Earnings Call: Q1 2020

Apr 23, 2020

Ladies and gentlemen, welcome to the Tredevo Cuban Reports 2020. Today, I'm pleased to present Peter Nootman, CEO and Orf Berghild, CFO. For the first half of this call, all participants will be in a listen only mode. And afterwards, there will be a question and answer session. Speakers, please begin. Thank you. Peter Nielsen speaking here, welcoming you to this call where we're going to present Our quarter one results for 2020 and then, of course, offer some comments on this and finishing off With the Q and A. And supporting me on this presentation, as usual, is our group CFO, Ulf Bergholt. And we're going to use the presentation, which is uploaded on our homepage. So I guess all of you assume all of you has this in front of you. So quickly moving on to that. Moving on to Page 2, where we see the agenda for the meeting, normal agenda, starting up with some general highlights, then some individual comments on the business areas, and then Ulf We'll guide you through the financials, and then we'll finish up with the summary. And then as I said in the beginning here, also finishing off with a Q and A. So then quickly moving to Page number 3 in the presentation, Heading stable quarter, growing challenges ahead, which is really we see it. I mean, we have a good generally a good development in the quarter. Of course, as everybody else, all other industrial companies, some more troublesome final weeks Of the quarter, but not really hitting us that much in this quarter. Sales finishing up basically flat compared to last year, Then assisted a little bit with exchange rates and assisted with a small structure growth as well, organic, then pushing it down by 5%. EBIT almost on the level of last year, while the annual margin is down by some 0.5 So 13.3 percent EBIT margin in the quarter, excluding extraordinary items, Which was then, let's say, on the level of 46% in the quarter and kept as usual, keeping the overall guideline For the these items affecting comparability, Ulf will get back and comment on that as well. Cash flow, very strong in the quarter. We are Rather satisfied with the management of working capital because, as you note, in the quarter also CapEx is still On a relatively high level, and also Ulrik will guide you later on that, that the guidance for CapEx will dramatically be down for this year as we have In the state, there's some continuous plans also in relation to CapEx, but overall, good cash generation, As I said before, assisted by good working capital management, we have not been growing the inventory in the quarter and basically been More or less under producing in the quarter. And even then, we are managing this relatively good profitability And at the same time, they are delivering a solid cash flow. So cash conversion is actually above 100% now looking at rolling 12. Also to be noted here, this morning also we announced kind of the first divestiture coming out of this business is under development And where we divested the smallest unit in these four businesses we gathered here, where we divested what's called a Baltic Model Component business, which is a business which focusing on Sweden and Estonia. Also from Profit outcome, the divestiture was done slightly, slightly, very slightly above The assumptions we made when we did it write down in the beginning of December last year, so divestment in line with our I'm happy to get some of that executed. We're also guiding here. We'll get back to that, Of course, commenting more on the guidance. I mean, we actually have a fairly good order intake in the quarter, surprisingly good order intake in the quarter, but We don't really believe in that. We believe there will be some order cancellations coming up and also Some other, of course, uncertainty hitting us. So we won't say that we see a considerable negative impact here going into this running quarter, While still also with this send alone, that uncertainty, of course, is high. You can get back and comment a little bit more on that later When we talk a little bit more focused on the guidance. Talking or moving over to Page 4, Looking at organic sales development geography, then we can see that Western Europe is the one which has been down much for us, actually Slightly more down there compared to Asia and other markets, even though, of course, like everybody else, we've been hurt, especially in China, while with Negative organic growth, while rest of Asia and other markets has been slightly compensating for that. So Western Europe and Asia and other markets down by some 9%, 10%. And then we have North America home by half of that, minus 5%, while we have a slight growth then in what we call other Europe, which we are tracking Individually within Trelleborg and then South and other Americas actually up a little bit, but that is unfortunately for us a very small, small Part of total sales, but nevertheless, a positive development. So this is the and I should say this is Valid for the core businesses that we report here. If you're looking then at the business under development, then we have actually So growth organic growth in the quarter, but that is driven solely by the Continued positive development in our oil and gas business. Moving on to Page 4, net agenda page, business areas. Quickly turning to Page 6. Telefonica Industrial Solutions, which has been a little bit negative in the quarter, By COVID-nineteen and also with some strikes hitting us in Turkey and France in the quarter, Which is then impacting both sales and also partly the profitability. Overall, Rather negative sales in most market segments, nothing really sticking out, a slight negative development all over. We see Europe and Asia down, and we say North America. And overall then the results are hit By the softer markets and the strikes, so that is a little bit below in Say below expectations in certain areas, but it's also explainable, and we're, of course, working on all the issues To try to correct it there as we move forward. Turning to Page 7. We had Very well. Organic sales down by 3%, supplemented, and a little bit by structural growth coming from an acquisition that we did A short year ago, organic trend is downward in most regions. Here, we see a heavy impact in Asia, While the rest of the as you can see from the whole figures, the rest of geographies is actually slightly better even though in negative territory. General Industry and Automotive, weaker in most