Welcome to the Dürr Conference Call. Ralf Dieter, CEO, and Dietmar Heinrich, CFO of Dürr AG, will present the Dürr Group's figures for the first nine months of 2020, followed by a Q&A session. I will now hand over to Mr. Dieter, CEO of Dürr AG. Please go ahead.
Yeah, thank you, Lisa, and ladies and gentlemen, good afternoon or good morning to those of you in the U.S. Welcome, everybody, to our Q3 earnings call. With me today for the first time is our new CFO, Dietmar Heinrich, who joined Dürr on the 1st of August. He also took over responsibility for the division Measuring and Process Systems from me as of the beginning of this October. Just to complete here the picture, there will be three members on the Board of Management of Dürr from January 2021 onwards, and I will take on responsibility for Woodworking Machinery and Systems in addition to my role as CEO, and Jochen Weyrauch, the deputy CEO, continues to be responsible for the division's Paint and Final Assembly Systems, Application Technology, and Clean Technology Systems. Also on the call today is Andreas Schaller from Investor Relations.
We start with our slides on page number three, and as always, our earnings presentation is available on our Investor Relations internet pages, and I assume that you have it in front of you, and today, I will start with an overview of our results in the third quarter and the first nine months. Then I will comment on the performance of our divisions, and after that, I will hand over to Dietmar, who will cover the financials, and at the end, I will present to you our outlook for 2020, including a breakdown by division. Let's start with the highlights on slide three. After the downturn in the second quarter, we have seen a strong operational improvement in the third quarter. Order intake increased as the growing project pipeline started to translate into orders. Among others, Dürr could gain a large project from a premium automotive OEM in Germany.
As a consequence, the book-to-bill ratio recovered to 1.01 in the third quarter, and the order backlog only declined slightly compared with the second quarter to EUR 2.45 billion. Sales revenues recovered moderately in the third quarter as industrial production picked up after the lockdown in the second quarter. EBIT improved significantly in the third quarter compared with the second quarter, driven by a higher service share, cost reduction measures, and solid project execution. Free cash flow in the third quarter remained strong, and we continued to manage our net working capital and CapEx in a disciplined way, and customer payments were again very stable. Our total liquidity reached a new record level of EUR 960 million. We further strengthened our already strong funding situation with the placement of a EUR 150 million convertible bond.
Meanwhile, we already used part of the money to acquire the Danish solid wood processing system specialist System TM, and I will talk about that in a minute. In light of the strong performance in the third quarter, we confirm our guidance for 2020. This, however, assumes that we will not enter into a complete lockdown again because that would impact revenue generation until the end of the year. Now, let's have a look at the overview of the key financial indicators for the first nine months on slide five. Order intake declined by 19%, which is an improvement compared to the first half year as order momentum has resumed. Sales revenues for the first nine months came in 15% below prior year, and on a quarterly basis, sales revenues in the third quarter were almost back to the level of the first quarter.
EBIT before extraordinary effects improved significantly in the third quarter to almost EUR 40 million, even though it still declined in the first nine months by 63%. And the improvement in operating cash flow was due to a major positive swing in net working capital. Slide number six is a new one in our presentation, and you will find some more in the financial section. Dietmar contributed some new ideas to the presentation, and we hope that you find this new format helpful. The slide shows on the left side the development of order intake by quarter since the beginning of last year, and you can clearly see the downturn in the second quarter 2020 and the recovery in the third quarter. In addition, you find the development of the book-to-bill ratio that has recovered to above one in the third quarter.
And now, let's have a look at the regional split of order intake on the next slide. The order intake in China is still strong and above prior year for the first nine months. In addition, we now see order momentum also building in other regions. We are discussing projects in different regions of the world and could secure a large project from a premium automotive OEM in Germany, and this project is in Germany. And as a result, order intake in Germany grew strongly and is now 21% above the level of the first nine months of last year. Now, let's have a look at the status of our measures to safeguard our future on slide eight. We made quite some progress in the third quarter. At HOMAG, we reached an agreement to completely close production at the Hemmoor plant by the end of 2020.
