Welcome to the Dürr Conference Call. Ralf Dieter, CEO, and Carlo Crosetto, CFO of Dürr AG, will present the Dürr Group's figures for the first quarter 2019, followed by a Q&A session. I will now hand over to Mr. Dieter, CEO of Dürr AG.
Yeah, thank you, Mrs. Moore, and yeah, good afternoon or good morning to those of you joining us from the U.S., and welcome to our first quarter conference call. Today we have a special format. I would like to mention at the beginning because we have our open house this week where we have for the whole week invited more than 1,000 customers to come in and see our latest innovation, not only in equipment and in application but also particularly in software and IoT applications. And therefore we have also here some guests in the room, some analysts who are coming to see our innovations hands-on, and therefore we have to limit the conference call to 3 o'clock. So we have to stop at 3 o'clock. So maybe if you have your questions, sort them by priority that we can finish by 3 o'clock. Thank you very much.
We'd like to start with the page number three in the presentation, which gives an overview about our key figures. You can see that we had a very strong incoming orders and also sales despite a difficult business environment. Our Book-to-Bill rate was at 1.2, and we still have a very high order backlog of about EUR 2.8 billion. I have to mention that the figures were influenced by the acquisition of MEGTEC and Universal and the FX, currency and acquisition effects. Incoming orders are still up 1%, and sales was up 6%. EBIT declined only slightly despite underutilization in some areas and execution of some orders in the environmental technology area which we acquired in 2017 and 2018, where now we are billing.
We also have to face some higher production costs in Germany due to the tariff and wage increase from the previous year. The operating cash flow improved by EUR 33 million, and I think Carlo will point that out later in more detail. For the Q1, it's a typical development. Very positive is also our service business, which grew by 22%, but just to be clear, the 22 is also influenced by MEGTEC Universal. Without that acquisition, it's about 10% growth, which is also still very strong and shows that we are really able to leverage our installed base. But we also, to be careful for what's out there, we have taken a lot of cost-cutting measures, and we have intensified them. Also, we have restricted hiring, very much so that we are focusing only on key positions in order not to increase the capacity.
On the next page, number four, you see the distribution is always among the regions of the order intake. China you see with a minus of 45%, but this should not worry us because it's just temporarily. We have in China a very strong pipeline, and we are working as we speak on some larger orders, also particularly from EV, also electric vehicle manufacturers, also new ones, and you will see in the second and third quarter a totally different picture here in China. America was strongly up, mainly due to a large order we got in Mexico, and Germany with minus 29% is also a trailing effect because in the first quarter last year we had two large brownfield revamped shops totaling about EUR 60 million, which are, let's say, making the numbers look like they are, but so it's basically stable, more or less.
In Europe, more or less the same. Very also, good is that in Asia, so without China, we have a strong growth, and this also underlines our penetration of the Southeast Asia market, Korean market, that we are successful there as well. So that's, I think, the picture. The order pipeline in total is very stable and on about previous year level. Now I would like to hand over to my colleague Carlo to give you further details about our financials.
Yes, good afternoon or good morning, also from my side. We're now on page five, and you see here some of the key figures of the profit and loss statement. The first one is gross profit on sales. The margin did decline from 23.6% to 21.7% in the quarter compared to the year before. And as we see in the slides, mainly driven by higher production costs, so wage increases, especially in Germany, and due to competitive pressure. But overall, given the increase in the top line, gross profit on sales has increased 3.9%. Something that as usual affects our results are the so-called special effects or purchase price allocation and items around purchase price allocation integration. This was in line with the previous quarter. EUR 6 million is the amount that was booked as extraordinary effect, and the big portion thereof, EUR 4.51 million was related to purchase price allocation.
So there was, let's say, smaller amounts for other smaller restructuring efforts. Overhead cost did increase 9%, of course lower than our sales, which grew 13%. But I would also like to highlight that without MEGTEC or without the exchange rate impact, our overheads would have probably just increased about 1%. So we are definitely looking at keeping our overhead cost in line. And the only increases we had in overheads was really related about paying sales commission, especially in the US. So we had a good revenue situation and some increases in sales staff within HOMAG. But overall, we were quite pleased with the overhead cost development without the integration of MEGTEC. I would like to move now to page six, and as usual, we present the net financial status development compared to the end of the year.
