U.S. Markets open in 7 hrs 50 mins

Edited Transcript of DUE.DE earnings conference call or presentation 25-Feb-16 1:30pm GMT

Thomson Reuters StreetEvents

Preliminary 2015 Duerr AG Earnings Call

Stuttgart - Zuffenhausen Mar 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Duerr AG earnings conference call or presentation Thursday, February 25, 2016 at 1:30:00pm GMT

TEXT version of Transcript

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

Corporate Participants

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

* Ralf Dieter

Duerr AG - CEO

* Ralph Heuwing

Duerr AG - CFO

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

Conference Call Participants

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

* Sven Weier

UBS - Analyst

* Ingo Schachel

Commerzbank - Analyst

* Alexander Hauenstein

DZ Bank - Analyst

* Michael Schramm

HSBC - Analyst

* Tim Rokossa

Deutsche Securities - Analyst

* Bernard Doesche

- 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's preliminary figures of 2015, followed by a Q&A session.

I will now hand over to Mr. Dieter, CEO of Duerr AG.

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

Ralf Dieter, Duerr AG - CEO [2]

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

Ladies and gentlemen, good afternoon or good morning for those of you in the US. Welcome, everybody. It is a great pleasure to present you Duerr's preliminary figures for 2015.

I'm joined, as always, by my colleague Ralph Heuwing for the ninth consecutive year. Next year the 10th year.

I will start by summarizing the key highlights and providing an overview of our results of 2015 and Ralph will then give you more insights about our financial figures and the division's performance. Then, finally, I will be providing an overview of Digital at Duerr, our answer to the growing digital transformation, interconnection, and the production processes, followed by a preliminary outlook for 2016.

So in page 4 you see that in 2015 we passed many milestones. We achieved a fifth record year in a row with the acquisition of HOMAG and sales of just under EUR3.8 billion, Duerr has grown into a new dimension. EBIT and net profit reached new all-time highs.

Despite significant extraordinary effects, the HOMAG Group made a substantially positive contribution to EBIT. We launched the HOMAG FOCUS optimization program in 2015 and it's focusing as expected. The Duerr Group's service business grew by a strong 40%, and after peaking in 2015 and 2016, CapEx should return to more normal level in the range of depreciation and amortization.

With the acquisition of iTAC, we have taken an important strategic step forward towards reinforcing our smart factory activities.

Let's now turn to page number 5. Sales rose by 46%, or 16% in like-for-like terms. This significant organic growth was partly due to catch-up effect rising from project delays in the painting technology business in 2014. Operating earnings climbed by 24% and, as expected, cash flow was down but clearly positive.

On page 6, you can see that as in the past Q4 was the strongest quarter of the year. Sales and earnings improved year over year. Now our cash flow was very strong. Keep in mind that HOMAG was consolidated in Q4 2014 so the figures of Q4 are fully comparable.

Page 7 compares the Duerr Group's targets for 2015 and the figures actually achieved. We reached all our targets in 2015 and surpassed our goals for sales and ROCE.

Let's now move to page 8. Order intake was spread fairly evenly over our three main regions: China, North America, and Europe. Despite the softer automotive market in China during the summer months 2015, order intake was up 9% compared to the record year 2014. We achieved considerable growth also in North America, while Europe grew under-proportionately. But keep in mind that in 2014 we received in Europe an extraordinarily large order in Poland worth more than EUR200 million.

Despite economic uncertainties, the emerging markets demonstrated consistently strong momentum. We received contracts worth EUR1.7 billion from these regions, marking a year-over-year increase of 9%. The merchant markets once again accounted for 50% of our order intake.

Ralph Heuwing may now take you through our financials, cash flow statements, and the division performance.

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

Ralph Heuwing, Duerr AG - CFO [3]

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

Thank you, Ralf. Ladies and gentlemen, let me continue on page 10. Our gross profits grew by 40% with only a small decrease in gross margin. The strong growth in our service business and further productivity gains had a positive impact. On the other hand, we saw a changed sales mix and slightly stronger price pressure in the painting technology business.

