Dürr Aktiengesellschaft (DUE) Earnings Call Transcript

Welcome to the Dürr Conference Call. Ralf Dieter, CEO; Dr. Jochen Weyrauch, Deputy CEO; and Dietmar Heinrich, CFO of Dürr AG will present the Dürr Group's preliminary figures of 2020, followed by a Q&A session. I will now hand over to Andreas Schaller, Head of Investor Relations of Dürr AG.

Thank you, operator. Ladies and gentlemen, good afternoon or good morning to those of you in the U.S. Welcome, everybody, to our financial year 2020 earnings call. As always, our earnings presentation is available on our Investor Relations Internet pages, and I assume that you have it in front of you. Let's quickly turn to Page 2, the disclaimer. Please be aware of our disclaimer regarding forward-looking statements. And now I would like to hand over to Ralf Dieter, the CEO of Dürr AG.

Yes. Thank you, Andreas, and a warm welcome from my side. And as already announced, with me today are my colleagues on the Management Board, our Deputy CEO, Jochen Weyrauch; and our CFO, Dietmar Heinrich. So our agenda on Slide 3 is pretty much unchanged from the last earnings call. I will start with an overview of the business development and major achievements in 2020. Then Jochen and Dietmar and I will comment on the performance of our divisions. And after that, Dietmar will go into more details regarding the financials. And at the end, I will present to you our outlook for '21, including a breakdown by division. So let's start with the highlights on Slide 4. Due to the corona pandemic, 2020 was a challenging year, but it finished on a positive note. We saw strong order momentum in the fourth quarter. And our book-to-bill ratio for that quarter increased to 1.09, and our order backlog rose by more than EUR 100 million compared with the end of the third quarter. Fourth quarter sales revenues were the highest on a quarterly level in 2020. And for the full year, sales revenues remained 15% below the level of 2019. EBIT margin before extraordinary effects for the full year came in a bit better than expected at 3.0%. This was driven by a strong service business in the group and better-than-expected margins at HOMAG in the fourth quarter. Free cash flow performance for the full year was very strong, with EUR 111 million. It is always very difficult to predict this figure, as it depends on the timing of large customer payments in our automotive business. And in the fourth quarter, we saw major prepayments coming in. And as a result, we started into '21 at a record total liquidity of more than EUR 1 billion. We also did our homework with respect to the announced capacity adjustment measures, and I will show you an overview later in the presentation. Despite the fight against the impact of the pandemic, we also set the stage for further profitable growth. We successfully signed, and meanwhile also closed, several M&A transactions in 2020 that Jochen will talk about in a minute. Now let's have a look at the overview of the key financial indicators for the full year on Slide 5. Due to the corona pandemic, order intake declined by 19% and sales revenues by 15% compared with 2019. Sales revenues declined less than orders, as we still benefited from the solid order backlog from 2019. EBIT before extraordinary effects came in at EUR 100 million, and the margin was slightly above our guidance. The improvement in free cash flow was mainly due to a disciplined net working capital management and tight control of CapEx spending for the full year. On Slide 6, we can see a comparison of the targets we set in July 2020 for the full year and the respective achievements. P&L items came in as guided or a bit better. All in all, we were able to cut costs by some EUR 120 million in response to the pressure exerted by the corona crisis. Cash flow and net financial status were stronger than expected due to the reasons I already mentioned before. We believe that this is a very solid set of results, given the extraordinary situation in 2020. Slide 7 shows the development of order intake on a quarterly level. After the downturn in Q2, we experienced a strong recovery. And in the fourth quarter, we could secure additional larger automotive projects in Europe, for example, from Turkey. On top of that, we saw increasing order levels at HOMAG. Now let's have a look at the regional split of order intake on the next slide. China had a very good development in order intake in 2020 with a growth of 8%. Germany and Europe caught up after a weak first half year. Germany even closed the year with a growth of 12%, driven especially by a large project from a premium automotive OEM in the third quarter. And the rest of Europe remained slightly below 2019 levels, but saw a strong momentum in the fourth quarter. The Americas and the rest of the world declined from an exceptionally high 2019 level. Let's have a look at the development of order intake related to e-mobility on Slide 9. Order intake growth even accelerated despite the crisis, and we reached a level of EUR 650 million in 2020. This is 67% above the 2019 level that had already grown by 46% above 2018. We believe that we were able to secure a large share of the available projects in 2020, which is proof of our competitive strength. Orders related to e-mobility made up about 40% of our overall automotive order intake. Slide 10 shows the implementation of measures to safeguard our future. We made good progress in 2020. First, at Dürr Systems and Schenck, we implemented various capacity reductions measures, including the closing of the Ochtrup and Karlstein sites, the closing of the production at Goldkronach, the closing and relocation of production at Wolfsburg, where only a service team will remain to support one of our major customers. Headcount reductions at the site Darmstadt, Püttlingen and Bietigheim-Bissingen are agreed or already implemented. And outside of Germany, we also made progress in negotiated capacity adjustments in Western and Southern Europe. At HOMAG, we closed the production at the Hemmoor plant at the end of 2020. And in addition, the SAP rollout in HOMAG Poland went live smoothly in early '21. All in all, we booked EUR 63 million restructuring charges in the full year. These figures made up the largest part of the extraordinary expenses for 2020, amounting to EUR 88.4 million. The implementation of the measures is on track, and we expect to reduce our cost base by EUR 60 million from 2021 onwards. And now I would like to hand over to Jochen to comment on our M&A activities and sustainability.

