is not reliant on major tied up capital, but allows in increased investment in R&D development. The work force rose 2.3% from 12,384 as of June 30, 2015 to 12,675 as of June 30, 2016. That means considerably less than the almost 30% growth in orders received we are only growing at 2.3%. As we take into consideration that the amount around 600 employees left Kuka in the same period last year due to the sale of the Tools and Dies business we sold to Porsche last year. The additional workforce around 15% of additional people have been taken on by robotics, 200 of these are in R&D department and 250 other people were in general industry and service sectors of robotics. At systems, the increase in personnel was centered in all in white production. And at Swisslog, we strengthened the workforce predominantly in the logistics ecommerce segment.

On the cash flow side, cash flow from current business operations was down from plus €2 million second quarter 2015 to minus €69 million second quarter 2016. This decline is primarily coming from the €92 million in increased trade working capital. The increase of Q2 in particular it was significantly higher volume of orders received and the accompanying upstream procurement measures. In particular, trade receivables and receivables from construction increased to €727 million. Due to the development of the cash flow from current business operations the free cash flow for the past quarter as also in the previous years was also negatively -- or negative at minus €35 million. For the full year 2016, however, we're expecting a positive free cash flow on the Group level.

Now going to the single businesses, on robotics the business development of robotics in the past quarter was very good. For the sixth quarter running robotics was able to report orders received totaling significantly more than €200 million. Compared with the same quarter in the previous year orders received improved by 15% to €252 million. It was particularly pleasing that all three segments contributed positively to this result, automotive up 24%, industry up 8%, service up 12%. From a regional perspective, China was a strong driver behind the development in orders received. Following on from disproportionately, high growth of 90% already in the first quarter of 2016 orders received improved again the second quarter by 35%. Robotics meanwhile sends around 30% of its robots to China.

Five years ago, the Chinese share of orders received at robotics was still under 15%, so more than double share in China. Sales revenues at robotics also improved substantially with a plus of 14% to €248 million in the second quarter, the second highest quarterly figure we achieved in robotics. The profitability of robotics developed as expected. The EBIT margin decreased from 11.1% to 10.3%. One joint factor behind this decline was a lower revenue share from the higher margin general industry and service, but as predicted and also as announced that we do more R&D in robotics. The share of general industry and service fell in the second quarter from 68% to 63% in the second quarter of 2016.

Coming to systems, in the second quarter of 2016 systems recorded orders received totaling €440 million. This was around 22% higher year-on-year and around 10% higher than the previous quarterly record. It must additionally be remembered that here in the prior year quarter we still had the Tools and Dies business and HLS Group involved. Without these companies orders received would have been up 29%. This operating development was largely attributable to tests and assembly, assembly and tests in the U.S. and body in white production Europe.

The strongest effect on sales revenue [indiscernible] was due to the fact, that customers are tending to make call-offs and execute major orders in the second half of this year. In second quarter, the division achieved sales revenue of €314 million after €382 million in the same quarter of the previous year. At systems, particular, we're expecting sales revenue to pick up considerably in the coming quarters. The operating margin, our EBIT margin, fell from 8.2% in the second quarter to 6.3% in the second quarter of 2016.

On Swisslog, at Swisslog the positive trend in demand and the success of the efficiency program were continued in the second quarter. These are clear indicators that the implementation of our strategic measures are successful. In the past quarter Swisslog posted orders received totally €210 million, corresponding to a plus of 71%. The logistics ecommerce segment made a particular significant contribution to this positive development, more than doubling in the past quarter. They got one major contract in the U.S. The sales revenue development was primarily affected by the duration of major orders at Swisslog with the orders generally run for nine to 12 months.

Since orders received at Swisslog only picked up from the fourth quarter of 2015 onwards, sales revenue fell by 11% in the past quarter to €148 million. We're confident that the development of this revenue will improve in the course of the year. And the EBIT margin before purchase price allocation for Swisslog improved from 1.5% to 2.1%. And this is particularly gratifying as the increase in profitability was accompanied by rising R&D expenditure. Without this planned additional investment in R&D, the EBIT margin would already have been almost 4%. In the past quarters [indiscernible] amortization charge of €2.7 million when [indiscernible] incurred, due to the purchase price allocation in the previous year, the corresponding figure was €17 million.

