Earnings Call: Q2 2020

Aug 4, 2020

Ladies and gentlemen, welcome to the Erlikon 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 and A session. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Andreas Schwarzwalder, Head of Corporate Communication and Investor Relations at Oerlikon. Please go ahead, sir. Thank you, Alessandro, and good afternoon, ladies and gentlemen, and welcome to Oerlikon's conference call on the 20 2nd quarter results. Particular in light of the current circumstances, I do hope you are all well and staying safe. With me today is Doctor. Roland Fischer, our Group CEO and Philip Muller, the group's CFO. As a reminder, all related documents on the 2nd quarter results, including the following presentation, are available for download on our website at oerlikon.com. Today, Roland Fisher will talk about the Eerlicon's development and response to the COVID-nineteen, how it has affected us during the Q2 and outlining our decisive actions we have taken and how we will emerge from the post COVID-nineteen world as a stronger business. Philip Muller then will give you an overview of the financial performance during the Q2 and the first half of twenty twenty. After the presentations, as mentioned, we will host a Q and A session to answer your questions. The conference is being recorded and the replay is available on our website shortly after the presentation today. And now having said that, I'll hand over to Roland. Yes. Thanks a lot, Andreas, and 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. And I'm extremely proud of the way how Oerlikon's employees are handling this crisis. With respect to the challenges both professionally and personally. And from a business perspective, we cannot avoid the effects of the global crisis. Also, 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. And I'm very pleased to report that the Mainland Fiber segment has delivered the expected strong performance during the Q2. We achieved year to date order intake of over CHF 500,000,000 and have a very strong order pipeline to the year end and beyond. The strong operational performance during the Q2 has enabled sales to increase more than 20% sequentially and gives us confidence that the full year figure will be over €1,000,000,000 in orders and sales for the 3rd year now in a row. We also made progress in further diversifying our Main Made Fibers product portfolio by accelerating the nonwoven business activities. The COVID-nineteen pandemic increased the demand for our melt blown 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 Service Solutions segment was impacted across all geographies and all end markets. We have seen some initial encouraging signs of moderate recovery spacing of the recovery. Given the significant risks still posed by the COVID-nineteen pandemic. And during the challenging lockdown period, we continue 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. And 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 costs 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 90,000,000 year on year in Service Solutions. And by the end of June and ahead of schedule, we already actioned more than 400 of the planned 800 headcount reductions. Silicon and service solution will emerge stronger and more nimble 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 Service Solution 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 service solution 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. A 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 CHF60 1,000,000. In total, we expect implementation costs of around CHF 60,000,000. And here, let me remind you that CHF 25,000,000 have already been booked in 2019 and €21,000,000 will be booked and were booked in the Q2 of this year. Our global service network, leading technologies and market position will preserve the ability of service 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 provides the framework to achieve our midterm commitment to group EBITDA margins between 16% 18%. Over the past quarter, we have seen a continuation of multifaceted economic development of the COVID-nineteen pandemic, which we experienced already in the previous quarter. The strength of Manmade Fiber's 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. A special filament business, including industrial and carpet yarns, remain weaker as a result of pre existing market softness and such geographical profile of our customer base outside of China. The COVID-nineteen pandemic has, however, generated a strong global demand for Oerlikon's mid blown nonwoven 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 on 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 CHF366,000,000 in the 2nd quarter, resulting in CHF 510,000,000 for the first half of the year. This underpins our confidence in delivering sales of over CHF 1,000,000,000 for 2020. In Service Solutions, the imposed lockdowns due to the pandemic impacted all of our end markets and provides 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 Q2. However, we recognized a recovery pattern in China during the Q2 with increased business activities and rebuild of inventory, following the easing of strict pandemic measures. Assuming comparable scenarios for Europe and with a time lag in North America, we expect the Q2 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 Q2 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 of production. And therefore, we now assume to see a U shaped recovery. And last but not least, in the aerospace industry, challenges have been compounded by the sudden and substantial reduction of commercial air travel. Yatra 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. Touch check to the situation not substantially worsening, we see the Q2 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. EarlyCon'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. And 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. Service solution remains 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. And 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. And last but not least, our healthy balance sheet position positions us sorry, well for the future, and we will be ready to execute when the right growth and M and A opportunities present themselves. And following the commercial and market overview, let me now hand over to Philippe to present the group's financials. Philippe, 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 Q2, group order intake was CHF604 1,000,000, down 10% year over year on a reported basis and down 4% at constant FX rates. The significant decline in order intake in Surface Solutions was compensated by a strong performance of the Man Made Fiber segment. Sales in the quarter were CHF 510,000,000 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 fiber 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 August. Surface Solutions sales were down 31% as the various shutdowns related to COVID-nineteen impacted all of our business lines and geographies. Operational EBITDA was $55,000,000 in the 2nd 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 CHF1 1,000,000,000 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 Q2, we incurred 26,000,000 dollars 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 and the half year filing, we are providing reconciliations from these operational measures to our reported figures. In Surface Solutions, 2nd quarter sales were CHF262 1,000,000. 