There are some swings that I would like to explain in more detail. The first one is related to IFRS 16, due to the IFRS regulatory changes. Our leases have to, of course, be included in our financials, and this had a negative impact of EUR 99 million in the net financial status. So this is the first block that you see on the slide, of minus EUR 98.8 million. What is unsatisfactory is the increase in net Working Capital of EUR 87 million. Of course, the increase is lower than the Q1 of 2018, but as we have mentioned many times in previous calls, it is something that we try to make sure that it remains reasonable and the efforts within the company are still there to make sure that we have at least in days Working Capital a decent net Working Capital development.
So, we are doing better than the Q1 of 2018, but it's something that is still need to be worked on. Positive news is clearly the improvement in our cash flows or free cash flow, which has improved over EUR 30 million on a Q1 comparison, which is indicating that some of the measures are working. I would like to move now to page seven, and as we have for the first time really introduced IFRS 16 in our numbers, at least in the call, we thought it would be a good exercise or a good information to show what is the impact, both on the balance sheet side and on the profit and loss side, with regards to Q1, and of course, the expectation for the full year.
I was mentioned before the EUR 99 million financial liabilities, but on the profit and loss side, we do have a positive impact on our EBITDA numbers. EBIT is also slightly better, but then, of course, our interest expense deteriorates by the same amount, and operating cash flow will be better by EUR 24 million, and on the free cash flow, it shows zero because we have already adjusted free cash flow so they can be fully comparable, so that's why you will see no change there. On page eight, we have again shown the breakdown of our net working capital, and as the title says, it is unsatisfactory development, but especially inventories and prepayments have increased by EUR 21 million in the first quarter, so something we are of course monitoring very carefully.
But I also would like to highlight that this is development of net working capital is pretty typical pattern at Dürr in the first quarter. Usually then it tends to improve as the project gets executed throughout the year and should improve also throughout the year. Days working capital are on same level as the first quarter of 2018, about 50 days working capital. Page nine, we also wanted to show how is the working capital balance developing. We always said that you know our total balance for the full year should be in the range between EUR 0 and -EUR 100 million. That is currently not the case per March 2019, but we still confirm that the full year target range will be between EUR 0 and -EUR 100 million as we have always said.
Customer payments clearly show a further temporary shift due to a few specific projects that we have, and it's also a question of billing and, you know, how do you execute them. So we're still confident that, for the full year, our statement remains valid, of having a negative balance. If we move now to page 10, we wanted to give you who are analyzing our figures a better feel of how our net financial status has actually developed. We have the reported net financial status in the first line with minus EUR 135 million at the end of March, and then compared to end of last year or the first quarter of 2008. Then what we have done is we have adjusted this number by adding the IFRS 16 numbers that was adjusted at the beginning of this year.
Then we have added the line, total balance, that you were seeing in the previous page, which is, work in progress, less, billing. Then we have come up with a so-called adjusted, net financial status. It is true that the net financial status has declined by EUR 22 million in the last 12 months, but I also would like to remember, or highlight the fact that we did spend EUR 148 million acquisition, lately, about EUR 89 million for Benz, EUR 34 million for the acquisition of the 8% of HOMAG shares, and EUR 103 million for roughly EUR 103 million, for MEGTEC. Without these acquisitions, actually net financial status would have improved, by nearly EUR 130 million, EUR 126 million, to be precise. I think it's something that, we wanted to, make more transparent how the real net financial status is, developed.
On page 11, we have added the factoring and forwarding information just to show how much or how little window dressing we make. So it's with EUR 9 million, we were basically very low range compared to the end of last year or the end of the first quarter, sorry, the end of 2018 and the end of 2017. So with EUR 9 million, I think it's pretty fair to say that there's been hardly any major factoring or forwarding activities to improve our figures. On page 12, you see here some of the key balance sheet figures or equity figures and the gearing. I'm happy to see that the equity has increased over the EUR 1 billion mark. The ratio has slightly improved to 27.7%.
