Earnings Call: Q2 2019

Aug 6, 2019

Ladies and gentlemen, welcome to the Ehrlichon Q2 2019 Results Conference Call and Live Webcast. I'm Sandra, 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 Schwartzwelder, Head of Investor Relations at Oerlikon. Please go ahead, sir. Thank you, Sandra. Good afternoon, ladies and gentlemen, and welcome to Oerlikon's conference call on the results for the Q2 and the 1st 6 months of 2019. Your host today, as usual, Doctor. Roland Fischer, the Group's CEO and Jorg Fedje, the Group's CFO and myself, Andreas Schwarzweiler. As a reminder, all related documents on the Q2 and half year results, including the interim report and the following presentation, are available for download on our website. Today, we will follow the well known agenda. Roland Fischer will start with an overview and an update on the segment's performance, followed by Joerg Fedje, who will comment on the group's financial performance and the adjusted full year guidance. After the presentations, as already announced, we will hold a Q and A session to answer your questions. Having said that, it's now my pleasure to hand over to Roland. Yes. Thanks a lot, Andreas. And good afternoon to everybody on the line, and thank you for joining our second quarter and half year 2019 earnings call. As you can see on the slide, for the Q2 of 2019, Oerlikon delivered a resilient performance and maintained top line growth despite the challenging market environment. Group sales went up by 5.3% reported to CHF700 1,000,000. For the first half year of twenty nineteen, sales were up 4.3% and order intake was down by 5.7% compared to the same period of last year. This is mainly due to the high level of order intake from Manmade Fibers in the beginning of 2018. The robust top line result was driven by the MEMET Fiber segment, which recorded record sales levels in the 2nd quarter, while we continue to see high levels of demand prevailing. The Service Solutions segment, on the other hand, was facing lower levels of both orders and sales due to the adverse market environment in some of our major end markets. In the Q2, we delivered an EBITDA margin of 17.3% for the group. The margin represents a very robust level for an industrial company that is investing significantly in growth initiatives while facing challenging markets. The good marginal result was, again, driven by the Manmade Fiber segment, which reported an exceptional EBITDA margin of 17.8 percent in Q2. This high margin is primarily attributable to the strong operational performance of the segment, but also a very favorable product mix. And we also have we had customer onetime effects. The EBITDA margin on the Service Solutions segment came in at 16.8% and is clearly below our own targets. Weaker than expected industrial production has negatively impacted volumes, hence the downturn in the automotive, tooling and general industries persisted. This has impacted of Service Solutions, driven by a higher proportion of lower margin businesses and an increased impact from Additive Manufacturing. And secondly, and as announced in earlier calls, we incurred high operating expenses as we continue to execute significant investments to secure future growth. We are fully committed to these investments, and consequently, we are prepared to bear the related operating expenses. And in addition to the aforementioned investments in our growth, which is a key element of our strategy, we have taken further strategic actions. We continued to strengthen our footprint in service solutions with new customer centers in the U. S. And Sweden. We also continue to believe in the importance of partnerships and in the importance of innovations and R and D. And in this slide, together with Safran, the CNRS and the University of Limoges, we intend to drive the development of enhanced surface treatment solutions forward. Application here is aerospace mainly. We have reported a resilient set of results today. At the same time, we have started to see weakening in our service solution businesses reflected in the top line, the margin and in the margin quality. In light of current geopolitical and market uncertainties and given that the anticipated market recovery for our Service Solutions business in the second half of the year is not visible, we are adjusting our guidance for the full year and expect to deliver around the same level of performance as for the full year 2018. Given the rough market conditions we are facing, we believe the new guidance will still provide strong message for the second half of the year. And Jorg will give more details later on then. And now let's turn to the Service Solutions segment's performance in the Q2 of 2019. The adverse trends in the end markets have impacted top line development in the Service Solutions segment. No question about that. We have seen a decline in orders and sales across all markets, especially the automotive market, most notably in China, remained downbeat. Also, tooling saw weak demand in China and in the U. S, while general industries with sectors like semiconductors and electronics recorded lower sales in Europe and in the U. S. The effects from the small sized acquisitions and raw materials surcharge was around minus CHF4,200,000 year on year, including currency effects. This resulted in an almost flat organic sales growth of minus 0.7% compared to minus 3.8% on a reported basis. With on a positive note, we saw good increase in the thermal spray business, although admittedly from low levels, and we are continuing to see successes in the uptake of our SUMIBOR technology. And examples like these positive developments all in the automotive end market are examples we refer to as structural growth elements. And for the current quarter compared to Q2 last year, this effect was only minor with about 0.4 percentage points. But on a sequential basis compared to Q1 this year, this effect was between 4 5 percentage points. And