WashTec AG

XETRA:WSU

Earnings Call Transcript 2020-Q2

[Operator]

Dear, ladies and gentlemen, welcome to the conference call of WashTec AG. At our customer's request, this conference will be recorded. [Operator Instructions] May I now hand you over to Dr. Ralf Koeppe, who will lead you through this conference. Please go ahead, sir.

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

Thank you very much. Ladies and gentlemen, I would like to welcome you today to the presentation of the WashTec's financial statement for the first half year 2020. With me here in the room are my colleagues: Chief Sales Officer, Stephan Weber; and Sergej Wolodin, Head of Global Finance and Accounting. Next slide, please. Ladies and gentlemen, COVID-19 dominates the whole world in a way we could hardly have imagined before, and of course, the pandemic is also affecting our business. Allow me to go into this briefly before I report to you on the past half year and our new guidance. Next slide, please. In today's Annual Shareholder Meeting, we presented the wash figures of our customers in the first half of the year in China, France and Germany. For those of you who participated in earlier conference calls, you might remember this chart. Now we present the complete data set until end of June. At the very beginning, you see a decline in the Carwash business in China. The year vacation was extended by the corona lock down. Public life in China hardly took place in the major cities. This also brought our customers' business to a virtual standstill. It was not until mid-February that slightly recovery became apparent due to the increasing lifting of the regional initial restrictions. In France, the initial restrictions take effect from mid-March. In Spain, Italy, the wash figures collapsed at about the same time. It is our southern European neighbors who are most affected by the COVID-19 pandemic. As you can see, however, the Carwash business in France returned to normal levels in mid-May. In Germany, the Carwash business continued despite the lockdown. Although many carwashes had to close, the carwash facilities at petrol stations could continue to operate in Germany. In April, the number of carwashes even exceeded that of the previous year, although the motorways were as if they had been swept clean. This development is due to the modern flight of the Birch Tree, which puts a yellow patterned rail over the car paint, annoying for car owners, as you probably know, an experience, but good for our business. Again, I would like to emphasize how exact the data is providing us with information about the Carwash business. WashTec is on the way to make use of its digital data foundation for its core business. Next slide, please. Allow me also to say a few words about the economic environment before I explain the financial results for the first half year 2020. WashTec is the world's leading provider of innovative vehicle washing solutions. Our product range includes capital goods such as all types of car washing systems with the associate peripherals and water treatment systems. In addition, our customers receive the services and consumables required to operate the system right through to arranging financing or the operator management systems. Here, you can see the [ Ifo-Index ] for capital goods in mechanical engineering and the index for consumer consumption. Both reflect our business: on the one hand, the capital goods, the machines; and on the other hand, the washing business and thus, the consumer goods, chemicals and service. What do we derive from this for WashTec? This general economic conditions have changed. It's not only due to the COVID-19 pandemic. Many sectors of the mechanical engineering industry have been experiencing a sustained economic downturn since mid-2018. The associated uncertainties are leading to customers' reluctance to invest. How long this will be in the case is difficult to estimate. According to a survey by the Bavarian Metal and Electronic Employers Association, IG Metall, most companies [indiscernible] most companies expect to reach the level they achieved before the corona crisis in 2022 at best. As far as our own customers are concerned, the first encouraging signs are emerging. Nevertheless, we must be prepared to achieve our target profitability in the future even with lower machine sales. On the positive side, we do not expect any major changes to the business model as such in the situation, as the WashTec customer Carwash business remains profitable and the corresponding investment backlog is being built up with regard to machine investments. Next slide, please. We now look back at the last 6 months of 2020. Let me give you an overview of the business figure for the first half year 2020. Revenue for the half year ending June 30, 2020, was EUR 175.4 million. That means EUR 23.7 million or 11.9%, down on the prior year period. While the service and chemical business recorded only slight declines, sales volumes of equipment sold were sharply lower. The negative revenue trend was caused by the spread of the COVID-19 pandemic. In line with revenue, group EBIT fell significantly in the second quarter to EUR 3.5 million. Half year EBIT was EUR 5.2 million. EBIT margin for the half year was 3%. Free cash flow increased to EUR 13.6 million. In total, cash funds went up relative to December 31, 2019, by EUR 8.7 million to minus EUR 26 million. In the same prior -- in the same period of the prior year, the change in cash and cash equivalents amounted to minus EUR 53.4 million, including a dividend payment of EUR 32.8 million. No dividend payment was made in the reporting period. Next slide, please. What does this mean for revenue by region? The European market, in particular, was negatively affected in the second quarter with a 23.9% decline in revenues to EUR 68.2 million. However, the situation in Europe improved significantly in the course of the second quarter. The decline in orders received in June was only in the low single-digit range. Revenue in the North America region still increased in the second quarter by 16.4%. The increase predominantly related to the key accounts and resulted mainly from the orders existing at the beginning of the quarter. Revenue in the direct sales business remained stable despite the spread of the pandemic in this region. In the Asia-Pacific region, revenue was slightly down by 0.7% in the first half of the year. Revenue performance in the second quarter was stable. Next slide, please. The revenue development has the following effects on the EBIT for the regions. Earnings in the Europe region were significantly down in both the second quarter and the first half year. Despite an approximately 6% reduction in costs in the first half year, it was not possible to offset the fall in revenue. The EBIT performance in the North America region is mainly a result of the reduced cost due to the adopted optimization measures combined with the positive revenue performance. In the Asia Pacific region, the company reported positive earnings performance relative to the prior year, primarily due to the completed restructuring in Australia. Next slide, please. I would now like to say a few words about revenue by product. Let's wait for a second. Okay. While the service and chemicals business recorded only slight declines, sales volumes of equipment sold were sharply lower. The negative revenue trend was caused by the spread of the COVID-19 pandemic. With regard to the product segments, there were significant impacts on sales of machinery. The chemicals and service business had a stabilizing effect, even though it was also affected by the pandemic in countries that imposed curfews, including the closure of carwashes as in South Europe. Next slide, please. Here