We also agreed on the headcount reduction at the main site of Measuring and Process Systems at Darmstadt. This will affect about 70 employees. The negotiations with employee representatives and unions in Germany regarding the capacity reduction at Paint and Final Assembly Systems and Application Technology are expected to be finalized in the fourth quarter. This includes decisions on the future of sites such as Ochtrup and Wolfsburg and the reduction of headcount in Püttlingen and Bietigheim-Bissingen. Outside of Germany, we also made progress and negotiated capacity adjustments in Spain in the automotive business. All in all, the number of employees has been reduced by 312 since the beginning of the year, and we booked EUR 10 million restructuring charges in the third quarter. In total, this sums up to EUR 19 million for the first nine months. And to summarize, our optimization and capacity reduction measures are on track.
On slide nine, we give you an overview of the restructuring charges booked and expected, as well as information regarding the realized and planned cost reduction. In the first nine months, we realized EUR 5 million in cost savings and expect a similar amount for the fourth quarter. Most of the restructuring charges are expected to become in the fourth quarter with about EUR 38-48 million. And for 2021, we plan to lower the break-even point by EUR 60 million as announced already in July. Adjusting the cost base is important, but at the same time, we continue to strive for profitable growth through acquisitions. On slide 10, you find some information about our most recent acquisition of the Danish company System TM. It was founded in 1977 and generates sales of around EUR 30 million with 130 employees last year.
TM is a specialist in systems for solid wood processing and strengthens our position as a system partner for sustainable construction using wood. We believe this is an interesting growth market as wooden elements are expected to play a more and more important role in construction, considering the increasing commitment to reduce the carbon footprint. The acquisition was closed at the end of October. And now, let's have a closer look at the divisional development. We start with Paint and Final Assembly Systems on slide 12. Order intake in the third quarter increased by 9% year on year, driven, among others, by the already mentioned large order from a premium automotive OEM in Germany. While sales revenues in the third quarter declined by about 24% year on year, we recorded a relatively strong EBIT.
This was driven by several factors, including cost savings, the catch-up of service business, and solid project execution. We recorded about 1.4 million EUR restructuring charges in the third quarter and expect the major part to come, as already mentioned, in the fourth quarter. Let's turn to Application Technology on slide 13. Here, we also see a recovery of order intake, sales revenues, and EBIT in the third quarter after the downturn in the second quarter. Order intake in the third quarter reached a level above the first quarter, and we recorded, among others, a large order from a Chinese EV manufacturer. The service business started to recover as automotive suppliers had resumed production in June. This clearly drove sales revenues and EBIT margin. We recorded restructuring charges of 1.2 million EUR in the third quarter, and similar to PFS, the major part will come in the fourth quarter.
Next is Clean Technology Systems on slide 14. This business continues to be very resilient. Despite the corona pandemic, we recorded increasing sales revenues and EBIT in the third quarter and the first nine months of 2020. The EBIT margin in the third quarter even reached a new record level since the Megtec Universal acquisition. After two strong quarters, order intake in the third quarter was a bit slower, but we do not see this as a trend reversal and expect continued solid demand for environmental and battery systems going forward. All in all, we are very happy with the development in this division. Moving on to Measuring and Process Systems on slide 15. This division is not only impacted by the pandemic, but is the only unit in the group facing some negative consequences from the transformation towards EV cars.
However, we saw an improvement on low levels in the third quarter. Demand shows signs of recovery as the business in Asia and China returns. Management was very fast to agree on the necessary capacity reduction measures in Germany, and consequently, we recorded EUR 3.9 million restructuring charges in the third quarter. The EBIT margin on the third quarter improved compared with the first half of 2020, driven by already implemented cost reduction measures and the recovery of the service business. Finally, let's look at Woodworking Machinery and Systems on slide 16. Overall, the impact of the corona pandemic is less pronounced than in the automotive business. Order intake of the third quarter increased by 41% compared with the second quarter, and there are signs of a revival also of the large volume system business.
Sales revenues of the third quarter benefited from increasing service business and the reopening of our customer plants after the lockdown, and in the fourth quarter, however, we expect sales revenues and EBIT to be impacted by the weakness of order intake in the second quarter, and the optimization measures at HOMAG are on track, but they will take their time. A quick look at the service business we can have on slide 17. The diagram on the left shows the recovery of the service sales in the third quarter in absolute terms and the percentage of group sales. Service margins are on last year's levels. Clearly, the catch-up of the service business had a positive impact on EBIT margins in the third quarter, so now I hand over to Dietmar for the financials.
Thank you, Ralf. Good morning or good afternoon also from my side.
