Dear ladies and gentlemen. Welcome to the conference call of Andritz AG. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulty hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Dr. Wolfgang Leitner, CEO, who will lead you through this conference. Please go ahead, sir.
Thank you very much. Good morning, everybody. Welcome to our Q2 conference call in special times and under special circumstances, I assume, for all of you or most of you. Before we go into the presentation, as always, a short general introduction for the second quarter. Overall, I think Andritz has gone through and also managed this crisis reasonably well. Obviously, we had some challenging conditions globally, starting in China, then moving to Europe, and then moving to North America, and especially also South America. Nevertheless, we achieved increase in sales, in operating results, in margin, and also net income for this quarter. Obviously, this was a result of a very strong commitment and dedication of all our employees worldwide, who not only made sure that all the companies or subsidiaries, but also the construction sites on which we're working, have been kept going under very difficult circumstances.
At the same time, our staff has also committed to accept different cost reduction actions like short workweeks, reduction of vacation reserves, and for our larger management group, even pay cuts. Obviously, short workweeks also typically came with individual pay cuts. Altogether enabled us to achieve the result for the second quarter, as we can show today. For that, we owe a big thank you to all our 26,000 employees. As I said, sales profitability and net income are up in Q2 and also for the first half. However, order intake, obviously, was substantially impacted by the economic circumstances. While Pulp & Paper and Separation have achieved a relatively solid order intake, our Metals segment, meaning Metals Processing and Metals Forming, Schuler, have been hit very hard by this weakness in their order intake.
Hydro basically developed along the lines and the trend of the last years, rather difficult market circumstances continuing. Since we would not dare to bet on a very short-term, very strong, and sustained market recovery for Schuler, but also to a certain extent for Hydro. We will continue to adjust our cost structures in these segments. Our liquidity position continues to be very good, more than EUR 1.5 billion gross cash. Net cash positive. Also, our net working capital has increased somewhat due to the execution of these large orders. Cash flow has also been very good. So far, my summary comments. Now, if I may take you through the presentation, beginning on slide three.
Order intake, EUR 1.2 billion, times four would result in EUR 4.8 billion on an annual basis compared to more than EUR 6 billion in one year, even EUR 7 billion, definitely is substantially below what we would like to see. It was quite good in Pulp & Paper, supported by a boom in equipment to produce nonwovens material. I will come back to that in more detail. This is related to the masks that obviously currently are booming globally to protect against COVID. We also saw good development in Separation. Hydro, continuously low order intake and also low sales. I still maintain hope for the second year. I will also come back to that. Metals definitely strongly hit both steel industry and automotive industry. Sales are at a good level, EUR 1.7 billion.
Strong increase in Pulp & Paper, thanks to the execution of these very large orders, which obviously have not only lower margin, but also lower value added because more is purchased from the outside. That relatively high sales level does not translate directly and to the full extent into profitability. Still very good profitability maintained. EBITDA margins are up. Again, on the plus side, on the sunny side, Pulp & Paper and Separation. Metals with the problems. Improved compared to Q1. Hydro earnings, somewhat disappointing for second quarter. Hopefully, we can gradually improve that until year-end. When we move on to slide five. Order intake for the quarter, -42%. Compared to a EUR 2 billion order intake in Q2 2019, which times four would be EUR 8 billion, which is substantially above what we can hope for on a sustainable level.
The minus 42% are exaggerated, but the EUR 1.2 billion definitely are very low, as I have already explained. First half year, down 18% from EUR 3.7 billion to still reasonably EUR 3 billion. You see the share of the development both for the second quarter and for the half year across the business areas. Not a single plus in either of the four business areas. Slide six. Quarterly development, obviously big break compared to the very strong orders, strong quarters Q2 and Q3 2019. On the right side, geographically split, no dramatic change. Maybe worth noting is emerging markets, and there is China with 16% share of order intake, shows that China has had its dip in the first quarter and has recovered very quickly. Not to the full extent and definitely not on the consumer level.
