Yeah, ladies and gentlemen, welcome to the conference call of Andritz AG. At our customer's 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 difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Wolfgang Leitner, who will lead you through this conference. Please go ahead.
Yeah. Thank you very much. Good morning, everybody. Welcome to our first quarter 2020 conference call. I hope all of you are safe and have been able to get through this, I would say special and certainly challenging times reasonably well. Times where we get every evening in the news an update on the mortality rates in various countries. I'm informed that everybody's expecting the deepest recession since the Second World War. Obviously causes a problem, the challenge going forward, because I think what we have seen so far is that the supply side has been holding up very well, but the supply side makes only sense to hold up when and if the demand side is there and is recovering.
I think there it would be very important to now change the atmosphere in the mood and become more optimistic and, as a prerequisite for increasing and improving the demand side. Let's come to Andritz, before we go into the presentation, a few short remarks on a more general level. From our standpoint, first quarter results have seen obviously the impact from the coronavirus crisis. First in China, February, and in the second half of March in Europe. Effect on the sales side so far has been minor, and as you probably have seen, all the intake developed basically in line with the trend and the market conditions prevailing during the previous quarters. Meaning solid market development for pulping equipment, challenging and very competitive markets for both metals forming and metals processing. Continued rather slow market in hydro.
I will come back to that, with what we think are good chances for second half of this year. On the earnings side, group profit primarily was hit by Schuler, which suffered from capacity underabsorption and aggressive pricing, including Schuler's pricing, due to the very weak automotive market. Here we expect some improvement during the coming quarters as a cost savings measures gradually, and when I say gradually, keep in mind, this is Germany, the country of social plans and very complicated negotiations with workers representatives. These cost savings measures gradually would start to bear fruits in the next several quarters. Pulp and paper remains our bright spot with solid earnings and profitability performance both in capital and in service. Liquidity of the group continues to be solid in cash flow and also net working capital remains stable at good levels. So far, my general introduction.
Now if we move on to the presentation, and also to, again, to some cautious words on the outlook, as you probably would expect. On page three. Yeah. Q1 at a glance. Group order intake, EUR 1.9 billion. Good level, satisfactory level, but very different picture depending on the business area. Very good in pulp and paper, thanks to booking a large order from UPM for Uruguay. Metals in booking, that's the only bright spot for Metals. Metals solid. Hydro continuing weak. Order backlog very high, EUR 7.9 billion. I think it's the second or third highest backlog in our history. Sales at EUR 1.5 billion, basically unchanged to first quarter of last year. So far, no major sales impact from the COVID-19 crisis. EBITDA is significantly down, as already said, due to Metals, mainly Schuler. Pulp and Paper, continuing good profitability.
Profit EBITDA margin down to 4.6% after 5.6% in Q1 of last year. Some details, page five. Order intake, very good, +12%. On the right side, you see +34% in pulp and paper, +4% in metals, caused by a very weak and low order intake in Q1 2019 for Schuler, so slight growth. A negative development in Hydro, -22%, and Separation -11%. For both Hydro and Separation, we are not concerned about the order intake for the balance of this year, and I will get back to that a bit later. Slide six. Quarterly development. You see last four quarters, we had two very high quarters, Q2 and Q3 last year, both above EUR 2 billion, thanks to two large pulp projects in South America last year. This year, this has been more for South America.
I think that's probably on the regional side, on the right side. Thanks to this large South American order, South America has gone up to one third of our order intake, that's driven obviously by one order. The rest is, as you know, pretty stable with a few percentage points variation from quarter to quarter. Slide seven, sales. Flat sales, plus 1%. Here, clear picture. Pulp and Paper increasing, the other three business areas decreasing. Overall, balancing out. Slide eight, service business continuing good development. We need to compare Q1 sales with Q1 sales in 2019, it's basically flat sales, minus 2%. We had a big jump in 2019 compared to 2018. The better part of that, first time consolidation of Xerium, also very good, otherwise a very good quarter. Services continues to develop quite well.
There is obviously an impact of COVID-19 on the service business with regard to the field services. If traveling between countries is no longer possible, as if plants shut down their gates to people coming from the outside, field service obviously has a difficult time that is definitely negatively affected. Overall, service is certainly expected to show substantial higher stability, in comparison to the capital business. Overall, service is a growth story on our side. Over the years, 10% per year growth rate. Due to the growth in sales, about a slightly lower total percentage of 38% of total sales. Our business area, quite different. Pulp and Paper, 45%. For 52% even, Separation. Hydro, 33%, and Metals the lowest at 23% on slide nine. Slide 10.