Let's have a look at the financials. On slide 19, you find an overview of the key financial indicators. We recorded a strong earnings recovery quarter on quarter and a solid free cash flow. Now, let's have a closer look at these developments on the following slides. On slide 20, actually, we cover sales revenues. Third quarter sales revenues increased by about 6% quarter on quarter, but declined by about 18% compared with a strong base in the third quarter of last year. All divisions contributed to the sequential improvement, and Clean Technology Systems even posted an increase year on year, as Ralf already highlighted. From a geographic perspective, solid project execution in the Americas and Asia played an important role in sales revenue generation in the first nine months, while the contribution from Europe, including Germany, declined. Let's move on to EBIT on slide 21.
EBIT recovered strongly in the third quarter compared with the second quarter. The diagram on the right side shows a bridge for EBIT from the third quarter 2019 to the third quarter 2020. Remarkable is actually that more than half of the gross profit decline could be compensated by savings in overhead costs, especially in SG&A, and on the other side, investment into strategic R&D projects like digitalization were not impacted. Excluding extraordinary effects, EBIT declined by 38% and thus much less compared with a 58% decline when including extraordinary effects. The increase in extraordinary effects reflects the additional restructuring measures taken these years, as they have been explained by Ralf in one of the earlier charts. Now, let's have a look at the free cash flow on slide 22.
Compared with 2019, free cash flow development in 2020 has been much less volatile and positive for the first nine months at a level of more than EUR 100 million. The diagram on the right side explains the development of free cash flow for the third quarter 2020 compared with the third quarter of last year. The decline in earnings before tax was actually overcompensated by a better development of net working capital and lower CapEx spending. The decline in earnings before tax reflects also an increase in provisions adjusted in others due to the uncertain environment in the COVID-19 pandemic. In addition, lower tax prepayments due to a weaker earnings outlook contributed to the free cash flow improvement. On page 23, the development of net working capital plays an important role for cash flow. Let's take a closer look actually on this slide.
working capital in 2020 has been relatively stable and at a lower level than in 2019. Customer payments continue to be solid despite the pandemic, and contract liabilities remain above prior year's level. Today's net working capital remains in our target range between 40 and 50 days. As a consequence of the solid cash flow development, our net financial status has improved quarter on quarter, as you can see on slide 24 on the left. We reached actually a new record level of total liquidity of 960 million EUR and maintained a low gearing. Our net financial status includes leasing liabilities of about 96 million EUR. All in all, this results in a comfortable liquidity headroom as shown on slide 25.
Upcoming maturities of about EUR 450 million in 2021 are well covered by available funds of about EUR 1.8 billion, including cash and cash equivalents, money market deposits, and available cash credit facilities. The overview on this slide does not include the recently issued EUR 150 million convertible bond that matures in 2026 and that we will explain, or that I will explain in some more detail on the next slide, and this is on page 26. In the box on the right side, you can find some details regarding the convertible bond issuance, and I would like to explain some of the rationale that have been behind issuing a convertible bond. First of all, we wanted to increase our financial flexibility considering interesting M&A opportunities and in light of the upcoming maturities in 2021.
We want to continue to invest in profitable growth also during the pandemic while remaining on a solid funding base. With the convertible bond, we diversify our financing instruments and leverage the increased share price volatility of the past months to reach a relatively low coupon. We believe that the profit growth potentials that we plan to unlock with further investments will render this financing instrument attractive for both equity and fixed income investors. And with that, Ralf, I would like to hand back to you.
Yeah, thank you, Dietmar. First, let's have a quick look at market developments before we come to the outlook. And on slide 28, you see a recent update of the projected development of the light vehicle production until 2027. Compared with the projection of July, the downturn in 2020 is less pronounced at 74 million compared with 70 million units previously.
The projection for 2027 has increased slightly. However, it will still take us until 2022 before we return to the levels of 2019. Looking at the furniture market on slide 29, the picture is similar. And after the downturn in 2020, a solid recovery of market volume by 8% is expected next year, reaching a level close to the peak of the last investment cycle at around EUR 4.1 billion is projected now for 2023. But first signs of start of a new investment cycle are becoming visible. Now, let's look at the Dürr Group's outlook for 2020 on slide 30. We confirm the outlook given in July. However, this clearly assumes that we will not see a major lockdown affecting production and project execution at our customers until the end of the year. And on the next slide, we provide, as promised, a breakdown now of the divisions.