In our company, we have balanced the shortfall in work in the first two months of the year, definitely after one or two months already, and look forward to another good year in China for our Andritz company. Slide seven. Sales up 8% for the half year. Sorry, for the second quarter on the left side. You see an increase in the capital business. You also see a decrease in the service business, which may be somewhat surprising. Clearly, our service business has seen an effect of COVID due to the fact that many of the mills have been shut down or have been running at reduced rates. That definitely has had an impact on especially the consumables, the variables, and that also will continue for another quarter. Many of the mill shutdowns have been postponed into the second half.
The ones planned for the second half may be postponed into the first half of next year. There will be a certain effect also on the service business, which typically is much more stable than our capital business. On slide eight, service business in more details. You see on the lower left-hand side, last four quarters, EUR 2.6 billion. Good growth rate over the years. Overall, we are now at 37% of total sales for the aftermarket. On the next page nine, you see it by business area. Pulp & Paper has come down to 41%. This is the consequence of substantial increase in capital sales from these larger orders that we have reported since beginning or middle of last year. With the last one being awarded in the beginning of this year for UPM in Uruguay. For the rest of the business areas, it's quite stable.
In Metals, Schuler is also definitely impacted on the service business, because the automotive producers have shut down their production sites for one to two months, and there was zero service business, obviously. On slide 10, order backlog slightly declining, but still at EUR 7.4 billion, a very comfortable level of backlog, which obviously helps us through the crisis. Slide 11. Q2 on the left side. EBITA from EUR 95 million to EUR 104 million, plus 10%. Profitability, 6% to 6.3%. Half year, slightly down, EUR 177 to EUR 174. Profitability, 5.8% to 5.5%. Metals is improved somewhat in the second quarter. Remains to be seen whether that can be maintained. We hope so, but it's obviously currently a very difficult and difficult-to-gauge environment.
Hydro profitability has dropped also somewhat, both because of under absorption, which they are taking care of by reducing the work force, continuing to reduce. Also some lower margin. Separation continues to, with this good development, increasing step by step volume and profitability. Slide 12. You see Pulp & Paper 9.6% in the second quarter, 9.2% in the first half year, continuing very good profitability. Metals Q2 improved compared to Q1. Still slightly negative. Hydro, I must say, disappointing 3.2%. This is after non-operating restructuring costs. If we would add that back in, it would probably add approximately 1.5, 1.6 percentage points to about 4.7, 4.8% operating profitability on the EBITA levels for the second quarter, which is still below what we have become used to. Obviously substantially better than the 3.2% here. Separation again, 8%, 8.4%.
I would say it's a glimpse of midterm hope. I would not say that this will continue for the next few quarters, but the 6.5% for the first half year are definitely a good profitability and should be sustainable. For the next two or three pages, I will hand over to Norbert Nettesheim, our CFO, who will take you through the bridges for net income and cash flow.
Thank you very much for giving me the chance to present this. I start with EBITA in the bridge, EUR 174.3 million. This is the number which you saw already on the previous slide. Going to the left, depreciation is nearly on the same level as last year, with EUR 84.3 million coming to an EBITDA of EUR 258 million, which is also slightly below last year, same as EBITA. Going to the right from EBITA, bridge to net income. Let's say, only major deviation to previous year's first half is the IFRS 3 amortization, where we had in the last year EUR 44 million and in this year EUR 32.2 million. The difference is mostly driven by the reduced depreciation or amortization on the Xerium order backlog, which was pretty high in last year's first quarter after initial consolidation of Xerium.
The other elements then are, with regard to the numbers, pretty much on the level of last year. Also this first half year, we had a slight small number for impairment of goodwill. Last year, it was a Schuler, AWEBA. This year, we had also in Schuler one operation where we had to take an impairment. This was for the Italian operation, Sovema, which is EUR 4.7 million. Leads to an EBIT of EUR 137.4, which is then above last year's level due to the lower IFRS amortization in the first half of this year. Other financial results are a little bit lower or better than last year. Lower net loss and better number. In total, EUR 18.4. Difference to last year is driven by lower interest expenses due to the reduction of the external financing volume by EUR 350 million compared to the first half year of last year.