R&D expenses grew by 75% and, thus, intentionally more quickly than sales. Our admin costs, however, rose more slowly than sales, underlining our continued commitment to cost control. Our reported EBIT includes PPA costs of EUR18.1 million and EUR8.5 million for the termination of HOMAG's employee capital participation.

The financial results includes negative effects of EUR19.4 million at HOMAG. The main aspects were the termination of HOMAG's syn loan and integration into Duerr's more efficient funding structure, as well as the accounting impact from the domination and profit agreement. Most of these costs will no longer occur in 2016.

Tax expense also includes nonrecurring expenses of EUR8.9 million in connection with the domination and profit transfer agreement. I will get back to these points later on.

Let's now move to page 12, the cash flow statement. Cash flow from operating activities was impacted by an expected decrease in prepayments. This decline over the previous year's high level was due to the unusually high billing volumes in plant engineering at the resulting increase in net working capital of EUR138 million.

You will remember that for 2014 and of the year we had reported a high surplus liquidity due to extensive prepayments. These fluctuations are more a reflection of timing rather than structural changes and assuming steady days working capital of 20 days between 13 and 15, cash flow in 2015 would've reached EUR245 million, another record level.

The overview of our work in process and progress billings on page 13 shows that the payment balance with our customers has started to normalize by around EUR100 million compared to the previous year. The balance is now at minus EUR212 million. We consider a level of around minus EUR100 million to be normal, so we should expect cash outflows of another EUR100 million in the next quarters. Nevertheless, we expect an improved cash flow in 2016 compared to 2015.

Page 14 shows our key financial items. Equity was at EUR714.4 million, reflecting the reclassification of minorities following the domination and profit transfer agreement with the HOMAG Group. At the end of 2014, noncontrolling interest had included roughly EUR100 million, reflecting the interests of the free float HOMAG shareholders. The shares held by the Schuler and Klessmann families in HOMAG had already been classified as liabilities due to the voting pool arrangements at the end of 2014.

Net financial status reached EUR129 million at the end of 2015 despite the acquisitions completed and the higher dividend to 2015. At 45% ROCE once again reached a high level as EBIT rose on a more or less unchanged capital employed.

I will continue on page 15. CapEx rose to EUR102 million. We expanded or built more than 15 new facilities and technology centers under a CapEx program launched in 2012. Two major investments will be completed in this year, the new campus project in Southfield, Michigan, and in Shanghai. We expect these capital locations to boost our employees' motivation and productivity substantially, as was the case here in our headquarters in Bietigheim.

A further key aspect of CapEx in 2015 was the modernization of the IT systems at the HOMAG Group. We expect to normalize CapEx spending, as already said, in the range of depreciation and amortization from 2017 onwards.

Turning to page 16, business volume and earnings across our divisions were mostly encouraging in 2015. Paint and final assembly systems recouped the effects of the 2014 project delays and reported an extraordinary 27% increase in sales to EUR1.4 billion. The catch-up effects of around EUR200 million will, of course, not recur in 2016. At EUR100 million, EBIT was again strong, albeit at a more normalized margin.

Application technology also grew substantially for billing-related reasons, with margins holding almost steady despite continued start-up costs for our industrial products business. Sales in the emerging and process systems division rose slightly while earnings remained at the previous year's high level.

In the clean technology systems division, we registered encouraging growth, particularly in China. However, EBIT was under pressure from low demand in Europe and headwinds in the energy efficiency technology due to the low energy prices. I will go into the woodworking machinery systems in more detail on page 17.

HOMAG achieved impressive top-line growth of 14% in 2015, accompanied by a like-for-like increase of 16% in order intake. Operating earnings rose by as much as 72% to EUR63 million, resulting in an operating margin of 6.1%.

In 2015 we completed our integration efforts successfully. We launched the FOCUS program, realigned the organizational structure under the headline One HOMAG, and improved funding structures.

Last, but not least, the domination and profit transfer agreement allows us now to collect 100% of the HOMAG Group's profit, even though we only hold 56% of its capital. At EUR7 million per year, the guaranteed dividend is a moderate expense while providing our existing HOMAG shareholders with a good yield for the de facto Duerr bond.