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 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 CHF17 1,000,000 or 6.5 percent of sales. We managed cost 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 CHF90 1,000,000 compared to the first half of twenty nineteen. Next on Manmade Fibers. Manmade Fibers delivered strong order intake in the Q2 of CHF366,000,000 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 see and we saw some of the orders that were delayed in Q1 materialize in the 2nd quarter. Year to date, Man Made Fibers has booked orders worth CHF 510,000,000 on track for our full year expectations. During the first half of the year, we saw particular strength in our nonwoven 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 Q2 were 248,000,000 As previously stated, we are expecting to be caught up on the majority of the production delays by the end of August. 2nd quarter operational EBITDA was CHF38 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 20222023. 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 CHF600 1,000,000 as per the end of June. Net liquidity at the end of June was negative CHF156 1,000,000. Total equity was over CHF1.3 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 accretive ways, whether that is M and A or organic investment. Next on CapEx. CapEx was CHF48 1,000,000 down 27% from prior year's level or CHF16 1,000,000 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 21,400,000 and depreciation charges related to the application of IFRS 16, depreciation was at CHF63 million roughly flat to the first half of the year twenty nineteen. Next on cash flow. Cash flow from operating activities before changes in net current assets was CHF59 1,000,000. Change in net current assets was negative CHF64 1,000,000 resulting in cash flow from operating activities of negative CHF5 1,000,000. Cash flow from investing activities was negative CHF57 1,000,000, mainly reflecting CapEx of CHF48 1,000,000 and some smaller bolt on acquisitions. Cash flow from financing activities was positive $14,000,000 We paid the dividend, bought back shares in Q1 and drew down on our credit facilities in the first half of the year. All in all, cash and cash equivalents decreased by CHF 57 1,000,000 to CHF 600 1,000,000 at the end of June 2020. Now let me conclude with a summary before we start the Q and A session. Manmade Fibers has done an excellent job overcoming the operational challenges caused by the COVID-nineteen pandemic and delivering CHF 510,000,000 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-nineteen 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 and 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 and 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 to 400 basis points higher than in the first half twenty twenty. 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% to 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. The first question is from Christian OBS from Baader Bank. Please go ahead. Yes, hello and thank you for taking the question. I have 4. One is what doesn't mean rightsizing in Additive Manufacturing? Can you give us some kind of a framework for that? 2nd one is the non woven orders, of course, positive for the entire group. But are these lowtomidsingledigestreorder stakes so that the total is approximately €50,000,000 Is that a right assumption? Then concerning the free cash flow, free cash flow was negative with approximately €60,000,000 in the first half. Can you give us some kind of a guidance? Do you expect to reach the breakeven level until the end of the year? And last but not least, it's concerning intangibles. They still have a very high degree of approximately 30% of total balance sheet of intangibles. And this is mainly related to Surface Solutions where you are currently undergoing a very heavy restructuring. And so 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'll take the first two ones, and Philippe, you take the second half of your questions. First of all, rightsizing additive manufacturing. And this is actually a very, 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. And on top of the sheer volume and market driven phenomena, we do see and this goes more back to the Boeing Topic 737 MAX, a certain bigger hesitance to go for newer for application of new technologies here. And 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. And we also went through our ongoing R and D activities. And here, we talk, in some cases, about very long term projects. And here, we applied a simple rule to which extent we believe there will be, in a mid or in a 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 nonwoven business. This is a business here we talk about melt blown equipment, what is in the order of magnitude, €5,000,000, €6,000,000 7 €1,000,000 revenue each system depending on scope. And normally, we did few, very few units per year. But due to this COVID topic, the demand was increasing. And I think I mentioned or Philip mentioned it, 15 units have been sold. There is an effect of €35,000,000 €40,000,000 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. Now, Filipe? Yes. And 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. So 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 are expecting to execute through in the second half of the year, equipment deliveries and so on and we are expecting receivables to be similar, but a better performance on payables. So I would say we're expecting a substantially better cash performance in the second half of the year. And then 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-nineteen crisis. And we're trying to bifurcate between sort of what's the short term shock impact and what are the longer term items that might potentially impair our different business units. I think we've talked about this 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 are substantially