Ladies and gentlemen, welcome to the Oerlikon Q2 H1 2020 Results Conference Call and Live Webcast. I am Alessandro, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing Star and One on your telephone. For operator assistance, please press Star and Zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Andreas Schwarzwälder, Head of Corporate Communication and Investor Relations at Oerlikon. Please go ahead, sir.
Thank you, Alessandro. Good afternoon, ladies and gentlemen, and welcome to Oerlikon's conference call on the 2020 second quarter results. Particularly in light of the current circumstances, I do hope you're all well and staying safe. With me today is Dr. Roland Fischer, our Group CEO, and Philipp Müller, the Group's CFO. As a reminder, all related documents on the second quarter results, including the following presentation, are available for download on our website at oerlikon.com. Today, Roland Fischer will talk about Oerlikon's development and response to COVID-19, how it has affected us during the second quarter, and outlining our decisive actions we have taken, and how we will emerge from the post-COVID-19 world as a stronger business. Philipp Mueller will give you an overview of the financial performance during the second quarter and the first half of 2020.
After the presentations, as mentioned, we will host a Q&A session to answer your questions. The conference is being recorded. The replay is available on our website shortly after the presentation today. Now, having said that, I'll hand over to Roland.
Yeah. Thanks a lot, Andreas, welcome to all of you from my side as well. Before we start, let me say a few words about the challenging times we are living through. I hope you all and your families are well, and you are staying safe. I'm extremely proud of the way how Oerlikon's employees are handling this crisis with respect to the challenges, both professionally and personally. From a business perspective, we cannot avoid the effects of the global crisis. We have taken strong and decisive actions where we are able to do so, mitigating the impact where possible for our employees, our stakeholders, and shareholders. I'm very pleased to report that the Manmade Fibers segment has delivered the expected strong performance during the second quarter.
We achieved a year-to-date order intake of over CHF 500 million and have a very strong order pipeline to the year-end and beyond. The strong operational performance during the second quarter has enabled sales to increase more than 20% sequentially and gives us confidence that the full year figure will be over CHF 1 billion in orders and sales for the third year now in a row. We also made progress in further diversifying our Manmade Fibers product portfolio by accelerating the Non-woven business activities. The COVID-19 pandemic increased the demand for our meltblown technology, and here we are able to sign 15 contracts for the solution, which is required to produce fleeces for facial masks, and additional projects are under negotiation. The Surface Solutions segment was impacted across all geographies and all end markets. We have seen some initial encouraging signs of moderate recovery in June and now in July.
However, it is by far too early to know for sure the degree and pacing of the recovery, given the significant risks still posed by the COVID-19 pandemic. During the challenging lockdown period, we continued to deliver in many countries our services and technologies as they are considered critical and system relevant by our global customer base. We continued to invest in innovation to serve customer needs and drive structural growth. We do have the right technologies, the financial strength, and the team in place to take advantage of a market recovery. You might recall last year we announced structural actions to address the softening market conditions. With the onset of the pandemic, we have accelerated and deepened these measures and have taken additional cost and liquidity preservation measures.
Through a combination of short-term measures and the early impact of our structural programs, we have shown excellent operational gearing to be able to reduce operating expenses by CHF 90 million year on year in Surface Solutions. By the end of June, and ahead of schedule, we already actioned more than 400 of the planned 800 headcount reductions. Oerlikon and Surface Solutions will emerge stronger and nimbler from 2020, and we remain committed to our midterm profitability targets. One key element to achieve the target is the structural cost base in the Surface Solutions business. Our priority is to substantially reduce the cost base, reacting to structural market trends. We are ahead of schedule with our program to reduce the Surface Solutions headcount by around 10% or 800 people.
At the end of June, I mentioned it already, we are more than 50% complete and anticipate being 85% complete by the end of this year, 2020. The structural program is not limited to headcount, but is also designed to yield long-term benefits through more efficient working practices and technology adaption. Overall, we target an annualized run rate EBITDA savings of around CHF 60 million. In total, we expect implementation costs of around CHF 60 million. Here, let me remind you that CHF 25 million have already been booked in 2019 and CHF 21 million will be booked and were booked in the second quarter of this year. Our global service network, leading technologies, and market position will preserve the ability of Surface Solutions to grow structurally once markets recover and return to growth mode.
Nevertheless, we are continuing to evaluate actions to further optimize our structures and cost base considering the current environment. The elements of top-line growth in combination with cost discipline and capital efficiency provide the framework to achieve our midterm commitment to group EBITDA margins between 16% and 18%. Over the past quarter, we have seen a continuation of multifaceted economic development of the COVID-19 pandemic, which we experienced already in the previous quarter. The strength of Manmade Fibers' market position, customer proximity, and order book continue to provide a stable base in this economic environment. Our order book in the Filament business remains sticky, with no cancellations and continued visibility out to the year of 2023. The Special Filament business, including industrial and carpet yarns, remains weaker as a result of pre-existing market softness and the geographical profile of our customer base outside of China.
