Earnings Call: Q1 2020

Apr 23, 2020

Welcome to this news conference regarding Cargatech's Q1 results. COVID-nineteen situation impacted our orders, operations and visibility already during Q1. The good news is that we have started the actions to safeguard our operations and our financial position is strong. Also our services business and software business performed well during Q1. Today, our CEO, Micah Wehvelen will go through group level development and give an update regarding the COVID-nineteen situation. Then our CFO, Micah Polakka, will continue with the business areas, financials, and then Micah will be back to comment on the outlook. Please, Micah. Thank you, Hannah Maria. Good afternoon, ladies and gentlemen, and welcome to the Cardadeck Q1 announcements. And as Han already said, I will cover shortly the group wide developments and sort of what's happening with regarding the COVID-nineteen crisis. Mick Kopulakka, our CFO, will cover the business area specific financials and then some of the other financial numbers. And I'll discuss the outlook and the situation early April in the end as well. Overall, on Q1, orders received decreased by 24%. First of all, it's good to recognize the fact that the Q1 twenty nineteen was an exceptionally high comparison period for us. The primary reason for the reduction in order intake is that we effectively lacked any large project orders, especially in automation during the Q1 this year. Very clearly, the practical issues related to closing the deals and also the uncertainty within the customers have slowed down the order intake in that one. However, the automation project pipeline still looks strong and I believe in long term this will further enhance the demand for such solutions. Also, we saw some slowdown in other business areas towards the March as well caused by the COVID-nineteen. The sales remained on a strong level. We obviously have a very strong backlog at the moment and this will help us also throughout the rest of the year. Our comparable operating profit also decreased from the last year, the biggest reduction being in Kalmar. Mikko will discuss this more in detail, but it's primarily driven by the change in mix, larger part of the deliveries coming from the project deliveries and even within the project deliveries from heavy crane side, where we had lower margins and we have had some cost issues also regarding our supply chain in China. Higher profitability decreased also, but this was almost solely driven by the fact that we had some last minute shipment issues and some of the larger shipments towards the March were not delivered until April. Without those shipment misses, Hayab would have actually exceeded last year's profitability. Even though Matrigor result was still negative, I'm actually pleased with the progress we are making. We are heading to the right direction. Matrigor is in the plan and we expect the business to improve from the last year overall. Obviously, the current situation with uncertainty and the financial market being in disruption, we have put a strategic assessment regarding the Navis business on pause at the moment, and we will return into that one later in the year when the situation is more clear. Regarding the COVID-nineteen impact, first of all, obviously, early part of the year, we saw some disruptions in our business in China, both in terms of the supply chain, our own factory operations and customer demand. This has actually significantly improved during the Q1 and our operations in terms of supply chain are back in full force and we have also seen the customer demand coming back strongly towards the end of the quarter as well. Obviously, the spread of the COVID-nineteen virus, we saw some further impact then in our businesses in Europe and North America towards the end of the quarter. The increasing uncertainty and the restrictions by the different authorities is clearly slowing down the decision making and this was most visible in our order intake, where we didn't land any of the expected larger automation orders during the Q1. As said, however, we still see a strong pipeline in there and if anything, the demand for more automated solutions will certainly increase as a result of the learnings from this crisis. We had challenges in our supply chain coming from the different suppliers and closure of their factories as well and that affected some of the deliveries and obviously impacted the profitability also during the Q1. Regarding our own manufacturing facilities, our assembly units in Italy, Spain, Malaysia and Ireland had been closed at some stage during the March. Some of these factories are already back in operations and I would expect all of these manufacturing facilities being back on stream during the May time. However, there will be capacity limitations with the safety precautions we are taking in our manufacturing units. Obviously, we have had delays in delivery schedules caused partly by the supply chain issues, but also for the fact that quite a lot of the shipment capacity has been taken out as well and this causes delays in the shipments as well. The other issue we are dealing with is, of course, access for our customer sites, whether they are shipyards, ports or other sites as well. And this is impacting the project deliveries, commissioning and obviously also for the specialists and services that are required actually physically on the sites. The visibility regarding the rest of the year is obviously weak. We do not know how the COVID-nineteen is going to spread, what restrictions there will be by the different authorities and how the customer demand will behave towards the end of the year as well. Our focus very much is, of course, on the safety of our people, safeguarding our business, business continuity in our capability to serve our customers with the right services and on time deliveries, cash and cash position that Mikko will discuss more in detail, and then adjusting our cost structure into this crisis situation. We have reacted very rapidly into this one by taking temporary measures in many parts of our organization. About 6,000 of our employees are now in a short week, four day work team or respective salary reductions at the moment. Most of that has been effective from April onwards. Also, I'm very proud of the fact that about 200 of our top executives have voluntarily agreed on 20% salary reduction across the board and that has also become effective April 1. We have cut down our external services in different parts of operations. We have frozen our recruitments for the time being and obviously our travel is minimized also, of course, by the restrictions. But overall, we are not traveling at this stage. We expect that these temporary saving actions have about EUR 10,000,000 saving effect per month for the time being. Obviously, we continue to monitor the situation and take further cost structure adjustments if required. The market environment in Q1 is, of course, shifting very rapidly at the moment. And