Thank you, Ralf, and welcome to all of you also from my side. Slide 11 gives an overview of our M&A activities in 2020. Despite the pandemic, we were very active and realized some interesting opportunities driving profitable growth going forward. On Feb 5 this year, we closed the acquisition of a 75% stake in the German automation specialist teamtechnik. With this transaction, we strengthen and complement our e-mobility offering with e-drive test systems. And very importantly, we enter into the new field of production machinery for medical devices. We also further strengthened our position in the woodworking machinery market for solid wood construction with the acquisition of all shares in Weinmann and the acquisition of 80% of System TM, a Danish company. On the software side, we did a couple of smaller transactions. We bought Techno-Step, and more recently Cogiscan, which allows us to extend our reach to a wider range of third-party machinery and broaden our footprint in North America. We also increased our stake in HOMAG eSolutions (sic) [ eSolution ] and will integrate this activity in our digital factory. In China, we acquired the outstanding shares of our joint venture HOMAG China Golden Field. By this, we do not only take control of our sales channel in China, but also of significant service resources and the software development team. Overall, this strengthens our footprint in China significantly. Now let's come to a topic that we have not presented too often in the past, but that will play an increasingly important role in the future: sustainability. On Page 12, you can see an overview of our sustainability framework and the 5 fields of action that we cover. We have introduced this already during our Capital Market Day in November. And I would just like to point out a couple of developments in 2020 and the actions planned in 2021. In 2020, we set up a Sustainability Council that is chaired by me and coordinates and controls sustainability actions within the Dürr Group. Sustainability will also play a role in the remuneration of the Managing Board members going forward. The new remuneration system that has been valid since 1st of January this year includes an ESG component in the variable part. We underline our commitment to sustainability also by becoming a part of global networks, such as the UN Global Compact that we joined in October last year. In '21, we plan to publish our first sustainability report according to GRI guidelines, and we are working on the definition of our climate strategy. We believe that we are an enabler for the transformation towards the carbon-neutral future with our portfolio of resource-efficient equipment, not only now, but already for quite some time. For example, we support with our product offering the production of electric vehicles and construction elements for wooden houses, which play an important part in this transformation. Now let's have a closer look at the divisional development. We start with Paint and Final Assembly Systems on Slide 14. The year ended with a very solid order intake in the fourth quarter. We could continue our strong order intake in China, but also gained several projects in Europe and Turkey. For the full year, sales decline was lower than the reduction in order intake, as we still benefited from a strong order backlog from 2019, as mentioned already by Ralf, especially in North America. EBIT came in at EUR 6.4 million despite the large restructuring charges taken for the necessary capacity adjustments. In the fourth quarter alone, we recorded EUR 27.2 million in charges. Before extraordinary effects, the EBIT margin showed a solid development, and we can clearly see that margins benefited from the successful implementation of the Focus 2.0 program in the past. Let's turn to Application Technology on Slide 15. Order intake developed very positively in the fourth quarter. In addition, we saw very solid margin development, as the service share of the business was better than expected in Q4, especially with respect to spare parts. Consequently, the EBIT margin before extraordinary effects reached the upper end of the guidance. Similar to PFS, we recorded a large part of restructuring charges in the fourth quarter. With the recovery of production volumes in the automotive industry, we see this division on a solid recovery track. Next is Clean Technology Systems on Slide 16. This business was very resilient in 2020. Despite the pandemic, we recorded sales revenues and EBIT very much comparable to the prior year. Order intake was a bit slow in Q3 and Q4 as we saw some project delays. However, we do not see this as the start of a negative trend, but expect the business to continue to grow in the future in a profitable way. And now I hand over to Dietmar for the comments on Measuring and Process Systems.

