U.S. Markets open in 2 hrs 29 mins

Edited Transcript of DUE.DE earnings conference call or presentation 4-Aug-16 12:30pm GMT

Thomson Reuters StreetEvents

Q2 2016 Duerr AG Earnings Call

Stuttgart - Zuffenhausen Mar 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Duerr AG earnings conference call or presentation Thursday, August 4, 2016 at 12:30:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Ralf Dieter

Duerr AG - CEO

* Ralph Heuwing

Duerr AG - CFO

================================================================================

Conference Call Participants

================================================================================

* Ingo Schachel

Commerzbank - Analyst

* Jack O'Brien

Goldman Sachs - Analyst

* Sahenya La

BofA Merrill Lynch - Analyst

* Maura Gabera

One Investments - Analyst

* Elod Abeden

The Hafbird House - Analyst

* Jacob Tesich

Metza - Analyst

* Alexander Hauenstein

DZ Bank - Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Welcome to the Duerr conference call. Ralf Dieter, CEO, and Ralph Heuwing, CFO, of Duerr AG will present the Duerr Group figures for the first half of 2016, followed by a Q&A session. I will now hand over to Mr. Dieter, CEO of Duerr AG.

--------------------------------------------------------------------------------

Ralf Dieter, Duerr AG - CEO [2]

--------------------------------------------------------------------------------

Thank you and good afternoon, ladies and gentlemen, and welcome, everybody. It is our pleasure today to present to you Duerr's figures of the first half of 2016, and as always, I'm joined by my colleague Ralph Heuwing.

I will start by summarizing the key highlights. Incoming orders rose by 11% and reached EUR2 billion in the first half. From today's perspective, we are raising our guidance for incoming orders to a range of EUR3.5 billion to EUR3.7 billion.

The chapter for currency translation effects saves in first half remains nearly unchanged, and EBIT and earnings after tax rose strongly after normalization in purchased price allocation effects and financial results and tax rate.

Let's turn to page number four. The book to bill ratio came to 1.2 in the first half and order backlog was up by EUR233 million to EUR2.7 billion. Currencies inflation had a negative effect of approximately minus 3 percentage points in order intake and sales.

Going to page five, incoming orders in America rose strongly due to several large orders being placed in North America. In second quarter, we received one of the biggest orders ever in the US for delivering a turnkey assembly line for an emerging electric vehicle company. Orders in Europe, especially in eastern Europe, rose mainly due to a large greenfield order being placed for the construction of a paint job for a luxury car manufacturer.

In southeast Asia and in India, we saw positive momentum. In Brazil, Turkey, and Russia, incoming orders remained at a low level. As anticipated, incoming orders in China went below the previous year's figures that we expect to pick up in the fourth quarter and in 2017, following the strong car sales dynamics in first-half 2016. These developments prove once again that with our global footprint Duerr is able to balance regional cycles very well.

Ralph Heuwing will now take you through our financials.

--------------------------------------------------------------------------------

Ralph Heuwing, Duerr AG - CFO [3]

--------------------------------------------------------------------------------

Thank you, Ralf. Let's turn to page six.

In the first half, we achieved an EBIT margin of 7%, compared to 6.1% last year, so we remain within our full-year target range of 7% to 7.5%. And as expected, PPA expenses decreased to a normal level of EUR4.4 million. Our EBIT includes book gains from a real estate sale of EUR5 million in the US. Like-for-like operating EBIT, adjusted for both PPA effect and income from the real estate sale, came to EUR118 million, compared to EUR126 million in the first half of last year. This resulted in an operating EBIT margin of 6.9% versus 7.1% in the previous year. The small decline in operating results was due to the sales decline.

Our gross profits revenues minus cost of goods sold increased by 7% to EUR408 million. Gross margin reached a new record level of 24% in Q2, thanks to a vibrant service business. As anticipated, there was a strong improvement in financial results, while tax expense returned to a normal level, which meant that the net profit was up by 45% in the first half of this year.