And, as we mentioned before, the net financial status should improve and will improve during the next quarters, and the return on capital employed should also get in the range of 20%-30%. I also would like to highlight that the ROC or return on capital employed decline, compared to the first quarter of 2018 is mainly due to an increase of about EUR 300 million in capital employed. And, keep in mind that EUR 110 million are attributable to the consolidation of MEGTEC and Universal, and another EUR 100 million are basically attributable to the implementation of IFRS 16. So it looks much bigger than really it was, the impact of working capital than the numbers really indicate. So again, overall, a good equity and gearing situation. And with this slide, I would like then to pass back to Ralf Dieter who will walk you through the different divisions.
Yeah, thank you, Carlo. And, let's start with Paint and Final Assembly Systems. We had a very strong order intake in the first quarter, already mentioned, larger orders in Mexico and India, just to name some of them. The Book-to-Bill pipeline overall in the paint business is very satisfactory on a level which is unchanged. And, also positive is that the first quarter order intake margin improved also by an improved cost position we have worked out of the FOCUS 2.0 program. The EBIT increased slightly. The margin itself declined due to the billing of older orders, as I already said in the beginning, which were coming to be invoiced. And, that's just damaging a little bit the first quarter, but this will change over the course of the year. And, we see that also as an effect out of the FOCUS program.
On page 14, we have a look at the application technology. Here we have a slightly moderate start, but this is nothing to worry about. It's just about the timing with the quarter. We see here very stable business during the year. Also, the pipeline is quite stable and good, so that's something we are looking positive on sales side, also just temporarily affected by some millions. The EBIT margin is on the same level like last year, and I think that's important information. Also important is because we saw one of the messages or the news was that ABB becomes stronger. ABB is our strongest competitor worldwide, definitely, but we have others. Our market share in this business, which is more than 50%, has not changed.
We are still, by far the market leader, and ABB mainly got market shares from the other ones like Fanuc and Yaskawa. And just for that information. And I think you will see later when we have the open house tour that the innovations which are here out are really breakthrough and will make sure that also in the next years this business here will be on leading edge and will defend its leading market position. On page 15, we have a few on the Clean Technology Systems now including the MEGTEC business, MEGTEC Universal business. Therefore, we have some influences. It is difficult to compare, but you can see that business now EUR 112 million in the first quarter order intake. That is quite good. Sales side EUR 88 million. The EBIT you see was minus 0.7. That includes PPA effects as well as some costs we have with the integration.
I'll come back to that. Operationally, the EBIT was about EUR 1.2 plus EUR 1.2 million in the first quarter. The integration itself is well on the way. We are working on consolidation of locations because some of them are in the same country, even city. We have major IT projects ongoing. We have to replace ERP systems in MEGTEC Universal. The sales side is organized now and very well lined up, also the purchasing organization. So I think from the project plan we have for the integration, we are well on track, and just for information, not in the numbers yet, will come also only in pieces, not in one, but we are very optimistic to get a very big order, which is unique, more than EUR 30 million, which will come in slices. Don't count that for the second quarter, please.
But it's a major order because of the combined offering we have as Dürr and MEGTEC, and this was a compelling offer for the customer which you can't get otherwise on the market. So I think also this shows that this acquisition really was a good one and will bear its fruits in the next years to come. On page 16, we have Measuring and Process Systems. The order intake was stable, a little bit more than last year. The revenue was a little bit down because last year in the second half of last year, we had quite a slow order intake on the balancing business, which then has led to less sales. And you know this business is more than 30% gross margin, so less sales is affecting EBIT quite immediately. So the EBIT margin came down to 7.4%.
But also we are. I think I mentioned already that we are investing here a lot, more than in the past, in R&D. In particular, we are developing, besides all the digital products, we are developing a new generation of measurement software, which is a core of our balancing machines. And this is a major investment going over the next two years to have here a leading software package available, which will improve then also the competitive situation of that business. We have also a good position here in E-Mobility, not only in the paint side. We have developed special machines for balancing of electric motors for EV cars. Also on the filling side, some new innovations are so. Also here we are benefiting from that trend. On page 17, we look at the HOMAG business, or called woodworking machinery and systems.