The breakdown by division covers order intake, sales revenues, and EBIT margin before and after extraordinary effects. Now, what do the numbers tell us? We are expecting a further improvement in order intake in the fourth quarter, and sales revenues in the fourth quarter should further increase, especially in PFS, APT, and MPS, as we realize more equipment sales. For Woodworking Machinery and Systems, however, we expect the weak order intake of the second quarter to result in lower sales revenues and EBIT in the fourth quarter. We expect fourth quarter EBIT and EBIT margin before extraordinary effects to reach a level of somewhat below the third quarter despite higher sales.
The reasons for that are, first, the expected EBIT decline at the WMS division, a lower share of service business compared with total sales as a growth is mainly driven by equipment sales, and third, temporary margin pressure coming from projects gained during the time of low order intake levels at the beginning of the year. With respect to cash flow and net financial status, we are clearly ahead of the target after the first nine months. However, as uncertainties remain high and net working capital development can be very volatile, we are cautious and stay with the guidance given in July. In conclusion, let's summarize on slide 33. We have seen a strong operational performance in the third quarter, as well as a solid development of cash flows. Our total liquidity is at record level, and we continue to strengthen our portfolio with the acquisition of System TM.
And we confirm our guidance and remain positive for the future despite the current second wave of the pandemic. Recovery will come. It will just take a little bit of time. Thank you very much so far for your attention, and now we are very happy to answer your questions, and I hand over to Lisa.
Thank you. 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 a question. If you find your question is answered before it's your turn to speak, you can dial 02 to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. Our first question is from Ingo Schacher from Commerzbank.
Please go ahead, sir. Your line is now open.
Yeah, thanks very much. My first question would be on your acquisition of System TM and the growth ambition you have in solid wood processing with the triple digit revenue target, a separate segment, and so on. What does it take for you to reach, for example, this revenue target? Will you deploy more capital there? You have issued the convertible. Does it mean that you see more M&A opportunities in this area? And is it ultimately your goal to be also the market leader in this segment? I think there are a few strong incumbent competitors. Do you strive to be number one, or is it just a segment where you want to be strong number two, strong number three?
Thank you, Mr. Schaller, for your question.
First of all, System TM is linked to our Weinmann business we have already in HOMAG, which is about EUR 40 million-EUR 50 million plus the EUR 30 million-EUR 40 million. So in total, we talk about EUR 60 million-EUR 70 million we have today in that field, and we want to grow that not far in the future to a EUR 100 million business. There are also maybe further acquisition opportunities of smaller companies around that, but that's not at the moment on the plan. It has to develop over the time. Whether we want to become number one in the market, that's always our goal, but I think we are in a very good position in this business.
Just to remind you, not to remind you, but we talked last year about last year. We got a large order of EUR 30 million in America for providing a full range of production equipment for solid wood construction elements, where we also linked partners in to provide a customer the full process chain. Our part of that was about EUR 10 million. The rest we bought from other companies and integrated it. So I think we have a strong foothold in that industry, and we are very optimistic about the future of this.
Okay, Dieter, thank you. And just on your question of. We don't need to invest.
We need to invest in some sales people because we have some markets where we can be stronger, and that will be doing the next step.
Okay, Dieter, on your cash flow, I mean, the cash flow has been quite impressive throughout this year, and I think that that comes after, I think, several years where cash conversion was not so great. How would you interpret the recent improvement of payment terms? Is it just, yeah, coincidentally some better payment patterns that you're seeing right now, a structural change in your clients' willingness to prepay, the new CFO, or just temporary changes and next steps back to normal?
Mr. Schaller, my quick answer would have been because of the new CFO, better discipline and also performance. Yeah, right. I did all the work before that. But I think the main reason, there are many reasons.
I think, first of all, we could manage with our customers, and that was a big concern of you guys after the first quarter, whether the customers will try to delay payments or reduce down payments. And I think our teams around the world managed very well to remind our customers of contractual obligations. And that was a very strong sales job we did, and I think the customers all paid, some of them paid already earlier than expected. So that was a good one. And the other one has to do with the lower revenue, which is also setting some cash free out of net working capital.
Okay, thank you. Q4, you guys have some negative cash flow in Q4. Is it just because you don't want to fine-tune your cash flow guidance because it's on a volatile quarterly basis?