Ladies and gentlemen, let me continue on page five -- seven, excuse me. Operating cash flow came to minus EUR85 million in the first half, down by EUR96 million year on year. Net working capital rose by EUR136 million compared with the beginning of the year. Among other things, this was due to a normalization of the previously above-average level of prepayments, as well as some delays in payment receipts in the second quarter of 2016. However, this shift in the payment structure did not have any impact on our earnings situation. Moreover, we do not expect to see any further increase in net working capital through to the end of the year.

Against this backdrop, we assume that the cash flow and net financial status will improve significantly in the second half of 2016. Free cash flow stood at minus EUR138 million in the first half, while net financial status declined from EUR129 million at the end of 2015 to a level of minus EUR90 million.

The overview of our work in process and progress billings on page eight shows that the payment balance between -- with our customers has completely normalized and stands at minus EUR70 million. We consider a figure of around minus EUR100 million to be a normal level, so we expect no further cash outflow for project execution.

Going to page nine, equity climbed by 18% over the middle of 2015 to EUR712 million, but was largely unchanged compared with the end of 2015, as the positive effects from the high earnings after tax were neutralized by three factors. First, the increased dividend payment. Second, the adjustments to the pension provisions due to the lower discount rate. And third, exchange rate effects. Our new bonded loan on German [schorteim] in the volume of EUR300 million is now included in our balance sheet. Our total cash, including other financial assets, currently stands at EUR563 million.

I will now hand back to Ralf Dieter, who will summarize the developments in the divisions and present our outlook.

--------------------------------------------------------------------------------

Ralf Dieter, Duerr AG - CEO [4]

--------------------------------------------------------------------------------

Thank you, Ralph. Let's move on to page number 10. Order intake at paint and final assembly systems was strong, with a plus of 15%. Our project pipeline remains healthy. That's because a number of immobility projects are being planned both in China and in North America, but those projects have acquired undefined timetable yet, so it's difficult to predict in which quarter these orders will be awarded. In China, we anticipate an increase of order intake in the second half, more in the fourth quarter and in 2017, after the digestion period we have seen over the last three quarters.

Going forward, paint and final assembly systems expects generally stable demand. The decrease in earnings was due not only to lower sales, but also to the margins returning to a normal level. At 6.7% in first half, the EBIT margin was on par with the fourth quarter of last year.

Page 11 shows that application technologies' order intake also increased considerably, mainly due to several large greenfield projects, while modernization business was steady. We managed to reduce the shortfall intake in the second quarter, a trend that is also likely to continue in the second half of the year.

Including the EUR5 million income from the mentioned real estate sale in the US, EBIT was up EUR3 million and the operating EBIT margin remained above 10%, also due to the strong service business.

And on Page 12, you can see that the order intake at measuring and process systems rose substantially in the first half and in the second quarter as well. Order intake was strong in all activities. The second-quarter sales were up by 3% after a weak start in the first quarter. The book-to-bill ratio increased to 1.3. The EBIT margin improved strongly in the second quarter by two percentage points, to 12%, mainly due to the good utilization and a different business mix.

The announced exit of cleaning and surface processing, our cleaning machine activities, is progress well and signing should be announced shortly. The closing will be possibly at year-end, but this depends on the timing of regulatory approvals. And in 2016, cleaning and surface processing should achieve sales of approximately EUR200 million and an EBIT margin of roughly 6%.

Page 13 shows the results of clean technology systems. Order intake and sales rose dynamically in the first half, driven by growth in our environmental technology business. Order intake exceeded sales by 20%. We received several orders from China, southeast Asia, and North America, and Europe picked up also in the second quarter. EBIT improved strongly in the second quarter, due to higher volumes and a growing service business. The weak spot remains our energy efficiency technology. Measures to intensify sales activities and optimize costs are underway.