Leads to an EBT of EUR 119, which is higher than last year's first half year with a, let's say, calculated tax rate of 30%, which is a simple tax rate, taking it as an average rate here as a statistical number. Leads us to a net income of EUR 83.38 million, higher than last year's number, EUR 75.8. Overall, let's say, not very dramatic development, driven simply by the arithmetics out of the depreciation and the interest. I come to page 14, which is the cash flow development of Andritz in the first half year. Start with the EBT of EUR 119, which you saw on the previous page already. You have the normal and regular elements, which are not cash elements in the EBT. Not very different compared to last year's interest depreciation. In the provisions, we have a little bit of change compared to last year.
Last year, we had a tailwind in the results from release of provisions. This year, we have increased provisions of EUR 12.5, which adds then to the EBT and which to cash flow. Cash flow out of the P&L is EUR 284, which is EUR 14 million better than last year's, mostly driven by this provisions element, which I explained before. Bringing this, I would say, over the target line to the cash account this year compared to last year is not that favorable as it was last year. Major difference is the change in working capital, which is this year negative EUR 138.3. I will tell you later a few elements on this. Last year, it was EUR 82.1 positive. In detail, I would say mostly driven out of the regular POC order execution in major capital businesses.
Last year, we had in the first half year, mostly new orders with major down payments, which accounted to a positive development in cash flow. This year, we had in the first quarter only this UPM Paso de los Toros as a major, big order, and had a lot of ongoing execution of orders, which led to a consumption of this down payment and consumption of cash in the normal order execution cycle. The other element are pretty close to last year's numbers, that we, at the end this year, come to a EUR 99.9 million positive operational cash flow compared to the EUR 270 million in last year. The reason, as I explained, is this swing of nearly EUR 230 million in working capital. The last element which I want to present to you is, resulting from this cash flow development, the development in our net liquidity.
Net liquidity is down by EUR 39 million. The same, mostly driven by these working capital changes, as I said before. We had also in this number, which is to be mentioned here, exchange rate effect. It's a EUR 64 million reduction of our liquidity, simply due to the conversion of our Brazilian real cash positions into EUR following the devaluation of the Brazilian real compared to the EUR. This leads, at the end, to this reduction of net liquidity of EUR 39 million, as I said before. Generally, our cash position is further on very solid, with more than $1.5 billion of liquid funds and with a well-financed company having, in addition to the liquidity, open credit lines, which are available enough to run our business also in the future. Overall, very solid financial position for now. Far from my side, turning back to Wolfgang Leitner.
Thank you very much. I can take you now quickly through the four business areas and then come to the outlook. Slide 17, Pulp & Paper. You see the numbers. Order intake compared to the very high order intake in Q2 2019 is obviously down, but still a reasonable level. Half year, also good level. Margins are still very good. 9.2% for the half year, 9.6% for the second quarter. As I said, we benefit a lot from the boom in nonwovens, where we have a very leading position in the raw material for these masks, for example. Our Italian company did a very good job in modifying a diaper or hygiene production line into a mask production line, which helped us in the beginning that we were able to produce 700,000 masks for our own usage.
As I said before, we have been able to sell more than 20 production lines. These are not huge numbers, but still sizable for this Italian company. This nonwoven part of our Pulp & Paper business this year will account for EUR 350 million plus order intake. That's sizable for Pulp & Paper. It's a nicely profitable business, and we are very happy we have that. Much about Pulp & Paper. Metals. I think we have in the second quarter, the results have slightly improved. We've taken substantial cost reduction measures, both temporary but also permanent ones. Order backlog, obviously, is declining. Sales have been lower than last year in the half year of -8%. EBITDA, especially this is impacted by Schuler, which was positive last year and is negative in this year.
We see some hope that the second quarter with regards to order intake. Obviously, we think it should be the bottom, that it really could be the bottom. Let's see. It's too early to say, but I think there is some hope that it will improve somewhat. It will remain difficult, it will remain on a low level, and it will require further cost adjustment, cost reduction over and above of what we have planned and initiated and provided for middle of last year. On slide 19. We got an intake. I repeat what I said after the first quarter. We are still cautiously optimistic that the second half year 2020 should be substantially better in order intake compared to the first half year. It is a difficult market. Electricity consumption has decreased.
