Welcome to the Dürr Conference Call. Ralf Dieter, CEO, and Carlo Crosetto, CFO of Dürr AG, will present the Dürr Group's preliminary figures of 2018, followed by a Q&A session. I will now hand over to Mr. Dieter, CEO of Dürr AG.
Thank you, Mrs. Anders. Good afternoon or good morning, ladies and gentlemen, and for those of you in the U.S., and welcome everybody. It is a great pleasure to present to you Dürr's preliminary figures for 2018. I'm joined as always by my colleague, Carlo, and our year-end closing is already stable enough to be able to give you the most important key figures today. Before I start by summarizing the highlights and providing an overview of our results for 2018, I want to refer to page 28 of this presentation, where we give an overview of the impact of accounting and calculation changes that were applied in the preparation of the financials. All in all, these effects have a minor impact on the comparability of the figures. Carlo will then give you more insights into our financials.
I will then share our division's performance with you and give you our initial outlook for 2019. Start with page three, and in 2018, we achieved many milestones. Incoming orders and sales reached all-time highs. Our results for 2018 are in line with our revised guidance of October last year. The operating EBIT margin reached 7.1%, which is only a slight decline over the previous year. Cash flow was above our expectations, and service sales exceeded the EUR 1 billion mark for the first time in our history and increased 10% year over year. Our divisions also reached their targets. The production and supply chain issues at Homag were addressed, and the acquisition of Megtec Universal significantly strengthened our environmental technology business. And last but not least, we are pushing our Industry 4.0 activity strongly throughout the whole group.
Looking at 2019, we expect the sales and earnings growth and a further cash flow increase, but we also see a more challenging business environment ahead of us. Let's turn to page four and have a look at our results. Incoming orders and sales increased in 2018 by 5% and 6%, adjusted to FX effects. Consolidation and deconsolidation effects offset each other. EBIT declined mainly due to extraordinary effects, and operating cash flow was up by 36%. On page five, we provide an overview of our Q4 performance, which was exceptionally strong. Incoming orders increased by 31%, net income by 22%, and free cash flow by 79%. We already knew in advance that our business would be very back-end loaded in 2018, and page six compares the Dürr Group's targets for 2018 and the figures actually achieved. We reached our revised targets in 2018 and surpassed our cash flow goal.
On page seven, you can see that order intake reached more than EUR 3.9 billion for the first time. In China, new orders were up 12%. While Homag's China business was relatively weak due to the drop of pipeline for larger system projects, our automotive and environmental technology business was up sharply. And markets in Europe, including Germany, were stable on a high level, while the North American market returned to the expected normalized level. The emerging markets contributed 46% to total new orders, down from 51% in 2017. And Carlo Crosetto will now take you through our financials.
Thank you, Ralf. Ladies and gentlemen, let me now continue on page eight. Our gross profit was nearly unchanged year on year, despite an expected weaker earning contribution from our paint business and the extraordinary closing costs for our microgas turbine development project. What is also positive is that our machinery activities were able to hold on to their high gross margins. R&D expenses were raised by 4% in order to further strengthen our competitive edge, especially in the field of digitalization, as Ralf just mentioned. SG&A expenses, on the other side, grew by only 1%, which underpins our strict cost consciousness. Reported EBIT included extraordinary expenses of EUR 41 million, compared to extraordinary income of EUR 3 million in 2017. I will describe these extraordinary items in detail later in the presentation.
The financial result improved by €6 million, mainly due to higher income from investment, and at 25.6%, our tax rate reached the same low level as in the previous year. The U.S. tax reform, as well as the revaluation of deferred taxes in China, had a dampening effect on the tax rate. At €164 million, earnings after tax came in at the top end of the guidance range of between €145 and €165 million that we have defined in November. Earnings per share reached €2.27 compared to €2.78 in 2018. On page nine, you can find a detailed overview of the extraordinary effects of the last two years. This breakdown, which also helps you to understand the reported and operating EBIT guidance we will be giving for 2019.
With the acquisition of Megtec Universal, we decided to also include PPA effects from previous smaller acquisitions like iTAC, Agramkow, or Dualis in the extraordinary effect overview. This will give you, therefore, a better comparison. In the past, we only did so for the PPA effects for Homag. In 2018, the PPA effects from Homag amounted to EUR 8.7 million. For Megtec Universal, these effects were EUR 2.2 million, and for all the other smaller acquisitions, this amounted to EUR 4.5 million. Let's now move on to page 10. The group net financial status declined to EUR 32 million, mainly due to the increase of our participation in Homag to 64% and the Megtec Universal acquisition. After a strong Q4, the cash flow from operating activities widened by 36% in the full year, with free cash flow increasing even stronger from EUR 14 to EUR 78 million.
