Earnings Call: Q3 2020

Nov 5, 2020

Dear ladies and gentlemen, welcome to the conference call of Ambrad AG. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. And after the presentation, there will be an opportunity to ask questions. I will now hand you over to Wolfgang Leitner, who will lead you through this conference. Please go ahead, sir. Thank you very much. Good morning, everybody. Welcome to our Q3 conference call. I hope you are safe and have adjusted to the second wave. I'm sure when we are ready to enter the third wave, we already will have developed a good tradition of how to cope with these circumstances. If you allow me, I would do some general remarks in the beginning before we take you through the presentation. I think Androids has managed to cope reasonably well with this crisis. We started with cost containment measures at a very early stage based on certain assumptions we have made on regard to how the business could develop. And we intensified then these measures, obviously, as the full impact on the global economy has been felt. I must thank our employees. They were acting extremely professionally, extremely committed way. They were hanging in, in construction sites across the world, in countries with, I would say, not fully developed health systems. They were willing to spend two weeks in a hotel room in quarantine to be able to enter China, for example. So I think without this commitment of our employees, we would look very differently when we report on this third quarter. With regard to the Q3 results, I hope I can say that it was a good quarter for Android After a rather low order intake in Q2 of about 1,200,000,000 we achieved a good order intake of roughly €1,700,000,000 in Q3 with basically all business areas achieving good order intake. The solid performance with regard to the order intake of Hydro is here especially mentioning. I'm glad that finally, I could deliver on my optimism from the last several quarters where I said I'm optimistic that Hydro will improve and increase their order intake. We booked some larger orders and achieved overall made good for the shortfall of the 2020. So now after nine months, the order intake is basically unchanged compared to the same period of last year overall. It's also important to note that the order intake of Schuller has been reasonably good in Q3, a bit higher than in 2019. We won some orders, some sizable orders from well known electric vehicle or battery electric vehicle manufacturers. And I think it's also of interest to say that about onethree or slightly more than onethree of Schuler's order intake in the first March has come in connection with e mobility, battery vehicles or hybrid vehicles. So I think that shows that there is also hope for the automotive industry and the suppliers of the automotive industry to which Schuler belongs. On the revenue side, we have been able to proceed on our major project sites without major delays despite all the challenges and travel restrictions and immigration issues that I've mentioned before. So group revenue basically reached the same level as last year, around €1,700,000,000 especially driven by this large by the execution of these large Pulp and Paper orders. The sales generation and the continued cost discipline led to a strong development of our operating result, the EBITA and the corresponding profitability. Liquidity position continues to be good. Solid net working capital has was certainly impacted to a certain degree by the progress of our large PLC projects, leading to a reduction of PLC payables and an increase in work in progress as well as advanced payments to our suppliers, but everything in line with the regular project development. Nevertheless, both net working capital as well as cash flow from operations have been basically in the same level as Q3 of last year. So far, my general comments, we can now take you through the presentation starting on Page three. As mentioned, group order intake, 1,700,000,000.0. Fault in paper is down compared to last year's quarter, but from a very, very strong Q3 twenty nineteen. Metals declined due to metals processing. Metals forming year on year is up. Hydro is significantly up due to some larger orders, which we finally obtained, and separation slightly increased also. Revenue, same number, 1,700,000,000.0, strong increase in Pulp and Paper due to order backlog execution and a decline in the other business areas. EBITA at €104,000,000 after having provided for restructuring costs to the extent of €26,000,000 As I said before, I think the result of good and early cost containment. EBITDA margin adjusted for these provisions at 7.8% and the reported EBITDA margin is 6.2%. On Slide five, now starting with details. Order intake down 18%, but still with €1,700,000,000 at a very good level. Euros 4 times 1,700,000,000.0 is €6,800,000,000 So that certainly is a very good order intake for us. And the €2,100,000,000 of Q3 twenty nineteen were definitely a peak a quarterly peak. If you look to the middle, you see Hydro up from €343,000,000 in Q3 twenty nineteen to €469,000,000 in last in this year's Q3. Overall, a good order intake. And on the right side, you see that the year to date numbers for three quarters, down from €5,800,000,000 to €4,700,000,000 But again, the 4,700,000,000.0 are a good level for our business where we are. On Slide six, you see the quarterly development. On the right side, perfect balance between developed markets and emerging markets, fifty-fifty. Overall, very stable with certain fluctuations typically between South America between Americas or South America and China. Here, is on the higher side and South America is on the not really lower side, but not as high as it has been last year due to these larger pulp projects. On the lower left, are some orders to reference. We've got pump storage, hydro power plant in India. We've major turbine with procurement order from Canada, press lines, as I said, from electric vehicle manufacturers. By the way, also battery lines, cell housings for batteries, for electric vehicle manufacturers or their battery suppliers. So flue gas treatment system for waste management facility in Singapore. You remember that we are executing the largest wastewater treatment plant in Shanghai currently and also got the first part of an order