Now coming to the Midea offer, according to the latest announcement from Midea the Company had a holding of 86% in Kuka. Since the offer only closed at Midnight last night, we're expecting this figure to increase still further. The Executive Board and Supervisory Board recommended to accept the offer.

We're often asked about the atmosphere at Kuka since Midea announced and published the takeover bid. I can confirm you the Kuka workforce are all in the same boat and are running in the same direction. In particular, long term guarantees regarding locations and jobs for more than seven years goes considerably further than what has been agreed in other takeovers and gives us the confidence we need to continue concentrating on our customers and our business. I have talked to many customers about the takeover and can tell you that their interest has been and is still very great on Kuka and the Kuka products and solutions.

The ring-fencing agreement put in place to protect our customers is deemed very positive. And I think that the strong increase in orders received in the past quarter is a good confirmation of this feedback. What are next steps? Approvals from regulatory bodies and other authorities. We have already been -- held discussions with the relevant authorities and our current assessment is that all regulatory and public authority topics of which we're aware and we can foresee should be manageable. Furthermore, we expect all approvals to be granted within the planned timeframe with the completion of closing by the end of March 2017 at the latest. What does [indiscernible] Midea.

Following the offer period and after summer break, we will be sitting down with Midea to discuss the current situation. We will also be drawing up a schedule for specific issues we want to tackle after closing. We will keep you informed once the corresponding measures have been decided on. But it's very important that only after closing measures are starting. And of particular importance to us is with respect our growth opportunities in China and the areas of service robotics globally. Coming to the operational level again, our outlook for 2016, our overall visibility for 2016 and of the financial year is good, high order backlog of over €1.9 billion, good prospects for growth in demand from our customers. Therefore, on the sales revenue we expect the following. In the second half of the year we're expecting a significant increase in the volume of call-offs and in the execution of orders.

Sales revenues should then also rise accordingly. We're generally expecting a stable development in Europe and we're anticipating growth in the U.S. and China with the development in Asia being stronger. These all take into consideration that HLS Engineering [indiscernible] and Tools and Dies [indiscernible] sold in mid-2015 still contributed €52 million to sales revenue in the previous year in particular to the first half of 2015. Coming to EBIT margin, as already announced the takeover bid from Midea is resulting in extraordinary expenditure of around €30 million for the full year of 2016. Of the €30 million of which €21 million were already booked in the second quarter 2016. These extraordinary costs are attributable to consult new services and expenditure relating to employee share schemes.

Coming to divisions, an robotics we expect to achieve an EBIT margin of at least 10% as guided. This affected by increased investment for R&D, general industry and China. On the other hand robotics should and will benefit and profit from revenue growth and the higher revenue share from general industry segments. At systems level we're anticipating an EBIT margin of at least 6% and continued positive similarly from the North American region which we -- where we have a strong belief in. The volume of demand in Europe has risen again in the turn of the year, so pricing has not only shown a big improvement. This year too we will further strengthen our IT processes and our global IT backbone which will have a positive effect on the profitability of systems in the coming years.

Coming to Swisslog, Swisslog will grow in 2016. We expect development of sales revenues in the second half of the year to be more dynamic than the first half. And before purchase price allocation, Swisslog should have an EBIT Margin of around 3%. Now for the Group level for 2016 we're anticipating total sales revenue of over €3 billion at group level. And on this base an EBIT margin of over 5.5%, as guided before purchase price allocation and so now also before extraordinary expense of €30 million to the Midea offer should be possible. The amortization charge related to purchase price allocation for Swisslog should be around €10 million for the full year of 2016.

Thank you for your attention. Peter Mohnen and I are now looking forward to answering your questions.

Question-and-Answer Session

Operator

[Operator Instructions]. We will now take our first question from Sven Weier, UBS. Please go ahead.

