Andritz AG

VSE:ANDR

Earnings Call Transcript 2020-Q2

[Operator]

Dear ladies and gentlemen, welcome to the conference call of ANDRITZ AG.

At our customers' request, this conference will be recorded. [Operator Instructions]

May I now hand you over to Dr. Wolfgang Leitner, CEO, who will lead you through this conference. Please go ahead, sir.

[Wolfgang Leitner, executive]

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, there's 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 the result of very strong commitment and dedication of all our employees worldwide who not only made sure that all the companies or the subsidiaries, but also the construction sites on which we are working have been kept going under very difficult circumstances, and 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 results for the second quarter as we have -- as we can show today, and 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 relatively solid order intake, our Metals segment meaning Metals Processing and Metals Forming, Schuler have been hit very hard by this weakness in the order intake. Hydro basically developed along the lines and the strength 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 continued to be very good, more 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 3. Again, order intake, EUR 1.2 billion, times 4 would result in EUR 4.8 billion on an annual basis compared to more than EUR 6 billion in 1 year, even EUR 7 billion, definitely is substantially below what we would like to see. And again, it was quite good in Pulp & Paper, supported by a boom in equipment to produce nonwoven 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 -- continuing lower intake and also low sales, but I still maintain hope for the second year. I will also come back to that. And 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, so therefore, that relatively high sales level does not translate directly into the full extent into profitability, but still very good profitability maintained.

EBITA margins are up. Again, on the plus side, on the sunny side, Pulp & Paper and Separation. Metals with the problems, however, improved compared to Q1. And Hydro earnings, somewhat disappointing for the second quarter. Hopefully, we can gradually improve that until year-end.

We move on to Slide 5. Order intake for the quarter, minus 42%. However, compared to a EUR 2 billion order intake in Q2 2019, which, times 4 would be EUR 8 billion, substantially above what we can hope for in a sustainable level. So 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 -- reasonable EUR 3 billion. And 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 4 business areas.

Slide 6, quarterly development. Obviously, big break compared to the strong -- very strong orders, Q2 -- strong quarters, Q2 and Q3 2019.

And on the right side, geographically split, no dramatic change. Maybe worth noting is emerging markets. Indeed with China, with 15% 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. But in our company, we have balanced the shortfall in work in the first 2 months of the year, definitely after 1 or 2 months already and look forward to another good year in China for our ANDRITZ company.

Slide 7. Sales, up 8% (sic) [ 6%] 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 on the Service business, which may be somewhat surprising. But 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, and that definitely has had an impact on especially the consumables variables and that also will continue for another quarter. So 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. So there will be a certain effect also on the Service business, which typically is much more stable than our Capital business.

On Slide 8. Service business in more details. You'll see on the lower left-hand side, last 4 quarters, EUR 2.6 billion. Good growth rate over the years. Overall, we are now at 37% of total sales for the aftermarket.

And on the next page, 9, you see it by business area. So Pulp & Paper has gone 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 since the beginning of this year for UPM in Uruguay. The rest of the business areas is quite stable.

Obviously, in Metals, Schuler is also definitely impacted on the Service business because the automotive producers have shut down their production sites for 1 to 2 months and there was 0 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%. And half year, slightly down, EUR 177 million to EUR 174 million; and 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 also dropped also somewhat, both because of under-absorption, which we are taking care of by reducing the workforce -- continuing to reduce, but also some lower-margin orders.

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, but still slightly negative.

Hydro, I must say, disappointing, 3.2%, if -- this is after nonoperating restructuring costs. So 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 level for the second quarter, which is still below what we have become used to, but obviously substantially better than the 3.2% here.

And 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 is definitely a good profitability and should be sustainable.

For the next 2 or 3 pages, I would hand over to Norbert Nettesheim, our CFO, who will take you through the bridges for net income and cash flow.

[Norbert Nettesheim, executive]

Yes. 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 slides. 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 is.

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 this year EUR 32.2 million, which is mostly driven -- 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.

So the other elements then are, with regard to the numbers, pretty much on the level of last year. Over this first half year, we had a slight number -- a small number for impairment of goodwill. Last year, it was a Schuler company AWEBA. This year, we had also in Schuler on the operation where we had to take an impairment. This was for the Italian operation, Farina, which is this EUR 4.7 million. Leads to an EBIT of EUR 137.4 million, which is above last year's level due to the lower IFRS amortization in the first half of this year.