what we see actually in terms of container traffic is sort of surges and drops in different places. With the strong consolidation of the container liners, we actually have seen about 20% capacity reduction in early part of the Q2, but that has enabled to maintain the cost or the pricing of the shipments at relatively high level. We also see different routing with the low fuel and bunker fuel prices at the moment. And all of those have different sort of impacts now in terms of the container movements in other locations. For example, in U. S, many ports, we saw first low volumes in the beginning of the year caused by the supply chain issues in China. We have now seen a surge of those volumes when the Chinese supply chain is coming back and then incapability of some of the ports to actually deliver those containers further. So we have congestion happening in other locations. So quite a lot of things shifting very rapidly as well. The construction output remained at the high level in Q1. And at this stage, it's quite difficult to project how that will develop in U. S. And Europe throughout the rest of the year. Where we clearly have seen already a strong move is unfortunately a further slowdown of the ship ordering and ship contracting, where we see an impact actually for the drastic reduction both in merchant side as well as in the offshore side. And offshore side, of course, not being helped by the what we see happening with oil prices at the moment as well. As said, orders decreased somewhat in Matrigor. We saw a sort of slowdown in order intake in High Up towards the end of the March. And again, the lack of large orders in Kalmar clearly impacted the project ordering. And in terms of the mobile equipment, we saw actually still a strong order intake in the sort of intermodal smaller container handling equipment. The logistics sector, especially in U. S. Was fairly slow, but actually has now shown some sign of light when we move into Q2. And especially e commerce related deliveries actually are running at a very high level at the moment. The industrial side was relatively okay in Europe, but we have seen quite a rapid deceleration in some of the industrial segments in Europe at the April in there. However, our order book remains strong and this, of course, gives us a very good basis for the rest of the year as long as we can get this supply side and our own manufacturing units back in operations as we expect during the May. The sales remained high, helped by the big backlog and as I said some early issues in China and then a little bit slowdown towards the March partly driven by the issues with the shipments, ship capacity and different constraints into logistics chains as well. I'm particularly very happy about our performance in services. Our services and software increased and continued to sort of grow during the Q1. In Kalmar, relatively flat as well as in Hayab and the demand continued at good level. In Macregor, the 24% increase comes primarily from the inclusion of the TTS services. Without TTS addition, the Macregor services would have been flat. But I'm happy to see that good demand in our services business has continued despite the practical issues related, for example, to site access, etcetera. Software sales increased still in Q1, primarily driven by the deliveries of the automation software as well. And Services and Software constitutes about 35% of our sales during the Q1 twenty twenty. Then I hand over to Mikko Polak, who will cover the business area financials for us. Thank you, Mika, and good afternoon also from my side. So as usual, let's start with Kalmar. In Kalmar, our orders were, in quarter three, euros $334,000,000, a decline of 35%. This decline came mostly from the Kalmar automation related projects or orders where we had quite high orders in the comparison period. In general, there is a good demand for automation solutions, but customers are postponing investment decisions in this kind of uncertain market environment. We continue to see also certain weakness in smaller mobile equipment, especially in that kind of mobile equipment, which is used in industrial applications like wood processing, steel industry or car industry. Kalmar sales were EUR404 million, staying on last The sales for the automation and project business grew actually in quarter one, and this is very much supported by the good orders what we have received during 2019. The sales for smaller mobile equipment declined due to the weakness in orders in the previous quarters. As Micah already referred, Kalmar's operating profit comparable operating profit declined from the comparison period. It was EUR 26,000,000, 21% decline. And this decline is due to two reasons. The first reason is that we had now, during quarter one, higher share of project revenues or revenues coming from larger projects, where typically the relative margin is lower than in smaller equipment or in services. And then as Micah also referred, we have had some challenges in project business related supply chain in China, and that was burdening also our calmer margins in quarter one. Then looking High Up. In High Up, our orders were €296,000,000 decline here, 13%. We saw a decline in all kind of equipment related orders and in all regions. Positive thing is that high up service orders grew by 13% in quarter one, so showing there a nice development. High up sales declined with EUR $3.00 2,000,000. And also, like Micah referred earlier in his part, due to the coronavirus related delivery or logistics chain delays, we were not able to deliver all planned deliveries during March, but those will be then delivered in quarter two. And higher operating profit for quarter one is €30,000,000 and this was very much impacted by the decline in sales. Then in MacGregor, where basically, in general, we have been progressing according to our plans and restructuring activities, what has been already announced earlier. In MacGregor, the orders for quarter one were €151,000,000 This is 8% decline. We saw decline in the merchant ship orders driven by the very low newbuild orders by the shipyards. Our offshore related orders grew, and this is very much driven by the orders received in the sustainable energy area. MacGregor service orders grew by 20%, and this has been supported by the TTS acquisition. Excluding TTS, the organic order growth would have been flat. MacGregor sales were €153,000,000 here, a 10% increase compared to the previous year quarter one. And comparable operating profit was minus EUR 5,000,000. Despite being negative operating profit, it is it was according to our expectations for quarter one. There are basically two drivers for the loss making quarter one, the low capacity utilization in certain offshore as well as in merchant product lines and then also the very low order activity and the tight competition concerning deals available in the market. We announced already in 2019 significant restructuring actions in MacGregor, and we are targeting to achieve €15,000,000 