Thank you, Jochen, and welcome to everybody also from my side. Let's take a quick look at Measuring and Process Systems on Slide 17. This division was not only impacted by the pandemic in 2020, but also by lower sales levels with respect to ICE-related balancing equipment. However, we left the downturn behind us in the second quarter. And after that, we saw positive trends in order intake and margin in the second half of 2020. Order intake has improved in the aerospace industry in the last couple of months, as we see increasing preparation activity for maintenance and checkups. With respect to margins, we saw a solid improvement in the second half of the year based on cost reductions and the recovery of the service business. We also successfully addressed the margin problems that we reported in the first quarter after having shifted towards more project-related businesses. We now see a clear improvement of the margin development over the project lifetime. All in all, Measuring and Process Systems is in recovery mode, and we see some solid business opportunities with the balancing of e-drives going forward. With this, I would like to hand over to Ralf.

Yes, thank you, Dietmar and Jochen. Finally, let's look at Woodworking Machinery and Systems, if you know, I'm running myself since January 1, on Slide 18. Overall, the impact of the corona pandemic is less pronounced at HOMAG than in the automotive business. We saw an increasing momentum in order intake in the fourth quarter, and even exceeded the level of the fourth quarter 2019. This was also supported by the acquisition of System TM, but also by a healthy project pipeline. As already predicted during our last conference call, sales revenues and EBIT in the fourth quarter were impacted by the lower order intake in the first half of 2020. However, the EBIT margin before extraordinary effects did better than expected, and we reached the upper high end of our guidance. We are on track with our optimization program at HOMAG, and I'm very happy with the revitalized high motivation level of the team. We had a solid start in 2021 with respect to order intake and look forward with confidence. Now let's take a quick look at the service business on Slide 19. On the diagram on the left, we can see the continued service recovery in the fourth quarter, and we even reached a new high in revenue share of slightly above 30%. This was mainly driven by a strong spare part business at Application Technology, but also by a solid service development at HOMAG. And service margins are on the same level like 2019. So now I hand over back again to Dietmar for further financials.

Yes, Ralf, thank you. Let's have a look at the financials, starting with Slide 21. The overview of the key financial indicators shows a solid set of figures for 2020. Earnings came in as expected or slightly better, and cash flow was strong. Now let's have a closer look at these developments on the following slides. On Slide 22, we can see that sales revenues increased in the fourth quarter by 10% compared to the third quarter, and reached the highest level per quarter in 2020. For the full year, we came out 15% below the level of 2019, which is a smaller decline compared with order intake, as we were still benefiting from the strong 2019 order backlog. Sales revenue development will continue to be a bit muted during the next few months due to the lower order intake in the first half of 2020 that now starts to translate into revenues. From a geographic perspective, solid project execution in the Americas and Asia played an important role in sales revenue generation in the first 9 months, while the contribution from Europe, including Germany, declined. Let's move to EBIT on Slide 23. As already indicated in the third quarter conference call, EBIT margin in the fourth quarter was impacted by the restructuring charges taken. But even without this, we saw a slight decline in margins due to the lower order intake in the first half of 2020. Looking at the EBIT bridge for the full year, we can see that we could partly compensate the decline in gross profit by savings in overhead expenses. Nevertheless, we ended up with a 62% decline in EBIT before extraordinary effects. But let's also keep in mind, staying in positive EBIT territory despite a sharp sales decrease and almost EUR 90 million of extraordinary expenses is by no means self-evident. EBIT margin before extraordinary effects was even a bit better than guided with 3%. Looking at the free cash flow on Slide 22 (sic) [ 24 ], we can see that the development in the last year has been much less volatile than in 2019. At the end, we reached a level of EUR 111 million in 2020, which is more than double compared with 2019. This was driven by a couple of reasons that I would like to explain more in detail. First of all, we could significantly reduce the net working capital. Part of that was driven by the lower sales volume, but we could also reduce the number of days working capital towards the lower end of our target range of 40 to 50 days. In the fourth quarter, we received a couple of larger prepayments for projects. In the end, these are timing effects which depend on order nomination, and are difficult to predict. When we would have received a prepayment a couple of weeks later, we would have recorded them in the first quarter, and free cash flow would have looked different. With this, I would like to stress that there will always be some uncertainties regarding free cash flow and net financial status at the end of the year because of timing effects. In addition, we successfully cut CapEx in 2020 as targeted. And in regard to the EUR 50 million item, Other, mainly it includes lower tax payment and higher restructuring charges. We are altogether very happy with the development of free cash flow in 2020 and start 2021 from a very solid liquidity level. Now let's take a closer look to the net working capital on Slide 25. On the left side of the chart, we can see a further decline of net working capital in the fourth quarter due to the reasons just mentioned. In the table on the right side, we see the declining level of contract assets and a small increase in contract liabilities. At the year-end, we reached 41 days working capital, and it will be one of our major tasks for 2021 to manage this very tightly in an environment of sales revenues recovery, especially in the second half of this year. Now let's turn to our net financial status on Slide 26. Driven by the strong free cash flow, it has improved by EUR 50 million to a level of minus EUR 49 million. This includes about EUR 98 million leasing liabilities. The leverage, that means the ratio of net debt-to-EBITDA, remained at a relatively low level of 0.4 compared with 0.3 at the end of 2019. All in all, this results in a comfortable liquidity headroom, as shown on Slide 27. This is a pro forma view that includes already the new EUR 200 million Schuldschein loan that we issued in December 2021 (sic) [ 2020 ] and for which we have received the respective funds in January 2021. Upcoming maturities of about EUR 350 million in 2021 are well covered by available funds of about EUR 1.7 billion, including cash and cash equivalents, money market deposits and available cash credit facilities. As you can see, the maturity profile spreads already until 2031, and there are no maturities of financial instruments in 2022. We are very solidly financed entering the year 2021. That was it in regard to the financials, and I would like to hand back to Ralf for the outlook.

