Welcome to the Dürr Conference call. Ralf Dieter, CEO, Dr. Jochen Weyrauch , Deputy CEO, and Dietmar Heinrich, CFO of Dürr AG, will present the Dürr Group's Q1 figures of 2021, followed by a Q&A session. I will now hand over to Andreas Schaller, Head of Investor Relations of Dürr AG.
Thank you, Mr. König . Ladies and gentlemen, good afternoon or good morning to those of you in the US. Welcome, everybody, to our first quarter 2021 earnings call. As always, our earnings presentation is available on our Investor Relations web pages, and we assume that you have it in front of you. Please be aware of our disclaimer regarding forward-looking statements on slide two. After this short introduction, I'll directly hand over to our CEO, Ralf Dieter.
Thank you, Andreas, and a warm welcome from my side to everybody. With me today, as already mentioned, are my colleagues of the management board, our Deputy CEO, Jochen Weyrauch , and our CFO, Dietmar Heinrich . Our agenda on slide three has pretty much become a standard meanwhile, and I will start with an overview of the business development and major achievements in the first quarter of 2021. Then Jochen, Dietmar, and I will comment on the performance of our divisions. After that, Dietmar will go into more details regarding the financials, and at the end, I will briefly talk about our outlook, which we confirmed without changes. So let's start with the highlights on slide four. Overall, we had a good start into 2021 with a solid order intake, a strong cash flow, and a record liquidity at the end of the first quarter.
HOMAG saw a strong increase in the order intake for its single machine business, and the order momentum from automotive OEMs and EV startups continued to be positive, and we reached an order backlog of EUR 2.9 billion, which is a new record level. At the same time, sales revenues developed slower compared to Q1 2020. This was expected due to the weak order intake in the first half of 2020. As you know, in our system business, it takes about nine months between order intake and the first realization of revenues because of the necessary planning and engineering steps before. Because of the diverging developments of the order intake and sales revenues, the book-to-bill ratio rose to 1.3. Our gross margin and the reported EBIT margin improved despite the lower revenues, and this mainly reflects first effects of our efficiency improvements and the higher service share in revenues.
Free cash flow was strong, again to our disciplined working capital management, and still relatively low CapEx, which we expected to increase over the quarters ahead, and total liquidity reached a record level of EUR 1.2 billion. We further strengthened our portfolio with the acquisitions of Teamtechnik, Cogiscan, and Kallesoe, which opened up new growth opportunities going forward, and based on the solid start, we feel very comfortable with our guidance for 2021, which we absolutely confirm. Now, let's have a look at the overview of the key financial indicators for the full year on slide five. Order intake increased by 23%. This includes about EUR 30 million from companies that we acquired since Q1 last year. Sales revenues declined by 6% and include about EUR 38 million from acquired companies. Impact on EBIT before extraordinary effects was limited, and the margin was almost on the prior year's level.
Net profit declined mainly due to some extraordinary items in the financial results. Due to the overlap of new and maturing financial instruments, we temporarily had higher interest expenses. On top came one-time finance costs related to the Teamtechnik acquisition, and free cash flow was driven by our disciplined net working capital management and lower tax payments. Slide six shows the development of order intake on a quarterly level. The positive trend continued in Q1 and is an important indicator for the revenue recovery that we can expect in the future. I already mentioned HOMAG as the main driver, but also the continued demand from the automotive business, and again, we had about 40% of automotive order intake coming from the EV side. Now, let's have a look at the regional split of order intake on slide seven.
China continued to be solid, and in addition, we saw strong momentum also in the Americas and in Europe. To be fair, in the Americas, we were coming from a relatively weak level last year, and only Asia and Africa reported lower order intake compared to Q1 last year, and that was due to a large order intake in Korea we booked in the first quarter last year. On slide eight, we highlight the positive gross margin development despite the decline in revenues. I already mentioned the high service share and the effects of our efficiency improvement measures as drivers. The closing down of the defined German sites was finalized by the end of Q1 this year, and most of the termination agreements at Bietigheim-Bissingen were signed, and also the other capacity reduction measures are on track.
At HOMAG, we are making good progress with the changes of the organization to make HOMAG more agile from sales to service and integration of an integrated and seamless new business process to be rolled out in our locations starting early next year. Also, many product innovations are being introduced to the market this year. So all in all, we remain on track to reach our EUR 60 million cost savings for this year. Another pillar of our strategy is M&A, and we continue to be active and just closed another transaction end of April in the solid wood sector. We acquired 70% of Kallesoe Machinery, a Danish company that is specialized in high-frequency presses for the production of cross-laminated timber. You might remember us indicating that this was one of the areas of the solid wood value chain that we did not cover yet.
This has changed now, and we extend our coverage to more than 70% of the production process. Kallesoe generates roughly EUR 20 million in revenues with about 70 employees. With this acquisition, we are strengthening our position as a system partner for sustainable construction with wood and increase our revenues in this area to more than EUR 100 million. And now I would like to hand over to Jochen to comment on sustainability.
Thank you, Ralf, and welcome to all of you also from my side. As you can see on page 10, we've been increasing our focus on sustainability since last year and are moving forward fast. Last week, we published our first sustainability report according to GRI principles. This is an important step with respect to increasing transparency towards our stakeholders and especially investors with a focus on sustainability, and we're very happy about this. Please check it out and send us your feedback. We're eager to learn how we can improve going forward. We also worked on our governance and revised our supplier code of conduct. This includes our expectations regarding compliance with human rights, anti-corruption, and environmental standards, and is part of all contracts we sign with our suppliers going forward. Our actions already yield first results with respect to ratings.