we have the same view on the aero market as more of a timing question. So we believe in the market and our business in that market and our ability to generate positive returns there. So 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. But I would say really it centers around the aero market at the moment. And long term, we have a we feel great about that market. Okay. Thank you so far. Thank you. The next question comes from Michael Voss from Vontobel. Two questions from my side. The first one also 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 200 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? And then the second question is regarding your liquidity management. First of all, if you could specify many shares you bought back in the Q1 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'll start with the additive part. And I think we indicated already in previous calls that the business, Additive business, in 'nineteen was in the order of magnitude of €30,000,000 revenue top line. And this is what we are targeting for 2020 as well. But due to the fact of this crisis, we will see a certain impact here, not as strong as in the other business, but nevertheless. And in line with this improvement measures and cost cutting measures, this additive areas where we have been able to reduce the total the absolute losses, which we generated in the past and now. And we will be we'll 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. Yes. And then I would your question on the liquidity management, you would have seen in the first half of the year, we purchased about CHF 46,000,000 worth of treasury shares. You would have seen our average price for the total buyback that we've done so far is just over CHF9. And you can imagine that what we bought back in the Q1 really at the beginning of the year was significantly lower, just in line with the overall market. So that gets you to the average of just over CHF9. And then how much more sort of debt facility or credit lines you have available now? We have in the cash and cash equivalents that we have on the balance sheet, the $600,000,000 that still includes the cash and credit lines. There is some more available, but I think the we're looking more at an ability to sequentially repay those revolving credit lines. We given sort of 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 costs for this is very, very limited. But nonetheless, I think during the Q3, 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 1 by 1? First, on the order backlog at Manmade Fibers, can you give an indication how much of this will be delivered in 2020? How much then later on? And maybe if you can give a bit of an indication on how you see the pipeline of order in the different segment, also particularly with the reference of the on the BCF business? That will be my first question. I have a couple of others. Yes. Okay. I think let's start with the BCF business, which is down right now. And this was already obvious last year 2019. And from that perspective, the demand additional demand in non woven and the melt blown equipment helps our site in North Germany. And the second question actually, the Filament business, the outlook. You know that here we talk about CELTUREK business. You know that we have announced, I think it was in March, €600,000,000 new contracts, which are not yet booked as order intake because and Alessandro, you know it, yes, 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. And 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 €600,000,000 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 so the latter part even reaches 2023. And 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. So maybe if I can add my second question here on the capacity utilization. You have committed to remain at €1,000,000,000 plusminus, I believe you will stay there. But how is the, let's say, the rest of the industry behaving? The rest of we should not talk too much about the others. We should talk about us. And 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 cabinets, you might recall. And that's why we are where we are. What we do is we do incremental improvements in terms of efficiency gains, yes? If we need a machine for special drilling or whatever, We do that, yes? But we don't extend the factory. We don't build new factories. And this is our philosophy. And 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. And for the high end state of the art latest technology equipment, these are the 2 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 calculate it properly, dollars 0 or plus 1 €1,000,000 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 an over or under, but it should be in that range going forward as well. So that means that the step down from where it was a couple of maybe 1 year or 1.5 years ago, it has been carried out and you sort of really reduced sustainably the cost there? Yes. A lot of this was obviously also done under the consideration of the changing portfolio and some of the divestitures that we've made. So I would say that. And yes, we have reduced the corporate costs and we're continuing to reduce corporate costs. Okay. Thank you. Next question comes from Fabian Herky from UBS. Please go ahead. Yes, good afternoon gentlemen. A few questions here. So first, starting with €30,000,000, €90,000,000 OpEx reduction in H1. Can you tell us how much is kind of temporary cost reduction related to or how much of this €90,000,000 is related to short time work? How much is related to other typical COVID related savings like much lower travel expenses? And how much is already or is there already substantial part of the structural cost savings of the €60,000,000 you're mentioning? This would be my first question. Yes. I would say, Fabian, the you're exactly right with the notion that there's a number of those components in there. There is 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 $90,000,000 a relatively minor component. I would also say just with where we are from a timing standpoint within the Q2, 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. And then there's obviously a number of other items that react short term 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. And we're also sustainably setting up other business practices that will keep the cost lower. So I would say it's really a mix of all the different cost types that you've described, relatively small on the short term work, so far relatively small on the structural cost. And 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 headcount reductions that we're expecting to complete by the end of the year. Some other cost items will