Electricity prices have decreased. Wind has come down now to EUR 0.05 per kilowatt hour cost. It would not require this high level of subsidies that so far have been the basis for the expansion there. All that certainly makes life for Hydro not easier. On the other hand, it's still the biggest renewable source of energy. It's the most stable one. We certainly are confident that it will continue to be an important element of our portfolio and a profitable one also. It will require some continuing downsizing to adjust to this lower order intake, where the sales level also is declining, but with a time gap of two, three years at least. We will need to continue to adjust that. On slide 20, Separation, as I said, continuing good development.
Order intake is slightly lower in the first half of this year compared to last year, but that was because we got a large order in the first half of last year. I think all the numbers are in good shape, and we see good activity in China, for example, in the chemical industry. We see good activity overall in the environmental industry. We sell many wastewater sludge dryers. We have this synergy in sync with boilers based on sludge and on biomass. It's overall good development, and it has a very good risk profile with its many small orders, basically machines, and maybe some dryers, which are a little bit more process-oriented. From a risk profile and a stability profile, a very attractive business area. Much for business areas. Then the outlook on slide 22.
We expect a continuing good environment for Pulp & Paper, also not with this large number of very big Greenfield projects. Obviously, it is not without problems, so the pulp prices have declined substantially because of the capacity increase. Don't forget, fiber consumption has been growing for tissue paper, has been growing for packaging paper for board, and obviously has suffered in printing, writing, and newsprint. Also contribute this dissolving pulp going into viscose fiber, replacing cotton continues to be quite active with some overcapacity now being visible. That will slow down some growth. As I said, nonwovens is continuing high investment activity. From that standpoint, our acquisition of Diatec, this company a few years ago in Italy, has worked out very well. Service business will be impacted to a certain extent.
Maybe something can be recovered in the second half, but it will be lower than last year. Metals, don't think I need to repeat. Continuing difficult environment. Maybe in the second half, slightly better, but definitely substantially below historic levels. 23, Hydro. Again, continuing challenging market environment. Electricity prices don't help. Small hydro power, Compact Hydro, is affected by that because they depend on electricity prices, obviously, and they have shorter-term decision cycles. As I said, we still are confident we should have one or the other good news with regard to order intake in the second half of this year. Separation, satisfactory. Good development. To conclude, page 24, the outlook. We will continue with our restructuring. I think we have done a good job in the second quarter.
Now the goal is to convert these very substantial temporary cost reductions into permanent cost reductions, permanent savings going forward. For that, we have already established and are in the process of establishing, I would say, quite ambitious goals to get us in very good shape for the future, for next year, especially. We will make certain provisions in the mid to upper double-digit million EUR range, probably in Q3, the better part of that, to finance these reductions. It will be a basket across several business areas. The majority obviously will be in Schuler, but also in the Metals Processing business, and also in the Hydro business, probably also in general administration. We are not in a crisis, we can definitely shift additional capacity into our development departments.
I think we have interesting projects going on, so that we should be well-positioned for the future, regardless when the recovery is in full force. The guidance for this year is, we still have to caution it, because obviously the assumption is that COVID effects are starting to gradually improve. If that would result in a second wave of complete lockdowns, obviously that would look different then. Assuming that we see a gradual improvement, we expect a slight decline in sales and stable profitability after all restructuring costs comparable to last year with an EBITA margin of approximately 5%. Much my guidance and the presentation, and I look forward to your questions.
Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask your question. If you find your question's answered before it's your turn to speak, you can dial zero two to cancel your question. If you are using speaker equipment today, please lift the handset before making a selection. One moment please for the first question. The first question received is from Sven Weier of UBS. Your line is now open, sir. Please go ahead.
Yes. Thank you, operator, for taking my questions. Good morning. The first one is on Pulp & Paper and on the Greenfield pipeline. I guess officially with the Metso order coming up, it's then maybe a little bit empty for the time being. I was wondering what's going on beyond the obvious ones, because we've been hearing stories about a new mill in Indonesia, maybe you can give us a little bit of a feeling about the activity that is maybe beyond the not so obvious ones in South America. That's the first one.