Is there anything we should read into this estimate? You really expect a weaker Q4 in terms of cash flow? That's a difficult one. This I give to Dietmar. Yeah, let's be on the cautious side in that regard. But with the expected ramp-up that we see now in fourth quarter in regard to sales, we will have higher receivables. And of course, we don't want to give up what we want to achieve already, but let's be cautious and stay with the guidance for today.
Okay, thanks very much. Thank you.
Our next question is from Philippe Lorrain, Berenberg. Please go ahead. Your line is now open.
Yeah, good afternoon. Philippe Lorrain from Berenberg.
I just wanted to touch again a bit on your implied guidance for Q4 and the fact that you were rightfully saying in the call already in the preparatory remarks that you are anticipating a weaker Q4 EBIT margin. It seems like really it's more the case for APT, MPS, and HOMAG. So HOMAG, I get that you were mentioning that you're going to be working on orders that are on the weaker order intake that you got in Q2. Is the rest of the explanation really just that you're anticipating the service business to be weaker than usual in Q4, or are there any other reasons that you were perhaps not mentioning before and that are worth highlighting?
Yeah, I think it's not that we expect a weaker service business, but we expect a lower share of service business and a higher share of the equipment business, which is by nature less profitable as a service business. And so it's a mixed problem, nothing else. And the problem you already described, that because the HOMAG business has relatively short lead times and the second quarter low order intake will hit us on the floor in the fourth quarter and some parts of the first quarter maybe.
Okay, understood. Also, can you update us a little bit on the longer-term CapEx ratio targets? This year, you guide implicitly for about 2.4% of sales, and that includes, I think, the right-of-use assets. Last year, that was 2.6% of sales. So what would be the right ratio going forward? And also, if you could guide us a little bit on D&A.
The CapEx ratio then directly coming from the investment in the factory would be in a range of 1%-2% from a long-term view.
And that would be just the tangible, if I understand it correctly.
Again, please.
That would be only the tangible assets.
Yeah, right.
Okay. Yeah.
Okay, that was it from my side then. T hank you. Thank you, Mr. Lorrain.
Thank you.
Our next question is from Daniel Gleim. MainFirst, please go ahead. Your line is now open.
Yes, good afternoon, gentlemen. Thank you very much for taking my questions. The first one would be for Mr. Dieter. I appreciate the slides you provided from the external parties on the end market trends. I would be interested in what you, from the Dürr perspective, are seeing at the moment.
So if you could talk a little bit about the large order development on the automotive side, what are you seeing currently in the fourth quarter? Has there been any impact from COVID-19? So have you become more or less confident on further large orders in this fiscal? This is the first part. And secondly, if you could comment on where we stand on HOMAG, both on the order and sales current trading at the end of October so we get a better understanding whether this second quarter soft order intake indeed has material repercussions for the current sales momentum at HOMAG. That is the first question.
Okay, thank you. First of all, our pipeline for larger projects in paint and final assembly and also that in conjunction with APT. We still have some projects ahead of us for the fourth quarter.
As it always says, if we get them all, it would be fantastic. It would be very good. If we lose them all, then it's not good. We are working on it. We have some good opportunities. I think the pipeline here is still there. That's also in China, and it's in Europe. The major concern we have is for America. Larger projects we don't see, but we have mid-size projects we have to get them. I think the pipeline supports what we want to achieve in the business. On the HOMAG side, I always try to point out that we have two business or three business areas. One is service, but the other one is the standard single machine business. Then we have the system project business.
We said already that in 2019, the system business was much down compared to 2018 and 2017. We said this will maybe recover end of 2020 and 2021. Here we see the trend that the system business is picking up. We already just yesterday booked a nice system order in HOMAG, and we see that the activity on negotiating and finalizing or discussing larger system projects in HOMAG has very good activity level. Next year, I think there are a lot of opportunities in that field. I think that will be stabilized. The sales development, the fourth quarter is just a temporary effect out of the second quarter, but not a continuous effect. It will be increasing again in the next year.
Very clear, thank you very much. The second question is for Mr. Heinrich.
We had one slide showing a step-up in provisions year over year. Could you give us a little bit of guidance how that sequentially has impacted the EBIT line for Dürr, i.e., this increase in provisions? How negative was the impact on EBIT versus the second quarter of this year? So I better understand what the sequential impact, the dilutive impact could be.
