Ladies and gentlemen, welcome to the Oerlikon Q1 2020 results conference call and live webcast. I am Alice, 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. 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 investor relations at Oerlikon. Please go ahead, sir.
Thank you very much. Good afternoon, ladies and gentlemen, and welcome to Oerlikon's conference call on the 2020 first quarter results. Particular in light of the current circumstances, I do hope you are all well and staying safe. My name is Andreas Schwarzwälder , Head of Investor Relations. With me today is our CEO, Roland Fischer, and our CFO, Philipp Müller. As a reminder, all related documents, including the following presentation, are available for download on our website. In light of the wide-reaching impact of the COVID-19 pandemic, we have changed the structure of today's call. We have the following agenda for you. Roland Fischer will talk about Oerlikon's response to COVID-19, how it has affected Oerlikon, what actions we have taken, and how we have positioned the company for the future. Philipp Müller will give you an overview of the financial performance during the first quarter.
After their presentations, we will host a Q and A session as usual to answer your questions. Today's conference, as mentioned, is being recorded, and a replay will be available on our website later today. Now handing over to Roland.
Yeah. Thanks a lot, Andreas, welcome to all of you from my side as well. No one could imagine six months ago that a global pandemic would deeply affect all of us. I hope you and your families are all well and staying safe during these difficult days. The evolving fallout from the COVID-19 pandemic has impacted all of our daily lives, brought the global economy to a standstill, and also our Oerlikon business cannot avoid the effects. First of all, the safety of our people is top of our minds, and we have taken appropriate actions to protect them and all of us. Secondly, we do have acted decisively to protect the liquidity of our business and to ensure business continuity, working closely with the customers and suppliers.
Finally, we have adapted to the new environment to emerge from the pandemic at the end as a stronger business. Let's go into more details. Since the initial outbreak, we have been monitoring the dynamically evolving conditions resulting from the COVID-19 pandemic, and we have taken action to protect our employees. We have fully adhered to guidance of local governments and health authorities. Additionally, we have enabled working from home wherever possible and ensured a safe working environment at our locations. We have implemented measures to ensure employees' distancing and personal protection. As an example, Oerlikon is providing two facial masks for every employee. Beside of that, Oerlikon entered the current environment with a strong balance sheet, and we have acted swiftly to preserve our strong liquidity.
We have fully drawn our credit facilities, resulting in over CHF 1 billion cash available at the end of March. We have cut capital investment and discretionary spending wherever possible. We are prepared for the future, and we are able to act when attractive opportunities such as value-enhancing M&A opportunities are showing up. We face a diverse global picture from business continuity, operational, and supply chain perspective. Some countries such as Spain, Italy, India, Malaysia, and Mexico, just to mention a few, have enforced a total lockdown. This has indeed affected our businesses in different ways. The Manmade Fibers business felt major impacts in China during January and February as part of the extended Chinese New Year, where we have substantial operations and customers. Operations started up gradually in March and have returned to full capacity since the end of that month.
Despite the shutdowns in Europe, the segment operated at full speed in Germany, achieving even a record production of winders in March in our German facility in Remscheid. The key challenge here in Europe has been to secure the supply chain in the COVID-19 environment. The segment has succeeded in balancing the situation, and we are confident of being able to fulfill the planned delivery schedules for 2020. In our Surface Solutions business, the situation is different. The operations of the global coating center network have been subject to local governmental regulations and industry exposures. In China, all 13 sites were closed in February. During March, the majority of our sites were operational again, and all sites in China have been back in operations since the end of March.
Globally, a total of about 25 out of 166 Surface Solutions sites had to be closed temporarily upon requests by the relevant local governments. Depending on the industry exposure and volatility, affected sites, we are operating at 50% up to 100% capacity. Needless to say, we are striving hard to ensure our business continuity, to work closely with suppliers and to serve our customers wherever possible. Last but not least, during March, we outlined our productivity improvement program and our commitment to build a stronger Surface Solutions segment. Oerlikon as a group is not in a fight for survival, but we are cognizant of the need to strengthen our business and emerge from the aftermath of the pandemic as a stronger and more agile business. It is with this in mind that we have accelerated the program and have identified additional cost out initiatives.