you see again the overview of the profit and loss statement. At this point, I would like to mention the reduction in operating costs and personnel expenses. I have already informed you in detail about the development of revenue and earnings. We will talk about reduction of personnel costs some slides later as well. Next slide, please. These figures also showed that WashTec has a solid balance sheet structure. The reduction in total debt is particularly noteworthy in today's times, which is attributable to the positive cash flow development in the first half year of 2020. As is known, no dividend was paid out in the first half of the year. Today, at the Annual General Meeting, the proposal for the appropriation of profits was approved by the Annual General Meeting. WashTec is working consistently on securing the company's liquidity in a forward-looking manner. Our common goal is to provide WashTec with robust protection against a still uncertain business development in these difficult times precisely because we want to return to an attractive dividend policy in the future. Next slide, please. Now I would like to update you on our performance programs. As you know, it includes short-term cost savings in 2019 and the adjustment of our personnel structure by the end of 2020. In addition, we have launched a restructuring program in North America and reduced the workforce there. We have accelerated the program with the COVID-19 pandemic. As of June 30, we are already below the pre-COVID-19 goal of 1,820 employees with 1,795 employees. We have 79 fewer than at the end of 2019. Next slide, please. Further increase in profitability is being pursued through the operational excellence program, the third component of our performance program. This part of the program aims to streamline processes and reduce complexity in all areas of the company. In a number of individual projects, processes and product costs are being optimized, complexity reduced and processes simplified. This also affects our North America business. Operational excellence is not a new topic at WashTec, particularly in the areas of sales and supply chain. Good success have been achieved in recent years. Production is flexible position and was able to compensate well for the existing decline in business in the second quarter of 2020. We only had a few days of short time working here and a 2-week production shutdown, which could be implemented at a short notice under a very metalworking collective agreement, IG Metall. The sales excellence practice in the company and the expansion of the direct business ultimately led to strong growth. The newly established operational excellence programs are another important contribution to increasing profitability. A company with well-adjusted lean processes and improved profitability has the best prerequisites to master the necessary steps of digitization and digital transformation. Next slide, please. Some words about our new SmartCare machine. Digital machines like the SmartCare enables the operator to program, set and remotely control washing systems conveniently and situation dependent from any location. The chemicals are brought to the right place by the programming exactly and well-dosed. Intelligent sensors and actuators also help to improve the washing and drying results. In addition, in the future, it will be possible for customers to customize their carwash even more individually in order to care for their vehicle. A digital connection also ensures optimum worldwide spare parts availability and maximum system availability. And our service network did -- manufacturer service network in the industry will be efficiently directed to our customer's location. Digital technologies enable easy selection of the wash program and payment by the end customer via the EasyCarWash app. In short, digital technologies bring us the chance to be even closer to our customers with completely new future innovations. The SmartCare machine introduced in 2019 is now delivered out of serial production. This machine is setting a new milestone in the Carwash business. Next slide, please. Yesterday, we published our revised guidance for the fiscal year 2020, after we were forced to withdraw our guidance in early April because we could not foresee the impact of the COVID-19 pandemic on our business. The new guidance is based on considerations and assumptions that I would like to explain to you briefly. In principle, we assume that the significant economic uncertainties will remain in the coming months and will have a negative impact on investment confidence in the plant's business. Possible new pandemic outbreaks in European countries and in the countries of the Asia Pacific region will only lead to locally limited reactions and can thus be contained. This also applies to the second wave of the pandemic that could possibly arise this fall here in Europe. In the United States, we expect the pandemic to be contained in the third quarter and to ease slightly in the fourth quarter. In the United States, our company Mark VII was granted government support due to COVID-19 pandemic. This will be utilized in the second half of the year and will help the company in this region to compensate for the costs not covered by lower business volume during the rest of the year. We continue to expect machine sales revenues to remain at a significantly lower level for the rest of the year and not to reach the level of the prior year, even the individual quarters. Nevertheless, we will still expect sales volumes in the fourth quarter of the year to increase compared to the second and third quarters. The decisive factor here is an investment activity at key accounts. The company expects a partial easing of the current investment freeze. There have been already signals to this effect in recent weeks. A further assumption is that revenue in the service and chemical sectors will normalize. A decline in these product segments as in the second quarter of 2020 will not be repeated at this level. Based on this assumptions -- on these assumptions, we expect decreasing revenue in 2020. The fall revenue will be expected between 15% and 20% compared to the prior year. EBIT will also decrease relatively to the prior year on the basis of the projected revenue performance. The company aims for an EBIT margin of 3% to 5%. The company expects decreasing revenues for the regions Europe and North America. We expect increasing revenue in the Asia Pacific region. In terms of earnings, EBIT, we expect an increasing result for the regions North America and Asia Pacific in contrast to the region Europe. Despite significantly lower earnings, the company expects expect an increasing free cash flow this year. In particular, uncertainty applies here to the timing of the recovery in revenue and the associated level of working capital. I would also like to emphasize that the management of the WashTec Group will continue to push ahead with the implementation of the performance program already begun in the prior year, and the company's structure and processes will be adapted to the new developments. In the medium term, we are sticking to our goal of achieving double-digit EBIT margin again through the implemented measures. Next slide, please. Now I'm finished with my presentation. Unfortunately, we are not able to see some of you personally at the Annual General Meeting today. Even more reasons for me to look forward to perhaps meeting you in person at the upcoming investor conferences in autumn. Let us simply remain optimistic and hope that the situation will continue to stabilize. Otherwise, we will, of course, continue to exchange information with you in online conferences. Thank you for your attention, and we are now looking forward to your questions.

