Ladies and gentlemen, welcome to the Sulzer's H1 Results 2020 conference call and live webcast. I am Alice, the conference call operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. Webcast viewers may submit their questions in writing by the relative field. 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. Christoph Ladner, Head of Investor Relations. Please go ahead.
Thank you, Alice. Good morning and welcome to Sulzer's H1 Results conference call. Today with me is our CEO, Greg Poux-Guillaume, and our CFO, Jill Lee. In today's conference call, we'll refer to the presentation that can be downloaded from our website. As always, I want to draw your attention on the safe harbor statement on slide number two. The call may contain forward-looking statements containing risks and uncertainties. These statements are subject to change based on known or unknown risks and various other factors, which could cause the actual results or performance to differ materially from the statements made in the call. This is enough from my side. I hand now over to Greg.
Thanks, Christoph. Hello, everybody. Thank you very much for being with us today. Jill and I are happy to walk you through the numbers and answer any question you may have afterwards. With no further ado, when we reported our full year in February, COVID-19 was a Chinese issue, which was impacting our operations locally. When we reported our Q1 numbers in April, it was a full-blown pandemic already. We reported in April a strong order intake and said that our sales were down 4% and that Q2 would be more challenging. We also announced at the time that we were launching decisive adapt measures to reduce our cost in energy-related activities and to protect our cash flow. Three months later, I'm proud to say that we have been swift in implementing the short-term measures.
Lockdowns in countries which are important markets for us have sometimes brought these countries to a standstill. This made Q2 much more challenging for us, but with order intake almost flat organically in H1 versus last year, our business has proven to be highly resilient. Sales are down 5.5% organically. Lockdowns, travel restrictions, and limited customer site access took their toll, but we were able to stay operational at all times as a provider of essential services, and the business has stayed on pace. With lower revenues and a less favorable business mix, our operational profitability, our OpROSA, has declined by 160 basis points to 7.5%. The main driver of this temporary drop was Applicator Systems. Beauty stores and dental practices were closed worldwide during lockdowns. Our customers saw volumes drops of up to 80% in dental, for example, and stopped accepting deliveries for a while.
Markets have reopened, and APS, Applicator Systems, saw the start of a recovery towards the end of H1, with volumes up in all segments in June. This will continue in the second half of the year. We see that in our July trading and will help us reduce the profitability gap with last year in H2. 7.5% at the half year, 160 basis points down, 80% of that 160 comes from Applicator Systems and the lockdowns in dental and beauty. In H1, we generated CHF 37 million of positive free cash flow, and this is CHF 45 million above last year. We told you in Q1 that we were CHF 15 million ahead of last year. Now it's CHF 45 million ahead of last year, despite challenges in Q2, and this is based on good cash collection.
We've taken decisive adapt measures to bring down OpEx by 60 million in 2020. We are on track on these measures as we have already delivered 21 million of savings in Q2. We are also detailing today the structural cost-saving plan that we alluded to in April, with expected savings of 70 million CHF. More about this on the next slides. We start H2 with a record backlog of almost 2 billion CHF. It's been a challenging H1. We held up well and have taken decisive self-help actions very early on. This makes us feel good about our prospects for the second half of the year. Let's move to the next page, the COVID-19 impact on Sulzer. Our first priority continues to be the safety of our employees. We've implemented strict social distancing procedures in our factories and offices.
Everyone that could work from home was able to work from home during the lockdowns, and employees have returned gradually to their offices. If I take Winterthur, our headquarters, we're about at 50% occupancy at this point, and we're planning to be fully back after the summer break. Sulzer is not spared by the virus. We currently have 36 confirmed open cases of COVID-19. Over 80% of those cases are in the U.S. and Mexico. Fortunately, everyone seems to be resisting, and this does not impact our operations. We've been given the status of essential service provider in many countries. This allows us to remain open and operational even when the rest of the country is in a lockdown. Currently, all our factories are running. In India, we're running at 50% of capacity because of restrictions in the Pune and Mumbai areas, but we're running.
The supply chain is improving, but challenges remain. As I said earlier, we are on track to reduce our OpEx by CHF 60 million this year, the CHF 60 million that we were targeting, and we've delivered CHF 21 million already. The CHF 21 million is essentially three buckets in equal proportions. It's the consequences of a hiring freeze, it's the travel stop, and it's compensation and elimination of past due vacation days. Some of these savings in OpEx will stick for the longer term. I'm not sure we'll ever travel the same way again. We'll talk in more details about the structural savings actions in a minute. The markets that we serve were impacted by the pandemic in very different ways. If I take aftermarket activities, for example, or anything water related, those have maintained their momentum. Chemicals held up, particularly in China, which was booming.
Oil and gas, CapEx, industry CapEx, has reduced by around 25% in Q2, so the step down has been quite significant. We saw markets like beauty and dental that just stopped with the lockdown, but they are rebounding now. Let's move to the next page and the structural savings plan that we previewed in April. We announced in April that we would significantly resize our energy-related businesses. Here's what we've done so far. In pumps equipment, we are discussing with social partners the potential closure of a manufacturing facility in Europe. It's in Belgium, specifically. We're also resizing factories in other parts of the world, particularly our energy pump factory in Portland, in the U.S. We will announce further footprints adjustments in the second half of the year. Everything will be announced by the end of September.
You'll understand that I'm qualifying this language because we are in discussion with social partners in many countries, and there are rules to what you can say and how you can say it. In Chemtech, we're in the process of closing our factory in Tulsa, Oklahoma, with volumes being transferred to our factory in Mexico. In Rotating Equipment Services, we're closing a turbo service facility in Rotterdam, in the Netherlands. We're also significantly resizing corporate and divisional overheads throughout Sulzer for a leaner business model. We do so at all levels. Our Sulzer management group, which comprises of the top 100 managers in Sulzer, has been reduced by 20% already. All remaining actions will be announced by the end of September, as I said. You'll have full visibility and everything will be underway.
These measures will bring us recurring savings of around CHF 70 million a year and cost us approximately CHF 80 million. 85% of that cost goes towards footprint measures. We expect the savings of CHF 70 million to be realized over the next two years. We'll have CHF 10 million of bottom-line impact this year. We'll have an additional CHF 40 million next year, and we'll have the final CHF 20 million in 2022. These savings play an important role in achieving our target to bring our profitability back to around pre-pandemic levels as early as 2021. Decisive Ambition savings plan launched very early, and we are confident that this will pay off and make Sulzer stronger. Now let's discuss the first half business performance. Moving to page seven, pumps equipment.