It is also with great personal sadness that we today announce the headcount reduction of around 10% in our Surface Solutions segment. Oerlikon is expecting to spend CHF 25 million to CHF 35 million in the implementation of the entire program, as communicated already earlier in March. The future-proofing of the business under these programs gives us the confidence to maintain our midterm commitment to group EBITDA margins of 16%-18%. Furthermore, these programs will not limit the ability of the Surface Solutions business to grow structurally once markets return again to a kind of growth mode. Due to the multi-facets of the impact of COVID-19, we see a diverse picture in market dynamics. The strength of Manmade Fibers market position, customer proximity, and order book provides a stable base in this economic environment.
We received contract awards from three of the world's leading Manmade Fibers manufacturers in China with a combined value of over CHF 600 million and the delivery schedule reaching out to 2023. Furthermore, due to the COVID-19 pandemic, a strong global demand for Oerlikon's melt-blown nonwoven technology used to produce surgical face masks has been noted. This demand is expected to grow in the upcoming quarters, driven by the government regulations and the need for greater supply security and reduced dependence on imports for critical medical items. Following the impact from the COVID-19 challenges in China in the first quarter, the segment succeeded in balancing the situation and we are on track to fulfill the planned delivery schedules for 2020, and a similar pattern is expected for the order intake.
In Surface Solutions, the short cycle nature of our business and the structural changes impacting the end markets are challenging. In tooling and general industry, we are closely correlated to industrial production, which is expected to take a substantial hit in 2020. We anticipated some recovery with the easing of the lockdown restrictions across regions and industries. In automotive, pre-existing headwinds have been compounded by shutdowns in production and a closure of the global dealership network. While we have seen announcements last week from automotive OEMs like Volkswagen of the reopening of plants, the scale and speed of ramp-up is unclear. Even in China, which spearheads the recovery, sales and production of cars may not return to prior years level before July 2020. In the aerospace industry, challenges have been compounded by the sudden and substantial reduction of commercial air travel.
Airlines are in a fight for their very survival, and we see the cascading impact from new aircraft down to MRO activities. Airbus already announced a reduction in production of over one-third. Overall, assuming the current pace of lockdown easing and assuming a second wave is not forthcoming, Q2 is expected to be the bottom. However, the shape of the recovery has plenty of facets across the different industries and 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 immediate impacts from the global crisis, we also have a keen focus on positioning our company strategically for the future. We continue to invest selectively to further expand our technology and innovation leadership in Surface Solutions.
We are very well positioned to weather the COVID-19 pandemic and benefit from the eventual market recovery. Together with our cost measures, we can emerge as an even stronger company. We have taken some very tough decisions during the first quarter, but we are convinced and we believe it is necessary at these difficult times. Manmade Fibers has evolved as a company and is a stabilizing force for the group during this time. It continues to deliver strong returns. Our healthy balance sheet positions us well for the future, and we will be ready to execute with the right growth and M&A opportunities are coming up in good time. After this overview, which is unusual, as Andreas indicated. I would like to hand over to Philipp for additional comments on the group's financials. Philipp, it's yours.
Thank you, Roland. Good afternoon, and welcome to today's presentation from my side as well. I will go through the first quarter results. Let me start with the group financial review. Group orders for the first quarter decreased by 29.9% to CHF 477 million. This was driven by a couple of factors. In Manmade Fibers, we saw a significant amount of orders in China being delayed due to the lockdown. It is very important to note that we see this as a temporary item, and we continue to see our full year on track. For the first half of 2020, we expect Manmade Fibers order intake to be around CHF 500 million. In Surface Solutions, orders were mainly impacted by the slowdown of the various end markets and due to the COVID-19 pandemic. Group sales were 15.2% lower at CHF 529 million.
In addition to the previously described slowdown across markets, we had a five percentage points negative impact from FX, as the Swiss franc continued to strengthen. At constant exchange rates, group sales were CHF 558 million, down 10.6%. Group EBITDA was at CHF 58 million, a margin of 11%. Before I go into the segments, a quick note on the restructuring program we have previously disclosed. We initiated the program to improve capital, operational, and administrative efficiency and boost profitability. These goals are unchanged. We're aiming to reduce our structural cost base on a sustainable basis. Across geographies and through a number of initiatives, we are reducing total headcount in our Surface Solutions business by approximately 800 employees, or around 10% of the segment's headcount. Due to the COVID-19 situation, we are accelerating these measures as much as possible.
