Ladies and gentlemen, welcome to the presentation of Beijer Electronics Group AB Q2 2020 reports. Today, I am pleased to present Per Samuelsson, President and CEO, and Joakim Laurén, Executive Vice President and CFO. For the first part of the call, all participants will be in listen-only mode, and afterwards there will be a question and answer session. Please be aware the call is being recorded. Speakers, please begin.
Thank you very much. This is Per Samuelsson, welcome all of you to this Q2 report from Beijer Electronics Group in the middle of the summer. I can tell you some sun is coming out now in at least in the south part of Sweden, that's good. First of all, we will go through this as we normally do. The headline for this report, we say it, "Fast actions mitigate the effects of COVID-19 while maintaining a focus on future growth." That covers the presentation more or less, what we will go through. Everybody realize that the COVID-19 situation has been hitting us. I would say that Q2 is probably the quarter where you can see it as most.
Therefore, we can see that there are impacts and there is drops in the sales in the different units in different ways, and we will go through that. I also already now will say that we have taken a lot of very quick actions during, I would say from February onwards, which means that taking down cost and cash flow and so on, not taking down cash flow, increase cash flow, which means that we are in a very good situation when this sort of, so to say, crisis is over. If you look here, as I said, we expected this situation for Q2, and which means that there are lower activities in sales and order intakes in this quarter.
Fast actions, including then the restructuring program that we announced first quarter of last quarter, have then been well-received and well-acted as it has been good actions in the organization, which means that we have taken down the cost significantly during this quarter. We can also see that the organization have adapted very good into the digital interaction. Even though, as everybody realized, there is no travels, we don't meet customers physically, it has been a lot of digital meetings the last three, four months. I personally, I didn't believe that was possible, but that's very good. It also tells us that the activities at the customer side hasn't gone down. It also means that when we coming into the end of the year, we can see that we haven't lost that much when it comes to sales time.
We still believe that when we coming to the end of the year, and hopefully at least the economic effects of the crisis has started to get over, we are in a very good position going forward. Objective for Q2 was to have at least a small positive EBIT, and we came in with that. Also, as everybody understands, we have been focusing a lot on the cash flow situation because we need to have a good financial stable situation when you are in these type of situations. Here I must say that the whole organization has acted very good, so we are in a very good financial situation as of today.
We also very clear, very early and also those of you that listened to us last quarter of the Q1, we said very directly that we want to make sure that we are, when this crisis is over, that we are in a very good situation coming out of it. We have also been spending a lot of time with customers, but also we have been continuing on the development side, and we have made sure that also the supply chain is in good shape. It means that, we haven't lost time from those perspectives. This means that we are in a very good shape when this is over. We go into next slide, a couple of words on each entity.
We have during the last years in our reports been stating that if there is coming low economy going further, we normally can see it quicker in Beijer Electronics and Korenix, and a little bit slower down in the Westermo. That's exactly what we see here especially in Q2. Westermo has gone down a little bit, but not that much. They have then also by good cost control, been able to protect EBIT margin around a little bit more than 10% in this quarter, 11.4%. You saw a further drop in Beijer Electronics and Korenix, but you can see in both those units that those two units has also been taking down cost a lot, which means that they have done the best of the situation, if I put it that way.
We also going forward when we look into the future, we foresee that if you take the end of the year, if you look at customer activities and where we start to see where we start to be specified by customers, we expect orders to come back and increase, you can say, I would say after summertime, then we can define summer, but let's say after August somewhere. That's all the indications we get at this moment. Of course, if this pandemic that is going on in the world, we'll get a sort of a second hit, then of course, we have a different situation. At the moment, you can see that in Asia Pacific areas, we are at the moment okay. We have seen the last part of Q2 that Europe starts to pick up country after country. That looks okay given the situation.
Then we have U.S., that is the problem at the moment, that we still see low activities because of the situation in the United States at the moment. We have said once the crisis starts to fade out, we will be in an even better shape than when we went into it. We have been, of course, then taking down some cost a little bit. We are more effective. We don't need that high increase in sales before we are in a good shape again. A comment I could also say is that in a normal situation, we would have, of course, not been happy with this quarter result. Given the situation, I must say from my perspective, it's okay. When we look into this in March, April, it could have been much worse, to be very frank.
A couple of things when it comes to the COVID-19. I think everybody realizes that as everybody's doing, people's health and safety is first. Then we have been, during this quarter, having a lot of people been working from home, and you can see, all of you, that that works. You can do it. Of course, a long-term scenario, that's not good because at least in our company, people want to meet each other. We start to be in a situation where more and more people will come back after summertime if no dramatic thing happens on the other way around. Workplaces and, of course, distance, safe, we wash their hands and all of that. That is, of course, obvious.