for railway wheel production, which is a joint project between the old Enbridge Metals and Schuller. Slide seven, revenues, very stable on a quarterly basis and slightly up on but basically stable on a year to date basis. I think nothing else especially to be managed to be mentioned here. Maybe, yes, it's I would say, slightly surprising to us that capital has held up very nicely in revenues. Obviously, order intake has been affected by COVID. Service was affected somewhat in the range of roughly 10% due to limitations of access to mills to do refurbishments and also due to lower utilization rates of the mills of our customers, lower need for consumables that resulted in slightly lower service revenues. You see it on the next page, Slide eight, that if you look if you compare Q1 twenty nineteen with Q1 twenty twenty, so that was basically stable. And then Q2 and Q3 were both about 10% above below sorry, below the corresponding orders of 2019. Overall, that led to a reduction of the share of our service sales from 40% of total sales to 36%. In absolute numbers, a slight decline in service sales. On Slide nine, you see that this basically is true for Pulp and Paper, where the service share went down from 51% to 40% because it was basically two developments which had the same effect of reducing the share of service. One is the substantial increase in revenues for our capital business. The other one, as I said, was a slight decline of service revenues for the service business. For the other business areas, basically, has been a very stable ratio. Slide 10, order backlog. Pictures all of us, I think, slightly now declining, obviously, from this peak order intake that we had in 2019, but with €7,300,000,000 still a very good and comfortable order backlog. Slide 11, profitability and EBITA. So before restructuring expenses, it went up from $102,000,000 to $130,000,000 or from 6% to 7.8%. Obviously, we like what we see here. Very good development. The reported EBITDA obviously is heavily impacted by substantially different restructuring expenses. We booked €95,000,000 in Q3 twenty nineteen, whereas we booked only €26,000,000 in Q3 twenty twenty. So that the reporting EBITDA, obviously, is much improved. But as I said, I think the more relevant comparison is before these restructuring expenses. You'll see the breakdown on the right side. So approximately 60% of this €26,000,000 went into the metals business area, but also Hydro incurred some sizable restructuring expenses. On Slide 12, same picture for the first three quarters. Here, again, the EBITDA margin went up from before restructuring expenses from 6% to 6.5%, reported from 3.9% to 5.8%, but still there is a sizable difference in restructuring expenses. In the first three quarters, we have booked about €35,000,000 of restructuring expenses. And you probably will ask what do we expect for the fourth quarter. And it will be, I would say, the €35,000,000,000 probably are a little bit less than half of the full restructuring expenses that we will book in that we plan to book in 2020. Obviously, it depends not only on what we want to do, but also on what we can agree with workers' representatives, unions, etcetera, to in a binding way so that we can book this provision for the restructuring expenses. Yes, so much debt. On '13, you see the breakdown of profitability and then EBITDA between the business areas, pulp and paper, Q3 were 10.2%, very good profitability in spite of the higher share of capital. Keep in mind that this went down from 60% to 40%, which obviously has just a diluting effect on the overall profitability. First March, 9.6% or 9.4% after restructuring. Metals, still struggling. Still in the first three quarters slightly negative before, well, let's say, a rate breakeven, would say, before restructuring expenses. Q3 already somewhat better. We hope that we can stabilize this level to a certain extent before we hopefully see the effect of the restructuring expenses. Hydro, 5.8% better than year to date, 5.3%, but obviously not exactly where we want to have where we want it to be. For the balance of the year, we expect probably a further slight improvement of this margin. Separation is doing well. Excellent quarter and excellent profitability for the year to date nine period. I now hand over to Robert Nettensheimer, our CFO, who will take you through the next several charts. Yes. Good morning also from my side. Let's start with Chart 14, which shows you the bridge from the operating results to the net income. Start with the EBITA of $278,000,000 which you have heard already. This is compared to last year, a significant increase, but mostly coming out of this reduced nonrecurring and nonoperating topics. The going to the left, the depreciation is lower than in the last year. It's only 126,000,000 which gives us a very good development in EBITDA, which is more than €80,000,000 above previous year's number. To the right, nothing really exciting to be reported. The regular depreciations of about €55,000,000 compared to 60,000,000 last year slightly increased, but due to the regular effect which we have in this position. Then we have this year a small position in the first three quarters on impairment of goodwill. This is a small foreign operation, which we have value adjusted simply due to the expectations for the cash flow of the next years in this operation. Gives us an EBIT of $218,000,000 which is significantly better than last year. We had 93,000,000 last year. After Q3 financial results, slightly improved also by about €7,000,000 And taxes with a constant value of 30 percent simply calculated on the EBIT, which leads then at the end to this €134,000,000 of net income, which is compared to €40,000,000 in the last year, also significantly increased. Next page is the bridge from the net income to the operating cash flow. This €134,000,000 net income at the very left, you have seen and I have explained. And then we adjust the noncash relevant elements in the P and L, which is not very exciting positions and mostly in the range as of our position in the last year. Then we come to a cash flow, gross cash flow of €446,000,000 which is €80,000,000 higher than in the last year, simply driven by the better net income, which we report. And from this gross cash flow, we have, unfortunately, this