On the financial results are a little bit lower -- or better than last year, lower -- less loss and better number. In total, EUR 18.4 million. 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 million, higher than last year's first half year and with a, let's say, a calculated tax rate of 30%, which is a simple tax rate, taken it as an average rate here as a statistical number leads us then to a net income of EUR 83.3 million, EUR 8 million than higher last year's number, EUR 75.8 million.

So overall, let's say, not fairly dramatic development. Put it simply, it was arithmetics out of the depreciation and the interest.

Now 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 million, which you saw on the previous page already. Then, you have the model 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 by 12.5%, which adds then to EBT and which to cash flow. Cash flow, then out of the P&L, is EUR 284 million, which is EUR 40 million better than last year's, mostly driven by this provision element, which I explained before. And then 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 million, I will tell you later a few elements on this. Last year, it was EUR 82.1 million positive. In detail, I would say, mostly driven out of the regular POC order execution in major Capital businesses. Last year, 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 power 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 elements are pretty close to last year's numbers. So that we, at the end this year, come to a EUR 99.9 million positive operational cash flow compared to this EUR 270 million last year, yes. So the reason, as I explained, is the swing of nearly EUR 213 million in working capital.

The last element, which I want to present to you is arising from this cash flow development, the development in our net liquidity. The net liquidity is down by EUR 39 million and 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, the exchange rate effect. So it's EUR 60 million, EUR 64 million reduction of our metric -- of our liquidity simply due to the conversion of our Brazilian real cash positions into euro following the devaluation of the Brazilian real compared to the euro. So 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 EUR 1.5 billion of liquid funds. We have a very financed company having, in addition to the liquidity, open credit lines, which are well enough to run our business also in the future.

So overall, very solid financial position further on.

So far, from my side. Turning back to Wolfgang Leitner.

[Wolfgang Leitner, executive]

Thank you very much. I can take quickly through the 4 business areas and then come to the outlook.

On 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 a good level. And margins are still very good, 9.2% for the half year, 9.6% for the second quarter. And as I said, we benefit a lot from the boom in nonwoven where we have a very leading position in the raw material for these masks, for example, that our Italian company did a very good job in modifying the diaper for hiking production line in to a mask production line, which helped us in the beginning that we were able to produce 700,000 masks for our own usage. And as I said before, we have been able to fill more than 20 production lines. These are not huge numbers, but still sizable for the Italian company. But also, if we -- this nonwoven part of our Pulp & Paper business, this year will account for EUR 350 million-plus order intake. So that's sizable for Pulp & Paper. It's a nicely profitable business. And we're very happy we have that. So much about Pulp & Paper.

Metals, yes, I think it's -- we have, in the second half -- 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, minus 8%. And EBITA, especially, this is impacted by Schuler, which was mostly flat and is negative in this year. And we see some hope that the second quarter with regard to order intake, obviously, we think it should be the bottom, but -- it really could be the bottom. But let's see. It's too early to say, but I think there is some hope that it will improve somewhat. But it will remain difficult, it will remain at a low level and it will require further cost adjustments, cost reductions over and above of what we have planned and initiated and provided for middle of last year.

On Slide 19, weak order intake. I repeat what I said in, 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, but 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. So 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. But on the other hand, there are -- it's still the biggest renewable source of energy, the most stable one. And we certainly are confident that it will continue to be an important element of our portfolio and a profitable one also, but it will require some continuing downsizing to adjust for this lower order intake, which -- where the sales level also is declining, but with a time table for 2, 3 years, at least. So 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. So 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 ways for the sludge trials. We have this synergy with boilers based on sludge and on biomass. So it's overall good development, and we continue to be -- 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 like process-oriented. But from a risk profile and the profitability profile, a very attractive business area.

So much the business areas, and 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. But also contribute this dissolving pulp going into viscose fiber, replacing cotton, continues to be quite active with some overcapacity now being visible. So that will slow down somewhat. And then what I said is nonwoven is continuing high investment activity. And 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, I don't think I need to repeat continuing, difficult environment. Maybe the second half, slightly better, but definitely substantially below historic levels.