The order intake was 20, nearly 20% below the record level of 2018. Keep in mind, in the first quarter of 2018, we had a EUR 60 million order from a customer, which later we had to, not to cancel, but to take out of our books because this customer couldn't manage to get the financing for this big investment. So if you take the EUR 60 million out, then the difference is not so much. But overall, here the business, when I look at the regions, we have a stable business, growing business in North America. Europe is quite, let's say in total quite flat. China is still weak as it was last year, and the reason mainly is that the furniture business is still growing in China, more than 10%.
But the top 50 manufacturers of furniture in China, which are our customers, they have invested heavily in the years 2016, 2017 in that, new equipment, new plants, and they are at the moment, these plants are being installed and are just starting to run, and they want to utilize these plants first before they talk about larger investments. So we think that in 2020 onwards, we will see larger investments again in China. So the market is intact, but they are all a little bit careful due to the tariff war which is out there. And I think that's something here to be mentioned. Otherwise, it's stable. Page 18, the service business, as I already mentioned, strong growth. And so we are very satisfied with that.
And I already mentioned that the increase of 22% was mainly due to the fact that we had added now MEGTEC Universal, but overall it's more than 10%, about 10% in the, let's call it, business before MEGTEC or the, old business, the wrong word, but you know what I mean. Basically without. So that's the service side. And on page 19, we would like to, yeah, reiterate our outlook and confirm it. As you know, order intake-wise, we are looking at a number between EUR 3.8 billion and 4.1 billion. I think that should be achievable. Also on the sales side, 3.9 between, or from EUR 3.9 billion to 4.1 billion. And the EBIT margin, as we guided with 6.5% to 7.0%, that's we also reconfirming here. So we are optimistic that we can do that. And the actual forecast we have in the business is supporting that for the year.
And so we are quite optimistic to achieve that, as long as the world doesn't go more crazy as it is already. Yeah. Then I would like to make a summary on page 20. For the first quarter, the strong business expansion we are very happy about. Even we have challenging market conditions in all the regions and in the world. The Book-to-Bill rate strong with 1.2 and the order backlog with EUR 2.8 billion gives us a good utilization for the rest of the year and also into 2020. The moderate earnings development, that's for sure, but it's an improvement we expect during the course of the year by the effects I already mentioned. For sure we have competitive pressures always in the divisions in our business, but we are reacting with cost-cutting measures, but also productivity improvements, new developments, innovation.
And I think part of that we will see later here in the open house. We are also very careful with overhead costs. And I think we will also see that this year we will have a low rate of extraordinary costs, which should at the end lead to an earnings improvement in 2019. The cash flow improved in the first quarter, as Carlo was pointing out. And the net working capital we are also working on to improve. And I think that we will see improvement during the year. I think the estimated IFRS 16 impact in 2019 that Carlo I think already was pointing out. And I think we are very well on track with the integration of MEGTEC Universal and that we will see improvements during the year. And again, finally, our guidance is unchanged. And now I think we are happy to take your questions.
I have to, for the organization here, we have people here in the room which will need to raise their questions by microphone, and we will start with the room first, and then we will hand back to the audience on the phone and hand then later back to Mrs. Moore. Mrs. Moore will give you then a sign, okay? So.
Yes, of course. Thank you.
Hi, this is Will Turner from Goldman Sachs. I have two questions. The first question is on application technology. Now, your sales declined and obviously your group-wide cost inflation has been quite, quite high, in 2019, in, in particular labor. What was the drivers behind, or how did you maintain, margins at 10.5%? Or what was contributing to that? And then, my second question is on measuring and process systems. You expect improvement for the rest of the year. Can you just, elaborate more clear on, why you expect an improvement for the rest of the year?