Order backlog, I think we have covered that very high, with Hydro and Pulp and Paper accounting for the majority of this backlog due to their longest execution times, especially the larger orders. Slide 11. EBITDA down. Holding up in Pulp and Paper, substantially down in Metals. Hydro, slightly lower, and Separation also slightly lower. With regard, I think Pulp and Paper, no need to excuse anything or explain anything. It continues to be nicely profitable above the market profitability. Hydro, we still continue to be above market profitability, but obviously the shrinking market, the decline in order intake, which gradually is translating into sales, has led to, I would say, a more challenging order backlog with regard to price quality, and that shows in this profitability. We expect Hydro to continue to be nicely profitable, to be a price spot within the Andritz universe.
Again, it has become somewhat more challenging and we're doing our best to make sure that we execute the orders very precisely, avoiding erosion. Also if, and when, and where it's needed to continue to adjust capacities in various countries, consolidating into the lower number of countries' activities to make sure that we maintain a competitive cost base. Separation, I have no concerns. I think profitability this year should be at least as good as last year. Slide 12, EBITDA. Bridge to net income. To give you the breakdown graphically also. From an EBITDA of 7.5% or EUR 112 million depreciation, 42% to an EBITDA of EUR 70 million. IFRS 3 amortization, EUR 16 million. Financial results, EUR 9 million. Tax rate, 31% to the EUR 30 million net income. Cash flow, page 13, stable. You see the comparable figures of last year.
Depreciation, especially amortization, has come down to EUR 69 million. Provisions similar to last year. The other rest I think is smaller changes. On the next page 14, our financial position, gross and net cash. Gross cash, EUR 1.5 billion. Very happy that we have always had the policy to make sure we have a lot of cash. We obviously had to pay for that with the negative spread in interest rates. With that position, we definitely have not to reserve any time for discussions with the banks to make sure that we can maintain our liquidity. Net cash has gone down slightly from EUR 245 million - EUR 208 million. Quite a substantial part of that is exchange rate losses.
Get a part of that in Brazil due to the weakening of the Brazilian real, where we have a lot of cash in connection with the execution of the orders we have there on the way. On page 16, summary of the key figures. Highlighted is cash flow from operating activities, completely same as last year. Compared to last year, obviously, net working capital has improved substantially compared to end of last year. It has been more or less stable. Can now move on to the business areas, and I think a lot of that I've already said. Yeah. Pulp and paper, very good. Good order intake, good profitability. Service business, very important for that. We expect, obviously, and this applies to all of the four business areas. We definitely expect some impact on the capital order intake as a consequence of COVID-19.
We also expect an impact on the service order intake, but we expect this impact on service to be substantially less than on capital. Obviously, any impact on the capital order intake is translated into sales only over the next one to two years, let's say one year. The sales effect definitely will be smaller and lower than the order intake effect. Much about pulp and paper. Here's a nice story, I think. Two years ago, we have acquired a company in Italy, not in Lombardy, but in Pescara, in the middle of Italy, that is producing machines to produce diapers. If you remember, we acquired that because we are very strong in the production step before that, meaning production of nonwoven fabrics.
I think in the beginning of this COVID-19 crisis, we converted the pilot machine or one of the pilot machines we have there into a machine that can produce surgical masks. We have been successful to obtain also the raw material, which are 3 or 4 different types of nonwoven fabrics, and are starting to produce these surgical masks. We have already started to sell this production equipment. These are low single-digit millions EUR per production line, so don't expect a huge impact on our group top line. We have already sold several lines of that and hope to sell a few more, as many countries have decided to start up domestic national production for these surgical masks. We are just in the process now of completing the development of this product, getting the certifications that are needed. This will be these surgical masks.
I think it's a nice add-on to what we have had running for a longer time. On page 19, you see where it fits into the overall, let's say, supply chain. Raw material, one of the raw materials is also cellulose. It was one of the reasons why we went into that. The nonwoven fabrication is what I just described, converting is this production of, among other things, diapers, but also pads for face cleaning, et cetera. Retail and distribution, where we are not involved. This was the easy part, pulp and paper. We go to the difficult part, metals. Order intake has developed reasonably, but clearly it's both segments, both the regular steel industry, but also in especially Schuler with the automotive industry, are heavily impacted, negatively impacted.