[Operator]

[Operator Instructions] And the first question is from Stefan Kuls, Warburg Research.

[Eggert Kuls, Senior Analyst]

Yes. This is Eggert Kuls from Warburg Research. I have a couple of questions. First of all, with regard to all your efficiency measures, cost-savings programs and so on. I wonder, could you provide us with a sales figure on an annual basis from 2021 onwards with that -- which is -- which would be enough to generate a double-digit margin? So I think in the past, 2019, the level to reach 10% margin was roughly EUR 440 million. So an estimate of EUR 400 million in the future. Is that a fair assumption? Or what do you think about that?

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

Okay. Should we answer right now? Or you would like to…

[Eggert Kuls, Senior Analyst]

Yes.

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

Let's say, in the short, of course, we have to lower the range for profitability to achieve this double digit. That means EUR 400 million revenue a year is a good figure. But of course, we might even work to go a little below on this. But I also can hand over to Sergej Wolodin, who might want to add something on this here.

[Unknown]

Yes. Let's say, the target is to increase the profitability, say, in many areas. And for sure, we are looking for let's say, for the future development in revenue. But today, nobody can say what we would like to expect. So we prepare the company for also bad times. Yes, that's our target, to be prepared. Because, let's say, to add some cost on board, if you see the development is running much better than we expected, it's easier than, let's say, to reduce cost. So our targets is definitely to be prepared for it in, let's say, next year or year after.

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

It's still too uncertain to really fix the figure. EUR 400 million revenue would be a good figure, but we might even have to be prepared to go a little bit lower, but that we have to see what we can do. The question is asked…

[Stephan Weber, Chief Sales Officer & Member of Management Board]

To answer his question, this is Stephan Weber speaking. The 2-digit EBIT is the impossible at EUR 400 million.

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

EUR 400 million, yes.

[Stephan Weber, Chief Sales Officer & Member of Management Board]

To give a clear answer. That's definitely in our scope.

[Unknown]

So we're working on the performance and on the, let's say, process improvement. So when the business comes back, we can take advantage of those improvements, to give you just an insight there.

[Eggert Kuls, Senior Analyst]

Okay. And then maybe on your new machine, SmartCare. I think you have had some ramp-up costs in the second quarter. Is that meanwhile over? So learning curve at a stage where you can say, your production cost already on a normal level? Or will take some more time? And in connection with that, the platform concept, I think this should be completely implemented only in 2021. So from the current point of view, what do you expect will be the impact, let's say, on the gross profit margin?

