Ladies and gentlemen, thank you for standing by and welcome to presentation Q2 report 2020. I would now like to hand the conference over to your speaker today, Thomas Widstrand. Please go ahead, sir.
Thank you. Very happy to be with you again. Thanks for joining in. I will talk about, obviously, the Troax Group second quarter, and as a basis for this, I have, as usual, for those who are following what we normally present, we have the report that you can find in our webpage. If you find the script for investors, we have the reports, and then we have second quarter. You will be able to follow what I say without exactly following this format. For those who wants to follow, you can find more or less what I say as a summary on the webpage under Investors and then Reports, Second Quarter Presentation. If I then start by introducing Troax, I do that very briefly because I think most of you have a certain understanding of what Troax is.
The first page shows, of course, then our mesh panel, our fantastic mesh panel, that are aimed and created and a lot of safety for people who are working in this kind of environment. We continue to show you a little bit of public relationship and saying that we try to do a lot of safety in every aspect. Then I come to the first introductory picture on our three different segments that we are working with. The first one is machine guarding, and as the name implies and as the picture shows, it is actually then perimeter guarding around some movable objects that need to be protected, or rather, the persons need to be protected from this. This is our biggest segment. We talk about 60%-65% of our turnover based on 2019. The second biggest is called warehouse partitioning. It's 24%.
As you can see from the picture and also probably from the name, we're talking there about also installing, selling solutions for warehouses either to protect people from objects falling down from the pallet themselves, or to protect people who are working with picking and packing, of course, also from loose objects, but also from the forklift trucks that could be manual or automatic and going around in different places on the floor. The third and the smallest one, but still very important for us is property protection. As the name implies, it's not really protection that are used to protect people, it's more than for protecting property.
These are mainly aimed for multi-story houses where you're in the cellar, typically, you have cages where you can store skis or bicycles or whatever you want to store, so to speak with you, which you don't use at this very moment. This is approximately 14% of our turnover. Part of what we sell in machine guarding and also part of what we sell in the warehouse part is a combination that we call internally for automated warehouse. It's quite interesting because this part is growing substantially. Obviously, aimed at the increase in e-commerce, which are really more or less exploding in the last two, three years. We don't externally show any figures of this because it's part of those two, but I can at least say then that it's a very interesting segment which is growing at least with double-digit figures in the last two, three years.
We do expect that this trend will continue, and if anything, probably accelerate further in the coming five years. This is a trend which is really, let's say, helped then by increased technology for improving efficiency in automated warehouses. Next page is a summary of the year of 2019. We’ve gone through this several times, so I don’t indulge too much in the figures. If you look at the left pie, which is there, I’m talking then about the turnover per the different geographical regions. You can see then that still Europe is extremely important for us. If we put together the total of the European regions, we have approximately 80% of our turnover in Europe. We have 15% in North America and the smaller markets, which are supposed then over time to increase substantially, still only on 4% or 5%.
I go quickly and turn to the, in this case, for you who follow the forms, something about 2019. We are a growth company, in the last year, the growth have been, I would say, a bit meager, partly because that we used to be quite dependent on the automotive sector. Five years ago, we had a third of our turnover in automotive sector, as you all are very well aware of, the automotive sector has decreased substantially, which in a way is good for us from a dependence point of view, of course, it's quite good for business if you get orders from the automotive part. That's part of the reason then why the growth in the last couple of years has not been really that we would like it to be.
Over a longer period of time, we normally talk about 8%- 10% over a business cycle, and I think the actual figures in the last year have actually been slightly higher than that. Moving on to financial targets before I jump into some comments about the second quarter. We have put up four targets that we were normally discussing or communicating about. Sales growth is very important for us, obviously, and we are unfortunately, after the first six months, 5% down in the organic growth in orders. That's of course because of the rather negative development in orders in the second quarter due to corona effects. Even if I want to stress then that it's probably better than what was expected at a certain stage. There has been no acquisitions at this very moment.