We are expecting to recognize a material part of the CHF 25 million-CHF 35 million of restructuring costs in the second quarter 2020, and we expect to see some of the cost savings to come through in the second half of the year already. I'll continue with the segments. First on Surface Solutions. We saw a slowdown in all of our end markets and across a number of regions. Order intake declined by 13.5% year-over-year to CHF 333 million, sales decreased by 12.4% to CHF 325 million. The decline in orders and sales was most noticeable in the tooling, automotive, and general industries, particularly in March. Excluding the impact from FX, sales were down 8% in the quarter. The EBITDA margin for the first quarter was 12%, mainly attributable to lower sales from negative geographical mix.
As Roland highlighted earlier, we expect Q2 to be the trough of the economic impact of the pandemic. This is based on the assessment that the pattern of lockdown easing we currently see continues, and assuming no second wave will impact us. Next, on Manmade Fibers. We saw a significant amount of orders in China being delayed, resulting in order intake of CHF 144 million. We expect Manmade Fibers order intake to be around CHF 500 million for the first half of 2020, and our full year expectation remains unchanged. Sales for the segment decreased by 19.3% to CHF 205 million, mainly attributable to the lockdown in China and negative FX. Given the sudden nature of the decrease in sales, and in light of the fact that our total year delivery schedules remain intact, our ability to adjust cost in the business in Q1 was limited.
Accordingly, the EBITDA margin declined to 8.9%. We expect that trend to reverse in the next few quarters as we catch up on the delayed revenue from the first quarter. While Manmade Fibers in the first quarter was impacted by the shutdown in China, our business remains very stable. Our full year outlook for orders, sales, and margins in the segment remains unchanged from what we told you at our annual outlook meeting in March. Before opening for Q and A, let me summarize the key messages of today's first quarter presentation. First of all, the impact of the current crisis and the shape of the recovery are extremely difficult to predict. The group guidance we provided you at the beginning of March is no longer valid, and at the moment, we can't provide you an updated outlook with a reasonable degree of certainty.
Second, we have taken decisive and proactive actions to protect our employees, maintain business continuity, and to take advantage of new business opportunities, especially in our non-woven business. Third, we have a strong balance sheet, and we have secured our group liquidity. Fourth, the productivity program and cost-out initiatives will structurally adjust our cost base in Surface Solutions and allow us to emerge as a stronger and more agile company when markets which we serve recover. Finally, we are committed to our midterm target for group EBITDA margins of 16%-18% and to returning to our structural growth trajectory once the markets stabilize. With that, I'll hand it back to Andreas.
Thanks, gentlemen. This closes our comments for the first quarter of 2020, and we are happy to open the lines now for questions. Operator, please go ahead.
We will now begin the question- and- answer session. Anyone who wishes to ask a question, please press star and one on the touch-tone telephone. You will hear a tone to confirm that you entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to raise only hands if they're asking a question. Anyone who has a question, may press star and one at this time. The first question comes from the line of Fabian Haecki from UBS. Please go ahead.
Yes. Good afternoon, gentlemen. Thank you for taking my questions. The first one is regarding the restructuring in Surface Solutions. I try to understand by how much you have stepped up your restructuring efforts. You are saying that you expect a CHF 25 million to CHF 35 million in implementation costs in Q2. Actually, that is roughly the same number you said with full results pre-corona outbreak in Europe and in the U.S. Why don't you have higher costs? The 100 employees you are sparing in Surface Solutions already before that was a focal point on the restructuring side. Has this really been kind of expanded or is it the same restructuring program just kind of highlighted again? That will be my first question.