Orders in pumps equipment increased by 7.3% organically in the first half, and they have even accelerated in the second quarter, with organic growth of 10%, after 4.5% in Q1. This is despite COVID-19 and a drop in oil and gas CapEx by 25% in Q2. We're up despite the fact that the market is down. Our pumps equipment division is comprised of three businesses: water, industry, and energy. Water was up by 2.5%. I exclude the usual lumpy desalination and transport projects. We had two big ones in the first half of last year. That 2.5% up is for municipal and wastewater, which is most of our business. The industry segment was down 4%, mainly on lower orders in pulp and paper in the second quarter. Energy, on the other hand, was up significantly with improved margins on orders, too. We'll see that on the next slide.
Pumps equipment sales overall were down 3.1% due to lockdowns, travel restrictions, and supply chain challenges. Despite the lower sales volume and an unfavorable mix, our operational profitability has slightly improved in the first half of the year versus last year, as the team did a great job on execution and the increases in order intake, gross margin are trickling through. As you see, we went from 2.9% operational profitability last year to 3.1% this year in a very challenging market. Let's move to the next page. The next page aims to put to rest two ideas that may concern you. One is this whole notion of, "Oh, Sulzer is late cycle, and yeah, the orders are up, but it's because they're late cycle and the market will correct down the road." The market's already corrected. There's no late cycle in a pandemic.
Everything stops, and oil and gas stopped faster than anything else. This is what you see on the left side of the chart. The bar chart in blue, what you see, 4% up in Q1 and 25% down in Q2, is the market for oil and gas CapEx. This is the combination of all our customers and what they've announced. You see the market is 25% down. What you see, and it's the blue line, is the Sulzer order intake in energy. You see that we're up in Q1 and further up in Q2. The red line is the margin on order intake, which is the second thing that may worry you. It may be okay, I accept that Sulzer, it's not late cycle because oil and gas has already corrected, but Sulzer's grabbing everything with a pulse and margins are down. Actually, margins are up.
We've been able to continue to be selective. This is also in large part due to the competitiveness that we've built through our cost actions over the last few years. It's also due to geographical exposure. CapEx in oil and gas is 25% down, but if you look at the right side of the chart, the colored bar chart, what you see is in green, it's our order intake in Saudi Arabia. Red is China. Light green is Brazil and blue is the U.S. What you see is what you would expect, which is the U.S. is significantly down in Q2. If you listen to people like Halliburton, which gave its results a few days ago, Halliburton said that the U.S. market was very significantly down, but that the international market was only about 15% down. You see something along those lines.
You see that the U.S. market corrected. We didn't correct by 50% because, as you know, Sulzer is not represented in shale. This is all conventional oil. The part that's really getting hammered in the U.S. is shale. Still our U.S. business is down. People are not building pipelines currently, for example. What you see is that Saudi Arabia is very significantly up, China is very significantly up, and Brazil is very significantly up, all in the first half of this year. A combination of cost actions and favorable geographical exposure are maintaining the performance of Sulzer in energy, despite the fact that the market has already corrected.
We are taking significant cost actions in energy, despite the fact that we're up in H1, because we do believe that the market softness over time will taper down our business in terms of the volumes, and we want to be ahead of that correction as it happens, at least as it happens for Sulzer. It's already happened for the market, but when it does slow down, when our energy business does slow down, we'll already be out. That's what we've tried to do. Let's move to Rotating Equipment Services on page nine. In Rotating Equipment Services, we grew by 10.2% foreign adjusted in the first half of the year, and by 6.3% organically. For a service business, that's very significant, and it's all the more significant that the second quarter was full of lockdowns and restrictions in how we could access customer sites.
Nevertheless, all three product lines grew: turbo services, electromechanical, and pump services. Also, all three geographies, all three regions, the Americas, Europe, Middle East, and Africa, and Asia Pacific, all three regions did very well. We were designated an essential service provider in most countries, and we were able to continue operating. Our teams also fulfilled their civic duty. We offered pro bono support services for maintenance of water and energy infrastructure systems at hospitals, for example. We also helped customers keep their facilities running, acquiring new customers along the way because we were open and not everybody was available at that time. Thanks to this flexibility, sales have remained pretty stable in the first half of the year versus last year. The operational profitability, the OpROSA, is unchanged at 12.1%.
This, by the way, is also what we saw in the last oil downturn in 2015 - 2017. Rotating Equipment Services through its diversification and reach will ride out the storm. Let's move on to Chemtech on page 10. Chemtech's orders declined by 12% organically in the first half of the year on a combination of the lockdowns that shifted large projects into the second half at least, and a significant drop in oil-related activities. These oil-related activities, mostly refining, represent about 30% of Chemtech. The rest of Chemtech is chemicals. Chemicals, which represent 70% of Chemtech, performed much better and were up year-over-year in the first half. China, which is about a third of Chemtech, recovered quickly and grew by 25% sequentially in Q2 versus Q1. Our factory in China is currently fully loaded and running 24/7 with continuing momentum.
India, which is another large site for us in Chemtech, is another ballgame. Our factory is in the Pune region, Pune is still under lockdown, and this is having a real impact on our ability to generate revenue, as you can see from the revenue softness in the first half of the year. Still, 7.7% organically down in revenue, we're mitigating, and our factory in India is currently operating at 50% of capacity and ramping up. We expect this to improve in the second half of the year. If I refer briefly to the acquisition that we made last year, GTC Technology, a U.S. company, which we acquired in early May last year, it contributed an additional four months with an order intake of CHF 20 million.
FRC, which is a business that Sulzer acquired with JWC Environmental in our pumps business actually last year, FRC was a small part of JWC, and FRC is a separation business through dissolved air flotation, and we transferred it to Chemtech from pumps equipment at the beginning of the year. This is why you have a difference between the organic and the adjusted. It is GTC, four months of GTC, plus the transfer of FRC to Chemtech. Let us move on to Applicator Systems on page 11. Applicator Systems, as you know, is a highly resilient business. When you sell dental applicators to a world which is not allowed to go to the dentist, or you sell beauty applicators to beauty companies that are seeing their retail channels shut down, business will suffer, and it did.
Orders were down 3% at the end of Q1, at CHF 114 million as a reminder. They're down 27% in H1 at CHF 160 million, which tells you how bad the second quarter was. Sales are off by 21%, and these lower volumes have almost halved, almost divided by two, the margin of our Applicator Systems business, as the lockdown hit hardest the high margin dental segment. Still, APS managed to deliver almost 12% of operational profit on aggressive cost management with CHF 10 million of savings to that date in Applicator Systems. The pricing has not moved at all. As the market has not changed, it has simply not been open. We're not concerned about our Applicator Systems. The rebound is already underway, as you will see on the next slide.