Ladies and gentlemen, let me continue on page 14 with an overview of the HOMAG group, which forms the woodworking machinery and systems division. The HOMAG group orders reached the record order intake achieved in the first half of 2015, despite negative currency effects. On top, we have been more selective in taking orders in the system project business. EBIT rose by EUR18 million to EUR28 million on a 5% increase in sales revenues. In second quarter, we booked some streamlining costs, too.

Adjusted for PBA and other extraordinary costs, the operating EBIT margin rose to 6.1% in the first half, up from 5.4% last year, and the reported EBIT margin stood at 5.2% compared to 1.8% in the first half of 2015. As you can see from these figures, we are fully on track with our focus improvement program.

Let's move to page 15. The [very long] picture service business continues to grow steadily. As you know, our service business is a key driver for both customer satisfaction and value creation. Services sales grew by a strong 9% in the first half, coming to EUR462 million and accounting for 27% of consolidated sales, getting closer to our midterm target of 30% of total sales. The service margin remains at a high level.

Let's move now to page 16. PwC's market experts published their latest forecast for light vehicle production in July 2016. Despite global political and economic uncertainties, PwC continues to expect global production growth of 4% in 2016. In particular, Brazil and Russia should underperform, while India, southeast Asia, and Iran are on an upward trend. Europe and North America are performing well, with growth rates in Europe slightly above expectations.

PwC increased the growth forecast for China more strongly, to around 8%, to 25 million units. PwC and others remain upbeat about the longer-term potential in China, so they slightly increased their 2020 forecast to more than 31 million units. This sentiment is consistent with our own impressions from conversations with the OEMs in China. They continue to see significant potential in the long term, and in addition we also see growth in the modernization business, reflecting the lower degree of automation and the lack of environmental protection in the older plants. An increasing number of [petrel] plants in China are aging and in need of modernization.

The chart on page 17 shows the expected development in the machinery market for the woodworking industry. The market is predicted to grow by approximately 3%, on average, typically with the strongest growth rates in China and the rest of Asia, somewhat lower growth rates in North America. Accordingly, our focus also lies on these regions and in order to participate to an above-average degree in growth anticipated.

Let's turn now to page 18. Based on the good first half, we reaffirm our outlook with respect to safe and earnings. We are confident that we can achieve the upper end of our safe and earnings targets for 2016 and we are aiming for an EBIT margin of 7.0% to 7.5%, with absolute EBIT expected to be on par with 2015 before any book gains from the disposal of equity. As already mentioned, we are aiming at an increased order intake target of EUR3.5 billion to EUR3.7 billion, after EUR3.3 billion to EUR3.6 billion of guidance.

Ladies and gentlemen, before inviting you to ask questions, I would like to draw a short conclusion. First, Duerr showed a good performance in the first half, with order intake above expectations. Net earnings grew by 45% and the gross margin reached a new record level in the second quarter, despite a small decline in sales. Second, our cash flow was temporarily weaker, but an improvement is expected in the second half of 2016. And third, the exit of our cleaning business is progressing well. The signing announcement can be expected soon. And fourth, we are raising the guidance for order intake to target the upper end of our guiding range for [face] and earnings.

Ladies and gentlemen, thanks for your attention so far. We are now happy to answer your questions. I hand over to Ms. [Sant].

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions). Ingo Schachel, Commerzbank.

--------------------------------------------------------------------------------

Ingo Schachel, Commerzbank - Analyst [2]

--------------------------------------------------------------------------------

Three questions, the first one would be regarding HOMAG and the project sensitivity that you have alluded to. I think directionally we are not surprised that you are trying to be a bit more selective on projects there. I found it a bit surprising [rather abrupt] the end of the second quarter after a very strong Q1 order intake in the segment. Could you explain a little bit whether there was any specific change within your policy, maybe expanding [watchbox] in those areas you have to introduce new criteria, but it was rather a coincidence that Q2 for HOMAG was so low, and also whether for the second half you should see the Q2 more as the new normal or whether Q2 was maybe a bit more of an outlier to the downside?