Yeah, Fabian. I think at the end of the day, it's the same restructuring program that we talked about. In the material aspect, it is similar. I would say where we've probably taken a couple of steps forward is in those industries that we've described that we expect are not going to recover as quickly, specifically in aero. I think that's sort of a change. We had obviously given you a range, CHF 25 million-CHF 35 million because we wanted to leave a little bit of room in there. We're probably now closer to the higher end of that range because we have added some mass to that. It's basically the same program and we're just aiming to execute it a lot faster given the current situation.
Okay. Thank you. My second question will be on the famous question on the additive manufacturing activities. With the full year results, you are still having quite some hope that the aviation industry will pick up some projects. I guess that has now become extremely unlikely that the aircraft manufacturers have any spare money for 3D printing projects. Has your view here changed? What are you going to do with this, and what saving can we expect as considering that in the past, there was diluting your margin by 300 basis points in Surface?
Actually, you are, Fabian, partially right. On the civil aviation business, we will see a slowdown, and this is what we take into account. No, I don't want to give an evaluation, but on the military, on the defense application side, the business is quite stable. What is the case in our U.S. site and here in our European site in Feldkirchen, is not heavily depending on the aerospace business. This is more prototyping and more general industry and automotive from that perspective. Yes, on the civil side, we will see an impact. We expect an impact. We reacted already on it. We adjusted headcount only in the additive application business. This is, from my perspective, under control.
What can we expect in terms of dilution going forward? Will you continue to create costs as you did, or will you cut deeper into that business?
As I said, we did already cuts in terms of structure and in terms of people. For the time being, we stick to our plans. We do not see major shifts here.
Fabian, what we said is that the expectation is for the business to be less dilutive in 2020 than it was in 2019. That's true in the first quarter, and that's as far as we can see right now, that also remains true for the remainder. I think there's some green shoots. Still a lot more work to be done. The only thing I would add to that is that we've obviously also curtailed incremental CapEx investment in that business to an absolute minimum.
Okay. Thank you. The last one on Manmade Fibers. Can you give a bit flavor on pricing backlog mix side, particularly into Q2? Will pricing improve? Is pricing generally improving? Has this been the case for the CHF 600 million large order you gained from China? Particularly now in the short term, is this anything we can expect to see an upward trend here?
I think we are still on our path to be back on the price level. This is not a jump start. It was not a jump start in the past as well. That means, yes, we do see a slight improvement in pricing as well also for the latest big contracts filament.
Okay. Thank you.
The next question comes from the line of Sebastian Kuenne, RBC. Please go ahead.
Hi, gentlemen. Three questions. For the CHF 600 million Manmade Fibers order that you announced, but that hasn't been booked, it seems like it hasn't been booked as orders because it was linked to the shutdown in China. I wonder why you plan to book it in 2021, and not earlier. Maybe you can explain why. If there's a condition to it being booked or what the background is of that.
Yeah. Sebastian, I'll just
Yeah.
You want me to take that one or you want to go through all three of the questions?
Yeah. You can take off with that. Yeah.
That's an easy one. We typically book those orders sort of as we receive the down payments from our customers. It's very standard. We get the contract awards, then they're part of a larger project, and when we get closer to the delivery dates, we actually also book the orders into our system. Nothing unusual. That delay actually had nothing to do with the administrative challenges. These orders are for delivery in 2021, 2022, and also in 2023. Naturally we would book those orders, in any given circumstance, next year and the year after.
When the down payment comes, you book the order?
Yeah, that's-
Again, no, there are more criteria. Contract, the down payment, secured finance, LC or whatever, and then also approvals on the customer side in terms of certifications. Finally, depending on when the delivery slots are required, we don't book orders to be delivered in three years ahead. This is nothing what we do.
The CHF 600 million, is that now an unusual item or do you have in every quarter kind of a CHF 600 million order sitting around that you have not shipped?
Unfortunately not. This consists of three contracts. Three out of the five, six big Chinese filament producers. There are some smaller ones and two bigger ones here. This is a single individual contract under range of CHF 100 million, CHF 150 million, up to CHF 200 million. This is not very special. We have it from time to time. Of course, we don't have.
Not every day.
Not every day, right.
I think it confirms this, Sebastian, and we talked about this a couple of times. It confirms the trend to larger individual installations, right? I think over the past couple of years, as we've seen some consolidation amongst our customer base in China, the orders tend to get a little bit larger and chunkier. It's certainly not uncommon that we see these larger orders that are for delivery a couple of years out.