year, in the first three quarters, consumption of cash by increase of our net working capital here in the last year. We had just the other way around, 153,000,000 tailwind by the reduction of working capital. This year, we have 108,000,000 front wins from the increase of working capital. But as you know, our business is highly driven by this huge capital project, and the net working capital position is fluctuating very much depending on down payments, which we receive mostly shortly after receiving major orders and then later on from the consumption of this cash in the regular order execution. So cash quarter to quarter, we have here some fluctuations. Overall, for the total year, we don't expect very much impact from a change in working capital. So our net working capital target is still at about €600,000,000 and as we had it at the end of last year. So here, I can, let's say, give a short outlook that we are heavily working on keeping this down in the next quarter. So the rest of the positions are also regular positions. Interest, not very much changed to the previous year. Taxes paid a little bit lower in the current year, which gives us a favorable and comfortable cash position of €255,000,000 also in the first three quarters of the current year. This then leads to Page 16 to a still favorable financial position, $254,000,000 net liquidity out of 1.5 gross liquidity and 1.3 gross debt. Here, we had some payments of some repayments of debt, but also some currency effects, which were not the same on both sides of the balance sheet. So overall, this €9,000,000 increase of net liquidity is influenced by €80,000,000 of unfavorable cash developments. Otherwise, you would show here a much better number, which would be much nearer to the cash flow development, which we showed you before. But overall, we feel very well with the €254,000,000 net liquidity, which we still have in our hands. And here, also, the projection is that it will increase until the end of the year. So with regards to the grand overview, quickly can summarize on Page 17. Very satisfying order entry compared to the recession and the whole situation where we are in solid backlog. Data revenues significantly improved EBITA EBITA before improved adjustments, which gives us also a very favorable development in net income at this side of the P and L. With regard to the cash situation, also satisfying total situation with a very stable total working capital. So far, about the financial numbers, I'll turn back to Doctor. Leidmann. Thank you very much, Laurent. Yes, continue on Page 19, briefly take you through the business areas. Pulp and paper, I think everything is going well. Good profitability. EBITDA margin, 10.2 in Q3, 9.6% for the first three quarters, up from still up from last year. Yes, we continue to do some business on COVID also with the mask production lines that we are selling. I think '21 or I think a few more in the meantime have been sold already, which shows how fast we can act and, which is also a good opportunity for this Italian company, DFEC, that we had acquired a few years ago, which has developed this smart kind to establish new relationships with global top providers of fibers also that where we hope to expand also the regular product line. So I think overall, the field of nonwoven is booming. We will exceed definitely. We'll probably make €150,000,000 order intake just for a nonwoven the nonwoven division, which includes this mask production lines also. So a very good development. On Slide 20, Metals, obviously, are a continuous continuing challenge. We are doing a very substantial restructuring on the sugar side. We need to adjust to a lower volume, and we need to reduce our presence in Germany, to be more cost competitive. I think the highlight is that the EBITDA margin before restructuring measures or costs is with 2.7%, 2% positive in Q3. It's slightly negative for the year to date number. We expect it to be slightly negative for the full year, but very little only. And I think looking forward, we will we are facing the challenge that certain onetime cost reduction effects in 2020 would expire or will not be available next year. Others continue to be available in Germany, for example. So we are concentrating on making all the temporary effects to make them permanent going into the next years. I think that's the main goal currently that we are pursuing. You see the the declining number of employees, obviously. Yeah. I think that's it. On hydro, yeah, we are executing some orders with a somewhat lower gross margin. Therefore, we see a slightly lower profitability than we usually see. Q3 showed some upswing already with the 5.8%. Q1 to Q3, five point three certainly percent not satisfactory. We are recently optimistic that we can continue with this upward trend in Q4 so that the full year profitability should be somewhat not dramatically, but somewhat better than what is shown here. Although I can take with this, I have said, I hesitate to say that, but I continue to say it's some larger orders still to be expected. Obviously, a little bit more complicated because of COVID, also because of some political issues in some countries where these projects would be realized. But we are we continue to be confident that some large orders are around in the next one to three quarters. Slide 22, separation. Good development, very good profitability, slow organic growth, but definitely a certain growth. And yeah, stable business, with many different segments, as you probably remember, high service share. So, it's our smallest business area, but, it has about average profitability. And therefore and we see good growth opportunities, organic, inorganic. So we definitely are happy with this, provided this trend in performance continues. And then the outlook by business area on Slide 24. Pulp and paper, reasonably good project activity. Obviously, we had, now two years of very high order intake that certainly will not last forever. But, it's a mixture of various projects so that, we still are continue to be optimistic, including this high activity in nonvolving business. Metals forming slightly improved, remains to be seen or develops. I think you're the ones that you feel that are following the automotive industry, we have seen that the guidance has been improved by the main