Earnings Call: Q1 2020

May 5, 2020

Ladies and gentlemen, welcome to the Eirlikon 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. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Andreas Vaksellder, Head of Investor Relations at Telecom. Please go ahead, sir. Thank you very much, and good afternoon, ladies and gentlemen, and welcome to Oerlikon's conference call on the 20 20 1st quarter results. Particularly in light of the current circumstances, I do hope you are all well and staying safe. My name is Andreas Schwarzweiler, Head of Investor Relations. With me today is our CEO, Roland Fischer and our CFO, Philip Muller. 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-nineteen pandemic, we have changed the structure of today's call. We have the following agenda for you. Roland Fischer will talk about Eerlikon's response to COVID-nineteen, how it has affected Eerlikon, what actions we have taken and how we have positioned the company for the future. Bill Muller will then give you an overview of the financial performance during the Q1. 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. And now handing over to Roland. Yes. Thanks a lot, Andreas, and welcome to all of you from my side as well. No one could imagine 6 months ago that a global pandemic would deeply affect all of us. And I hope you and your families are all well and staying safe during these difficult days. The evolving fallout from the COVID-nineteen pandemic has brought the global economy to a standstill and also our early companies and as 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 suppliers. And finally, we have adapted to the new environment to emerge from the pandemic at the end as a stronger business. And so let's go into more details. Since the initial outbreak, we have been monitoring the dynamically evolving conditions resulting from the COVID-nineteen pandemic, and we have taken action to protect our employees. We have fully adhered to guidance of local governments and health authorities. And 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. And as an example, Elicon is providing 2 facial masks for every employee. And beside of that, Telekorn 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 1,000,000,000 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 and A opportunities are showing up. And 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 Fiber business felt major impacts in China during January 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 Rammscheid. The key challenge here in Europe has been to secure sorry, to secure the supply chain in the COVID-nineteen 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 Service Solutions business, situation is different. Separations of the Global Coating Center network has 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 service solution sites had to be closed temporarily upon requests by the relevant local governments. Depending on the industry exposure and volatility, affected sites were operating at 50% up to 100% capacity. And needless to say, we are striving hard to ensure our business continuity, to work closely with suppliers and to serve our customers wherever possible. And last but not least, during March, we outlined our productivity improvement program and our commitment to build a stronger service solution segment. Alicorn 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 announced the headcount reduction of around 10% in our Service Solutions segment. Protocol is expecting to spend CHF 25,000,000 to CHF 35,000,000 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% to 18%. And furthermore, these programs will not limit the ability of the Service Solutions business to grow structurally once markets return again to a kind of growth mode. Due to the multifacet of the impact of COVID-nineteen, you see a diverse picture in market dynamics. The strength of MainMed Fiber's market position, customer proximity and order book provides a stable base in this economic environment. We received contract awards from 3 of the world's leading manmade fibers manufacturers in China with a combined value of over CHF 600,000,000 and the delivery schedule reaching out to 2023. Furthermore, due to the COVID-nineteen pandemic, a strong global demand for Erylon's Meltblown 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-nineteen challenges in China in the Q1, 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 Service 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 substantial hit in 2020. We anticipated some recovery with the easing of the lockdown restrictions across regions and industries. In automotive, pre exiting 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 is spearheads the recovery, sales and production of cars may not return to prior year's level before July 2020. And 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 aircrafts down to MRO activities. Airbus already announced a reduction in production of over onethree. Overall, assuming the current pace of lockdown is 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. EarlyCon 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 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 service solutions. We are very well positioned to weather the COVID-nineteen 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 Q1, but we are convinced and we believe it is necessary these difficult times. Mainland Fiber 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 and A opportunities are coming up in good time. And after this overview, which is unusual, yes, as Andreas indicated, I would like to hand over to Philippe for additional comments on the group's financials. Philippe, it's yours. Thank you, Roland. Good afternoon, and welcome to today's presentation from my side as well. I will go through the Q1 results. Let me start with the group financial review. Group orders for the Q1 decreased by 29.9 percent to CHF477 1,000,000. 