Yeah. You are definitely right that we have seen a boom in Greenfield or Brownfield complete line investments. Substantial capacities have been added, together with the overall shrinking economy. Obviously, it's a somewhat poisonous combination. I guess we definitely do not count on substantial Greenfield orders this year and probably also next year, I would say. This is not really analyzed. This year, I don't think anything will be ordered. There will be sizable rebuilds. Together with the activity on the nonwoven side and on the biomass boiler side, Japan is still very active. It's still a good environment. We have seen this big increase in these large Greenfield orders. Obviously, this has been lower margin, has been also lower value added because of higher purchases. The volume will be lower, but it will still be in good shape.
On the nonwoven side, you said this is going to be a EUR 350 million plus business this year. What's normally the size of the business?
A range of EUR 200 million, I would say, roughly. It's fluctuating also.
Okay.
There can be a year with 240, 250. It can be a year below 200 also.
Would you see that activity then more limited to this year then, probably, yeah? How sustainable would you see it?
I think on top of what is, let's say, this impact of the COVID on the mask business and on the raw material business for this mask. I think with the product we have developed there very quickly, and we're the first one, I think. I think we have a chance to also expand this business for the regular diapers, where we also have some good ideas. I think that could also be some continuing growth area.
Thanks for that. The other question I had was on Neles. Which, as we all know, is being looked at by Valmet. I was just wondering about your relation to Neles, because Valmet has said basically they don't buy directly from Neles. Neles directly sells to the Pulp & Paper companies, they say. I was just wondering if you had any relation to Neles on the supply side, and let's assume that Valmet would be buying it. How easy is it to substitute? Do you think there's enough other valve suppliers that you can choose from? Yeah, maybe some thoughts on that topic.
Would not be any problem. I don't want to say this is a commodity and there are 20 different suppliers, but there definitely are many other suppliers, and it would not happen. In Valmet, we are using many suppliers, both of Valmet and us. Whether these are erection companies or whether these are fabricators in Finland or in Estonia. There are many suppliers that are supplying and have been supplying for many years to both Valmet and us. We are not in a war, or we're not in whatever, would not have any effect.
Mm-hmm. Do you source directly from them at the moment or?
Yes.
Okay.
At the moment it was, but we certainly buy from time to time from them, yeah.
Okay. Thank you. The last question is a slightly more long-term structural question on the Hydro service business. When we think about, obviously now the impact of climate change, the droughts that we see in some areas of the world where probably the Hydro plants are running on low water. In other regions, like we've seen it in China now, heavy rain, high load. How do you see that working out for your Hydro service business in the long term and your global positioning there? Do you see any impact of that?
Service-based, you mean a negative or a positive?
Because I would think, if you have areas with a lot of droughts, right, and the Hydro basins run low water, don't run very highly, I guess the service intensity goes down. Whereas maybe in other areas with heavy rain where the Hydro plants are running at full power, you have maybe more service requirements. I just wonder if you saw, obviously the drought phenomenon is not completely new, but if you saw that usually having an impact on your business or not really. Because we always think about impact on the new business and the competition from wind and others. I guess the service activity in Hydro is also quite important for your earnings in Hydro, so that would be a different story then now.
I think the volatility of Hydro power generation compared to wind power generation is still quite favorable, I would think. Our service business in Hydro has been very good last year and continues to be good this year. I would not see any new opportunities because of these more extreme climate changes. I would also not see any negative impact. Obviously, a low electricity price is not good for the service business because the companies that are running Hydro power plants, their cash flow is lower and therefore they are maybe a little bit more thrifty, with regard to discretionary service works. Other than that, we had an increase in electricity, I think, beginning of the year, for example. I think this is business as usual. I would not see any threat. I would also not see any new opportunities.
I think the operating maintenance there would see definitely continuing opportunities where we, I think, have developed some nice software products, some remote management products. As always, individually, there are many opportunities.
The maintenance schedules are relatively independent of the load of the plants?
Sorry, the relative?
The maintenance schedules. Do the operators have firm schedules where they do the maintenance anyhow, independent of the load?