We had demonstrated in the first quarter that our beauty business, our beauty segment in Applicator Systems, was back on the growth path before the lockdowns hit. 2020 will allow us to complete our beauty retooling in Germany and to streamline our operations in all segments. Applicator Systems will emerge from COVID as a stronger business. The main debate really is on the pace of the market rebound. Let's go to the next page to have a look. We're on page 12, and we're showing you what our Q1 volumes were versus last year. We're showing you what our April, May, and June order intake was, and then we're giving you an illustrative path to the rebound for the rest of the year, so Q3 and Q4. What do you see here?
The blue line is dental, the red to purple line is beauty, and the green line is adhesives. Let's start with dental. In dental, the U.S. rebound will be drawn out until the middle of 2021, because as you know, in the U.S., in many occasions, when you lose your job, you lose health coverage. The U.S. dental manufacturers and distributors ended furloughs in July, so they're back at work. Our European customers are still on short work for many of them. Europe recovery is the strongest in Germany. Germany is back in dental to 80%-90% of what the market usually is. It's also strong in the U.K. and in France. In the Netherlands, we're at 40%-60%, and it's slowest in Southern Europe. If you take the U.S., Florida, New York, and California, three really large states still have heavy COVID-19 impact and therefore some restrictions.
What you see is a dental recovery which is in line with what the big guys like our customers, the Straumanns, the Dentsply Sirona, the Henry Schein are saying, which is that it'll take until the middle of next year, middle to second half of 2021, until the market is back at pre-pandemic levels. The rebound is happening at a pace that you can see on here, where towards the end of the year, we've already made most of the way back. As you understand, there's a combination of access to dentists and psychological aspects of dentists are open, but when will you start going to the dentist? That's what we're modeling here, and this is why we're modeling a rebound, which is significant this year, but that will need to go into the middle of 2021 to be to pre-pandemic levels.
If I take adhesives, which is the green line, and I take the end markets, construction, electronics, and automotive. Automotive aftermarket, I should say, are recovering currently. If I take handheld electronics, if I take automotive new, if I take aerospace, they remain slow. Europe is recovering faster. The U.S. and Asia-Pacific is recovering slower. With the exception in Asia is China, which is up single digit year on year at this point. The pace of the rebound of adhesives really tracks the industrial production recovery. You see the pace of the rebound. It happens faster than in the other segments, and then the slope levels off, and the recovery is slower in the later part of the year as we wait for some of the softer end markets like automotive and aerospace to recover. Moving on to beauty. Beauty is the purple line. Beauty is interesting.
Different customers have different approaches to the recovery. Some of them are deciding to launch new products early. Some of them are deciding to delay new product launches. Some of them are restocking right away. Some of them are delaying restocking. It's really not homogeneous as a market. Recovery is faster in eyes and mass market, and it's slower in lips and prestige. You can imagine in a world where people wear masks that the mascara market will rebound faster than the lipstick market, for example. Mass market versus prestige, it's because prestige is in part driven by duty-free and airports, which are closed or partially open, and the mass market is really retail and supermarkets and retail shops, which have reopened. The China market is up in high single digits in beauty. The U.S. continues to be slow.
As you can see, at the end of the year, we believe that the beauty market will be pretty much back to pre-pandemic levels. That gives you a view of the mix of segment rebound in Applicator Systems. Once again, pricing has not been impacted at all. We're protecting our margins through aggressive cost actions, and the recovery is underway. We saw it in June, and we're seeing it in July. The current trading is good in July. I'll now hand over to Jill for the financials.
Thank you, Greg, and good morning everyone from my side. Our first half orders were up 1.7% on an FX-adjusted basis. FX had a negative impact of CHF 126 million, or 6.5% on the back of a very strong Swiss franc. Acquisitions contributed CHF 42 million or 2.3% to order intake. Organically, our orders were down 0.6%, so pretty much stable. The gross margin on order intake was down a bit from 33.8% - 33.3% due to mix effect. Applicator Systems, which had the largest margins, had a significantly lower order intake, while order intake in Pumps Equipment, which has the lowest margin, has been growing. Our order backlog has increased by 8.6% since the end of the year, and today stands at a record high level. Just a bit shy of CHF 2 billion. Sales were down 3.9%, adjusted for Forex.
Foreign exchange had an impact of CHF 107 million or 6%. Acquisition contributed CHF 29 million or 1.6%. Organically, our sales were down 5.5%. COVID-19 related lockdowns, travel restrictions, as well as supply chain impacts were the reason for the decline. Operational profit or OpEBITDA declined from CHF 162 million in the previous year to CHF 120 million in first half 2020 on a negative volume and mix effect, which were partly mitigated by our cost actions.
Operational profitability of OpROSA declined by 160 basis points from 9.1% - 7.5%. We have announced to resize our energy-related businesses. The cost for this program has been CHF 53 million in H1, of which CHF 42 million were booked as restructuring. The charge resulted in our EBIT declining from CHF 99 million in the previous year to CHF 36 million in the first half 2020, and our EBIT margin or ROS to go down from 5.6% - 2.3%.
Core net income, which adds back the tax-adjusted, non-operational and one-off items, has reduced by 26% on a currency-adjusted basis to CHF 82 million. Free cash flow was CHF 37 million in the first half versus the negative CHF 8 million in previous year, an improvement of CHF 45 million. If you recall, we said with Q1 that our free cash flow was CHF 15 million ahead of the previous year. We have made further progress in Q2 despite the adverse environment. Let me now move to the quarterly development on the next slide. Slide 15. In Q2, our orders have been hit by the lockdowns, mainly in Applicator Systems and Chemtech, as you have heard from Greg. Orders were down by 3.3% adjusted for currencies and 4.6% organically. The division that was most impacted by lockdowns was Applicator Systems.
The COVID-19 related closure of beauty stores and dental offices as well as construction sites and factories in certain countries had a massive effect on APS business, mainly in April and June. But as Greg has shown-- sorry, April and May. As Greg has shown on the earlier slide, things started to improve in June. The other divisions were also impacted by lockdowns, but not to the same extent. Chemtech has seen some larger projects push into the second half. Rotating Equipment Services was flat despite the lockdowns and limited site access. Pumps equipment has even accelerated growth, growing 10% in Q2 versus 5% in Q1. Let me now give you a bit of flavor on what impacted our profit development on slide 16, if you move to that. The lower volumes gave the worst impact as this means gross profit that you don't generate.