in addition, we have already taken, as you can imagine, stringent cost saving measures throughout the group and especially in our automotive business. And still, given the significant decrease in production volumes, all these actions can only have a mitigating effect. Overall, profitability of the segment was negatively affected by the higher proportion of lower margin businesses in the mix, plus the before mentioned execution of investments in future growth, such as the EPD competence center. And this lead to a higher operating expenses, which impacted the EBITDA margin. Further, the additive manufacturing business has weighted on the segment margin even more as a direct result of the slowdown of the industrial activity. The slower than anticipated adaption to is one driver. The resulting underutilization of the buildup capacity is another one. We currently do see dilution of the segment margin in the magnitude of around 300 basis points. And despite increased weight on segment profitability now, we remain fully committed to the business as we are convinced that this technology will play a key role in the industrial production in the future. And looking now at the Q2 2019 numbers for the Service Solutions business. The orders decreased by 5.3 percent year on year to CHF 374,000,000 and sales decreased by 3.8% compared to the Q2 of last year and stood at €379,000,000 The EBITDA for the segment stood at the CHF64 1,000,000 for the quarter, but it's a rate of 16.8 percent of sales. The operating profitability is lower in this quarter compared to Q2 2018. This is partly anticipated through investments, as I mentioned before, and partly impacted by product and regional mix. From an end market point of view, we observed reduced activity in the tooling industry, which is facing challenging end markets as well. The automotive business, as described already, is facing decreasing production volume, particularly in China and the rest of Asia. We also echo what is being reported about the industrial sector in terms of uncertainty the global economy, slower trade growth and investment activities. The aerospace market, on the other hand side, is seeing continued growth. Power generation remains a challenging market. From a regional point of view, we see an overall good business environment in North America, flattening activities in Europe and a clear slowdown in Asia and here mainly in China. Allow me to reemphasize that the segment delivered a resilient set of results in a very difficult market environment. Our business model remains sound. Our innovative strength and technology leadership are in place, and we are in a strong position to take advantage of opportunities as soon as markets recover. Having this said, let's move now on to manmade fiber. The manmade fiber segment delivered an impressive performance in the Q2 and demonstrated its position as world market leader. Sales in the Q2 this year represents the highest level of sales achieved by the segment since 2013. The order intake was up almost 6% year over year and continues to trail at a very strong level. The segment achieved strong growth in sales for textile applications, which is mainly filament and texturizing equipment. Also, plant engineering with its polymerization business and a substantial increase in nonwoven systems supported the sales development of the segment. The sales growth was mainly led by business wins in Asia, in particular here in China. This leads me to the Q2 2019 numbers, which show excellent results. Orders stood at CHF298 1,000,000 and were sustained across almost all product lines. Sales increased by 18.5% compared to the Q2 last year and stood at €321,000,000 The segment further improved its operating profitability. The EBITDA increased by 78% year over year to CHF57 million, and the EBITDA margin stood at 17.8%, the highest level since the downturn. And this exceptional EBITDA margin this quarter is due to a strong performance of the segment, a very favorable product mix and also a onetime customer effect. Let me emphasize, and this has to be clear, that this margin level is indeed exceptional. In the second half of the year, we expect to deliver and to recognize a number of lower margin projects from the down cycle and the recovery period. And therefore, we do not accept a similar high EBITDA margin in the second half of the year. At the world's largest textile machinery show, the ITMA, which took place in Barcelona in June this year, Oerlikon demonstrated its power as one of the innovation leaders for automation and digital solutions in the production of chemical fibers. Several of our presented new product innovations created high customer interests at ITMA. And before I comment on end markets, you may have noticed that we changed the end market split for the segment. We present the new split at the analyst briefing on manmade fibers in June this year at IDSMA with the intention to cluster different product lines more logically. You can find historic numbers on the new split in the appendix. And now back to the actual market developments. In the textile applications market, we see continued healthy demand for filament equipment from Chinese key players. There is increasing customer demand for automation solutions and our digitalization offering. In addition, customer service activities create additional business for spare parts and upgrades. The texturing equipment market remains positive as well as a result of increased filament activities, and we continue to see robust demand on high levels for our texturing machine. In the field of special filament, we have seen demand for our carpet yarn technologies to come down after a strong 2018, as expected. Following yes, as Ajak mentioned, following a strong year 2018. We see, however, interest picking up for our new PCF S8 machine. And on IDY, which is industrial yarn, we see a stable healthy market environment. And finally, for plant