cost reductions during this year. So far in quarter one, we have achieved EUR 3,000,000 cost savings. Then CargoTech total financials. Our order backlog is EUR €1,900,000,000 like Mika said, offering a very good basis for the coming quarters revenues, assuming that we can deliver those that backlog in this corona environment. Comparable operating profit, 40,000,000. We had €13,000,000 items affecting the comparability between the periods. And in this €13,000,000 we have a €1,500,000 booking related to the Rainbow Heavy Industries associated company, where we reduced our ownership from 8% to 6%. The net income for the period was €11,000,000 earnings per share, 0.18. And ROCE for the rolling twelve months ROCE in quarter one was 6.5%. For cash flow for quarter one was €23,000,000 This is slightly lower than in the previous year's quarter one, mainly driven by the lower profitability. Our net working capital has increased. That's quite typical in the beginning of the year when we start to build the equipment for customers' orders. Of course, in this kind of situation, we need to monitor very closely our inventory as well as also the accounts receivable development. Our debt portfolio is well balanced. Gross debt is approximately 1,100,000,000 And here, it's good to note that 83% of our debt portfolio or outstanding debt is long term, so maturing after one year or later. Our gearing was 57%. And when we exclude the IFRS 16 lease liabilities, roughly €180,000,000 the gearing was 44%. Our liquidity position is very strong. At the March, we had €281,000,000 of cash and cash equivalents in our possession. On top of that, we have a fully unused committed €300,000,000 revolving credit facility. We have €183,000,000 of loans maturing in the next three sorry, in the next four quarters. So the total net liquidity at the March was almost EUR 400,000,000. On top of this EUR 400,000,000, we have EUR 150,000,000 commercial paper program, of which we have utilized at the moment 50%. And then we have roughly €130,000,000 of unused bank overdraft facilities. In early April, we raised, in addition to the previously mentioned facilities, 200,000,000, two years bank loans. So overall, in the April, we had €800,000,000 liquidity. And as you can see from the right side here, we don't have any major repayments coming up in the near future. The Board proposes a dividend of EUR 1.2 per B share. And basically, the dividend would be paid in two installments. The first installment, 0.6 per B share, would be paid directly after the approval of the AGM. In practice, the payment would happen in the June. In addition, the Board is proposing to the AGM an additional approval or authorization for an additional installment of EUR 0.6 per B share. And this dividend would be paid based on the Board's evaluation later. However, the authorization would be valid until the next AGM. The EUR 1.2 maximum dividend proposal represents approximately 55% dividend payout ratio when we calculate the EPS excluding the items affecting comparability. And with those words, I would invite Micah back to talk a bit about the outlook. Thank you, Micah. On March 27, we issued a statement there. We said that at this stage, the visibility is very poor and this exceptional situation, Cargodec estimated it's not able to give a guidance for 2020. We will give guidance as the situation will further clarify itself. It is also quite clear that the Q2 twenty twenty is going to be challenging for us. We see issues both affecting our supply side as well as uncertainty in the market affecting the demand from our customer side. The supply side will be affected by component shortages coming from our suppliers, potential closures of our own manufacturing facilities and then uncertainty regarding shipment availability and logistics flows overall. On the demand side, obviously, customers' demand is hard to predict at this stage, and we see those both affecting the Q2 twenty twenty considerably. Now for the first few weeks April, we have seen the order impacted negatively already. It's quite difficult still to draw any definite conclusions on those ones. The orders tend to be quite back weighted for every week. And of course, we had an Easter holiday also impacting the first couple of weeks in April, but we have seen a slowdown in demand being there. Obviously, for the whole year, it is very difficult to give a specific guidance as to answer than to regarding the COVID impact, customer demand and the potential restrictions is still very high. It's a very challenging operating environment. One indication that we follow actually live and we can get data on continuous basis is regarding the equipment that we operate in the logistics sectors. A lot of our equipment is today connected. And these are the numbers from the last in April for the last week. Actually, I wouldn't worry too much about Africa because we have quite a small number of equipment connected. So that's not statistically relevant. We have seen the operational hours actually recovering in China, but they are still somewhat down in there. In Europe, actually, the reduction in operating hours after two weeks was considerably higher. And after three weeks, we still see operating hours being down roughly 12%. In U. S, the operational activity of the equipment is even further down. That's also a good indication for us to see where the market is going. And as we clearly see at the moment, there are restrictions in the logistics sector and how our equipment is operated. That certainly is going to impact our demand at least in the short term. However, I would say that if you look at sort of beyond the current crisis, I would say that our strategy is actually even more relevant than ever. The investments we have done in digitalization, services and connectivity are now clearly paying off in terms of the data and how we are able to support our customers. And those benefits are clearly visible to our customers and of course to our own organization as well. Looking into more long term, it's very clearly that the lessons from this kind of crisis will further enhance the demand for automated, electrified and robotized solutions And the investments we are doing in R and D and that we keep on doing in the future will put us in a strong position. And Cargodec will emerge from this crisis stronger company than ever, both financially and from the competitive point of view as well. Thank you very much. And I think we are now ready for Q and A. Yes, exactly. Thank you, Micah. Thank you, Mikko. Could you, Mikko, kindly also come here, please? And then we are ready for the questions. We will now take our first question. Please go ahead. Hi, can you hear me? We can. Yes, okay. Hi, it's Peter Testa, One Investments. I had a couple of questions, please. One was just on the order backlog, if you look at how that helps you understand how to prepare for the rest of the year. On Kalmar, how much of that order backlog is for execution in 2020? And is there a big