regions. Even though we say automotive, it's a bit strange development in quarter actually started very well in the Drew, we're with some sales to some specific Tier 3 and Tier 2s where we are a little bit Surprised about that. Of course, happy to deliver, happy to sell, but it's not development, which is not really in line with underlying development at the end of the quarter, Turned a little bit more as we expected it to be. Aerospace Also continued very strong actually in the beginning of the quarter, but turned down here also at the end of the quarter. We expect a tougher development going forward. A slight downturn in EBIT and margin, but also on that, we, of course, been watching a little starting to adapt also from a cash And that is also kind of a little bit slight underproduction in certain areas to be able to deliver good cash flow on top of these good results as we see here in Sealing Solutions. Going over to then Page 8, drillable wheel systems Having sluggish market and temporary shutdowns, it's been a tough market environment. Organic sales down by 12%, And we see organic sales going down all areas. But behind this and also on top of that, especially at the end of the quarters, We have some dramatic shutdowns on the major OE customers here. We stopped buying here In March, when I get back and comment on that, it's also creating some uncertainty going forward on when they will start again and how quickly they will Start, but nevertheless hurting the sales here by the end of the quarter. Continued focus on cash flow in this area as well. So even though with this dramatic drop in Sales, we say the inventory levels has been well managed, and we also here continue to deliver a good cash flow And a good balancing between sales and manufacturing volumes. EBITDA margin, slightly down, but of course, well managed, I must say as well here, well managed in terms of Adapting to this new reality, we should hide as well. I mean, the last few quarters, we've been kind of complaining a little bit about the negative mix, but we also should say here in this quarter, have a positive mix in the way that we have been going down more than aftermarket, and that is pushing us into a more negative A little more positive mix this time compared to the last few quarters where we have had the OE growing more than aftermarket. So that is helping us here To keep the margin up on a good level because, I mean, if you have a negative organic by 12%, I think it's good to have a less than a percentage drop in the EBIT margin. Page 9. The other business is under development. Organic sales, plus 10%, driven by a strong Continued organic growth in offshore oil and gas, which is then also, of course, assisting us in terms of profit also. Also, the other areas where we've been, I should say, struggling more on volumes has also been Fairly well managed and a good cost control here is pushing the overall profitability up here and with, That's to say, turning in from basically 0 profitability a year ago, up to 7% EBIT, which is, of course, a good development. Of course, we have in note as well, even though we have good order book and good, what we call, orders to be placed Portfolio in the oil and gas, we, of course, are not at all neglecting the recent oil price development, and we need to See here in the next few months exactly what kind of impact that will have in the business. It will, of course, have a negative impact, But also we note that most of our sales in oil and gas is actually very late cyclical into the Into the oil and gas sector. So we actually have to watch here carefully what's going to happen in the next few months and the next few quarters. Also here, as I already commented on, we divested this smallest business within Business Development in the quarter and happy to be able to Thank you. And to leave that business, which we think is more a good business, but it's a local regional business, which doesn't really fit With our strategy and also the divestment already commented as well was in line with our expectations when we Value this business in the beginning of December last year. So happy to execute that and to get that development going. Turning to Page 10, agenda, financials, and then leaving Page 11, Huld, please. Okay. Thank you, Peter. So on my first slide, Page 11, sales developments. You can see that organic growth in the quarter was negative 5%, impacted And by the decline in demand in the wake of the COVID-nineteen, especially in March, excluding Business Under Development, organic growth was negative 7% And Business Underdevelopment reported plus 10%. The impact from currency translation was plus 2%. Next slide, Page 12, describes the historical performance of our organic growth. As you can see on the graph, COVID-nineteen broke a long positive sales trend. On Slide 13, you will find the reported sales development per quarter as well as rolling 12 months. Slide 14 presents our EBIT development. Our EBIT reached SEK 1,235,000,000 in the quarter and was positively impacted by Currency translation over SEK 36,000,000 EBIT development was positively impacted by Business Summit Development and especially then Oil and Gas. Slide 15 percent EBIT and margin on a rolling 12 month basis. On a rolling 12 month basis, we are currently at 12.6% EBIT margin. The next slide presents the profit and loss statement for the total group. Items affecting comparability consist of Production costs and has been in line with our annual guideline. Financial net has been impacted by positive exchange rate differences of the SEK 66 1,000,000 compared with q1 2019. The quarter was charged with the nonrecurring costs in the tax charges related to dividends from subsidiaries due to additional withholding tax. These internal dividends would strengthen our central liquidity since these funds were previously in bank The tax rate for the quarter for the group, excluding items affecting comparability, amounted 26% compared with 25% a year ago. Slide 17, percent earnings per share. Adjustable comparability items, which was down by 1% to SEK 3.21. Slide 18 describes the development of our operating cash flow. The operating cash flow was positively impacted by lower working capital. The group initiated an extended review of working capital with extra focus on accounts receivable and inventory. The inventory was in line with the level at year end and lower Compared with Q1 2019, overdue accounts receivable declined compared with the