engineering, we have enjoyed strong increase in sales for the nonwoven business. And that means EarlyCon nonwoven is now seen as a serious player with a strong commitment to the nonwoven industry. We also saw an increase in demand for stable fibers and a promising project pipeline for continuous polymerization solutions. And as communicated before, the magnitude of orders for the manmade fiber segment has resulted in a pipeline with delivery lead times reaching into 2021 2022. And we are starting now talking and discussing new projects for delivery already in 2023. And therefore, we expect the healthy demand and good order intake to continue in the upcoming quarters. And after this review on the segment's performance, now let me hand over to Jorg for additional comments on the group's financials. Jorg, this is yours. Thank you, Roland, and good afternoon to everybody. Let me start with the group's financial review with a closer look at the Q2 and commenting on the half year figures as well. So group order intake stood at CHF 672,000,000 in the Q2 of 2019. That's a slight reduction of 0.7% year over year on a reported basis or up 2.1 percentage points after adjusting for currency developments. The decline in order intake in Service Solutions was compensated by a strong performance of the manmade fiber segment. Sales came in at CHF700 1,000,000. That's an increase of 5.3% year over year reported and up 8.3% on a constant exchange rate. Let me reemphasize that this is the highest level of group sales in more than 2 years in a challenging market environment. The book to bill for the group was exceeding 1 for the first half and was slightly below 1 for the second quarter. EBITDA reached 121 1,000,000 in Q2, a strong increase of 7.1% and was driven, as mentioned earlier by Roland, by the exceptionally strong profitability of Maemeb Fiber in this quarter. The EBITDA margin stood at 17.3% and came in slightly higher year over year. When looking at the first half year numbers, the margin was slightly lower compared to the same period of last year. EBIT at CHF 70,000,000 for the quarter, which corresponded to a margin of about 10.1%. The development of exchange rate in the Q2 compared to the same period of last year was providing some headwinds to Ehrlich and stop line as I mentioned before. This is mainly related to translation effects as we report in the Swiss francs. The depreciation of the euro against the Swiss francs was only partially compensated by a stronger U. S. Dollar against the Swiss franc. Assuming stable currencies, order would have been at CHF691 1,000,000, a difference of almost 3% compared to the reported figure. And sales would have been at about CHF 720,000,000, also higher by approximately 3% compared to the reported demand. So currency development had an impact again of around 3% on EBITDA and the impact on the margin remains therefore minor. When looking at the group sales split, the strong performance of Manweb Fiber in this quarter becomes visible as its shares of the group sales in the Q2 2019 increased to a level of about 46% compared to the same period of last year. When looking at the EBITDA split, the upturn in profitability from MF Fibre is visible as well. The segment accounted to date for 47% of total EBITDA in the Q2, while Surface Solution delivered about 53% of the group's operating profitability. And from a regional point of view, our proportion of sales decreased slightly in the Asia Pacific region to approximately 45% and in North America to about 14%, while increasing in Europe to a level of about 37%, sales in the rest of the world remained pretty stable. The share of our service and spare parts business decreased about 36% on group sales in the Q2 2019 compared to the same period. This concludes our comments on Q2 results. Let me continue with the first half of 2019 to guide you through the group financial statements. The group figures show a resilient performance in the first half of the year due to the strong comparable of last year in MEF fiber group orders were down 5.7%. Sales on the other hand were up about 4.3% and EBITDA improved by almost 3%, resulting in a margin of about 16.2% for the group. Looking below the operating profit on the P and L, the net financial result was negative with about CHF7 1,000,000, is mainly related to interest expenses for lease liabilities following the application of IFRS 16 and a slightly negative foreign exchange net result. The tax result was coming in at CHF28 1,000,000. The effective tax rate and earnings before tax amounted to 26% and is mainly attributable to favorable country mix, also driven by the divestment of Thrive System. For 2019, we continue to expect to further convert the tax rate to a level of about 25%, which continues to be our target in the mid to long term. Results from continuing operation was CHF 80,000,000 compared to CHF 91,000,000 at the same period of last year, which is a decline of approximately 12%. Result from discontinued operation was coming in a negative CHF179 1,000,000 compared to a positive of about CHF20 1,000,000. The loss from discontinued operation is mainly accounting principle related and a non cash effect from the reclassification of CHF284 1,000,000 of cumulated exchange differences that were previously recognized in the equity and that were realized with the disposal of the DRIVE system business. So in other words, a full recycle of the CTA through the P and L. Net income for the group therefore resulted in a loss of CHF99 1,000,000 and is therefore reasonably not comparable to the CHF111 1,000,000 a year ago. Our balance sheet continues to remain strong and healthy as well as unlevered with a net cash position of CHF380 1,000,000. Our cash position at the end of June was CHF727 1,000,000 and the equity amounted to more than CHF 1,800,000,000 representing a ratio of about 48%. Overall, our financial position remains strong and provides enough room for us to