Yes. Thank you, Dietmar. But first, let's have -- before I start with the outlook, let's have a quick look at the trends and market developments as we see them, from all the public sources. On Slide 29, we can see the fundamental trends that drive our business: population growth, growing middle class, resource efficiency and environmental protection. Based upon our core competencies in automation and digitization, we offer our customers solutions that are leading in efficiency, and that's our claim since years. With our Machinery and system offering, we cater demand for solutions in e-mobility, solid wood construction, and medical technology now that we see growing in the future. So now let's turn to the single markets. On Slide 30, we see the forecast of LMC Automotive for light vehicle production in '21 and until '27. Predictions are for a strong rebound of production volumes in '21 to almost 2019 levels. But however, the semiconductor shortages since the beginning of this year have led to production stops. And LMC estimates that production volumes will be impacted in the first half of '21 and recover partially in the second half. So for the full year '21, there's a risk of 1 million to 2 million less vehicles being produced due to those semiconductor shortnesses. As our service business is linked to production volumes, we will probably see a similar pattern there. But beyond '21, LMCA sees midterm growth potentials to above 100 million vehicles per year. Looking at the furniture market on Slide 31, we see a similar picture. The low point was in 2020, and we expect a recovery in '21. Whether it will take until '23 to reach prior peak levels, I'm not sure. We currently see a strong increase in demand for woodworking machinery, and we might end up with a steeper growth curve. And signs of new investment cycles are clearly visible, and recently order intake for certain equipment types and System orders has already been at a very high level. We added 2 more interesting market slides in order to cover parts of our activities that are still smaller, but exhibit solid growth potential. On Slide 32, we see an outlook for the market of woodworking machinery and systems for solid wood. Demand for solid wood construction remains strong, and it is expected that the market will recover to 2019 levels already this year. We have strengthened our position with the acquisition of System TM last year and look forward to further M&A opportunities maybe in that area. And the order intake in that field is very strong in the first weeks of this year. A new market for us is automated production equipment for medical devices, such as injection systems, inhalers or contact lenses. And we entered this market with the majority acquisition of teamtechnik. Here, we expect solid market growth in the high single digits over the next years. teamtechnik has done its homework over the past years, gaining traction at several customers with pilot projects, and we would like to build on that going forward. And this might also be a field for potential acquisitions. So now let's look to the year '21 on Slide 34, which will be a special year for the Dürr Group, as we are celebrating our 125th anniversary. And if you're interested, you can read more about our history -- by the way, which is worthwhile to read -- on our web pages, and we will be actively pushing some flashbacks during the year on social media. And Andreas, for those who have a little bit more time, we will publish end of the year in, how you call in English?

A chronicle.