The improvement was, to a certain extent, stronger than we had been anticipating. As you can see also in the chart, our cash flow was influenced by a net working capital increase of EUR 52 million. We assume that the net working capital will stay at the current level or at most increase slightly in the year 2019. Accordingly, cash flow should continue to improve this year. Page 11 deals in detail with the composition of our net working capital, and like-for-like net working capital increase much lower than in 2017. We were able to reduce it significantly, particularly in the last quarter in Q4. Within the net working capital, inventories increased strongly. As we have explained before, we have been stockpiling a greater number of parts for production in order to manage more effectively the risk of short-term bottlenecks with high-utilized suppliers.
At the same time, we also increased inventories of spare parts to more swiftly supply parts to our customers and meet our goal to boost our profitable service business. The overview on page 12 of our work in process in comparison to progress billings shows a reduction in our payment balance of EUR 47 million to -EUR 75 million. We consider a slightly negative level or a level at around zero to be normal also in the future. Although this gap has narrowed, as mentioned on many occasions before, we are not planning to pre-finance our customers' factories. The overview on page 13 shows that the factoring and forfaiting had only a minor impact on our cash flows. The amount slightly declined if we compare it to the level of last year. Page 14 shows further key financial items.
The equity grew by €92 million to almost €1 billion, and our equity ratio stands now above 27%. So we were able to maintain our cash position level as we liquidated our one-time deposit to finance the acquisitions we mentioned. Our return on capital employed dropped to 24%, down from 39% in the previous year. This was due to both higher capital employed, of course, as well as lower EBIT. However, at 24%, let me say, we still compare well with our peer groups. Page 15 shows the CapEx of €74 million, which represents a decline by about €40 million compared to 2017. In the past years, CapEx was affected by the expansion of several facilities in key strategic locations. On the other hand, in 2018, we increased our spending for M&A as acquisitions like Megtec Universal continue, of course, to play a major role for our expansion strategy.
A key item of the 2018 CapEx agenda was the modernization of our IT system, with the goal of digitalizing our processes even further throughout the company. Across the group, we expect CapEx to be in the range of EUR 80-90 million in the coming years. I will now hand back to Ralf Dieter, who will outline our divisions and provide with our outlook for the year 2019.
Okay, thank you, Carlo. Ladies and gentlemen, let's turn to page 16. Paint and Final Assembly Systems again achieved double-digit growth in order intake in 2018. Demand was strongest in China, followed by Europe, and by contrast, the North American market remained soft. Notwithstanding this development, a Japanese customer in the U.S. awarded us the largest painting system contract so far received from the Japanese automotive industry. With order intake coming to EUR 535 million, Q4 was the strongest quarter for the year. Full year sales rose by 5%. And the 21% decline in EBIT was due to the more intense competition in 2016 and 2017 and the smaller margins on orders accepted in these years. To address this, we have implemented the FOCUS 2.0 program since the beginning of 2018. This will help Paint and Final Assembly Systems to reach the EBIT margin target of 6%-7% in 2020 again.
Turning to page 17, order intake for application technology rose by 8% in 2018 and exceeded the EUR 600 million mark for the first time. Demand remained consistently high in Europe and picked up noticeably in China. At 2%, service business temporarily expanded less quickly than the division's total revenue. As with paint and final assembly systems, there was a slight improvement in the margin quality of the orders placed with application technology in 2018 compared with 2017. And EBIT rose by 5% to a record of EUR 68 million. Order intake for industrial products continued to rise, although a loss was still recorded. And we expect industrial products to improve earnings in 2018 as fixed costs will be better covered by rising sales.
On page 18, a comparison of the figures for Clean Technology Systems with the previous year is not fully possible due to the first-time consolidation of Megtec Universal as of October 5. About half of the sharp 57% increase in orders was due to organic growth, and the other half due to the inclusion of Megtec Universal. The market for exhaust air purification systems was in good condition, in particular in Europe and Asia. The 22% increase in sales was due to the consolidation of Megtec Universal. Sales and earnings fell short of expectation in the first half of 2018, with the division feeling the effects of a temporary shortfall in capacity utilization due to huge demand in the second half of 2017. However, the declines were almost completely offset in the second half of last year.