We have also, when it comes to the different type of packages around in the world, many countries have different support packages for companies. We have been using those when we think it's valid, so to say. We see that we have been able to, for instance, in Sweden, to cope a lot. We haven't gone down so much in time. We haven't been asking the government to pay us because we think that if it really will be bad end of the year, we will really use it. We want to use it when we need it, if I put it that way.
Totally, you can see in this slide, and we see in the report, we have gotten some sort of cost support from the different countries with a number of roughly SEK 5 million, and we also have got a liquidity support on roughly SEK 25 million. As I said here, no short-time work applied for in Sweden yet. As we see today, we don't see that we will go into it if it continue as we believe. We have also had a very good and early discussion with the bank, and we have an additional credit facility in place if we need it. At the moment, we don't see that we need it. It's there if we need it, and that's of course very good. Last point. Beijer Group will always adapt its cost levels.
What we say is that if we see any more negative things coming in the future, then of course we will adjust costs and do other actions. We have, you can call it a plan B and plan C, if that will come up. Once again, at the moment, we don't see that coming. Joakim will later on go into each unit, but you can see that this quarter, if you look at the order intake as well as the sales, you can say that they are both order intake and sales are lower, that then you can call it lower than compared to the Q1, and also lower to the corresponding quarter last year. Once again, that was expected coming into the Q2.
We can always discuss if it's higher or lower than expected, but this is roughly what we expected going into this. I would say that the backlog, if you look at the overall backlog, is roughly on the same level. It says 107% versus last year, 95% of that if you look at organically. Overall, we haven't seen a dramatic drop in the backlog, so we are still in a healthy situation going into second half of the year. By that, I'm handing over to Joakim, and I will come back end of to do some conclusions going forward. Please, Joakim.
Hello, everyone. This is Joakim. I start with going through the overall group. The headline is similar to what Per said earlier. We have an impact of COVID-19 as expected going into the quarter. We have taken down cost and done actions to dampen the effect. The order intake, SEK 335 million in the quarter, the sales, SEK 358 million, giving us a small EBIT of SEK 7.9 million for the quarter. As I said, we have taken down the cost. We use the term significantly. Part of that is, of course, coming from the restructuring program that we launched in the previous quarter. If we compare our overhead cost mass, Q2 compared to Q1, we have taken down 13%. It's relatively high numbers here, that then gives us the EBIT that we talk about.
We should also notice that we have had the currencies against us. We have a negative total currency impact on the EBIT level of SEK 7.5 million. We have an uphill also when it comes to currencies in the quarter. If we look at the financial net, that is also relatively negative. For you that look lower down the profit and loss sheet, that has also been impacted by the FX. Unfortunately, we come out with a very small negative net income of SEK 0.8 million. As Per mentioned earlier, cash flow has been positive in the quarter. As stated, the organization has taken on the tough situation, and we have managed our cash in a good way. Despite the relatively low profit, we still have a positive cash flow in the quarter, where Westermo organization actually has been the biggest contributor to the total.
Again, all across the organization, we handle our cash in a good way, and that's something that we are quite happy with. With this positive cash flow, we have managed to, in the quarter, actually lower our net debt during the quarter. Let's slide into the three business entities, and we start with Westermo. The heading is Well Performing. We state that, I think giving the situation with the COVID-19 and delivering EBIT of 11%, I think that's well done for the organization. Order intake, SEK 199 million, sales SEK 189 million, and an EBIT of SEK 21.6 million. If we look at a comparison to Q2 last year, we have increased orders, we have increased sales, of course we have then contribution from the two entities that we acquired last year. Organically, there are some drops on the orders and also on the sales.
We should also note that in the quarter, we have not booked any large orders in Westermo. We have some mid orders that we normally have, but no larger orders in the quarter. When it comes to the entities, Neratec and Virtual Access, we have ongoing activities, integration activities, where we now state that Neratec is fully integrated. We have even also changed the corporate name from the company to Westermo Welotec GmbH . We're ongoing when it comes to Virtual Access, the Irish company. Both entities contribute to the bottom line, and we even state here that Neratec, they shine somewhat. That's nice to see. It's a good organization, and they have performed very well in the quarter, which we are very happy to notice.