And then, the second question would be on measuring your process systems. You referred to a changed business mix, and of course you don't have to go into too much detail on which unit exactly. I would be very interested to hear a quick comment on equity and specifically to what extent margins change (inaudible) one of the drivers for the margin improvement compared to the first quarter.

And then, the last question would be just a short one to Mr. Dieter and, of course, you have to ask about the M&A strategy and every single caller in the last couple of market segments so you don't have to give the long answer, but just in context of the CFO transition, I just wanted to quickly ask you whether you think in terms of appetite for bigger deals, you'll [since be okay]. Even with this sort of transition process going on, is it possible to see a bigger HOMAG-like deal or would you rather say that's less likely in the next 18 to 24 months?

--------------------------------------------------------------------------------

Ralf Dieter, Duerr AG - CEO [3]

--------------------------------------------------------------------------------

Mr. Schachel, let me start with the HOMAG question. Before going specifically to your question, you should remember that HOMAG last year had a very strong growth in order intake and, of course, the small growth of the [flattish] situation this year is also reflecting the base level.

But specifically on being selective, it can be attributed already to one project, which we turned down due to insufficient margin, and those larger projects I think are the ones where we need to be selective and be rather strict in terms of margin requirements and other terms and conditions. So it's a learning process to basically get stronger in our sales approach.

And (inaudible) the driver for the improvement in measuring process system was not Ecoclean, this come to we call it business mix. We have some product lines which are, let's say, more profitable and others less, and we have some business of those (inaudible) more profitable, and also good service business.

The information regarding we are changing our M&A strategy because Mr. Heuwing has decided to leave us next year, the answer is definitely not. First of all, it's year after next year and we will have enough time to find a good successor and I'm sure we will just move on.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

Jack O'Brien, Goldman Sachs.

--------------------------------------------------------------------------------

Jack O'Brien, Goldman Sachs - Analyst [5]

--------------------------------------------------------------------------------

Great. Thanks for taking the questions, a couple from me. Firstly, rather predictably on China. I was wondering if you could just finish out a bit your confidence behind improved order intake in effect now from 2017. It was only yesterday that VW were talking about the impact from perhaps the lower sales tax being removed and how that could impact your outlook.

And secondly, clearly you had strong service sales growth, but if you could provide any color on the breakdown by geography, that would be helpful. Thank you.

--------------------------------------------------------------------------------

Ralf Dieter, Duerr AG - CEO [6]

--------------------------------------------------------------------------------

You're speaking on, first of all, China? You are seeing the increase in sales and also [SVU or] Volkswagen was also benefiting from that.

The tax benefit for the engines 1.6 liters or less, which will end end of the year, if that would then cost in the time after a decrease in sales, I'm sure the Chinese government comes out with another program because they want to [view] this automotive business. They are very optimistic.

What we didn't have in the first half was a really large order in China. For sure, we had business, as you can see by the numbers, but they were smaller and in particular the local OEMs were investing where we had a smaller project volumes and they are very often split paint job orders in several pieces and as long -- since we are always going for the good margins, we may be being selective here.

But the pipeline -- and that's why we are optimistic -- of projects coming up to be decided by it could be the end of the third quarter, but fourth quarter more likely, is promising and we see also larger projects not only in discussion, but already quite in detail discussed to be decided in the first and second quarter next year.

So, unfortunately, I can't time customer decisions, but we feel very optimistic about the China pipeline in the next six to nine months.

Services, you want a split of services into the regions. I think you can -- as a rough measure, you can take this (inaudible) distribution in the regions of the order, but I don't have it on hand. There's no region where you have much more service revenue than the other. And we also -- in Asia, traditionally, there is less, but we see that customers value this more and more and I think so we maybe have to have more in Europe where the OEMs are, let's say, very conscious about perfectly maintained equipment and in Asia a little bit less and in America, let's say, it's on average. Does this answer your question?