Yeah, first of all, the second quarter was significantly influenced by the lower shop load. So we actually had issues in regard to fixed cost impact on profitability. In regard to what you mentioned and what we showed on page 22 is that actually we increased provisions due to uncertain environment with the COVID-19 situation. As you can imagine, in the current situation, traveling to the sites, the safety measures on sites are getting more difficult, are requiring more effort.
We posted certain provisions then in that regard to make sure that actually we anticipate this risk prope rly.
Maybe phrasing the question differently, how much higher would the EBITDA have been if we didn't have a second wave in COVID-19, i.e., without this increase of the provisions versus the normal level? I understand there was always a provision build-up irrespective of whether we have a pandemic or not, but what was the increase specifically for COVID-19 in the third quarter?
Yeah, it would not h
ave led to an overshooting of the profit level in the third quarter, but it would have been a decent impact of around EUR 10 million. Do you expect this impact to repeat in the fourth quarter, or is this more of a one-off in nature for the fiscal?
From today's point of view, we do not expect this to repeat.
It was a one-off that we reflected actually in the project calculations.
Very clear. Thank you very much to the two of you.
Our pleasure.
Our next question is from Christian Cohrs from Warburg Research. Please go ahead. Your line is now open.
Yes, hello. Just one question left for me. If I'm not mistaken, during summer, there had been no summer break holidays or summer break in the automotive industry and in the sites. And accordingly, the projects with regards to modification and refurbishment were quite down. And I think this is high-margin business for you. Do you expect some catch-up effect, and do you think that this type of business will actually be very strong in the upcoming Christmas season? Thank you.
We have a good memory because some of the plants had a summer shutdown anyway.
Yes, that business is more profitable than the equipment business, but also what we see is a lot of competition around those revamp jobs, as we call them, because of the loading of the whole market. But anyway, the pipeline for the winter shutdown has increased compared to summer shutdown. And so there's more. But a catch-up, we will not see. They will just delay things and do it next year or end of the year next year.
Okay, thank you.
The next question is from Ingo Schacher, Commerzbank. Your line is now open.
Yes, thanks. And just a quick follow-up question on the question around the Q4 implied profitability and your expectation of slightly lower earnings. I think Q3, your overhead expenses were quite low. Even SG&A expenses went down nicely despite good order intake.
In your expectation of weaker Q4, I mean, you spoke a lot about utilization, gross margins. How should we think about overhead costs? Do you think a lot of those costs will come back as activity normalizes, or can they stay as disciplined as they were in the third quarter?
Yeah, okay. First of all, we continue with the discipline moving forward in that regard. But as already highlighted, we continue with the R&D activities. And with looking ahead, that might increase then in that area. Selling expenses to some or to quite some extent are actually depending on the sales volumes. And with a recovery of the sales volume that we do foresee, then when moving forward, they will increase. But as said in the beginning, we continue with disciplined way moving forward then and managing then expenses very tightly in that regard.
Okay, very clear. Thank you.
The next question is from Sven Weier, UBS. Your line is now open, sir.
Yeah, good afternoon, Mr. Dieter, Mr. Heinrich. I have two questions, please. And sorry if you mentioned that in your prepared remarks already. I could only join later. Regarding your order intake guidance, would you place yourself more on the upper end or on the lower end, midpoint? What's the best guess from your point of view? That's the first one.
Good question, but that's why we give a range, because it's so difficult to predict. If I would know already, it would be easier. But as I said before, in our business, one larger order, and we are working on some larger orders, if it comes or not makes a big delta. So I can't tell you. But I think the range is what we expect to be able to reach.
Whether it's the lower end or upper end. From the pipeline, it could be the upper end, but it depends how successful we are in closing those deals. Just asking because in previous times, you gave us a certain feedback. I respect that times are uncertain, so. Sorry, what did I do in the past? No, I said in previous times, sometimes you give us an indication whether you feel more comfortable at the high or at the low end, but I guess this time is a bit different. Situation is volatile and remains volatile. As I answered those questions, I don't feel uncomfortable. It helps you.
Okay, that's good. Very good, and then the second question is just on the convertible. I'm still a bit struggling with the rationale behind the convertible because, as you rightly said, the stock tends to be volatile.
When you did the convertible, the share price was a bit low, but the exercise price, the conversion price is not that high when you compare to your history. So I was just wondering, was the cost for just doing another corporate bond so prohibitively high that you felt you need to do a convertible?