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

First of all, of course, we do not report the gross profit margin on the machines, especially. But in the sense, the cost for implementation of the serial production are done and are invested. And I think we are on a good way of having a standard, let's say, performance, in building the machines compared to our other machines. And I think we discussed this in previous calls as well. The let's say, the platform concept kicks in with our North American global product platform, where the SmartCare as a platform concept then will carry over and help us in really, let's say, adding profitability to the U.S. besides measures we are currently taking in that business.

[Eggert Kuls, Senior Analyst]

Okay. And I remember you expected a tax refund in the second quarter. So but when looking on the detailed figures for Q2, you had a tax rate of 27% only for Q2. So was this tax refund included? And if yes, how much was it?

[Unknown]

The tax refund, you do not see on the P&L side, but on the cash flow side. You look to the changes in the tax paid between both quarters, you can see the number.

[Eggert Kuls, Senior Analyst]

Okay. And then look on the P&L, so I understand. Okay. And maybe my last question, if I may. CapEx was very much down in the first half of the year. Can you provide us with a figure? Or what do you expect to invest for the full year?

[Unknown]

For the ex year -- current year, we, let's say, now expect the CapEx to be on the range between EUR 6 million and EUR 8 million.

[Eggert Kuls, Senior Analyst]

So on the level of the previous year, even a little bit more.

[Unknown]

Yes. Depends on the development of the rest of the year.

[Operator]

The next question is from Aliaksandr Halitsa, Hauck & Aufhäuser.

[Aliaksandr Halitsa, Equity Analyst]

Yes. I'd like to ask on the regional guidance and basically the -- how those pieces are coming together. From what it looks like, the performance in Europe should be better in the second half of the year than it was in the first half of the year, which is also evidenced by the fact that the order intake you mentioned has been only low single-digit decline in June. Then also Asia Pacific would grow for the full year. And then when I back out the implied performance for North America, I get to a quite substantial decline in terms of revenue for the second half, around 40% to 50%. And then at the same time, you are guiding for an increase in EBIT result in the full year for 2020 for North America. The question I'm just asking myself is by how much may sales decline in the second half of the year in North America for you to still be able to show increasing EBIT result, if you could follow me on that.

[Stephan Weber, Chief Sales Officer & Member of Management Board]

Yes. I could follow you, but it was quite a number of issues that you had you addressed. This is Stephan Weber speaking. I mean in North America, yes, we will see -- you analyzed that correctly. We'll see a significant drop in sales and significant could be in the range of 40%, yes. However, why do we expect a better EBIT, first of all, we have done, like we also announced, substantial measures. We have taken substantial measures to be in a much better position now as we have been, and they are paying in already. Plus we have the government funds there that help us to compensate on the HR cost. I mean they are basically meant to compensate the running expenses on -- personnel expenses that we have in the U.S. And all in all, we aim to have -- we will surely have a better -- I mean, we are convinced that we have a better result than last year. How good it will be, depends a little bit whether we will hit the 40% or we'll be slightly better than that. In the results, but we will definitely show a significant better performance in EBIT than we showed last year due to the taken measures and the subsidies.

[Aliaksandr Halitsa, Equity Analyst]

And just to confirm, the better EBIT performance, you're talking about an increase in EBIT results, but the base is negative. So you're implying that the EBIT would be either less negative than last year? Or are you implying that it can be at least breakeven? What's the message here?

[Stephan Weber, Chief Sales Officer & Member of Management Board]

I mean, at the moment, we are fighting definitely for breakeven. That's -- and it is still visible. And as long as it is visible, we'll continue fighting. And it is absolutely in vicinity. It's not that it is, let's say, mission impossible.

[Aliaksandr Halitsa, Equity Analyst]

Understood. And then maybe also, kind of a little bit of a bigger picture question in terms of the behavior of the key accounts, you mentioned that you're observing investment backlog building up. And I was just wondering if you could talk a little bit about what is it -- what is the typical behavior of key accounts in situations -- of similar situations in terms of how aggressive are they coming from these investment freezes they're currently having? Because I would imagine they have contractual obligation with you for a certain number of machines over a period of time. And given the fact that basically, there is a whole year dropping out, I would imagine that they would still -- are pressurized to go ahead and place above-average size order in the coming, let's say, quarters. If you could add any color on that one, it would be helpful.