I think I don't need to talk about the automotive industry, a very difficult situation, and question is certainly, is our restructuring plan from middle of last year that extended over 24 to 30 months, is it still sufficient or do we need to restructure more? Based on what we know today, from a financial side, it should be sufficient. We have some flexibility within these provisions. We are redirecting and reorienting certain of these actions. We have to adjust some areas a little bit more, but so far we are within the original plan. Obviously, we would have preferred to be faster with these actions. Once you have agreed on the social plan, you have agreed on the plan, and you don't want to reopen it. You will see from quarter to quarter from now on, a reduction of costs.
On a full year basis, the majority of these earnings will be visible only next year. From the third quarter of this year onwards, we should see some effect of these cost reductions. Much about Metals. Hydro. We have a challenging market environment. How is it affected by COVID-19? Basically comparable to the other business areas. Quite a substantial differences between the different countries, substantial differences between customers. Some are accelerating their refurbishment, some are asking to stop construction sites. It's really a lot of difference that can be seen there. Being in a renewable energy, obviously is an advantage. Looking at the energy consumption forecasts for this year that assume - 10% for North America, -1 0% for Europe. Globally, I think it's minus 6%. Obviously will not create a substantial push for additional investment.
On the other hand, if governments decide to increase their investments from the government side, renewable energy is a very good way to do that and still be in line with this sustainability plan of the European Union, with the commitment towards CO2 reduction. Actually, renewable energy consumption will continue to grow this year. I think we don't have to be too concerned, but I would not expect a huge jump in demand for hydro power. Again, as I said, yes, profitability is slightly lower than last year, but we expect it to stay solidly and attractively profitable in the foreseeable future, probably including or after some additional restructuring on the capacity side. Some of that is going on already. Some of that will be addressed once these limitations caused by short workweek rules in the various countries can expire. Slide 22, Separation. Recent performance.
Order intake down compared to last year, last quarter of last year. I expect good order intake for the second quarter of this year. Order intake is not maybe hit, maybe impacted by COVID-19, but for, let's say, the first half of this year, it still looks quite good. Sales are slightly down, profitability also, but I would be negatively surprised if this year's full year's profitability would be below last year's, but subject to COVID-19 development and absent any second dip into lockdowns or something similar. Our outlook. Obviously, we are affected by COVID-19 on slide 24.
We had a few temporary shutdowns, we also managed to continue to run many of our production plants, including Northern Italy, through this crisis, but at a lower production with spread shifts so that people don't meet each other, with partially short workweeks, vacation consumption, all the tools that governments are available to mitigate lower sales with lower costs. We clearly expect a lower order intake for the coming quarters, as I've said. More impact on capital than on service. What are we doing? We optimize short-term cost reduction while keeping an eye on medium-term requirements with regard to capacity containment, capacity reduction. In many countries, we have implemented short workweeks. We have vacation days, time credits have been consumed.
All our global management group, including the executive board, has taken a 20% pay cut. For at least the second quarter, maybe to be extended to the third quarter, depending on how the situation develops. Obviously, we have had from the beginning of the year actually a higher increase, and we will look into all our discretionary expenses into our contract personnel, et cetera, to adjust our cost base short term. We have very ambitious goals already for the second quarter. Whether we really achieve that remains to be seen, to be honest. We are in special times, and you cannot extrapolate experience of the past, and it also a lot depends on some decisions on the national level, so that we have, as I said, we have ambitious plans, but let's see how much of that we can implement.
Medium term, we need to follow very closely the order intake in the coming months, because that will define the capacity needs for next year. If we see a substantial impact on the order intake next two quarters, we certainly will adjust our permanent structure still this year to be in good shape from our expenses, from our costs, starting from the beginning of next year. Are we going to change the principles of our strategies? No, we are not. We feel we are overall in good position, we work very closely with our customers. We have some very good results on the large construction sites. We have gone in some cases through two-week shutdowns. We are back in work in many of them, not in all of them, but in many of them. So far it looks reasonable.
Things can change very quickly if one event happens in a large construction site, which leads to a complete shutdown there. Overall, interesting times. I think we have clear plans. We have clear policies how to address that and, obviously, it's too early to give any accurate numerical guidance for the balance of the year. I think we've been very early with pulling back our guidance and admitting that there will be effects, and we will continue with this policy as long as we see, have some solid information, solid basis to give some guidance, whatever that would be. We certainly would do that quickly. Much my presentation, and I look forward to your questions.