--------------------------------------------------------------------------------

Jack O'Brien, Goldman Sachs - Analyst [7]

--------------------------------------------------------------------------------

Okay. Great. Thank you.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

[Sahenya La], BofA Merrill Lynch.

--------------------------------------------------------------------------------

Sahenya La, BofA Merrill Lynch - Analyst [9]

--------------------------------------------------------------------------------

Just two questions, basically. First of all, in terms of the cash flow that you said you were a bit weaker, that you're confident that you come to the normalized level as of the end of the year. Can we see real payment terms changes or is there a certain payment that didn't come this quarter and you are really confident on that coming next quarter? How does that develop or will this be a more ongoing process where you have to basically finance a bit more of your capital yourself?

And then on the second point, you mentioned your new project, some sort of new EV players. Can you give us a little bit more color in terms of -- you mentioned there's one in North America and in Asia as well. What's the activity in terms of Europe and what do you see sort of also from your traditional players looking to add new capacities in the market?

--------------------------------------------------------------------------------

Ralf Dieter, Duerr AG - CEO [10]

--------------------------------------------------------------------------------

As I mentioned, the working capital buildup is mostly due to a decrease from the extraordinary high level of prepayments, and we had received in 2015, also already in 2014, in the respective fourth quarters, a very high level of prepayments.

So you've already seen this, let's say, seasonal development of negative working capital developments in Q1, Q2 also in the last few years. Really structural changes we're not witnessing to a significant extent, but I would say that maybe those extraordinary developments are less likely to happen going forward with increasing political uncertainties.

And regarding your questions about the EV OEMs, there are several types. It's not to answer easily in one sentence. There is one you know who is every day in the press whose actively investing at the moment, and there are other players, new players on the market, which we don't know yet whether they will be players because they are mainly capital from China, for example, and they want to invest [for instance] if it's only US and in China.

So there are projects, but for a project, you need funding, and in some of the cases, we are not clear whether the funding will be managed. That's why I said it's quite uncertain when they are placing orders. If so, they do. So that's an interesting additional opportunity, but it's not, let's say, for our business now fundamentally important. It's in additional.

And that respects also to the other part of your question. Talking to the, let's call it, traditional OEMs, they -- the minimum runoff, the largest ones, which is located north of Germany, they are talking about additional capacities for electric vehicles, which they announced in quite a large volume because they want to separate them from the normal plants. So I think in 2017 onward, we can expect opportunities on that side as well.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

(Operator Instructions). [Maura Gabera], [One Investments].

--------------------------------------------------------------------------------

Maura Gabera, One Investments - Analyst [12]

--------------------------------------------------------------------------------

Good afternoon and thanks for taking my questions. The first one is regarding the incoming orders. Within your outlook, you provided a new range, and if we extrapolated the order trends in the second half of the year, there's actually a slowdown compared to H1. And at the same time, you are talking about outgoing dynamic development in North America and Europe, and on top we have China, which so far has been weak and should start contributing in the fourth quarter. So, can you please help us understand a little bit why orders should decline in H2, please? Thank you.

--------------------------------------------------------------------------------

Ralf Dieter, Duerr AG - CEO [13]

--------------------------------------------------------------------------------

Okay. That's a pleasure to explain. As we said, it was also above our expectations that the first half would be so strong in order intake, if I compare our expectations from eight months ago.

Why we are not saying first half was EUR2 billion -- another EUR2 billion is unfortunately within the nature of our business because, as I said, our customers are not easy to price into quarters and some of the decisions are maybe sliding from one quarter to the next, and one larger order can make the difference between 3.7% and 3.5% or between 3.7% and 3.9%, so that's why I would not see that -- from the numbers, you're right, there's a decrease, but we don't see that, especially when the customers decide.

Our normal causes of business is not declining. Let's say the machinery business and all the volume business, that's stable moving on (technical difficulty) on decision. So we are always conservative, as you know. Let's see how the second half will go.