A chronicle, which is really worthwhile to read maybe over a rainy Saturday or something like that. So -- but now let's take a look to the guidance of the Dürr Group for '21. The guidance assumes that we will not see major lockdowns affecting production and project execution until year-end. So we expect a strong increase in order intake to a range of EUR 3.6 billion to EUR 3.9 billion, driven by the recovery after the pandemic and our acquisitions. Regarding sales revenues, we target growth to a range of between EUR 3.45 billion and EUR 3.65 billion. This growth will be more second half-loaded as we will still feel the impact of the lower order intake from Q2 and Q3 2020. EBIT margins before extraordinary effects are expected to come in between 4.2% and 5.2%, and this translates into reported EBIT margins of between 3.3% and 4.3% as we expect extraordinary effects in '21 to amount to roughly EUR 30 million, mainly related to purchase price allocation effects. For ROCE, we expect a range of between 9% and 13%, and the net income should turn out between EUR 40 million and EUR 90 million. Free cash flow needs maybe a bit more explanation. After a strong performance in 2020, we expect neutral to slightly negative free cash flow in '21. And this is driven by several factors. First, we expect an increase in EBIT margins. And on the other hand, we expect net working capital to change from tailwind to headwind in '21. In 2020, free cash flow was mainly driven by a strong reduction in net working capital. With sales revenues expected to grow this year, we assume a respective increase in net working capital. You should also not forget that most of the capacity reduction measures agreed in 2020 will lead to payouts in '21. It is fair to assume a mid-double-digit million figure for cash outflow for this alone. And in addition, tax payments were greatly reduced in 2020, especially tax prepayments, and this will be different again in '21, but for a good reason, obviously. Last but not least, we will increase capital expenditures, as we want to invest in our facilities to improve efficiency at HOMAG in Poland and in Schopfloch. Consequently, we expect a decline in net financial status to between EUR 175 million to minus 200 -- so minus EUR 175 million to minus EUR 225 million. This corresponds to a leverage of about [ 1x ] to the end of '21. So for more details, as you always want, let's look at the divisional break -- our breakdown on the next slide. The breakdown by division covers order intake, sales revenues and EBIT margin before extraordinary effects. Now what do the numbers tell us? Order intake is expected to grow across all divisions. Main contributors will be the Automotive and the Woodworking business. Sales revenues are also expected to grow, but less dynamic as we still feel the low order intake of 2020, especially in the System business and Paint and Final Assembly Systems and also in HOMAG. EBIT margins before extraordinary effects should also improve across all divisions, but to different extents. At PFS, the improvement is lower due to the lower order intake with related margins pressure in 2020. APT is expected to show a stronger improvement, as car production levels and with the related service business recover strongly in '21. CTS was not so much affected by the pandemic, and as such should improve moderately. MPS has overcome the project business issues of the beginning of last year and sees new growth potential in aerospace and e-mobility. And at the same time, cost reduction measures were put in place, and this drives a stronger margin recovery. And at HOMAG, implemented cost savings, continued process improvements and increased sales levels are expected to drive a solid margin improvement. On the next page, 36, we would like to confirm our strategy and midterm targets. We believe that we are well on track despite the downturn caused by corona last year. More than half of the margin improvement between 2020 and our midterm goals are driven by measures under our own control. In addition, we believe in the future potential of the markets we are in. In conclusion, let's summarize on Page 38. The year 2020 was challenging, but we were able to show a solid performance. Earnings came in as predicted in July '20, and cash flow performance was strong. We start '21 with a record total liquidity of more than EUR 1 billion. We're also well positioned for profitable growth going forward. We have closed attractive acquisitions that offer us new opportunities and further broaden our market scope. We have done our homework with respect to capacity adjustments, and we expect to benefit from related cost reductions starting in '21. Finally, we will focus on margin and cash flow management in '21 and see us well positioned for a successful year '21, followed by an even stronger '22 when we expect further earnings increases. So thank you very much for your attention so far. And now we are happy to answer any questions you might have, and I hand over to Mr. [ Beniger ].

[Operator Instructions] And the first question we received is from Lucie Carrier of Morgan Stanley.

I have a few questions, and I will go one at a time, if it's okay. My first question was related to the Paint and Final Assembly business. And just to understand a little bit better the balance between orders and sales development in 2021 and possibly beyond, because you've ended the year 2020 with a backlog of nearly EUR 1.3 billion in this division. And you're guiding for 2021 for sales which are a little bit more modest than that. It also seems, if I made right my calculation, that the EV orders you've had in 2020 in this division were actually exceeding the orders you've had in ICE for this division. So does that make the backlog particularly longer-timed, I would say, in terms of execution? So just to try to understand this element. And when do you expect these project to materialize if they're not fully materializing in 2021? That's my first question.

Thanks, Lucie, for asking. It's Jochen answering. You've discovered it well. We have at least 2 larger orders in Europe sitting in the backlog that will turn into revenues mainly in '22 and partially '23. So different maybe to a year ago, we have a backlog of EUR 200-plus million that has a longer reach. This is why you see we're a bit more cautious in '21, because some of the backlog that we already have really turns into sales more in '22 and '23.

And is that related to the shift from ICE to EV? Or it's independent of that?

No. No, it's pure project timing and the fact that with one large OEM, we have negotiated and contracted 3 projects together that have a long lead time for different countries. Now this is -- one of those projects is in e-mobility, but it's not technically related whether it's ICE or e-mobility.