German suppliers, at least OEMs, substantially. So they had obviously a very good third quarter. Whether that was dominated by catch up for the lost second quarter or whether that is a sustainable trend remains to be seen. And in my meetings with the automotive people, I think it's dominated by uncertainty, hoping that this is now stabilizing, but still a certain level of skepticism also. And we just need to see. But again, with our very good presence in EVO LED, we would, as long as cars are purchased, I think we should be in a reasonably good shape. Metals processing also obviously suffers from this slump in the steel industry and also the stainless steel industry. So it's a low level of projects as a consequence of very high price pressure. So that certainly will or has to expect a few more slow and difficult quarters. Hydro, overall, reasonably good environment. Hydro Barrel is currently fighting to make sure that European Union does not see it as a precision technology, but as a sustainable technology because the greens obviously are split. Apparently, the split of the greens for wind power is slightly smaller than the split of the green parties regarding the hydropower, so they are more skeptical there. But on the other hand, there are many projects in Asia, for example, that we expect to be to proceed in spite of the globally reduced electricity consumption due to COVID. Mean, clearly, that is not a short term, that is not a favorable factor in demand. Separation, good project activity both for the separation equipment but also for feed production equipment. And to conclude, outlook on Slide 26. What is our agenda? As I've said several times today already, secure the appropriate cost structure for 2021. We want to be conservative in this regard. And, obviously, within this task, which it really applies to all four business areas, within that, obviously, the focus is on metals forming and on, to a much lesser extent, on hydro, where we definitely need to improve our profitability so that also our group profitability hopefully goes up again. What is our guidance? We have margin guidance. We have slightly increased last week. We had to publish it. We apologize for that, but you were too pessimistic in your consensus. Michael Buchtler got very concerned and convinced me that we need to go ad hoc and publish the results. So the adjusted EBITA margin 2020, we expect to be more or less unchanged compared to the adjusted EBITA margin 2019, which was 6.8%. And the reported EBITDA margin after extraordinary provisions for restructuring expected to be stable or slightly higher compared to 2019, where the reported EBITDA margin was 5.1%. In group revenue, we expect to be slightly lower compared to the €6,670,000,000 So much my presentation report, and I look forward to your questions. Ladies and gentlemen, we will now begin our question and answer session. If you find a question is answered before it is your turn to speak, you can dial 02 to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. No questions? No, I think We do have questions. We're just waiting for them to come in. The first question is from Sven Weier, UBS. Your line is now open. Yes, good morning. Thanks for taking my questions, Doctor. Leipner. And there's all three, and I maybe ask them one at a time. The first one relates to the Schuller restructuring. And now we've had the second quarter where the EBIT outcome was somewhat better than expected, so no further setback. And you talked about near term stabilization in this and then later on improvement towards the margin target. I mean just wanted to check-in again with your confidence, the evidence you might have that we now have reached a kind of a more stable path also going forward and that we should not expect any other setbacks as we've seen in the last couple of years? Also maybe when you look at the backlog of Schuller and Metals overall, maybe do you think that the lower margin contracts are now behind you so that you can really look forward? That's the first one. Yes. Obviously, easy question, difficult answer. What are we doing? We are doing we are reducing or lowering the breakeven point of Schuler substantially. Having said that, obviously and I think we currently, we think that it is low enough or we will be in our capacity by the end of next year when all the restructuring actions are really fully in place and are seen on the regular current quarters that we should have a reasonable level of low level of breakeven point. With Schuler's high market share for these larger automotive production lines, inevitably Schuhler will always depend on the market. There's not enough room to say, okay, we hope to increase our market share. We have a better product now. And because of that, we think we can increase our market share. Trula has a very high market share, and therefore, for this automotive part, this top end of automotive production lines depends on market. So to achieve an attractive profitability in the range of 5%, 6% plus requires certainly a certain uptick in the market upswing in the market. When will that come? I cannot I mean, we all can speculate together on the same qualities. So as I've said, the third quarter has been good for the automotive industry. China is developing reasonably well. So yes, could be that new investments are starting. But can I bet on it? No. So I hope that these disappointments, deviations and negative surprises, if you mentioned that they are over, that we are, I would say, breakeven, yes? We certainly hope that we can gradually step by step in small steps increase this from breakeven over the next four quarters. That's the plan. But I also don't want to promise too much on the in confidence where we are with Schuler. What I can definitely say is that we are far ahead of our schedule with regard to restructuring, that we have a very good cooperation with representatives with unions. Obviously, we are not the only ones that have to resize in Van Wiltenburg, and therefore, the public environment is favorable for this type of restructuring. And it's also obviously supported by the short break week subsidies and supports offered by the German government. For the other part, metals processing, I mean, in simple words, similar thing applies the same applies. Markets are very difficult, and we