23, Hydro. Again, continuing challenging market environment. Prices -- electricity prices don't help. Small hydropower, COMPACT HYDRO, is affected by that because it depends on electricity prices, obviously, and they have shorter-term decision cycle. And as I've said, we still are confident we shall have one or the other good news with regard to order intake in the second half of this year.

And Separation, satisfactory. Good development.

And to conclude, turn to 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 this very substantial, temporary cost reductions into permanent cost reductions, permanent savings going forward. And 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, and we will make certain provisions in the mid- to upper double-digit million euro range probably in Q3, a better part of that, to finance these reductions. It will be a basket across several business areas, but the majority, obviously, will be in Schuler, but also in the Metals P business, Processing business, and also in the Hydro business. Obviously, also in general administration.

We are not in the crisis. So we can -- we definitely shift additional capacity into our development departments. We, I think, we have interesting projects going on so that we should be well positioned for the future regardless when the, let's say, 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. But 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%.

So much my guidance and the presentation, and I look forward to your questions.

[Operator]

[Operator Instructions] And the first question received is from Sven Weier of UBS.

[Sven Weier, analyst]

Yes. The first one is on Pulp & Paper and on the greenfield pipeline. I guess, officially with the Metsä order coming up, it's then maybe a little bit empty for the time being. But I was wondering what's going on beyond the obvious ones because we've been hearing stories about a new mill in Indonesia and so maybe you can give us a little bit of a feeling about the activity that is maybe beyond the non -- the not-so-obvious ones in South America? That's the first one.

[Wolfgang Leitner, executive]

Yes. I mean, you are definitely right that we have seen a boom in greenfield or brownfield complete line investments. So substantial capacities have been added. Together with the overall shrinking economy, obviously, it's somewhat poised on this combination. So I guess, we definitely do not count on substantial greenfield orders this year and probably also next year. I will say that this is not really analyzed. But this year, I don't think anything will be ordered but there will be sizable rebuilds. And -- so 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. I mean, we have seen this big increase in these large greenfield orders. Obviously, this have been lower margin, have been also lower value-added because of higher purchases. So we -- it will be -- the volume will be lower, but it will still be in good shape.

[Sven Weier, analyst]

And on the nonwoven side, you said this is going to be a EUR 350 million-plus business this year. I mean what's normally the size of the business?

[Wolfgang Leitner, executive]

In the range of EUR 200 million, I would say, roughly. It's fluctuating, but also it is -- we are -- it could be a year with EUR 240 million, EUR 250 million can be a year below EUR 200 million also.

[Sven Weier, analyst]

And would you see that activity then more limited to this year then probably? Or how sustainable would you see it?

[Wolfgang Leitner, executive]

I think we -- on top of what is, let's say, this impact of the COVID on the mask business and the raw material business for this mask, I think we have -- with this -- with the product we have developed there very quickly and the first one, I think we have a chance to also expand this business for the regular diapers where we also have some good ideas. So I think that could also be some continuing growth area.

[Sven Weier, analyst]

And the other question I had was on Neles, right, which, as we all know, is being looked at by Valmet, and I was just wondering about your relation to Neles because Valmet has said, basically, they don't buy directly from Neles. Neles directly sales to the pulp and paper companies, they say. I was just wondering if you had any relation to Neles is on the supply side, and let's assume that Valmet would be buying it, how easy is it to substitute? So do you think there's enough -- other valve suppliers that you can choose from? And maybe some thoughts on that topic.

[Wolfgang Leitner, executive]

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 will not have -- we -- Valmet, we are using many suppliers, both for Valmet and us. Whether these are erection companies or whether these are fabricators in Finland or in Estonia or -- so there are many suppliers that are supplying and have been supplying for many years, both Valmet and us. So we are not in a war or not in a whatever sort, would not have any effect.

[Sven Weier, analyst]

And do you source directly from them or -- at the moment or -- okay.

[Wolfgang Leitner, executive]

At the moment, we certainly buy from time to time from them, yes.

[Sven Weier, analyst]

Okay. And the last question is a slightly more long-term structural question on the Hydro Service business because 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 and other regions like we've seen it in China now, heavy rain, high loads, I mean, how does this -- 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?