Sven Weier

It's Sven from UBS. Three questions please. The first one is if you could give us some more color again on Swisslog. Obviously you mentioned you had a big order there. Would be interested on what grounds you won the order, what differentiated you maybe from your next competitors, what you think really made the difference there. And also if you could quantify or qualify the pipeline you have. Do you generally see a very active environment for those kind of solutions or was it more of a one-off and then also the same question basically on systems, obviously, surprising very active in Q2. So what do you foresee here for the second half?

And maybe also give us a kind of perspective for the book to bill ratio you see for the year for the Company as a whole. Obviously the H1 was very good at 1.2 so I suspect it's probably going to be anywhere between 1 and 1.1 for the year. And then the last point, you mentioned regulatory conversations that you had started. I was just wondering if you already had some further insight into Sifers. Obviously we had another deal that was blocked by them the other day and I was just wondering if you still -- as you said you were confident but I was just wondering if you had any further insight into Sifers specifically. Thank you.

Till Reuter

Let me start with the market size. I think on Swisslog what we have done in the last quarters was investing into R&D. And I think on this particular deal which we cannot announce, it was a long process and it convinced the customer of our offering. And I think what we're doing here is we increased the R&D, we increased the available product and therefore I think what we see was a strong pipeline with the logistics side and also here -- also a very strong second half here for systems. What we have also seen is a very active environment that logistics and production are getting closer together.

It's seen two transactions being announced on the logistics side. And I think what we have done with Swisslog now more than two years ago exactly was the same direction a little bit earlier. But in the end you see that logistics and production are getting closer and therefore we also expect orders which are closer coming from the production than only on the warehouse side. So Swisslog is very strategically rational, fully intact and on the right direction. On the systems we--

Peter Mohnen

I mean if we see the current transactions in the market that Kion is buying a logistic company and Intelligrated was bought by Honeywell that shows I think what Till mentioned and what we believed in when we did the deal with [indiscernible] two years earlier. With a much lower multiple by the way.

Till Reuter

Exactly, much lower multiple. On the systems side I think same here, the perspective as mentioned in the U.S. very strong, China also on a good way and Europe picked up again the beginning of the year. So on systems we have a good view on the call-offs by the customers and therefore we're also confident to get to the revenue level in the second half and momentum automotive still unchanged. On Sifers, as mentioned we're talking to all regulatory boards. And you know we're confident to get all the closing conditions and the team is working on this and I think its focus of the legal and the transaction team. But we're confident that we get all the regulations within the timeframe.

Sven Weier

Maybe as a follow up, did you already benefit from Daimler's major investment initiatives? Obviously they are spending massively this and next year. Is that something that you saw reflected already? Is that something that gives you the confidence also for the second half? And again coming back to my book to bill question, what -- I guess you probably foresee a positive one for this year I guess.

Till Reuter

Yes. So, Daimler is already sometime in the books but we see there'll be further stimuli. We expect something around 1.07 so closer to 1.1 but I think we will expect something around 1.1.

Operator

We will now take our next question from Sebastian Growe from Commerzbank. Please go ahead.

Sebastian Growe

Two questions from my side, the first one is on the order intake and a follow up on Sven's question. Can you just walk us a bit through really the drivers in particular which have been driving the very, very good order intake development in the second quarter? A comment on also the large order contribution, especially at the systems business and in that respect, could you also comment on the regional development here and just get a better understanding what the key driers were behind this strong order intake as I said before.

And then on the order backlog conversion and after the systems business has been down about 10%, 11% on an organic base, excluding the divested businesses. Can you just share with us your expectation for the full year? What do you think is realistic in terms of total growth on an organic basis for the business? And the same question then also applies to Swisslog where in the first half was a bit light in terms of the sales recognition obviously and you were talking about the saving. If you can also share with us your thoughts on the full year organic growth rate at Swisslog. Thank you.

Till Reuter

And then I will start with the drivers of order intake. I think one clear order is automation. Automation really is what our customers need to as an enabler to be more efficient in their plants and their production. And that is what Kuka stands for in robotics and at our systems segment. That for sure is the driver. And from my point of view it's the Kuka brand and that we're really well known as a very good executor of the projects.