The COVID-19 pandemic has, however, generated a strong global demand for Oerlikon meltblown Non-woven technology, which is used to produce face masks. This demand has grown, driven by government regulations and the need for greater self-sufficiency and reduced reliance on imports for critical medical items. It can be seen on a daily basis across Europe and the rest of the world with governments regulations and guidance for wearing masks in public places. The strength of the underlying market conditions can be seen in the order intake with CHF 366 million in the second quarter, resulting in CHF 510 million for the first half of the year. This underpins our confidence in delivering sales of over CHF 1 billion for 2020. In Surface Solutions, the imposed lockdowns due to the pandemic impacted all of our end markets and provide different recovery pattern.
In tooling and general industry, both representing about 17% of our first half year sales each, we are closely correlated to industrial production, which saw a substantial decline in the second quarter. All regions were materially down sequentially in the second quarter. However, we recognized the recovery pattern in China during the second quarter with increased business activities and rebuild of inventory following the easing of the strict pandemic measures. Assuming comparable scenarios for Europe and with a time lag in North America, we expect the second quarter to be the trough. The pattern of recovery is more likely to be V-shaped. In the automotive industry, which was substantially down in terms of deliveries and production in the second quarter with declines of around 30%. The market currently expects a decline over 20% for the full year of 2020.
With the easing of restrictions and lockdowns, particularly in Asia and Europe, we recognized some recovery in the latter part of June as key OEMs slowly ramped up production and/or restocked for start-up production. Therefore, we now assume to see a U-shaped recovery. Last but not least, in the aerospace industry, challenges have been compounded by the sudden and substantial reduction of commercial air travel. IATA forecasts a 55% decline of passenger traffic in 2020 and now expects a return to 2019 levels only in the year of 2024. This leads to a deep and extended down cycle and prolonged recovery. However, given the megatrends in global mobility and global trade, our belief in long-term structural growth trends remains unchanged. We continue to monitor the ongoing impact on the virus, including potential additional waves.
Subject to the situation not substantially worsening, we see the second quarter as a trough in most markets. However, the shape of the recovery has plenty of facets across the different industries and it is very difficult to predict. Oerlikon's stability and strength as a group and the structural long-term market dynamics, combined with the decisive actions we are taking, will position us well for the recovery when it comes. While we are navigating the continued economic impact of the downturn, we also have a keen focus on positioning our company strategically for the future. Surface Solutions remains a strong and leading industrial technology business. The decisive actions we have taken will increase the resilience of the segment. The business will be capable of delivering higher levels of profitability.
When there is a return to an environment of structural growth, the business is well-positioned to ramp up and deliver sustainable and profitable sales. In our Manmade Fibers business, which has evolved as a business, and is today again, a strong stabilizing factor for the group during this time. Our efforts to diversify the business are beginning to yield results, and it continues to deliver strong returns. Last but not least, our healthy balance sheet positions us well for the future, and we will be ready to execute when the right growth and M&A opportunities present themselves. Following the commercial and market overview, let me now hand over to Philipp to present the group's financials. Philipp, it's yours.
Thank you, Roland, and good afternoon. Let me start with the group financial review and with a closer look at the second quarter and half year figures. In the second quarter, group order intake was CHF 604 million, down 10% year-over-year on a reported basis, and down 4% at constant FX rates. The significant decline in order intake and Surface Solutions was compensated by a strong performance of the Manmade Fibers segment. Sales in the quarter were CHF 510 million, down 27% year-over-year. FX contributed negative 4.6% to the decline as our reporting currency continued to appreciate compared to the same time period last year. Manmade Fibers sales were 23% lower year-on-year, as some shipments from Europe faced delays, and given the very high sales level in the comparable period last year.
We're expecting the delayed shipments from Q2 to be largely caught up during the months of July and August. Surface Solutions sales were down 31% as the various shutdowns related to COVID-19 impacted all of our business lines and geographies. Operational EBITDA was CHF 55 million in the second quarter, or 10.8%. As Roland mentioned, we executed swiftly on our various cost-out actions, and we're expecting continued benefits from the measures in the second half of the year. For the first half, we reported sales of just over CHF 1 billion and group operational EBITDA of 10.9%. As we have previously discussed, we are expensing the majority of the implementation costs for our restructuring program during 2020. In the second quarter, we incurred CHF 26 million of charges for restructuring and impairments of certain intangible assets that are related to these restructuring actions.
In order to give you a like-for-like comparison to our prior period results, we have defined operational measures of profitability. As you will have seen in our earnings release, at the half year filing, we are providing reconciliations from these operational measures to our reported figures. In Surface Solutions, second quarter sales were CHF 262 million. Sales declined 31% year-over-year on a reported basis and 27% at constant FX rates. We saw declines in orders and sales across all geographies and end markets. During the months of April and May, lockdowns in North America, Europe, and parts of Asia impacted our ability to service our customers significantly. As Roland described earlier, we saw some recovery in June, with substantially more service locations open and higher levels of utilization. This positive trend was confirmed during the month of July.