The loss of EUR 50 million at EBIT level is due solely to high extraordinary expense. Minus EUR 17 million arose from the discontinuation of the loss-making microgas turbine development and the EUR 2 million from purchase price allocation effects for the Megtec Universal acquisition. Operating EBIT was clearly in positive territory. The previous Clean Technology Systems activities contributed EUR 2 million despite the operating losses arising from microgas turbines. Since consolidation, Megtec Universal has contributed with an operating EBIT of EUR 3 million. On page 19, you can see a detailed outlook for Clean Technology Systems. Megtec Universal will be consolidated for a full 12-month period this year. That means it should contribute sales and order intake of over EUR 200 million, as well as operating EBIT in the high single-digit millions. The EBIT contribution after purchase price allocation effects and other extraordinary costs is likely to be slightly negative.
We expect sales for Clean Technology Systems to rise to between EUR 400 million and EUR 450 million this year. And despite PPA effects, EBIT should be in clearly positive territory, with the operating margin set to reach at least 5%. In absolute terms, we forecast a turnaround in year EBIT of around EUR 25 million in 2019. On page 20, we have set out the main reasons for the acquisition of Megtec Universal. The combined company has become a clear world market leader in air purification technology, with approximately 25% world market share. On top of this, Clean Technology Systems gained interesting activities in acoustic systems, emission technologies, and battery coating. We see a midterm sales potential of around EUR 500 million, and the operating EBIT margin is expected to climb to between 6% and 7% in 2021.
Key growth drivers are stricter emission standards in emerging markets, the expansion of service business, as well as cross-selling potential between the newly combined organizations. As Megtec Universal is strong in the U.S. and Dürr is strong in Europe and China, we have to clearly improve our regional coverage. We see high synergy potential in cost and can use economical scale because size also matters, and last but not least, integration of both entities is well on track, so we are confident about the future performance of Clean Technology Systems. On page 21, the figures for Measuring and Process Systems are not fully comparable with the previous year figures due to the sale of Dürr Ecoclean in 2017. In like-for-like terms, orders shrank by 18% over the previous year when a few exceptional big-ticket orders had been received in 2017.
Like-for-like sales were down 2% and thus practically on a par with the previous year, while like-for-like EBIT was 4% lower. In Q4, which is traditionally the strongest period for Measuring and Process Systems, the EBIT margin came to a very good 17%. Let's have a look on page 22 at woodworking machinery and systems. Order intake at Homag came very close to the previous year's high level. It should be kept in mind that orders had grown at extraordinarily strong rates in the previous two years. In 2018, we registered strong demand in Europe and North America, but order intake in China dropped by half to around EUR 110 million. After exceptionally high investments in complete new furniture productions, capital spending has slumped in China in the wake of trade dispute with the United States and the softer real estate market.
Besides, many furniture producers in China must first make full use of their enlarged capacity before engaging in further capital expenditure. But the standard single machine business in China kept stable compared to the previous year. Homag was able to increase its sales by 7% to EUR 1.298 million. Sales and earnings were muted in the first three quarters, one reason for this being a longer-than-expected interruption of production at the beginning of the year to roll out a new ERP system in Schopfloch. Moreover, production problems arose at the Schopfloch plant as operations had not yet been sufficiently modified to accommodate the sharp growth in system business with end-to-end furniture production lines. Homag has addressed this by implementing stricter cost management procedures and more flexible production systems to handle large systems orders more efficiently.
These measures showed first effects already in Q4 when sales climbed strongly and EBIT widened by 61% year over year. And despite those problems, EBIT in Homag rose by 4%, reaching a new record of EUR 86 million. Page 23 shows that we have been steadily increasing our R&D spending. The digital transformation is currently the most important trend in innovation at Dürr. We are working intensively on expanding the ADAMOS IoT platform, our digital marketplaces like LOXEO and Tapio, as well as further smart applications and services. In 2018, we formed our digital factories at Dürr, Schenk, and Homag with more than 100 software specialists. We are working with agile methods. The organizational hierarchy was flattened to improve productivity and to attract new talents. And we have already launched several new applications which have been developed in the digital factory.
Page 24 shows another important cornerstone of our strategy: service business. Service revenues rose by 10% in 2018 and exceeded the EUR 1 billion mark for the first time. Thanks to new spare part distribution centers, we were able to substantially reduce delivery times for our customers, and service margins remained at a very satisfactory level, and looking ahead to 2019, service business is expected to grow steadily in all divisions. You are presumably familiar with the two charts on page 25 and 26. According to industry experts, the upward trend in both the automotive and the wood industry will continue in the long run. PwC expects annual growth of 3% in automotive production between now and 2023. CSIL projects a similar increase in global woodworking machinery production, but in both markets, the short-term outlook is more cloudy, mainly due to the political turbulences and vulnerable economic expectations.