Under absorption is also a result of lower volumes and stems from the fact that not all of the cost of goods sold are variable. We have an additional impact from mix, as we had less Applicator Systems, particularly dental, which has the higher margin. There was no price erosion. Rather, margin went up a bit as we traded pumps equipment energy orders with higher margins. All in all, if you look at the purple bars, it adds up to CHF 60 million coming from the sudden volume impact from lockdowns. As mentioned earlier, we've been quick in taking costs out. This is the CHF 21 million green bar within Q2. Savings come from less travel as well as our hiring freeze, utilization of vacation leave, and other cost cuts. Forex had no impact on operational profitability or operating profit but lowered our operational profit by around CHF 8 million.
Overall, the operational profitability has declined by 160 basis points to 7.5%. Slide 17, so that I can show you the development from operating profit to EBIT. Two main items there to call out, amortization and restructuring. Amortization was at a similar level than last year, so no noteworthy change on that part. On restructuring, it was CHF 42 million and therefore much higher than last year. This restructuring is related to the resizing of our energy-related businesses. As mentioned earlier, we have announced in H1 to close facilities in Europe and in U.S.A. We have also resized the overheads on divisional and group level, besides some local resource adaptation. Slide 18, EBIT to net income. There's actually no surprise here. The financial result is unchanged from last year, and tax is lower on the back of lower profits.
Still, some of the restructuring of closed entity is not tax-deductible, therefore the effective tax rate at the end of June stood at 28.4%. Now on page 19, our balance sheet. Our balance sheet continues to be strong. As always, in the first half, our net debt to EBITDA ratio is higher than at year end as we pay dividend and bonuses only once a year and always in the first half. Compared to last year, our net debt is a bit lower, thanks to the positive free cash flow and despite an increased dividend that we have paid. The lower EBITDA in first half resulted in our net debt to EBITDA ratio to slightly nudged up to 1.3x from 1.2 x last year. With that, let me hand you back to Greg.
Thanks, Jill. To wrap up, we've demonstrated the resilience of our business model in the first half of the year, driven by the strong performance of our service and aftermarket activities, which, as a reminder, make up about 45% of Sulzer. We had other bright spots, such as the water and the industry business in pumps, such as China for Chemtech, which performed very well. While the energy market corrected significantly in the second quarter, our order intake and energy continued to grow, and with that also our backlog. Very important as well is that we did not give in on margins and maintain our profitability. The reduction of capacity in our energy-related businesses will yield structural recurring savings of CHF 70 million per annum once all the actions are implemented, and it will also further reduce our exposure to the oil and gas market.
As a reminder, once again, in 2019, oil and gas was 28% of Sulzer, and half of that was aftermarket. 14%, 15% new equipment exposure to oil and gas. The drop in operational profitability that we have seen is largely due to Applicator Systems, which has seen its end markets freeze during the lockdowns in April and May. We've seen the recovery starting in June, and as I told you, it's confirmed by July trading. With that momentum to continue our strong order backlog, the resilience of our aftermarket business, and assuming a progressive improving economic outlook, we see our operational profitability in the range of 8.5%-9% for the full year 2020. In addition, the savings that we expect from the restructuring actions that we have taken should lead our margin back to around pre-pandemic levels in 2021 for the full year.
There's a lot of market uncertainty, and nothing comes easy, but Sulzer's team members around the world have done an incredible job in the first half of the year. We look forward to continuing our rebound in the second half. Now Jill and I are happy to take any question that you may have.
We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only hands as well asking a question. Webcast viewers may submit their questions in writing by the relative field. Anyone who has a question may press star and one at this time. The first question comes from the line of Charlie Fehrenbach with AWP. Please go ahead.
Yeah. Hello again. Did I understand you correctly that you see the obligation to wear a mask as a possible driver for the mascara business? Also, did I understand you correctly, do you think the beauty business should be, by the end of the year, on a good level again by the end of the year? Thank you.
Hello again, Charlie. You're correct that we think that the beauty markets, we think that our beauty performance in terms of order intake, will be back to around pre-pandemic levels by the end of the year. As we project the market reopening, we think that commercial activity will be at that level. As you know, between the moment you take orders and the moment that turns into sales is a bit of a lag, we think that the beauty market is the market that will recover fastest, and that it will mostly be back at the end of the year. Mask driving mascara. The point I was making is that in the beauty markets, its conditions are more favorable to eye products than they are to lip products because people are wearing masks.
I wouldn't go as far as to say that because people are wearing masks, they're buying more mascara. Certainly, because people are wearing masks, they might buy less lip products.
Okay. Thank you.
If you need any more psychological insights on lips versus eyes, I'll ask Jill to jump in because I'm out of my depth a little bit on that one.
I can definitely add that wearing lipstick is a bit of a problem when you have to wear a mask.
My sector expert confirms, Charlie.
Okay. Thank you.
Thanks.
The next question comes from the line of Fabian Häcki with UBS. Please go ahead.
Yes. Hi, good morning. A few questions, just one off the top. The first one is on PE, where I'm really surprised about resilience of the business, A. B, I'm even a bit more surprised to say this is not late cycle. This is actually real resilience thanks to your regional exposure and also your product exposure, which you outlined in detail here. My question is, what did you see in the recent weeks? Particularly when I look at the country, the regions that recovered substantially like Saudi Arabia, Brazil, and also China, but particularly the first two countries, Saudi and Brazil, has been very volatile in the past, and sometimes it's been very difficult to make out a trend here.
How would you assess the recovery we've seen in Q2, and what read would you make in the second half and also into long term, or what structural trends do you see that you're better positioned in P? That would be my first question.
Okay. Let me take that one, Fabian. Saudi Arabia hasn't been too volatile. Brazil has been very volatile in the past, you're right, and some of that has to do with political circumstances and the fact that the main customer in Brazil, Petrobras, was undergoing some issues in the past. I don't expect Brazil and Saudi Arabia to necessarily be at these levels going forward. I think there's an element of momentum in these countries that have a lower cost of production than many other producers around the world. I do think that there'll be some element of softening, and we won't stay at those levels. I also do believe that whatever the drop, they'll be more resilient than, say, for example, the U.S., which has a structural issue with the fact that shale doesn't work at $ 40, $45. It just doesn't.