Okay. The first question, why could APT keep the return on sales is mainly due to the fact that we have improvement in the order execution. We have also better margins in the orders, in the order intake. And we also have some activities like industrial business where we had losses in the past. We are improving now. So I think that's the major drivers here to improve. Second question, you, if I understood you right, you said, why do you think that MPS, or the measuring and process systems, will improve during the course of the year? First of all, that from the order intake side, it looks stable that we will manage that. Also we have taken cost measures here and so we are quite optimistic.
The first quarter's always a little bit difficult in that machinery business.
Yes, hello, it's Alexander Hauenstein from DZ Bank. I have two questions. First of all, on HOMAG, has the price competition at the end of the utilization become worse in Q1, as maybe even more than you initially expected? Or why did you intensify here your cost reduction program in Q1 if this was the case? Or was that all as planned? And the second question is on clean tech.
Sorry, can we do one, can we do just one question? Because I'm getting older and then just too many questions and it's too difficult. No. HOMAG, the price competition has not changed in the first quarter. It's already, I mean, as usual there, yeah?
I think what we have seen there is that we have basically a situation where we have in some areas lower occupation of the factories and that we are reacting. The cost measures are mainly costs we want to avoid for the future. The growth of that market at the moment is not as we first anticipated. All the hirings related to that we have basically frozen. We also spend a lot of money in innovation there where we look at what is really needed, so just the normal stuff, nothing exciting, just to keep costs under control, particularly also on the overhead side. Yeah.
Okay, thank you. And, on clean tech, why was there some kind of underutilization and what's going to change here going forward? And, what should we look for here in the second quarter beyond? Was this all on your initial plan here or is the earnings progression and margin development still on track compared to what you have guided for this?
Yeah, we had some underutilization, basically particularly in Europe or in Germany because of a weaker order intake last year in that area, which we've now recovered. And, so that's why we see that. And for us, it's on track because we anticipated that already last year because, you know, in that business also we have 12-15 months project execution timing. And that's why we're optimistic that it's getting better. And the order intake is quite strong, as you can see. We're optimistic.
Okay.
But it was a maintained issue here in Europe, not in China. In China, we are totally more than utilized.
Thank you.
Philippe Lorrain from Berenberg. One quick question on APT and especially on these industrial products segment. How is that evolving? Is it still doing losses? And is it right also to assume that the underlying margin in that segment, i.e., without the IP subsegment, would be closer to 11%-12%?
Yes, your last sentence is quite accurate, yeah. We still have some losses there, but we reduced them to the part. We look very carefully at that business. And I think we are now coming up. We are close to the surface. We have, for example, in the gluing business, which is also one of the industrial business, but it's also automotive. We have new customers with higher margins. And so we are very keen on getting this year under control in a way that we can see in 2020 a positive number. That's our objective. We knew that it would take some years to get out there. It's also a volume question, market acceptance question. We did a lot here on that side. We consolidated, for example, the gluing in final assembly here to Bietigheim. It was in a different location.
And, to get it better under control, I think, we are doing good progress during the year. But it will be at the end of the year still slightly negative. But your assumption is right. Without that, we would be more than 11% plus a little bit, i.e., more stable actually in the yes,
yes.
The second question is on HOMAG. So you guide for more or less like a stable order intake for this year, if we take the point.
Yeah.
We understand that China has been a bit weak, recently. It should come back in 2020. If we plug in everything together, China and the rest of the world, beyond 2019, what would you expect for order intake growth in that segment?
It's a good question. The market, when you look at the market, let's say from the official to look at that market and forecasted growth, it's not more than 2%-3%, yeah? But I always tell my people we have a market share of about 30%-35%. So the growth of the market is not only the growth, which we can grow, but we can also take market share. But we do this carefully because, when you take too much, then you know that the margins are under pressure. But for sure we want to increase our market share. That's our growth plan. And I think, this year will be tough in China as for the reason I said, because we see at the moment a lower level even than last year in the first quarter, which we have to compensate by the other regions.
I think that flat development would be quite satisfactory to our opinion at the moment. Next year will be better if nothing else changes, I have to say. You all can help in if buying new kitchens and then our business grows.