Our ability to predict future activity, however, remains extremely low given the rapidly changing environment. Operational EBITDA in the second quarter was CHF 17 million or 6.5% of sales. We managed costs tightly using short-term measures and saw some of the benefits from our structural cost-out program already in the second quarter. Overall, in the first half of the year, we reduced operating expenses in Surface Solutions by CHF 90 million compared to the first half of 2019. Next on Manmade Fibers. Manmade Fibers delivered strong order intake in the second quarter of CHF 366 million, up 23% year-on-year and in line with our expectations. At constant FX rates, orders were up 31%. As we discussed during our Q1 results, the filament market remains robust, and we saw some of the orders that were delayed in Q1 materialize in the second quarter.
Year- to- date, Manmade Fibers has booked orders worth CHF 510 million on track for our full year expectations. During the first half of the year, we saw particular strength in our Non-woven business, where we signed customer agreements for 15 equipment systems. These systems are used in the production of face masks. We expect to continue to see a positive trend for these solutions as more countries are developing their respective independent supply chains. Sales for Manmade Fibers in the second quarter were CHF 248 million. As previously stated, we are expecting to be caught up on the majority of the production delays by the end of August. Second quarter operational EBITDA was CHF 38 million, or 15.2%. In the first half of the year, operational EBITDA was at 12.4%. We're expecting margins to continue to improve in the second half of the year.
Manmade Fibers is providing a significant degree of stability to us at this point. We expect the stable development to continue for the foreseeable future as our order pipeline sees delivery lead times extending well into 2022 and 2023. We are also in the process of new project discussions with customers for deliveries in 2024. Next, let me go through the balance sheet. Our balance sheet remains strong, and during this challenging period, we have a balance of cash and cash equivalents of CHF 600 million as per the end of June. Net liquidity at the end of June was negative CHF 156 million. Total equity was over CHF 1.3 billion, an equity ratio of 37%. Overall, our financial position remains very strong. We have done a lot of work to make sure this remains true during this crisis.
We continue to look for opportunities to deploy our balance sheet in value creative ways, whether that is M&A or organic investments. Next on CapEx. CapEx was CHF 48 million, down 27% from prior year's level, or CHF 60 million. We prioritized organic investments further during the first half of the year as we were focused on cost and cash management. Excluding the amortization of acquired intangible assets of CHF 21.4 million in depreciation charges related to the application of IFRS 16, depreciation was at CHF 63 million, roughly flat to the first half of the year 2019. Next on cash flow. Cash flow from operating activities before changes in net current assets was CHF 59 million. Change in net current assets was negative CHF 64 million, resulting in cash flow from operating activities of negative CHF 5 million.
Cash flow from investing activities was negative CHF 57 million, mainly reflecting CapEx of CHF 48 million and some smaller bolt-on acquisitions. Cash flow from financing activities was positive CHF 14 million. We paid the dividend, bought back shares in Q1, and drew down on our credit facilities in the first half of the year. All-i n- all, cash and cash equivalents decreased by CHF 57 million- CHF 600 million at the end of June 2020. Let me conclude with a summary before we start the Q&A session. Manmade Fibers has done an excellent job overcoming the operational challenges caused by the COVID-19 pandemic and delivering CHF 510 million of order intake in the first half. We are confident to achieve our full year sales and orders targets, and we are expecting margins to expand versus 2019.
The Surface Solutions team reacted swiftly to the operational challenges presented by the COVID-19 crisis. Towards the end of June and into July, we see the first signs of recovery, but the degree and robustness of this trend are yet to be seen. Our company remains very well capitalized, and we are positioned to not only survive this crisis, but to act quickly should the right M&A opportunities present themselves. We have accelerated the restructuring program, which we announced in 2019, and we're continuing to streamline our operations. With the cost actions we are taking and our leading technology portfolio, we are certain our Surface Solutions business will emerge even stronger from the crisis. The future remains extremely difficult to predict for us and many others. We continue to focus on what we can control and adjusting our structural cost footprint.
As the impact of our cost actions materializes in the P&L, we expect to see margins improve in the second half of the year. We expect group margins in the second half to be 300-400 basis points higher than in the first half of 2020. This obviously assumes no additional material events negatively impacting the market recovery. Furthermore, as our structural cost actions are taking effect, we remain confident about our commitment to the midterm margin corridor of 16%-18% for the group. This closes our prepared remarks. With that, we will open it up for questions. Alessandro, please go ahead.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Anyone who has a question may press star and one at this time. The first question is from Christian Obst from Baader Bank. Please go ahead.