Nonetheless, we expect stable demand in 2019 from our automotive and furniture customers in total. Now coming to our outlook on page 27. As things currently stand, we expect sales of €3.9-€4.1 billion this year. This means that sales will probably be higher than in 2018, mainly due to Megtec Universal, which will contribute an additional €150 million sales in 2019. Order intake is expected to come to €3.8-€4.1 billion. Adjusted for extraordinary effects, the group EBIT margin should come to 7.0%-7.5%, which means an increase compared to the previous year. The EBIT margin after extraordinary effects is expected to reach 6.5%-7%, which will represent a stronger increase. At this stage, we project extraordinary costs of around €25 million this year, of which around €20 million will come from PPA effects.
We expect rising cash flows in tandem with a slight increase in capital spending in 2019. And net working capital should increase only slightly. A detailed outlook can be found on pages 41 and 42 of this presentation. And our forecast assumes that the global economy will continue to grow, that no economic dislocations occur, and that the political environment remains reasonably stable. So ladies and gentlemen, thank you very much so far for your attention. As usual, there will be no press and analyst calls when we publish our annual report on March 22. We will be pleased to answer any questions you might have about the annual report over the phone or via email after it is published. And for now, we are happy to answer any questions you may like to raise. And I hand back to Mrs. Anders. Thank you.
Ladies and gentlemen, 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 is your turn to speak, you can dial zero two to cancel your question. If you are using speaker equipment today, please lift the handset up before making your selection. One moment, please, for the first question. The first question is from Ingo Schaller, Commerzbank. Your line is now open.
Yes, thank you. I would have two questions. The first one is on your net working capital guidance for slightly higher net working capital this year. When I look at the numbers, you still seem to have elevated inventory levels. You also have a pretty normal prepayment balance.
I think looking at the overall numbers, I think we might be inclined to assume that net working capital might even go down in 2019. Just wondering whether there's any specific segment or any specific line item where you're probably more concerned about the development in 2019 that leads you to not guiding for a stable to lower net working capital. That would be the first question. The second one would be on your service business, where you had very strong growth in the second half of 2018.
Of course, we can't break it down into separate factors quantitatively, but I would be very interested to hear your view on how much of this double-digit service growth is really due to internal initiatives versus the stronger execution of upgrade projects due to the weaker European passenger vehicle production backdrop, or how much because of the needed upgrades for EV transformation projects? Just curious to understand what drove this very strong service growth rate in the second half of last year.
Mr. Schaller, thank you for your questions. And maybe for the next questions, maybe we take one after the other because we're getting a lot of them this year. No. Service business, your question. I think there are many drivers. First of all, I think the most important driver is that every day our installed base is increasing.
Every day, there are new robots installed, new equipment, and this drives the growth. Yes, it's not a 10% growth in installed base, but also we have an aging installed base which needs more service, like an old car. When it's getting older, you need more service, and the other one is that we have increased our coverage across the world, so we are supporting customers, and in some cases, even not customers who have our equipment but competitive equipment, and the third one is that for sure, in those plants where the utilization is higher, although the demand for service and spare parts is higher, I think that's the three drivers, so we expect this year something between also 5%-10% growth daily. 5% is maybe more likely, 10%, we had some special effects last year. Is that okay for you, Mr. Schaller?
Yeah. Thanks. Unless you want to, I don't know, shed a bit more light on the special effects that you're referring to, that's probably just execution timing, or which effects would you see there?
No, because, well, as I said, we increased also our cash flow, so that was a one-time effect which we can't repeat every year in that volume. But nothing more really special, yeah.
Okay
And in some larger revamp orders, it's maybe also the fact because we had some. And this is maybe also very difficult to predict, but more and more we have older plants, and those kind of refurbishment orders are getting bigger and bigger.
Mr. Schaller, you also asked a question about our working capital expectation. I mean, I think the answer to that is that we wanted to be cautiously optimistic looking into 2019. I mean, remember, we're coming from 2016 where we had a EUR 33 million increase, EUR 1,778 million increase, and 2018, as you can recall from some of the conference calls that we had, we were not looking as strong in the second and third quarter, so we did a great job to recover from that in the fourth quarter, and we just want to be, let's say, more cautious in 2019, but we do expect working capital to stay roughly at this level or slightly increased, depending on the increase on the machinery basis, so it's more driven by where we're coming from and being relatively cautious.
We do expect Homag to improve as these measures that we are implementing and optimizing the logistic and the production and the supply chain problem at Schopfloch, so that will have an impact on working capital, I mean, a positive one.
