Andritz AG
VSE:ANDR
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Mastercard Inc
NYSE:MA
|
Technology
|
|
US |
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Walmart Inc
NYSE:WMT
|
Retail
|
|
US |
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
47.94
64.95
|
Price Target |
|
We'll email you a reminder when the closing price reaches EUR.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Mastercard Inc
NYSE:MA
|
US | |
UnitedHealth Group Inc
NYSE:UNH
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Walmart Inc
NYSE:WMT
|
US | |
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Dear ladies and gentlemen, welcome to the conference call of Andritz AG. At our customer's request, this conference will be recorded. [Operator Instructions]
May I now hand you over to Dr. Leitner, who will lead you through this conference. Please go ahead.
Yes. 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. And I informed that everybody is expecting the deepest recession since the second world war. Obviously, causes a problem and a challenge going forward because I think what we have seen so far is that the supply side has been holding up very well, but when the supply side picks on the same stored up when -- and if the demand side is there and is recovering. And I think there it's -- it would be very important to not change the atmosphere in the world 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 in -- on a more general level. From our standpoint, first quarter results have seen, obviously, impact from the corona crisis, first in China, February; and in the second half of March in Europe. The effect on the sales side so far has been minor. And as you probably have seen, order 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. However, and I would 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 the 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 our workers' representatives. As these cost savings measures gradually would start to bear fruits in the next several quarters.
And Pulp & 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, for my general introduction.
And now if we move on to the presentation and also to [ against ] some cautious words on the outlook, as you probably would expect. On Page 3, yes, 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 & Paper, thanks to booking a large order from UPM, Uruguay. Metals keep booking. That's the only bright spot for Metals. Metals solid; and Hydro, continuing weak.
Order backlog, very high, EUR 7.9 billion. I think it's the third -- second or third highest backlog in our history. Sales at EUR 1.5 billion, basically unchanged to our first quarter of last year. No major -- so far, no major sales impact from the COVID-19 crisis. EBITA is significantly down, as already said, due to Metals, mainly Schuler. Pulp & Paper, continuing good profitability and profit EBITA margin down to 4.6% after 5.6% in Q1 of last year.
Some details, Page 5. Order intake, very good, plus 12%. But on the right side, you see plus 34% in Pulp & Paper; plus 4% in Metals caused by a very weak and low order intake in Q1 2019 for Schuler so slight growth; and negative development in Hydro, minus 22%. And Separation, minus 11%. But for both Hydro and Separation, we are not concerned about the order intake for the balance of this year. And I would get back to that a little bit later.
Slide 6. Quarterly development. You see last 4 quarters, we had 2 very high quarters Q2 and Q3 last year, both above EUR 2 billion, thanks to 2 large pulp projects in South America last year, and this year, this should be a more the -- for South America.
Yes. I think that's -- probably, on the regional side, on the right side, thanks to this large South American order, South America has come up to 1/3 of our order intake, but 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 7. Sales. Flat sales, plus 1%. Here, clear picture. Pulp & Paper, increasing; the other 3 business areas, decreasing. Overall, balancing out.
Slide 8. Service business, continuing good development. We need to compare Q1 sales with Q1 sales in 2019. So it's flat. 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 but also very good -- otherwise, a very good quarter. So services continues to develop quite well. Also, there is obviously an impact of COVID on the service business in -- with regards to the field services. If traveling is -- between countries is no longer possible, and if plants shut down their gates to people coming from the outside, field service obviously has a difficult time. That is definitely negatively affected. But overall, service is certainly expected to show a substantial higher stability in comparison to the capital business.
Overall, service is a growth story on our side. Over the year, 10% per year growth rate. And due to the growth in sales -- about -- slightly lower, total percentage of 38% of total sales.
By business area, quite different. Pulp & Paper, 45%; and 52% even Separation; hydro, 33%; and Metals, the lowest at 23%, on Slide 9 is that.
Slide 10. For the backlog, I think we've covered that, very high, with Hydro and Pulp & Paper accounting for the majority of this backlog due to their longest execution time, especially the larger orders.
Slide 11. EBITA, down, holding up in Pulp & Paper; substantially down in Metals; Hydro, slightly lower; and Separation, also slightly lower. With regard, I think, Pulp & Paper, I don't need to excuse anything or explain anything, 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 has -- 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 bright spot within the Andritz universe. But 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, and also if and when and where it's needed, to continue to adjust the capacities in various countries, consolidating into 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 the net income. And just to give you the breakdown graphically also, so from an EBITDA of 7.5%, EUR 112 million, depreciation, 42% to an EBITDA of EUR 70 million; and IFRS 3 amortization, EUR 16 million; financial results, EUR 9 million; and tax rate, 31% to the EUR 30 million net income.