Understand. In Surface Solutions, I have a question. Organic growth - 8%, that looks actually much better than what Sandvik, for example, has shown in their tooling division. Do you think there's some restocking effect, especially in China or in other regions where dealers that are open are saying, "Okay, now we have the COVID-19 crisis, deliveries are not secure, I better stock up a little bit"? Do you think this is the natural demand that you actually saw, the minus 8%?
No, I think it's a twofold answer. On the one hand side, we do have a very comprehensive portfolio when we talk about OSS, yeah. We saw first signs of a slowdown in the thin film area, what is short cyclical by nature, whilst the aerospace business was more stable. Our January, February business has been almost normal, let's say that way. Just in March, we saw the crisis effect, mainly in China, where we had to lock down our 13 sites. Unfortunately, China is a high-margin country, whilst in Europe and in U.S., March was still okay-ish, right? That means a restocking effect, difficult to say. I would say no, I didn't sense it.
Probably not yet. Yeah.
Since you mentioned aerospace, that would be my last question. You indicated that the segment was still growing within Surface Solutions. You also mentioned that the maintenance of turbines is coming down. What scale of impact do you guys expect for the coming quarters? Are we talking that the service business will halve and the aerospace business will drop by a third for the new turbines? What's the scale here?
My logic is a very simple one. Due to the sheer fact that the commercial aviation or air travel is close to, I don't know, 0% or 5%, 10%, something like that, this will have a major impact on MRO volume. What is a smaller part of our business or, yeah, a certain, a smaller part, not a minor one, but a smaller part. The new engines delivery schedules are also dramatically cut down. The Airbus indication one-third. We do see and have similar indications and forecasts from Safran for the LEAP engine, and we have a similar pattern on the geared turbofan from Pratt & Whitney and MTU. That means we do see and expect a substantial decline in aerospace business. Fortunately, aerospace doesn't represent 100% of our textile business. It's about, I don't know, a third max, something like that.
From that perspective, it will heavily depend on how other more short cycle industry types will behave.
Understood. A final question, if I may. You drew your credit facility, even though you still have nearly, I think, CHF 300 million of net cash. What is the reason there? Because I think you don't have so much inventory or working capital requirements for the year, and you cut your CapEx. What's the logic behind drawing the entire credit facility?
You're absolutely right. There wasn't an immediate necessity for it. It was more of a precautionary measure. It comes at a very limited cost to us. It was sort of more in the way of that we obviously have a lot of flexibility to reduce that again when we choose to do so. It was sort of in the light of that at the end of March.
Okay. Thank you.
The next question comes from the line of Michael Foeth with Bank Vontobel. Please go ahead.
Yes, good afternoon, gentlemen. Three questions from my side as well. First of all, on Manmade Fibers. Can you repeat, you mentioned an order intake expectation for the first half, and can you maybe also give us a little bit of indication what your visibility is in Manmade Fibers on revenue recognition in Q2 and Q3, i.e., how much of the revenues that were not recognized in the first quarter have already been caught up by now? That would be the first question. Second question also on Manmade Fibers. Can you give us an indication of what you currently see in terms of potential for melt-blown nonwovens related to those face mask productions? I mean, what sort of size of market over the next one or two years are you looking at?
On the CapEx cuts, can you maybe just indicate us the size of the or the amount of CapEx that you're planning to cut this year, and more specifically, in which areas? You already mentioned additive manufacturing as one of the areas, but maybe you can give us a bit more indication on what sort of savings you're making. Sorry, maybe just a final one following up on what was just asked. Just a question, why are you drawing down the credit facility for precautionary measures when you just paid out a special dividend? Wouldn't that have been a precautionary measure as well? Thank you.
Yeah. Hey, Michael. I'll start with the first one. What we're seeing on Manmade, you know that obviously the vast majority of that business is backlog driven. We have pretty good line of sight into that, and that's why we try to emphasize sort of the long pole in the tent on that would be the supply chain. We monitor that very closely, and we feel comfortable with where the supply chain is and our abilities to fulfill. We get to the conclusion that we're saying the full year is on track right around where we told you we expected to be at the beginning of March. I go back, without getting too specific on the first half, we said we're going to be in order intake around CHF 500 million.