[Wolfgang Leitner, executive]

Service business -- you mean a negative or a positive? Or any...

[Sven Weier, analyst]

Yes. 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. So just wonder if you saw -- obviously, the drought phenomena is not completely new. Have you thought 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, but 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.

[Wolfgang Leitner, executive]

I think the volatility of hydropower generation compared to wind power generation is still quite favorable, I would think. And our Service business in Hydro has been very good last year and continues to be good this year. So I would not see any new opportunities because of this more extreme climate changes, but I would also not see any negative impact. I mean, obviously, a low electricity price is not good for the Service business because the companies that are running hydropower plants, the cash flow is lower, and therefore, they are maybe a little bit more thrifty with regard for discretionary service works. But other than that, it's not -- and we had an increase in electricity, I think, beginning of the year, for example. So I think this is business as usual. I would not see any [ freight ]. 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 for -- as orders. But individually, there are many opportunities.

[Sven Weier, analyst]

So the maintenance schedules are relatively independent of the load of the plants?

[Wolfgang Leitner, executive]

Sorry. The relative?

[Sven Weier, analyst]

The maintenance schedule. Do the operators have kind of firm schedules where they do the maintenance anyhow independent of the load?

[Wolfgang Leitner, executive]

I think it's -- maintenance is quite low. I think 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.

But I think -- 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. So 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're in this business, like a water turbine or to China for their big projects, water from the south to the north. Again, there are also opportunities, and I think compared to the automotive industry, in its current state, Hydro has many opportunities.

[Operator]

And the next question received is from Andre Finke of HSBC.

[Joerg-Andre Finke, analyst]

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 because, obviously, this has come down from the initial plant in Schuler and probably also in Hydro?

[Wolfgang Leitner, executive]

I mean, obviously, we are working with certain scenarios on the sustainable, let's say, the midterm expected volume level. We have, let's say, luxury that we are working on the backlog. So we -- but 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.

And depending on -- I think it was good to have this temporary reduction opportunities in most countries in the second quarter, that gave us time to think about and analyze 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. And our goal is to be -- to have the size that we think we need to have for next year, in time before or at the beginning of next year.

So we -- our current plan is to really make adjustments that we end up thinking that they are necessary, which will happen in the next, I would say, 2 months, to the large extent, this year. In countries like Germany, it will maybe take a few more months to get through all these formal requirements. But all this to have the size, the capacity globally by the end of the year, which we feel comfortable with going to next year. And then we need to see what is happening. I mean, obviously, we keep our eyes open, and if necessary, we make an adjustment every month.

[Joerg-Andre Finke, analyst]

Okay. But you're not prepared to give any kind of, let's say, a range of potential top line, I think. At least, in Schuler's case, you have provided -- I mean, 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 EUR 1 billion. But you're doing that on a constant basis as I understand here?

[Wolfgang Leitner, executive]

I think it's -- I mean, we still think that EUR 1.2 million, EUR 1.3 million (sic) [ EUR 1.2 billion, EUR 1.3 billion ] is a reasonable size for Schuler that should be achievable, but not under any market circumstances. And the capacity for Schuler, certainly, we will plan much lower. I mean the sales level for next year, obviously, is cushioned by the backlog that we take into the beginning of next year, but we need to have an eye on the order intake that we will have until the end of this year. And that is, I would not say, up in the stars, but it's difficult to -- it doesn't make sense really to decide now. I think we need to -- we are monitoring the order intake, obviously, on a weekly basis globally and 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 4 or 5 months. That will have an important impact on prioritization to which level we want to size the company.

[Joerg-Andre Finke, analyst]

Okay. Fair enough. Then 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? So what kind of magnitude would you envisage for the second half?

[Wolfgang Leitner, executive]

I mean to make it clear, I have not said we have an order already, yes? It is still hope. But obviously, we have reason to have this hope and it would be in the very low triple digits.

[Joerg-Andre Finke, analyst]

Okay. And then 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 of some mills. How should we look into the current profitability in Pulp and the speed of execution of backlog also of the larger projects because, obviously, the margin is very, 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 proceed in the second quarter?