level at the year end. Quarter 1 is from a seasonal aspect, a strong quarter and would normally demand a higher working capital need. The operations have handled the working capital and cash Very well. The investment level was somewhat higher during the quarter compared with the year earlier period, But the full year outcome is expected to be significantly lower compared to 2019, and we now expect the CapEx to reach approximately SEK 1,200,000,000 for the full year. During the quarter, property was divested with a cash effect of approximately SEK 100,000,000 with only a minor impact on earnings. The cash conversion ratio for the most recent 12 months period was 102%. Slide 19 presents rolling 12 months operating cash flow. Slide 20 shows the net debt movements. As you can see, the weakening of the Swedish krona has impacted the net debt negatively by SEK 1,100,000,000. Slide 21 Shows the net debt to EBITDA ratio and the net gearing development. Slide 22 describes the return on equity where the long term target 12%, including items affecting comparability. The action outcome in the quarter is minus 0.7% compared with 10.5% a year ago And then impacted by the impairment of working capital in business under development in quarter 4 2019. And then finally, on Page 23, going through then the guidelines for the full year. As I said, then CapEx, SEK 1,200,000,000. Previously, we had a stand between €1,600,000,000 €1,800,000,000 The restructuring costs that we received right now, that's about €300,000,000 Underlying tax rate is 25% and then amortization of intangible assets, about SEK 400,000,000. So that concludes the financials. So Peter? Yes. Page 24 then. Quickly, agenda, turning over to summary And some comments and outlooks, Page 25. As I said, sales down by 1% on top line, organic sales down by 5% and Thereby supported a little bit by structural growth and with some currency and then ending up with this minus 1%. Margin in the quarter, down 0.5 Percentage points compared to a year ago. Rates affecting comparability in line with the guidance. Cash flow is strong, as Ulf presented, with a good development of working capital in the quarter, leading to good cash conversion above 100 For the last 12 months and then also divestiture of this moulded components business for Sweden and Estonia Also executed actually today. And then also certainly on the guidance going forward, we'll comment on that when I get to that page. Going forward here, the priorities, of course, is to manage the market conditions now in the wake of this corona development. We have been Working hard on this, of course, in Trelloborg since some time now, and we have multiple of actions ongoing and working with all kind of tools, Which, of course, I mean, all of these contingencies working, of course, safety measures for our employees and making sure that we manage The spreading of the virus in the best possible way, high focus on that. Then from an operational point of view, of course, also we're working in basically two dimensions, we're working with the cost and with the cash And then, of course, also managing the customers. And we have a multiple of actions ongoing, and of course, using all kind of measures, which is possible. And then finally, also in this COVID-nineteen, of course, which you commented there already a few weeks ago, we're working also with the financing and cash management to making sure That we have a solid and wide gap and making sure that we actually have all the liquidity Which we want, but we feel confident that this will be the case going forward. Of course, we continue as well to work with the business under development. Of course, the environment At the moment, this is a little bit more tricky that we started with this activity with this focused activity a few months ago, but nevertheless, this Continuing, and we're continuing to focus on these businesses, which we have in this extra business area. Over that, I mean, otherwise, we continue, of course, operationally to work with our portfolio, continue to work on our excellence programs and of course, continue to invest also in innovation, and we still have also some integration ongoing in acquisitions. Even though acquisitions is not Hi. On the agenda, exactly at the moment, we continue to monitor because we still have a long list of interesting targets for us that we, of course, are watching carefully now and Trying to see what happens with them. Turning to Page 27. Outlook, As I said, significantly lower in the Q1 sorry, I should say significantly lower in the running Compared to the Q1, I would say that this is a little bit difficult. I mean, actually, our order intake in this quarter has actually been fairly good And we're basically in line with the sales, but we don't really believe in this order book at the moment. We believe it's going to go down, and we don't Feel that the order book at the moment is the best guidance for sales expectations for the running quarter. And that is why we decided to have this guidance. And also on top of this, of course, wheel systems, which is probably the ones which is Heavily impacted short term. We're at trust. You know that some of the OEs has been have basically a full shutdown here throughout April. And bigger ones here has announced they're going to open again next week, and that is, of course, creating some uncertainty whether that actually will be up and running next week. We know that Akko and Jondir especially has been out in guiding that their order book is actually quite healthy, but they have been Difficult for them to run as they use some kind of the same component supplier as for the automotive industry. So as the automotive industry starts to gear up And the heavy truck industry, they also would like to go up and running, but that is basically the uncertainty. So if you say For Industrial Solutions and Sealing Solutions, it actually looks quite okay. And if we believe in the order book, is it going to be a very good quarter? But we don't really Believe in that one. So we are planning a little bit, planning for the worst and hoping for the best. So our guidance here to put about some figures is, of course, that We insist this probably will be down slightly more than 20, while the others will be down slightly less than 20. But it's really Given with the high uncertainty, we don't really know what's going to happen. We are looking at it Daily more or less and then, of course, trying to adjust and make