We are still very interested in doing acquisitions, but it's of course, very difficult to pursue that in a practical way right now since there are limitations on traveling, et cetera. On profitability, we have the target of reaching 20% or above that EBITDA margin, and we are very close to 17% after the first half year. We are normally a little bit lower on the first one and two quarters, and we are improving during Q3 and Q4. Without giving a forecast, I can say due to the probably maintaining effects of COVID-19. However, that will be smaller or bigger. We don't really know at this very moment. I think it will be actually quite difficult to reach 17%-20% for 2020. On the capital structure we have, the net debt in relation to EBITDA.
It should clearly be below 2.5x, and we are at 1.1x at the moment, so it's a very good stable financial situation. Even if this time, due to that we postponed the annual general meeting, we are paying or have actually paid the dividend in July compared with previous year when we paid it in Q2. This 1.1x that I just described, it will probably be a little bit worse than after the payout of the dividend, obviously. Again, on the targets to pay dividend, we're normally saying 50%. We have originally proposed to pay approximately 60% or slightly below that. Due to the Corona effects and the possible discrepancies which could come up due to that, we decided, or rather the annual general meeting decided to take the safe way and reduce then the dividend to 50% of the original proposal.
Meaning in practice then that we are roughly paying out 25% of the net profit this year. Obviously, we aim to come back to the 50% for next year. Coming in then to some comments on the second quarter. We can, of course, all agree that Q2 was a quite turbulent quarter, and I will give you a few examples of that. Nevertheless, I think that Troax as a group still generated a stable development, seeing this in the light then of what happened in the Q2. We had a lower EBIT result than normal in Q2. It was clearly then, I would say, due to the effects of the coronavirus. We have not had any other really negative effects that have had any significant effect.
I would say on the contrary, I think a number of things have been going actually better than before during second quarter, and I will comment a little bit on that later. There were, of course, lower sales recorded in most areas and obviously we are very dependent on the sales. If this top line is getting lower, then of course it has a certain effect then of the results. The sales were obviously then reduced because of we noted a substantial decrease in market activity and especially then in the beginning of the quarter, it was very weak. We saw it in the end of March, of course, a drastic reduction of activity and that continued especially in April, started to improve a bit in May and were actually then one step even better again in June.
If anything, the trend was positive then during the quarter. Obviously the earnings per share was lower than last year, unfortunately because of this effect. There's nothing more to comment on this. Simply follows with the sales and lower results. One positive thing is that the improvement process in Folding Guard was continuing in Q2. Still the order situation is or was on the weaker side due to the fact then that the whole organization was more or less closed in April and May due to requirements then from the government, the local government in Illinois where we are situated. As you probably know, we are mainly situated in Chicago.
In this period, of course, it's difficult then to get a lot of orders since both the factory was closed and a lot of customers then, at least in the U.S. where the same situation were prevailing, could not of course, come in with orders. On the other hand, we could keep our customers happy by sending out goods from the warehouse and also helping from other units. I think From the point of view, it was acceptable despite there were, of course, a lot of problems. This point is really aiming to say that the improvement process in Folding Guard is continuing, even if, as I write here, the whole situation was still on the weak side, probably at least the major part is based on this requirement to keep the organization closed during April and May.
On the working capital, is more or less an expected level. We have increased the inventory, partly, I would say, to handle the negative effects of the coronavirus, and we're quite happy actually to do that because there has been certain problems in the supply chain, which I think we have overcome and due to the fact that we, on an early stage, have started to build some sort of increase in inventory. The investments that we have been doing now for a couple of years, they are according to plan, and we are actually now in the finalization phase. I will give you a few comments on that a little bit later. The first comment related to that is that the new factory in Italy, which was a real new operation, started in January, has been running quite a good way in Q2 despite some lack of volumes.
The productivity has been increased, the processes are improved. We can see that also the cost level are improved. We are also, to a certain extent, I would say, it's reflected in a better gross margin in the period. The factory has been producing in the whole period, despite the problems that Italy has been having, and the same as well for the main production plant we have in Sweden. I can say also there has been no really layoffs or so in Sweden for those who are interested, but we have, of course, reduced the number of people who were employed on a short-term basis.