expect a low level of new projects as we go forward. We have increased our presence on the aftermarket side. There, we have had due to low utilization of certain steel mills and actually closures of certain steel mills. We have to adjust also our capacity. So the profitability of this aftermarket service segment of Metals Processing has been lower than usual. That should change as we go into next year and, I would say, by the middle of next year. So I think there, I would see some increase in profitability. If that would be followed by gradual increase in profitability by Schuler, I think we should have a good chance to see one or the other percentage points of higher profitability next year for the metals business area as a whole. And how do you feel about the quality of the order backlog? I mean because I think there was also an issue in the last years, right, that you had some lower quality, low margin orders that had some setbacks for you. Do you feel that this has improved? It has not become worse, for sure. Has it dramatically improved? Dramatically, certainly not, maybe slightly. I think in this metals processing part, we have been able to get rid of certain problems, risks we are not fully through with others. Schuller, obviously, prices we achieved. I mean, Schuller, definitely, with regard to order intake, as far as we know, has done much, much better than their main competitors. One of their main competitors, as we know, has an order intake of minus 50%, minus 50%. Obviously, this doesn't count by itself, but this comes if you offer low prices. And therefore, the backlog certainly has low margins. The plan has always been we need to we can live to a certain extent with low margins, provided they are not doubled by under absorption in the respective locations and or not doubled, but cut in half, I would say, taken away by under absorption. So that we are taking care of. And clearly, we have just this week, we had budget discussions. And sure, it was yesterday. Obviously, we have said that we need to now try to be a little bit more resistant with regard to discounts compared to what we have been willing to offer last year, for example. Yes. Thank you for that. We need to really be back to the old profitability. We do our homework, but we need a pickup in volume to be really profitable, and we need a few, let's say, somewhat better prices. Obviously, we are reducing the cost of our product at the same time. So that, taken together, should be should improve the quality of the backlog also. Yes. And the second question ties into restructuring but more on the hydro side. I think here you are a little bit later than the shoulder. I was just wondering now how confident you are there in the negotiations with the workers' council and the, yeah, looking forward on that one. Yeah. We have we've published certain things already. We have to publish them in for example. We do it in many in several different countries. We are, you know, simplifying the structure. We're also liquidating certain companies in countries where the level of business has been too small or is too small. So I think the better part should be on the way this year. Will we be fully done? So the effects we should see before middle of next year, are we fully done there? Not quite fully. I probably would think a little bit more can come, but nothing dramatic. And obviously, I mean, Hydro has never been close to the low profitability that Schuler has been. So it's more a question of fine tuning and optimizing and adjusting to a somewhat lower volume. I think we are we lag a little bit and have lagged a little bit behind in adjusting to the lower volume. Okay. I mean I know it's a little bit too early to look forward to 2021 in the March and Africa. Trust you provided that in March. But if I summarize what you've just said on Schuler and Hydro, I guess you have some little tailwind from restructuring next year. I guess, the mix wise and this year, you actually have the headwind, as you said, from the equipment side and mix. But I guess, service should catch up next year. Backlog quality is a little bit better. So it sounds like we could expect some further margin improvement there next year overall for the group. Is that a fair statement? Yes. I would say I hope for let's be specific for metals and for hydro. I would for metals, I definitely would hope to see, what I'm going to say, point, two points more, for sure. And for hydro, hopefully, one point more, something like that. But these are now this is really, you know, nothing you should count on. I mean, obviously, we cannot we are not planning to stay as we are. So obviously, we have plans. Obviously, we can only the results can only be positive if we get the support from the market that COVID at some point is stabilizing because clearly, we have limitations to access the mills, to do service work, to do refurbishments, obviously, also the development of the early phases of projects suffer from the lack of being able to travel to both ways. Nobody can come from Asia, and we cannot go to Asia unless we spend two weeks somewhere before and so on. So that obviously still our headwinds. But in spite of that, our goals are to be to improve profitability. And my final question is on cash and cash conversion. I mean, last year, think you introduced that also to specific incentive for your management level. And as far as I can see, at least in the underlying working capital, you've already seen some improvement compared to the past. I was just wondering how you look at further improvement potential here, maybe also the view to incentivization of management, maybe also next year. Do you see there further steady improvement potential on the working capital side? I think what we can do is and what we are doing is incentivizing the management with regard to things they can influence. On the other hand, this the cash or the cash flow is, in our case, so dependent on the aggregate of cash flow on large projects. And therefore, sort of depends on down payments and exactly when are the progress payments and so on. I think we are doing making good progress on our payables. We are managing our inventory. Also, I think recently because on receivables, down payments is difficult to forecast because it really depends on when the orders are coming to