sure that we are preparing in the best way we can. So that is the comment on that. And then moving to Page 28 and then quickly to Page 29 and opening up for some questions. Hello. Operator? And the first question comes from Erik Gollrang from SEB. Please go ahead. Your line is now open. The client seems to have disconnected. So I'll go to Hampus Ingel Thank you very much. Three questions for me. I think you Touched upon this, Peter, on a last statement here on the outlook, but very impressive margin development in With systems during the quarter. But my question is more if you could maybe talk a little bit about cost savings and how to think about that. I guess you shouldn't expect a similar drop from if we would have like a 20% drop in sales year on year. That's my first question. The second question Yes. On offshore oil and gas, if you could maybe remind us on how much is Same to that. How much is U. S. Exposure and how to think about these lead times given that we should have probably on this level, 3 storms full stop at many of these entities. And then maybe more last, on your guidance on this SEK 300,000,000 restructuring cost, If you could maybe back out a little bit on what these components persist on, how much is like Temporary cost pressures and how it should be more like more permanent savings. On wheel systems, it's a mix change with the driving it. And on top of that, as you say, you also because we also need to be aware that some of this Investments that we've been doing in the last U. S. Is actually now kicking in as well. I mean now we have our Serbian factory fully up and running, and we See the more efficient to manufacture in Serbia than in Czech Republic and Italy. So this is the margin here is a combination of good Cost management, better efficiency and the marginal mix development. So that is a combination of everything. And I must say, Looking at the figures internally, they've been doing good in all aspects here in the quarter. Mix is better. They've been able to manage pricing in a good way. And on top of that also, actually, the transformation cost is also in a good level. So that is good development. And I mean, of course. I mean, we need to see internally also the team within wheel systems have been working hard here to get this, and he's happy to see for us, Ulf, myself and others here to see that actually the hard efforts is paying off a little bit in this quarter. Of course, as you say, if we then depending on how The agricultural, we will restart here in the quarter. There is a huge, huge there's the uncertainty About the volume drop in this quarter, we know that we lost basically 1 month already here on the OE Manufacturing, and we will continue to watch also in wheel systems the inventory levels. We will not overproduce In a way, so of course, we're entering into a challenging quarter, but we also expect underlying market of agriculture especially It's actually quite good, and it's not really impacted overall by this kind of drop in the industrial demand that we see, of course, now also in U. S, The U. S. Government is starting to offer some kind of support for the farmers in U. S, and we don't know what's going to happen in Europe. So overall, we don't feel Too concerned about the agricultural market if we look beyond the current quarter, but the current quarter, of course, is going to be hit by these shutdowns So I don't know if that's enough on that, Hampersson. Yes. And then oil and gas, I mean, we have virtually no exposure to shale gas. I mean, very, very limited to shale gas. We are not really hurt by this Dramatic drop in oil price seen in the last few days, but our exposure is mainly to offshore. And once again, I mean, as I mentioned before, we are very late cyclical in some projects. We actually got a very big order yesterday here for delivery in Q4, Well, I've already spent $1,000,000,000 on a project, and then I need to buy our products to get them running. So we don't expect kind of a full stop On our oil and gas activity at the moment, since we are not really we are more into capital equipment and we are also late cyclical into So the order book still looks healthy, and we've still been building order book also in the last few days. So but Of course, with that said, we fully understand that we'll have an impact, and we need to look carefully here, of course, about these running projects. So we don't really We have to watch it, but maybe not for the next quarter or 2. So that is really the way we look at that oil and gas. And we've got the restructuring. There is virtually no immediate measures in that. I mean the immediate measures is more using this or kind of furloughs And these temporary factory closures and all of that, where there is a lot of, I should say, governmental support to get that. So among these is still Vast majority, if not everything, is linked to kind of structural improvements and shifting factors and shifting volumes, Moving sales offices and so on. But that is really this €300,000,000 is coming for that. Thank you very much. Our next question comes from the line of Erik Golang from SEB. Please go ahead. Your line is now open. Thank you. I have three questions. The first one is on the Commentary you provided on organic growth there for the different divisions for Q2, more than 20 down for wheel and a bit less for the others. Is that basically a reflection of what you where you were late in Q1? Or is there some built in expectations of a deterioration in there? The deterioration is in wind systems, where we don't once again, where we're impacted by these factory closures in the other ones. And I mean, To be honest, if we should be if we should believe in the order intake here in March, it will be better both in Industrial Solutions in sealing solutions. So that is kind of a little bit we are looking back to what happened in 2,008, 2009, and we know that When the order book cancellation starts to happen, they're going to go down. But if we simply did a normal kind of The estimation that we usually go, it will be better, but we don't really believe in that. So we believe it's going to go down more than that. And then the uncertainty, There is an uncertainty in the wheel systems because if it's true, like, of course, we don't mistrust our customers, but There is pushing that they have good order books, but then they need to restart it, they need to start to buy. And of course, they are still have to be up and running. So