Page 18 summarizes the extraordinary expenses arising from the acquisition of HOMAG. It already explained the EBIT adjustment. Now as a result of the domination and profit transfer agreement, the financial result includes one-off expenses of EUR12.4 million.

We did not classify the guaranteed dividend of EUR7 million as extraordinary as it will recur over the next years. Adjusted for all extraordinary effects, the Duerr Group's net profit would've risen by more than 20% to EUR202 million.

I will now hand back to Ralf Dieter, who will outline our Digital at Duerr strategy and provide you with our outlook for 2016.

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

Ralf Dieter, Duerr AG - CEO [4]

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

Thank you, Ralph. On page 20 describes some significant developments in production. Processes are getting increasingly digitalized, while production is being more and more interconnected.

Looking forward, product systems and logistics will be more and more self-organizing. Your business and service models will arise. Batch size one production tailored to the business of the final customer is growing in [partners], as we can already see that today at HOMAG.

On page 21 we describe our industry 4.0 or smart factory approach. The digital transformation and interconnection of production is an evolutionary and iterative development. It is becoming increasingly more important to track and analyze production data.

On this basis, we are developing smart processes, smart products, and smart services at Duerr. For example, project planning and execution in Duerr's paint shop business is fully digitized. Prior to the contract awards, the customer, for example, receives a digitized 3D paint shop model and is able to view the system in a fly-through simulation. The digital project execution also includes order calculation, the virtual commissioning of the system, as well as remote commissioning of the paint shop.

We define smart products as intelligent, connected devices or machines and systems which are able to regulate themselves and are fitted with sensors and local intelligence. We are able to offer some smart services to customers wherever we or they have online access to the machines.

The scheme on page 22 describes the growing importance of the manufacturing execution system as a link between the ERP system and the machine level. The MES software controls and optimizes industrial production process. Data from the production process is tracked, compared, and analyzed. New service models such as remote diagnostics and predictive maintenance are rising with this opportunity.

Let us now continue on page 23. In December 2015, Duerr acquired MES specialist iTAC. Duerr was already offering a self-developed MES software for the painting and assembly processes. However, after 10 years technically we saw a need to invest into a next-generation software architecture and we decided to team up with iTAC, which has a state-of-the-art, scalable MES suite. Accordingly, we will be modernizing our proven system with the iTAC MES suite over the next one or two years.

Beyond this, iTAC will continue to operate independently in the growing MES market and benefit from Duerr's financial resources and reputation. So far through Digital at Duerr.

Now, ladies and gentlemen, let's move on to our outlook. Page 25 sets out an overview of the PWC forecast showing that global automotive production is expected to expand at an annual growth of 4% through 2020. Two-thirds of this growth will be generated in the emerging markets.

China and North America, the world's most important automotive markets, are in a very solid state, while GOP markets are continuing to improve. India shows a strong recovery while conditions in Brazil are disappointing. Most of our customers show healthy profits and cash flows.

Let's turn to page 26. Contributing 85% of the sales, the furniture industry is HOMAG's most important market. The global furniture market is growing at around 5% per annum. China is, by far, the largest market, with a share of 45%, much of which, however, is still manufactured in a less automated fashion.

In 2015, Chinese business accounted for around 10% of HOMAG's sales. Accordingly, an important priority for HOMAG will to be address the Chinese market opportunity more effectively.

Let's move to page 27. From today's perspective, Duerr forecasts order intake of EUR3.3 billion to EUR3.6 billion in 2016. Sales will come to EUR3.4 billion to EUR3.6 billion, some EUR200 million weaker than in 2015 due to the catch-up effects mentioned before from 2014.

And Duerr anticipates a 2016 EBIT not far away from the 2015 level accompanied by an EBIT margin in the range of 7.0% to 7.5%. This already includes further purchase price allocation effects of about EUR8.8 million. Driven by an improved financial result and a tax rate of around 30%, net profit should grow over the 2015 figure.

This guidance obviously is given under the assumption that economic conditions remain stable, which we do not take for granted.