difference between the smaller logistic units and the larger units, larger orders? Thanks for the good question. In Kalmar, I would say that we need to separate two parts of the order backlog. The project related order backlog, one could say that it's in the average two years in the delivery time. And then in the services and the smaller equipment related backlog, that would be approximately maximum two quarters in the delivery time. Has that been changing, that backlog period on the smaller equipment? That has been you mean that has the backlog structure Yes. If you look at the smaller light equipment, roughly two quarters. If you look at the overall visibility with your coverage you have, has that been changing in the current environment? Not drastically. Okay. And then on here, you have just under €400,000,000 of orders. And we've obviously heard from some of the truck makers today that the environment is tough on construction and trucks in general. And I was wondering if you could give some sort of sense with needing some in for out orders still for the year. How do you think about preparing here for a more difficult environment maybe for the balance of the year in terms of production structure or staffing and so on? Overall, obviously, it's hard to predict at the moment. Most of the major truck manufacturers actually have stopped their production for the time being. And I think if you order a new truck at the moment for many of you, the availability is somewhere in August. I think this will impact the high up demand now in Q2. We should see that visible. We have taken the same short term temporary measures as we have done in other businesses in terms of the four day work week with the staff functions, cuts in executive salary. And then obviously, some of the higher band manufacturing units have been shut down, primarily due to the kind of the restrictions by the authorities rather than our own bill. Our unit in Poland for Hyabees is in shutdown for two weeks, and we expect that to come back online now by May as well. And obviously, we need to monitor the situation and see how the truck manufacturers' sort of production and the customer demand is behaving. We have quite a lot of flexibility and it's good to recognize that generally our sort of setup is quite asset light at the moment. We are not vertically integrated and we are having purely an assembly operation. So how do we play with our own suppliers and with the assembly capacity is going to be quite critical in the coming weeks and months. Right. Okay. And then the other question I have is just on say cash flow and balance sheet. If you could give some sort of sense on how the cash advances part on your balance sheet, how you expect that to develop through the period? You refer to the €110,000,000 Yes. If you refer to the advanced payments, what we have received, of course, those are very much related to the Kalmar automation and project business. So typically, with those large projects, we get the advanced payments and milestone payments. And should larger orders be postponed, then of course, we would be consuming the advanced payment balance as we are still executing the backlog project. So that kind of delay of new automation projects would then reduce the balance of advanced payments, if that would be the situation. Question was yes, I understand. Yes, so it depends on the pipeline conversion versus the revenue. And then the last question was just on the in the short term risk statements, you make a point about MacGregor and the operating environment and so on with its two major customer segments. And then at the bottom of that, you say if this were to persist for the long term, there could be some write down of risk to the goodwill amount. I was wondering whether that is something that's under review at any point for the half year? Or how why is that in the short term risk statement, I guess, I would say? Yes, we have as due to this very kind of exceptional situation, we have performed kind of extra goodwill impairment test for MacGregor now in the first quarter at the end of first quarter. And as a result of that goodwill impairment testing, basically, the headroom in the goodwill impairment testing has shrunk from 170,000,000 to €7,000,000 So at the moment, we don't have a need to do the impairment. But should market outlook decline further from the current one, there is this kind of risk. And we have been highlighting and opening also the Magrevora goodwill impairment testing in our interim report in the note number three, more in details. Right. Okay. Thank you very much. Thanks for your help. We will go to our next question. Please go ahead. It's Artyn from Credit Suisse. My first one is around trading environment. Could you maybe help us a little bit with quantifying what you've seen in April in terms of demand maybe in year over year terms across the three businesses, please? Yes. As I already said, it's slightly challenging to draw too many conclusions. I would be a little bit careful with that one. First of all, our orders tend to be, even in the month, be back weighted. And quite often they are back weighted in the quarter as well. And then obviously, we had an Easter holiday. So after two weeks, we saw quite a significant reduction in the order intake year on year. Actually, last week was somewhat stronger again. So the Easter holiday clearly had an impact on that one. But I think it's in early days to draw any significant conclusions on that one. But I think it is clearly a downward trend, and I expect that to continue on within Q2. But how strong that trend is at this stage? It's too early to call. Well, I guess maybe then you can help to understand a bit better the phasing throughout q one because in your statement, you're saying that Jan, Feb was a normal month. But if you look at year over year growth rates, this either implies that March declines were very severe or that Jan, Feb were also down year over year? So maybe any color on how we should be thinking about the exit run rates for Q2 would be helpful. Yes. In MacGregor, we didn't see really see I would say there are not significant sort of trends there. I mean, obviously, there are large onetime orders for ships and there was not a significant trend as such within the quarter itself. In high up, I think the trend was quite visible. The January, February orders were still relatively good. And then we saw orders slowdown in March, especially in the last two weeks March. And there, where we saw a slowdown happening on the high up equipment. In Kalmar, we saw a slowdown, first of all, impacted in China in the sort of January, February time frame and then China coming back quite well in March. And then if you look at mobile equipment, we saw the sort of intermodal container handling type of equipment actually be relatively strong throughout the whole first quarter, including the March. In the Industrial segments, we actually saw a slowdown towards the March in the equipment side on that one. In