that is With some uncertainty in both areas, Erik. So sorry, I mean, we're working on it daily, and we're trying to figure. But Once again, I'm going to say if we firmly believe in our order books, it will be better than this. But we don't really believe in order books at the moment. Okay. And then the second question is on Aerospace specifically. You said it deteriorated quite a bit Towards the end of the quarter, what are you seeing there now in terms of order trends and call offs and comments from your major customers? They're going down, of course, in a huge uncertainty. I mean, we know that Spirit Aerospace in U. S. Has been basically stopping operations, and they are the main At the same time, Boeing is commenting when they're going to start 737 again, Airbus is down. So It's really difficult, Derek, to give you guidance. We expect it going to down by 2 digit organically here in Q2. But We also in that area, it's really the visibility is very it's not that bad in April, to be honest. We don't look that bad in April. But of course, I've been Thinking that we're going to go down in May June. So that is something we also have to watch carefully. But Q1 in total was quite okay. Actually positive growth, to be honest. But you're not down, David, it's in April so far on Aerospace No, no, no, not at all. No. Okay. And then the final question is on the strategic review and the With the asset sale you announced this morning, but then you also said that obviously part of this process is more difficult in the current environment. I guess two questions to that. Are you revising your price expectations lower in the event that you want to sell some of these assets? And secondly, Would you say that there is a higher likelihood that some of these assets will remain in the group now compared to previously? No. I mean, it's no change. I mean, we're going to expect price expectations are not down. We are working on them. We have announced already from the beginning, going to take up to 24 months, and the time plan is actually the same. I mean, we're working with some legal. We work on some of these businesses. We're also separating them from the business. We're doing some reorganization. So we are not kind of changing our overall game plan for time being. I mean we were not really planning in the beginning for any of the other units to be Kind of solved already because all of them is in a repositioning, and some of them is also with the possibility of improving and then might Get back into the ordinary business also going forward. So we are still we have not changed in any way the direction or the we still have Catered resources for us, we still were appointed bankers where that is kind of in our plan and all of that. So nothing has changed. Of course, we need to watch and we need to make sure that the market looks I mean, as you say, the printing business, if you say that the printing has got a very little impact From this one, I mean, since that is more consumer packaging and newspapers and all of that, so they have a very limited impact From this recent happening in oil and gas is still moving kind of in a positive territory, and we need to watch and see on that one. And then, of course, the other one, the Tech operation has been heavily impacted by because there is a lot of automotive in that, and that has been heavily impacted. But on the same time, we were in a downsizing And we have almost cut the number of people in that operation by some 20%. So that is kind of in execution mode. So we are still running These businesses in a very operational way and to get them ready to be independent or potentially then get back. But I mean no change in direction at all for the time being. Our next question comes from the line of Douglas Lindahl. Please go ahead. Your line is now open. Hello, gentlemen. I hope you can hear me. Peter, just a clarification question there on one of the questions you got previously. Did I get you right that you don't Any big negative shifts for your Oil and Gas business over the coming few months sort of indicating that we should continue to see organic growth in business under development in Q2 at least. You don't really seem to expect the same degree of order cancellation for this business specifically. Is that true? No, we cannot see that. I mean, as you say, I mean, we've been losing a little bit on the growth profile because all these site jobs is difficult. But we are expecting still positive growth, solid property solid organic growth in that one. But Of course, it's going to be negative impact, especially with the site jobs. So that is more the site jobs will happen eventually because they need to happen. But I mean, at the moment, with these Quarantines and all of that is difficult. So that they are not disappearing, but they are simply being pushed ahead. But that's a minor part of the totality. The 5 jobs is a minor part? Yes, yes. Yes, okay. And a question on your revised CapEx number here. Can you give some examples of what sort of investments You're skipping and what investments you're prioritizing. Yes, we are pushing all main we normally say that the running We have a depreciation base about SEK 1,100,000,000, and that is what we also say that there's no reason of kind of cutting In a normal day, so that is the maintenance CapEx. And then of course, we've been quite drastic on those maintenance CapEx. And then on the strategic ones, then on top of the SEK 1,100,000,000, we have then scrutinized each one individually. And then some of them, We are put down into a lower mode and then try to push it forward. So most of the strategic CapEx is there only pushed forward While the maintenance then that we've been more harsh on that. So we have implemented very harsh approval steps In all, 4 CapEx. Okay. And But the basically main parts. Okay. And Nulf, on that the divestment which was announced this morning is that the CHF 112,000,000 in cash flow sold noncurrent assets. No, they are not part of this one because that happens now in Q2. Oh, sorry, of course. So that was included in so the only disposal, that was the building that we had in Germany that we sold now in quarter 1. Okay. The impact from this one will come in Q2. Thank you. Our next question comes from the line of Klas Bergelind from Citi. Please go ahead. Your line is now open. Yes. Hi, Peter Nulff. It's Klas from Citi. I hope you're both well. First on Sealing Solutions and reflecting back how This business has