That will be roughly 50% of what we told you for the total year. Back on track. You can expect that a number of those orders have really slipped out of the first quarter and moved straight into the second quarter, and a similar pattern really on revenue recognition.
Yeah, the melt-blown, the second question was an easy one, actually. The melt-blown equipment is a niche product, right? Normally, we are selling two, three units a year, maybe CHF 5 million each. Just to give you a flavor, such an equipment is good enough to produce about up to half a billion face masks a year. Before the crisis, it was a niche product. Right now, everybody is asking for it, and we reshuffled our production here. We are, I think able to make up to 10 maybe in 2020. In 2021, another one. That means we talk about an upside of maybe CHF 50 billion plus, might be CHF 60 billion. What is not thriving for the entire Manmade Fibers business, but it's a very interesting and sweet spot because it's not filament, right?
This fits ideally into our mid- and long-term strategy, really, to reduce our dependency from the filament business and from the Chinese market. From that perspective, we are extremely, now it's wrong to say happy about the crisis, for sure not, but here we are taking benefits out of it.
Maybe I'll touch on the CapEx cuts. I would say, we're probably expecting to be a level around CHF 100 million, maybe a little bit over that. When you ask me where I would really describe it as a prioritization effort, really in light of what we're seeing in the different markets, focusing on investments that provide a very short payback. Naturally, I think we've reviewed everything that goes into additive, like you said, everything that goes into aero, auto and some of the markets that we really expect to see some challenges in the next six to nine months. I think we're reprioritizing those investments. We're certainly not curtailing our ability to grow. We maintain all the capabilities to serve our customers when the markets return. It's very important for us.
Roland said that we're not in a fight for survival mode here. I would just say we're taking the right precautionary measures in light of the current situation and really looking at paybacks. Then on your last question, really the special dividend, I see the two really, and the dividend, quite a bit differently. I think that the dividend and the special dividend were sort of in light of the stability of our business and how we've transformed the portfolio over the last couple of years. We have a very stable company, the ability to generate strong free cash flow going forward. The revolving credit facility is really more a response to our short term, external shock event that we've never seen before. So I really see the two quite a bit differently.
Okay. Thanks a lot.
The next question comes from the line of Armin Wegner, Jefferies. Please go ahead.
Yes. Hello, gentlemen. Surface Solutions, you mentioned an unfavorable regional mix for the EBITDA margin. Can you shed a little bit light on that? Why regional? You mentioned delays in the orders for Manmade Fibers. You rule out cancellations, isn't it? Always the danger of cancellations is hovering, isn't it? Net cash, in your documentation, you mentioned CHF 290 million end of March, right after that, you paid out the dividends. You turned into net debt or is that wrong?
Yeah. You want us to take all three real quick, Armin? I think on the Surface Solutions, you understood that correctly, and this is really what Roland was alluding to. Some of our highest margin segments and areas of activity, for a variety of reasons, are in Asia. When you look at the, obviously the February, March timeframe where you had the most significant impact from the COVID-19 situation in China, India, and in Japan, that's really what it is. Some of those very high calorie revenues didn't come through, and that's sort of your adverse mix impact. On the second one, I can tell you, we did not see any cancellations. We don't see any cancellations. I think we see quite the opposite.
That's what we were also trying to tell you with the CHF 600 million contract awards that we saw, the activity here is going forward. Those large projects go forward. I think our Chinese customers and eventually the Chinese government have a very long-term view on this industry, and I think they did not and don't seem to get derailed by the current crisis. The last one, you're right. We were at the end of the quarter with a CHF 219 million net cash balance, and that changes into a slight net debt balance after the payment of the dividend and the special dividend.
Thank you. Another question, if I may. Your supply chain, you mentioned problems there, especially at Manmade Fibers. Do you think looking forward from now, does that get better or even worse?