[Wolfgang Leitner, executive]

I think last time I said that I can't guarantee that we can maintain a very high profitability level, our share price dropped by 5%. So I'm not saying that again. But I think you should not over -- 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. But it would be too much interpretation to say, well, this is in Q2 now we have added a few percentage points and this is level that what will continue forever. I think this still is a regular volatility.

[Joerg-Andre Finke, analyst]

Okay. But the sort of the quarterly revenue level with regard to execution of backlog is very sustainable then for the next quarters, is that a fair assumption?

[Wolfgang Leitner, executive]

I don't want to give you a concrete guidance and [indiscernible]. But these large projects are under full execution for the rest of this year, yes.

[Joerg-Andre Finke, analyst]

Yes. Okay. And my last question really is on the M&A side with regard to potential M&A pipeline and especially with regard to maybe queries from family companies. I mean when you look -- when you acquired Schuler, you were talking about a network of family companies that approached you from time to time. I just wonder whether the current environment, yes, increased the -- or made this happen again? Do you think you can comment?

[Wolfgang Leitner, executive]

Yes. I mean, so far, nobody desperate has called me and asked me to come, he wants to give away his company. I think it also is too early. I mean the experience from 2009 has been that the recovery has come very -- at least the improvement of the atmosphere and the mood has come very quickly and there were no urgent or emergency sales.

Will it be different this time? I mean if you look at the 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 2 quarters, maybe there are some opportunities here.

But currently, we have the same problem as we had in 2009, that current year obviously is affected by many -- or many companies are affected by the current circumstances, but everybody says, okay, this is this year and next year will be normal. And so we want to bet on that. If it's a perfect company we have always been looking for, maybe. But if a company that fits well, but we can also live without, we probably would not want to take the risk.

[Operator]

And the next question received is from Daniel Lion of Erste Group.

[Daniel Lion, analyst]

Yes. I would like to follow up a little bit on the restructuring. Could you maybe provide the split on the provisions in all of the areas you're planning to restructure? And what kind of savings are you expecting from next year on from these restructuring steps? Is this mainly related now to reduction -- reducing personnel costs? Or is this also organization-wise? Maybe a little bit more color here.

[Wolfgang Leitner, executive]

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.

[Daniel Lion, analyst]

And would you expect also some impairments? Or are there impairments already included in this figure that you mentioned or at least in the range the you mentioned?

[Wolfgang Leitner, executive]

Yes. 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. But again, it depends on how the next 5 months are developing.

[Daniel Lion, analyst]

What do you see in terms of other dynamics, market dynamics, broken down in their respective regions currently?

[Wolfgang Leitner, executive]

I mean China is quite active. Asia, as a whole, I would say also. South America is dead, more or less, in terms of new projects. And North America, U.S. has it difficult because, obviously, there is COVID problems are in full swing and still has been accelerating and that certainly will have an impact on the level of new projects.

And 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. So we have done an excellent job in keeping the sites working. But to develop new projects obviously with customers is obviously impacted, and the appetite of customers to concentrate on new projects obviously is also limited. And everybody, I think, is waiting to see how the next few months develop, that will define what the budgets will be for next year. And if that is clear, then our customers and the employees of our customers will know what is their scope for activities beyond what tests to be done on maintenance and then consumables and variables. And that will fine. And I think that is -- for this, we need to wait until we see a substantial pickup.

But 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. But again, a lot of that is hope.

[Daniel Lion, analyst]

At least that's what most of the market participants expect for the time being in support of many aspects.

Maybe coming back as a follow-up to this restructuring. Would it be fair to assume some -- maybe half of the -- in the provisions that you take as a permanent cost savings from next year on?

[Wolfgang Leitner, executive]

Sorry, I didn't answer the question for the savings. I mean, this is, in essence, an adjustment to a lower volume, but it is also an activity to get rid of under absorption and utilization in the current performance. Obviously, we have -- in Schuler, we have -- we are incurring under absorption because we have overcapacity and the same for much electric and -- that still supplies also to Hydro. So 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.

[Operator]

As we received no further questions, I hand back to Dr. Leitner for closing remarks.

[Wolfgang Leitner, executive]

Thank you very much. Nothing more to say and look forward to talk to you in about 3 months. Thank you.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.