changed since the financial crisis. Obviously, total automotive is much lower today for Trello Moore, but I guess there are other changes as well, of course. When others like Industrial Solutions get a bit hit from channel destocking, I think Filling Solutions compared to 'eight and 'nine can perhaps Let's do a bit better. And the way I think about this, Peter, is you no longer sell old seals on the planet and so big distribution. It's more Digital today and more customized. Would you say that ceiling from that point of view, if we compare with the financial crisis, we see less of an impact from Channel D. Stocking. That is our intention. I mean, if we go back to this financial crisis, then of course, we had some 20% or something, 20% plus, 25% maybe through distributors, and now that is going to down to 5%. So of course, we don't have this kind of destocking on the distributor wholesaler level, But we still have some impact, of course, as we're talking at the manufacturers or at the assembly lines. But it will not be on the same Dimension, as we saw the last time. And then, of course, also the mix is different. Now we have a fairly sizable share of medical And health care, which we didn't have, we had nothing of that some 10 years, which is now approaching some about 10% Ulf, I guess. So you're going about 10% of sales. So we have definitely a more stable, but there will be some destocking or restocking But it will be substantially less compared to when you're more exposed to these kind of wholesalers and distributors. That's good. Sailing Solutions, it's a better business. I just want to confirm that. That's good. Then on my second one is On the margin there in wheel systems, during the March update call, I think you said that destocking in wheels Had been a drag for you for 2 quarters at least before. I mean, you will likely destock again given that you have these massive shutdowns looking at OEMs. But Did you start to be starting in wheels? And how much did that boost the margin in the Q1? Well, I mean, we manufactured more than we did in Q4, But we still manufactured in line with the sales. Of course, it's still kind of a negative impact. But if you look overall, I mean, it's a negative impact. We've still been cutting it with some 10%, 15% on the manufacturing capacity. And of course, as you said, we need to so we're planning On some factory closures here and to close for a week in a few factories to make sure that we adapt for this Downturn that we've seen here for mid March and running at the moment. So it will there will be Some impact, but on the same time, the positives that we have here is the mix improvement. And on top of that, also more Benefits really from this from this, let's say, investments and reorganizations that we're doing in shifting volumes between The various factories. I mean, we've been struggling a little bit to say on the Serbian. We did a major investment in Serbia, and we moved Production to Serbia both from Italy and Czech Republic, but that has now been running actually very efficient in this quarter. That is a beneficial It's benefiting us in the especially on the transformation costs. So there is benefits from Better operations and mix, and then it's a negative still on fairly low manufacturing levels. Yes, because we produce against Demand, so I'd say, we don't have a destocking, but if we don't have the demand, then we will not produce. So we are not seeing Yes. But the year over year in the bridge, it's less of a drag. Otherwise, that is what I understood it, At least from the March update call, but maybe I misunderstood it then. No, no, no. But it's correct. It's more in line. We don't have under production as we had in Q4, I think still a negative drag because we are manufacturing less than a year ago. Yes, makes sense. Cool. My very quick final one is, Did you say how much the strike impact was on sales and margin bearing Industrial Solutions? No, we don't really want to comment on that. That It's a combination of a few different stuff, but it's not the only explanation. I should say, I'm also having a little bit because also we say Industrial Solutions, why that is impacted, then we are back Because they still have some of these wholesale or distribution sales where they've been probably been pushed down a little bit more than the market in the quarter, and that has been Our next question comes from the line of Agneshwar Villalha from Nordea Markets. I have a couple of questions. You have seen already 3 weeks of your sales in April. And I wonder if you could give us some color on the development for different divisions. How was it for Wheels, Sealing and Industrial Solutions so far in April. I don't want to give any kind of details on that. But wheels has been, of course, impacted By disclosures on our we that we already comment on, I mean, as you know, the factories of Aco and the factories of Yandere and the factories of CNH has basically been closed. So of course, that has been hurting us more. So we are down more in wheels here in the 1st few weeks, down more than we see in the Q1, while the other two businesses actually tagging along basically in line We have what we've seen slightly more negative in the 1st few weeks compared to what we have seen throughout Q1, but I mean, but we expect it to be tough for both for Industrial Solutions and for Sealing Solutions here in the next 2 months. So that is a little bit roughly and also very frankly and openly about the way it is at the moment. Yes. Perfect. And then my last question is actually on the kind of your cost savings measures that you're taking. Usually, you take the restructuring costs of about €200,000,000 to €300,000,000 per year anyway As a kind of pruning of the business way. So my question really is why aren't you kind of Taking the opportunity to cut costs even more in that in this downturn, is it so that you expect the demand To come back, other than Q3? Or how should we think about it? Now also, when we look at this restructuring, a lot of the restructuring That we have been taking losses coming actually from acquisitions as well. We're integrating acquisitions. And while integrating acquisitions, we need to take some cost. And we see the Acquisition related restructurings will be less, and of course, we will put in some more actions on other restructurings. But I mean, this Structuring is a very short payback with some of these downsizing hats. We don't take it as restructuring. That