voice. If we continue to get a reasonable amount of larger orders in a reasonably stable time frame, then I think it should stay at least the same. Whether we can further improve it is questionable, I would say. It's possible, but I mean we have to live with certain volatility in this regard for sure. Yes, absolutely. That's why I was more referring to the, let's say, the working capital outside the, let's say, project working capital that is more influenced by the down payment. Yes. I mean no change with regard to the execution. I mean typically, if in the beginning of a large project, of a large order, we are cash positive, then for, let's say, two quarters in the middle of the execution period, we are negative, and then we hopefully get positive towards the end, depending on where the costs are. So it really depends on the mix of large projects. Now we had as you remember, we had high order intake recently that obviously had some effect on net cash flow of these individual projects. And overall also, if hyper continues to get some larger orders and if Pulp and Paper gets one or the other of these large orders, then we should probably be stable, maybe slightly better, but not dramatically. And the next question is from Daniel Leone, S Group. Your line is now open. Please go ahead. Yes, good morning. Thanks for taking my question. I would like to start with the Partner Payment Services business In terms of the development, the recent development, we've seen that services is, of course, hampered by travel restrictions. Would you expect this to become worse? And going forward, would there be a pent up demand that would, maybe in the short term, increase services business then once the travel restrictions are eased So then hopefully next year? Yes. I mean, clearly, what we have seen is that the shutdowns of pulp mills, which is quite a sizable part of our aftermarket business in pulp and paper, these shutdowns have been postponed where they could be postponed. But you can only postpone them by three to six months, basically. We have made in March, we have made certain assumptions. And in simple words, it was that Q2 and Q3 would be terrible with regard to new orders and also with regard to what we can do on the revenue side, on the service side. We had the assumption that Q4 will be substantially better. Do we still have that? Not really, I would say. I think Q4 will remain quite quiet, most likely. Let's see. But, then Q1, these shutdowns have to come. It's, but this will because of that, the following shutdown then will also be postponed by three months or six months. So it's not really an issue. It's like in tourism. People probably probably we have left maybe we have lost one quarter of shutdowns in simple words. Yeah? Obviously, that's not the dominating part of the aftermarket business, but it's a sizable part. Other than that, I think it's we have seen effect of the lower utilization rates, lower production of our customers, that we think it will go down further. I think that may stabilize on this level, but at some point, that should go up again. Would you have the capacities to oversupply services once it's possible again? Good question. To a certain extent, yes, but not indefinite. Not without any limit, yes. Okay. Then coming to the automotive business, can you give us an overview of the market activity based on regions currently? Yeah. We're up Europe is 40%, North America roughly 25%, China probably 30%, And what is missing 5%, but we're missing a little less than that. And do you do you see the the the order intake dynamics to be, in the meantime, spread rather evenly, or is it rather Chinese or Asian topic at the moment? No. It's it's Europe and US, as I said. I mean, three quarters of the the order intake come from Europe and North America for metals. Oh, yeah. Okay. Very good. Very good. Then one one short one on the on the separations. How sustainable would you see the the the recent margin development, 10%? Is this the new reality? Or is this just because larger projects were finalized? I would prefer if you take as a basis for your question whether it's sustainable or not the three quarter profitability, how much has it been? This was 8.4%. Yes. I think that's certainly sustainable. I would not at the 10%, I would not take yet. But the goal is, yes, the goal is to go after that. But there are no onetime effects or anything where we say, okay, we have to warn you that separation will go down go back to a much lower level. That's not the case. Okay. Perfect. And last one, the strategic one, hydrogen, is this a business area that you can think of expanding to diversify further? Yeah. Which which product would you have in mind for us? I don't know. I I haven't reflected on a on a specific product. Okay. But we're we're seeing that investments are increasing, of course. Yeah. We are we are I would say we have with an eye on on related technologies, whether that's carbon capture and storage or sequestration in, you know, in power plants, whether it's conversion of c o two into into a methane, whether it's biomass into methane, all that. We have an ion. We are we are we are following the the the hydrogen part because, obviously, it's you could also say, you surplus electricity could use to produce hydrogen. So that's something that Hydro division is looking into. But it is more, as I said, having an eye on developments. We certainly do not have a business plan what how we could benefit from that. For that, I think it's a little bit early for us. Yes. Okay. Thank you very, very much. Thank you. And the next question is from Sebastian Groeber, Commerzbank. Your line is now open. Please go ahead. Yes, good morning. Thanks for taking my questions. The first one would be around the Metals division. And when looking at the year to date staff reduction, it's down about seven fifty heads. I think the earlier reduction target was about 500 at Schuller. Can you give us a sense how it breaks down between the processing and the forming business for the year so far and where you would see the headcount trending by the year end or early fiscal twenty twenty one? That will be the first question. Yes. I would not want to be as specific with personnel numbers. The vast, vast, vast majority of the reserved downsizing and employees is in forming and not