[Stephan Weber, Chief Sales Officer & Member of Management Board]

There is no -- fair questions, I have to say. But there is no one answer serves all. I mean the key accounts are not all acting in the same way. The larger key accounts, we, in general, have to distinguish between 2 types. One are those that have upstream production. They are suffering, let's say, the most because, as you know, the fuel prices are down. So margins on fuel are low. And as such, they are very hesitant to spend money at the moment. Even in that cluster, we have key accounts that have started already to invest again in certain countries. So it's not a total blank that we pull there. But we have others also, they are very restrictive on -- and they really, on a global scale, follow the, let's say, investment stock. The other larger group of key accounts are those who are not -- having no upstream business, but they are into retail business, and they might even make better margins on the fuel as they have been doing before. They might be selling less fuel, but with better margin because they purchase the fuel and resell it like the resell carwash or Mars bars and cigarettes. In that sense, they have to be judged in a different way. And there, also, we see different behaviors and also different behaviors in different parts of the world. Overall, I think our statement is fair that we made that we see in -- particularly in Europe now after the, let's say, May, June, we have almost a normal behavior on direct invest from direct customers, where we still have let's say, a very hesitant behavior from major key accounts, as we said. Whether this stage until end of the year, very difficult to say. I mean, you're also following, I think, the economic news. And what Total and the BPs and the Shells announced, they all have been speaking until end of Q2 or end of Q3, nobody said for the full year. And we are in close contact and try to do whatever we can do, but I cannot give you a sharp answer on that. That's the best of the answers I can provide.

[Aliaksandr Halitsa, Equity Analyst]

And if you could update us if that's something you disclosed, what is roughly the split between the retail oil business, upstream and also maybe the exposure to retail grocers' chains?

[Stephan Weber, Chief Sales Officer & Member of Management Board]

60-40. I would say, 60 are more with upstream and 40 are more into, let's say, retail only, larger retail as well. We have to so -- I mean, you follow the news yourself. I mean, we have people like -- we have garages group who own, in the meantime, 5,500 gas stations in Europe. They are retailers. You have people like Circle K. They are a large player in the U.S. You have people like 7-Eleven. These are the retail fraction. And then you have the other well-known Totals, Shells, BP arise and so on and so forth. But I would say, a 60-40 ratio would be 60% are with upstream and 40% are without.

[Aliaksandr Halitsa, Equity Analyst]

And maybe the last one, back to the North American business. You are targeting, despite the lower revenues, better EBIT. I was just wondering, this improvement, if you look into this kind of breakdown, what has been -- or what is expected to be driven by the structural measures, adjusting, optimizing cost structures, et cetera, versus the governmental subsidies, if you could give us.

[Stephan Weber, Chief Sales Officer & Member of Management Board]

Let's put it this way. I think a fair comment on that, I mean, with also some room to play, would be -- we're coming from a slightly above EUR 5 million loss last year. If we aim for breakeven, I would say by 50-50 with a much lower top line, we have to say. I mean we would be -- I mean, we said it already in the conference in the general assembly, we have been on an excellent run in the first quarter in the U.S., where our order backlog was EUR 10 million than in the same period a year before. That's what we see in Q2 in terms of revenue. However then, with COVID-19, I mean, I would claim that we would have seen a very good year in the U.S. with all the measures that we took if not COVID-19 has -- would have hit us. Now COVID-19 has hit us mainly on the key account side, we have to say. And we had to readjust again to cut even deeper to make this possible. So if we can come to a result that is significantly better than last year with, let's say, 15% or 20% -- EUR 15 million to EUR 20 million less top line, then I think that is a major achievement where it would tell you where we could be in a normal year, definitely profitable.

[Operator]

The next question is from Michael Junghans, Commerzbank.

[Michael Junghans, Equity Analyst]

Yes. So -- and the first one is like how would you answer -- like a little bit -- know a little bit about how your other 2 key account customer groups are doing. So if I remember correctly, you have key customers in gas stations, so like in upstream, what you referred to, and retail shops. And then in addition, you also have key accounts in the area of car rental firms and then the individual carwash operators. So how are these -- so how is the trading -- so the current trading actually doing at the moment with these car rentals firms and carwash operators at the moment?

[Stephan Weber, Chief Sales Officer & Member of Management Board]

Okay. Yes, the key accounts -- this is not what we consider key accounts. They are far too small and absolutely not significant in comparison to the other key accounts that we talk to. This daily business, they are -- some of them are dealt, let's say, or accompanied by our key account management. But most of that is local business as usual like driver-sales. So -- and as said, they are, revenue-wise, not significant to us. I mean, car rental, as you put it rightfully, is in severe problems because, I mean, we all say that -- I mean you know how many flights have been canceled over the years -- over the last month and how many are still active. And most of the car rental business goes in conjunction with airports and flights. And the -- this is a significant cut. And as you might have heard or most probably have heard, that the RB, which was the largest provider of car cleaning services in the airports, went in insolvency in the meantime and has been -- I mean, but there is already follow-up organizations that they have brought into that business. But there, I mean, this is not our day-to-day business. There is every now and then a project but -- although RB was an exclusive customer of ours, is not significant by any means, to be clear.