We don't think that the advance payments in excess of work in progress in the paint and final assembly business would further deteriorate. But as you know, it's always challenging with the automotive customers. And we are also continuing to develop our service business. We reached the EUR 1 billion mark, but we would like to continue growing in the future. And that requires, to a certain extent, also investing in parts and working capital. So overall, I think these effects should net each other off so that we are cautiously comfortable or optimistic for 2019 with regards to working capital development.
Very clear. Thanks.
The next question is from Sven Weier, UBS. Your line is now open.
Yes. Hi. Thanks for taking my questions. First one is on the order pipeline for paint. You show in the presentation that you said normalized over the last couple of months. And the lower end of your order guidance suggests kind of a mid- to high single-digit organic decline for the group guidance. So maybe you could give us some more color on what exactly happened in your pipeline over the last couple of months. I guess in the last call, you said it was kind of still double the level compared to two years ago. Just was curious how that has developed lately. That would be the first one. Thank you.
Okay. Thank you, Mr. Weier. I think the last time when we talked about the pipeline, we had some large projects like the one we then booked. So that's why we had also the strong order intake in the fourth quarter. So that's by nature of the pipeline has come to, let's say, a more normalized level.
But the pipeline, as it looks today, has still a very, let's say, a good level so that we are not worrying about that at the moment, yeah. But always, as every year, it's February. It's very difficult to predict the year. I think in the next call, we have a better view of the pipeline development for the second half of the year. At the moment, it looks stable and sufficient for us to reach our goals. So it's fair to say the lower end is more not repeating one of these elephant deals that you had in Q4, and it is more normal level, so to speak. Elephants sometimes come out of the wood unexpected. So I think one is knocking at the forest as well. So we maybe see one in the first half.
Okay. Good. The other question I had was on the Homag order intake. Because if my understanding is correct, you actually had a EUR 30 million cancellation that is reflected in the Q4 order intake. So if I adjust for that, you should have had double-digit order growth in Homag in Q4, which would be still quite impressive. So first question, maybe if the observation is right, and secondly, what kind of region was driving that?
Yeah. First of all, the observation is right. And it was basically an order of EUR 60 million, which was in the discussions with the customer. I think the first EUR 30 million we took out in the second quarter, I remember. And then the customer thought that he can still realize part of the project and then finally said he has to delay. It's not canceled, it's delayed, but we booked it out because we don't know when it's coming up again. And it was in Eastern Europe.
It should have been a plan there, and this customer is a solid furniture manufacturer, but his banks were a little bit concerned about the overall development to give him this further money. So it's delayed, and you're right. If we would have kept the EUR 60 million, we would have shown a nice increase in order intake.
Yeah, but especially also Q4, right, where the macro was already a bit slower. So that I thought was remarkable.
Yeah. Thank you, and I always say, my men, yes, we are looking at the furniture market at a not much increase or maybe a stable development over one or two years, but we only have 30% market share. And these are Tamar people, so we should not worry about the market too much. Just get the business which is out there.
In terms of reviewing the backlog, I mean, given that the Chinese market was coming down so much, have you also reviewed the Chinese backlog, whether there's maybe some orders who could be delayed or taken out eventually?
For sure, we do that very carefully. We are in close contact because, I mean, we have hundreds and thousands of manufacturers, but the top 50 are the large ones who order these large orders, and we know them all very well. Our team from Homag, and the main ones, they had intensive discussions. The fact is, for sure, the normal business or machine business, it was stable, which is good. On the project business, it was basically not much more than zero. There was not many, not at all, investments last year. As I said, they want first to utilize their new factories.
Second, they are a little bit hesitant to invest by the conditions, as I mentioned, home markets and all the overseas and the trade war situation. If that comes to a more stable position, we expect that maybe in 2020, they will come back with major investments. That's our view at the moment on that business in China for the paint business. But for the normal machine business, we are expecting a stable development.
The last final question I have for IFRS 16, so I got that right, that the kind of net debt level will go up by around about EUR 100 million.
Yes. So approximately. Starting in 2019, we would adjust to comply with the new IFRS leasing guideline, and we would basically also adjust the net debt curve and add about EUR 100 million. The exact number is still under finalization, but it should be in the range of EUR 100 million.
And as usual, probably no impact really on the P&L, I guess, yeah.
I mean, it will probably impact positively the EBIT and negatively the financial interest, but overall, it will be a washout.
Okay. Good. That's it from my side. Thank you.
Pleasure.
The next question is from David Bobker, Bank of America Merrill Lynch. Your line is now open.
Hi, guys. Two quick questions. Just on paint and final assembly, I know you've spoken about the price and quality improving over the last few quarters, but how much of that is bound to your higher-priced orders from China, and how much of that pricing power are you getting with your traditional OEM customers in Europe and the U.S.?