maneuver and to further execute upon the strategy. CapEx was at CHF66 million, that's a reduction of about 16% compared to prior year level. Almost 80% of CapEx was allocated to the Surface Solutions segment and represented about 7% of sales. While we continue the expansion of the global Coating Center network as well as our investment for future growth. We have reduced investments in additive manufacturing compared to the first half year in 2018. We have adjusted certain investment activities as a response to the challenging market environment, which we experienced and which we have talked about. But let me be clear, we remain committed, as Rolando already said, to investment to fuel future growth. Depreciation level and amounted about 2% of segment sales, excluding the amortization of acquired intangible assets in the amount of about CHF 20,000,000 and depreciation charges related to the application of IFRS 16, which were in the magnitude of about CHF 70,000,000, depreciation was up to CHF 63,000,000 up 5% compared to the first half year of twenty eighteen. With the CapEx to depreciation ratio for the group of CAD 1 point 5, excluding the amortization of acquired intangible assets and depreciation charges related to the IFRS 16, we returned to our midterm corridor of 1 to 1.2 in the first half of twenty nineteen. We expect also due to the external environment to possibly cap the budget and are expecting spending the vicinity of about €150,000,000 to €160,000,000 for the full year as a response to the current market environment. Coming to the cash flow statement. Cash flow from operating activities before changes in net current assets was trading at about CHF194 1,000,000. Change in net current assets amounted to negative CHF206 1,000,000 mainly attributable to the decrease of contract liabilities, which is partly driven by the previously mentioned strong sales development in manmade fiber. Cash flow from investing activities was positive CHF 547,000,000 mainly reflecting the disposal of the Drive Systems segment and cash flow from financing activities amounted to a negative of CHF678 1,000,000, which of course is mainly attributable to the dividend payment, which we executed in April and the repayment of the bond that matured in June of this year. This results in a decrease in cash and cash equivalents of about CHF 142,000,000 to about CHF 770,000,000 at the end of June 2019. And let me reconfirm that we continue to focus on redeploying cash and balance sheet in line with strategic priorities in the future. Return on capital. The group's 2nd quarter performance resulted in a rolling 12 months return on capital of about 9.5%. The decline in ROCE is mainly the result of the first time recognition of leasing assets under IFRS 16. Oerlikon's return profile continues to run at the high level and reflects our commitment to create value while executing upon our strategy. Ladies and gentlemen, let me conclude with 2019 outlook before we start with our Q and A session. In a difficult market we delivered a resilient performance in the second quarter and first half of the year. We recognize the slowdown in global economic growth and ongoing uncertainties in the geopolitical and trade environment as we do not see the anticipated market recovery for our Surface Solution business in the second half of the year, we are adjusting our guidance. Despite the challenging environment in which we operate, we project group orders, sales and EBITDA margin to be sustained around the same level of performance as we had in 2018. That means order intake expected to be in the vicinity of about SEK 2 point 7,000,000,000 sales expected to exceed the mark of SEK 2.6 billion and the EBITDA margin around 15.5% for the group. As a response to adverse market conditions, we are down adjusting our CapEx what I mentioned before, the target for the full year to around €150,000,000 €160,000,000 And let me repeat that our commitment to invest in future growth remains solid and in place. Same applies to smaller bolt on acquisitions that continue to be included in our guidance. When looking at the underlying segment assumptions, we are keeping expectations from MF Fibers unchanged. As mentioned and discussed before, especially profitability levels will be impacted by lower margin project in the second half of the year, resulting in a projected 2019 EBITDA margin improvement, which we guided earlier of about 100 basis points for the segment compared to 2018. And in the Surface Solutions segment, we expect order intake and sales at year end to be maintained around 2018 levels despite the ongoing challenging market environment. In terms of segment EBITDA margin excluding Additive, we keep our midterm target corridor for the segment unchanged at about 21% to 23%. Further, we expect the AM business to be dilutive with some 300 basis points, as mentioned earlier by Roland, which consequently brings the midterm target corridor for the reported segment EBITDA level back to about 18% to 20%. The weak market environment as well as global political and trade related uncertainties are expected to impact volume and margin quality. At the same time, we continue to execute our investments for future growth, increasing operating expenses in the short term. We are therefore guiding for a full year 2019 EBITDA margin of 17% to 18% for Surface Solutions. Ladies and gentlemen, summarizing the second quarter and half year results, Ehrlichman has once more proven that we can navigate through more challenging weather conditions. We succeeded to deliver a resilient set of results. We also achieved to deliver a healthy profit margin of 17.3%, thanks to MAMF Fiber and against the challenging market backdrop and in light of the significant investments we are making for the future growth in our company. As the global economic slowdown is expected to prevail in the second half of twenty nineteen, thus we do not see signs of recovery yet in the