Thank you. We will now begin the question and answer session. If you have a question for our speaker, please dial zero and one on your telephone keypad now to alert you. Once your name has been announced, you can ask a question. If you find your question is answered before the option to speak, you can dial zero and two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. A moment please for the first question. The first question we have received is from Sven Weier of UBS. Sven Weier, your line is now open.
Yes. Good morning, Wolfgang Leitner, and thanks for taking my questions. The first one is on pulp and the announcement from Valmet yesterday regarding the Metsä project. I was just wondering if you could give us some color on why you have not been involved in this project in terms of getting some of the project. Is it because your backlog is full and you are not so kind of, let's say, desperate to win another one? What do you think has made the difference in this project? Do you think that now we basically have a relatively empty pipeline of bigger green fields? That's the first one. Thank you.
Good morning. Thank you for your question. Well, to answer one part of your question, we're always open for business. We never shut our doors because we are full or we are overly full. Secondly, I ask for understanding. I want to continue with our policy not to comment in detail on individual projects. What I can say here is that we have been in technical discussions. We have never had the price negotiation. We learned from the newspaper that the order has been placed with Valmet. I'm sure the customer has good reasons for that. I don't know what they are. It has been a somewhat unusual procedure, I would say. Are we desperate that we have lost this order now? As you know, we have lost a complete pulp mill in February, I think, whatever, in the first quarter from UPM.
Have we been less interested? No. We also, I think we were technically fully accepted. I don't want to speculate what might have happened. That's as much as I can say. Is the pipeline empty with regard to large greenfield orders? To short term, I would say yes. There are always sizable orders and projects around for sure, so I'm not concerned about the order intake for this year. Obviously this was, for sure, the main and most likely project to go ahead this year after the UPM decision in the first quarter. Does that answer your question?
Yes. Yes, Wolfgang Leitner. The second one is also on pulp. I was just wondering on those greenfield projects you have already in the execution, do you see clients asking for delays or are you seeing them pushing them a little bit to the right because of the corona uncertainties? Notwithstanding the fact that, of course, there are supply chain issues maybe, but just in terms of the client will, so to speak, to go ahead fully on time on these projects. Do you see any deviation there?
I think, the larger projects, once they've been started, obviously the interest costs are running. Any delay or shutdown costs a lot. We are working very closely with the customer on each construction site, if we also are involved there to keep the work running. There are challenges every day. Shutdowns of the roads, shutdown of the village next to it, shutdown of the construction site, because they need to establish, how should I say? Provisions for the health of the workers, which obviously is always the most important thing. Customers are fully committed to continue with the project. I think from China, we see there's a lot of deliveries obviously come from China to projects in South America, for example, as in Europe. I think that has recovered very nicely from the, again, from the supply side.
We saw the shutdown in February. We saw a catch up, substantial catch up in March. We see, let's say a few weeks of delay in deliveries from there. We see an increase in costs for containers. We see a big increase in air freight costs. Things are running and I think that will not be the bottleneck in the coming months. We'll have some impact, but will not be a serious bottleneck. So far we have not seen, I don't think, any request to spread the execution time where the customer would not want a delivery. Obviously what customers are doing, they had to shift some shutdowns from the first or second quarter to the second half of the year because they could not, nobody could enter the mills. They probably have to take some more downtime, depending on which paper grades, for example, they produce.
Tissue had a tough time, as you have heard probably. This new tissue gold, I think it was called. Obviously, newsprint, graphic paper suffer definitely. Yeah, I think that answers your question.
Yes, it does. Thank you for that. The last question I have, Wolfgang Leitner, is just on Metsä. You've been mentioning the lower margin contracts here. How should we look at that? Have basically all the contracts that have been awarded in the last 12 or 18 months had a lower margin, or is it more ring-fenced to individual projects? How should we look at that situation?
It's clearly last year in terms of order intake and also in terms of market situation for Schuler, has been difficult. We had some aggressive pricing, to get some volume for sure. Schuler has a service business, which was slow in the first quarter of this year. That was one of the reasons for this loss in the first quarter. That should recover to a certain extent. Now we have, as you know, we have been able to sell this body panel part of this tooling business and parts business, which obviously helps a lot. We still have a substantial part of tooling because we think that's a good fit. That is suffering. A lot depends on what will happen on the OEM side.