Ladies and gentlemen, before inviting you to ask your questions, I would like to provide you with a brief summary. First, we are fully on track in 2015, achieving our fifth consecutive record year. We reached, and in some cases exceeded, our guidance and expectations. The outlook remains positive despite a number of weaker market signals which we must observe carefully. We expect a slight increase in net profit and a higher cash flow.

We are expanding our successful service business and want to leverage the growing modernization potential, and we are systematically implementing our Digital at Duerr strategy and have the ambition to rank as one of the leading companies in this area. And in the medium term we will continue to grow by acquisitions.

Ladies and gentlemen, thank you very much so far for your attention. As usual, there will be no press and analyst call when we publish our annual report on March 17, 2016. Our year-end closing is already stable enough for us to be able to give you most of the key figures today.

And now we are pleased to answer any questions you might have about the annual report over the phone. Later -- and now we are taking your questions and I hand back to Ms. Hobbs.

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

Questions and Answers

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

Operator [1]

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

(Operator Instructions) Sven Weier, UBS.

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

Sven Weier, UBS - Analyst [2]

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

Thank you. Thanks for taking my questions. First one being on your order intake items, I was just wondering if you could give us some more color on the pipeline in terms of how the regions look like and also if you see the year like last year, more frontend-loaded on the orders, or backend-loaded, or more equally split.

The second question is with regard to your EBIT bridge. As you already said, in the end you're aiming for relatively stable absolute EBIT. I was just wondering about the individual moving parts, because you already said you have a EUR200 million carryover that is normalizing, which I guess had a relatively low margin last year. So I guess the operating leverage that we should assume on that EUR200 million should be relatively low.

I guess the one-offs are going to be EUR18 million lower than last year when it comes to PPA and these one-off costs at HOMAG. Maybe you can also talk a little bit about the gross margin situation of the backlog and potentially then also the service contribution to EBIT, so really around the moving parts of the EBIT bridge.

And then just lastly on application technology, if you could give us an update on where you stand there in terms of what you've achieved already and remind us of your goals that you would have in the medium term and what you could probably achieve this year. Thank you.

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

Ralf Dieter, Duerr AG - CEO [3]

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

Okay, I'll start with the order intake question. So the pipeline is -- just coming back to this morning from China and in China we are working on several projects. You know that I don't want to have sales meeting in this conference call, but what I can tell you it's more than 10 paint shop projects there are working on from (inaudible). What here we see is a shift which we have already seen the second half of last year that the majority of these projects are basically from the local Chinese OEMs, which as you know at the moment very successful and growing strongly, in particular in the low-cost SUV segment.

But also we see from North America a good pipeline, in particular also in Mexico. We see a modernization project in the US. So if we look at our pipeline, we would say it's a very good, healthy pipeline for the year 2016. Not at the level like 2012 and 2013 when we talked about capacity, who can do what, but it's still enough business out there that we can have our fair stake out of it.

Distribution over a quarter, you know that's very difficult because it's still customers around who decide when they give their order, but I would say that we look to let's say a normal first quarter. Second quarter could be somehow weaker and we see more the loading to the second half of the year because we are in some of these projects, or most of them, in relatively not early but not so far advanced stages and the experience shows that it takes some months to get there. So it's maybe second quarter end, but mostly then in the third quarter. But, as you know, quarters are not so important.

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

Sven Weier, UBS - Analyst [4]

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

But maybe that's relative -- maybe a follow-up question, in relative sense what you said at Q4 was really sort of an outlier there in terms of your order intake?

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

Ralf Dieter, Duerr AG - CEO [5]

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

You can say like that, but you know I don't care about quarters because it doesn't make -- if you get an order on January 12, if the customer would have maybe not taken a Christmas vacation, we would've gotten it in December and nobody would talk about a decline in Q4. So it's really not worthwhile to talk about quarters.

Let's look at half-years and full-years; I think that's a bit more relevant perspective. But answer is, yes, don't worry about the fourth quarter.