Yeah, I think you might have realized that we also have been in the market with a corporate bond and that we finally pulled the transaction. And there was an indication for the range. From our point of view, it was unreasonable to continue with the transaction, and that's why we decided then not to move ahead. So it was really a significant difference. And as said or indicated, you could see the details of the convertible bond.
Yes, the conversion price, considering the price levels, stock prices that we had in the past are on a lower level than. But we also had some volatility during the transaction period and especially during that day. So from our point of view, it was an interesting instrument for us. And I think in some of what we saw from analyst target prices, this is also in a similar range. So I think I do not feel uncomfortable that we actually set a too low level in that regard.
And are you now basically being done with your refinancing measures?
We indicated that we have, on one side, yeah, liquidity available, then that we need further refinancing. On the other side, you see that we need to refinance around EUR 450 million then in the first quarter, April of next year. So we are continuously looking into optimizing the structure.
In case the market continues to develop in a, actually, I would not say continues to develop in a good way, but actually in case market windows are providing opportunities, we might also do additional transactions.
Okay, understood. Thank you both.
Pleasure.
Our next question is from Philippe Lorrain of Berenberg. Please go ahead. Your line is now open.
Yeah, thanks for taking my follow-up question. When it comes to modernization activities, especially in automotive, you mentioned competition. And also, you do not seem to mention an improvement in the project pricing situation in automotive. And that is despite the fact that Eisenmann has now gone bust. So I would like to understand a bit better why is that and what kind of competition do you observe now, especially in your core regions?
Thank you, Mr. Lorrain.
I mean, Eisenmann went bust, but there are some little splinter groups left over, smaller teams, basically two companies which have survived, company size 50 to 100 people, also in modernization business. But in modernization, we always have quite a lot of competition in every country, different companies because it's local business. And those guys also, due to the fact that there was less modernization business out there, now coming back with projects competitive because they all need work. That's why I'm setting it. It's temporary, hopefully. I think next year when we have hopefully higher activity level again. But it's nothing which you should worry too much about if you have just to go through that at the moment.
Okay, thanks for the question.
Pleasure.
As a reminder, if you would like to ask a question, please dial zero one on your telephone keypad.
We have received another question from Andreas Ruf. Andreas Ruf, please go ahead. Your line is now open.
Good afternoon. I would have two short questions regarding the woodworking machinery business. The first one on the turnover projections on the new segment construction building elements. You said that Weinmann is now at the level of EUR 40-50 million. Together with System TM, you would reach EUR 60-70 million. That's only a difference of EUR 20 million, but System TM has a turnover of 30. What is the current figure? What will be the figure in this year on a pro forma basis for the new segment? And the second question would be on the agreement which was reached for the Hemmoor site. You announced last year that you want to stop production or shut down production in Hemmoor. Now you talked about a complete closure of the site.
Is there a difference or is there a progress in the negotiations compared to the announcement last year?
Yeah, the last question is maybe unclear communication from me. We closed the production. The site will continue. We have engineering there and service. And the turnover, I just have the rough figures in my mind. So I would say this year EUR 65 million-EUR 70 million both together.
Okay, okay. Thank you.
Pleasure. We have another question from Richard Schramm, HSBC. Your line is now open.
Yes, good afternoon, gentlemen. Two small ones from my side, please. One concerning the picture in the Americas where you have seen your order inflow halving in the first nine months. And I think you mentioned that the outlook is also not very encouraging. Is this a market problem or is it more a sign that you might have lost some market share in this market here?
And second question concerning the order picture in China, where you mentioned that you have booked here, especially a lot of EV-related business. I have in mind that this often relates to newcomers in the market. So how profitable is this business and how, let's say, financially sound is this business? As we know that, obviously, Chinese customers sometimes might be a bit volatile in this respect, let me put it that way.
Thank you. Okay, understand. Regarding the picture in America, there is business out there, as I said, because last year we had an extraordinary year. We had two very large projects, actually one nearly three, yeah, we could book, and that's not every year. So there is, but it's only few opportunities, actually. Smaller ones, mid-sized ones, EUR 40-50 million, which is for American terms small. I think for us it's fine.