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 twenty twenty, we expect Manmade Fibers order intake to be around CHF 500,000,000. In Surface Solutions, orders were mainly impacted by the slowdown of the various end markets and due to the COVID-nineteen pandemic. Group sales were 15.2 percent lower at CHF 529,000,000. In addition to the previously described slowdown across markets, we had a 5 percentage points negative impact from FX as the Swiss franc continued to strengthen. At constant exchange rates, group sales were 558,000,000 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-nineteen situation, we are accelerating these measures as much as possible. We are expecting to recognize a material part of the $25,000,000 to $35,000,000 of restructuring costs in the Q2 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 segment 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 percent year over year to CHF 333,000,000 and sales decreased by 12.4 percent to CHF 325,000,000. Dollars 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 Q1 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 secondary wave or impact jumps. Next, on manmade fibers. We saw a significant amount of orders in China being delayed resulting in order intake of CHF 144,000,000. We expect Man Made Fibers order intake to be around CHF 500,000,000 for the first half of twenty twenty and our full year expectation remains unchanged. Sales for the segment decreased by 19.3 percent to $205,000,000 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 costs 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 Q1. While manmade fibers in the Q1 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 Q1 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. At the moment, we can't provide you an updated outlook with a reasonable degree of certainty. 2nd, 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 nonwoven business. 3rd, we have a strong balance sheet and we have secured our group liquidity. 4th, 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. And finally, we are committed to our midterm target for group EBITDA margins of 16% to 18% and to returning to our structural growth trajectory once the market stabilize. With that, I'll hand it back to Andreas. Thanks, gentlemen. This closes our comments for the Q1 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 The first question comes from the line of Fabian Hecke from UBS. The first one is regarding the restructuring in Surface Solutions. I try to understand by how much you have stepped up your restructuring efforts. So you are saying that you expect the €25,000,000 to €35,000,000 in implementation costs in Q2. Actually, that is roughly the same number you said with full year results pre corona outbreak in Europe and in the U. S. So why is it not why don't you have higher costs? And the 100 employees you're sparing in Surface Solutions already before, that was a focal point for on the restructuring side. But has this really been kind of expanded? Or is it the same restructuring program just kind of highlighted again? That would be my first question. Yes, Fabian. I think the at the end of the day, it's the same restructuring program that we talked about. In the material aspects, 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. So I think that's sort of a change and we had obviously given you a range $25,000,000 to $35,000,000 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. And so but 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 were still having quite some hope that the aviation industry will pick up some projects. I guess that has now become extremely unlikely that aircraft manufacturers have any spare money for 3 d printing projects. Has your view changed? What are you going to do with this? And what saving can we expect? Considering that in the past, there was diluting your margin by 300 basis points in service? So actually, you are Fabienne, partially right. On the Civil Aviation business, we will see a slowdown, and this is what we take into account. But fortunately or no, I don't want to give an evaluation, but on the military, on the defense application side, the business is quite stable. And what is the case in the U. S, in our U. S. Side and here in our European in Berlin, our European side 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 also in the Additive Application business. And this is, from my perspective, under control, yes. So 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? We have as I said, we did already cuts in terms of structure and in terms of people. And for the time being, we stick to our plans. We do not see major shifts here. And Fabienne, 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 Q1 and that's as far as we can see right now that also remains true for the remainder. So I think there's some green shoots, still a lot more work to be done. And then the only thing I would add to that is that we've obviously also curtailed sort of incremental CapEx investment in that business to an absolute minimum. Okay. Thank you. Then the last one on manmade fibers. Can you give a bit flavor on pricing backlog mix side, particularly in the Q2? Will pricing improve? Is pricing generally improving? Has this been the case for the €600,000,000 large order you gained from China? But 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, but 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 Kune, RBC. Please go ahead. Yes. Hi, gentlemen. Three questions. For the €600,000,000 man made 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. But then I wonder why you plan to book it in 2021 and not earlier. So maybe you can explain why if there's a condition to it being booked or what the background is of that? Yes. Sebastian, I'll just you want me to take that one or you want