And by the way the Swisslog project, the bigger one, we only got or Swisslog only got because there was Kuka in the back I think. So I think it's the Kuka brand and the team and automation. And if you look at it from a regional point of view then it's America a lot we got in America in Q2 and it looks that that will continue especially at systems. And then in China, China again had a super growth rate, the order intake in China was around €280 million in the first half of the year over all our segments and that is more than 40% more than last year.

Sebastian Growe

Okay interesting, thank you for this. Can you just give us an idea on the Americas exposure then to systems because you highlighted this? And then also come back to my question on the organic growth rate expectation for both systems and Swisslog for the full year.

Peter Mohnen

Yes, in the U.S. I think it's -- I don't have the figure here at hand. We had double-digit growth rate there too for sure, 20%, something like that.

Till Reuter

As I mentioned also China we're now at -- approximately 20% of order intake is coming from China which is very positive. I mentioned the number on the robotic side which is now going to 30%, up from 15% in 2009. I think that's something where -- but you know it's regionally you cannot -- if you look at each single quarter by region it doesn't reflect the -- the trend is that we're going to grow in the U.S. and in China. In Europe it will be more flattish and so we stick to the guidance of €3 billion which is driven by all divisions, we expect more growth from Swisslog in the last year.

Peter Mohnen

Yes. And organic growth it will be more than -- it will be double-digit our order intake growth for the full year. We will be around €3.2 billion I think in the end.

Operator

We will now take our next question from Lucie Carrier from Morgan Stanley. Please go ahead.

Lucie Carrier

Actually I still have a couple. The first one is just trying to clarify on the Midea situation. I remember seeing a new investor agreement with them that they were stating a lack of willingness of seeking domination. I was wondering if, from your perspective, this is implying a certain threshold in terms of shareholding, i.e. after a certain amount of shareholding you would consider that there is some sort of domination from the Company. So that's question number one. The second one is actually--.

Till Reuter

Again, so I didn't get really -- so we have an agreement of seven and half years which excludes domination agreement. So the agreement independent of any shareholding so altogether they would get 99.9%, we would not have a domination agreement for the next seven and half years. So this is -- the agreement is not anticipating any shareholding any threshold independent of any shareholding.

Lucie Carrier

But just so I understand well, if the whole 99.9% how are they not dominating your shareholding in the sector?

Till Reuter

That's right, that's interesting. I think it's very important that you -- the one fact is really the shareholding they have and the other topic is about the Supervisory Board and domination agreement as defined by law. And I think it's something where they all stated they have some influence of the Supervisory Board. And it's very important the agreement we have with Midea is independent of the shareholding but clearly on a factual basis if they have 99% they are the biggest shareholder. But it's exactly the reason why we have the agreement that the agreement in the end independent of any shareholding.

Peter Mohnen

And you know in a German Supervisory Board we have 12 seats and half of them are reserved for our employee side. And then there they would be a maximum six seats free which is the 50%.

Lucie Carrier

So just then maybe to come back to the comments you made this morning on the press call where you were mentioning that there could be an outcome where Midea would sell some of their shares. Are you still looking for another investor or maybe a capital increase? This is just headline I've seen this morning.

Till Reuter

Yes. Lucie let me just politely put it the way I was mentioning it. So we're in the middle of a process of the takeover by Midea. We have today 86% and we assume that they're going further up, so likely above 90%. So that's one topic in which we're in the middle of the process, so we have to wait what is coming out here. The second statement I made on the call was it is still unchanged. I have a big interest of people in Kuka, no?

And there are family offices. There are institutional investors, lots of conference people are interested in Kuka's growth path and would like to benefit in the development of Kuka and that's unchanged and even got stronger in the last month and there's no change due to the offer by Midea. Those are two facts. And now the question is which I cannot answer, so I don't assume that Midea is selling off shares. That is, you have to ask Midea.

But secondly, clearly, if they have a big interest, we also have the opportunity -- we would have the option to increase or to do further increase, but this is something we have to discuss in the next coming quarters, what is the growth path, how can we accelerate growth? Now we're talking about opportunities. I can just say and which is a very, very positive, we still have big demand for meetings, lots of investors calling up and want to participate in the Kuka story.