Saudi Arabia will continue to be an active market, but I think it's going to soften in the second half of the year and probably for part of 2021. Overall, we believe that the energy market will be a challenging market for most of 2021 as the world rebalances. There's already been a very abrupt rebalance because there's been a massive demand drop during the lockdowns, but there's also been a massive supply cut. As companies stop investing in the U.S., for example, in shale, the natural drop of production when you don't invest is in the range of 40% a year. It's very, very steep. That rebalancing is already leading to a situation, if you follow what most observers are saying, it's already leading to a situation where demand is higher than supply currently, but there's a lot of supply that can be brought back online.
What we believe is that there'll be a market that will kind of hover at depressed levels for the next 18 months with countries like Saudi Arabia and China doing better than countries like the U.S. or international oil companies. This is why we're adjusting our cost base ahead of this adjustment. We hope the momentum in the countries where we're strong continues as long as possible, but we're not betting on that. We're betting on softening, and whenever it happens for us at least, we'll be quite prepared for it because the actions were launched early. Does that answer your question, Fabian?
Yes, it does. Thanks, Greg. The second question to this is pricing. So far in Q1, you said pricing, you expect it to be more stable than in the last downturn as you already came back to quite a depressed level, and it has not so much recovered from this level. What were the drivers and dynamics in Q2 in terms of pricing, particularly for your energy-related equipment?
Well, if you look at that slide on page eight where we have the pumps energy details per quarter, what you see is that our margin on order intake in Q2 was actually higher than in Q1, and our margin on order intake in energy in Q2 was the highest margin for the last one, two, three, six quarters. Is that geographical exposure? Is that momentum? Is it a combination of both? We'll see. We're not expecting our margin to drop significantly in order intake for energy and pumps. The reason why we're not expecting that, we're seeing price pressure in the markets, but the fact that we're cutting capacity and that we're cutting cost allows us to continue to be selective and continue to favor the places, the segments, the applications in which our products are more differentiated and we're more protected.
As you rightly said, there wasn't much of a pricing recovery since the last downturn, and I don't think there's that much of a step that companies can drop to create some elasticity. I think what we're seeing at this point is that our competitors are quite reasonable in how they're approaching the current market situation, and we're not seeing people doing silly things.
Okay. That's clear. Thank you very much. Next one is on how shall we model and deal with the cost savings amount? There are two big blocks. One is the CHF 70 million structural cost savings. As the name says, it's structural. Then we got the CHF 60 million in OpEx. With how much of the CHF 60 million should we calculate in 2021 and beyond? Because, as you also said, some of it is temporary nature, like traveling.
Yeah
I think there's also the temporary salary cuts in there. Is it actually, if we assume in a positive or bull case, the markets are going, let's say, APS fully in recovery mode, industrials as well, energy, let's say at least stable. Would the CHF 60 million completely evaporate, or will something of it remain sticky here?
The CHF 60 million is not going to completely evaporate. The CHF 60 million is not recurring. I struggle at this point to give you an exact number of what will stick because it's an evolving situation. As I said, about a third is travel, about a third.
Is vacation leave, and then we have as well hiring freeze.
Hiring freeze and OpEx cuts in there, and SG&A cuts in there. I think the hiring freeze and t he OpEx cuts, I don't see us ramping back up very quickly anytime soon. I think that we will be conservative for the foreseeable future in adding people to our business because it's a lot less painful not to add than to have to reduce. If I look at travel, I don't know exactly how the world will travel in the future, but if I take Sulzer, I would expect that for the long term, our travel costs will be at least a third lower than what they were historically. There's that third of the stuff that we need to do because customers want to see us, and we need to see us for certain things, and we need to intervene locally, in many cases.
All the internal stuff, all the stuff about, "I need to go to China because I need to interact with my teams there, and otherwise they'll feel that I'm not paying attention to them," I think that will, in large parts, go away because people will not travel the same way again. If you look at the, I think the travel spend of a company like Sulzer is, off the top of my head.
CHF 40 million.
CHF 40 million a year of air tickets. If you assume that a third of that will not come back, that already gives you a little bit of perspective. Now, if I take the compensation cuts, I hope that will come back. I hope we'll do well enough that we will be able to return compensation to pre-pandemic levels as we make our numbers in the future. On the basis of our budgets and three-year plans, obviously, we're under pressure, and that has an impact for a while. I didn't really answer your question in a very helpful way, but take the CHF 60 million, I don't know. I would say somewhere between, I don't know, CHF 20 at least will stick. Depending on how people travel and how the market rebounds, maybe more for 2021, but I don't have a number at this point.
I wish I did, but I don't. The CHF 70 million, it's recurring savings, it's structural. It will stick, and it will hit the bottom line.
That was very helpful, CEO. Thank you very much. My last one for Jill. You mentioned at Q1 results that free cash flow could stay in a range of, I think it was 4%-4.5% of revenues, which was already quite reassuring. Now, you had a better free cash flow. I think if I'm not mistaken, there's a strong seasonality as well in free cash flow skewed into the second half. Is there still a range you think that is reasonably to achieve?
At this moment, what we have certainly seen is that with intensifying our collections by calling the customers more promptly, we have seen that coming into our cash flow and bring it to a higher level than previous year. My assumption would be that we continue to work on improving our working capital for the rest of the year, that's not something that we're going to stop. We also have the counter effect that we will have some of the restructuring measures where we need to pay out the restructuring costs. That might reverse some of the positive gains that we have so far, all in all, that's at least the level that we are shooting for. Yeah. I hope that answers.
You think despite the extra restructuring outflows, it's still feasible or realistic? Did I get that correct?
Restructuring cash outflow, Jill, there'll be some this year, but a lot of it will be next year.
Yeah. Well, a part of it will be this year, and I think a lot depends on the negotiation that we have. All in all, I would say a third at least would be out in this year.
Okay. Out of the CHF 53 million?
Out of the CHF 80 million.
Out of the CHF 80 million, you think about a third will be cash out this year, and all the rest will be next year actually.
All the rest will be next year.
We're very early in the actions. We moved very fast, which means that the cash out is also front-loaded. I think Jill is correct on this.
Okay. Thank you very much.
Thank you.
The next question comes from the line of Armin Rechberger from Zürcher Kantonalbank. Please go ahead.
Yes, hello, gentlemen. Not much left for me, but Rotating Equipment Services. I was surprised. How can you manage to do so many services within or during lockdown times? Can you elaborate a little bit on that?