Our EcoVadis score improved from 55 to now 58, and we remain at a silver level. But this is not all. We still have a lot more coming up this year. We are working on the definition of our climate strategy and are preparing to report according to the framework of the EU Taxonomy. All in all, we're making good progress, but there is still a lot to do. So stay tuned. On page 11, we begin to look closer at our divisional development, and on page 12, we start with paint and final assembly systems. Order intake from OEMs and EV startups remained solid in Q1, especially in Europe, the Americas, and China. Sales revenues, on the other side, had to digest the low level of incoming orders from last year and will continue to do so also in the second quarter. The impact on EBIT was, however, limited.
Sales revenues declined by about EUR 50 million, but EBIT before extraordinary effects only by EUR 5.5 million. Cost reductions, solid project execution, and good service revenues had a positive effect on margins. The majority acquisition of Teamtechnik was closed in early February and contributed EUR 15 million to the revenues in Q1. Let's turn to Application Technology on slide 13. Order intake was also solid thanks to a lot of momentum from China, while sales revenues dipped due to lower order intake in the first half of 2020. Margins developed relatively well despite the revenue decline, also thanks to a strong service business driven by a high level of spare part orders. Extraordinary effects were negligible. We expect growing revenues going forward and further margin upside. Next is Clean Technology Systems on slide 14.
After a weaker second half of 2020, order intake picked up again and rose above EUR 100 million in Q1. Sales revenues started on a relatively low level, but we expect an acceleration in the coming quarters. EBIT and EBIT margin improvement continued, and now I hand over to Dietmar for the comments on measuring and process systems.
Thank you, Jochen, and welcome to everybody also from my side. I would like to refer to slide 15, which summarizes the development of the Measuring and Process Systems division. As you can see, order intake remained on the level of the fourth quarter, and sales revenues further stabilized. Book-to-bill stood at 1.14, and we have seen positive momentum in the balancing business, especially in Asia and North America. The major positive development is on the margin side. Compared to the prior year, EBIT and EBIT margin improved significantly. Last year, we had some margin issues with project execution in the first month, but those could be resolved quickly. In addition, MPS adjusted very fast to the reduced capacity needs for balancing in Germany. Service revenues were above last year's level, and that's actually what contributed to the positive profit development, and with this, I hand over to Ralf.
Yeah, thank you, Dietmar and Jochen. And finally, let's look at woodworking machinery systems on slide 16. HOMAG really had a very strong start into the year. Order intake reached a new record level with €448 million. And this was mainly driven by a very strong single machine business, which underlines that the HOMAG sales force is now not only very close to our larger customers, but also to our smaller and mid-sized customers in the field. And innovations are supporting this success. For example, a new edgebanding processing machine has become a real hot seller. And the system business continues to show a positive trend as well. Even though the system business revenues are still impacted by last year's low order intake, overall sales revenues improved year- on- year. The EBIT margin will improve over the coming quarters.
And in the first quarter we had some pressure due to underutilization and the cleanup of some older system projects where we had some execution problems. Overall, the start into 2021 has been better than expected, and the order pipeline looks really strong. Focus is quickly shifting to how we can manage now all the incoming orders. And we just recently announced the largest CapEx program in history of the HOMAG. Our plan is to invest in improvements and new capacities at Schopfloch and in Poland. These investments will be distributed over a period from second half 2021 till end of 2024. And we also have set a new target to increase our market share from currently 30% to now 40%.
HOMAG is on track with this optimization program, and I'm very happy with the high motivation level of the team and its full support for making HOMAG more flexible and agile. Now, let's take a quick look at the Dürr Group service business on slide 17. Due to the deepened system business revenues, the share of service revenues reached a high level of more than 32%. Key drivers were the MPS division and HOMAG, and the demand for spare parts was high in the first quarter, and service margins were above the prior year's level, and for the full year, we also expect a high service share of around 30%, and now I hand over again to Dietmar for more details of the financials.
Yeah, thank you, Ralf. I will present more details regarding the financials starting with slide 19, providing a clear overview of the key financial indicators, and it shows actually a solid margin development despite weak revenues and a strong free cash flow. Now, let's have a closer look at these developments on the following slides. On slide 20, we can see that sales revenues declined in the first quarter to a level between the second and third quarter of last year. As expected, the lower order intake in the first half of 2020 impacted revenues with a delay of about nine months. From a geographic perspective, China gained share, reflecting the solid order intake of last year, whereas the Americas has lost share as large projects were finished. Germany and Europe were relatively stable. Let's move to EBIT on slide 21.
The EBIT margin before extraordinary effects was almost at the same level as in the first quarter 2020 despite lower revenues. Looking at the EBIT bridge, we can see an almost stable gross profit before extraordinary effects, which was supported by cost savings on one side and a higher service share on the other side. Overhead expenses were roughly stable despite the fact that we acquired business and that these acquired businesses actually added about EUR 10 million in costs. Extraordinary effects came in lower than last year and mainly included PPA effects. Reported EBIT and EBIT margin improved year on year. On slide 22, we can see another strong quarter for free cash flow. We continue, as Ralf already indicated, to manage net working capital in a disciplined way. Lower income taxes paid also contributed to the increase.