to go through all of the questions? Yes. So I think that's an easy one. I mean, we typically book those orders sort of as we receive the down payments from our customers. It's very standard. So we get the contract awards, then they're part of the larger project. And when we get closer to the delivery dates, we actually also book the orders into our system. So 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. So naturally, we would book those orders in any given And again, no, there are more criteria. So contract, the down payment, secured finance LC or whatever, and then also approvals on the customer side in terms of certifications. And then finally, depending on when the delivery slots are required, we don't book orders to be delivered in 3 years ahead. This is not nothing what we do. And the €600,000,000 is that now an unusual item? Or do you have in every quarter kind of a €600,000,000 order sitting around that you have not put? Unfortunately, 100,000,000 order sitting around that you have now fixed? Unfortunately not. I think this is again, this is a compound of 3 consists of 3 contracts, 3 out of the 5, 6 big Chinese filament producers. That means there are some smaller ones and 2 bigger ones here. That means this is a single individual contract that's in the range of €100,000,000 €150,000,000 up to €200,000,000 And this is not very special. We have it from time to time. But of course, we don't have Not every day. Not every day, right. But I think it confirms this, Sebastien, and we talked about this a couple of times, it confirms the trend to larger individual installations, right? We 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. But it's certainly not on common that we see these larger orders that are for delivery a couple of years out. Understand. In Service Solutions, I have a question. Organic growth, minus 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 crisis, I better deliveries are not secured, I better stock up a little bit? Or do you think this is natural the natural demand that you actually form of a 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, yes? 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. And our January, February business has been not almost normal, let's say, that way. And 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 okayish, right? So that means stocking, destocking, restocking effect, difficult to say. I would say no one. I didn't sense it. Probably not yet, yes. Since you mentioned aerospace, that would be my last question. You indicated that the segment was still growing within Service Solutions. But you also mentioned that the maintenance of turbines is coming down. What scale of impact do you guys expect for the coming quarters? I mean, are we talking that the service business will halve and the Aerospace business will drop by onethree for the new turbines? I mean, what's the scale here? So 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%, 5%, 10%, something like that. This will have a major impact on MRO volume. What is a smaller part of our business or yes, a certain yes, it's a smaller part, not a minor one, but a smaller part. And the new engines delivery schedules are also dramatically cut down. The Airbus indication, onethree, and we do see and have similar indications and forecasts from Safra for the LEAP engine, and we have a similar pattern on the geotobofen from Brett and Whitney and MTU. That means we do see and expect a substantial decline in aerospace business. Fortunately, aerospace is not 100%, doesn't represent 100% of our fixed plane business. It's about, I don't know, a 3rd max, something like that. And from that perspective, it will heavily depend on how other more short cycle industry types will behave. Understood. Final question, if I may. You drew your credit facility even though you still have nearly, I think, €300,000,000 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. So what's the logic behind drawing the entire credit facility? That was really more of a 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. And so it's sort of more in the way that we obviously have a lot of flexibility to reduce that again when we choose to do so. 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 Phelps with Santoban. Please go ahead. Yes, good afternoon, gentlemen. Three questions from my side as well. First of all, on manmade fibers, you 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 Fiber on revenue recognition in Q2 and Q3, I. E, how much of the revenues that were not recognized in the Q1 have already been caught up by now? That would be the first question. 2nd question also on manmade. Can you give us an indication of what you currently see in terms of potential for Meltblown nonwovens related to those face mask productions? I mean, what sort of size of markets over the next 1 or 2 years are you looking at? And then 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. And then 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. Yes. Hey, Michael, I'll start with the first one. What we're saying on Manmade and you know that obviously the vast majority of that business is backlog driven. So we have pretty good line of sight into that and that's what 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 ability to fulfill. So then 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. And then I kind of go back and without getting too specific on the first half, but we said we're going to be an order intake around CHF 500,000,000 that will be roughly 50% of what we told you for the total year. So back on track and you can expect that a number of those orders have really slipped out of the Q1 and moved straight into the Q2 and the similar pattern on really on revenue recognition. And then I'll maybe Yes. And the Meltblown, the second question is was an easy one actually. The melt loan equipment is a niche