Maintenance is quite low. It's more refurbishment and that is driven by electricity prices, both with regards to the cash flow that is available for that and that is the cash flow that you think you can make if you produce more electricity. Keep also in mind for this Hydro business area, we have our pumps division, that also accounts for approximately 20% of Hydro, and that is completely different. For pumps, for example, drought is very good because we are supplying, for example, these huge pumps, which look like a turbine, that's the reason we are in this business, like a water turbine, into China for their big projects, water from the south to the north. Again, there are always opportunities and compared to the automotive industry in its current state, Hydro has many opportunities.
Understood. Thank you, Dr. Leitner.
The next question we receive is from Andreas Ring of HSBC. Your line is now open, sir. Please go ahead.
Yes, thanks for taking my questions. I will also take them one by one. The first one is related to the capacity adjustments in Metals and Hydro. Maybe you can elaborate what kind of sustainable top-line level you're looking at when adjusting your capacities. Obviously this has come down from the initial plans in Schuler and probably also in Hydro.
Obviously we are working with certain scenarios on the midterm expected volume level. We have the, let's say, luxury that we are working on a backlog. We don't want to waste time, so we obviously try to adjust our capacities relatively soon to the order intake, while we need to maintain certain capacities because we have to execute the orders. Depending on, I think it was good to have these temporary reduction opportunities in most countries in the second quarter that gave us time to think aboutAnalyze what is happening. I think the second quarter will be very important to decide whether the recovery will be relatively fast or whether it will be very slow. Our goal is to have the size that we think we need to have for next year, in time before or at the beginning of next year.
Our current plan is to really make adjustments that we end up thinking that they are necessary, and this will happen in the next, I would say two months. To a large extent this year in countries like Germany, it will maybe take a few more months to get through all these formal requirements. Goal is to have the size, the capacity globally, by the end of the year, which we feel comfortable with going to next year. We need to see what is happening. Obviously, we keep our eyes open and if necessary, we make an adjustment every month.
Okay. You're not prepared to give any kind of, let's say, range of potential top line. I think, at least in Schuler's case, you have provided initially, I think you were looking for EUR 1.2 billion, EUR 1.3 billion at some stage, and this has probably come down to below one. You're doing that on a constant basis, as I understand, yeah?
We still think that 1.2 million, 1.3 million is a reasonable size for Schuler. That should be achievable, but not under any market circumstances. The capacity for Schuler, certainly we will plan much lower. The sales level for next year obviously is cushioned by the backlog that we take into the beginning of next year. We need to have an eye on the order intake that we will have until the end of this year. That is, I would not say up in the stars, but it's difficult to, and doesn't make sense really, to decide now. I think we are monitoring the order intake, obviously, on a weekly basis globally. Have, I think, a very good impression of the pulse of the economy globally.
I don't think anybody would want to make a bet now for what will be the order intake in the next four or five months.
Oh, okay. Understood. Thank you.
That will have an important impact on our decision to which level we want to size the company.
Okay. Fair enough. Thank you. On the potential order awards in Hydro in the second half, you mentioned, I think you indicated that already in the first quarter. Generally, you, I think, talked about one or the other good news. Is it one big order we should look for or is it a couple of smaller or medium-sized ones? What kind of magnitude would you envisage for the second half?
To make it clear, I have not said we have an order already. It is still hope, but obviously, we have reason to have this hope. It would be in the very low triple digits.
Okay. Thank you. My next question relates to pulp, but just a follow-up to your comments on Sven's questions as well. With regard to execution of the order backlog, lower margin, obviously, you mentioned also the issues with regard to services in some mills. How should we look into the current profitability in pulp and the speed of execution of backlog also of the larger projects? Obviously the margin is very high in the second quarter. The question is to which extent is it sustainable and to which extent you can continue to quickly execute the backlog as you obviously did in the second quarter.
I think last time I said that I cannot guarantee that we can maintain the very high profitability levels. Our share price dropped by 5%. I'm not saying that again. I think you should not put too much emphasis on the quarterly results. I think we are obviously doing our best and optimistic that we can maintain approximately the profitability level in Pulp & Paper, provided nothing dramatic happens on the overall economy. It would be too much interpretation to say, well, this is in Q2 now, we have added a few percentage points, and this is now what will continue forever. I think this is a regular volatility.
Okay. The quarterly revenue level with regard to executional backlog is very sustainable then for the next quarters. Is that a fair assumption?