is really a structural improvement. And we need we are, of course, looking at it, as you understand at the moment. Can we do more? Is there anything that we should change more? At the moment, The guidance is still this roughly EUR 300,000,000, but we need to look at it and we need to review it. And with That said and done, it's not for sure it's going to go up. But there is of course, if we find something, we will announce it. But at the moment, we're running it And we are managing these downsizing and cost adaptions without having to add any more to this €300,000,000 guidance. Okay. And then how much savings do you expect from this EUR 300,000,000 in restructuring costs? We don't know Norman's comment, but the only thing I we normally said is it is a good payoff. And then part of us, as Peter said also then due to that we when Coming from acquisitions that we in order to realize or to get synergies, then you need to pay for it. So in most cases, it is a good payoff, but we don't comment But I mean, the majority of the savings in this cost saving is not going to come from that. That is normal downsizing when we do some furloughs Temporary factory closures and stuff like that. And that is not ending up in this house. This is really structural changes And not kind of ordinary downsizing when we are releasing people. Yes. And then lastly, also on the savings. Are you benefiting from any government's help when you put people on short and weak and layoffs? It wasn't that visible when I look at your administrative expenses, for example, in the quarter, selling expenses, but maybe it will come more into 2, is it how we should think about it? And how Yes. I mean, that's the thing. But it's been a no, I don't know. I mean, it's not going to be a major amount. Of course, we're using the there could be, I don't know, what you want to say, SEK 100,000,000 or whatever, but it's not really the majority is not coming From that, and I mean all of that has not only been announced there in March, some of them, but it's Kicking in, I think we got the 1st payout now, wasn't it, I mean, in the next in this week. So that is coming in Sweden. And then, of course, we are It varies also throughout different countries on how you're supported and all of that, but I don't think we're going to report that in any way. That is kind of a normal operational Cost is going to probably the majority of it, you're not going to see an administration cost. The majority of that is coming into the transformation cost, and it's At his thing on the gross profit and cost of goods sold because that is where the majority of this cost is coming. Yes. Okay. Perfect. Thank you. Question comes from Robert Davies from Morgan Stanley. Please go ahead. Your line is now open. Yes. Thanks for taking my question. Just a couple. One was just to sort of Stepping back, big picture kind of view of the world, I guess. What are you sort of thinking from a growth trajectory through the rest of the year? I know you obviously mentioned that you're A sharp drop off in 2Q. But are you expecting sort of a sharp snapback in 3Q and then continued momentum? Are you expecting a sort of fade into the end of the year given Some of the employment figures we've seen globally. I'd just be kind of interested to see what you're sort of modeling from a sort of top down perspective in terms of what the data you're seeing at the moment. It's a simple question. I mean, what do you think yourself? But I mean, it's really what we are planning for at the moment is a Dramatic drop in Q2, and we expect that to continue into Q3. While a slight improvement probably on wheel systems in Q3, that is what We're looking for and then exactly what is then happening in Q4, we are not really speculating too much on that. We need to watch and see what is happening and then make sure that we adapt to the demand level in Q2 and then also in Q3 and then make sure that we kind of not that we are able to manage an upturn. But we don't expect We're not planning for any kind of dramatic upturn. We are planning to be able to adapt in both directions, so to So we are not really too much focused on what is going to happen in Q4. I mean, we're looking at Q2, And then we expect Q3 then coming up to vacations and all of that also to be relatively soft. Because it's kind of based on when we also look at then The reaction from the financial crisis in 2008, 2009, 2009, based on that one, it's like Peter said, in Q2 and then Q3 that you will have 2 quarters, which will be Kind of a more down. And then let's see how Q4 develops, but based on how things were being back in 'eight, 'nine. And we feel, I mean, right or wrong, we feel we are fairly quick on the actions here, and we see a few customers, which is, I shouldn't say overbuying, but I mean, maybe overbuying a little bit, a little bit slower in Adapt June, and then they will find out. And that is what we Believe also Q3 will be impacted. And of course, to bring down inventory levels in Q3, especially for a European company, will be quite easy by extending holidays and And the vacations, we expect that's going to hit us in Q3 as well. While the joker here or the difficulty for us is actually on agriculture Because we know that the agricultural market is not really dependent on this overall Industrial demand, and we expect this sharp downturn that we see in Q3 to be bouncing back a little bit in Q3. But Once again, we need to look at that, but that is, once again, to be transparent and tell about the way we look at it. Okay. Thank you. And then the other one I had was just really around your flexibility or cost footprint. Can you just give us some sense of what proportion of your Employee basis on flexible contracts, how many that you either have sort of pulled back from using or planning to sort of pulled back in using in 2,000 In the Q2, just to get a sense of the flexibility of the business model and the cost base. By the way, we look at it Robert at the moment. I mean, okay, Now with these governmental measures and all these actions and going in, I mean, we feel that the vast majority of our core space is actually flexible. But of course, to because but that is based on that we get furloughs and we get support and we get this kind of action. So we don't feel Limited by that, if I may say, Ulf. I mean, at the moment, it is more to make sure that we make the right assumptions and that we Get the actions going as quickly as possible because it is