Finally, you that follow us, you know that we have been focusing in Westermo on the new segments, power distribution and trackside. We are continuously working with that, and there are products and solutions coming continuously, and more will come later on in the year. Let's go into Beijer Electronics. Here we state significant affected by COVID-19. Beijer Electronics, they had an impact already in the first quarter. We see a further impact also now in Q2. If you look at the order intake, SEK 121 million, the sales SEK 153 million, and an EBIT of minus SEK 2 million for the quarter. For you that remember, you might remember that in Q1, we have relatively high order intake in Beijer Electronics, and there we should be aware that some customers place some orders in the end of Q1 to secure delivery in Q2.
We need to look at orders combined Q1 and Q2 for Beijer Electronics. Looking on the regions, as Per stated earlier, it is U.S. or Americas that we see the highest drop, while EMEA is still down, but not in the level of the Americas, and Asia is basically almost flat. There are big variances in the regions. We have for quite a long time talked about the phase out of the old product families. That has continued during the quarter, but we are getting close and soon we are finalized in that process. When it comes to costs, a big chunk of the restructuring program was implemented in Beijer Electronics. That has been implemented, and we see the effects. With the cost reductions, it's still negative, but it's not dramatic.
I think we were able to adjust in a good way, I would say, in the business entities. Finally, as you might remember, end of last year, we announced the agreement with Otis, the American company, the elevator company. That is ongoing according to plan, and we will start doing regular shipments now as we speak, basically in the month of July. That will then contribute for the second half of this year. Korenix, the small entity, continued impact of COVID-19 also in the quarter, SEK 20 million of order intake, SEK 19 million in sales, and an EBIT of minus SEK 3 million. Korenix experienced a really tough drop already in Q1, and basically Q2 has remained on the similar level.
We do see a higher activity on the customer side in China and Taiwan, but that is not compensating as we have quite some volume from Korenix also going to the Europe market and Americas. We did do also cost reductions here, and we have dampened the loss. Later in the quarter, we have more balance between the sales and the cost situation. We're going in the right direction, but still there is this loss of SEK 3 million. We should be clear that we have maintained a relatively high activity level on the development side, where we have redesigned basically the hardware and the software into a modular approach, and we have started to release some products, and there will be more coming during the rest of 2020. Finally, the cooperation between Beijer Electronics on the sales side with Korenix in the European market.
That has continued, and hopefully, we will see good effects of that going forward. That concludes the total and the business entities, and hand over to you, Per.
Thank you very much. Quick summary. As we said, COVID-19 impact in the quarter has been, you can call it significantly, and we estimate a drop on roughly 20% on sales in the quarter. That is, of course, a big number. Having said that, you can see that Westermo is still on a very okay level, and we can also see that the actions that have been taking in Beijer and Korenix also make it possible to come back to profitable situation quicker than we would have been the situation earlier because of the cost cutdowns and also higher efficiency. It's also there that for Beijer, for instance, we have now, as Joakim mentioned, step by step, we are ready with this change from old products to the new ones.
When it comes to Korenix, when we go out of this year, they also have a very good product portfolio going forward. When, and I'm not saying if, I say when we have a quarter that is with good normal financial situation, I dare to say that then we will have a good profitability also in those units. We don't see this year as a lost year. Perhaps you can see it a lost year when it comes to growth and profitability, but there has been a lot of other things going on at this year and also this last quarter. I would say that the customer activities, as I said before, is one of the most important things that once again, I didn't believe that was possible to have those high customer activity in a situation like this. That's well done by the organization.
If you look a little bit going forward, we state in the report that we don't see short term, and by that, we mean the next couple of months, dramatic changes. We have still COVID-19. Perhaps I should also mention that the oil price situation when it comes to U.S. has some effect. We also see when we get different messages from customers that we foresee that when we're coming out of the summertime, as I said, they have started to say that they would place orders in a better level again. At the moment, I'm quite optimistic when it comes to the end of the year coming into Q4. Once again, we should try to have this level for a couple of months and then start to speed up again end of the year. I hope that will be the situation going forward.
As we say, on the outlook side, we don't want to give more precise statements because of the situation, and I think you can understand why. By that, I want to open up for questions.
Thank you. If you wish to ask a question, please dial 01 on your telephone keypads now to enter the queue. Once your name is announced, you can ask your question. If you find it answered before it's your turn to speak, you can dial 02 to cancel. Once again, that's 01 to ask a question or 02 if you need to cancel. There'll be a brief pause now whilst we register any questions. We've just got one question in the queue so far. That's from the line of Havan Hanna of Redeye. Please go ahead. Your line is open.