Yes. Thank you for this question. I think the main effect is there are two effects. First of all, there's a focus program. We have improved our cost position. Therefore, our margin goes up. Second, as I mentioned last year in several calls, that we had one competitor who did for the reasons I mentioned, and that's over now. It took some major orders, five or six, with very low price, far below cost, and this was damaging the overall market price level because it's quite transparent. But this competitor is now in real trouble, and he's not showing that he continues that because now he has swallowed the bitter pill, and we see more reasonable behavior now. So overall, I think it's stabilizing, and we see increases. And so we are optimistic that it will continue this year as well.
Okay. Thank you. And just a quick follow-up. At the end of last year, you stepped away from your medium-term large M&A targets. Now that the year has kind of concluded, do we have any further clarity on this, or is your M&A strategy going to be integrating Megtec and sort of shopping around?
Okay. First of all, yes, we have all hands full to do to integrate Megtec Universal, but I have not given up on the target. We only said that it's not. We only wanted to tell you guys that this is, from today's perspective, not so likely that you can count on it. But we are still going for it, and hopefully, we have it. We have the opportunity in the next two years. But if not, maybe three years. We only wanted to take out the time pressure.
Okay. Understood. Thank you.
So nothing changed in strategy. We continue to pursue opportunities.
The next question is from Daniel Gleim, MainFirst. Your line is now open.
Yes, Noel. Thank you very much for taking my questions. The first one is on the sales outlook for 2019. If I take 2018 as a starting platform and I add in the acquisition impact that you're expecting, I'm reaching a level higher than the midpoint of your guidance. At the same time, you're suggesting that your underlying service business is going to grow at a very nice level in 2019. So I'm trying to understand what you're implying with your guidance is that the OE business is likely declining in 2019 despite stable end markets. If you could put a little bit more color around this assumption, that would be rather helpful. That's my first question.
Okay. I mean, I can only answer the objective or the calculation you made is our objective. For sure, we want to be in the guidance in the upper part of that. So there is no more light to shed on that. As you know, we are at this time of the year quite cautious.
Okay. Thanks for elaborating on the PFS headwinds on the pricing side. Maybe you could also provide a little bit more color on the Homag headwinds. How far along are you in solving the capacity constraints, and how long is this going to be a drag on the revenue evolution in 2019? I mean, last time, you suggested it will take a little bit longer than the end of this year. Could you give us an update on where we stand and when this will be likely resolved?
I think it's a very complex issue to attack because it's started. Maybe that's when we see maybe we can put more light on that. It will definitely take the whole course of 2019 and also parts of 2020, but we will see, and we have seen in Q4 already effects. So what we expect is that, as we had also always said since the acquisition of Homag, that we have slight improvements every year. We expect this year to improve in Homag and also next year and the year after because the effects of that, we have still more opportunities around the globe. It's not only in Schopfloch, also in other plants. Therefore, for the next years, that job is not done. What you can expect is improvements over a year. That's what is our objective.
The one-offs that you guided for 2019, where will those take place? Which segment?
We said basically that we have EUR 25 million one-offs, and EUR 20 million of that is PPA. And the EUR 5 million, that's, let's say, yeah. The EUR 5 million is mainly cost for the synergy we are picking up in NCDS, where we need also consultancy work and special investments. Not investments, but legal efforts.
So no one-off in Homag for washing?
No, not significantly. Maybe some EUR 100,000 here and there, but not like last year. That we will not repeat.
All right. Thank you very much.
My pleasure.
The next question is from Philippe Lorrain, Berenberg. Your line is now open.
Yeah. Good afternoon, gentlemen. Just one question for me. It's to bounce back on the second question regarding IFRS 16. Can you confirm that the EBITDA will actually move up following the adoption of IFRS 16 as the capitalization of operating leases and recognition of right-of-use assets would result in operating lease costs becoming a depreciation item? Just to clarify at this stage.
Yes. The answer is yes to your question. We do expect that the impact, meaning the improvement on the EBIT and deterioration on the financials, still will sort of be comparable. The impact should be in the range of 3-4 million EUR EBIT improvement and deterioration in financial result, so roughly. But please, these numbers are still not 100% final. It's just to give you an indication at this stage.
Yeah. But I guess the improvement at EBITDA level, so before the depreciation, is actually to be more than the EBIT improvement?
Not really. No, we don't expect that. No.
Okay. Thank you.
The next question is from Jack O'Brien, Goldman Sachs. Your line is now open.