product, right? Normally, we are selling 2, 3 units a year, maybe EUR 5,000,000 each. And just to give you a flavor, such an equipment is good enough to produce about half up to 500,000,000 face masks a year. And 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 €10,000,000,000 maybe in 2020 and in 2021. Another one that means we talk about an upside of maybe €50,000,000,000 plus, might be €60,000,000,000 what is not driving for the entire Main Made Fiber business. But it's a very interesting and sweet spot because it's not filament, right? And this is fits ideally into our mid- and long term strategy really to reduce our dependency from the Filament business and from the Chinese market. So 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. And then maybe I'll touch on the CapEx cuts. I would say we're probably expecting to be a level around 1 $100,000,000 maybe a little bit over that. And when you ask me where'd you I would really describe it as a prioritization effort and really in light of what we're seeing in the different markets, focusing on investments that provide a very short payback. So 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 6 to 9 months. And so 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, 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. And then on your last question, really the special dividend, I see the 2 really and the dividend quite a bit differently. I mean, 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 portfolio over the last couple of years. We have a very stable company, the ability to generate strong free cash flow going forward. And the revolving credit facility is really more a response to our short term external shock event that we've never seen before. And so I really see the 2 quite a bit differently. Okay. Thanks a lot. The next question comes from the line of Arne Wexberger, Cattibi. 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? Then you mentioned delays in the orders for manmade fibers. But you rule out cancellations, isn't it? Or I mean, always the danger of cancellations is hovering, isn't it? Yes. Net cash, you in your documentation, you mentioned EUR 290,000,000 end of March. But right after that, you paid out the dividend. So you turned into net debt or is that wrong? Yes. 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. And so, when you look at the February, March timeframe where you had the most significant impact from the COVID-nineteen situation in China, India and in Japan, that's really what it is. So 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 600,000,000 contract awards that we saw, the activity here is going forward, those large projects go forward. Again, I think the our Chinese customers and eventually the Chinese government 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. And then the last one, you're right. We were at the end of the quarter with a $219,000,000 net cash balance and that changes into a slight net debt balance after the payment of the dividend and the special dividend. Thank you. And 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? No, I mentioned problems, minor ones. Of course, we do have suppliers. We had suppliers in Italy, and Italy was locked down completely. And we had to look to ensure that we get alternative resources to get supply. We obviously managed it. And again, I'm extremely happy about the March. Having such a difficult environment, producing the highest number of winders ever, early manmade fiber did in history of Enercon. 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. But at the end, the result counts, and the team did well. Do you expect similar numbers of winders produced in Germany for this quarter? Can you held up this high production pace in Germany even though facing problems with COVID? That is actually, I mean, what we try to and what we have in mind because we have full order books. And also not a secret. We have been crystal clear that we are not going to expand our capacities in terms of new factories. But of course, we are heavily working on optimizing the existing ones. And this is what we do, and we try to get out as much as possible. The next question comes from the line of Marta Brusca from Berenberg. Please go ahead. I have 3, if I may. So first of all, I would like to ask about a euro V shaped recovery indication for tooling. To which end market is this a part mostly exposed to and to see basis for the V shape outlook there or outlook metrics to support maybe indication there? Or what gives you a hope for that? The second question would be with the restricting with regard to the restricting the investments in your Additive Manufacturing right now. I mean, it's something that comes to me a little bit as a surprise because with one of the longer term impacts to COVID that is expected is for the companies to shorten their supply chains and to invest more in 3 d printing. So perhaps that could have been actually the inflection point would have been waiting for too long. And I do understand there are technical issues due to the itself with 3 d printing, but maybe the awareness of the industry and the enthusiasm would come exactly right now. So the question is really what brings you, as mentioned, was cash on your balance sheet? And what brings you to take this decision right now? And thirdly, if you can give us a little bit more background of what you if you see any risk to employee engagement with hiring actually quite many people at such a difficult time and what measures do you take to their main temporary interface solutions involved? Thank you. Okay, Madeline. I'm not 100% sure whether I really got all your questions, but 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. And from that perspective, this is an average hospital temperature. And here, we see a slight recovery after the lockdown, of course, with the regional pattern. But for sure, and that is our interpretation, that has to do with restocking and preparing for a ramp up of production. So but taking more conclusions out of that, I think it's very difficult. Okay. Thank you. And then I'll your question on restricting the investment in additive, I think the 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. And so we have a limited need to invest incrementally into that space and I think that's very, very critical. We're growing into that and the infrastructure. And so we will be able with that. And that's true both from an R and D standpoint as well from a manufacturing and fulfillment standpoint. And so we think we're going to be in a really good position to serve our customers there. And then 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, very challenging time with COVID-nineteen. 