The CapEx level at the beginning of the year was still relatively low and about on par with last year. Now, when looking to the figures, some of you might say that the full-year guidance now looks very conservative, but let's keep in mind that the revenue and related net working capital growth still lie ahead of us, that there are still payouts for the restructuring to come, and that we expect increasing CapEx levels as we build up capacities, for example, as just mentioned for HOMAG . That's why we stay cautious with our guidance in regard to free cash flow for the time being. On slide 23, we see the development of the net working capital. The increase by roughly EUR 20 million compared to the year in 2020 is mainly due to the first-time consolidation of Teamtechnik, which contributed roughly EUR 45 million.
Operationally, we could reduce net working capital by more than EUR 20 million, which actually contributed positively to our free cash flow as shown on the previous slide. Inside net working capital, inventories increased, reflecting the growing order intake. At the same time, contract liabilities grew due to solid payments by our customers. Days working capital remained in our target range of 40-50 days despite the first-time consolidation effect. Now, let's turn to our net financial status on slide 24. Net debt increased due to the acquisition of Teamtechnik, but this was partially compensated, as already mentioned, by the solid free cash flow generation. Despite the acquisition, the leverage remained below one. All in all, we continue to carefully manage our net debt levels.
On page 25, you can see the pro forma presentation of available funds and financial liabilities, and this already reflects the repayment of the EUR 300 million bond and a EUR 50 million Schuldschein tranche at the beginning of April. The next maturity coming up is only in 2023. And as such, we can now fully focus on developing our business as we exit the pandemic. And with this, actually, in regard to financials, I would like to hand back to Ralf for the outlook.
Yeah, thank you, Dietmar. And on slide 27, we see the April forecast of LMC Automotive for light vehicle production in 2021 and until 2028. Predictions are for a strong rebound of production volumes in 2021, but to a slightly lower level than previously expected. This is due to the semiconductor shortages that are impacting the number of production lines. So far, the impact has not been significant on our own sourcing side, but we expect that there will be further temporary production stops coming up at automotive customers, and we are carefully watching that development. Mid to long term, LMC continues to see a growth potential to above 100 million vehicles per year. The outlook for the furniture market on slide 29 is unchanged as we updated this data only twice per year.
We are at the beginning of a new investment cycle, and order intake has clearly picked up. This has been especially pronounced for single machines, but also our system business is on a recovery track. On slide 29, we see the outlook for the solid wood machinery market, and this is also unchanged with the exception that we now also cover the production of cross-laminated timber after the acquisition of Kallesoe, as I already mentioned. The market outlook for production systems for medical technology on slide 30 is also unchanged. We are looking to further strengthen our position there through acquisitions. And the outlook on slide 31 and 32 can be kept short. After the good start in 2021, we confirm our guidance for 2021 on group level and for the divisions.
We also confirm our midterm targets and believe that we are well on track to reach more than 8% EBIT margin latest in 2024. So in conclusion, let's summarize on slide 35. We started into 2021 with a solid order intake driven in particular by HOMAG. As expected, revenues developed slower, but gross margin improved mainly due to our cost savings and the higher service share. Cash flow was strong once again, and we used part of our record liquidity at the end of the quarter to repay maturities in early April. We continued with our M&A strategy and strengthened our portfolio with Teamtechnik, Cogiscan, and Kallesoe. With this start, we feel very comfortable for the year despite some remaining risks and confirm our guidance for 2021. Thank you very much for your attention so far.
Now, we are happy to answer any questions you might have, and I hand over to Mr. Könige .
Thank you, ladies and gentlemen. We will now begin our question and answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask the question. If you find your question's answer preferred to turn to speaker, you can dial zero two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question we received is from Lucie Carrier of Morgan Stanley. Your line is now open, madam. Please go ahead.
Good afternoon, gentlemen, and thanks for taking my question. I have three questions. I will go one at a time. The first one is around the woodworking business, please. And I was hoping we could discuss a little bit your guidance because if I look at the last 12 months' order intake, so the first quarter 2021 and the previous three quarters, this is already cumulatively almost at the high end of your 2021 order guidance. So shall we understand that you see the strength in the first quarter as a one-off and you do not necessarily expect year-on-year improvement for the rest of the year? And I guess I have somewhat similar question for the top line and profitability, considering the strong print in the first quarter in woodworking.
Yeah, thank you, Lucie, for your question. And you're right. If the order intake is very strong and when you head up the quarters, the last three, then you're totally right. Traditionally, the first quarter is in HOMAG always a strong one. It slows down in the summertime, and it picks up again in Q4, but this is a little bit seasonal. But anyway, how we see the business development going forward, there's an opportunity that the guidance for HOMAG is not conservative, not only conservative, but can be maybe be higher, but we would like to feel comfortable to change after the second quarter. But let's say your assumption is pretty right.
Thank you very much.
It also applies for sales and results.
Thank you for the color. My second question was around the impact from chip shortages in the automotive industry. I appreciate you mentioned that you are kind of monitoring the situation, but we obviously are already kind of at half of the second quarter. Usually, you have a little bit of lead time. So do you see, from your standpoint, an impact, and how could it impact your guidance? Specifically, I'm thinking of application technology because we have heard, obviously, of numerous OEMs discussing about kind of already stopping their factories. So I would assume you already have kind of visibility on that and on the potential impact for you. So could you provide maybe a bit more color here by division?
Yeah, thank you, Lucie. This is Jochen speaking. In terms of the chip shortages, there's two directions we might be theoretically impacted. One is, of course, missing parts of our own products. This, at the moment, we manage well. Let's see how things continue. In terms of production stoppages with our customers, we've probably had a very low single-digit million impact overall on our automotive business in Q1. So far, if things don't become much worse, we believe that the impact will be such that it does not impact our guidance for our automotive activities. But we have to watch it. I mean, there is news every day that customers are shutting down their plants. We have to watch it. And as I said, if it stays within our expectations, we will manage it. But again, we have to watch the situation.