I mentioned problems, minor ones. Of course, we do have suppliers. We have suppliers in Italy. Italy was locked down completely, we had to look to ensure that we get alternative resources, to get supply. We obviously managed it. Again, I'm extremely happy about the March. Having such a difficult environment producing the highest number of winders ever Manmade Fibers did in history of Oerlikon. I think this is a great achievement. This tells you, yes, we have found ways to manage our supply chain. Was it easy? No. Did we have to do special efforts? All correct, all fine. At the end, the result counts, the team did well.
Do you expect similar numbers of winders produced in Germany for this quarter? Can you hold up this high production pace in Germany, even though facing problems with COVID?
That is actually what we try to, and what we have in mind, because we have full order books. It's also not a secret, we have been crystal clear that we are not going to expand our capacities in terms of new factories. Of course, we are heavily working on optimizing the existing ones. This is what we do, and we try to get out as much as possible.
Thank you.
The next question comes from the line of Marta Bruska from Berenberg. Please go ahead.
Hello. Good afternoon. Thank you for taking my questions. I have three if I may. First of all, I would like to ask about your V-shaped recovery indications for tooling. To which end market is this part mostly exposed to in the near basis for the V-shape outlook maybe as to its output, maybe indication there, or what gives you a hope for that? The second question would be with regard to the restricting the investments in your additive manufacturing right now. It's something that comes to me a little bit as a surprise because with one of the longer-term impacts from COVID that is accepted is for the companies to shorten their supply chain and to invest more in 3D printing.
Perhaps this has been actually the inflection point we have been waiting for so long, and I do understand there are technical issues still to be solved with 3D printing, but maybe the awareness of the industry and the inflection point would come exactly right now. The question is really what brings you, as mentioned, with Carson your partnership, and so what brings you to take this decision right now? Thirdly, if you can give us a little bit more background of if you see any risk to employee engagement with firing actually quite many people at such a difficult time, and what measures do you take to keep the remaining employees in Surface Solutions involved? Thank you.
Okay, Marta. I'm not 100% sure whether I really got all your questions. You started with the tooling market. I think, the tooling market is a very special one. It's a comprehensive market where we, as a coating company, are just partially able to understand and to get the information in which dedicated industry certain parts of the tooling are going into. From that perspective, this is an average temperature. Here we see a slight recovery after the lockdown, of course, with a regional pattern. For sure, and that is our interpretation, that has to do with restocking and preparing for a ramp-up of production. Taking more conclusions out of that, I think it's very difficult.
Okay. Thank you.
Yeah.
Your question on restricting the investment in additive, I think you're absolutely right. There are opportunities that are coming out of that, and we are in a position to take advantage of that. Our point has been in this, that we have built out adequate capacity that will allow us to serve quite a bigger market as that market unfolds. We have a limited need to invest incrementally into that space, and I think that's very, very critical. We're growing into that structure and the infrastructure, and so we will be able with that. That's true both from an R&D standpoint, as well as from a manufacturing and fulfillment standpoint. We think we're gonna be in a really good position to serve our customers there.
Maybe I'll start with the employee engagement for a second and then hand it over to Roland. I think, obviously, this has been a very challenging time with COVID-19. What I can tell you is that the situation was completely different in different parts of the world, and it changed oftentimes multiple times in a day. What we've done as a company is just react very swiftly, try to be very close to our different global sites, give them a lot of leeway to act and react to the changing situation independently and provide them with the right tools and resources. As it pertains to the reductions, those are always painful things to do. We're absolutely convinced that they have to be done. I think from our experience, I would just say you have to execute them very quickly.
Make things as clear as you can, as fast as you can, so that the workforce that's there knows that we continue to execute towards a common goal. I don't know.
Okay.
Okay. Thank you.
Thank you.
The next question comes from the line of Alessandro Poletti from Baader-Helvea. Please go ahead.
Yes. Good afternoon, gentlemen. Thank you for taking my question. Very quickly, maybe. Normally, when you have a big decline in order intake at Manmade, you also have a reduction of customer advances. Can you give an indication if this is the case? If you can also by how much they went down? If I remember correctly, we're about CHF 320 million at the end of the year. Going into Q2, you're expecting CHF 350-plus million orders. Will you have a reversal on that side?
Oh, okay.