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. And then so 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. And then as it pertains to the reductions, those are always painful things to do. We're absolutely convinced that they have to be done. And 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. And I don't know. Okay. Okay. Thank you. Thank you. The next question comes from the line of Alessandro Foletti from Octavian. 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 Landmade, you also have a reduction of customer advances. Can you give an indication if this is the case? And if you can also by how much they went down, if I remember correctly, we're about €320,000,000 at the end of the year. And then going into Q2, you are expecting €350,000,000 plus orders. Will you have a reversal on that side? Okay. No, actually, just real quick, the customer advances were actually up slightly in the Q1. You're right in the general trend, but there is not a one for 1 and certainly not on a quarterly basis. So they were up slightly in the Q1. And in the Q2, I think it will 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? And 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, I mean those persons that are in the commercial departments, they were not at work in the company and hence not able to hit the bottom to free the cash for your down payment? Or is it more because of or is there another reason really for this low order intake? No, Alessandro, I think 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. And it was just a consequence out of that. And the €350,000,000 as you rightly say when we expect the €500,000,000 order intake in the first half, So it's clear what has to come in the Q2, and this is the consequence out of it. All right. Thank you very much. The next question comes from the line of Jorg Krone, 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 drop cuts in Surface Solutions will happen? Yes. York, it's really as you know, we have a very global business in Surface solutions. And so it really affects a number of different regions. We're not going to give a more detailed split on the different geographies, but you the only thing I will say is that there's obviously that also impacts the trajectory of what we're doing. But there's really a number of regions impacted and a number of the really the end markets that we're serving since these are really structural adjustments. Okay. The next question comes from the line of Christian Hope 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 Beninci 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 the Surface Solutions in the next 12 to 18 months. So of course, it's broad based. It's very international. But can you give us maybe 2 or 3 main points you are concentrating on? Is that possible? Yes. I mean, I think when we talk about the structural cost base and I think we talked about that at the beginning of March as well. It's really about our ability to scale our operations. And 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 scale the economies of scale between those sites a lot better. So that we described those are fulfillment functions, that's IT, that's finance, those kind of areas. There is administrative areas, there are logistics parts, there is in the fulfillment world and so on. So 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 3 different places, just leveraging one of them. And I would really describe it as an evolution of that. And so it's not necessarily rocket science. It requires a shift in how we approach our work in some areas. But I would say that's really what the program is all about. And then there's a lot of details behind that and how we approach markets with customers. But 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. And so you can imagine the potential for duplication there. And the program is really all about removing that. And do you concentrating more of these functions you now have on these various sites into some kind of a headquarter for Surface Solutions? Or are you also transferring something into the entire headquarter of Oerlikon? We're trying to stay away from sort of the Oerlikon HQ. I think that's usually that doesn't add too much efficiency. Think we're pulling 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 pull 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. But the plans for that are already very well developed. So we have very clear understanding of where we're going to do what over the next couple of weeks months here. So the time of analysis is over and you are now executing. That's right. Yes, very much. Okay. Thank you. Okay. Thank you very much. We see no further questions in the line. So thank you for joining our Q1 call. Happy to assist with the IR team in case of any additional questions. And we will publish our Q2 results on August 4, 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. And this closes our Q1 call. Thank you very much. Bye bye. Thanks a lot. Bye bye. Ladies and gentlemen, the conference is now over.