But is it the right understanding to think that based on what has been disclosed today by your customer, you do not see this as derailing at all your guidance on automotive based on the information we have as of now?
Lucie, that is a valid statement, yes.
Okay. Thank you. And my last question was on the free cash flow. Again, I mean, it seems you had a very strong start here. Appreciate the working capital ramp-up probably needed to accelerate the growth in the second half of the year. But what is really your visibility that the working capital ramp-up needs to be, I would say, so large because you start in the year with actually a quite positive print on the free cash flow? And from what I also understand, you seem to be expecting an improvement in the earnings in the second half of the year, generally speaking. So why did the working capital alone come to offset all of that benefit?
Yeah, so actually what we need to consider, Lucie, is not only the ramp-up of net working capital in the second half of the year in regard to inventories, in regard to receivables based on the sales, but also the fact that due to the order intake and the initial payments of our customers, we had a good, really very good development in regard to free cash flow in the first quarter of this year. So this is in line with the whole guidance, something that we do not expect now to happen quarter by quarter. So that's why we stay with our guidance. But as I've already indicated with HOMAG figures, I think we feel comfortable with the guidance. And then let's see after the second quarter is done, what is our expectation for the remainder of the year?
Understood. Thank you. I'll go back in the queue.
The next question we received is from Ingo Schachel , of Commerzbank AG. Your line is now open, sir. Please go ahead.
So, yeah, thanks for taking my question. And the first one would be on your very strong service and spare parts business. I think especially spare parts, of course, you're showing a very strong growth rate. Can you give us a bit more color whether you see that mainly as restocking on the client side or whether there are specific segments in which you really win market share or increase your penetration with regards to spare parts business?
Yeah, Mr. Schachel, thank you for this question. We had, on the HOMAG side, for example, a very strong service business, the best ever quarter and month in March. And this was mainly driven by the high utilization of the plants of our industrial customers, particularly on the flooring side. And they need a lot of spare parts and also very valuable ones. And so it's mainly driven by high production utilization. And I think, Jochen, you can confirm the same for APT, no?
Yeah. Absolutely. APT has been running extremely well now for a couple of months, and we don't see this trend at the moment to change. Again, we have to watch a little bit the production side at our customers, but we continue to see this business strong.
Okay. And then the second question would actually be somewhat related on HOMAG and the profit margin there. Of course, for this quarter, you've still talked about legacy orders which have to be digested. Can you shed a bit more light on how long it will take before those are completely worked off? And also what to expect after that? In the current order intake, are you more or less seeing normalized margin quality or even better ones? Because as you already alluded to in your previous answer, it looks like customer mix is even above average. Pricing power should be coming back with rising commodity prices. So are you currently actually in your order intake rather booking order intake with better margin quality than, let's say, in the normal years two, three years ago?
I mean, first of all, the cleanup, as I mentioned, in the project business, that's done in the first quarter. There were older projects which mainly was affecting two larger customers, and I negotiated to find a settlement on everything. So that was impacting only the first quarter. That's now gone and out. The system business we have now on board seems to execute stable. There's always some surprises possible, but not that it would influence us. And therefore, this is past. And the margin quality, we can see, is quite stable on the new equipment side because the market is busy. Also, our competitors have good order intake. So that's developing also as we planned it. So that looks good.
Okay. Thank you.
Pleasure.
The next question we received is from Will Turner of Goldman Sachs. Your line is now open, sir. Please go ahead.
Hi everyone. Hope you're all doing well, and thanks for taking my questions. The first one is just touching on the impact of the semiconductor shortage on your business. Obviously, it's been very well flagged, but are you seeing any discussions amongst customers for your automotive business for any brownfield or greenfield projects being deferred as a result of this semiconductor shortage, and then yeah, if you can answer that question first, that would be great, and then I'll ask my second.
Okay.
Yeah, thanks, William, for asking the question. No, we don't see that. We even have one case where we're approached by a customer who wants to accelerate some brownfield work due to the necessity that he has to shut down production. So simple answer would be no, we don't see that at the moment.
Okay. Interesting points. And then my second question is on profitability. So you obviously did a good job with gross margins increasing 1.5 percentage points, but then EBIT margins declined versus the first quarter of 2020. Why is that? And how come SG&A costs increased so significantly and wasn't able to be reduced with your lower sales?
We do it together, Dietmar. So the SG&A costs, actually, we could reduce. They are only higher because of the acquisitions. And Dietmar mentioned the EUR 10 million number, which is the addition of overhead costs from acquisitions. So overall, we decreased, no?
Yeah. Equal to -5% if we look at it.
Minus 5%. Comparable without acquisition.
Okay. Great. Secondly, then, regarding the difference between EBIT reported and EBIT before extraordinary effect, we already started certain restructuring measures last year in the first quarter and accordingly recorded then the special impact. This is only a very small amount that we posted this year in the first quarter.
Okay. That makes sense. And then my next question is on M&A. You've obviously done quite a few bolt-ons in the last six months or so. And I was wondering what your latest thoughts are. How active are you at currently seeking targets? And where is it that you're now currently looking at?
Yeah, thanks, William. The strategy hasn't changed. We've only moved a little forward with especially the targets in woodworking and in the case of Teamtechnik, a combination of EV and Megtec. And we continue to look for targets in those areas, but in more general, also targets, as we discussed before, in industrial automation, machine building with strong life cycle potential and sustainability. And nothing is changing. As you see from the balance sheet, we have the firepower to continue, and this is what we intend to do.