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

Ralph Heuwing, Duerr AG - CFO [6]

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

Now on your EBIT question, I think you've named some of the most important aspects already, the volume, which well I wouldn't say it had very low margin, those delays. But of course it had sort of a mid-level margin so that volume of EBIT is, of course, missing. The one-offs will decline from EUR26 million to about EUR18 million -- sorry to about EUR8 million or EUR9 million. This will be the remaining PPA effects at HOMAG, which will also carry for the next years.

The gross margin in the order intake is only marginally smaller than in the year before, so that's not going to make a huge difference. Application technology, the industrial painting had roughly a mid-level single-digit loss in the year 2015 and we were maybe half this loss in 2016. Service growth might be in the range of 5% to 7%, with adequate margins. So those are all those moving parts, but of course, we are early in the year and a precise split down of all those moving parts is at this point already difficult.

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

Sven Weier, UBS - Analyst [7]

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

But have you made kind of a safety buffer for whatever could happening at VW or are you not trying to attempt to make any --?

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

Ralph Heuwing, Duerr AG - CFO [8]

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

If you take the numbers, maybe roughly 12% of our total business multiplied by maybe a 6% or 7% budget cut -- that's what the official statements are saying -- then this may not have a material impact. But, of course, Volkswagen hasn't come out with any news on this yet, and if at all there was a material change, it might rather impact 2017.

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

Ralf Dieter, Duerr AG - CEO [9]

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

You can be sure that as we speak we are negotiating with Volkswagen all the larger modernization jobs in the world.

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

Ralph Heuwing, Duerr AG - CFO [10]

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

And also new plant.

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

Sven Weier, UBS - Analyst [11]

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

I guess when it comes to the impact on you I guess what they have announced it seems to me rather like some phantom projects on Mexico, for example. Though I'm not so sure that there will be such a major sales impact on you at all. The question was rather maybe you make a safety haircut that is not really necessary in the end.

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

Ralf Dieter, Duerr AG - CEO [12]

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

It's early in the year; give us a chance. The last question I didn't understand regarding application technology, you said --

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

Sven Weier, UBS - Analyst [13]

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

I was just wondering. I think Mr. Heuwing already answered on the profit, but maybe also a comment on where you stand on the revenues and where you are aiming for there.

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

Ralph Heuwing, Duerr AG - CFO [14]

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

We achieved maybe revenues of EUR15 million or so; should grow to maybe EUR20 million, maybe a bit more, in the year 2016.

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

Sven Weier, UBS - Analyst [15]

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

Okay, that's all. Thank you.

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

Operator [16]

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

Ingo Schachel, Commerzbank.

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

Ingo Schachel, Commerzbank - Analyst [17]

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

Good afternoon, I have two questions. The first one would be regarding your research and development expenses, this increase of EUR40 million. Could you give us a rough breakdown on what of that relates to HOMAG, how much to the application technology industrial products situation, and how much to the rest of the business? And what we should expect in your next one, two, or three years, whether that's still growing about proportionately to sales?

And the second question is regarding the margin guidance again. Obviously you have already now given somewhat of an EBIT bridge, but in your explanation to Sven's question, everything you said for each segment that you mentioned you sounded as if you expected let's say at least flat margins here. So if I may try to phrase the question in a slightly different way, is it measuring process system segment where you, after two very strong years, would see the highest risk if the margin is weaker in 2016 than in 2015, or should we just say that your guidance is conservative as usual?

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

Ralph Heuwing, Duerr AG - CFO [18]

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

Second part. The other is the second part.

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

Ralf Dieter, Duerr AG - CEO [19]

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

Even if you just take what we said in our guidance, if we take the reduction of revenue and we still say total EBIT should be pretty comparable to 2015, that implies that we are looking at an increased margin.

Now on R&D, the R&D expense that accounts to HOMAG was around about EUR40 million, so it explains roughly 40% set of the total. We also increased the R&D expenses at the rest of Duerr, following our innovation strategy. What we don't do is breaking out the individual divisions at this point on R&D and subdivisions as opposed -- as concerns the industrial products. But you will not find a very material difference in application technology in 2015 versus 2014.

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

Ingo Schachel, Commerzbank - Analyst [20]

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

In the next year should we expect another increase as a percentage of sales?