But a EUR 150 million project, we had last year two or three of them, that's not coming all the time. But there are projects, but not too many for next year. And I think it also depends now on the situation in America, how everything develops, how eager the customers are to translate that into real projects. And this year we won one, we lost one, so I would not say that we have lost market share there. China, you're right, a lot of them are EVs, as you mentioned. For us, for sure, financially we check them as much as we can. But the best security we have is that we are working to the most extent cash positive or cash neutral. So we get money as down payment, we work it down, and then we get progress payment.
And if they would not pay, then we had a case and we just stopped working, and then we paid again and we continue. So we manage that very carefully, much more carefully we would do as working with BMW or somebody, that's clear. So that's a higher risk, but we manage it also much tighter than normal projects with the traditional OEMs.
And are you rewarded for this higher risk with some better margins or is this not the case?
Well, it's difficult to say because we have the same competitors. But I think overall we can see that those projects are the and that's more in execution. The execution with those guys is a little bit more less complex, let's say. They have less people than the traditional ones, so we see margin improvements in execution, and that's good.
So I would say they are good in margins, yes.
Okay, thank you very much.
Our next question is from Peter Rothenaicher, Baader Bank. Please go ahead. Your line is now open.
Yes, hello gentlemen. So you have repeated your expectation of around EUR 60 million cost savings in 2021. So to what extent is this target already secured by the restructuring measures you have fixed? What is here the risk potential? And on the other hand, in the current year, I think you also have some cost savings from short-term work, etc., which will presumably not come in 2021. To what extent we have to calculate these savings in 2021 against your expectations for 2020? The savings you have in 2020 against your expectations for 2021. I understand your question now.
First of all, the EUR 60 million, when they are independent of short-term work or not, the EUR 60 million by the measures we have agreed with the related parties, I can say roughly 70% of that is already secured. The rest we are working on the next weeks, but we are targeting that by Christmas we have, let's say, 90%-95% of that will be done. We have one measure which is a small single-digit measure where we are not sure whether we can close it this year, but that will maybe drop into next year, but it's a small single-digit number. So most of that will be secured by year-end. That's the first message.
Short-term work, as I said, in HOMAG, we could potentially be also in the first quarter next year we use some of it out of the reasons I mentioned of the low order intake in second quarter. But how much we have taken, I mean, this I would say is more or less neutral with the reduced capacity we have next year.
And the second question, your MPS business, which is down considerably in the volume, you also mentioned to some extent it's structural due to the declining share of combustion engines. What do you expect here as a medium-term volume size for MPS?
Yeah, we go through a phase there, as I said, of transition. We have two things there.
For the combustion engine dependency, which is indirect because we are delivering a lot of balancing machines to the first-tier suppliers of the automotive industry providing components for the combustion engine. This will not come back to the level as we had it before. That's clear to us. But there are also signs of recovery, like turbocharger business picking up again. But we have also growth areas in MPS we are working on, and Dietmar and I have mentioned that already. The aerospace industry, for example, we have a lively business. And in other sectors, also in the EV side, we are providing machines for the electric motors. So our objective is to get back to the levels as we have been over the midterm.
Okay. And yeah, lastly, you're currently providing the financial headroom, I think, also to be active with M&A. Can you give us your status?
Do you see in the short to medium term here some opportunities?
The answer is yes.
Okay, thank you.
Next question from you would be how big and how large they are.
I know that I cannot get an answer.
The pitch is also in regard to the progress. The progress, yes. So one, we don't know whether we are working on basically we can say two or three opportunities which are between EUR 50 million and EUR 100 million turnover roughly. They are competitive process, so we don't know whether we will get them, but we hope that maybe one of them we can close by before end of this year.
Okay, thank you.
We haven't received further questions. I will hand back to the speakers.
Yeah, then it looks like we have answered everything. Lisa, thank you very much.
Ladies and gentlemen, thank you very much for your attention today and for your questions. If you have any further questions after that call, Andreas Schaller and his team is happy to receive your questions also after that call. A quick reminder here on that point, we will organize our virtual. It's now a virtual capital markets. Originally, we planned to have a physical one because I think we all learn to work digital, but it's nothing comparable to when you see each other and can talk directly to you. Unfortunately, we can't or only limited. We will organize our virtual capital markets on the 16th of November, which is the week after next. We have tried to do the best to give you as much as possible, not virtual, but live impression about a lot of things we are doing from digitization and some insights.
And I would love that most of you or many of you can join that day virtually. And in the meantime, yeah, stay safe and goodbye for you today, and hope to see you on the 16th.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.