Going back then to what I said before, that talking a little bit about the marketing situation, we said that it was considered very weak in April and at least part of May, but it was improving during the latter part of the quarter. I think as some sort of guesstimate from our side, we can see then that most probably so that the bigger customers continued to pursue then the installations of already ordered projects, and they're putting orders to us for installment during this period or later. Whereas we saw clearly then that small- and medium-sized customers were reducing, especially during the difficult period of April and May, and they come back a little bit later during the quarter.
It was rather clear that the customer mix changed during the quarter, where the bigger customers were those who were continuing to put in orders at least on a reasonable level. The weak part was really the small- and medium-sized customers in the Q2. Jumping a little bit to more comments about the segments. Automotive still continuing to be a weak segment. There have been some orders during these months, so it's not completely black. We have before said that we expect the automotive to come back and at least improve their investment program during this year. I think based on the development now with the corona and some comments we've had, we are absolutely sure that unfortunately, the improvement in the investment programs for a lot of these big companies will be further delayed.
We are not expecting a real improvement from the automotive sector until earliest during next year. On the other hand, we have had a very positive development in the quarter, again from the automated warehouse business, and we can clearly see that, and this was of course long before the corona effect, that the trend of investing in automated warehouse continues. Now also we can see that not small companies can do it because there are a lot of money involved in these CapExes, but it's not only the big companies who are doing it, mainly retail companies. Only goes down a bit that at least we can call it medium-sized companies are starting to look into this, which are positive for the future.
We don't give any focus, as you know, we do expect then, compared with last year, a decreased amount also in Q3 due to diminishing activities created by the coronavirus. Of course, we don't know how bad it will be for obvious reasons, if there will be a second phase, of course it could be quite negative. With what we know today, we are expecting a clearly decreased amount, I'm sure we're going to show some positive things at least during the third quarter, even based on this. We now come to more to the figures.
I don't have the intention of going through this in a lot of detail, but you can see then that as some sort of summary that, of course, orders are substantially lower than same quarter last year, which in itself, that was a very strong quarter, but regardless of that, it is a decrease then by 19%. The sales was decreased then by 15%, partly then helped by that we had a good order intake in the group in the first quarter, and still part of that good order intake will deliver only in third quarter, and maybe perhaps something also will remain until the fourth quarter. Obviously, based on the lowering of the sales, the operating profit decreased. We had an operating margin then of close to 18%, which is a little bit more than 2% lower than last year.
Without saying that this is, of course, not very good that we are decreasing the result, but based on the situation and what's been happening in the market, I would say that it is quite an acceptable development, and it gives further basis for more investments in the future for us. We can see that we continue to take market shares, and we have a good base for further development. We have also, which everyone should understand, due to the COVID-19, we have received government subsidies in the U.S.A. and the U.K. during the quarter, total amounting to SEK 1.3 million, and this has been recorded separately under the line other operating income and expenses. Of course, everyone should understand if we hadn't got these subsidies, we would have, of course, been forced to make rather substantial redundancies.
It's difficult to say what the effect would have been if not we had received it. Clearly, of course, that in the U.S.A. and the U.K., we have received substantial subsidies. This, of course, has helped to offset some of the negative development otherwise we would have seen during the quarter. Conclusion for the first half year then is that we are 5% behind last year in orders and 60% in sales. We are SEK 1.5 million after in operating profit, and we are approximately 1% below the operating margin. On the order intake per region. A few comments I think are valid that you can see that in Continental Europe, it is, of course, a substantial decrease. Especially, I would say that the South Europe has been hit rather substantially during this period.