Cash flow, Page 13, stable. You see the comparison -- comparable figures of last year. So depreciation, especially amortization, has come down to EUR 59 million and provisions trends, similar to last year. And the other, I think is small, 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. But with that position, we definitely have not reserved 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 to EUR 208 million. Quite a substantial part of that is exchange rate losses. And a part of that in Brazil due to the weakening of the Brazilian reais where we have lot of cash in connection with the execution of the orders we are -- we have there underway.
Page 16. Summary of the key figures. Yes, highlight is this cash flow from operating activities, completely same as last year. And compared to last year, obviously, net working capital has improved substantially. Compared to end of last year, it has been more or less stable.
Now move on to the business areas. And I think a lot of that has already been said. Yes, Pulp & Paper, very good, good order intake, good profitability. Service business, very important for that. And we expect -- obviously, and this applies to all of the 4 business areas. We definitely expect some impact on the capital order intake as a consequence of corona. And -- but we also expect an impact on the service order intake. But we expect this impact on service to be substantially less than capital. And obviously, any impact on the capital order intake is translated into sales only over the next 1 to 2 years, let's say, 1 year. So the sales effect definitely will be smaller and lower than the order intake effect.
So much about Pulp & Paper. Yes, here is a nice story. I think we have, some 2 years ago, we have acquired a company in Italy, not in Lombardy but in Pescara, the middle of Italy. That is producing machines to produce diapers. And if you remember, we acquired that because we are very strong in the production step before that, meaning production of nonwoven fabrics. And in the beginning of this corona crisis, we converted the pilot machine or one of the pilot machines we have there into a machine that can produce facemasks. And 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 face masks.
And we have already started to sell this production equipment. These are not -- these are low single-digit millions per production line, so I don't expect a huge impact on our group top line. But 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 face masks. We are just in the process now of completing the development of these project -- products getting certifications that are needed. This would be these critical masks. So 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 steaming, et cetera, and then retail and distribution where we are not involved. So this was the easy part, Pulp & Paper.
Now we go to the difficult part, Metals. And yes, it's -- order intake has developed reasonably. But clearly, it's both segments, both the regular steel industry, but also, and 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. But once you have agreed on the social plan, you have agreed on the plan, and you don't want to reopen it. So we -- you will see from quarter-to-quarter from now on a reduction of costs. But on a year -- on a full year basis, the majority of these earnings will be visible only next year. But from the third quarter of this year onwards, we should see some effect of these cost reductions. So much about Metals.
Hydro. Yes, we have a challenging market environment. How is it affected by corona? And basically compared to the other business areas. So quite a substantial differences between the different countries, substantial differences between customers. Some are accelerating their refurbishments, some are asking to stop construction sites. It's really a lot of difference that can be seen here. Now being in renewable energy, obviously, is an advantage.
Looking at the energy consumption forecast for this year that assume minus 10% for North America, minus 10% for Europe. Globally, I think it's minus 6%. Obviously, we'll not create a substantial push for additional investment. On the other hand, if governments decide to increase their investments on the -- from the government side, renewable energy is a very good way to do that and still are in line with this sustainability plan that the European Union with the commitment for CO2 reduction. And actually, renewable energy consumption will continue to grow this year. So I think there is -- we don't have to be too concerned, but I would not expect a huge jump in demand for Hydro power.
And 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 work week rules in various countries have expired.
Slide 22, Separation. Reasonable performance. Order intake, down compared to last year -- last quarter, quarter of last year. But I expect good order intake for the second quarter of this year. So order intake is not maybe hit, maybe impacted by corona. 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 corona development and absent any second dip into lockdowns or something similar.
Yes. Outlook. Obviously, we are affected by corona, on Slide 24. We had a few temporary shutdowns. But 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 pools that governments or that 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. So in many countries, we have implemented short workweeks. We have FERS certification days. Time credits have been consumed. All our global management group, including the executive Board, has taken 20% pickup for at least the second quarter, maybe to be extended to the third quarter, depending on how the situation develops. Obviously, we have from the beginning of the year actually higher increase. And we will look into all our discretionary expenses in our -- 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. It's -- we are in special times. And you cannot extrapolate experience of the past. And it's 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 close the order intake in the coming months because that will define the capacity needs for next year. And if we see a substantial impact on the order intake next 2 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 our -- the principles of our strategies? No, we are not. We work -- we feel we are in -- overall in good position, so 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 2-week shutdowns. But we are back in work in many of them, not in all of them, but in many of them. So it, so far, it looks reasonable. But things can change very quickly if one event happens in large construction site, which leads to a complete shutdown there. So overall, interesting times. But we -- I think we have very clear plans. We have clear policies how to address that. And -- but 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 the pulling up -- 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. Whenever that could be, we certainly would do that quickly.