Sure. Sure, Armin. Look, as long as you're pleasantly surprised, I think we'll take that. The business, the Rotating Equipment Services that Daniel Bischofberger runs is really a very local business in the sense that we have global product lines, but we have more than 100 service centers around the world, and we build proximity to customers. We were impacted by travel restrictions, but not as impacted as we would have been had we had to travel across borders, for example. A lot of the service that we do is actually done in our workshops. Field service is lower margin business, and field service is really not the heart of our RES division. The heart of our RES division is highly technical repairs and service done in our workshops. There weren't that many restrictions to equipment traveling.
Our customers didn't want to give access to their sites, but they were quite happy taking out a pump, putting it on the truck and sending it to us, or taking out a rotor from a turbine and sending it to us. Even in countries where you had very significant restrictions. Take, for example, Indonesia. Indonesia, all flights were canceled, you only had military flights. I'll give you an example. There was a power plant, I think, on Sumatra, which had a turbine that was down and the OEM couldn't intervene because the OEM said, "We can't come. We don't have people. We can't access." We actually have a very large service center in Indonesia that's quite impressive.
What the Indonesian government did, because it was very important to keep electricity going to the population, is that they put our service guys or service personnel on military planes and took them to the power plant so that we could fix the turbine. This is the notion of essential services. It's not just something that we say so we can stay open. It's because governments and utilities do see us as an essential service. That allowed us to mitigate things. Yeah, there's an impact on field service. There's an impact on some customers. There's an impact on certain customers that are just delaying outages. You see that in RES, and you see that also in Tower Field Services and Chemtech. You have a lot of U.S. customers that are saying, "You know what?
I had planned to do an outage this summer, but I'm pushing it back to either September, October, or maybe to next year." That's happening a lot also.
Yeah. I think you do see mixed behavior as well in the area of cruise ship, for example. You see in Australia, people are more confident with the cruise ship that eventually business may come back. During the time when people are not now taking the cruise ship, they are actually servicing their motors and stuff from that, doing the repairs. You have other places where people are more worried and not sure about whether business is going back to the cruise ship travels, and therefore they are holding back their repairs and the upgrade in the moment.
Yeah, that's a very good illustration by Jill. If you take cruise ships, in Australia, we took something like CHF 7 million of orders for refurbishing turbines on cruise ships. It was one of the big operators that said, "My ships are at quay, and I might as well do these things so I can be ready when the market restarts." If you look at the U.K. That market went to zero. It's geographically dependent, but sometimes it's a negative, sometimes it's a positive.
The situation at Chemtech, there it must have been the opposite. Tower Field Services must have suffered a lot because there you fly them around in planes. Is there to be expected a turnaround now in second half year because they are able to fly again?
Yeah. There will be. It's not even the flying. If you take, for example, our Tower Field Services business in U.S. or in Saudi Arabia, our guys are local. Mostly they go there with trucks, and pick up trucks, buses and so on. An outage, Sulzer will provide 100 people that come on site to do the outage. The aim is you go in, you go out, and you do it as quickly as possible. Customers don't want to have 100 or 200 people showing up on their doorstep and having to screen them and take the risk for their own population. It's been pushed back. Tower Field Services suffered in the second quarter. There'll be a partial rebound in Q3. As I said, some U.S. customers shifted the outage to September, October.
I think we'll see also a lot of customers just shift things into 2021, if they can wait that long.
Yes. That brings me to another topic, mentioning shifts. You mentioned some bigger projects being shifted by customers. You were talking in this case of Tower Field Services projects or what?
No, I was talking separation technologies. I was talking chemical plants and some of the big investment decisions in chemical plants have drifted in time. They've drifted because our customers were in lockdowns too. A lot of them were in home office. It was more difficult to organize. Despite the fact that the chemical market has remained active, there are some customers that have had a wait and see attitude. If I take the chemical market for Chemtech, for separation technology, once again, it's a products business. The market in Asia has been really, really good, especially in China, where customers are going full speed ahead and we're working 24/7. If I take the market in the U.S. or in Europe, it's slow currently because people are kind of holding back and deciding when they want to give the green light.
I think what we'll see is we'll see a little bit of project shifting. We saw projects shifted from H1 to H2, and I think we'll see projects shifting from H2 to the first part of next year. Nothing's getting canceled, but things are not materializing as quickly as they were in the past, simply because people are cautious.
Okay. My last question, probably. If I look at how well you did with pumps equipment in Saudi Arabia, Brazil, is that just a lucky punch and will reverse now? Will that stay that way, that these Saudi Arabia, China and Brazil will outperform in the second half year that is?
Well, Brazil, as I alluded to earlier, it is a lumpy market. It is not linear. The reason for that is a lot of the energy development, a lot of the oil development in Brazil is deep water. The way you do deep water development is you do FPSO, floatation production and storage ships.
These ships are big investment decisions and that market was very active in the first half of the year. We expect that market to be a lot less active in the second half because a lot of orders were placed in the first half. We think Brazil will go down.
Brazil, as I said, is lumpy. Saudi Arabia, we continue to have a good pipeline, but we are also seeing that projects are shifting a little bit in Saudi Arabia. Aramco gave instructions to some of its vendors to slow some of the projects down. We expect Saudi Arabia to continue to outperform the rest of the oil markets, but we expect Saudi Arabia to be lower in the second half of the year than it was in the first half of the year.
Overall, we see a slowdown in energy. The point I'm making is that the market slowdown has already happened, but Sulzer has kept going strong. I'm also making the point that geographically, we have a more favorable balance than most other companies that you'd be looking at. In particular, we have no exposure to shale. At the end of the day, gravity applies to everybody. Just we're more resistant to it at this point than some of the other players that have other exposures are. Is that clear?
Yes. Doesn't sound too good. We weren't talking about China, though. How do you see China?
Right. Look, Armin, I'm talking energy and we're generating CHF 70 million of savings in energy and we're cutting capacity and we're doing it because we expect a softening of the market. If you believe what Halliburton said a few days ago, the international market outside of the U.S. will go down by 15% overall. I think most of that drop, according to them, has already happened. We don't expect that we'll continue. The oil market went down by 25% in Q2, and we went up by 35%. That's not going to continue.
What we're seeing for Sulzer at least is a soft landing, if I can put it that way.
Mm-hmm. Okay. Thanks a lot.
Thank you.
The next question comes from the line of André Finke with HSBC. Please go ahead.
Yes, hello. Thanks for taking my questions. The first one relates to your comments on full year 2021 and the return to pre-COVID-19 margin levels. Can you maybe elaborate a little bit what kind of top-line assumptions are baked into that outlook?