Yes. Hello, thank you for taking the question. I have four. One is, what does it mean right sizing in additive manufacturing? Can you give us some kind of a framework for that? Second one is, the nonwoven orders, of course, are positive for the entire group. Are these low to mid-single digits per order stakes so that the total is approximately CHF 50 million? Is that the right assumption? Concerning the free cash flow, free cash flow was negative with approximately CHF 60 million in the first half. Can you give us some kind of a guidance? Do you expect to reach the break-even level until the end of the year? Last but not least, it's concerning intangibles.
You still have a very high degree of approximately 30% of total balance sheet of intangibles. This is mainly related to Surface Solutions where you are currently undergoing a very heavy restructuring. How is the current status of discussion with the auditors concerning further impairments maybe going forward, or how do you see the risk? Thank you very much.
Okay, Christian, I think I take the first two ones, and Philipp, you take the second half of your questions. First of all, right-sizing additive manufacturing. This is actually a very simple story. As additive is serving some normal conventional market segments, Automotive, Aerospace, we do see a certain impact here in terms of reduced volume as well. On top of the sheer volume and market-driven phenomenon, we do see, and this goes more back to the Boeing topic 737 MAX, a certain bigger hesitance to go for application of new technologies here. This is what we saw, and as a consequence, we took some measures. We reduced people on the operational side, but also in the structure of the Additive business. We also went through our ongoing R&D activities. Here we talk in some cases about very long-term projects.
Here we applied a simple rule to which extent we believe there will be in the mid or in the short term, a few real revenue coming out of it, and here we did some cuts as well. The second question was referring to the Non-woven business. This is a business, here we talk about melt-blown equipment, what is in the order of magnitude CHF 5 million, CHF 6 million, CHF 7 million revenue each system, depending on scope. Normally we did very few units per year. Due to this COVID topic, the demand was increasing. I think I mentioned, or Philipp mentioned it, 15 units have been sold. There is an effect of CHF 35 million, CHF 40 million in this year and the same will come next year. That means it's not changing the needle and the entire picture, but it's a nice add-on here.
Okay.
Now, Philipp.
Yeah. What I would say on free cash flow, I think we're expecting a substantially better second half here. If I go through the components, we will maintain the discipline on the CapEx side. That's probably going to look similar, but I think from a net working capital standpoint, we're expecting that to be a source of cash in the second half. We had an inventory build related to some specific areas, both in Manmade Fibers and in Surface Solutions, which we're expecting to execute through in the second half of the year, equipment deliveries and so on. We're expecting receivables to be similar, but a better performance on payables. I would say we're expecting a substantially better cash performance in the second half of the year. Your last question was on intangibles.
I think similar to maybe many others, we're trying to absorb and evaluate the impacts from the COVID-19 crisis. We're trying to bifurcate between sort of what's the short-term shock impacts and what are the longer-term items that might potentially impair our different business units. I think we've talked about this, the longer-term area that we really see or the longest term that we have in the portfolio is certainly the aero market. That's where we're spending a lot of time. We have the same view on the aero market as more of a timing question. We believe in the market and our business in that market and our ability to generate positive returns there. It's more of a timing question.
We'll go through that process as we go through the second half here and really try to evaluate what it is that we need to look at. I would say really it centers around the aero market at the moment. In long term, we feel great about that market.
Okay. Thank you so far. Thank you.
The next question comes from Michael Foeth from Vontobel. Please go ahead.
Yes, good afternoon, gentlemen. Two questions from my side. The first one also regarding additive manufacturing, just to get a feel for the size of the business and how much drag on profitability this has now. Historically, you had between two and 300 basis points just to see how much it is of a drag this year and maybe also going into next year, what your assumptions are. The second question is regarding your liquidity management. First of all, if you could specify how many shares you bought back in the first quarter or for how much, and then the thinking behind basically drawing that liquidity and then buying back shares and paying the special dividend, what the thinking behind that is and how much more of debt facilities you have available at this point. Thank you.
Okay. Michael, I start with the additives part. I think we indicated already in previous calls that the Additives business in 2019 was in the order of magnitude of CHF 30 million revenue top line. This is what we are targeting for 2020 as well. Due to the effect of this crisis, we will see a certain impact here, not as strong as in the other business, but nevertheless. In line with this improvement measures and cost-cutting measures, this additive area as well, we have been able to reduce the total, the absolute losses which we generated in the past and now. We will remain in the region of this 300 basis points impact here. I think, because as we believe in the technology and as we believe in the application for this technology, we are not cutting the future.
We are just cutting those elements which we feel are not of utmost need right now.
Then your question on the liquidity management. You would have seen, in the first half of the year, we purchased about CHF 46 million worth of treasury shares. You would have seen our average price for the total buyback that we've done so far is just over CHF 9. You can imagine that what we bought back in the first quarter, really at the beginning of the year, was significantly lower, just in line with the overall market. That gets you to the average of just over CHF 9.
How much more debt facility or credit lines do you have available now?