Okay. Thanks. The next question we received is from Alexander Hauenstein of DZ Bank. Your line is now open, sir. Please go ahead.
Yes. Hello, Alex Hauenstein of DZ Bank. Thanks for taking my question. I have a couple of questions shortly. First of all, when we look at the shortage in timber currently, especially in Germany, but also beyond, is there any impact on HOMAG, the US, especially by timber on high prices? Does that make any kind of rethink at your clients?
It's discussed in the industry, and the furniture producers are complaining about that. Some of the larger ones I talked to, they had stocked very well already wood last year. But it's not changing because they are also able, because of the high demand from the consumers, to pass that through to higher prices of the furniture itself. So we don't see any delay of a project or any discussions about that the timber price is higher. And the industry sees that as a temporary aspect because you know from the price that the Chinese are buying our beetlewood, I call it, the Käferholz, what is called beetlewood, you can say, yeah, the ill wood. And also the Americans are buying a lot of wood in Germany, and all the sawmills are at their capacity. They cannot produce more at the moment.
But the U.S. had just some trade tariff or trade war with Canada, which will be soon, hopefully, settled, and then they buy more in Canada again. So everybody sees it as a temporary effect.
Okay. Thank you. And a follow-up on the deals that might come up. Do you think it will be more and more of a tricky thing to integrate all these mid-size or smaller and mid-size deals? Does that bind a lot of management capacity from your side, or do you have some kind of standardized procedures and integration processes here implemented, or how should we think about it? I mean, this is always a thing of integrating these things at a good speed and, on the other hand, to not lose out on the benefits and opportunities here. Maybe some thoughts?
Alexander, it's a very good question, actually. And both statements are valid, of course. The effort you have to do to integrate a smaller acquisition is not much smaller than a larger acquisition. In the field where we've reported acquisition, it is simply such that there are no larger acquisitions available. And like Kallesoe or in the case of Teamtechnik, and we are aware that this consumes capacity. But we have a pretty, meanwhile, a pretty good PMI process set up, standardized tools. On the other hand, we always evaluate when we have the possibility to acquire a company, and we look carefully at effort versus size.
And I think Jochen, in the case of Kallesoe, which is a Danish company, and the management of Kallesoe knows the management of System TM we acquired last year. Since 20 years plus, we asked the system guys to look after the Kallesoe people because business is untouched. Integration is not too much. We need financial reporting and some other governance stuff, but we still continue to focus on the business. But your general market is the correct one.
Yep. Okay. Understood. Thanks for that. And also a follow-up on the shortage on microchips, etc. Is there any chance or, let's say, a risk that also your other parts might be affected from these shortages, let's say, HOMAG or also the clean technology or the MTS parts?
Yeah. As Jochen indicated already, we also are watching carefully through our purchasing organization the availability of those parts for our own products. And by early stocking and by alternative products, we are managing the situation at the moment quite well. If that goes worse or more shortages, as we can see today, maybe we will have some effects, but too early to say. But not significant. It will not be a huge problem now.
Biggest issue currently is to get new laptops.
Yeah. Right.
Got it. O kay. Thank you.
I'm working on some of these old ones.
Good luck then. Thank you.
Before we take the next question, just a reminder, if you would like to ask a question, please press 01 on your telephone keypad, and the next one is a follow-up of Lucie Carrier of Morgan Stanley. Your line is now open again. Please go ahead, madam.
Oh, hi. Thank you for taking my follow-up. The first one was focused a little bit more on your electric vehicle-related business. And I was hoping you could maybe kind of provide us an update with how things are evolving in your battery technology around EV, but also how the EV-related business has performed in the first quarter, specifically in the paint shop in terms of order intake and maybe also application technology, if relevant?
Yeah. If you will, our traditional business, Lucie, it's about 40% of the business in PFS and APT, meaning paint shop and application technology, and also final assembly that's related to electric vehicles passing our production lines, and in addition to that, as you might be aware, we have the acquisition of MedTech, acquired a bit more than two years ago, also the capability to coat electrodes for the production of cells, and we've also gone into a cooperation with a Japanese company called Techno Smart for a different technology for the same application, and there we are, first of all, we're having successes. We have installed a couple of coaters or lines in Europe, and we are in the bidding process for larger projects alongside the existing OEMs in Europe, but also with Asian companies who act as tier ones for OEMs in Europe in the future.
There is significant potential, I can only say. We believe that we will get some business from this capacity that will necessarily come up in the next two to three years.
Just maybe to follow up on that in terms of the momentum of that EV business as part of your company, I seem to remember that you had a higher market share in the paint shop, specifically for EV manufacturers, than what you have versus the, I would say, the historical or incumbent OEM. Is that still the case? And do you expect it to continue even though that becomes, obviously, a market that is more and more disputed?
Yeah. That statement is true, Lucie. We have, I can say, a significant and potentially higher market share with those new players because those new players are, if you will, they value more quality and support and turnkey capability compared to the traditional players because they don't have their own competence and the capacities. And consequently, somebody like us who knows how to build paint shops and who can really easily act as a general contractor is valued. And this is why your statement is correct, that I would say in that field, we might have an even higher market share than with the traditional customers.
Thank you.
Pleasure.
The next question is from Richard Schramm of HSBC. Your line is now open, sir. Please go ahead.