We're not guiding on volume at this point. A lot of companies are not guiding at all, we debated that internally and with our board quite a bit, and we came to the conclusion that the combination of CHF 2 billion of backlog and CHF 17 million of cost savings, that we had enough levers at our disposal to be able to guide on margin. We'll resume guiding on volume in February, when we announce our full-year results, and we'll guide as we normally do for 2021. If I try to at least partially answer your question, we believe that our sales in the second half of 2020 will be higher than our sales in the first half of 2020. We're not really saying anything for 2021.
We'll wait until we see how the market performs for the rest of the year in order to be able to guide on volume. We can guide on margin without having to have that level of certainty on volume. I apologize I can't give you a better answer.
I just wondered because, as Jill pointed out, there's a significant operating leverage impact on your EBIT bridge.
Yeah.
I'm just not looking for volume or top-line guidance, but just sort of a range of possible alternatives that would still fall within your margin scenario for next year.
André, I'll give you another answer, and Jill will jump in and add or correct as she sees fit. I'll give you another answer that may be helpful. If I take our view of 2021 and the fact that we would return around pre-pandemic margin levels in 2021, this is predicated on the cost takeout that we're doing. If you take CHF 40 million next year, that will hit the P&L on the CHF 3.5 billion business. That's 100 basis points, give or take, of margin uplift. It's predicated on the cost savings, and it's predicated on the recovery of the applicator business along the lines of what we showed you on that slide in the presentation. It's not predicated on operational leverage in other businesses.
Okay, fair enough. Thank you.
All right.
The second question relates to CapEx. I think you hinted that CapEx will be brought on significantly. I think the run rate in H1 is, I think, running ahead of that guidance you gave at the Q1 stage. What kind of CapEx outlook should we factor in?
We continue to invest on a replacement level for our plant and equipment CapEx, as we have announced. What you've seen in first half is that we also have the impact of the retooling of the Bechhofen factory, but that was CapEx that we had activated last year.
Jill, I think we said 17. We said we take CapEx down by CHF 60 million-CHF 70 million for the year. I think the direct question is how are we doing versus that CHF 70 million?
Yeah, CHF 53 is already in the first half.
In terms of the statistics. The CHF 70 million was referring to the plant and equipment. Overall, we see ourself rather around the CHF 80-ish, because of the CapEx part for the tooling of Bechhofen that comes in. With our free cash flow, we also see that on this point, we can be a little bit less strict than we had announced. This is also to prepare ourselves for the rebound. Clearly in the second half, we continue to watch that.
That we understand each other, we said CHF 70 million, and the CapEx for Bechhofen was actually in 2019, but we have the cash impact of that. This is what Jill's alluding to. We haven't opened the spigot for CapEx. We're not at all saying in the business, "Oh, the first half was good, so we froze things, but you guys can actually go ahead." Nothing's changed. We're sticking to our guns. You're right, that CHF 53 million, if our target is CHF 70 for the year, that's already a lot of it out the door. There is that Bechhofen impact for CHF 10-ish. What?
15.
15. Bechhofen impact is 15. We haven't changed our position, and we haven't changed our instructions to people in the business. We haven't opened the gates, and we have no intention of opening the gates. We can afford to allow things that we think are value-creating, but I don't see anything at this point that I feel compelled to reverse in terms of a CapEx freeze decision.
Okay, we're here. Thank you.
We're staying disciplined.
Good to hear. My last question, you didn't mention any kind of order cancellations, so is the assumption correct that there haven't been any major ones?
There weren't any.
In the first half?
There weren't any.
Okay.
I think the total order cancellation in the second quarter was like CHF 3.5 million.
Okay. Good to hear.
It's peanuts.
Thanks a lot.
Thank you.
Yep. Thank you.
The next question comes from the line of Christian Arnold with MainFirst. Please go ahead.
Yes. Hello, everybody. First, thank you very much for your guidance, actually, not only for this year, but also for next year on margin. That's quite unique these days, very appreciated. Talking about margins then a little bit, and especially from on APS. Do you see some recovery in H2 coming? We have seen a sharp decline in margin in H1, almost halved. What can we expect for H2 in terms of APS systems margins? Halfway back to normal levels? Is that a fair assumption? Maybe also a little bit, looking further into the future to 2021. Once you have your new production sites commissioned, do we already see here some positive impact on margin or do we see some negative impact from higher depreciation?
You'll see in beauty, you'll see positive impact on margin in 2021 because we've taken a lot of cost out. We've retooled Germany. We had rebuilt momentum in the first quarter of the year, and you saw that in the presentation that we made at the time. I think that will become evident in 2021. In terms of your question on margin rebound and Applicator Systems in the second half of the year, there's not going to be much of a rebound in margin this year in Applicator Systems. We delivered 11.7, 12%, give or take, in the first half of the year. We'll be a little bit higher in the second half, but you have to keep in mind that orders collapsed in the second quarter, but the sales were higher than orders.
What you'll see in Q3 is you'll see an order rebound, but you'll see that the sales will drop in Q3 because we had less orders in Q2. You'll have to wait until Q4 until you see that starting to normalize, and therefore in terms of margin, Applicator Systems in the second half of the year will look pretty similar to the first half of the year, a little bit better, but pretty similar. Really, the rebound will be visible in 2021 as the order intake rebound generates a sale rebound and we return closer to pre-pandemic levels. Jill, you want to add anything or did I answer that?
Yeah.
To your satisfaction?
Yes. I think it is as you described.
Any additional costs coming from the new plant in the second half? Redundant costs, something like that?
No. I think at the moment, we have taken that and we are still on track in terms of the development with the Bechhofen expansion. It's still targeted that the plant will be ready and it's planned end of the year, early next year, that we will start to use the facility for the expanded kind of capabilities.
The production and the factory expansion, the production will start this year, this calendar year. That's an objective that the guys have and they're tracking very well against that. I'm quite comfortable that they'll achieve it. The restructuring, there's no additional restructuring because actually what happened with the pandemic is that it accelerated the wind down of Bamberg. Therefore we're ahead of schedule rather than behind schedule at this point on our transformation of our beauty business in Germany.
Okay. having beauty business at a higher profitability level next year.
Assuming the dental business to recover, we would see kind of a normalized profitability level next year for APS, right?
Well, look, we're giving you guys bad habits because we shouldn't be guiding into next year. We did for Sulzer. Now it's raising all sorts of questions per business. We'll give you more flavor at the end of this year as we look back on 2020. You saw the slide that we have where we have the volume rebounds. You see that we'll be back to close to pre-pandemic levels, volumes in beauty at the end of the year. We'll still be somewhat short in dental. You'll have to wait until the middle of next year to be there. Adhesives is somewhere in the middle. We'll give you a more thorough answer to the end of the year, towards the end of the year. It's a bit early to comment on that now. If you allow me to take a pass on that one.