In the cash and cash equivalents that we have on the balance sheet, the CHF 600 million, that still includes the cash and credit lines. There is some more available, but I think we're looking more at an ability to sequentially repay those revolving credit lines. Given where we are at the moment, we don't see the need to maintain these on the balance sheet. As we explained last time around, our funding cost for this is very limited. Nonetheless, I think during the third quarter, we're looking at returning some of those funds back.
Okay. Thank you very much. Thanks.
The next question comes from Alessandro Foletti from Octavian. Please go ahead.
Yes. Good afternoon, gentlemen. Thank you for taking my questions. Can I ask you a couple, maybe one by one. First, on the order backlog at Manmade Fibers, can you give an indication how much of this will be delivered in 2020? How much later on? Maybe if you can give a bit of an indication on how you see the pipeline of order in the different segments, also particularly with the reference on the BCF business. That will be my first question. I have a couple of others.
Yeah. Okay. I think let's start with the BCF business, which is down right now. This was already obvious last year, 2019. From that perspective, the additional demand in nonwoven and the meltblown equipment helps our site in North Germany. The second question, actually, the Filament business, the outlook. You know that here we talk about project business. You know that we have announced, I think it was in March, CHF 600 million new contracts which are not yet booked as order intake because, Alessandro, you know it. Having a contract is just one precondition. Others are important as well. Secured financing, approvals from the local authorities to build the site and stuff like that. From that perspective, hardly anything, just maybe a minor, a very small, low double-digit million volume will be booked as order intake out of the CHF 600 million in 2020.
That means the rest is coming and the delivery slots are reaching into 2023. That means we start delivering end of 2021, then 2022, and the later part even reaches 2023. That gives us the confidence that, and in combination with the statement we made that we don't have cancellation in this business, gives us the confidence that our Manmade business is extremely stable. They are doing well and performing well.
Maybe if I can add my second question here on the capacity utilization. You have committed to remain at CHF 1 billion, plus, minus. I believe you will stay there. How is the, let's say, the rest of the industry behaving?
We should not talk too much about the others. We should talk about us. You're absolutely right. We have made a conscious decision years ago, not to substantially increase our capacity. The opposite actually was true. We closed Balzers, you might recall. That's why we are where we are. What we do is, we do incremental improvements in terms of efficiency gains, yeah. If we need a machine for special drilling or whatever, we do that, yeah. We don't extend the factory. We don't build new factories. This is our philosophy. As far as we know, our main competitor, the Japanese family-owned company, is doing similar. They are increasing the capacity within the frame of a given setup. For the high-end state-of-the-art latest technology equipment, these are the two players.
All right. Okay. Fine. Thank you. Maybe a very small one, and then I go back in the pipeline. On the corporate cost line, it was, if I calculated properly, CHF 0 or + CHF 1 million. Can you explain if there is something special into that one in H1, and can you give an indication for, let's say, the rest of the year, but also afterwards, how high will be that line?
I would say corporate costs are always around that level, Alessandro. There's certain costs that get allocated to the segments and certain that are. There's always a little bit of an over or under, but it should be in that range, going forward as well.
That means that the step down from where it was a couple of, maybe one year or one and a half years ago, it has been carried out and you sort of really reduce sustainably the cost there?
Yeah. A lot of this was obviously also done under the consideration of the changing portfolio and some of the divestitures that we've made. I would say that, and yes, we have reduced the corporate costs and we're continuing to reduce corporate costs.
Okay. Thank you.
The next question comes from Fabian Haecki from UBS. Please go ahead.
Yes. Good afternoon, gentlemen. A few questions here. First starting with the CHF 90 million OpEx reduction in H1. Can you tell us how much is kind of temporary cost reduction related to, or how much of this CHF 90 million is related to short-time work? How much is related to other typical COVID-related savings like much lower travel expenses? How much is already, or is there already substantial part of the structural cost savings of the CHF 60 million you're mentioning? This would be my first question.
I would say, Fabian, you're exactly right with the notion that there's a number of those components in there. We're not probably going to give the exact split, but what I would say is that short-time work is probably compared to the CHF 90 million, a relatively minor component. I would also say just with where we are from a timing standpoint within the second quarter, the structural cost out items have also had a relatively small contribution to that, but will have a much larger contribution to the savings going forward. There's obviously a number of other items that react short-term, this discretionary spend. Those are certain other discretionary spend controls, not just travel and living and so on, where we will continue to control those costs very tightly as we go through this crisis.
Where we're also sustainably setting up other business practices that will keep the cost lower. I would say it's really a mix of all the different cost types that you've described, relatively small on the short-time work. Far, relatively small on the structural cost. That's really the component that also makes us comfortable on the sustainability of the cost savings. As the structural cost out component grows, and we really get the run rate savings from the 400 heads that we've already reduced some of the other things to 85% of the head count reductions that we're expecting to complete by the end of the year. Some other cost items will come back, but we're certain that the net of those cost savings will still help us to expand margins in the second half of the year, and then also going into 2021.