Yes. Good afternoon. Just a quick question on the acquired ambitious market share target you have given out for HOMAG with 40%. I just wonder if this is mainly related to the latest acquisitions you made, that you just have bought the market share, or is the defined market now bigger? So what is behind this expansion?
It has nothing to do with the acquisition because that's solid wood. The market share of 40% is a new target for the salesforce in HOMAG. And yes, the market is bigger, is larger this year as it was last year, but we want to take more market share than we had in the past. We are more aggressive. We are selling more aggressively. We are covering the customers better. And I told the people that this is just a sporty target, which we will not achieve in one year, but I think in the next two to three years, that's possible. Also supported by our leading service capabilities and some new machines. I mentioned one example, which was introduced to the market end of last year, and we already sold a year of production, and we are just increasing production. So there are some benefits.
But it's mainly the salesforce who is much more motivated and active out there.
Okay. And if one hears such quite ambitious targets, I could also suspect that you sacrifice a bit of the margin for gaining market share. How do you think about this?
I would not exclude that in one or the other situation, we would take an order, but we don't take orders where we don't make money. And the overall target for our profitability in HOMAG is untouched by this strategy. I think it's just our, as I said, the HOMAG sales team is more motivated. They have taken away some chains they had around, and they are now out there. And from our capability, from our technology, we have deserved to have 40%. Whether this will be now, it's not a target for itself. Whether it takes two years or two and a half, we will see. But I think we have the potential for it. It's just to tell the guys, "Let's grow.
Okay. Thank you. And just a quick one on the financial side in Q1. I'm not sure if I got it right. You mentioned that there was kind of one-off in connection with Teamtechnik. Could you just give us an amount and what maybe was behind this or this kind of acquisition-related cost you booked in here?
Yeah. Richard, basically, it's two one-off impacts that we have in there. First of all, we did the refinancing and already got the payment from the Schuldschein at the beginning of the year, which was then now finally settled. Then the bond ended one part of an older Schuldschein in April. So we had double interest costs, basically. And the second thing is, as you mentioned, in regard to Teamtechnik, that actually we refinanced their liabilities. And we had them to make one-time payments in order to compensate the banks for the loss that they are realizing from now actually doing the refinancing. But this will generate saving in the future between EUR 1.5 million-EUR 2 million per year.
Okay. Thank you.
The next question we received is from Peter Rothenaicher of Baader . Thanks. Your line is now open. Please go ahead.
Yes. Good afternoon, gentlemen. I have a question regarding the background within Paint and Final Assembly Systems. Could you perhaps summarize how is the project pipeline, what is going on in this industry regarding new greenfield or bigger brownfield projects? And with that also, has the competitive situation changed somewhat? How aggressive is, for example, SCIVIC? And yeah, what is going on here? And with that also, how is the pricing situation developing here?
Thank you, Peter, for asking. In terms of the general project pipeline overall, it's quite good. It's always interesting to look at it regionally, as explained by Ralf initially for the group. That applies also to PFS. China remains very strong for especially greenfields, but also more and more brownfields as the installed base is aging, and whereas especially in Europe, we see more brownfields, there are not so many greenfields coming up anymore as there is capacity installed, and many of the European OEMs going EV, they also, in most cases, convert existing sites for the integration of electric vehicles, so again, that creates more brownfield than greenfield work. In terms of competitive situation, you just mentioned a name. We don't see this one particularly strong.
However, you can imagine that especially last year with the situation becoming a bit more tense in the market, there's been a bit more competition. We see, in some cases, smaller companies, especially in the smaller brownfields, becoming quite aggressive. And the target, and so far we've managed it quite well, is that the market automotive is always competitive, and automotive is always looking for price decreases over time. So the game is simply, can you execute cost reductions as quickly as there might be price reductions? And there, I think we've been taking good measures. And again, we've mentioned earlier in this call that especially the cost reduction activities, also the plant closures that we've initiated last year and executed this year, are well on track.
So in recent meetings, you mentioned that due to the competitive situation in 2020, the order quality of the order backlog at the beginning of the year was somewhat weaker than one year ago. Is there a change in the trend that this is becoming now better again?
We hope that things or the margins will become better again. We also see some potential to well execute orders that we have on hand and improve the quality while we execute them with a more competitive cost base that we have achieved.
Okay. Thank you.
Thank you, gentlemen. Again, as a reminder, if you would like to ask a question, please press 01 on your telephone keypad. And the next question received is from Christian Cohrs of Warburg Research. Your line is now open, sir. Please go ahead.
Yes. Hello. Good afternoon. Just one question left for me. I'm glad to hear your targets and expectations for HOMAG. You said that you want to focus to execute incoming orders and you are eyeing market share expansion. Now, remembering last year or the last two years, you have initiated a lot of restructuring, reorganization. You wanted to, or you intend to expand capabilities in best-cost countries. You want to reduce complexity. So these things do not happen overnight. So where do you actually stand in terms of your reorganization? And do you think also that HOMAG is already back in shape to fulfill the growth targets, or is your expectations of growth, is this more, yeah, midterm-driven? And do you see that, yeah, is the current year more still a year of transformation, or are you actually in the position to gather pace?
Good question, question and a complex one, and you get a complex answer. First of all, I think the main point, the first focus I had in HOMAG already last year when I took over was to, yeah, I should say, I call it to set free the salespeople. They had a lot of rules and procedures which were really complicated and didn't give them enough space to make decisions in front of the customer, which was a big disadvantage that we took away already by end of the year, and the salespeople, they are basically paying that back with a high motivation level and the order intake level, as you can see, which is huge, and particularly in the single machine business, which means that our sales guys talk to the mid-size companies. They can only close deals on weekends because these guys are working in the day.