So much my presentation, and I look forward to your questions.
[Operator Instructions] And the first question we've received is from Sven Weier of UBS.
Yes. Dr. Leitner, the first one is on Pulp and the announcement from Valmet yesterday regarding the [ Metsa ] 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 were not so, kind of, let's say, desperate to win another one? Or what do you think has made the difference in this project? And do you think that now we basically have a relatively empty pipeline of bigger green fields? That's the first one.
Yes, thank you for your question. To answer one part of your question, we are always open for business. We are never -- we never shut our doors because we're full or we are overly full.
Secondly, I ask for understanding, I don't want -- I want to continue with our policy not to comment in detail on individual projects. But what I can say here is that we have been in technical discussions. We have never had the price negotiation. And we learned from the newspaper that the order has been placed with Valmet. So it's -- I'm sure the customer has good reasons for that. I don't know what they are. But it has been a somewhat unusual procedure, I would say.
Are we desperate that we have lost this order? No, because, 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. But I don't want to speculate what might have happened or -- but that's as much as I can say.
Is the top line empty with regard to large greenfield orders? Short term, I would say, yes. And we have always sizeable orders and projects around, for sure. So I'm not concerned about the order intake for this year. But 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, Dr. Leitner. And the second one is also on Pulp. I was just wondering on those greenfield projects you have already in the execution. I mean, 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? Or I mean, 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 for the on time on these projects, do you see any deviation there?
No. No. I think you know the larger projects, once they've been started, obviously, the interest costs are running. Any delay or shutdown costs a lot. Therefore, we are working very closely with the customer on each construction site where we are going, if we are also involved there to keep the work running. There are challenges every day, shutdowns of the road, shutdown of the village next to it, shutdown of the construction site because they need to establish, I should say, provisions for the health of the workers, which obviously is always the most important thing. But customers are fully committed to continue with the projects.
I think from China, we see -- a lot of deliveries obviously come from China to projects in South America, for example, as in Europe. And I think that has recovered very nicely from the -- again, from the supply side. So we saw the shutdown in February. We see a -- 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 airfreight costs. But 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. And so far, we have not seen, I don't think, any requests to spread the execution time that a customer would not want the delivery.
I mean, obviously, what customers are doing, they are -- they had to shift some shutdowns from first to second quarter to the second half of the year because they could not -- nobody could enter the mills. And they probably have to take some more downtime depending on which paper grades, for example, they produce. And the tissue had full time, as you heard probably, this new tissue goals, I think it was called. Obviously, newsprint, graphical paper suffer definitely. But yes, I think that answers your question.
Yes, it does. And the last question I have, Dr. Leitner, is just on Metals. You've been mentioning the kind of lower-margin contracts here. I mean how should we look at that? I mean, have basically all the contracts that have been awarded in the last 12, 18 months had kind of a lower margin? Or is it more ring-fenced to individual projects? How should we look at that situation?
I mean it's clearly, last year, in terms of order intake and also in terms of market situation for Schuler has been difficult. So we had some aggressive pricing to get some volume for sure. And will that -- I mean, Schuler has a service business, which was slow in the first quarter of this year. This was one of the reasons for this loss in the first quarter. That should recover to a certain extent. Do I expect -- 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. And we still have a substantial part of tooling, while we -- because we think that's a good fit. That is suffering. A lot depends on what happens -- 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. But I think 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 2 years. But at some point, the demand not only gets back up, but there will be a certain recovery and catch-up effect also. And so therefore, medium term, I'm not particularly concerned about the automotive industry. Because, as you remember, Schuler is not very exposed to this conventional engines. Doesn't matter whether if the cars electric or conventionally driven, Schuler will participate in both segments. So medium term, I'm not -- not concerned. But I would, for the next 2, 3 quarters, I would not expect a substantial improvement in the price quality. It is not a question of individual orders having -- showing huge cost overruns. It's really across the backlog.
Now we'll go to the next question. It is from Andreas Willi of JPMorgan.
Dr. Leitner, 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 4 businesses from kind of 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?