Gordon Schönell, Bankhaus Lampe. The EBIT margin in Q1 in PFS was, I would say, kind of weakish, despite the strong growth in service business.
Mm-hmm.
Was that in line with your plan or has this any indication on your guidance range though that you're looking more on the lower end of the EBIT margin guidance range or?
The PFS slight reduction in the margin was totally anticipated because, you know, we look at our order execution and this is a business we can look at for 15 months. We knew that we had some low margin or very weak margin orders coming through. And that was totally expected, yeah. So no surprise for us at all. And that's why we also know that because we see already on orders we took to a lower margin, the improvement in execution due to the measures we have taken in FOCUS 2.0. That's why we are optimistic that in PFS we will pick up slightly this year.
Have you worked?
No change on our guidance on that subject.
So have you worked down nearly all the legacy projects in that segment? Or is there or are there still some very weakish orders in the books?
There are still some in the books, but, as I said, we also have managed to work on those with an improvement on the margin, and some of them are quite significant, which I'm very happy about because we already used measures out of FOCUS 2.0 on those projects, so I think that the biggest problems we have behind us in that area.
Okay. And then maybe one last question. So you mentioned ongoing competitive pressure in all divisions. You answered this question with regards to HOMAG, that basically nothing has changed within the last weeks or months. Is this also the case in your paint and final assembly systems business? So it's,
It's unchanged, yeah. It's strong. And we just wanted to point, don't think that it's easy, yeah. So it's all, but it's still strong, but it's not different to three months ago.
Okay, thank you.
Peter Rothenaicher from Baader Bank. First on HOMAG. Last year you had the problems that the setup of production, the changes in the production environment took somewhat longer than expected. How are you progressing here? And with that, I was a little bit surprised that you talked about underutilization in parts of HOMAG despite the high order backlog.
Yeah. Yeah, this is a very diverse picture in HOMAG. The production problems we several times mentioned. Basically, the high order increase we had in 2017 and 2018 was the reason why we could not make all the homework which was needed. Yeah, we were just overwhelmed. I always said I would have loved to have this increase two years later because we still have a lot to do there. We have taken, we have all the findings, we have all the projects, and it's mainly process work, also SAP work, but mainly process work, how we do engineering, everything, and we are well on the way. We have also a lot of new expertise in there involved, and I'm very optimistic that HOMAG in two years from now will be totally different in how they execute the business, but we have to give here time.
It's not a task overnight. Here in APT, we did that job. Maybe some of you were still around. From 2005 to 2008, we did the same changes, which was also then bringing APT to a new level of, of profitability, and I will see the same in HOMAG, but we have to give them two years' time to make that. But we will see gradually progress, I think, latest next year, and when you say under absorption, yeah, for example, Schopfloch plant is mainly system business, yeah? And other plants are more the single machine business, and here we had some under absorption because of some of the big larger projects. The larger project business is down compared to the 2017 or 2018, 2017, and therefore we have some under absorption, but we were, we had also a lot of external people we got rid of.
So I think that we can manage that.
My second question is on the guidance. So, it's unchanged, but with regard to order intake and sales, in the recent call you mentioned you're confident to reach the upper end. Is this still a valid view?
On order intake, yes. And sales is a calculation out of this, yeah. So I'm pretty optimistic on that. But because the pipeline is very healthy at the moment. But competitive.
Ingo Schachel Commerzbank. I think most questions have already been answered. Maybe two quick follow-up ones on the paint systems, margin quality or the lower margin in the first quarter. I think you were expressing that you already anticipated this when you gave full year guidance, but regarding the root causes, why those projects and the backlog are those projects which were low margin when you took them, in terms of booked gross margin or was it because of yeah, wage inflation or execution that those turned out to be weaker than?
No, no execution problems. It's mainly because we took them in because we also have to defend the market share, yeah, and we had a competitor, as you know, who went a little bit crazy in terms of pricing. We have stopped that and, therefore, we know that this is behind us at the moment.