And that is really on the way, and that's done and continues to be very helpful. And I think that's the main driver also for market share increase. On the product side, we had some new developments which are very promising. That's also supporting it. And that's more or less, I would call it now, daily business where we have a longer time to go. And the third point we have now is also we changed the organization not radically, but we focus and reshaped the organization. It was very unclear responsibilities. HOMAG is complex, but it was made even more complex by the organization. And so with the new BU structure, business unit structure, which is now a global responsibility, including the factories, we are much clearer to the people inside, also to the customers. And the first feedback from our larger customers is very positive about that.
So that's, let's say, more or less done. The things which take more time is the process. This we are working. As you have heard me saying several times that we are not only implementing SAP, which was implemented in Poland. It goes now to America. We also implement a new way of how HOMAG works internally, which breaks with a 25-year-old tradition. And this is still in preparation. The first site is now Poland, and it will be really then introduced also in shop floor. Even we have SAP, we will reintroduce that in 2022. So that will take maybe end of 2022, 2023 to have that totally done. But it's not hindering us in doing business. It's just an internal effort. On the factory side, HOMAG has made good improvements. The productivity, for example, in shop floor is much higher. We have good people there in the management.
They really cleaned up a lot of ways how we work so that we are more capable to produce more machines than we were in the years 2017, 2018, when we had a high order intake, mainly in the system business, which is very complex and not so much on the single-sided machine business. Now we have a very good order intake in the s ingle-sided machine business, which is, let's say, the normal daily job in the factories, and they are capable to increase. For example, the machine I mentioned, we had planned this year to produce of this machine, this new edge machine, about 380. Now we are going for 500, and they can do this relatively easy. I think the professionalism in the factories also has improved. Is that all done? No, it's not. I think we are in a good way.
Okay. That's clear. Thank you very much.
Pleasure.
The next question is from Philippe Lorrain of Berenberg. Your line is now open. Please go ahead.
Yeah. Good afternoon. A quick question from my side. How would you see the threat, perhaps, for HOMAG to enter in kind of a boom and bust cycle, a bit like last time? You were just mentioning that compared to 2016, 2017, and 2018, basically the order intake was more geared towards single machines, which was kind of good news. But if we apply the kind of underlying growth rate that you have for now in the business and look a bit further down the road, how would you kind of, yeah, qualify the situation in terms of risks that this market further grows tremendously and that you might have capacity issues and at some point even are not able to reach your peak margins?
Yeah. As I mentioned, in 2016, 2017, 2018, first of all, many things in OMAC were not done, which have been achieved in the meantime. But the time 2016, 2017 was really overshadowed by a very high volume of system business, which is complex in execution, which blocks up the factories because this stuff stands around for months to be finally commissioned. And this is not the case now. Now we have a high order backlog and a high load of single machines, which is much easier to put through the factory. So we don't see that problem repeating. It would be quite stupid if we would repeat it anyway. But the challenges we have now is not increase the capacity so much to get the material, to get the suppliers to increase their volume. That's the stuff we are working on.
And we also expect that in the course of the year that this will be a bit more difficult, but it will not damage the margins. It's just an execution issue. But the delivery time is more the problem that a customer is not accepting that he has to wait so long for machines and maybe goes to a competitor. But although they are well loaded, so I expect this problem for the whole industry. So we should be able to manage that.
Okay. Okay. But as a follow-up, you seem to really see that the market is not going to boom again, let's say, in these systems more than it is really in the single machines.
To be honest, we have a very strong pipeline in system business, but we are selective. We take the projects where we can take a good margin, where the technical risks are not too high. The mistake in 2016, 2017 was that really more than a handful of larger projects were taken where the technical feasibility to execute was not clear when we got the order. So there was a lot of R&D involved, and this we avoid.
Okay. Great. So I understand it's also on a proactive basis that you're chasing more of the single machine orders instead of the system orders.
We do both, but as I said, I'm very happy that the single machine business is a function of the motivation of the salespeople. Because, as I said, these customers, they don't make meetings at 10 o'clock on Tuesday. They tell you, "Come in the evening or come on weekend," because they are producing themselves on the machines, and for that, you need salespeople going out on weekends to make contracts, and they do, and this is the main function here, and to have a good portfolio, and that's it. Very simple, actually.
Okay. Perfect. Thank you very much.
Pleasure.
The next question is from Daniel Gleim o f Stifel, your line is now open. Please go ahead.
Yes. Good afternoon, gentlemen. Thank you very much for taking my questions. The first one would be on the order pipeline, which you laid out, seems to be full. And I appreciate there's some seasonality within 2021. But if you could scale a little bit to us how you feel the underlying demand is developing over the months. When you now look into April, into May, how does the order momentum, the conversations with customers compare to your experience in the first quarter? That would be my first question.
And this question is related to HOMAG, I guess, no?
I mean, the key is the drivers. If you could limit it to PFS and HOMAG.
Okay, then I start with HOMAG. The order momentum, even though we don't give more monthly calls, but the April was also strong for HOMAG.
I answer this a bit more generally. As I mentioned before, we have a stable project pipeline, which makes it very realistic to be within the guidance we've given for the intake. The projects that we are looking at, especially the larger ones, it's very difficult to say whether a project comes a month earlier or later. So all in all, I can't say at the moment whether Q3 is stronger than Q2 or vice versa or Q4. Again, what we can say with the best of our knowledge as of today is that the guidance we've given for order intake is valid. And fortunately, we had a pretty good strong first quarter for PFS.