in processing. Processing a little bit, but not dramatic. And we are definitely not we are ahead of where we want to be in terms of reduction and substantially more should be seen until the end of next year. More should be seen in the first quarter of next year and then to a lesser extent over the following quarters. As we have always published, that will be done by the 2021 with a very small very, very small part left for, I think, H1 'twenty two. So yes, go ahead. Sorry. Yes, please. No, please go ahead. Sorry. The other question I'll ask differently recently of the intended savings, which eventually would equate, in a perfect world, at least one:one rate, the personnel costs. But the question is how much of the intended savings so far have already come through? Or would you say that until now, there has been a very limited impact? Yes. We have two effects here. We have seen a sizable effect from short work week compensation or reduction of unpaid reduction of work time, let me put it that way. Let's say it's probably for forming a range of €20,000,000 €25,000,000 this year. And that will either continue next year, which to a lesser extent will be the case, but we have to, whatever they said, to get it from temporary saving to permanent saving, meaning that we have to reduce our workforce by that amount unless we think that the volume will pick up substantially, which we do not. We think we will stay on this level for the purpose of sizing the company, for sizing our German activities in this case. Yes. That makes perfect sense. And when it comes to processing, you said that it was a smaller part of the so far performed headcount reduction. Can you give us a sense of the restructuring needs there? Because it seems really that the business has obviously come under pressure both on the volume side, but clearly also on the pricing side, if you also put it into the slide deck, where we are spending roughly in terms of volume and then also profitability, if you were so kind to give us at least a certain indication. Yes. It was profitable, but it was below the regular profitability. But regular profitability has always been below average group profitability. We typically have 5% EBITDA roughly, and it has been less than that recently. Restructuring expenses, don't know, but I would say it's single digit million euros That's helpful. No, it's 7,005 million euros yes. Okay, fine. Now I would move on to separation. And obviously, we have seen now a pretty strong margin recovery also for the last two quarters. It seems really that the business is going beyond what you had earlier, I think, envisaged as the margin target being the 7% to 8%. Can you just update us on where you stand there? And then what sort of the current best guess sort of from your perception is? I mean, first of all, we are striving for long enough with regards to profitability. At that time, I said we need to turn it around first to reasonable profitability, then we can decide whether we keep it or sell it. We have achieved good profitability. And as I've said in the introduction, I think we feel comfortable with it. We want to keep it and we want to develop it. We continue to see good growth opportunities, and we think we that our profitability goal, yes, should be not much below the 10% that you mentioned. But I think for the time being, we would say, what is the guidance, Michael? I assume guidance for separation probably between Around 8%. 7% to 8.5%? Yeah. 7% to 8.5%. So I think I would hope that we can deliver this upper end of this range. But so far, no confidence that we increased the guidance. Okay. That is very clear. And then the final one on Hydro. We have seen obviously also there pretty much of restructuring going on now for the last two years, three years even. It seems really the business is bottoming out at around €1,200,000,000 or so of run rate orders on a last twelve month rolling basis, that is. Would you say that the restructuring won't necessarily say have gone too far, but that there is a good chance now with the volumes eventually going even a bit higher than the €1,200,000,000 that we should have seen definitely the worst in Hydro with then also margins falling up towards the former target of up to 8%? No. We definitely have not done too much restructuring. I think we should have done a little bit more. And therefore, said we I think we need to do a little bit more of that. I would not agree with you that, let's say, the base level should be €1,200,000,000 I think we have a chance to be at 1,400,000,000.0 roughly. But I would think it should be a reasonable level. And profitability, I think, obviously, we are now below what we have given guidance, so we need to first get into the range that we have given the guidance. Can we execute a higher or could we execute a higher level of business? Yes, always. I mean, we always have a lot of flexibility. So in our business, it is not that we are running machines that have maximum production per day. It's a people business. It's a lot is outburst in purchasing. So no concern whatsoever that we cannot accommodate that we could not accommodate a higher volume. Okay. That's very helpful. Thanks so much. Thank you. And the next question is from Will Turner, Goldman Sachs. Your line is now open. Please go ahead. Good morning. You've answered many of the questions that I had. It's good. So I just I just have one left. Could you give us an estimate of how, what the value is or how much of the costs that you have saved from these kind of temporary cost benefits, whether it be the reduced working hours or lower marketing? And then also, is it concentrated in any one division that we should aware of? Yes. A very broad question. And if we take a look at our gross expenses and the effect of much lower travel costs, etcetera, etcetera, and subsidies and so on, it probably was EUR 100,000,000 in the 100,000,000 range, yes, tailwind cost tailwind. Okay. Sure. And and was it concentrated in one of the divisions? I'm sorry. Not really. No. No. It's I mean, it's no, because there were a certain I mean, we had short working subsidies in Central Europe, but then we had these temporary furloughs. And in The U. S, for example, we had sales, how do you say, paying basically what you lost in sales in Canada, for example. So very, very different