Then on HOMAG and the whole competitive pressure debate, I think you outlined a scenario where you think for a few more quarters the Chinese market is going to be weak. So I would also understand what you said as a commitment that HOMAG as a market leader would not turn more vicious even if there are three, four, five, six more weak quarters in China and that you would even then, if the local utilization is lower, would strive to defend price levels there?
Yeah, I think we are not out there to. We could easily gain 5% margin by lowering the prices by 5% or 10%. But this would damage that market and why should we do that? Yeah.
Yeah.
Just for because of two or three quarters, yeah.
Then just quickly on the prepayment spike in the first quarter, can you tell us whether that's again more emerging market or China related? I'm not sure how specifically it would narrow that down geographically.
Yes, Ingo, I can answer this question. I mean, this is something that, you know, can easily vary based on project coming in, on execution phase, and where we are in terms of payment. But a lot of the swing or most of the swing that we have seen in the last quarter is driven by the fact that there is a lot more work in progress, especially with some of the divisions like APT than we had before. Before, for example, last year if we just compare the quarters last year, there was a higher percentage of projects that APT had to work together with PFS. So they were enjoying the better payment conditions that PFS was able to negotiate when you usually negotiate a big paint.
In this year, Q1, APT has won percentage-wise more projects on a standalone basis and the payment terms, for example, are not as good as if they would have worked together with a paint. That's one of the reasons, and that's actually the biggest deviation. The other impact is coming from the integration of MEGTEC, which we didn't have, so that is also affecting this balance, and then we do have a small deterioration within the all digital CTS and the measuring processes. But again, it's all work in progress related. I mean, maybe the good news is that we're going to get paid. The money is coming in and it's just a question of what quarter are we comparing and what's the ratio of projects won on a standalone basis versus with a paint shop.
Then two questions on CleanTech, please. The first is on the restructuring there at MEGTEC. You have talked about also some site optimization. Does that also include site closures?
I would not call it restructuring. It's basically the result of a synergy project. And that's why we bought this company because we saw a lot of synergies. And we basically don't close sites. We mainly on the office side, engineering side, we put, for example, MEGTEC in Shanghai goes to our campus, which makes sense, yeah? A plant closure is not involved in that.
Okay, thank you. And the second one is on the introduction of new ERP systems at MEGTEC. How much have you learned from the introduction of new ERP systems at HOMAG to avoid such a, say, bottleneck issue or cost overruns? And what is the impact of that, what you assume for MEGTEC?
Just to answer this, if we would have bought HOMAG four years earlier, this would have not happened in what you just mentioned because they had different company we are quite experienced in rolling out ERP systems and we have done this many, many times. In the HOMAG world, there was a system which was already predefined, in our opinion, too complex. That we had some obstacles. But I think we have overcome that. In MEGTEC, they have really a very bad IT infrastructure. And I think we will also have. We see benefits out of introducing a common system, in particular together with our CTS division, that they can seamless work together. This is part of the synergies and I think we are well on track.
You will see here no news from us that we say CTS has less value because we introduced ERPs. Don't worry about that.
Okay, thank you.
Thank you.
Should we? Is there no question at the moment here in the room? Then I hand over to Mrs. Moore to ask people on the phone.
Thank you, ladies and gentlemen. If you would like to ask a question, please press 01 on your telephone keypad now.
So that's.
The first question is from Christian Cohrs, Warburg Research. Your line is now open. Please go.
Yes, good afternoon and hello to Bietigheim. Just two questions, just one by one. First maybe, sorry for coming back to the working capital and cash flow. But I just checked my notes from Q1 last year and at that time you were also quite unhappy about your cash flow performance at that time. And I understand that you faced additional or new headwind from more work in progress in Q1 2019. But last year you also mentioned that you have initiated some countermeasures like creating stronger awareness at employees, greater role of working capital in the incentive scheme. Have you seen any effect of these countermeasures already and are they fully in place? And secondly, at that time you also said that you're striving in the medium term to days working capital target of 35 to 40 days.
Just now after the MEGTEC acquisition, do you think now with the changes in your group portfolio that this target of 35-40 days is still achievable? And yeah, that's question number one.