If they now start up production, if they come out with new models, if there is a demand, a growing demand for cars, obviously Schuler, including the tooling part, would benefit, I would expect rather quickly. If we have another year of double-digit shrinking global automotive market, obviously it will stay difficult for this year also with regard to the margins in order intake, which would translate in a low margin backlog for next year. It may be driven by angst or by hope, but the industry obviously thinks that there can be a subdued demand for cars for months, maybe for two years. At some point, the demand not only gets back up, but there will be a certain recovery and catch-up effect also.
Therefore medium-term, I'm not particularly concerned about the automotive industry because, as you remember, Schuler is not very exposed to these conventional engines. Doesn't matter whether the car is electric or conventionally driven, Schuler would participate in both segments. Medium-term, I'm not concerned, but for the next two, three quarters, I would not expect a substantial improvement in the price quality.
Thank you, Dr. Leitner.
It is not a question of individual orders showing huge cost overruns. It's really across the backlog.
Thank you, Dr. Leitner.
Thank you. Now we go to the next question. It is from Andreas Willi of JPMorgan. Please go ahead, your line is now open.
Yes. Good morning, Dr. Leitner. Thanks for your time. My first question is on the impact of the virus, shorter term, in terms of disruptions, extra costs, site access issues, et cetera. Could you rank the four businesses from least impacted to most impacted as you see it currently, in April or basically last weeks, and your expectations for Q2, where we could see the biggest impact? A follow-up on Schuler. If we look back at 2009, obviously the business was substantially loss-making in the downturn. When you look at the savings coming in and your expectations, what would be a reasonable timeframe for the business to basically return to black and reach breakeven? Is that a sensible target for next year, or is that already possible earlier in terms of the run rate?
Earlier than next year? No. I think next year would be the hope that we are at least breaking even. Hopefully more. Depends on, as I said, development of the order intake and then price quality in the next three quarters. We can speculate on a quarterly basis, how the fourth quarter of this year will be, but I rather would not want to do that, to be honest.
Yes. Thank you. In terms of the ranking of the businesses?
Ranking. Sorry. The ranking. Schuler had a difficult situation before, by the way, before the virus, and obviously that has been aggravated for Schuler's customers by the virus, and therefore, it has also been aggravated for Schuler. That certainly is most heavily hit. It's also most heavily hit because the service share of total sales is the lowest compared to the other four business areas. Pulp and Paper benefits a lot from the backlog, plus nearly 50% of service business. As long as execution is continuing on a reasonable level, not the full level, but a reasonable level, the impact will be very moderate.
Hydro again has started with a shrinking order intake, with a challenge to reduce the costs in line with the speed with which the shrinking order intake translates into shrinking sales, which was a certain time lag in between. That has been aggravated by the virus. You could say this low order intake in Q1 is a consequence of virus. It's basically not. We continue to be optimistic for Hydro for the order intake for this full year. There are a few large projects around that so far we have no reason to believe that they would not be realized, where we are in very good positions. We've done a lot of work, et cetera.
With regard to the order intake for Hydro, I would rather see that the trough of the order intake was last year, maybe the last four quarters, including the first quarter of this year. For the full year, I think there is some hope that it would be better thanks to orders. That, again, would take some time, a few years to be converted into sales. We go step to step. Separation, no impact on the environmental part of the business. No impact on the food part of the business. No real impact, quite substantial impact on minerals mining. I think, I'm not sure that was a ranking, but at least it was a description of the impact.
That was helpful. Thank you very much.
Thank you. The next question is from Andreas Sinding of HSBC. Please go ahead, your line is now open.
Yes, good morning. Thanks for taking my questions. Not that it has been answered already. Maybe one follow-up on the restructuring plan. Both the short-term cost measures you indicated and also the ongoing restructuring at Schuler. On the short-term measures, should we expect any significant costs related to that in the course of this year or early next year? That's my first question.
Significant what?
Extraordinary. Additional extraordinary expenses.