I don't want to give you complete guidance and wouldn't know it yet. These large projects are under full execution for the rest of this year, yes.
Yep. Okay. My last question really is on the M&A side and with regard to potential M&A pipeline, and especially with regard to maybe queries from family companies. I mean, when you acquired Schuler, you were talking about a network of family companies that approach you from time to time. I just wonder whether the current environment increased or make this happen again. What do you think on that?
So far, nobody desperate has called me and asked me to come, he wants to give away his company. I think it's also too early. The experience from 2009 has been that the recovery has come very quickly, at least the improvement of the atmosphere and the mood, and there were no emergency sales. Will it be different this time? If you look at stock exchanges, everybody thinks this is just very temporary and we are back to pre-COVID levels. That obviously has an impact on family companies also. If our situation stays a little bit more difficult than expected for another two quarters, maybe there are some opportunities here. I think currently we have the same problem as we had in 2009, that many companies are affected by the current circumstances.
Everybody says, "Okay, this is this year, and next year will be normal." Do we want to bet on that? If it's a perfect company we have always been looking for, maybe. If it's a company that fits well, but we can also live without, we probably would not want to take the risk.
Okay. Very clear. Many thanks.
The next question we receive is from Daniel Lion of Erste Group. Your line is now open, sir, please go ahead.
Thank you for taking my questions as well. Good morning. I would like to follow up a little bit on the restructuring. Could you maybe provide us a split on the provisions in all of the areas you're planning to restructure? What kind of savings are you expecting from next year on from these restructuring steps? Is this mainly related now to reducing personal costs, or is this also organization-wise? Maybe a little bit more color here.
Obviously, it has to be a mixture of everything. Of not only the workforce, but also the structure of the organization, and also questioning certain units, certain locations. All that will be done. The better part, the biggest participant of this project will be Schuler, followed by Hydro, and then followed by the others with some small numbers.
Do you expect also some impairments, or are the impairments already included in this figure that you mentioned, or at least the range that you mentioned?
Yeah. We are obviously checking it regularly. I think end of this year will be, how should I say, decisive whether there is something necessary or not. Currently, we don't foresee that. Again, it depends on how the next five months are developing.
Mm-hmm. What do we see in terms of order dynamics, market dynamics, broken down in the respective regions currently?
China is quite active. Asia as a whole, I would say also. South America is dead more or less in terms of new projects. North America, U.S., has its difficulties because obviously there is the COVID problems are in full swing and still, I think, accelerating. That certainly will have an impact on the level of new projects. Obviously the restrictions on traveling do not play a big role on the order execution because you can do that by video and people have already been on site or we have companies in this country. I think we have done an excellent job in keeping the sites working. To develop new projects with customers is obviously impacted and the appetite of customers to concentrate on new projects obviously is also limited. Everybody, I think, is waiting to see how next two months develop.
That will define what the budgets will be for next year. If that is clear, our customers and the employees of our customers will know what is their scope for activities beyond what has to be done on maintenance and consumables and variables. I think for this, we need to wait until we see a substantial pickup.
Mm-hmm. Okay.
Obviously we hope that Q2 has been the bottom, but I would say it's a mixture of hope and some good reasons to think that also. Again, a lot of that is hope.
Yeah. At least that's what most of the market participants expect for the time being.
Right.
This seems the bottom in many aspects. Maybe coming back as a follow-up to this restructuring. Would it be fair to assume some, maybe half of the provisions that you take as a permanent cost savings from next year on?
Sorry, we didn't answer the question for the savings. This is, in essence, an adjustment to a lower volume. It is also an activity to get rid of under absorption, under utilization in the current performance. Obviously, we have in Schuler, we are incurring under absorption because we have lower capacity and the same to a much lesser extent, but still applies also to Hydro. If we get rid of that, obviously the underlying, let's say, operating profitability is somewhat higher than what we can show today because we have this under absorption issue.
Mm-hmm. Okay. I understand. Okay, perfect. Thank you very much.
As we receive no further questions, I hand back to Dr. Leitner for closing remarks.
Thank you very much. Nothing more to say. Look forward to talk to you in about three months. Thank you.