Lucie Carrier

Regarding my second question, this is more on the trends in the automotive industry. I mean, I understand that in the first half it's still been very strong, but I just wanted to come back to more your medium term outlook, so not maybe your outlook for the second half, but we've seen Ford last week announcing that they were cutting their CapEx by 10% and this morning Continental, when they reported their results, they were not very bullish in terms of auto production for the second half of the year. So how much more visibility do you have on the automotive end market, on the medium term?

Till Reuter

Yes, I haven't seen the Conti numbers this morning, but obviously it -- Daimler just announced a big program, yes, so we benefit also from Daimler. And we're big with Ford in the U.S. and globally, so we do see automotive is stable on a high volume or high -- on a high level. There might be particular customers on our side which have also their specific topics which they have to handle with, but we see overall that we're positive and we see that U.S. is 2016, 2017 very, very positive.

We also see that some new players like Tesla are coming stronger to the market. We see that local companies in China are going to further automize. So we see, on a global level an ongoing stable demand on the automotive side and we don't expect any change in the second half and only also for 2017 we don't see a big change in automotive which we're driven by the CapEx not by the OpEx, yes.

Lucie Carrier

Yes, absolutely, but sometimes also, if there is less need for production there's also some adjustment made on the CapEx. That's what we're seeing with Ford, for instance. Just on the --.

Till Reuter

Well, if you get -- come like others, we're all the same and we're all very -- still very positive on the automotive.

Lucie Carrier

Okay. And just maybe my last question was on the robotics margin. I understand that there has been more R&D, also some of -- some higher number of employees, notably in China. So I have two questions related to that. The first one is, can you indicate qualitatively on the robotics margin, how much the drop -- of the 80 bps drop in the margin, how much was due to mix, how much was due to higher R&D and how much to a higher SG&A?

And then on SG&A specifically, I mean, the increase in the second quarter is quite notable. How should we think about this line in the future? I mean, was that just a recruitment -- a large recruitment one-off in the second quarter or should we expect the number to compound, going forward?

Peter Mohnen

Yes. Robotics margin, the one thing is the pressure from the market, for sure, yes and then there comes some FX headwind. And then that we invest into sales team and into Industrie 4.0 that were some million and in R&D. The SG&A was exactly the same amount. That did not increase.

Till Reuter

Lucie you try to now to reflect the development, the mix and the R&D on the future potential. What we have also and I think it's not like a black and white, so clearly, if you see the trailer industry service part increase then we have a positive margin impact, we decide that we put more R&D on, like €10 million and for the whole Group €20 million which is very much going to robotics. So there you can have whatever an unaffected EBIT margin of robotic, if you take out some stuff.

Also take into account that we have now order intake of 30% in China, coming from 15%. So I think there are some impacts which are going to accord respective different -- other direction. And as Peter mentioned, you have some on top effect, like FX and therefore I think it's difficult to -- yes, to get a straight number of which what was impacted.

Lucie Carrier

I see. And just maybe on your comment in China, I mean, are you suggesting that the raising business that you have in China maybe is slightly averse to the margin in robotics?

Peter Mohnen

No. That's not so. The margin in China is not different to the European margin or the American margin.

Lucie Carrier

Okay. And just on the SG&A expense, so if it didn't go into robotic, in the increase that we've seen in SG&A year-on-year, if it's not going into robotics, to which division was it more impactful then?

Peter Mohnen

No, then perhaps we had a misunderstanding. I thought you were asking about the margin of robotics and the SG&A of robotics. That is clearly the same number, exactly the same million amount.

Lucie Carrier

Yes.

Peter Mohnen

But the SG&A overall for Kuka Group was increasing quite a lot. Did you ask for the Kuka Group SG&A?

Lucie Carrier

Well, I was thinking that maybe some of large increase of SG&A had impacted robotics, but I understand that it's not the case.