No, actually, just real quick, the customer advances were actually up slightly in the first quarter. You're right in the general trend, there is not a one for one, and certainly not on a quarterly basis. They were up slightly in the first quarter, and in the second quarter, I think it'll continue. I think the right way to look at it is more sort of on an annual basis. Do we see a steady development of that? I think you can assume that.
All right, thank you. My second question, again, on Manmade. Just to understand why the order intake was so low. Is it because your clients, those persons that are in the commercial departments, they were not at work in their company and hence not able to hit the button to free the cash for your down payment? Or is there another reason really for this low order intake?
No, Alessandro. Roland speaking here. It was just a matter of time. China was in a crisis. They were fighting this virus topic, and obviously they have locked certain administrative functions as well. It was just a consequence out of that. The CHF 350 million, as you rightly say, when we expect a CHF 500 million order intake in the first half, it's clear what has to come in the second quarter, and this is the consequence out of it.
All right. Thank you very much.
Okay.
The next question comes from the line of Jörg Kroner, AWP. Please go ahead.
Yes, hello. I have a question on the job cuts. Can you give us an idea also in terms of regions and industries where the job cuts in Surface Solutions will happen?
Yeah. Jörg, as you know, we have a very global business in Surface Solutions. It really affects a number of different regions. We're not going to give a more detailed split on the different geographies, but the only thing I will say is that there's obviously that also impacts the trajectory of what we're doing. There's really a number of regions impacted and a number of really the end markets that we're serving, since these are really structural adjustments.
Okay.
The next question comes from the line of Christian Obst from Baader Bank. Please go ahead.
Yes, hello and all the best to Switzerland. Sorry to come back again to the Surface Solutions reorganization. At the financial press conference, the wording was a little bit about comprehensive restructuring, new setup, new type of business repositioning. Maybe can you give us some examples or details, and what is the main task to reorganize Surface Solutions in the next 12 to 18 months? Of course it's broad-based, it's very international, but can you give us maybe two or three main points you are concentrating on? Is that possible?
Yeah. I think when we talk about the structural cost base, I think we talked about that at the beginning of March as well, it's really about our ability to scale our operations. I think some of our operations have sort of grown in a way where we were a lot smaller in certain geographies, and now we have multiple sites and we need to leverage the economies of scale between those sites a lot better. That we describe, those are fulfillment functions. That's IT, that's finance, those kind of areas. There's administrative areas, there are logistics parts, there's in the fulfillment world and so on. I think it's just about moving a lot of those functions together, making sure that if we have a similar function and a similar capability in three different places, just leveraging one of them.
I would really describe it as an evolution of that. It's not necessarily rocket science. It requires a shift in how we approach our work in some areas. I would say that's really what the program is all about. There's a lot of details behind that and how we approach markets.
Of course.
with customers. That's really the gist of it, is being more efficient between the different segments and sites that we have in Surface Solutions. Which, as you know, is obviously a very distributed business model, numerous sites. Roland was mentioning that over 150 sites, you can imagine the potential for duplication there. The program is really all about removing that.
Are you concentrating more of these functions that you now have on these various sites into some kind of a headquarter for Surface Solutions? Or you are also transferring something into the entire headquarter of Oerlikon?
We're trying to stay away from sort of the Oerlikon HQ. I think usually that doesn't add too much efficiency. I think we're pooling the activities wherever it makes sense. If we're in a big country or even within a country, in a region or a state where we have a lot of activity, we're going to try to pool it there. If we have an ability to maybe locate a support function in a low-cost environment, and serve a number of markets from there, then we're going to do that. The plans for that are already very well developed. We have very clear understanding of where we're going to do what, over the next couple of weeks and months here.
The time of analysis is over and you are now executing. That's right.
Yes, very much. Yeah.
Okay. Thank you.
Okay. Thank you very much. We see no further questions in the line. Thank you for joining our Q1 call. Happy to assist with the IR team in case of any additional questions. We will publish our Q2 results on August 4th, and we'll host again a conference call with the management team. Wish you all a healthy and good afternoon. Thank you very much for joining. This closes our Q1 call. Thank you very much. Bye-bye.
Thanks a lot. Bye-bye.
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