As I said, based on today, I think we will have some restructuring expenses across the business areas. Obviously, as I have said, now we have concentrated on short-term temporary measures. As we go through the second quarter, we see weekly how the order intake develops. In the third quarter, it's time to conclude, okay, where we will be by year-end, and how much of these temporary measures, cost reduction measures, do we have to convert into permanent? That obviously would cause some restructuring expenses. Based on what we see today, it would not be dramatic, it would not be substantial, because obviously there are many countries where it is not very expensive, others where it is expensive. Schuler has said, based on today, we should have provided everything we need for the restructuring.
Again, I think in three months, four months, we know more. Clearly we want to be early and conservative with regard to how much permanent cost reduction we want to at least initiate still this year.
Okay, thank you. My second follow-up relates to the restructuring that is running at Schuler. Is there any kind of risk of delay because of COVID-19? You can't negotiate with employees in the way you used to be, et cetera. Is there any risk that potential layoffs and related cost savings might be delayed?
No, it's rather the opposite. We have agreed in a complicated negotiation second half of last year on the social plan, on a schedule for employment reduction. It would be very risky and delaying if we would reopen this discussion, wanting to accelerate it. We stick with the plan. Obviously it's natural attrition, natural fluctuation is zero currently. In this regard, it may be a slight delay because obviously we always assume a certain natural turnover. Otherwise, it's what has been agreed upon. This is executed actually slightly ahead of the schedule.
Perfect. Many thanks.
Thank you. The next question is from Sebastian Growe of Commerzbank. Please go ahead. Your line is now open.
Yeah. Hi, good morning [inaudible]. It's two questions from my side. The first one, sorry, is around Hydro. Here the question is, you in the past always indicated EUR 1.3 billion, EUR 1.4 billion should be eventually a floor level when it comes to the orders. I think your comments on the order pipeline for a larger project would suggest that floor value might hold. Maybe you could just confirm that. Just for completeness, can you just remind us of what is really the recurring revenue level, i.e., what is really coming from the brownfields, et cetera? What is the part usually when we think about EUR 1.3 billion, EUR 1.4 billion related to greenfield? On working capital, obviously another good quarter here in keeping the working capital stable.
Given what we're currently seeing in the end market deterioration, and you mentioned the early part of quarter two, April having been a weak month in orders, can you just share with us what you're currently seeing in the negotiations with customers? Is there any deterioration in payment terms, et cetera, that we should be prepared for? Thank you.
Yeah. With regard to Hydro, I can confirm your first question. Yes, it should be the trial. One of the reasons for the shrinking order intake in Hydro over the last several years has been a substantially lower volume of large projects. In one or the other year, also a lower market share of Andritz in these large projects compared to our competitors. If you look at the order intake last few years, they have not benefited a lot from large orders. On the other hand, obviously, we need some time to time. It's difficult to say. Recurring is nothing. Everything has to be fought for and has to be secured. I think also the service business is really a refurbishment business, and it's a project by project business.
Compact business has suffered, for example, quite substantially the last Compact Hydro business last two years because of certain country issues like Turkey, like Brazil, others. Also because of heavy subsidies for solar and wind, especially for the small projects. What I can say is that I don't think that the order intake will drop more than it has dropped last four quarters.
And on the comment you made around-
Yes.
Maybe just quickly on Compact Hydro, because you mentioned then also solar and particularly wind, taking obviously a fair share of that prior market for Compact Hydro. Is that now really close to zero, or how should we think about that activity in particular?
No, it's not close to zero, but it's a mixture of in-house issues plus the market. Clearly the market has dried up somewhat.
Okay, fine.
Compact has never been a substantial part of our sales, so it's a single-digit percentage of our sales.
Okay. Good.
In hydro. Second question, payment terms, et cetera. I think we've made to the contrary. We've made good progress on our program to concentrate on net working capital. There we have done, I think, quite well. In this regard, there is so far, no change in the environment. Obviously, we have received also a few letters from customers' purchasing departments that write us that life has become difficult, and they ask for a general discount of 15%. This has happened also in 2009, but I think this is not what is happening in these industries, and this is also not what will happen in these industries.
Okay, that's helpful. Just may come to Metals very quickly. I know it's maybe a theoretical question even, but nonetheless, you have been guiding in the past for 6%-7% long-term margin. I know there's a lot of things in flux, volume being the first part of it, and then you also mentioned the tooling stuff, i.e. mix-related issues within Metals. Can you just, if we would circle back to the capital market in 2019, give us your high-level thoughts around what you would have assumed and kind of stable mix, and then what's the volume to get there?
For Schuler or for what?
For metals in total.