It's the [ famous bundle ] order, isn't it?

Yes.

My second question was also related to the backlog, but in this case on the margin level. I was wondering if you could qualitatively comment on the margin level you have in the backlog currently, versus your margin expectation for 2021. Because obviously, we are seeing a lot of move on the FX side, also raw material freight cost inflation. And I just wanted to know whether you feel you have sufficient buffer before -- between what you have signed on and what you're kind of guiding on, and what's really the margin of error you have here?

Yes. To answer on that. What we see is, of course, with a tough market, especially in 2020, that we have some sort of margin discussions. On the other hand, with the measures we've put in place, we believe that we can well execute the orders, even despite the raw material issues, with a strong setup in our purchasing and bundling of purchasing we've changed, to some extent, project execution, but even more so, the way we source projects. So yes, it's going to be some work, but we are confident that with the orders on hand and what comes in, we can secure the margins that we have guided.

And we have also examples where we have better margins at the end than calculated in the beginning, yes?

Yes.

And I guess my last question, just to kind of make sure I understand well the guidance on your net financial position for 2021. Does that -- because obviously, you haven't communicated yet on the dividend. Should we assume that this is including potential dividend, or that's independent of dividend?

That includes -- Lucie, Ralf here. That includes a dividend because we will propose our Supervisory Board and dividend proposal, which is much less than last year, but we are intending to issue a dividend also for last year. Also to demonstrate our strong optimism for '21 following.

The next question received is from Ingo Schachel of Commerzbank AG.

My first question would be on your Paint systems order backlog as well. Just regarding the same margin outlook, I think, for 2021 it's clear why you only expect a moderate margin improvement. But what's your visibility on improving margins closer to 6% maybe in the year 2022? I guess, with improving order intake, it's plausible for most of us to assume it's going to get better. But are you already seeing it in the more recent order intake that pricing is getting better? Are you seeing much incremental restructuring benefits in 2022? And [ yet ] you already have the visibility that '22 should be able to do better for Paint systems from a margin perspective.

Ingo, thanks for the question. It's Jochen again. Yes and no, to be quite frank. Obviously, we're carefully watching the markets. We assume that Europe and especially some brownfield business will come back more. So there is no reasons not to believe that after '21, we continue the path of increasing profitability, and we continue to do our homework on the cost side. And obviously, for good reasons, we've implemented or we are implementing, as we speak, restructuring measures that deload our cost side. Which, all in all, makes me quite confident for increasing margins further midterm after a slight recovery this year in Paint.

Okay. And then one on medical technology. You've given this topic of medical technology a certain emphasis in your presentation, presented the market outlook and so on, so it seems to be a very important and a very attractive topic for you right now. I think there are many ways in which you can develop your business. You can -- like you've done in the past with similar acquisitions, invest in the global footprint and allow it to grow based on just strong global footprint, or you can do more bolt-on M&A. What does this strategic development process look like? I mean it's a new market for you, more or less. So I guess, you still need some time also after the integration of teamtechnik to assess the market potential and to decide on bigger investments. Or could it happen rather quickly that you even use this anniversary year, this year to make a bold statement and make a bigger acquisition to make it a true 3rd pillar for Durr?

Yes. Let me answer this way. You can be assured that acquiring teamtechnik has not just fallen from heaven. We have made our homework before. We've analyzed the market, and we found this market to be attractive even before we had the opportunity to acquire teamtechnik. And the medical business within teamtechnik is still much smaller than the automotive business. Nevertheless, it was equally important for us compared to the e-mobility business because -- and that's a clear statement. We want to use this as a buy-and-build platform, which of course, the growth that we intend to have can only be done inorganically.

And on that path to inorganic growth there, because I think in the last 10 years, I think Durr was very successful in buying assets at very attractive low multiples. I think HOMAG [ one ] was fairly reasonably priced. Even teamtechnik was bought for quite cheap as far as I can see. So when it comes to acquisitions in that area is there any, let's say, different position multiples that you're willing to pay or that you regard as the right sector multiple by positions in this area? Or are you still, say, very price-conscious even in those markets?

No. I might have to consult you because you could probably tell me the right multiple for add-ons, but no, I'm just joking. So cheap is relative. And we know that the market we are now entering with medical devices might have slightly different multiples. For good reasons, because it's a very sustainable business. And yes, we continue to be -- to make our homework in not overpaying. On the other hand, it might well give reasons to apply somewhat different multiples for acquisitions in this field compared to automotive, because we assume that this, in the end, will also be reflected in our enterprise value.

The next question received is from Alexander Hauenstein of DZ Bank.