Jochen, let me add for HOMAG. Don't multiply the first quarter times four. This will not take place.
Thank you very much for that answer. Maybe asking a similar question. When we think about the first quarter, how much was there still of an accessibility problem to customers with regards to visiting them on their production sites for the generation of new equipment orders, but also execution of modernization and repair jobs? And how has this accessibility changed into the second quarter? If you think solely about the pandemic impact and how much that has been a hurdle to generate orders and sales, how has this developed sequentially? What is your experience from the front line?
Yeah. On the automotive side, which is PFS and APT, there is not much of an impact in Q1 in the execution of jobs. Obviously, there's a bit of a regional difference. I mean, we don't have to speak about India as it stands right now. But overall, there's not been significant impact. Where we see a little bit of impact, and you see that to some extent in the revenues of CTS, especially on the chemical side or other industries, access to sites is in some cases a bit more of a burden, and we have to manage it. But also here, I would say some impact, but not much.
And HOMAG ?
HOMAG, there are really no, in general speaking, not overall a big impact at all. There are some cases maybe here and there, but we are installing hundreds of machines per month. And maybe two or three or four or five cases, we have access problems with accessibility. But overall, not. And also due to the fact, like also in the dual business, dual system business, that our local organizations are very capable to do those jobs. So we don't need to send the Germans to China or to God knows where. So they can do it locally. And as Jochen said, India at the moment is a problem, Brazil. But they are not markets where we have huge volumes, which would impact us a lot. So a little bit, but not too much.
Very clear. One last question on your ambition to increase market share on the HOMAG side. If you are winning, who is losing?
Everybody else. I want to make sure they are losing now. I also tease a little bit our competition, but I think it will be mainly our traditional competitors, but whether they lose or not, the market is increasing how much. We don't know yet the numbers, and as I said, we don't do it overnight in a way that we dump our prices or something like that, so, but for sure, the others, but I think the overall market will also increase, but I think from the single machine business, we will take away from our European colleagues.
Very clear. Thank you very much to all of you.
Pleasure.
Thank you.
The next question is a follow-up of Philippe Lorrain of Berenberg. Your line is now open again. Please go ahead.
Yeah. Thanks for taking the follow-up. Just a quick one on the raw material situation and steel prices, for instance. You had some comments on the fact that discussions about prices with customers, especially in automotive, are never easy. So some updated thoughts on the situation there. And passing through these raw material price increases to customers, if that's possible at that stage, anything from your side would be welcome.
Philippe, there was an interruption in the line. Did you talk about HOMAG only or the business?
Automotive.
Automotive.
The whole business, basically.
The whole business. Okay. Then you need some. So then I answer for the HOMAG business, and Jochen can do this for the automotive business. We are increasing prices in HOMAG also as we speak. And that's also possible to discuss because customers understand. But I think it's in that customer group easier than in automotive. For Jochen, it's much more difficult.
Yeah. There is a little bit of. I wouldn't call it a threat, but it's a challenge. On the other hand, we're not buying the way our business is set up. We are not buying a lot of raw material. We're mainly buying semi-finished goods. So we're rather buying steel structures than sheet metal. And this limits a little bit our exposure and adds to the timeline that we can react.
Of course, it is a little bit of a challenge, but the impact is not as dramatic as it would be if we would have a highly integrated production chain where we buy a lot of raw material. So far, we believe we can manage it.
Perfect. Thank you very much.
The next question is from Andreas Reiff of Raiffeisen. Your line is now open. Please go ahead.
Thank you. Good afternoon. I would have a question regarding the graph on page 29 where you are showing the market volume for solid wood construction machinery. The market volume is indicated for this year estimated at EUR 1.2 billion, and it's divided in three parts. Which parts of the total market are you addressing with the new business unit solid wood construction? And what is the market share you want to gain there?
Okay. Is it chart 29? Mr. Ruiff, as you say, is divided into three parts, which you see also on the right side of the chart. So timber processing, mass timber, and house building. House building, we are already addressing. That's our company Weinmann. Timber processing, we have addressed by the acquisition of System TM last year. And now with the acquisition of Kallesoe, we are addressing this mass timber market where it's basically production of CLT timber. So we cover the whole chain there. Some process parts, which we are not yet covering. That's why I said 70% of the market we address. And 70% of 1.4 is still enough for us to go for. And this market, I think, will grow also faster than it's indicated on the chart because we see a lot of demand here.
Okay. And you're addressing 70%. So that would be coming from the total figure of EUR 1.2 billion, around about EUR 800 million, addressable market for HOMAG. Is this correct?
Yeah. That's a fair calculation. Yeah.
You are targeting a turnover this year of EUR 100 million. It would be 12% market share at the moment for this year.
Yeah. But we will have more than EUR 100 million because with the acquisition of Kallesoe, it's more EUR 130 million. So then it's maybe 14%-15%. But we are just starting. Give us some water, and then we will increase.
Okay. Thank you.
Pleasure.
Ladies and gentlemen, as a final reminder, if you would like to ask a question, please press zero one on the telephone keypad.
So no more questions. No more questions?
And no more questions. And back to you.
Yeah. So then I would like to close our Q&A session of today. And thank you very much again for participating and raising those questions. If you have further questions after that session, Andreas Schaller and his team are always happy to answer your questions. And yeah, we stay in contact with you. And we talk again after the second quarter, which is tomorrow. And so stay safe. And goodbye to you all. And speak to you soon again. Thank you.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.