Hi, guys. Thank you for the presentation.
If we start with the customer activity, you mentioned that it hasn't changed that much. Is the lower sales numbers and order intake numbers a result of longer sales cycle or more hesitant customers? How should one think about that?
I think you should do it like this, Havan, is that what has happened during the quarter, as everybody know, there has been a lot of companies that have been closed down. A lot of people in our customer side haven't been at work. Even though people have been working from home in a lot of places, there has been lower activities at the customer side, if I generalize over there. Which means that if you're not at work, you don't place orders. Also that a lot of the customer have had lower activities when it comes to manufacturing and things like that. If they take down one-third of an activity, let's say that one month has been closed and two months has been open, then you more or less lose one-third of the business, if you see what I'm after.
Once they are coming back, then, of course, they start to order again. Then you can call it, part of our business is project-based. Of course, what you do then you postpone some of the project, you delay some of the decision points because a lot of people are uncertain. That's what we mean. That's why you see the sales going down in the quarter as such. When you then talk to the different customers and ask them, "Should you close the project?" "No, we will continue the project." Once they are back in the offices and in the factories full time, so to say, then you can see that they start to discuss ordering and things like that. Once again, if you close down things, then business goes down. That's what happens.
I can add also that, for instance, in Beijer Electronics, we have customers that we now have specified us in their designs, but they have not then placed orders yet, given the situation, but we know that we're in. Once the wheel start to turn again, we will be there and we will get orders. Right now we don't see that. What Per was saying, there's still activities. We still work together with the customers, and our engineers are working with our customer's engineers to do the specification. Orders is to come once the wheel start to go again.
I think, Herman, this is the central question. That also if I could elaborate one minute more here.
Yeah
when we're sitting in March, April, I was quite worried that we should be more silent with discussions with customers because, and per customer's been saying, "We wait for the customer with the discussion. Let's postpone the meetings until after this COVID-19 is more in a better situation." That didn't happen. In reality, in a lot of the regions, the number of customer discussions increased, by the way. Of course, they didn't travel, so the sales people could take more calls. The customer side, they really wanted the calls in different ways. That's why I'm a little bit optimistic when it comes to the speed of coming back.
Okay. Yeah, that's clarified a lot. Thank you. As usual, a question on the pipeline, I guess you answered it somewhat. Do you still find it healthy or are you seeing any, let's call it worrying trends?
No, I try to be transparent in these situations, and no. We go through every month with every unit, we look at the total pipeline in the different units, and the pipeline is in a very healthy situation. You can put it this way. We really want the pipeline to go down a little bit because we want the pipeline to be transferred into orders, if you see my point.
We have a very good definition. It's only pipeline if it's quite a possible order. It's not just wish list.
Yeah.
No, the pipeline is still on a quite healthy situation. Yes.
Thank you. I guess one last question about cost reductions. If the situation would get even worse, do you feel you have enough room of further cost reductions to mitigate such a scenario? Have you planned for that already?
Yeah. I shouldn't say of course, but yes, as I said, we have a plan B, plan C, you can call it. What you do is that we have a lot of people from ourselves and downwards that has been into these situations before. What you look into, now we have been taken down. You realize that travel costs and some people we have taken away on the administrative side and some, like a consultant, variable cost, and so on. If this will be worse, then the next step will be to go on. Of course, if we have lower volumes, then it will hit the supply chain, then we will take down on that side. If it could be, if it would get worse, perhaps we then need to take down the ambitions on the development side.
We have to take it step by step. So far, with positive cash flow, with the pipeline as we see, we don't want to do that because we see a lot of opportunities going forward. Yes, if this will be in very nasty and bad, we have more things to do on the cost side. Yes.
Okay. Got it. I guess I have one last one. I'm curious to which extent profitability has been affected by delayed deliveries from subcontractors or any other supply chain issues. Have you seen anything?
Some of that Q1, not so much during Q2.
Okay.
That's not a major issue for us at the moment.
Okay. That's it, guys. Thank you very much, and good luck.
Thank you.
Thank you. Once again, if there are any further questions, please dial zero one on your telephone keypads now. Okay. There are no further questions coming through at this time. I'll hand back to our speakers for the closing comments.
Okay. Thank you very much. I want to thank everybody for calling in, and from us, we really wish you a good summer. A lot of people need a couple of weeks, I think, including us. We will be sure to come back in a very good shape, and we are very focused and make sure that we come back to a good situation. Once again, thank you very much, and enjoy summer. Thank you.
Thank you.