the logistics sector, actually the early part of the year was slower than we expected in North America And there has been now indications of actually that strength. And we know that especially the logistics around the e commerce is actually running at relatively high rate. In larger project say, it was fairly easy. I mean, the whole month was very quiet. We didn't land any larger orders on that stage. It's hard to predict, but it could well be that the larger project orders would only land in the second half of this year and not earlier than that. Okay. Thank you very much. And in terms of those large orders, automation projects, how much of that was in your order intake last year, please, in Kauma? That was approximately, what would I say, large individual orders. We got roughly, if I remember correctly, six orders last year, amount €150,000,000 €160,000,000 for the full year. Okay. Thank you very much. And my last question is on cost savings. First, I just wanted to confirm I heard correctly, you're currently running at €10,000,000 per month. And secondly, are those cost savings temporary? Or you expect some of them to be retained as maybe volumes start coming back and as market improves? Thank you. Yes. We have two type of cost savings. Some of our more structural that Mikko described already that have been ongoing already before the corona crisis. And then due to the crisis, we have taken further temporary cost savings. Those temporary cost savings impact is roughly €10,000,000 a month for those ones, and they obviously are affecting as long as we have those measures in place. Obviously, we are now monitoring the situation and forming a picture what is the demand shape going through this year. And then based on those ones, we then need to decide whether some of those savings are more structural and would have to be more sort of permanent and which one of those would then return with the activity. So with fairly poor visibility at the moment, it's too early to sort of decide where we are with those ones. The structural savings that we have communicated before, they are continuing as planned. We will go to our next question. Magnus here from UBS. Could you give us some color on how HEAP's order intake declined in Europe, Americas and APAC, please? That will be helpful in Q1. There is not a significant difference. APAC is quite a small market in there, so I wouldn't sort of in terms of The U. S. And Europe, I think we saw a fairly similar pattern in both places, relatively strong January and February and then a slowdown in the last two weeks March both in U. S. As well as in Europe. Not a huge difference between those two markets. Okay. Are you still declining in January and February in those markets? No. January and February were fairly stable. Think they're roughly at the same level as previous year. Perfect. Great. And then how is the current situation with Heaven deliveries from Europe to North America? It depends on the manufacturing facility. We deliver from multiple factories. The main factories for North America have been the facility in Spain that actually has been shut down. We expect that to sort of come back in line now. Then Irish factory that has been doing quite a large part of its business in U. S. Is actually is closed at the moment, but we expect that to return by sort of May time frame into the return. Further, you have had issues with as I described, quite a lot of the container line capacity has been taken out of the traffic. So that will also partly impact the shipment schedule. So we have had a certain situation where we are missing sales because even though the equipment is ready, we can't find a shipment for that one. That's what happened with Hyab at the end of Q1 as well. The equipment actually that we were supposed to ship I was waiting for that one, but we couldn't get the shipment organized as well. So the situation is very fluid because it's impacted by the component availability where we have had issues. It's impacted by the how we are able to open and keep our own facilities open and then the availability of the shipment as well. We certainly will, I think, struggle in all those three areas still in Q2. Got it. Can the how many weeks has the Spanish and the Irish facility be closed, respectively, at this point? Well, I think we'll talking about a couple of weeks now. Okay, perfect. Then finally, could you help us quantify the mix effect you saw in calendar on the EBIT line? Is that what we have? Sorry, would you mind repeating that? Yes, sorry. Could you help us quantify the mix effect on Talmar on the EBIT line versus mix effect from project business? The mix impact, I would say, would be somewhere between €5,000,000 to €7,000,000 roughly €5,000,000 for the first quarter. Perfect. Thank you so much. We will go to our next call. Please go ahead. Yes. Hi. This is Antti from Danske Bank. I would like to ask about your comments on the second quarter. I think you are making it quite clear that the second quarter looks bad, to put it in simple terms. And if I understand correctly, you are not even excluding the possibility of an EBIT level loss for the group. Is is this mainly because of a severe top line sales weakness, or is it some extra costs that you expect? Or is it even a potential write off of MacGregor goodwill that could bring your second quarter EBIT to a loss? The second quarter, I think, is in a way, if I used the term perfect storm in a way that we will, I think, have issues with the demand side with uncertainty and still the restrictions being in place with our customers. So I would expect orders to be impacted by that one. And then it's also been impacted by the operational issues from our side, as we discussed already. So in terms of our delivery capability in Q2, we'll have a number of different operational issues. And both of those will have a negative impact on our operating profit. The magnitude of that one at this stage is quite difficult to estimate. I mean, so much depends on the restrictions, so much depends on the our suppliers' capability to deliver and our capability then to ship the equipment as well as the customer demand and there are question marks around all of those topics. And I think Mick already commented in terms of the headroom for the write offs. We need to evaluate the situation again at the end of the Q2 and see where we are with that one. Okay. And then second and final question. When are you going to test the McGregor goodwill? The next time? And related to that, do you sleep well with your balance sheet? Or how would you describe the situation? I know that you are still a bit away from your covenant levels, but how do you feel about your balance sheet given the challenges there are in France? Yes. Concerning the first question, we will test MacGregor goodwill at the moment on continuous basis. Basically, it's under scrutiny every day. Of course, we don't update calculations every day. But all the time when we are getting new information, we need