Yeah. I could pass it on to Norbert Nettesheim, but I'm not sure he has the answer. What we have said is, I think Schuler at that time was about EUR 1.2 billion, EUR 1.3 billion, and the old metals part was about EUR 500 million, so it was about EUR 1.8 billion. Obviously, we are sizing Schuler to a lower level on the cost side. The other part of metals, on the steel industry side, the situation has not really changed, so we cannot say that we now expect a substantial pickup in new projects in the steel industry or let's say aluminum industry. If you look at the aircraft industry, I think that will stay difficult. Obviously, I could argue that maybe EUR 100 million or EUR 200 million top line we could miss. Profitability, I think, the key is Schuler.
We need to find the right capacity, especially, we need to find the right capacity in Germany. It is not so much an overall capacity issue, it's an issue in capacity in Germany. Obviously, Schuler depends on the automotive industry, and if that, to a large extent, it's not 100%, I think we have a chance to bring it down to 70%. If people stop buying cars, we would have a problem with Schuler.
Makes sense. Sorry for just a follow-up and the final one, I promise. On the agreement that you struck with the unions in 2019 for the layoffs at Schuler, the 500 staff affected, is there any sort of standstill period related to it, so that you are not allowed to come up with the next plan within a certain time period or anything like that?
No. I'm not aware of that.
Okay.
Knowing myself, I would never agree to that, and I'm not aware that anything of that has been negotiated.
Okay. Good to hear. Thank you so much.
Thank you. The next question is from Daniel Lion of Erste Group. Please go ahead, your line is now open.
Yeah, good morning. Thanks for taking the question as well. I would have two more to add. One would be the impairment risk, for Schuler especially, metals provision going forward. The second would be, of course, currently it's very hard to predict how the automotive business will develop in the months. It's hard to assess, but still, do you have any negotiations with your major clients, especially in Europe, towards the CO2 penalty scheme, which will be played out bold from next year on, and the impact maybe from there? I guess prices should come down from the EV cars and demand could rise. What's your view generally? What will be the support you could expect maybe from the market side starting from next year, maybe even first quarter?
Obviously, I have hopes. I think there is also a discussion starting on this Abwrackprämie. How should I say? A bonus of the government if you scrap your existing car and buy a new one, an efficient one, maybe an electric car, maybe a hybrid. Discussion is starting in Germany. Discussion is also in Austria. I think if Germany will do something, Austria would follow. My personal opinion, this is just an opinion. That obviously would help a lot. These penalties of hundreds of millions EUR, I think, based on average CO2 production of the fleet of these OEMs, should be an incentive, again, to price new models with a very low consumption or no consumption of oil or of gas.
You would think it's better to spend it on subsidizing cars than to pay it to the European Union or to the, I think it's European Union or to the German government, I don't know.
I think there is some ups and as I said in the beginning, I think, in these times, people, I don't think they are overly eager to share public transportation every day or every weekend. I think the individual car probably has increased in value and the footprint, the carbon dioxide footprint may be less important, but on the other hand, as long as this penalty will stay in force, which also is not guaranteed, but probably will be the case, market could pick up.
Yeah. This we would maybe see a bit towards the end of this year, or how the discussions with the major OEMs on this, is this more or less an assessment on a weekly basis of how to move on? Are there any plans that go beyond, let's say, a month or a quarter?
I don't want to say that the OEMs also don't know how the sales will be in the fourth quarter, but at least they're not telling us what they think. Honestly, I think you cannot find a solid analytical approach to how these car sales will develop. At some point, they will pick up for sure. I would bet on that. When it will happen, I think there is a chance. There are many people, including many of the managers of our daughter companies, that are quite optimistic for the fourth quarter. Would I want to bet on that? No, I think we will watch it closely and want to see tangible evidence if that substantial pickup really is happening.
Right. Thank you. What about the impairment risk?
Sorry, impairment, sure. Obviously, we need to look at it. I cannot say we have a huge headroom. Clearly, there was no reason for any impairment in the first quarter.
Mm-hmm. Yeah, right. Okay, perfect. Thank you very much.
Thank you.
Yes. There are no further questions. I would like to hand back to you Dr. Leitner for some closing remarks.
I don't have any closing remarks other than stay healthy and start thinking about buying a new car. Thank you, everybody.
Thank you.
Thank you for your attendance. This call now has been concluded. You may disconnect.