And a follow-up on Schuler. If you 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 earlier -- 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 3 quarters. On -- yes, now 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. And in terms of the ranking of the businesses?
Ranking, sorry. The ranking, difficult to separate a virus from -- and Schuler had a difficult situation before -- even 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. So 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 4 business areas.
Pulp & Paper benefits a lot from the backlog, plus nearly 50% of service business. And -- as long as execution is continuing on a reasonable level, not the full level, but a reasonable level, the impact will be very moderate, very moderate.
Hydro again has started with a shrinking order intake with a challenge to reduce the cost in line with the speed with which the low order -- the shrinking order intake translates into shrinking sales, which was a certain time lag in between. Again, that has been aggravated by the virus. But you could say this low order intake in Q1 is a consequence of virus. It's -- they're basically not. And we are -- we continue to be optimistic for Hydro for the order intake for this year, 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, have done a lot of work, et cetera. So with regard to the order intake for Hydro, I would rather see that trough of the order intake was last year, maybe the last 4 quarters, including the first quarter of this year. But for the full year, I think there is some hope that it would be better, thanks to orders. Now that, again, would take some time a few years to be converted into sales. We go step to step.
In Separation, no impact on the environmental part of the business. No impact on the fuel part of the business. No real impact -- quite substantial impact on minerals mining. And yes, so I think -- I'm not sure it was a ranking, but at least it's the description of the effects.
The next question is from Andre Finke of HSBC.
Thanks for taking my question. A lot of them have been answered already. Maybe one follow-up on the restructuring plans, 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.
Extraordinary -- additional extraordinary expenses. No, as I said, based on today, I think we'll have some restructuring expenses across the business areas. Because obviously, we, as I've said, now we have concentrated on short-term, temporary measures. But as we go through the second quarter, we see weekly how the order intake develops. And in the third quarter, it's time to conclude. Okay, do we -- where will we be by the year-end, and how much of these temporary measures, cost reduction measures do we have to convert in permanent. And that obviously would cause some restructuring expenses.
Based on what we see today, it would not be dramatic, will not be substantial because obviously, there are many countries where that is not very expensive. Others where it is expensive. Schuler as said, based on today, we should be -- provided everything we need for the restructuring. But again, I think in 3 months, 4 months, we know more. And 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. And my second follow-up relates to the restructuring that is running at Schuler's there. Any kind of risk of delays because of COVID-19 which you can't negotiate with employees and the way you used to be, et cetera? So is there any risk potential layoff and related cost savings might be delayed?
No. It's rather the opposite that we have agreed in a complicated negotiation second half of last year on the social plan and a schedule for employment reduction. It would be very risky and delaying if we would reopen this discussion. We're wanting to accelerate it. So we stick with the plan. We -- obviously, natural attrition, natural fluctuation is 0 currently. So in this regard, it may be a slight delay because obviously, we always assume a certain natural turnover. But otherwise, at least what has been agreed upon, this is executed actually slightly ahead of the schedule.
The next question is from Sebastian Growe of Commerzbank.
Dr. Leitner, it's 2 questions from my side. The first one is around Hydro. And here the question is, you in the past always indicated EUR 1.3 billion, EUR 1.4 billion should be eventually floor level when it comes to the orders. And I think your comments on the order pipeline for a larger project would suggest that floor value might hold. So maybe you could just confirm that. And 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? And what is the part usually when we think about EUR 1.3 billion, EUR 1.4 billion related to greenfield?
And then on working capital, obviously, another good quarter, again keeping the working capital stable. But given what we're currently seeing in the end market deterioration, and you mentioned the early part of quarter 2, April having been a weak month in orders, can you just share with us what you're currently seeing in the negotiations with customers? Any deterioration in payment terms, et cetera, that we should be prepared for?
Yes. With regard to Hydro, I can confirm the first question, yes, it should be a trough. And with regard to what is the level of -- I mean, one of the reasons for the shrinking order intake in Hydro over the last several years has been substantially lower volume of large projects. And in one or the other year also lower market share [ by also ] of Andritz in these large projects compared to other -- to our competitors.
So if you look at the order intake last 3 years, it has not been -- they have not benefited a lot from large orders. On the other hand, obviously, we need from time to time. So it's difficult to say. Recurring is nothing. Everything has to be fought for and has to be secured. And I think we -- 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 last -- compact Hydro business last 2 years because of certain country issues like Turkey, like Brazil, others, but also because of heavy subsidies for solar and wind, especially for the small projects. So I would not -- I cannot say what is -- what I can say is that I don't believe -- don't think that the order intake will drop more than it has dropped last 4 quarters.