to evaluate whether that information will impact the Macrek or goodwill valuation. So the answer there is that it's a continuous evaluation. What comes to the balance sheet? In our opinion, our balance sheet is solid. Our we have in some of our loans, we have 125% gearing covenant as a covenant, as a single covenant. And at the end of quarter one, our gearing was 44% when using the covenant calculation principles. So in my opinion, we have significant headroom in our covenants. I actually think that at the moment, we are and of course, this is also partly relative to the competition in a very good position actually. We have about €800,000,000 of cash or cash equivalents available at the moment. And I would say that I looked at our balance sheet and cash position as an opportunity when we move through this crisis and potentially how can we actually take an advantage of that one. Okay. Thank you. Thank you. We will go to our next question. Please go ahead. Good afternoon. It's Manuel Rendula from Nordea Markets. If I may continue on the topic of the MacGregor goodwill, could you talk about the fact that you changed the kind of assumptions, which I can fully understand given in your goodwill test. But where do you see that kind of assumption could change? Because I guess that you're still doing the long term kind of a review of the cash flow profile. So in the next couple of quarters, so where do you see is the kind of biggest risks that we could have to change the assumptions, which would lead them to a write down? Basically, are two elements in the goodwill testing. One is the top line and profitability outlook, how we see the macroecor business, both in short term, meaning the next five years and that kind of over the cycle growth rate. And the other element is then capital, I. E, the interest rate, what we are using for discounting the cash flows. Both have been updated now in quarter one. So we have taken down the long term outlook. We have reduced roughly 20% the next year's next four years' revenues. And then also the over the cycle growth, we have reduced from 1.6% to 1.3%. So if there would be kind of further reduction in these short term or long term growth rates, those would then, of course, impact the goodwill valuation. And this, as mentioned also earlier in the earlier question, this is something what we evaluate now on continuous basis due to this extraordinary market situation as well as the headroom in the goodwill impairment testing is at €7,000,000 Okay. Then moving on to the order intake. So I think you reported around 13% decline year on year base. And assuming that March would be some 40% of the Q1 and January, February, think you said were roughly flat. So is it fair to assume that we had some 30% decline in March order intake? Probably not quite in that stage. It was more visible. And again, I think early March was fairly okay. The last two weeks were already where we started to see a more significant decline in there. And at this stage, it's quite hard to predict how that will then evolve now into Q2. Okay. Do you have a breakeven point for sales in here? And or are you willing to share that with us? Well, flexes obviously as well depending on what we do in cost structure. The Hyab one is to remember first of all that we are still doing extremely well in services. That's still going strong and the proportion of the services increasing on that one. And the investments we have done in terms of the manufacturing setup and assembly also gives us a lot of flexibility. So we are in quite a strong position in high up to actually better a storm at the moment. Okay. And then on the Service business, so I mean, have you seen any bigger impact on the restrictions? Or do you expect that those will become bigger for the Service business? Or are you able to prefer most of the services? There has been actually restrictions in terms of customer access or access to customer facilities in shipyards, in part imports and some other locations. So in that sense, I'm quite delighted that the Services, despite those restrictions, has been performing quite well. And obviously, that's still a risk that we carry into the Q2 as well in terms of how those restrictions will potentially impact the services delivery in Q2 as well. But so far, so good. Okay. And final question. Do you have a sense about the backlog quality that did you see, for instance, during the financial crisis, did you see a lot of cancellations taking place in the backlog? And is there any difference between Hyab and Kalmar, for instance? Well, Kalmar obviously has the project backlog that is pretty solid. So I don't think that you'll see because these are generally ongoing projects. So I do think that they will actually progress. The delays, there are more to do with the practical restrictions on that as we discussed customer site access, etcetera. But I think that backlog is pretty secure because those are heavy investments that we have been committed by the customers in many ways. In the mobile equipment side more, we haven't really seen cancellations. What we are seeing is postponement request by customers, partly driven by the practical issues of people working remotely, etcetera. So I think we see some postponements of the backlog from Q2 to Q3 now both in Hyabas as well in Kalmar. It's not a significant part of business, but there is some we have seen very little in terms of cancellations. Okay. Thank you. No further questions. We will go to our next question. Please go ahead. Hi. This is Peter Testa again. I just wanted to ask a bit on the restart parts of the exercise. And given the information you've had about your supply chain and how that's caused some difficulties in Q1. When you look at how you're preparing the restart with your supply chain, especially given you're more assembly basis in your own facilities, obviously, is the critical point. When you look at the visibility that you're getting on parked availability or would you be looking for your supply chain to create some buffer stock to make sure there would be availability? How are you managing that supply chain restart to make sure it's smooth? And how long do you think it will take? It's an excellent question. And it's an exercise, I think, where the transparency towards our customers and transparency to our supply chain is absolutely essential. So to say as an operational planning is going to be in key role to manage the capability to ramp up and ramp down when necessary and managing that well. Also, be very of the supply chain or sort of net working capital. I'm not accumulating too much of that one either. So it's something that we follow on practically on a daily basis, both with our customers as well as with our suppliers. And I think the good news, of course, is that the thank you, Hannu good news, of course, is that the backlog is still relatively high in all of the businesses at the moment. So we have quite a lot to deliver from our backlog. And then it's a more question of our