really quite generous support in a few countries where you can Great is flexibility. Our big base, of course, is U. S. And China. And then, I mean, the more difficult ones Historically, which is France and Italy and all of that. But there, you have more kind of generals or more Support from the government, which is creating more flexibility than we actually than we had in 2,008, 2009. So that is kind of more Offering more options and offering more support than we had 10 years ago. Thank you. And then just to finish off my final one is just really around your current footprint. Has the downturn sort of pushed you into maybe having a second thought about any of your Factors or locations or consolidating of any of those sort of production centers when you look at the sort of downturn? Is it maybe sort of Of course, I mean, of course, because this is creating opportunity, of course, to do downsizing. And when we do this downsizing, it's not necessary That we're going to build up in the same pattern when the demand is coming back. So of course, it's offering opportunities To do some changes, which we probably would have taken longer to do, but that is dependent on the bounce back. But for sure, It's offering some opportunities, and we already have that on our actual list in a few areas. Okay, great. Thank you. Thanks very much. Thank you. Our next question comes from Walter Schwartz from Commerzbank. Please go ahead. Your line is now open. Hi. Good morning, Peter Nulkin. Yes, three questions. First of all, maybe on your working capital, do you see there more opportunities to optimize it further into Q2 and Q3? Or have you Gone already most of the optimization opportunities at the end of Q1. Well, we're saying that the message is more cash is king and that We don't produce against stock. So it's more than to try to adopt the production after the real demand. So it's not so it's better to bite the bullet than to run the factory more dry, I would say, than to produce against stock. So it's really then to I have a good feeling on the real demand. From a stock level like that, I think I'm really proud of The guys took us, they were really, really good in the quarter of bringing down the stock. So we have a high focus on the stock and also then that comes And making sure that we don't run into having too much overdues. And as we mentioned in the report, we don't have actually the overdues It went down, so it's more kind of a harsh judgment from the business and making sure that our customers will pay. Historically, we know the receivables before the sales. So we were fairly generally, we had fairly good customers, solid payers as If you look at the total of our footprint, but so that is something. So we need to watch the stock and then we make sure that we don't have overuse and then it will follow. So that is really the watch. Okay. Maybe also a question on aerospace, particularly given that there is A very deep cry from the airline industry of Fort Worth Civil Aviation in total. How much of your aerospace sales It's OE related, if you and how much is based on the current operating feature? Just to get an idea of how much you lose if We say, for example, new aircraft sales will decline by 50% for the next year. The majority of the sales is a wheel, like more or less everything in aerospace. But we need to watch that. We don't know exactly at the moment. We still know, as you also know, that Airbus and Boeing had solid order books, but then we need to watch and see What is happening with the cancellations and some of the customers will probably go away. So but we also have to say that this is kind of 10%, 15% of sealing is even less than that on industrial. So it's not a huge exposure for us, and we will have other It's compensating for that. So we are watching it and we are adapting. We don't feel too concerned about it, be honest, of course, we would like to sell and we would like to have customers, but we feel that we have good control over potential. And whether that will be a 50% drop or a 20 Central, but 30% drop. Let's wait and see. Okay. And And maybe final question on your product portfolio. Do you now see or look at certain offerings and considering canceling them earlier, decommissioning part of your offering. Sorry, I didn't understand that multiple Yes. I mean, this decommissioned some of your products and now look take a particularly look at some further cuts even in the core businesses Or do you want to continue? No. I mean, we don't have any like that on our agenda. I mean, the ones refer to the other one. It might be some Factory consolidations are something which we have not looked at before, but it's not going to be a big it's not a big issue for us. Okay, great. Thank you. And our next question comes from Eric Wilson from Vertical Securities. Please go ahead. Your line is now open. Yes. Hi, Peter and Ove. Just a quick follow-up regarding your Look, significantly lower. Can you just put some numbers on that compared to, for instance, lower outlook? Now we only say that when we have lower before, we talk about the individual percent. Here, we talk about Something, let's say, 20% plusminus. And like I said before, it's really difficult to judge. I mean, if you look at our order books, it will We are not better than that, but we don't expect that to say. So we simply wanted to guide to make sure that it's not interpreted That is, let's say, 2% down or 3% down or even 5% down. It's going to be more than 5%, but it's going to be less than 25%. I mean, that is really Well, what we have at the moment, and I mean, once again, April showing slightly better than that, but we Expect it to be tougher as the quarter develops. So it's really a lot of uncertainty on that. So they significantly were simply there to make sure That nobody interpreted us as a down by 3% or 5%. All right. Great. The call. We don't really know. I mean, to be very open on that one. We are watching it daily, and we're watching the order intake daily. And April so far has started slightly better than this one, but we expect it to be a very rough ride here in the up until end of the quarter. Understood. Thank you. Thank you. And as there appear to be no further questions, I return the conference. Okay. Thanks a lot, and Thanks for the interest. And as usual, Wilf and myself and especially Christophe is fully available for any follow-up questions and Hope to speak to you soon. Take care, and yes, speak to you soon. Thank you.