Alex Hauenstein. I have 3 questions, please. First of all, coming back to the microchip issue. I was wondering, you were referring to the consultant LMCA, et cetera. I was wondering whether you already see and hear from your clients about certain production stop activities or certain production reductions? And the second question is a bit similar. I understand that so far, you were guiding for a weaker Q2 2020 order intake, probably materializing in weaker sales and profit, especially in Q1 '21. Have you so far in the current quarter already seen this? Or is this the assumption that you expect from, let's say, in March or April onwards? And the third question is on HOMAG. Q4 order intake, but also adjusted EBIT was quite a bit better than I had estimated. I was wondering where this positive trend is coming from. Is it only market, or any special things in terms of potentially the systems business coming back a bit better than expected? Or how should we think about this to continue potentially in Q1 or Q2? Or is this also related to the lower order intake from last year's Q2 probably leading to, yes, to a certain decline again in the first 2 quarters of this year?

Alexander, thanks for your questions. We will answer them. But for the next people who ask, please, put one question after the other. It's easier for us. We start with the microchip. Jochen?

Yes, I can comment on that. Obviously, our clients are the OEMs and you've all read the news about Daimler closing production in Rastatt or Volkswagen closing some activities in Wolfsburg for some time. So -- and Ralf has given the figures. We obviously have talked to the OEMs because they were also keen to know where we are. And I can assure you that despite a few spot purchases that we had to do on a few components, so far -- and I have to touch wood, obviously -- we are not affected by this. However, we of course hope that production is not really impacted because some of our business, as you know, on the spare parts side, especially on application technology, is related to the production of our clients.

The second question was regarding our sales in the first quarter, whether we assume it or whether we see it in the numbers. Both is the case. We will have a weaker start with revenue, but that's how we saw it, and we will see it. I think we will be a little bit better in HOMAG. We were predicting a slower start in HOMAG. But due to the fact, and it leads to your third question, that the order intake in HOMAG was very good in the fourth quarter again, to back to normal levels. Also, the -- from me in the last call, I explained more details about the system business or larger orders where industrial customers are investing in capacity increase. This business really has picked up. We are looking at a very healthy project pipeline for the next some months. We also secured this year one of the other larger project. And by the way, also mainly in Europe or Central Europe, where the kitchen manufacturers, for example, just reported these days a nice growth in 2020. And this is due to the cocooning effect that people sitting at home, seeing their kitchen. Normally, they're out working, coming home late, nobody looks. But now you see every day your furniture and you want to have new ones, and that's driving that trend. And we look at a very healthy project pipeline also for the next -- basically to the whole '21. Does that answer your question, Mr. Hauenstein?

Yes, it does. Maybe a last one here, a smaller one. I was a bit surprised about your APT margin guidance. What is here the main driver, apart from restructuring efforts? Is it more back-end loaded over the course of the year? Or what are the assumptions here?

The main assumption is that our service business comes back to normal levels. And if you look at historic numbers of APT, this is not something we haven't seen before. And of course, we assume that some of the restructuring helps us bottom line. We're working on also cost reduction of some of the products. And all in all, this is what comes out. And again, if you compare profitability to, say, 3 years back, 2, 3 years back, you will see this is what we really want to achieve for this business.

But you only said you were surprised. Were you positively or negatively surprised?

Positively surprised. Yes, I compared it to the past. Obviously, it's quite below that. But yes, I was still a bit surprised how quickly it's coming back. But if you assume that there's...

Okay. Thanks for helping me out, because otherwise I would have given the wrong answer.

And the next question received is from Philippe Lorrain of Berenberg.

Philippe Lorrain here. I've got like a few questions. Perhaps I start a very quick one. On APT, can you tell me whether the industrial product subsegment is still doing some operating losses? Just wondering how to model this one?

I think the answer is simply no.

Okay. But we [ know too ] quick -- shall I answer it quick?

Yes. Well, it's just one after the other.

Okay. Then shall we answer one after another?

No, we answer now, and then he ask another question.

Okay. Good. Philippe, we have, as you've probably read or I can tell you, we have now bundled all the activities around the business in Bietigheim, be it gluing, but also the industrial business. So the answer is no, we're not doing losses anymore because we've also significantly adapted the product portfolio, away from being kind of a full-range supplier to a very specific range now. And no, we're not doing losses anymore.

Okay. Does that mean that the margin that you get from that business is like in line with the rest of APT? Or is it still like a little bit below the rest of the segment?

It's -- all in all, it's below, but the P&L looks different. It's higher margin in gross margins. On the other hand, relative to the size, you have slightly higher overheads, but still all in all, slightly lower. But it's not creating any issues anymore.