Till Reuter

No. That's not the case. We had in the Group some projects, IT, we mentioned earlier that we have some millions that we moved to our new technology center and had some for the fairs. We were at two fairs in the first half of the year, at the Automatica and the Hannover Fair, that was more SG&A we suspect. Yes, but not at robotics.

Operator

We will now take our next question from Oliver Gleeson from Investec. Please go ahead.

Oliver Gleeson

I just wanted to find out if you could confirm whether you've filed for regulatory approval in any of the geographies? I mean, the offer doc you've referred to filing by the end of July, places like the EU, U.S., Russia, et cetera. I just wondered if you could provide any details in case we've missed any.

Till Reuter

No, I think, as I mentioned that we're -- we have filed all relevant regulatory with all the bodies. We're in contact with them. But I cannot give you -- and I did not want to give you any further information. But we're in contact and we're doing our homework here and I think, as we mentioned, we believe everything is manageable and we're on a good path to get all approvals until the end of the term.

Operator

[Operator Instructions]. We will now take our next question from Jawahar Hingorani from Bloomberg. Please go ahead.

Jawahar Hingorani

Don't mean to belabor the Midea point but just a quick question. At what level of ownership are these -- did you mention three seats? Because I think it's -- are there 12 on the supervisory board, six as employees and the remaining six have 50%. At what level of ownership does that kick in? Meaning, the 90% could go down to 70% and they still hold those three seats. Can you just give me some clarification on that?

Till Reuter

Now, I think it's very early and it's lots of -- I think what Midea was confirming to us, independent of any threshold and it's coming back to Lucie's topic -- independent if they are 40%, 50%, 70%, 80%, they were telling us they want to have a fair representation in the supervisory board. I think that we have to now take up with Midea what is a fair representation? We have -- out of the 12 people, we have six from the employee side which are not to be discussed, so they are standing members of supervisory board and the six from the shareholder side, there will be clearly, Midea will send out their people and they want to have a fair share in this group and I think that's something where are going to discuss in September and onwards, how many people they're going to send.

Jawahar Hingorani

And then if I could just ask, on the callouts that you mentioned, what is the visibility there? I mean, are these already scheduled in the second half or could there be some kind of push?

Till Reuter

The callouts --? I didn't understand the quote about the callout?

Jawahar Hingorani

The callouts for the second half? So, can you give us some -- I'm sorry if I missed this -- clarity on that in terms of further pushouts to those [indiscernible] deadlines and so on or is it pretty much you have good visibility there?

Till Reuter

You mean on the order -- on the revenue side?

Jawahar Hingorani

Yes.

Till Reuter

No, on the revenue side, as mentioned, Swisslog, the order intake pick upped in the fourth quarter of 2015 and Swisslog we have 9 to 12 months of projects arriving. That means we have now got -- they are really kicking in now in the second half of 2016, [Technical Difficulty] they are in fact picking up only end of year 2015. And this [indiscernible] we have good visibility on which customers are calling off their project in the second half of 2016. Therefore, we have good visibility on Singer customer projects and therefore we can confirm also our [indiscernible] our guidance of €3 billion for the whole Group for 2016.

Operator

Thank you. We will now take our next question from Graham Phillips from Jefferies. Please go ahead.

Graham Phillips

Just a question on Swisslog, can you give us a bit of indication about which region which end market the order that you referred to is in? I understand you don't want to talk about the customer specifically. And also a follow up to that, in terms of the margin -- and you referred to the Kuka Dematic deal, but I understand that is a much higher margin --

Till Reuter

Not Kuka, Kion.

Graham Phillips

Sorry, Kion Dematic.

Till Reuter

Yes.

Graham Phillips

That's a much higher margin business, 9% to 10% and you're talking 3% -- 2% to 3% margins, is there any fundamental reason why the margins are lower in the business? And I again appreciate it's a large order coming, but is there any fundamental reason why the end markets you're operating in are perhaps more competitive or you've got more -- less value added in the business, compared to, say, Dematic?