major end markets of our Surface Solution business, we are adjusting our guidance for full year to maintain around prior year levels And giving the rough market conditions, the new guidance provides a strong message for the second half of the year. This closes our comments on the Q2 and 1st 6 months of 2019. We thank you for joining us on the call, 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 Michael Sood from Tobel. Please go ahead. Yes. Good afternoon, gentlemen. Two questions from my side regarding Surface Solutions. First of all, you mentioned one of the reasons for the still sort of lower margin, higher operating expenses. And my question here is whether those expenses are in line with what you had planned at the beginning of the year or if there was incremental expenses that occurred in the Q2, which were not expected previously? And the second question would be an update on your investments in the EPD competence center. Where do you stand in this sort of process of building up that competence center? Are there more investments to come? Or is most of it already done? And how are the relating revenues developing in EPD? Thank you. Concerning Let me start on the cost side. In order, no, there is no surprise to additional operating expenses the way we have been guiding. When we talked to you in March, we were indicating that we're probably going to run at the level of about €25,000,000 or up to €25,000,000 And I think I can confirm that based on the various projects, which are being supported in that regard, among others, leading to the EPD question that we are in line with our own expectation. And I pass on to Roland for the meeting. Yes, the second part of the question concerning EPD, I think here we are as well on track. We are right now in the midst of building up this competence center. The EPD business is developing. We do have 2 machines in commercial operation, A big German premium car OEM has ordered 1. But for sure, it's I think we have to be realistic that the growth rate, which we expected here, has to be revised and because there will be an impact from the automotive market development. This is what we expect, what we do not see yet, but this is something what we have in mind. Thank you. The next question comes from Fabian Hecke from the line UBS. Yes. Good morning. A few questions, one after the other. So again, on the surface margin. I mean, you said you had the 300 bps of AM burden this year. I think in the last years, it was normally about 200 bps, so incrementally 100 bps higher. But we talk about the margin drop of 3 40 bps totally. And not to forget, we had you had the 100 bps IFRS 16 benefit. So that results actually in 4.40 bps decline. I mean, with all your mix effect and stuff, you mentioned I mean, I'm still not understanding how when you look at on an EBIT, your EBIT just halved. I mean, you're saying you have a very defensive, resilient business model at Surface Solutions. But when I look at your EBITDA and your EBIT, this is just not the case. So can you just further explain how that sharp drop in the margin? And also the overall drop, I mean, just this downtrend we are seeing now for a while, I just think that needs further explanation. Thank you. Well, that's absolutely correct. It's obviously very difficult in aggregate to decompose that. So let me start with additive manufacturing per se. Your observation is okay. The impact, in fact, was a tick higher than the 300. We said that we would adjust the dilution effect to about the level of $300,000,000 That's the first thing. And I think that's all related to the investment which have been done in the infrastructure, which we reported back on. That's to a certain extent, obviously related in the weaker environment and the slower adaptation to the underutilization of some of the manufacturing assets, which have been coming on stream. That's one part of it. Then we so needless to say, you're absolutely correct. There was impact on mix and margin in all the businesses. And in particular, what we have seen on the friction side is that we have seen due to the disproportional loss in the volume in the quarter that we have seen significant more declines there. I'm not sure whether that helps you because the other question which you raised was that we need to take a decision on the development here in terms of quarter to quarter. Perhaps you want to make a comment on that? Yes. Maybe there is one aspect which we used well, I used it 2 times in my speech, there is a mix component here as well. Normally, it's used to explain lower results or lower figures, but it's not the case in manmade. And but here in the service solution area, it's really a matter of fact. We do have a weakening market and lower volumes in China and India, which do carry over proportional high margins here. And of course, maybe I don't want and I will not disclose details here. But the €10,000,000 top line in India has a complete different contribution, in India has a complete different contribution, really complete different one, just as an example, than in the U. S. Or here in Central Europe or in Germany. And this is also an effect. Okay. I mean just in general, just trying to understand a bit how you think. I mean it seems a bit that you're thinking no matter what happened, we just continue to invest in growth. We just continue to invest in that in the manufacturing. When I mean, Mr. Fedeier, when you make an NPV calculations of all the investments and also when I calculate 200 to 300 bps every year of your surface at about $45,000,000 also in extra cost, I mean, how can you come to a positive NPV when you make a proper calculation? Well, I mean, I'm not going to debate with you now on NPV calculation, but I think the statement which you made that if we behave as if nothing has happened, if that impression you got that is completely wrong. I mean, I told you before that we're obviously looking very diligently in