Okay. Perfect. Then the second question was on the APT segment again. It seems like perhaps an order cancellation impacted the backlog towards year-end. I remember that you had something like that in PFS in Q2, which was around EUR 70 million that was disappearing. I calculate with a shortfall of about 35% for APT in Q4. Is it the same order, just like a different timing? Or is that something else? Because otherwise, most of the effect that you get on the backlog from one quarter to the other is [ affixed ].

Yes. No, it is a different order. It is an order with a German OEM, who has decided to approach the extension of the site differently. So it's nothing any performance-related or so. It's simply that the German OEM has decided to reevaluate the investment. The investment will come, hopefully with us, but they are going back to planning. So that's the story.

Okay. Perfect. And then the third one, which is also like kind of housekeeping. The adjusted EBIT margin for the corporate center and consolidation was a positive EUR 2 million or so in Q4. Is there like a specific reason for that?

No. This was the internal charges actually on the EBIT reported side that we see, and we had some special effects as well.

Yes, but the special effect as well is that the member of the Board [ has ] earning quite significant less than the year before.

So we have a contract adjustment regarding LT -- long-term incentives, yes.

Ready for donations.

Okay, fair point. Then the next one, is there an update perhaps on when you aim to reach your midterm margin targets, the ones that you've laid out during the Capital Markets Day? And perhaps as well, how much of sales would that require? A related question as well around that is, you project in this presentation that you assume 2% to 3% annual sales growth. Is that meant to be from 2021 or further down the road because 2022 would still see a further recovery of the business?

This is the $100,000 question always asked. We said always, it's about 24%, 25% is our midterm view. Depends on the markets. And I think 24%, from today's perspective, how much more revenue we need, you have the growth numbers, which were basically, I would say, we have to put on top of what comes out this year. So it's about EUR 4 billion, a little bit more maybe. But I think we have improved our profitability position, our cost structure. So I think we don't need the same revenue as we would have needed 2 years ago to achieve that.

Okay. Perfect. And the very last one is just like a bit of a follow-up on the raw mats. So to my understanding, the pricing of projects was done based on what you were observing in terms of raw material prices. And then before the signing of the contract, there was like a final update on how the raw mats have been evolving and then everything was hedged. Has there been like any change on that size -- on that side, sorry? Or is it still valid?

No, that's still the procedure we try to do. It's not always happening. But as you said, we always had this in the last year's up and downs with raw material prices, which whenever affected us so much as the prices were going up or down. I think we can manage that. And by the way, steel price, which is up now, is expected to go down again in the third quarter. Why? Because the steel mills need 6 months to ramp up production. That's the physical constraint, and then the prices will come down again.

Yes. Okay. This is very interesting. But that means in this market, you are still able, let's say, in terms of pricing negotiations with your customers to pass through these developments -- of raw mats.

Let me add. To some extent, let me say. But you have to know, we're not buying a lot of raw material. So we are typically buying semi-finished goods. So this already dampens the peaks from raw materials. We have frame contracts that secure some -- a big portion of what we buy. So can we be sure that there is not some short-term impact to some extent? No. But are we concerned? No.

The next question received is from Will Turner of Goldman Sachs.

I have 3 questions or 2 and a follow-up one from one asked earlier. The first question is, when we look at equity capital markets over the last 9 months, one of the areas which has been particularly strong has been those which kind of are booked into a green category and of which electric vehicles are obviously one of them. I was wondering, in the last couple -- sometimes there are obviously disconnects between equity markets and reality, and also sometimes equity markets run ahead of reality. So I was just wondering, in the last couple of months, amongst your customers, have you seen a material change in conversations with your customers in terms of building out EV capacity? Has there been a really notable difference in the last 2, 3 months?

Will, it was a little bit difficult to understand you. So we try -- do we understand right that you think whether our customers' capital expenditure behavior has changed regarding now to move to e-mobility?

Yes, exactly. But in particular, given the amount the market rewards kind of electric vehicle companies?

Yes. The answer is no, because a paint job is a paint job. You have to paint the car, so they have to -- they have the quality criteria. So there's no change on that. What we saw more is on the Schenck side on the MPS Division, the transition from combustion engines, where in those areas, there are no investments at the moment, where we had a huge drop. Also turbochargers, where all the investments go into the drivetrain of e-mobility. That, we can say. But for the PFS not, and APT not.

Or positive because you have all those new players in China or the U.S. who make their first initial investments. The capital invested in paint shops is not equally used. Some of the plans are not fully loaded. But on the other hand, you have those new players like Rivian and Lucid in the U.S., which we were supplying, but also all those new players in China, and this is where we're benefiting from. And this is also the numbers that you've seen earlier from Ralf.