Hi. Good afternoon. So first question just on the paint shop division. You had order intake of EUR 1.3 billion in 2018. What proportion of that was from the sort of structural EV-type opportunities?
About I have not the exact number, but EUR 250 million, EUR 200 million, something like that. Yes.
Okay. Perfect. And you mentioned in your early comments obviously some good order wins, but also a bit of softness in the North American market where there's good sort of replacement or, I should say, brownfield opportunities. Are you seeing some of the OEMs in this sort of environment deferring those, or how would you characterize that North American backdrop?
North American, let's talk about the U.S.. And what in the U.S. we saw was due to many reasons that customers were reconsidering their localization strategy, where they put which car and which plant has to be increased or refurbished. So there was a lot of going around the circle. And that was the reason for last year. This year is also, starting on that point of view, quite, let's say, weak. But we see some projects and discussions which seem to be really on, but this will be not before order intake quarter three or quarter four. Yeah. So that will be the first half in the U.S. will be quite slow in terms of order intake for bigger projects.
Okay. Very clear. And just a couple of other small ones. Homag, you mentioned these production and supply chain problems. What sort of EBIT impacts do you think that had in 2018 in absolute terms?
Well, there were many effects, but I would say minimum EUR 10 million.
Okay. Okay. Thank you. And those are largely large.
Maybe more. That's why I said it will take some time, but we will gradually, piece by piece, million by million EBIT, he will pick it up over the next two years.
Perfect. Understood. And just one final question on provisions. I think there was a negative provision of roughly EUR 30 million in 2018, which stepped up from negative 13 at the Q3 level. What are the sort of moving parts to understand in terms of those provisions?
I mean, provisions include many different items, but I think in simple terms, we have reduced the provisions due to the fact that our margins of incoming orders have improved over the year, and there was basically less need to keep some of these provisions for projects. So that's the main reason behind it, but there are other reasons as well.
And some projects executed better than expected now.
Yeah. Sorry. I forgot to mention that as well. So these are the two main reasons. But you see our incoming orders' margins are getting better, and therefore, the likelihood that we will have a project with positive margin is therefore higher and less risk also on the execution side.
Cool. Thank you very much.
Pleasure.
At the moment, there are no other questions. As a reminder, if you would like to ask a question, please press zero one on your telephone keypad now.
So we wait maybe a second, and if there's no further but Mrs. Anders, you will let me know when there's another question. Not now?
We have received another question. It's from Jasko Terzic, Metzler. Your line is now open.
Yes. Hi. Thanks for taking my questions. Three smaller ones. First, on CTS. Did I see it right that you have revised your guidance for 2021, so you now give a range instead of a point estimate?
No, we didn't revise our guidance. We have a new guidance because so far, it was without Megtec Universal, and we only said it's about EUR 500 million business volume in that perspective.
Okay. Then I have to check that, where I got those other numbers from. Then MPS, the Q4 order intake, was very low from my perception. Could you give us a moving part behind that? First question. And second, is it a bad indication for the start into 2019?
No. The Q4 level, you compared with the Q4 2017, no?
Yeah.
Yeah. But in 2017, we still had some larger orders which so far could not be repeated. We had in 2017 an exceptionally high order intake, and MPS, also driven by filling and by the end-of-line business, and the normal run rate is between EUR 100 million and EUR 110 million per quarter, so it came down to a more normal level, but it's not a bad sign for the year. That's what we don't see.
Because it is slightly below what you have guided for the running fiscal year, therefore I thought it could be a miss.
Yeah. We try to guide everything perfectly, but so many things to guide, sometimes we miss, but nothing to worry.
Okay, and the final one is on Homag. Could you give us a rough sales split for 2018? How much was systems business and how much was machinery?
You can make it quite simple. You can say, let's say, to make it rough, we have about EUR 300 million-EUR 350 million business on systems, and then we have EUR 300 million business on service, and the rest is machines.
Okay. And the final one on Homag, the forecast, the flat forecast for the next two years, is that driven by China? And if we strip out China, would it be growth for the remaining regions?
You can say so. China, we don't expect to grow this year much at all, yeah.
Okay. Thank you.
We have another question from Alexander Hohn, Deutsche Bank. Your line is now open.
Yes. Hello, Alexander Hohn, Deutsche Bank. Two more questions on Homag, please. Can you elaborate a bit about the SAP issues you had here? Maybe give us some color here how far the, let's say, installation/ramp-ups are right now.
Should we expect them to continue also until the end of the year, or is that more or less done within the next one or two quarters? And yeah, on Homag, I also understand that you had a few departures on the management level. Have you already onboarded the new management guys in Homag, or are you still looking for a few people to support your former structures? Thank you.