[Michael Junghans, Equity Analyst]

And the next question I have is, if I remember correctly, what you recently said on the AGM is that -- so please correct me if I'm wrong, but I remember that you said you would expect a better order intake from Q4 onwards. So if this is true, is this based on customer feedback what you received? Or what is your assumption behind the better business from Q4 onwards?

[Stephan Weber, Chief Sales Officer & Member of Management Board]

We are -- I mean, let's put it this way. We -- the worst order intake we had, to no surprise, in April, of course. I mean, that was -- that's when the first wave hit Europe. And ever since, we have been improving, let's put it this way. Month by month, we have been improving. And in direct business, we are almost close to normal conditions, unless we have another second wave in COVID-19. However, what makes that a bit more positive that we're also seeing that some of the key accounts, like I mentioned before, are starting to order again. And then if they realize that they still have some funds to spend, then this could lead to -- that would come on to the basically nonexisting key account orders at this point in time, slightly coming in, in July again. This would add to a much -- to a significantly better Q4.

[Michael Junghans, Equity Analyst]

Okay. Got it. And then another question is, in Q2, you saved quite a decent sum on travel and marketing expense here. So I mean what is your assumption here for this expense item over the rest of the year?

[Stephan Weber, Chief Sales Officer & Member of Management Board]

I mean it's pretty simple, I would say. We have -- what you cannot see, we have spent slightly more in digital marketing. I mean in order to be in touch with our customers where we can, but we have, of course, massive savings in exhibitions and traveling expenses. So it's very easy. There will be no exhibitions this year. So in other words, we will be clearly below budget there, and there will -- there is no further expenses to be expected other than virtual and digital, the sort of marketing forms. As such, the trend will be there for this year. Next year, mixed picture at this point in time. Some exhibitions have been canceled already. Some are still in the calendar, where we yet need to see where this is heading to. I mean, we have no clue. But for this year, you can assume that we'll continue the trend, but not so much on the traveling cost because most of the customers are happy to receive our sales reps again and the service traveling has always happened, more or less, except for Austria, France and Italy and Spain, where, at certain times, we couldn't do service because there was a complete lockdown, but also the wash sites were down, whereas in Germany and the Nordics and Benelux countries and the U.S., we were always delivering service and our machines were also in operation.

[Michael Junghans, Equity Analyst]

Yes. Got it. And then final question suffice. You had to book an impairment expense on doubtful trade receivables in the 6 months now 0.5 -- EUR 1.5 million, you said. Could you please elaborate a little bit on the specific customer group here and the sales region, where these receivables spread considered to be doubtful? And in addition, do you expect that significantly more impairments on doubtful receivables could follow for the remainder of the year?

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

Do you mean there are the account receivables depreciation, right?

[Michael Junghans, Equity Analyst]

Yes, correct.

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

Yes. Okay. What we see in the moment and this is, let's say, different from country to country, we have -- we see there's an increase in aging of account receivables. We do not have a, really, fallout of the account receivables at the moment. But we see that, let's say, sometimes it comes to, let's say, a situation in which we agreed with the customer from, let's say, partial payments of the open receivables or something due to their situation, which means, let's say, that the aging of a due receivable has increased and what is reflected there is the IFRS 9 calculation, what's made based on, let's say, risk metrics, which aims at -- with increasing aging of the receivables is, let's say, probability of a fallout is also increased, and it leads to additional, let's say, write-downs on the value. So we hope -- and it is our aim also here and our target to cash all those receivables until year-end. So we can, let's say, adjust this increase until the end.

[Michael Junghans, Equity Analyst]

Okay. We got it. But just the final add on. I mean do you see -- I mean, just to know a little bit more about the customer group, where this is affected. So just to find out whether there's a, say, a specific trend, which you can observe here in the market?

[Unknown]

There's, to be honest, no specific trends there. It's a different customer groups are presented in there. So it's not really a specific trend by country or customer group here.

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

I might want to add, everybody is trying to improve the cash situation, especially also in a discussion of, "Can I have a machine in Q4 and pay in next year?" and so on. And we have a very careful look at those requests, and it also depends, of course, what the situation of the company is that is requesting that. So it's, let's say, a going on concern in our daily business, especially now in the second half of the year.