come back, but we're sure that 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. So this means I mean, the 60,000,000 when I think of 800 job shares, so the €60,000,000 is actually more or less purely related to fixed headcount reduction. And then all other OpEx and SG and A that is in the €90,000,000 lots of it is probably to stay sticky, right? So is it fair to assume that your structural cost savings will be beyond €60,000,000 Look, I mean, we're obviously focusing here on a couple of different areas, just like Roland said. We're I think you go through a crisis like this and it resets a lot of your cost base. So we're certainly expecting some of the other things that are now more considered a short term saving that they will be sticky too. So I would agree with you on that. And you're also right that the majority of the $60,000,000 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. So we try to give you all of that sort of in the margin expansion target for the second half at the group level about 300 to 400 basis points higher than in the first half. And certainly, surface solutions and the cost out measures that we're taking there play a big role. In Fabienne, 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, sure. Okay, thank you very much for these explanations. Then my second question is, when I look in Surface Solution, your Aviation segment in Q2 had been 50% 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%. Now I say it's the wrong way. 15%, it was this year, and last year, it was 14%. So you actually have increased your relative share in aviation. So this means you have outperformed all the other segments in surface. Can you explain how is 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, 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 sort of 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. But obviously, in Q2, all areas were impacted. But Fabienne is right. I think we did have and still have a clear plan to grow our Aviation and Aerospace business. And I think you all know the famous examples when we have successfully penetrated the aerospace market out of our thin film Balsas business. What was not the case 3, 4 years ago, which we simply didn't have it, right? But this is the topic of structural growth. What we always told you was one strong element, and that was contributing to the effect you are mentioning. The next question comes from Armin Richberger from ZKB. Please go ahead. Yes. Hello, gentlemen. Additive Manufacturing, I understood that most of your restructuring costs go into debt. And 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? No, I think the just to maybe clarify the comments. The majority of the restructuring efforts is not in additive. Really 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 and with the significant impact on all and so on, additive is also impacted by the deteriorating market environment. So in other words, additive is 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, etcetera. 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. And that's sort of the rightsizing. 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. And to the extent that we can't, we will discontinue those areas. So I think that's sort of what we were saying so 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-nineteen and just the drop in demand overall. Okay. Then another question, services solutions, you say you saw encouraging signs in automotive and in precision components. What precision components? And you mentioned China and Germany, so only China and Germany. The rest of the world, still no signs of recovery, I assume, or what's the situation? No. I mean, I think this has been just examples. But what we mean when we talk about encouraging positive signs. I think, 1st of all, the pandemic is a staggered phenomenon. China is back at stage. I don't say back to normal, but they have recovered to a certain extent. And just to give you an additional example, our Friction System business is doing extremely well in China. And to a certain extent, it's a 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 system. And but U. S. Is still yes, there is still a longer way to go there actually, right? And 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 service solution revenue, we had the dip in May, yes? And it was coming at the beginning of the year from a normal level and went down, down. And then since May June, we already have been back to the April level. And 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. And we said first cautious signs, we don't declare victory. Then 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? Yes. 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. So it's really related to the large contracts and down payments and progress payments that our customers make in the Filament space. Okay. Thank you. The next question comes from Marta Brusca from Berenberg. Please go ahead. Hello. Thank you for taking my questions. I have 2. So 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 in for your sulphurite solutions business out of the pandemic and the current situation? And secondly, you mentioned few times that you are adjusting the additive business to rightsizing it. Actually, I wanted to ask you to rightsizing to what? Who do you want to serve in this segment? And how do you think of your end market here? Thank you. Hey, Marika, sorry, on the first question, would you mind repeating that? We're sort of collectively not sure that we understood you the right way. And 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 rightsizing 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. And we're continuing to pursue that despite COVID and so on. This is the right strategy. And then 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 are probably don't have the same viability as others. And so we said to the extent that we're evaluating that those areas don't have right level of viability, we will discontinue them and stop them and really adjust our cost footprint. So that remains the same intention. We want to that business to be accretive to the group and accretive to the Surface Solutions business. And so that's what we're aiming for. It's a function of a couple of different things, but we're on track with that. And then And you actually, it was the first one. What are the opportunities? And as usual, in each crisis, there are plenty of opportunities. And maybe just to mention a few. And beside of the ones which are coming at stage on the M and A arena, I think we expect that there are opportunities. There are companies, especially in the service solution business, which