managing the cost base. There are certain measures which have been implemented. We obviously look at the big consumers of those resources which are fueling future growth and try to adapt it, as Roland said, in light of expectation in terms offtake and adaptation to the market that not only goes for additives, that goes for EPD and other projects as well. So I think the statement that we behave as if nothing happens is probably not the right one. And I hope we're going to be able to make that visible to you. And you should we think twice or 3 times before we enter anything new location, new site. Okay. Yes. Coming a bit to a more cheerful topic, manmade fibers. Can you also elaborate a bit on the pricing trend? I mean, there's obviously quarter by quarter quite a volatility based on product mix and also a bit on pricing timing mix. But the overall trend, which seems to be moving upwards and then looking into 2020, is there a 15% EBITDA margin seems to be kind of within reach that we move in that direction? Or how do you see that? What we see on the Main Mate Fiber business is a moderate increase in the price levels, supporting our midterm guidance of being somewhere in the mid teens around 15% can be 14%, can be 16%. I think this is one element which is contributing. And the other one was we had some onetime effects here, but what was mainly carrying was the product mix. And now here is an example, the product mix normally or here creates a much better view on the business. And it's important to understand that the business is healthy, the demand is healthy, The boundary condition environment in China is we don't see any changes here. I gave an indication. 1st projects are discussed not yet signed, but discussed negotiated with customers for delivery in early 2023. That means it's healthy, but yes, and we stick to the midterm guidance 15 around 15% EBITDA. Okay. Two financial questions again. On your net working capital, that was quite negative in H1. Is there any chance this could reverse in the second quarter looking making free cash flow look a bit more positive? Absolutely. I think that's one of the major focus points which we have reached the business. I mean, the change was significant, as you pointed out. There are actually two factors which are impacting that. The biggest part is the reduction of the prepayments and the liability coming out of MAMFibre as we discussed, which is impacting in a reversed way the working capital. But we have seen some build in receivable and inventory position, which were temporary builds, which we are working to bring down. So yes, absolutely, not only that you should expect we commit that we're going to turn that position around because that's one of the probably weaker points in the overall cash flow, which you point to, absolutely correct, but fully recognized. Thank you. Then just a last financial question. The IFRS 16 impact on your balance sheet that has reduced your net cash position. Does this have any impact on the banks see your kind of or you see your firepower for M and A or how the banks, credit banks see your balance sheet? No, absolutely not. I mean, that's an interesting point, which you bring up. I mean, you could throw in addition to that the pension liability and all that. But the fact that no, I mean the impact was, as you have seen, not insignificant as we report the liability resulting from this IFRS 16 change in the magnitude of about $170,000,000 We have more than 200,000,000 assets reclassified for that matter. But it has not been and will not be what we are planning to do, an impact in terms of creating a burden or a restriction from a financial metrics point of view. No, cannot confirm that. Okay. Thank you very much. Welcome. The next question comes from Armin Rechberger from TKB. Please go ahead, sir. Yes. Good afternoon, gentlemen. First question, Manmade Fibers. You had these 2 big Chinese orders of together EUR 540,000,000. What was the share of these 2 big orders in this order intake for Q2? Then Additive Manufacturing, what was the sales amount you realized in Q2? And my last question, actually two questions regarding manmade fibers. You mentioned a onetime customer's effect or no, onetime customer effects, plural, in the EBITDA margin? Can you elaborate on this a bit? How much was the effect and why? And then also Manmade Fibers, you mentioned projects with lower margins coming up now. Why is that? Perhaps I start with the number side and then I'm glad to pass on to Roland. So the order intake out of this huge orders, Hengi, Qingfengming, which we talked about, were running in the magnitude of about CHF 76,000,000 for the quarter, which have been recognized. The onetime effect I was referring to was amounting to about for the half year, was amounting to about €5,800,000 And those are basically recoveries from very old bankruptcy cases, which went through litigation or where a part has been redistributed to the owner, right? But those are really onetime things with which are dating back years, I almost would say, right, for that matter. And then on the The additive part of things, this is very short. No, I have to disappoint you, we don't disclose additive revenue per quarter. But I indicated that overall, the additive development is a little bit lower than actually what we expected. This is and again, this is a matter of how to say it in a proper English, customers, the industries are a little bit shy to move into new technologies in these days, right? And this is a phenomena we see in additive. This is a phenomena we see in other new innovations. And yes, that's it. Well, in earlier stages or half years, at least, you were telling us how much sales you were able to gain in Additive Manufacturing, so that's a change now. No, I'm not aware. Sorry. I think we don't never disclosed on business unit level. Okay. And the other part of my manmade fiber question, projects with lower margins coming up now, can