Nordic region, very stable, has been hit less by the COVID-19. I think also the fact that we have more long-term projects there related to the building industry is, of course, positive short-term. U.K. this quarter was clearly rather negative. If you remember, I've said before that U.K. also includes some export orders to other regions. In this case, we didn't get so much orders as last year, so obviously would give a negative effect. In North America, it's reflected in that we had to close down actually both Folding Guard and the Troax operations then for almost two months. Obviously that had a negative impact. The paradox is then still that we're showing not too bad development and results-wise, especially for Folding Guard compared with before.
I must say also that Troax, I think we've had shown a good development in the last two years or two and a half years. It's continuing behind these figures to show, I would say, a rather good development. Positive in new markets is that we are growing, but you see also that the figures are low, so that you shouldn't be too positively surprised over the high figure in growth. We are of course glad that we are increasing. New markets mainly consist of the APAC region, so China, Japan, and Korea, where if you remember, we also now include a Troax sales unit in Japan, which was previously not the case. Sales has more or less a similar pattern, even if the Nordic region there shows the lower development on the quarterly compared with the order side.
I think I continue with what further comments, as I call the conclusion. There's been obviously then a substantial weak market activity, especially during the first part of the quarter. As I said, we noted then that especially a smaller midsize customer, they were hesitant to commit to new orders. Unfortunately, we still expect a weak market activity. Let's see how it will be, but we do expect a weak market activity also during the third quarter. Regarding the customer segments, as I said, there was a continued low demand from the automotive industry, but quite positive in the automated warehouse business, and we do expect that to continue. Regarding North America, Troax Inc. then is continuing to develop well, even if, of course, the order situation could have been even better for Troax Inc., and Folding Guard was hit during the quarter by the compulsory shutdown.
In the European operations, I think one could say, at least my judgment is that we have had stable but of course, lower activity, in some cases substantially lower activity in European operations. Nothing has happened which has really shown anything really negative. We see it so far as a temporary drop, and then probably there will be some sort of drop in Q3, and then we have to see how it's been developing. It has not changed anything negatively for Troax Group for the future. We continue to do in a cautious way, obviously, our market investments, not perhaps just like before, but we try to do it and in a constructive way. New factory in Italy was continuing to develop well, despite some lack of volume.
The factories as said in U.K. and U.S.A. was in principle closed from end of March to end of May, whereas the Italian and Swedish were running during the whole period, even if there were low production volumes. Also the small Chinese factory was running during the whole period. We can see, of course, that China is running ahead of Europe and North America in regaining or coming back to where it was before. That's at least what we saw during second quarter. The dividend was paid in July. I think then that we've done what we committed to do. Trying to round off then my little presentation, I can say then that the growth factors, which comes physically on the next page, still remains. There will still be increased industrial automation.
Of course, there could be a little bit lapse in the curve because of the COVID-19, but long term, this is still valid. There are still, especially in the U.S., a trend of onshoring of manufacturing. Maybe that will come a little bit in Europe as well. There continue to be growth in e-commerce, which of course is positive. The understanding of safety is continuing then to, let's say, increase. We are still a market leader. We will come back with more figures towards the end of the year, because right now it's a bit chaotic situation to assess the market. I'll try to round off there and just say that for a safer tomorrow, we are also of course then focusing on more climate compensating program, reducing energy consumption.
As I said before, in the new investment we have in Italy, we have made sure then that approximately 50% of the energy consumption will be covered then by solar panels, which of course is good for the environment and also of course for our cost. With this, I think I stop there with the presentation. Of course, I wait with some eagerness of your question regarding Q2 because, despite the fact that we are hit then by rather lower demand, I think that the result is, I would say acceptable. Let's see what you got to say. Mr. Operator, if you would like to start the Q&A session, I would be happy.
Yes Sir, ladies and gentlemen if you wish to ask a question please press star one on your telephone and wait your name to be announced. If you wish to cancel the request please press the hash key. If you wish to ask a question please press star one. We have one question from the line of Daniel Lindkvist from SHB. Please go ahead, sir. Your line is open.