are increasingly struggling with economical and environment. And we expect to see opportunities there for acquisitions, one element. Another one is the increasing cost pressure in each industry, if, like 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 in sourced, in house process. This we expect to change to a certain extent because everybody is forced to focus on the really 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. And maybe last but not least, we talk a lot about COVID. But if you talk about automotive, there was a topic before COVID that was the e mobility topic, right? There is a structural change ahead of us. And these are let's say it that way, this investing R and 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 Wei Shupe from Deutsche Bank. Please go ahead. Yes. Good afternoon, gentlemen. Also 2 or 3 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? And 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, Phil, 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? And then lastly, again, following up maybe on M and 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-nineteen. And I was just wondering whether basically you liked what you saw. And are you already in the process where you have basically a short list or are we still in kind of preliminary discussions and M and A is really a topic only for 2021? Thank you. So let's start with the short work topic. And I think this is a regional phenomena. We have it in certain countries in Europe. And of course, you can be assured we make use of it wherever possible. And the nature of the beast is also clear. It's not going to last forever. And right now, in Germany, the discussions are ongoing that the governments and the federal government actually is discussing and planning to extend the normal time frame to apply because nobody wants to see the short work people to see them on the unemployment risk on the unemployment list. And 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. And we will make use of it as long as the top line development requires it, yes? But we also have to be crystal clear. Let's assume the market would be would remain on the level as it is today. Then the short work tool would not be the final one. And then we talk about additional headcount reduction. And 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. And then I'll 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, obviously well below what we have already executed through with the existing infrastructure. So you can kind of see we have quite a bit of growth pathway with the existing infrastructure. We still, I would say, prioritize 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. And so we've continued to prioritize those investments and made those investments. And 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 spending. I think over the past couple of years, we've made some very good investments into growth and modernization areas. But we're expecting the overall CapEx corridor, the reinvestment ratio to come down significantly. And so 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. And that will help us to improve capital efficiency. And then I'll just I'll start with the M and A topic and then Roland, I'll let you obviously comment on it. But the I would describe it as a March, April May, many companies go through the immediate shock and the reaction to the COVID-nineteen 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, relooking at the portfolio. And 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, very intensively with our M and A group at different opportunities. I would say when you just go back to that time line, I think this is still at the beginning stages. But I think we're ready to move forward if the right opportunity presents if and when the right opportunity presents itself, whether that's in 2020 or in 2021. Yes. I think it's perfectly described. And 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 service solution 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 days, whether it's 2020 or 2021, we will see some results. Good luck on that, and thank you very much. Thanks for that. 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 Fiber segment, I mean, the initial guidance in terms of EBITA margin was that you want to achieve margin level around prior year's level of 13%. And now today, you actually increased the guidance saying that you are on track to exceed the 2019 level in 2020. So what has changed to become here positive? That would be my first question. And 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? Or rephrasing it? 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 fiber topic first. I think we all have to keep in mind that Manmoid, of course, also was impacted by this pandemic. Our sites in China have been closed for, I don't know, 6 weeks or even longer. But 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. And now in the second quarter and sorry, the second half of the year, we are recovering. That means the factories are working full steam ahead. And here, volume and load helps us to show a better performance. And you are right, we indicated 13%. Now we are quite vocal actually to say we will overachieve it, we will be better. And despite the fact that we are talking a lot about service solution, it doesn't mean that we don't focus on manmade fiber as well. Whatever can be done in terms of efficiency and cost efficiency on the manmade fiber business, we apply it there as well. And that maybe helps you a little bit to understand why we are better than or why we believe we will be better than actually guided. And Then I'll take your 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 530,000,000 dollars I think with the delays that we've described and so on and sort of the overall corridor and our 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. And then 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. But with your estimate of what the range is, you're probably accurate somewhere between the first half and second half of last year. I know that's not overly specific, but obviously right now it is also very, very difficult for us to sort of see further out than 1 to 2 months. So that's kind of what I'd say. But 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. And that at the group level obviously plays a role as well. Okay. Thank you very much. Thank you, everybody. And 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 3 when we disclose the Q3 results and we do look forward speaking to you at the latest at that point in time. Stay healthy and goodbye. Ladies and gentlemen, the conference is now over.