[Michael Junghans, Equity Analyst]

Okay. So very last question. If I compare the personal expense line, your Q2 this year with Q2 last year, so the delta is EUR 4 million in personnel expenses here. So actually, what is coming from your business streamlining measures? And how much is related due to like temporary short-term work and government grants? What you recently managed…

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

I can tell you a little bit about the temporary workers to get the flexible measures, as I reported in just a few minutes ago. We have 20%, let's say, direct people working into production that are temporary workers. So by releasing those 20%-plus, let's say, going into lower hours for a few, let's say, weeks, we will easily be able to adopt this drop, especially the shutdown. And then there are some measures like [indiscernible] measures are not so severe in the production. We, of course, try to use and maximize that in indirect business. But then, of course, you -- in the marketing department, it's clear. You don't have anything like exhibitions and so on. But the point here is that the personnel expenses we now see, you see that we have a significant drop in the headcount. And some of the headcounts, I explained that, I think in the April -- in the Q1 call, but it now becomes obvious. Our goal was to reduce to 1,820 headcount person. And of course, we have contracts that even in the second half year of 2020, people go off board based on these actions. On the other hand, this fluctuation, and we increased our measures so that, including the U.S. layoffs that we had, that we are really going further down of 1,795 being now the figure for June, and we see a further decline. So important is that those personnel costs are the new baseline for 2021, and then we come up back to the decision and the discussion what is the revenue required for double-digit EBIT. That's how the discussion is. It's not clear because, periodically, it's somehow shifted. But interesting will be, and this is our focus, what should be the set up point for starting 2021.

[Unknown]

If you would like to see the effect in terms of euros, it's mentioned in our half year report, there are EUR 440,000, if I have it right in my mind, what we, let's say, booked at the date, partly unemployment compensation from government and so on.

[Operator]

The next question is from Richard Schramm, HSBC.

[Richard Schramm, Analyst]

Gentlemen, just wanted to follow up on this thing with the headcount. So what is your target for the end of the year as you are now minus 4% year-to-date? Could you give us an indication what to expect here in the second half to get a feeling what the basis will be here for the start into the next year?

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

So let's say, when we look at the figures to the end of this year, which are now assured by contracts and so on, we will see a further drop-down. Let's say, in exact figures, I do not really want to disclose for the moment because the measures which we take right now are, really, measures where we work on efficiency and where we really look at rehirings that we maybe don't want to do because we push the efficiency in the service and so on. And it's really a step-by-step, headcount by headcount process. And of course, we know that some of the headcount reductions then take in for the start of 2021 to get the double-digit aim. Yes. But on the other hand, we work also on the cost level. So it's not all about headcount. We also work with our operational excellence program on costs, quality costs, purchasing costs and so on. And the equation to put that down on the table is, let's say, too early because we still have a lot of uncertainty what will be the next.

[Stephan Weber, Chief Sales Officer & Member of Management Board]

Yes, it will be less, that's for sure, as where we are now. This is one we can say, but how much depends also. Some of these headcounts, we know we eventually have to replace but not now because we want to wait until the market is ready again, not like we have an effect that we had in 2019 that we onboard too early and then suffer the personnel expenses, costs and by that, dilute our EBIT. In that sense, we are very cautious. So that is a list, like I've said, people that move within the organization, and it will be less by end of the year. However, there might be also the one or the other that will come back on board, and still net, we will have less. That's for sure. The exact number, difficult to say at this point in time, depending also on circumstances.

[Richard Schramm, Analyst]

Okay. So quite obviously, then, as you mentioned, not as much as in the first half, so the low-hanging fruits have been harvested, but maybe 1 or 2 percentage points are still an option here, okay. Then I would be interested in the competitive environment. How are your competitors behaving in the current environment? I think they are also in trouble with idle capacities and trying to fill their facilities. So how do you see the competitive environment and the pricing side for your products and services?

[Stephan Weber, Chief Sales Officer & Member of Management Board]

I mean, as you rightfully say, that it's a competitive environment and everybody is fighting for business in order to keep the production occupied. So far, I have to say, with the business that we are running currently on the direct side, we have not made any concessions. We are selling at normal terms and also have to give one or the other order away. That's as simple as that. But in the other hand, we also know that some of our smaller competitors that are really suffering to the point that they might even drop out entirely. Like in Italy, we have quite a number of smaller competitors that are at the fringe of bankruptcy, for sure. That opens another opportunity for us again because nobody wants to deal with people that might not be around 2 years, especially not in capital goods. So we are keeping our margins here, withstanding the pressure and -- yes. Fighting for the cake, as always, I would say, I cannot see a significant difference here because also, they need to make a certain profit in the end of the day. So I guess the major players are more or less in the same scenario like we are, and they have been a little bit cheaper than we are in the past, and they will remain to be so, I would say. And we are the premium product in the market. And we are so far in this -- even -- under these COVID times, we have not seen any drops in margins because we try to keep our prices with good arguments and good solid investments in the long term at a level that you're used to.

[Richard Schramm, Analyst]

So we should expect that the quality of your order backlog has not suffered from the current situation?

[Stephan Weber, Chief Sales Officer & Member of Management Board]

Correct.

[Unknown]

Yes.

[Richard Schramm, Analyst]

Okay. And finally, a little clarification on this SmartCare product, as you mentioned. I think you said the series production has started, but we saw some, if I have it correctly in my mind, only to Europe or is the rollout already on a global scale?