you elaborate on that? Yes. I think there are other I think you had mentioned this, this Xinfeng Ming and projects which we took at the trough of the cycle. And now it turns into revenue and showing the lower contribution. And this is a phenomenon which we will see in the 4th quarter and to a certain extent early next year as well. But again, it's a mix of the project mix, yes? And fortunately and luckily, we don't have just low margin one. But I think it's important, if I may, just comment because I think you said it before that we have to pitch it together. Sequentially, for new order intakes, we continue to increase the contribution and the profile of the margin, right? Now just timing calls for taking off out of the pipeline some lower margin, which will hit in the second quarter and hence the compression on the margin profile. But the quality of the business per se continues to improve. Yes. Thank you. Welcome. The next question comes from Ravi Vardi, RBC Capital Markets. Please go ahead. Hi, good afternoon. Thanks for taking my questions. 1 on Surface and the 1 on Manmade Pilots, please. Just on Surface Solutions, if I look at your guidance, it implies higher growth in margins in H2 than in H1. I just wonder what that was based on. I mean, is the higher growth just a function of softer comps? And then in terms of the margin, is there a do you have an ideal product mix for the second half? Or just trying to understand what that's based on. And then on manmade fibers, slightly broader question. I mean, have you seen any customers similar to what we've seen in electronics start to make any kind of start to dip their toes in putting some incremental capacity in outside of China? Is that something that could potentially be a trend in the coming years? Jade, do you want to go? No. I'm not sure whether I really got the 2nd manmade fiber part. You're asking for Whether we have seen similar trends of production relocation in China like we have seen in 3 cities? No, because you have to see our products, our portfolio and our equipment in line in a bigger line. It starts with the tracking of crude oil producing polyester, and then our equipment kicks in to produce the arms. That means when we talk about the potential relocation, you relocate the entire process chain to a different place, what is not such easy starting from a pipeline oil supply on the very beginning. That means no clear answer, no. And the second the first question was the increasing profitability for the Service Solutions business in the Q2. And I think this is sorry, second half is a product mix topic and the contribution cost exactly. That means our internal setup to a certain extent. That means we do we implemented measures. Right. Okay. The next question comes from Dominik Felgath from NCC. Please go ahead. Yes, good afternoon. Thank you for taking my question. And with regards to measures you have taken to reduce costs, can you please elaborate a bit on that? And also let me know, staff wise, how did the development have been recently during the first half and what your expectations there are for the second half? The first part is not a surprise. We talk about the usual aspects. We talk about the very conscious hiring pattern in terms of building up resources. I don't say we don't do it anymore, but we do it in a on a much lower level and just very stringent to the cases where it's unavoidable. We do have cost out activities in simply in spending projects, yes? And at the end, it covers everything in our group. But it's also important to understand we are not in a survival mode, yes? We are cutting down costs in a smart way, not limiting our future. And future means innovation, technology and stuff like that. Perhaps one concrete number to your people question. Yes, we had a change of approximately 2% higher people compared to the first half 2018. But please understand this is mainly related to the project activities like funding the competence or sourcing the competence center in EPD, finalization of the structure in Additive and all the other projects which are ongoing. But that's triggering the change, but it was merely about 2 percent year over year for the reporting, right? Okay. So what's the figure then, the concrete figure, please? 2018 was first half. So 2018 was about 10,000 700,000. And we are talking about 11,000. Okay. Yes, about 11,000. Can I add one question about visibility really? I mean, you say, I mean, it's really difficult probably to and at the moment, at least, it seems clear that the recovery is not really recovery is not on the horizon. So what is your expectation? I mean, could we could this expect longer, maybe longer than the second half? Or I mean, what do we have to prepare ourselves for really? I think you don't expect us to predict future, right? But what we see is first of all, we don't see the recovery in the 3rd and the 4th quarter. And for sure, not in the automotive area. That is actually what we expected earlier this year. And this is nothing what we see today. We don't have the indications. We do see some negative indications in the general industry. And what was carrying actually in terms of vertical industry was the aviation industry, which was quite strong. Now with and I think you referred to Boeing, we have to be a little bit more cautious here as well. It's still substantially growing, but we are preparing ourselves for also a year of 2020, which is not substantially above the level of today. This is what I would say, and this is what we are doing. And yes, and then let's see. And that's overall, you mean not only in aviation or the that you are preparing for a year? No. We are very Is that just aviation? The last point you No, no, no. All overall, okay. For our Service Solution business, because automotive, I don't see a recovery, general industry. And then on top of that, we have our this political uncertainty, what is we just saw it earlier this yesterday