Okay. That's interesting to hear. This means the CHF 60 million, when I think of 800 job sheds. The CHF 60 million is actually more or less purely related to fixed head count reduction. Then all other OpEx and SG&A that is in the CHF 90 million, lots of it is probably to stay sticky, right? Is it fair to assume that your structural cost savings will be beyond CHF 60 million?
Look, we're obviously focusing here on a couple of different areas, just like Roland said. I think you go through a crisis like this, and it resets a lot of your cost base. We're certainly expecting some of the other things that are now more considered a short-term saving that they will be sticky to. I would agree with you on that. You're also right that the majority of the CHF 60 million are obviously predominantly headcount-related savings. When you just think about, we've described, obviously, a lot of the positions that we're reducing here are structural in nature, so they're a little bit higher in terms of average compensation. We try to give you all of that in the margin expansion target for the second half at the group level, about 300- 400 basis points higher than in the first half.
Certainly, Surface Solutions and the cost out measures that we're taking there play a big role.
Fabian, maybe from my side, just one additional comment. Headcount is one topic, but also, offshoring shared service solutions, which are not necessarily showing up in the total number of headcounts, but which contribute out of the different salary levels, right?
Sure. Okay, thank you very much for these explanations. My second question is, when I look in Surface Solutions, your Aviation segment in Q2 had been 15% of sales, and one would have expected that this segment has been suffering the most. Sorry, it was 14% this year, but it was actually in Q2 last year, when I look in your last year's presentation, it was 15%. No, now I say it the wrong way. 15%, it was this year, and last year it was 14%. You actually have increased your relative share in aviation. This means you have outperformed all the other segments in Surface. Can you explain how was this possible?
No, I think there's a couple of effects in there. I think what you obviously have to keep in mind is that some other areas, the very short-term areas like auto, some of the tooling areas and so on, were impacted just as much by the COVID-19 crisis. I think what we're trying to say is that we're expecting the path of recovery to be quite a bit different, where we're expecting tooling, general industries, and with a little bit of delay, auto also to come back in a somewhat quicker pattern. We're expecting the aero recovery to take a lot more time. That was sort of the point. Obviously in Q2, all areas were impacted.
Fabian is right. I think we did have, and still have, a clear plan to grow our Aviation and Aerospace business. I think you all know the famous examples when we have successfully penetrated the aerospace market out of our thin-film Balzers business, what was not the case three, four years ago, which we simply didn't have it, right? This is the topic of structural growth. What we always told you was one strong element, and that was contributing the effect you are mentioning.
Okay. Thank you very much for explanations. These were my questions.
The next question comes from Armin Rechberger from ZKB. Please go ahead.
Yes. Hello, gentlemen. Additive manufacturing. I understood that most of your restructuring costs go into that. Now, this point, so I wonder, these 400 headcount reductions, where are they not in additive manufacturing now, or what really is the action in additive manufacturing?
I think just to maybe clarify the comments. The majority of the restructuring efforts is not in additive. The headcount reductions that we've targeted are really broad-based. They also impact additive and so on. What we said is that in the current year, with the significant impact on all businesses and so on, additive is also impacted by the deteriorating market environment. In other words, additive, the top line is also impacted by everything that's going on around us, and that obviously also has an impact on how that business is able to absorb costs, et cetera. I think what Roland was also describing is that we're taking a very hard look at some of the different areas that we're working on within additive, and taking a critical view towards do we want to continue those areas or not? That's sort of the right sizing.
This is really at a granular level. We have a really good understanding now of where we think we can generate positive returns and where we can't. To the extent that we can't, we will discontinue those areas. I think that's sort of what we were saying. Far on what we've done, the restructuring actions haven't been skewed towards additive, and additive has also not been sort of immune to the impact from COVID-19 and just the drop in demand overall.
Okay. Another question. Surface Solutions, you say you saw encouraging signs in automotive and in precision components. What precision components? You mentioned China and Germany. Only China and Germany. The rest of the world, still no signs of recovery, I assume, or what's the situation?
No, I think these have been just examples. What we mean when we talk about encouraging positive signs. I think first of all, the pandemic is a second phenomena. China is back at stage. I don't say back to normal, but they have recovered to a certain extent. Just to give you an additional example, our Friction Systems business is doing extremely well in China. To a certain extent, it's the volume which goes up, but it's also a question of stocking, because otherwise we would not be able to explain it, right? In Germany, yes, it's coming back, and in Bremen we have a site for Friction Systems. U.S., there is still a long way to go there, actually, right? From that perspective, there are positive signs and to be maybe more, not generic, but more precise, but not very specific.
When we talk about the monthly Surface Solutions revenue, we had the dip in May. Yeah. It was coming at the beginning of the year from a normal level and went down, then, since May and June, we already have been back to the April level. In July, we expect, and we saw also a decent level. Coming back means not being at the old level, but seeing a kind of turnaround recovery. We said first cautious signs. We don't declare victory.
Another question regarding cash flow from operating activities. It was high because of a big change in contract liabilities. Can you explain what happened there?