Thank you very much.
Thank you.
I think now we take some questions from the webcast. Ernst from 10vor10 is asking how many employees are working in Switzerland before and after the announced restructuring?
Okay. The end of that question is because there was an announcement made by an employee union yesterday that said Chemtech AG, so Chemtech's business in Switzerland, is eliminating 55 positions out of the, I think it's 283 positions of Chemtech AG in Switzerland. It created a little bit of emotion, which I can understand. It's the danger of throwing numbers around too early. The employee union that actually is close to Chemtech, put out a much more reasonable statement saying that they understood the business difficulty, and that they were working with us to find solutions for people. What happened in this business is that it's a legal entity. It's Chemtech AG. Chemtech AG does products for chemical plants and refineries in Europe. I think we all understand that there's going to be less investment in chemical plants and refineries in Europe for the foreseeable future.
Really, the momentum has moved to Asia, and moved to Asia quite a while back. We're in a situation where we have to eliminate positions, and because it's a legal entity, even if we shift some of these positions to other parts of Chemtech, and even if we reposition some of the people to other parts of Sulzer, we still have to announce a social plan by law. This is where the 55 positions come in. There's not going to be 55 people leaving Sulzer, and there's not going to be 55 positions eliminated in Chemtech. It's going to be less than that. It's the problem of making announcements in the early phase of a social consultation. You end up with an incomplete picture that worries people more than it reassures them. I'll try not to add to that by going into more details.
Okay. Thank you, Greg. I think that answers also the question from Delia Bachmann of the Der Landbote, which asked questions in the similar direction. Another question from Petri Suonio of Valmet. How do you see the development in oil and gas sector in the coming quarters? I think we have already talked about that.
I think we've answered the question, unless you guys want to. I try to avoid spending all my time on oil and gas, given the fact that new equipment oil and gas is 15% of Sulzer. I think I've already filled my 15% quota.
Okay, maybe there are some more questions in the call.
We have a follow-up question from Mr. Armin Rechberger with Zürcher Kantonalbank. Please go ahead.
Yes. Hello again. Well, if I look at your book-to-bill ratios in the different divisions, it's well above one for pumps, for Chemtech, and RES. Is it right to assume that in your second half year, as usual, sales will be quite a bit higher than in first half year, as you mentioned already before, I think? Do you tell me now, "Oh, no, be careful. We have problems with traveling, shifting people around, or in the logistic supply chain we have problems."
Armin, you want to know if we'll look for excuses? Jill, do you want to answer the question?
I mean, we have already told you that at the moment we are seeing June easing, in terms of conditions. We see the same actually now as well in the start of July. Typically, from past seasonality, you'll see that the second half in the past years has always been, let's say, around 10% higher than H1.
Given that, yes, it's not a wrong assumption to expect that H2 sales will be better than H1.
This is the caveat. Jill is not giving you guidance, but she says that sales are usually 10% higher in the second half of the year. That despite the fact that this is a strange year, that wouldn't be a completely silly assumption. Once again, it's more of a ballpark indication of previous performance, and certainly they'll be higher in the second half of the year sales than they were in the first half.
Okay. Thank you.
Just add on, we don't see anything that leads us to being less able to deliver sales in the second half of the year than in the first half. Conditions have eased around the world. In one of the places where we still have issues, India, we're back to 50% capacity. I don't see for the moment a situation where that would reverse. I think we're on the right track.
Okay. That was my question. Great. Thank you.
The next question from the phone is another follow-up from Mr. Finke with HSBC. Please go ahead.
Yes, just two small follow-ups on M&A. I think you were quoted on Bloomberg saying that you continue to look for acquisitions. Maybe you can give an update here. The second question related to M&A is on APS. I think in the past you stated a couple of times that APS is potential disposal candidate in the longer term. Has the current situation affected that assessment of APS?
Okay. I'll start with the second part of the question. No, it hasn't affected the view on APS. APS is a great business. We love it. We developed it from scratch 20 years ago out of Chemtech. As you know, the reasoning's always been APS is already large enough to fly under its own power. It's a very resilient business. And it's a high margin business. It's also a business that would be valued very differently from the rest of Sulzer. If you take comparables like, take, for example, Nordson in the U.S., you're talking companies that are trading at least 15x, 16 x EBITDA, which is not the case of a flow control business. Sometime in the future, Applicator Systems will probably be an independent business. As we always said, our ambition is to build a healthcare leg before we do that.
The only thing that the pandemic has changed is that we need 2021 to restore the performance of the business and bring it back to cruising altitude. That also gives us a little bit of time to continue building our healthcare leg, and then we'll ask ourselves that question further down the road. That hasn't changed, but it really isn't imminent. If anything, the pandemic has made it less imminent. If I go back to your question on M&A in general, our focus is always small to medium-size acquisitions, and we do that all the time. We never stop looking at them. We always have an active pipeline, and we had an active pipeline even during the pandemic. We were doing due diligence. It was a bit more complicated sometimes. Sometimes it was a bit virtual, but we continued to make progress.
We made two very small acquisitions which were more products or product lines. One which was an oil-free compressor product line that we bought 25% of the company with a path towards buying control in the near future. The other one was a product that we bought, an adhesives mixture that we bought for Applicator Systems. A clever IP that we were excited about. These were very small. We're looking at things as we speak for businesses that are between CHF 20 million and CHF 100 million of enterprise value. I don't have anything imminent to announce, but that's business as usual. Anything larger is really on hold. There's no M&A market worldwide currently for larger things. I think people are focused on their own issues and a lot of businesses want to normalize their performance before they have discussions with anybody.
I don't think you're in danger of seeing anything very large looming on the horizon, at least not before 2021.
Okay. Very clear. Thank you.
Thank you. Christoph tells me that we're out of questions. Jill and I wanted to thank you guys for your time today and for your questions. As you saw, Sulzer performed well in the down markets. We are adapting ahead of the impact for Sulzer. Our end markets are impacted, we continue to perform well. Despite that, we're taking significant cost out and we'll be generating these CHF 70 million of savings. We think that will take us back to around pre-pandemic profitability levels in 2021, which, if anything, gives you some comfort in the confidence that we have with the levers that we can pull to make this happen. Hopefully, we've built a track record of not throwing out outlandish guidance out there that we don't deliver on. On those words, thank you again, we hope to talk to you soon.
Thank you.
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