--------------------------------------------------------------------------------

Maura Gabera, One Investments - Analyst [14]

--------------------------------------------------------------------------------

Then a question on the HOMAG. In the second quarter, you say that you booked some costs for streamlining the operation. Can you maybe share the amount with us?

--------------------------------------------------------------------------------

Ralph Heuwing, Duerr AG - CFO [15]

--------------------------------------------------------------------------------

Sure. Of course, we are undergoing this focused program with lots of changes and, naturally, there are some HR measures to be taken as well. Also, you have seen that we have reduced the number of Board members -- Board executives from four to two. So all those aspects sum up to roughly EUR2 million.

--------------------------------------------------------------------------------

Maura Gabera, One Investments - Analyst [16]

--------------------------------------------------------------------------------

Okay. And is that posted within the EBIT, I believe?

--------------------------------------------------------------------------------

Ralf Dieter, Duerr AG - CEO [17]

--------------------------------------------------------------------------------

Yes, sure, yes. There's no need for a separate restructuring line, given that volume.

--------------------------------------------------------------------------------

Maura Gabera, One Investments - Analyst [18]

--------------------------------------------------------------------------------

All right. And finally on the G&A, we show an increase sequentially, but also year on year. Can you please elaborate a little bit on that and if we can take the EUR48 million of the second quarter as a base for -- for the following two quarters of the year?

--------------------------------------------------------------------------------

Ralf Dieter, Duerr AG - CEO [19]

--------------------------------------------------------------------------------

Maura, are you talking about HOMAG specifically?

--------------------------------------------------------------------------------

Maura Gabera, One Investments - Analyst [20]

--------------------------------------------------------------------------------

No, sorry. I'm talking about the Group and you see G&A last year were at 39.5 in the second quarter and then we are at 48 in this quarter. Q1, we're at 44 (inaudible) year on year, but also show an increase.

--------------------------------------------------------------------------------

Ralf Dieter, Duerr AG - CEO [21]

--------------------------------------------------------------------------------

I would mention two aspects. I had mentioned the very good gross profits margin that we had in the first half of this year, and, of course, this is also due to a mix shift in favor of service. We are continuing our service push in a growth of 9% and this is, of course, coming with corresponding cost buildup in the overhead because service salespeople are by nature overhead.

And in addition, we are also continuing to build up our industrial products business in the application technology division, so all these are basically investments which will generate future revenues or are already generating current revenue.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

[Elod Abeden], [The Hafbird House].

--------------------------------------------------------------------------------

Elod Abeden, The Hafbird House - Analyst [23]

--------------------------------------------------------------------------------

I was wondering if you can tell us a bit more out the situation with Ecoclean. I'm sorry if I missed this one probably at the investors day in June, but does it mean that you are going to sell it completely because, when you announced it, you had various options and can you shed some more light on the details on what direction with the buyer or something like that?

--------------------------------------------------------------------------------

Ralf Dieter, Duerr AG - CEO [24]

--------------------------------------------------------------------------------

Thank you for this question. I understand that you are curious about that. I cannot disclose details now; that will be disclosed shortly after the signing procedure, due to reasons you will find in the announcement.

Factors that we had talked about the option to sell it totally or that we stay a minority shareholder, and this scenario is the more likely one, that we stay a minority shareholder in this business to -- also to support this smooth transition, but more details we can't say. But you don't have to wait for long for this information.

--------------------------------------------------------------------------------

Operator [25]

--------------------------------------------------------------------------------

[Jacob Tesich], [Metza].

--------------------------------------------------------------------------------

Jacob Tesich, Metza - Analyst [26]

--------------------------------------------------------------------------------

Yes, three short ones. The first one is a technical one. You didn't change your guidance regarding your segmental outlook, so could you give me just an explanation why you changed your Company guidance, but not your segmental view?

The second one is on your CTS division, as the energy efficiency part is not performing as desired. Can you give us an update what your thoughts on this business are and potentially about disposal in that respect?