Yes, thank you, Christian, for your question. Yes, I guess then I'm disappointed also on Q1 2019, not just on Q1 2018. I think that's unfortunately always the case that Q1 doesn't tend to be the strongest quarter from a cash flow point of view for Dürr. But that doesn't mean that we don't expect things to improve to the end of the year. So our statement that our cash flow will improve has remained unchanged. Regarding the measures, yes, we have implemented those measures. I can guarantee you that that's probably one of the main jobs that the board has is to keep tracking and pushing that we not just implement these measures but that we ideally improve them. So there has been no change in focus on that. And the measures that we presented last year have of course been rolled out.
But we have to accept the fact that we're not alone and we have customers and they're also, you know, fighting hard, and they also have to invest a lot, and this is always a balance between having an order or not having an order to a certain extent, so that's something that, you know, pressure is there and we still want to win some of this business. With regards to days working capital, you're right. We have achieved 40, 41 days by the end of 2018. Q1 last year was also about 50 days, which we are now, but of course we would have ideally liked to be below 50 days, and we are working for sure to bring it back to those levels. I don't want to commit at this stage if we'll be at 35 and by when.
But clearly, days working capital is something that we are clearly focusing on. Maybe one last comment, if I may, is you know, you also have to look at in relation to the peers. And I think it's fair to say that Dürr, even with 50 days working capital today, which is not satisfactory, is by far ahead of the peer group. So I think we also have to consider this in your evaluation. But clearly the goal is to improve that as this is one of the reasons why investing in Dürr is attractive. It's a very high return on capital employed and that's something we are very conscious of.
Okay, thank you. And just this, the second question is more just of a housekeeping issue. In measuring and process, you mentioned in your presentation for the margin decline that this is also attributable to higher R&D expenses, digital innovation. Can you maybe just quantify the amount? What was the extra spending in Q1, so that we get some sort of gut feeling what is attributable to the safety client and what is due to OpEx?
Yeah, that's a good question. Ralf Dieter speaking, you can count about 2 million.
Okay. Thank you very much.
Thank you very much. Pleasure.
Mrs. Moore, do we have further questions? Not at the moment.
At the moment we have no further questions via the telephone lines.
Then I will ask here in the room, further questions here in the room? Yes. One more from you.
Hi, this is William Turner from Goldman Sachs again. I just have a follow-up question on the working capital and the increase in trade receivables. Is that concentrated in any particular region or any particular division or well, customer?
Yes and no. I mean, yes in the sense that it is getting more difficult to you know to get paid in China with some customers. So that's definitely affecting our receivables outstanding. But also to be fair, in China, you know, the payable side is also longer. So the question from a net point of view is really not necessarily a dramatic change. But that's why I answered the question with partly yes, because it's something that is also culturally. The other point you should be aware, William, is that in China we also get paid with bankers' acceptance draft. And as long as we don't you know pass them on or sell them, we are showing them as of course as still an outstanding receivable. And technically we could sell those immediately and generate cash. And sometimes for small amounts we do.
But in general, it is probably cheaper to hold them to maturity, especially when you still have a lot of cash sitting around, for example, in China. So I think it's something that is mainly driven by China. In general, we have a very good receivable follow-up. The organization and the project leaders are very well aware of this and are consciously following up. Ultimately, it's not about forgetting about the collection. It's about when you have a final acceptance or progress payment, it's reaching an agreement with the customer that you get the right sign-off on time. But it's, I think it's very well managed.
Thank you.
So I'll check again, Mrs. Moore. More questions on your side?
There are still no questions on the phone lines. As a reminder, if you would like to ask a question, please press 01 on the telephone keypad.
So that's obviously not the case. Further questions in the room?
No.
Then I think that we can finish and close the call. First of all, thank you very much, everybody, for joining us for our first quarter results. It was a pleasure to answer your questions. And then we will continue here with the tour. But first of all, thanks for today. And I think the next date is not known for the next call. I don't know.
August 9th.
August 9th, just here. August 9th we have the next, we are presenting our first half figures. So thank you very much for joining and, bye-bye for today.
Thank you very much from my side as well.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.