things. And so that probably wasn't in that range. Yeah. Yeah. And do you do you have I mean, I know it's bit early now, but do you have any estimate of how much of these will come back next year? I know you've discussed about wanting to turn some of them into permanent savings, but I can understand that, like, for example, travel expense, that would be quite difficult to become permanent in some cases given that that this has resulted in some lower sales and low lower sales overall. So how many of them how much of it do you think would kind of reoccur next year at the moment? Our goal is very little. We will reduce our global workforce by 2,000, 3,000 employees, 2,000 plus, I would say. And it's almost not so clear in our on our side that we also have this clearly project related people that are hired for a site, so that's not really a permanent reduction. But in this range, obviously, we have reduced our our temporary workforce also quite substantially. We are reducing. So a certain I would say a certain smaller product definitely will come back, but I would see quite confident that a bigger part of that should be permanent. Sure. And then, I mean, does that mean that we should be expecting higher charges or some increased restructuring charges at some point in the next year in 2021? No, not next year. I think, as I said, we certainly should expect a sizable charge in Q4 of this year. The goal is to put everything into this year. And as much as we see, as much as we consider to make sense, so we are not having a limit on our restructuring costs because we don't want to incur more, but we the only limit is what makes sense and what can be, well, you know, what can be can be executed. But the goal is that next year, we can do with without restructuring or with very little restructuring costs. Obviously, effect will be seen next year only. And the next question is from Peter Ruchen, Deutsche Bank. Your line is now open. Please go ahead. Yes. Hello, Doctor. Leipz. I would have likely more flavor on the Pulp and Paper business. So with the Q3 margin of 10.2%, this was really surprisingly positive even considering that you mentioned lower service business. And with the execution of the big pulp plant orders, normally, profitability is lower. Perhaps can you give us here some flavor what was so positive to be able to generate the strong margin? My two colleagues on the executive board that are running Pulp and Paper are not here, so as I can say, it was excellent management. No. I mean, it's you're right. I mean, it's I think we are we are running these projects, these orders professionally with all the hiccups that are unavoidable. But I think overall, they are in good shape and are running well in spite of COVID and and all that. And, Clarium is developing very nicely above our expectations. Yes, I think that's it. I think it's a would say it's combination of Xerion plus improved profitability on the capital side of the Pulp and Paper business, which has overcompensated the track on average margin because of the higher share of capital revenues. Can we then have the hopes that in the next year, you're benefiting then additionally from better service business that this margin level of 10% plus is sustainable? I'm happy that our main competitor has increased his profitability guidance to 10% to 12%. History is short. It takes them a few years until they reach it, but it's good to know that your competitor has a higher margin goal. Am I confident this 10% can be maintained? Again, I made a mistake a few quarters ago that I said it cannot be permanent. I'm not saying that this time, but it is a high probability. Clearly, have the goal to stay in this level, but I cannot feel like it doesn't make sense to say it will be 10% and not 9%. But I think we're optimistic that we can continue on a very good profitability. And if your competitor is on a similar level, that's a good sign, provided your costs are competitive. Yes. And then with the pulp project, so you have still a strong order book. You are working it down. When do you expect is the peak sales level achieved? And on the other hand, regarding the project pipeline, do you see the chance to get additional big pulp projects perhaps in 2021 to avoid here a stronger decline, let's say, from the year 2023 onwards and so? No, there are a few projects around. We expect, I think, let's say, at the absolute minimum one, but most likely two of these large greenfield brownfield projects to go ahead next year in Buchta. So as I said, we and then nonwovens, as I said before, is we expect it to continue on a level not as high this year maybe, but substantially above the, I would say, regular level. So we are not dramatically pessimistic on new orders. But with these large orders, you cannot say it. So it's a digital decision, yes or no, and depends on the project decision and on the supplier decision. So it's but there is no we are not overly pessimistic with regard to the market development for next year. Okay. And so you have not the fear that we will see perhaps in 2021 or 2022 a peak in Pulp and Paper sales? And from this level, it will go down then? Not specifically, we don't have that. We don't plan for that. Now we had, obviously, a peak order intake of €3,600,000,000 I think of €3,700,000,000 last year for Pulp and Paper as a whole. That is converted into €3,000,000,000 sales for Pulp and Paper. There could be a peak that would where sales would go down somewhat again. But as I said, I mean, there are large projects around, and there's no reason why we should not be confident that we also can maintain approximately this revenue level. Order intake will always have peaks and valleys, obviously. Okay. And then in recent days, we have seen several messages regarding nice orders. So you did not make the information how big these orders are, but in several areas, also hydro, pulp and paper. Can you comment what is your expectation regarding order intake for the fourth quarter? We will not be as specific, but I would say we are not desperate, meaning it should be not a very bad quarter. And we have no further questions at this point. So I hand back to Mr. Lightner for closing remarks. Thank you very much. Thank you very much. Thank you. Bye bye. Bye bye. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.