And finally, on the electrical vehicle plans of the OEMs, could you give us an indication how big are those projects in terms of volumes? And could you give us also a feeling how the equipment looked like in terms of are there more high-margin projects with a lot of equipment ordered or is it more simple, compared to a traditional combustion engine?

--------------------------------------------------------------------------------

Ralf Dieter, Duerr AG - CEO [27]

--------------------------------------------------------------------------------

To your technical question, we always and only give guidance on the group level, and the distribution of that we have not done and we don't do [on that], not in the guidance inquiries. But you can expect that we could talk about EUR200 million more just come off from the small machinery business. That is to say, to the same metric, so you can maybe put part of that, some major part of that, on the paint business.

Second, the energy efficiency business, you're right. It's not doing as we want and we would like to, so we are cutting options and Ralph Heuwing was leading that, and the teams are also talking about improvements, but I think we will know more in the next six months about how to continue. But this is not a big thing. It really doesn't hurt us too much.

EV plants, they don't look differently than a normal OEM's plant, so in terms of equipment, it's more or less the same -- it's not more or less; it's the same -- in paint job, definitely, and so if you talk about from the equipment, it's going in the same [place] equipment, like in a similar VW plant. In terms of plant assembly, it also looks the same. The only difference is in marriage stations where the car body and the drivetrain is normally screwed together, here we have a different set-up, but it's more or less the same. That's good news for us.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

Alexander Hauenstein, DZ Bank.

--------------------------------------------------------------------------------

Alexander Hauenstein, DZ Bank - Analyst [29]

--------------------------------------------------------------------------------

Sorry, I joined a bit late, so maybe you've answered the questions already, but I was wondering. You stated that at HOMAG you have been more selective on system orders. Could you put some color on that one? Maybe you've done that already.

And the second question, clean technologies systems, what's driving here the Q2 upturn in Europe that you're referring to? And is this order trend substantial or only a Q2 effect?

And lastly, could you remind me, please, about the cleantech disposal sales and EBIT impact that might occur in case of a full divestiture?

--------------------------------------------------------------------------------

Ralf Dieter, Duerr AG - CEO [30]

--------------------------------------------------------------------------------

Mr. Hauenstein, on HOMAG I already explained the teams have been a bit more selective in the systems business, and basically the delta between last year and this year is turning down one bigger order for margin and terms and condition reasons, but don't forget that HOMAG had already a very positive order intake development in 2015.

On clean technology systems, we see actually in all geographies good momentum. The increase in environmental legislation is driving investments in most regions, and then, of course, because the same applies here in this business as well, customers don't necessarily care for our quarters. Sometimes, the regional mix changes from quarter to quarter and we are just highlighting that. Indeed, Q2 has a strong European portion in there. But it's not a secular trend.

Ecoclean, the disposal, we are talking about EUR200 million in revenues and EUR6 million in EBIT. That's what will go out of the Company in case of a 100% disposal -- not EUR6 million, EUR12 million, so 6%.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

There are no further questions. I hand back to the speakers.

--------------------------------------------------------------------------------

Ralf Dieter, Duerr AG - CEO [32]

--------------------------------------------------------------------------------

Thank you. I don't have a question; I just want to ask the opposite question before, I think, on Mr. [Patrick] because he asked about the volume of the paint jobs. Actually, the difference is that the newcomers are ordering or discussing smaller production volumes, so the volume of this project is smaller than a mass production paint job of the official OEM.

So, if there are no further questions, then, first of all, I would like to thank you all for your interest in our first half results, asking those questions, and we enjoyed the discussion, as always, very much. And we would like to also invite you to our Q3 call on November 10, but before that, I would like to wish some of you happy vacation and enjoy the season, and then we would like to say goodbye for today and, again, thanks for joining us. Bye-bye.

--------------------------------------------------------------------------------

Operator [33]

--------------------------------------------------------------------------------

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