And on the comments 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 0? How should we think about that activity in particular?
No, it's not close to 0. But it's -- again, it's a mixture of in-house issues plus the market. But clearly, the market has dried up somewhat. Compact has never been a substantial part of our sales. So it's a single-digit percentage of our sales in Hydro.
Okay, good.
Second question on payments terms, et cetera. No, I think we have made -- to the contrary, we've made good progress on our program to concentrate on the working capital. There, we have done, I think, quite well. So in this regard, there's no change in -- 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 general discount of 15%. It has happened also in 2009, but I think the -- this is not what is happening in these industries. And this is also not what will happen in these industries.
Okay. That's helpful. Okay. If I just may come in to Metals very, very quickly. And I know it's maybe a theoretical question even. But nonetheless, you have been guiding in the past for 6% to 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, mix-related issues within Metals. But can you just -- if we would circle back to the Capital Market Day in '19, give us your high-level thoughts around what you would have assumed in kind of stable mix and then what's the volume to get there?
For Schuler or for what?
For Metals in total.
For Metals in total, obviously.
Yes. I could pass it on to Norbert Nettesheim. I'm not sure he has the answer. No, 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 side was about EUR 500 million. So it was about EUR 1.8 billion. Now obviously, we are sizing Schuler to a lower level on the cost side. The other part of Metals -- I mean, on the steel industry side, 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. So obviously, I could argue that maybe EUR 100 million or EUR 200 million top line could be -- we could miss.
Profitability, I think the key is Schuler. We need to find the right capacity. And especially, we need to find the right capacity in Germany. It is not so much an overall capacity issue. It's a issue in capacity in Germany. And obviously, Schuler depends on the automotive industry. And if that, to a large extent, we are -- it's not 100%. I think we have a chance to bring it down to 70%. But if people stop buying cars, we would have a problem with Schuler.
That makes sense then. And sorry for the follow-up, and three -- the final one, I promise. On the agreement that you struck with the unions in 2019 for the layoff at Schuler, the 500 staff affected, is there any sort of [ 10 ] 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. No, I'm not aware of that. I would. I would not -- knowing myself, I would never agree to that. And I'm not aware that anything of that has been negotiated.
The last question is from Daniel Lion of Erste Group.
I would have 2 more to add. One would be the impairment risk, for Schuler especially, Metal provision going forward. And the second would be, could you -- currently, it's very, very hard to predict for the automotive business. [ The numbers the months. ] It's hard to assess, but do you have any negotiations with your niche clients towards -- especially in Europe, towards the CO2 balance scheme, which will be played out both from next year on? And the impact maybe from there, I guess, prices had come down from new EV cars and demand could rise. So what's your view generally? And what will be the support you could expect maybe from the market side starting from next year, maybe in fourth quarter?
Honestly, I have hopes. And I think your -- there is also a discussion starting on this [indiscernible]. So also to say that 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. That also -- I think if Germany would do something, Austria would follow, my personal opinion. This is just an opinion. So that obviously would help a lot. This penalties of hundreds of millions, I think, based on average CO2 production of the fleet of these OEMs should be an incentive to -- 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 for the European Union or to the German government on the [ NOx ]. So I think there is some ups. And as I've said in beginning, I think you could, in these times, people, I don't think they are overly eager to share public transportation every day or every weekend. So I think the individual car probably has increased in value. And the footprint of the carbon products footprint maybe less important. But on the other hand, as long as this [indiscernible] stay in force, which also is not guaranteed, but probably would be the case, market could pick up, yes.
And this we would maybe see a bit towards the end of this year? Or how the discussions with the major OEMs on this smaller assessment on a weekly basis of how to move on? Or are there any plans that could 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. At least, they are not telling us what they think. And then honestly, I think it's -- you cannot find an analytical, solid analytical approach to how these car sales will develop. At some point, they will pick up for sure. I think this is -- I would bet on that. And -- but when it will happen, I think there's a chance. I mean there are many people, including many of our managers for other companies, that are quite optimistic for the fourth quarter. Would I want to bet on that? No. I think we will closely -- watch it closely and want to see tangible evidence if that substantial pickup really is happening.
Great. All right. And about the impairment risk?
I -- sorry, impairment in Schuler, obviously, we need to look at it. I cannot say we have a huge headroom. But clearly, there was no reason for any
impairment on them in the first quarter.
As 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.
Thank you for your attendance. This call now has been concluded. You may disconnect.