This is, as you know, the usual cycle in Manmade Fibers, really related to the large contract there and customer payments and how we're performing work. You know that we had a fairly negative overall result on that in 2019. We've always described that this follows a certain commercial pattern. We've also described that we're expecting a more positive outcome for that in 2020, and that's part of what you're seeing here. It's really related to the large contracts and down payments and progress payments that our customers make in the filament space.
Mm-hmm. Okay. Thank you.
The next question comes from Marta Bruska from Berenberg. Please go ahead.
Hello. Thank you for taking my questions, I have two. Firstly, I know it's maybe a little bit far-fetched given that you are so focused on the operational side of it throughout the crisis, but I was just curious if you see any new opportunities emerging for your Surface Solutions business out of the pandemic and the current situation. Secondly, you mentioned a few times that you are adjusting the Additive business to right-sizing it. Actually, I wanted to ask you to right-sizing to what? Who do you want to serve in this segment, and how do you think of your end market here? Thank you.
Hey, Marta. Sorry, on the first question, would you mind repeating that? We're sort of collectively not sure that we understood you the right way. Then the second one I got with additive, but can you just repeat the first one, please?
Sure. What new opportunities you start seeing emerging out of the crisis for the Surface Solutions?
Okay. I'll probably just start with the additive. I think that's a good question. What are we right-sizing to? I think the point here, what we've always said is that we're not comfortable and not okay with the level of where the business is performing and the level of dilution that we see from the business. We also always said that this is a function of a couple of different things. One is just to grow the business to an adequate size. This is normal with the new endeavor. We're continuing to pursue that despite COVID-19 and so on. This is the right strategy. The other component that we've described is that as we've gone through the last couple of years and learned more about the applications, our customers, and our own capabilities, we've also learned that certain areas probably don't have the same viability as others.
We said to the extent that we're evaluating that those areas don't have the right level of viability, we will discontinue them and stop them and really adjust our cost footprint. That remains the same intention. We want that business to be accretive to the group and accretive to the Surface Solutions business. That's what we're aiming for. It's a function of a couple of different things, but we're on track with that.
Yeah. Your, actually, it was the first one, what are the opportunities? As usual, in each crisis, there are plenty of opportunities. Maybe just to mention a few, and beside of the ones which are coming at stage on the M&A arena, I think we expect that there are opportunities, there are companies, especially in the Surface Solutions business, which are increasingly struggling with economical and environment. We expect to see opportunities there for acquisitions. One element. Another one is the increasing cost pressure in each industry. If, example, we talk about aerospace, leads to a kind of consolidation of activities. Today, we do have plenty of cases where coatings is a part of insourced, in-house processes.
This, we expect to change to a certain extent, because everybody is forced to focus on the core elements of production, and we are offering our opportunity, our capability as a coating company, to provide this service to an increasing number of customers. Maybe last but not least, we talk a lot about COVID-19, but if we talk about automotive, there was a topic before COVID-19 that was the e-mobility topic, right? There is a structural change ahead of us. These are, let's say it that way, this investing R&D money, and here we are spending efforts, resources, and money to get a certain share out of it. Just to mention a few opportunities we see out of the topic.
Thank you. That's very helpful.
The next question comes from Uwe Schupp from Deutsche Bank. Please go ahead.
Yeah. Good afternoon, gentlemen. Also two or three questions from my side. Firstly, on the short working hours, can you just remind us in terms of Germany and Switzerland, how long are the programs still lasting? Related to that, if those governments in those countries would be extending their respective programs, would you consider taking part of it, or basically have you already more or less decided that should the current speed of the recovery continue to basically abandon the program then? Secondly, on CapEx, Philipp, I noticed that obviously you are preserving your cash as much as possible, but how sustainable do you think this currently low level is before it starts impairing your ability to capitalize on the growth once the market comes back? Then lastly, again, following up maybe on M&A, and sorry for that notorious question on these calls.
Obviously many of the potential sellers have, I guess, shuffled off the dust on the back of the COVID-19. I was just wondering whether basically you liked what you saw, and are you already in the process where you have basically a shortlist, or are we still in kind of preliminary discussions and M&A is really a topic only for 2021? Thank you.
Let's start with the short-time work topic. I think this is a regional phenomena. We have it in certain countries in Europe. Of course you can be assured we make use of it wherever possible. The nature of the beast is also clear. It's not going to last forever. Right now in Germany, the discussions are ongoing that the governments and the federal government and actually is discussing and planning to extend the normal timeframe to apply because nobody wants to see the short-time work people, to see them on the unemployment list. From that perspective, I do expect that the programs are going to be prolonged in Germany and in Switzerland and in other central European countries. We will make use of it as long as the top line development requires it. We also have to be crystal clear.
Let's assume the market would remain on the level as it is today. Then the short-time work as a tool would not be the final one. Then we talk about additional headcount reduction. From that perspective, we are happy to have it, because it enables us to maintain and to keep our workforce to a big extent, to be able to ramp up the capacity when the markets are coming back.