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

Ralf Dieter, Duerr AG - CEO [21]

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

Probably only a small one.

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

Ingo Schachel, Commerzbank - Analyst [22]

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

Thank you.

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

Operator [23]

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

Alexander Hauenstein.

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

Alexander Hauenstein, DZ Bank - Analyst [24]

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

Alexander Hauenstein, DZ Bank. I have three questions first of all. Coming back to your guidance, I understand you're targeting roughly the same number as in 2015, the EUR268 million, plus or minus, so that would be the upper end of the 7.0% to 7.5% margin guidance. I am a bit curious to hear what are the underlying assumptions for, let's say, the bad case of the guidance range. What would need to happen or what might go wrong if I may say so to see the EUR238 million probably, so meaning 7.0% times the EUR3.4 billion sales? So that was the first question.

The second one a bit related to that. People are obviously quite worried about the order intake and I was hoping that maybe we see in Q4 a bit of a higher number. As you explained, it's something which can vary from quarter to quarter. But a couple of questions I got was what is happening in application technology going forward? Is there after still a stable quarter in order intake, maybe a further deterioration to come here as well? How do you think about this one?

And maybe the last question on HOMAG Q4. I was wondering what is happening here in the fourth quarter? Is it -- I thought it might have been more a linear positive development compared to the last quarters. How should we think about that? And what was the reason for the result as you presented it in Q4? Not dramatic, but just to get a feeling how we should model that going forward. Thank you.

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

Ralf Dieter, Duerr AG - CEO [25]

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

Maybe I take this one first because it's an easy one. You may remember that we already guided when we talked about HOMAG in the past that there might be one-offs to the tune of EUR8 million to EUR10 million related to optimization. In particular, to the termination of this employee participation program.

And half of that, EUR4.5 million, was accounted for in Q2 and the other half, roughly EUR4 million, was accounted for in Q4. So that's really a nonlinear situation. But it was already predicted at the early stage of the year.

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

Ralph Heuwing, Duerr AG - CFO [26]

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

So you give me the difficult questions? Your question regarding the level of EUR265 million to EUR270 million EBIT, the assumption for this barricade, as you call it. The assumptions are very simple. We, first of all, see our backlog as of today, which is basically the whole year revenue already, more or less.

Second that we assume that we have a secure order executing process as we have seen over the last year. So what can go wrong is always what can go wrong in equipment business or is it that you have somewhere a bigger problem. And then (inaudible), we hadn't had this for many years so I don't expect this to come this year. It's quite a solid case for us.

They order intake worries into Q4, as I said already I don't share. I understand, but don't be worried. The ABT, the development here in order intake, we expect also quite stable for this year on a good level.

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

Alexander Hauenstein, DZ Bank - Analyst [27]

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

Okay, thank you very much.

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

Operator [28]

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

Michael Schramm.

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

Michael Schramm, HSBC - Analyst [29]

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

Good afternoon, gentlemen. Michael Schramm, HSBC. I have two questions, please, one coming back to the Q4 development in paint and assembly. I think what the market also concerned a bit was this steeper decline in the margin despite higher year-on-year sales, which is more than a normalization quite obviously versus the outstanding previous year. So could you elaborate a bit on the CapEx margin pressure you mentioned, which dimension this has, and if we should be prepared to further deterioration in this respect?

Second question toward the financials. This minus EUR10.9 million of financial result, just to be sure, this is including already the EUR7 million of guaranteed dividend and if I have calculated correctly, then we still have a minority position here below the line of about minus EUR5 million. Is this correct? Thanks.

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

Ralph Heuwing, Duerr AG - CFO [30]

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

On the financial results, the reported figures, of course, include these guaranteed dividends of EUR7 million. We had, strictly legally speaking, for 2007 we are not paying a guaranteed dividend but we committed to paying the same amount of dividend anyway as per the agreement of the domination agreement.