Do you want to help us?
No, not really. I think I'm not the right guy for that, but thanks. No, but yeah, I just want to get a better feeling of how quick you can progress here maybe.
The SAP, you know, what I learned in the last 15 years? SAP implementation never stops because during this is always and all the time you have to do new features.
But in Homag, it was a significant event because in Schopfloch, these people, after being for 18 years on a mainframe system, old-fashioned, jumped into this new world of SAP with all the problems a user may have, totally new screens. And that was basically even though the transition of data took three or four weeks, so we had basically four weeks standstill. And then we had people starting to accommodate, and that was a big issue in, let's say, inefficiency. And people have now got used to it. I think one year later, they are used to it, but we have more SAP implementations to come in the Homag Group. So this will be with us the next years. But I would not see that it's an issue anymore. But it cost us last year, basically, three, four weeks minimum, yeah.
On management, yes, because we have also hired some external ones, or quite a few ones, and these external hirings, you are not always sure that it works. We are very performance-driven, and some people left us and have been replaced, some of them internally and some externally, but we are done now. At the moment, we have a good team. They are very experienced with Homag, and I'm very optimistic that the team will go through this year.
So they have started already at the beginning of the year, or will they onboard within the next, let's say, one or two quarters?
No, they were already here, so we don't have. Now we have not in the last six or nine months people hired from totally new into top level, level one below board, no. They're all on board. And some have left and have been replaced by internal.
Okay. Got it. Thank you.
Pleasure.
We have another question from Peter Rothenaicher, Baader Bank. Your line is now open.
Yes. Hello, gentlemen. One question regarding your production footprint. How do you progress in China, in building up or expanding local production and particularly also local sourcing and paint and final assembly? We have heard that demand from North America is currently relatively weak. What does it mean for your capacity utilization in the U.S.? Can you compensate for that? And then also on paint and final assembly, what is your view currently on new final assembly orders? Is there more to come, or is it currently more that you're waiting for more paint shop business?
Okay. The first one, I mean, when you talk about local production in China, we have, let's say, three major plants and campuses over there, the one in Shanghai. Here we have a high level of localization. Order intake continues, even machines still we have a very big program of machines in Shanghai, and some of them are still only produced in Germany, but they are also moving part by part to China. So that's ongoing. Nothing special here. In Homag, we have increased the capacity. We have even rented a new big workshop to further localize the Homag work, but for producing also local design machines, which we are doing now successfully. We are entering with those machines also in the lower market segments now to attack our, let's say, lower-tech Chinese competitors.
On the paint and final assembly side and the clean technology side and APT side, we are very much localized already. Here, but it's an ongoing thing. We always find something which we can do better. I think that's the situation in China. The U.S. utilization, yeah, we need some orders, as I said. At the moment, we are busy with orders. Also, we got a big order last year, end of last year from Mexico and other small ones and paint shops. At the moment, I'm not too concerned about it, but it could become a concern if we don't get early enough the next larger order in the U.S. This I can't foresee today, maybe after the first quarter, I know better. We have no special focus on final assembly orders. We are working on them.
We have every year EUR 200 million-EUR 300 million in total business of that, and this is continuing to be. There's no, let's say, no objective to get such amount. So we look at it as a total opportunity. Where it makes sense, we offer, and we have good opportunities.
Okay. Thank you.
Pleasure. So it seems so that no further questions. Ms. Anders?
There are no further questions. You can go ahead and make your conclusion.
Yeah. Thank you very much, and thank you very much for your questions, ladies and gentlemen. As always, we enjoyed this discussion. Some information for you. The shareholder meeting this year will take place on May 10th, and our first quarter figures will be published on May 17th.
As usual, you can participate in our call, but in addition, we will be holding a live event in Bietigheim-Bissingen here on May 17th with a guided tour on our campus after the first, so the Q1 call, which we do here together. This will give you an additional opportunity of experiencing our latest products and of gaining a better insight into our digitalization strategy and new products in that area. I think it's quite exciting, and I can only recommend come and see. We're really doing great stuff here, and it's certainly worthwhile to come. We have a lot of live demonstrations because at the same time in that days, we have our open house event for our customers where we expect more than 1,500-2,000 customers coming from all over the world to look at those innovations.
But for this event, of course, we will be sending out a separate invitation and would be very happy to welcome here as many as possible from you. Thank you very much for today and for the interest in Dürr, and I would say good afternoon. Thank you very much. Yeah. Good afternoon and yeah, to everybody. Thank you. Bye-bye, everyone.
Bye-bye. Thank you. Bye-bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.