Till Reuter

The big order came from the U.S. and what we're going to -- what we're seeing in that U.S. market is a very strong logistics market. And also we see that for all Kuka, U.S. as a market is very interesting to further grow in 2016 and 2017. Besides U.S., we see a big growth in Asia and China in particular and Europe it's more like we see a pick-up of order intake but the price level is not as good as in the U.S.

Therefore, I think, if you look at the Dematic margin which are above 8% and stuff, 8% EBIT, we believe that once -- and that's also the way -- the reason why we bought Swisslog. Swisslog is, on the one hand, with their €400 million, respective €200 million in warehouse and in healthcare, a smaller player and with Kuka's help we want to grow the company, so demanding something like 2.5% of revenue of I think now €5 billion, so much bigger. It means they -- that's why I think Dematic is €2 billion to, I think at one-point -- they're a bit above €1 billion, I think, so they are much bigger than we're -- €1.5 billion, so that's a big number.

But so I think if Swisslog gets bigger, one is the scale impact. The second piece really the regional mix, so I think we will benefit from stronger business in the U.S. and Asia. And clearly the goal is for Swisslog also to go above 5% and we indicate in our last call that Swisslog, we believe that the margin of up to 8% is possible which really, it's reflected in the Dematic number. So this is the case which we made when we were buying Swisslog and we're on the path to develop Swisslog in direction, get bigger, get more product and getting to a same margin profit as Dematic.

Peter Mohnen

Yes. And Till mentioned already in his speech that would we -- we invested into R&D at Swisslog. Without such investments we would be at 4%, currently.

Till Reuter

Already, yes. We would be, but I tell you, the goal is long term, therefore we have to invest more product. And I think the big differentiator of Kuka and Swisslog is that we can offer this combination of robotic-based solutions for logistics industries and I assume that in the logistics industry the degree of automation is not as advanced in other industries, so this is a big potential of us, with the two parents, Kuka and Swisslog, to benefit from the convergence of logistics and production. And I think that's also now what the deal that had behind Kion Dematic and also Honeywell and Intelligrated show that logistics is getting more important. And we believe they are the big -- have got big potential for business in automizing logistics streams.

Graham Phillips

And in terms of the end market in the U.S., that the order was in? Are you able to give us any idea there?

Till Reuter

No, I think we all -- Swisslog is very much in the -- helping on the automotive side. We're in pharma and in retail, so it's much broader. It's more in the trailer industry segment, yes.

Operator

Thank you. We will now take our next question from Sven Weiser from UBS. Please go ahead.

Sven Weier

Yes, just one follow up question, please, because one of the ideas with Midea and potentials was also you automating their logistics center, so I was just wondering if you see that part of the business already picking up this year already or is that something more for your medium term expectation?

Till Reuter

Medium-term. Clearly, we have discussed with Midea already before the offer on the operational level, but that's something medium term and it's an ongoing business because, as I remember, I think they have 5 million square meters of -- across logistics and storage space. This can be automized and it will be a path, medium to long term. So we have ongoing business and increasing business with Midea, once the offer is closed.

Sven Weier

And them? Also, I mean, I think one thing they said was also that they are able to broaden your client reach for the robotics business in China. I guess those initiatives then also come a bit later and your strong growth rates in China are still in the back of your former measures, I guess, yes.

Till Reuter

Yes. So I think now, until closing, nothing is happening. It's very important. We will talk. We will meet. But I think first -- next step is to get the closing and then we have different share the structure and then we also can go in more detailed discussions. Today we're in the interim phases. The first offer, the first phase ended. Now the second phase ended. Now we have to see the number of shares and then all the authorities have to decide and then we get closing. So I think now we're in the [indiscernible] phase and have to get to the next level.

Operator

[Operator Instructions]. There are currently no questions in the queue at this time. I will turn the call back to your hosts.

Andreas Spitzauer

Okay, yes. Thank you very much for your questions. If you have further questions, please contact us. And yes, we wish you a great summertime.

Till Reuter

Thank you.

Andreas Spitzauer

Thank you. Bye, bye.

Till Reuter

Thank you. Bye.

Peter Mohnen

Bye.

Operator

Thank you ladies and gentlemen. That will conclude today's call and you may now all disconnect.

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