Perfect. Thank you. Hi, Thomas. Just a few quick questions then. You talked about the gross margin. Could you just elaborate, comparing to Q1 where you only had minor effects from COVID-19 and now you have more effects with shutdowns and lower capacity utilization, still you have an impressive gross margin. Could you just elaborate on what's behind the gross margin this time around?
Yes. I think that's a very good question. I think that's what really is clearly identifiable. I would say it's a combination of different things. Firstly, we saw that even if Folding Guard, of course, was closed, we were doing relatively well during the course of the quarter. We had some good projects with really good margin. In itself then, we were able then to compensate part of this with everything from better purchasing prices to better productivity. It didn't have this big effect that you might expect, and we also expected when we saw these first effects of the corona. Secondly, I would say that the Italian factory we got started in January have improved very much during the second quarter and increased the margin, which it should also because we have a new machine, better processes, et cetera. It should continue like that.
Generally speaking, also on the sales side, we have had no really negative impact on a lot of reduced prices. On the contrary, I would say that the projects we have installed and sold during the second quarter were probably on the more positive side. We had a good both product mix and a rather good customer mix. On top of that, as some sort of general comment, also the Swedish manufacturing, even if of course volume were not the same as last year, costs have been reduced. We have quite a decent development cost-wise also in that factory, which of course has a huge impact since that is the biggest one in the Group. It's a combination of all those things which then makes slightly surprising, I can understand then that the margin for the quarter was quite reasonable.
Yeah. Absolutely. Just you touched upon the order intake. The conversion from the order intake in Q1 in U.K. and U.S. was low for natural reasons, and you're expecting that to come back some in Q3. My question is just from the Q2 situation, how much of a pent-up demand or pent-up orders should we expect in Q3?
I think as some sort of basis for what we're expecting is that the market activity will clearly be low in Q3 also. On the other hand, I think Daniel here is quite right in saying that there probably will be some demand, which should normally have been recorded in Q2, which will come in Q3, and that might, of course, a certain effect, offset and a negative general trend, which we are expecting in Q3. How this relation, of course, will come into is just, we have to come back to it when we deliver our result then for this third quarter. The logic is right and the thinking is right, but the assumption that we are working with, and I think that's still valid, is that there will be a reduced amount during the third quarter as a net effect.
Just my last is more of a comment. I think normally you have to read your CEO statement time after time to see what you really want to say in the report. This time around, it seems very straightforward. Should we interpret that as that this has been a more normal quarter than we've seen lately, even though it was unnormally in many other ways?
You're absolutely right, Daniel. The paradox is actually, as you say, that besides it's been a little bit of, I call it a chaotic quarter with lots of problems created by Corona, and you have to handle that. I would say that despite this, the business itself has been running in a rather good way. There are actually, besides the Corona, very few effects to comment upon, and those who have occurred have been slightly on the positive side, not any major one, but slightly on the positive side. It's been a good quarter, you can say, from this point of view. Yes, I think you should interpret my sort of comments this time that we are, of course, rather humble about the situation, and we don't think we can forecast that this is going to happen now because of the Corona in Q3 or Q4.
I think we are leaving it a little bit like it is, saying that this is what it was during Q2. No major surprises, I would say. Let's see now what happens in Q3 and Q4. Many things can happen that it's better to avoid to have any real opinion on that.
Yeah, sounds fair. Just my last question then on state support. We should expect clearly less state support in Q3 than we saw in Q2?
As far as we can judge today, there will be no state support at all in Q3 or Q4.
No, that sounds fair. Great. That's all from me. Thank you so much.
Thank you, Daniel. Thank you. Any more?
Thank you for your question, and no, sir, we don't have any other question.
I appreciate very much your listening in. Even if it was a bit of a chaotic quarter, you can remain assured and that we try to continue to develop the company long term the way it should be developed. I hope to be able to show something of that when we talk again then in, I don't remember the date, but it's in October when we are delivering then the third quarter. Thanks for listening in, and talk to you next time. Goodbye.
That conclude the conference for today. Thank you for participating. You may all disconnect.