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

No. As we reported, this is, in the first step, a European machine. And in the second step, this is the basic for the platform that will then also be used in the U.S. As I said, this will take us into 2021. And but I think we will have a good impact with the machine since it really defines a new top line and gives all these additional digital features. So that's, let's say, how it's planned, and we pursue on that plan.

[Operator]

The next question is from [indiscernible].

[Unknown Analyst]

Yes. Some questions. Most are answered. The first one is maybe a clarification question. In your presentation on Page 15, you gave a regional split about added revenue, development for those 3 regions. And just get it right that you expect revenues to only decrease in North America, and in Europe and Asia, it should grow? Or was it a mistake?

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

Can you repeat? We just had to take out the slide again for us.

[Unknown Analyst]

Okay. So on Page 15, you were…

[Unknown]

Europe

[Stephan Weber, Chief Sales Officer & Member of Management Board]

It looks like it's a mistake.

[Unknown Analyst]

Okay. Because otherwise…

[Stephan Weber, Chief Sales Officer & Member of Management Board]

I expect a declining revenue in Europe and also declining EBIT.

[Unknown Analyst]

Okay. Fully understood. And the second one is on your statements regarding the U.S. You mentioned that a 40% for 0 decline can be possible. Were you referring to the second half? Or is it referring to the fiscal year?

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

Second half.

[Stephan Weber, Chief Sales Officer & Member of Management Board]

Second half.

[Unknown Analyst]

Okay. And the rest will then be followed by a decline in Europe, and this would then add up to your revenue decrease of 15% to 20%?

[Stephan Weber, Chief Sales Officer & Member of Management Board]

As we are expecting a higher revenue in Asia, we're pretty solid on that and also higher EBIT. Yes, that's the conclusion in the end.

[Unknown Analyst]

Okay. That's very helpful. And then maybe also on your SmartCare, do you provide any figures, how much of your European sales will be -- or the contribution of SmartCare to your European sales in the next, say, 3 to 5 years?

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

I know the discussion. But actually, those figures are somehow maybe not real -- the real story because SmartCare will define a new platform. So at the end, of course, the premium product is the SmartCare in its name. I don't know how the, let's say, the de-spec machines will be called.

[Stephan Weber, Chief Sales Officer & Member of Management Board]

It will cannibalize our current premium line at the end of the day, because we are selling something better. And as such, it's very difficult to answer. As it stands now, we are anticipating something like 200 machines next year as being a single-out product. At the moment we onboard the U.S., it could definitely be more because that will completely replace our product as it is now, but there is no precise answer to that because at the end of the day, like I said, it's a platform and it will definitely cannibalize the existing range.

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

Let's say, the third step also increases implements, of course, the platform concept. And that means, of course, that the digital -- sorry, we had here some storm coming in. But the digitalization, of course, will also be impacting lower spec machines. And of course, we have a nice slide where we say we have 25% digitalization machines for the simple machines that will range 50% and the up top range, 100%. But this means, of course, that the core functionality in the controller and in the sensors and so on, you can also put them, of course, into the lower spec machine, but the lower spec machine has, of course, less actuators, but that the machine can, let's say, reorder chemistry. This should be not only for the SmartCare top line. This should be, at the end of the day, be capable for every machine. But that's why the question for 3- to 5-year scope is a little bit different. As Stephan Weber put it out, the figures for, let's say, the next 2 years, which is concerning the SmartCare is the premium top line growth.

[Unknown Analyst]

Okay. That's a fair statement and just wanted to understand. Yes, fine. But maybe last question, and it could be a more precise answer. You mentioned that your clients, regarding oil business, are pretty much 60%, and they are all upstream. So do I understand you're right that you have no gas station clients that are doing no upstream business?

[Stephan Weber, Chief Sales Officer & Member of Management Board]

No, no, no. Wrong. I mean, we were referring to the key accounts, the global key accounts. We have a category which is the global key accounts. We have local key accounts and international key accounts. Global is a player that is everywhere, every part, like Shell, for example. Then you have local key accounts or international key accounts, which would be Allin. And then you have local key accounts, which would be Westfalen, for example. They are only in Germany. We have a category for this, and I was referring to the global key accounts, like the OMV that have downstream business, Shells, BPs, that category, the real global players, I was referring to.

[Operator]

And there are currently no further questions, so I hand back to the speakers for closing remarks.

[Ralf Koeppe, CEO, CTO & Chairman of Management Board]

Ladies and gentlemen, thank you for attending our conference call first half year report. I hope you are doing well in the future. And I wish you a nice vacation in Bavaria which has started, and we hope to see us and hear us soon. Thank you very much. Stay well.

[Stephan Weber, Chief Sales Officer & Member of Management Board]

Thank you.

[Operator]

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