actually, right, earlier this week. And this is something what we have to keep in mind. Thank you. The next question comes from Christian Arnold from MainFirst. Please go ahead. Good afternoon, gentlemen. Question on the low margin orders you were mentioning transferring to sales having this negative impact on margin at Manmade 5 in the second half. I got the impression that it's I mean, you were mentioning that you will have this negative impact actually also beginning of next year. And I wanted to ask you if you could really time this development or rephrase maybe my question. Do we have to go for similar margins in the first half question. And the second question on the Surface Solutions on Additive Manufacturing, you were reducing your reported margin corridor to 18% to 20%. So this dilution effect of 300 basis points looks that it's not only occurring this year, but also next year. Is it also a midterm issue you have here? So for how long do you expect this 300 basis points negative impact? Thank you. Let's start with the Manmade Fiber business. I tried to indicate already that the sequence when we are creating revenue based on this low comparable low margin project, heavily or purely depends on the delivery schedule. And the delivery schedule is one element in a bigger development plant of this industrial plant. Again, starting from crude oil cracking to polymerization, producing the polyester, and then our equipment kicks in. That means, yes, we will see delivery modules out of these contracts also in 2020. We of course, you can imagine, we are trying to maneuver and manage that in a decent way and limit the amount to a certain extent, not deteriorating the result at the end. And again, if this is a matter of time, I think by end of 2020, there should be not too much left over. And from that perspective, again, we believe and we stick and we are confident to be in the guided corridor of around 15% EBITDA. That means it's a temporary effect. The second question, Additive Manufacturing and Service Solutions. Yes, now we have the impact of 300 basis points. What is driven by the underutilization of the assets we build up. And the nature of the business is quite simple here, as the better we can load, as better we can fill the plants with volume, whether it's the production volume on printer parts or whether it's some material production in our Troy facility as better it will be. That means it will be an effect for sure for 'nineteen. There will be an effect in 'twenty. And beyond 2020, it's difficult to give prognosis. But as better we do in terms of volume, as lower the effect will be. I think that's all I can say right now, right? Okay. Maybe just on the Man Med Fiber question. So the do we see the biggest negative impact in H2 'nineteen? Is that a fair assumption? An improvement? No, the negative impact from this low margin orders. Do we see the biggest negative impact in H2 2019 or In H2 2019, yes, yes, yes, yes. Yes. And then there will be, let's say, a less negative impact, but still negative in H1 2020 and remaining negative impact in H2 2020? And after 2020, we shouldn't have negative impacts from that side anymore? Not yes, maybe there is something split over left, but not a major one, yes. Again, it depends on the Zebra schedule of the plant, right? And this is beyond our control. Okay. Okay. But that is also a fair assumption that the 15 percent midterm margin target that is not what we are going to see in 2020, but rather later? Yes. We said around 20. And I think this year, we indicated already 100 basis points. That means we are coming close to whatever 13 basis points. And then it's additional improvement in 2020 coming closer, closer to 50. Okay. Thank you very much. Thanks, Jaap. The last question comes from Daniel Zola of Borsen Zeitung. Please go ahead. Yes, good afternoon. I have just a few questions. Well, basically, it's just one question, but composed of different elements. I'm trying to figure this margin effect and bring it together with your exposure in China and your exposure to the automotive industry. And I am I have in front of me your half year report, Page 18, German version. I can see Umsatzmittriten nachsondorten, China, going down from €70,000,000 to €56,000,000 I cannot read the same obviously in the same in the statistics above. Omsots Mittrik and Hopsatskebyt and Asia Pacific, almost stable. Then I go down and find on page hold on a second, just on page 22, the same report, your turnover in automotive, 8% or something automotive, but very strong effect on your margin. I'm trying to bring that all a bit together. And as you can imagine, not very successful with it. Maybe you can help me a little bit bringing this together. Automotive seems to be your most lucrative business. Exposure in China looks relatively I don't know. I cannot tell I cannot really figure your exposure in China from your statistics because as far as I understand, umzatz, mitrit, nachstandorten are Chinese local producers and not the foreign producers not foreign companies producing in China. Maybe you can help me a little bit. What is your exposure to China? What is your what is automotive your most lucrative business? And therefore, your exposure is bigger than it looks like at first sight. That's a bit the questions I figure from this. This is Andreas Swartzeller speaking. May I recommend that we maybe take this offline to give you the details and then closing the call now? And I'll give you a call in a minute to give you the various facets. I think that would be too far here in the call. Okay. Ladies and gentlemen, that would conclude our Q2 half year call. As indicated, we are happy to answer further questions there individually. And other than that, we'll hope to speak to you soon again, latest on November when we disclose the Q3 numbers. Thank you very much for participating, and speak to you soon. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.