But the reported interest figure includes the EUR7 million guaranteed dividend. Then the major portion, which is about EUR12 million, is not recurring because it is consisting of two items: one is the termination loss of the previous syn loan agreement at HOMAG and, secondly, the reflection of this -- of booking the domination agreement into our books and eliminating the minorities, replacing them in our -- on the liability side of our balance sheet, booking them as future liabilities. So those also ramp partially through our income statement and, therefore, led to this one-time expense.

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

Ralf Dieter, Duerr AG - CEO [31]

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

On the Q4 PFS decline in margin, what we executed in or what we realized in sales in Q4 of 2015 was order intake from 2014. First of all, such to say this number can't reflect actual margin pressure, but second, it is clear what we also said. We had here a strong revenue increase this quarter, which was mainly due to two or three major projects. One was already mentioned, Poland, and the other one, another region which had let's say lower margin due to the huge volumes ahead and also it was including buildings. This was a main portion into fourth quarter.

And as you look at the margin was 6.7%; for the whole year it was about 7.3% and we always, always, always said already last year that the high margin result in 2014 in PFS will not recur because of the extraordinary effects out of 2012 order intakes. So we see a level of 7% while there is a normal level for the PFS addition now.

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

Michael Schramm, HSBC - Analyst [32]

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

Just a clarification on the financials, so this minus EUR10.9 million is a good guidance also for the financial results for the current year and going forward?

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

Ralph Heuwing, Duerr AG - CFO [33]

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

Yes. The item, the words at Duerr, the financial situation doesn't change much when adjusted for those one-offs.

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

Michael Schramm, HSBC - Analyst [34]

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

Okay, thanks.

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

Operator [35]

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

Tim Rokossa, Deutsche Bank.

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

Tim Rokossa, Deutsche Securities - Analyst [36]

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

Thanks very much. I would have two questions. The first one I don't want to come back to the point whether that's conservative or not in your margin outlook, but just to clarify the issue. Maybe this EUR268 million flat EBIT you're expecting that is already incorporating the EUR16 million, EUR17 million tailwind that you should get from less extraordinary impacts this year, is that correct?

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

Ralf Dieter, Duerr AG - CEO [37]

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

Correct, absolutely.

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

Tim Rokossa, Deutsche Securities - Analyst [38]

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

Then just on the spending behaviors of your customers, do you notice any change in prepayment terms for any of your projects, given all the risks that the capital market at least is currently pricing in for your end customers as well and that probably makes them a bit more cautious on the cash side? Thank you.

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

Ralph Heuwing, Duerr AG - CFO [39]

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

On the larger projects, we don't see a fundamental change. We had times in 2013 and particular in 2014 where customer had really excess of cash where we got, for example, in end of 2014 a huge down payment. This we will not see at the moment. There we see for sure some normalization, but I think we are coming back to normal terms.

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

Tim Rokossa, Deutsche Securities - Analyst [40]

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

Great, thank you.

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

Operator [41]

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

Thank you. At the moment there are no further questions. (Operator Instructions)

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

Ralf Dieter, Duerr AG - CEO [42]

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

So no further questions?

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

Operator [43]

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

[Bernard Doesche].

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

Bernard Doesche, - Analyst [44]

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

Good afternoon. One question on CapEx, what should we expect for 2016 and afterwards?

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

Ralf Dieter, Duerr AG - CEO [45]

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

I already mentioned that 2016 will be another strong year in terms of CapEx, not so different from 2015. And after 2016, so 2017 onwards, we see a level of depreciation and amortization so roughly EUR70 million, EUR75 million as a normalized basis.

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

Bernard Doesche, - Analyst [46]

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

Perfect, thank you.

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

Operator [47]

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

Thank you. At the moment there are no further questions.

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

Ralf Dieter, Duerr AG - CEO [48]

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

Then it seems that we have clarified everything and that I would thank you all very much for your questions. We enjoyed the discussion as always.

But I would like also to take this opportunity to announce our investors day on June 24, 2016 in Bietigheim-Bissingen, which is our headquarters, to which you will receive an invitation soon. We will be presenting our Digital at Duerr strategy to you in greater detail.

We would like to say goodbye for today and wish you a pleasant afternoon and hope to see many of you on June 24. Thank you very much.

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

Operator [49]

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

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