delivery capability and the restrictions around that one. And for that one, we generally have a better visibility. Okay. So when you look at your supply chain ramping up and making sure the full parts availability is you can ship the complete unit, I mean, you have a sense on going from the current situation to restarting? Is that something you would expect to be running smoothly by late May, earlier than that? What do you think? I think what we understand, again, this is a fluid situation, but what we understand from the authority restrictions and all of our manufacturing locations effectively have been shut down due to the request from authorities is that some of them are already back in line to Malaysian factory, for example. And what we understand from the local authorities at the moment, by mid May, most of our manufacturing facilities would be up and running. We do observe and, of course, the safety is important for us. So we, for example, can't operate the manufacturing and assembly units at the full capacity because we keep safety distances within the manufacturing facilities, etcetera. So that will slow down some of the deliveries. But in a way, that also gives us a pretty good visibility for the supply side as well because we have a fairly high backlog still in most of the factories. We know where the capacity restrictions will be. And so I think managing this one in the next couple of months is actually relatively easy as long as we are able to predict our own manufacturing rates correctly. It gets more tricky down the road, obviously, where the sort of the demand side is more questionable. Right now, it's more a question of delivering to the backlog and having the right sort of understanding of our own capability in terms of the manufacturing capacity. Okay. So you've been able to give the same visibility to your supply chain. You're expecting on communication that they should be able to start in parallel with yourself because you're able to give them firm orders basically. Okay. Thank you very much for the answers. Thank you. And we'll go to our next question. Please go ahead. Yes. This is Tom Stodmer from Carnegie. I would like to understand a bit better this this high yield situation still. So currently, I understood that your factory is closed in Poland for a couple of weeks. But but what about this know, truck deliveries? Are there, like, you know, inventories of this, you know, somewhere? Or is is it, you know, the situation now that you will not have any trucks for several months to install your your, you know, loading equipment on? And how do you then book revenues in your capital loss account? There is a number of trucks already in the system at the moment to be delivered already. We have a certain amount it varies a lot from location to location, market to market as well. In airfare facilities, for example, in Italy, where the corona restriction hit quite early, we have a number of ready equipment that actually has been in the backlog and has customer orders. We haven't struggled to organize deliveries, getting trucks actually to pick them up and deliver to our customers, which are waiting for those ones as well. So we have such sort of buffers or buildup backlogs there that we can as soon as we can get the transportation organized, we can deliver and recognize the revenues on those ones as well. The planned shutdown for the Poland is two weeks, and that's primarily driven by the component availability. The truck buildup, of course, goes through the supply chain as well. Obviously, it depends on how soon they come back online as well. And it's not an immediate issue for us. There are trucks that are to be delivered, are with the dealers, etcetera, that we fulfill into the capacity. The question is more, I think, towards the end of the Q2, early Q3 to see where the situation is in there. So is it as it looks now for your revenues, Q2 and Q3 are equally bad basically then? Because if you don't have trucks to install on, I mean, then I guess you cannot book a larger of the revenues if you cannot fully deliver it and install the equipment. I think the Q3 is still too early to predict. Let's remember that we have a very solid backlog of about €400,000,000 in high up that is well over one quarter of deliveries already in the backlog today. And then we need to see how the sort of the demand will develop during the Q2 as well. But how much of this can you of the revenues from a crane can you book in your partner loss account if you cannot install A very large majority of all our shipments is not our installation, first of all. We usually book the revenues upon the shipment or delivery as well. And it's good to remember, again, there are a very large number of the if you look at the truck supply chain, they go through the dealers. The dealers still have a number of trucks available at the moment. So even if you would sort of order a new truck today, I mean, there is a backlog in there, and then you would look at the August deliveries there anyway. Okay. And then on this goodwill discussion, could you help us to understand where the goodwill comes from? You have a bit more than €1,000,000,000 of goodwill, and it has been on a high level for many, many years. So please help us to understand how it is split between the divisions and the different acquisitions you have done. Yes. Roughly 50% of that is related to MacRecor, and this is coming from the offshore acquisitions in the early or some years backwards. And you can see also in the note number three that asset value in the MacGregor goodwill impairment testing is over €500,000,000 So that gives fairly good kind of information about the size of the goodwill. Yes. So the business and the hot lot acquisitions in particular that are too risky. For example. Yes. Right. Thank you. We'll move on to our next question. Is Magnus Higgins from UBS. I think we saw one of the truck OEMs this morning suggesting utilization of their fleet has come down by about 20% in Europe since the start of the year. Do you have sort of any corresponding data for your fleet and your cranes that you have? And how do you think that will impact your service business if utilization is similar to your cranes? You some data actually in my presentation regarding the utilization at the moment, where we are about 12% down in utilization now in the mobile equipment in Europe and about 22% down in U. S. At the moment. The actually, you can look at it both ways. In the longer term, of course, if the running hours go down, that will impact the service requirements. What we are now doing at the moment is that when we actually see the variability in utilization to be quite high, We actually contact customers where the utilization has gone down to suggest that this might be a good time to actually do some of the preventative maintenance and do the maintenance rounds when the equipment requirement is not that high. And then you play it the other way with there are also some customers where the equipment