Your question on CapEx, I think, naturally we've reacted with CapEx and just when you think about the overall sales levels and revenue levels specifically in Surface Solutions, we're obviously well below what we have already executed through with the existing infrastructure. You can kind of see we have quite a bit of growth pathway with the existing infrastructure. We've still, I would say, prioritized in a very smart way the expansion topics that we had. You know that a lot of this is related for us to regional expansion, We've continued to prioritize those investments and made those investments. I would say that sort of ties into what our overall strategy is. We've mentioned this a couple of times. Our clear strategy specifically in Surface Solutions is to work more capital efficiency with the CapEx that we're spending.
I think over the past couple of years, we've made some very good investments into growth and modernization areas. We're expecting the overall CapEx corridor, the reinvestment ratio, to come down significantly. I would say this crisis is probably a first step to that. In the long term, we're not going to remain at that low of a level, but I would say significantly below the historic levels. That'll help us to improve capital efficiency. I'll start with the M&A topic and then Roland, I'll let you obviously comment on it. I would describe it as a March, April, and May, many companies go through the immediate shock and the reaction to the COVID-19 pandemic, and then companies are focusing on exactly the process that you're describing and that Roland was talking about as well, prioritizing core competencies, re-looking at the portfolio.
We are very active on the other side of that process. We've made it very clear to a number of different partners that, with the strength of our balance sheet and our strategy to grow both organically and inorganically, we want to entertain a lot of these processes. We're looking very intensively with our M&A group at different opportunities. I would say when you just go back to that timeline, I think this is still at the beginning stages. I think we're ready to move forward if and when the right opportunity presents itself, whether that's in 2020 or in 2021.
Yeah, I think it's perfectly described. Just maybe an additional remark, I think we really have a clear position to play an active role here, due to the sheer effect of our balance sheet, our size and our portfolio. I think we see us as the Surface Solutions company and here, size and capabilities out of the size are kicking in, what smaller companies do not have. From that perspective, I'm quite optimistic that at the end of the day, whether it's 2020 or 2021, we will see some results.
Good luck on that, and thank you very much.
Yeah. Thanks a lot.
The next question comes from Christian Arnold from MainFirst. Please go ahead.
Yes. Good afternoon, gentlemen. Two questions from my side, if I may. On the one side, Manmade Fibers segment. The initial guidance, in terms of EBITA margin, was that you want to achieve margin level around prior year's level of 13%. Now today you actually increased that guidance saying that you are on track to exceed the 2019 level in 2020. What has changed to become here more positive? That would be my first question. The second question, on your margin guidance for H2, the 300, 400 basis points higher margins, I believe we are talking about operational EBITA margin. What does it mean in terms of volume? What's the base assumption? Rephrasing it's probably somewhere between H1 this year and H2 last year. I don't expect that you can achieve the H2 volume of last year. Would that be a fair assumption?
Let's start with the Manmade Fibers topic first. I think we all have to keep in mind that Manmade Fibers, of course, also was impacted by this pandemic. Our sites in China have been closed for, I don't know, six weeks or even longer. We have been extremely, not lucky, but doing well. Our German sites provided record volumes and output during these days. That means we see the dip in the first half, now in the second half of the year, we are recovering. That means the factories are working full steam ahead, here volume and load helps us to show a better performance. You are right, we indicated the 13%. Now we are quite vocal actually, to say we will overachieve it. We will be better.
Despite the fact that we are talking a lot about Surface Solutions, it doesn't mean that we don't focus on Manmade Fibers as well. Whatever can be done in terms of efficiency and cost efficiency on the Manmade Fibers business, we apply it there as well. That maybe helps you a little bit to understand why we believe we will be better than actually guided.
I'll take the second question. I would say, you're right on Surface Solutions. I think, keep in mind that obviously in Manmade Fibers, that looks quite a bit different. I think in Manmade Fibers in the second half of last year, sales were CHF 530 million. I think with the delays that we've described and so on, and sort of the overall corridor that we've given you for the full year and our first half achievement, you can see that we're expecting to be quite a bit above that level. On Surface Solutions, I will say this one more time, it's incredibly hard for us to predict what this is going to look like. With your estimate of what the range is, you're probably accurate, somewhere between the first half and the second half of last year.
I know that's not overly specific, but obviously right now it is also very difficult for us to sort of see further out than one to two months. That's kind of what I'd say. Don't forget that Manmade Fibers obviously, we're expecting the full year deliveries for 2020 to be on track, in line with what we told you at the beginning of the year. That at the group level obviously plays a role as well.
Okay. Thank you.
Thanks. Thank you, everybody. With respect to time, we would like to close the call now. We appreciate your participation in the call, and if there are further questions, do not hesitate to contact the investor relations team. Next reporting is scheduled for November 3rd when we disclose the third quarter results. We do look forward to speaking to you at latest at that point in time. Stay healthy and goodbye.
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