is running at the very high hours at the moment, which also then means that there will be further maintenance requirements down the road as well. But so in short term, actually, the lower utilization also gives you service opportunities. And obviously, we have the advantage that we have the visibility with our customers. Obviously, in the longer term, if these utilization rates remain lower, that would mean that also the maintenance requirements would come down, respectively, as well. Do you have any similar data for EIAD as you have for Karma? We have not quite as much equipment is connected in the same way as in CALMER, but the data we have actually is quite well correlated with the data I showed from CALMER. Okay. Okay. Got it. And then I sort of return to the sort of the start up prospects specifically and returning to Spain. Italy, would we consider mid May as a sort of initial start up date there as well? So what we again, this is very much driven by the decisions by the local authorities in different locations. What we understand and the indications have been is that sort of mid May, pretty much all of our production facilities should be back online. But as said, the situation remains quite fluid and it's too hard to predict. Absolutely. Got it. Finally, on components shortages, is there any particular component that you're short of that you could sort of highlight? And is there both issues with deliveries from also within Europe as well as from China? One of the biggest issues we are dealing at the moment is actually Volvo engines and availability of the Volvo diesel engines to some of our mobile equipment. And that's certainly we'd like to see sort of Volvo ramping up the production. Again, we have quite a large backlog. We have a good demand on that area. And we are now relying on other engine manufacturers to replace that equipment if it's so required. Got it. Thanks. That's very useful. Thank you so much. Thank you. And we will take our next question. Please go ahead. Yes. Good afternoon. It's Dominic from DNB. I'm also trying to ask a little bit on the high up, maybe scenario wise, if you would assume that the business sales for, say, 1,000,000,000 level, would you be comfortable that the business is able to remain at 10% profitability? For example, if you would just sort of explain the profit the operational flexibilities and so on. I think with €1,000,000,000 of revenues and if we would adjust our operational activity in that 10% would be well within the reach. And I don't see that to be a problem as such. I mean, the operational flexibility, obviously, that would require certain measures to be taken to achieve that as well, but they are well within our reach as well. The high up situation overall is fairly interesting because we are pulling, obviously, our customers at the moment as well and on a weekly basis. On the last poll, out of the 28 larger fleet customers, we contacted 26 of them. They're believing that they will be back in full operations within a month. And obviously, one month take the view that that's fairly optimistic scenario and we are not basing our own planning on those scenarios as well. I don't believe in the very sharp being here. And I think we kind of need to adjust our operation to be able to sort of take necessary measures as we see more visibility in the market. And the second question on pricing. Have you seen any pressure, for example, on the services pricing environment or indeed equipment as well? No, we have not seen. I think the pricing is not coming up on discussions much at this stage. I think people are more concerned about the availability and the delivery times. Okay. Thank you. We will go to our next question. Please go ahead. Hi, it's Antti from SEB. Just two questions. First on higher than touching a bit on what you said just a minute ago. We are expecting to see a bit of a slower recovery in terms of volumes going into late twenty twenty and 'twenty one, do you think that this would be a time where you do some further cost restructuring on a more sustainable basis and not only on, let's say, the short term COVID-nineteen impact? Absolutely. I mean, we discussed that, for example, when it comes to the current manufacturing footprint of the higher B are not in the optimal position at the moment. And the strong demand we have seen in the last two years has not enabled actually us to look into that one. We have obviously done a number of different scenarios and plans on that one. And if we see that the demand would remain at a somewhat lower level now in the coming quarters, that certainly would be an opportunity for us to do some structural changes in there as well. And what about Kalmar production setup? Is there a similar type of plant in the No, the Kalmar Kalmar there is similar area there? Yes, Kalmar is pretty much where it needs to be. We have three large manufacturing facilities: one in Europe in Poland, one in U. S. And a third one in China. And so that's a fairly optimal setup for us as it is. Okay. And then a second question. I guess you mentioned that you're happy with your balance sheet and you have enough liquidity to maybe do some strategic moves during the downturn. Could you maybe elaborate where you see opportunities or where you would like to add something in your portfolio? Well, I think let's see how this situation develops, but there are certainly a number of our competitors who will be more distressed than we are in this situation. And this might be an opportunity then sort of do bolt on type of acquisitions or look at the adjacent product categories. But it's a little bit early to speculate on that one. But clearly, we want to sort of beef up our capability as well-to-do moves if those opportunities arise later in this year. But do you want to elaborate at all in which businesses you see some competitors struggling at the moment? Too early to look into that one. But I think it's primarily, I would be I think the higher B is quite an interesting area, especially there are still a number of sort of smaller competitors in there. The CALMER business tends to be more consolidated. And obviously, after the TTS acquisition, the MacGregor space is already pre consolidated. But there are also adjacencies in all of these areas that we are looking into. That's all for me. Thanks. And there are no further questions at this time. Thank you. Actually, we have received one question online, and it's related to the final acquisition price of TTS. So can you please give an update regarding that? Certainly. I mean, the closing of the balance sheet is still under the discussion. As far as I know at the moment, it's heading into arbitration and that arbitration is only taking place as far as I understand in 2021. So we do not expect to see any clarity on that one until next year. Okay. Thank you. Thank you for the good questions and good answers. Please stay safe and healthy. We are publishing our Q2 report on July 17. Hope to see you then. Thank you. Thank you.