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Welcome to this news conference regarding Cargotec's Q1 results. COVID-19 situation impacted our orders, operations and visibility already during Q1. The good news is that we have started the actions to safeguard our operations and our financial position is strong. Also our services business and software business performed well during Q1. Today, our CEO, Mika Vehviläinen will go through group level development and give an update regarding the COVID-19 situation. Then our CFO, Mikko Puolakka, will continue with the business areas, financials, and then Mika will be back to comment on the outlook. Please, Mika.
Thank you, Hanna-Maria. Good afternoon, ladies and gentlemen, and welcome to the Cargotec Q1 announcements. And as Hanna already said, I will cover shortly the group-wide developments and then sort of what's happening with regarding the COVID-19 crisis, Mikko Puolakka, our CFO, will cover the business area, specific financials and then some of the other financial numbers, and I'll discuss the outlook and the situation in early April in the end as well. Overall, Q1, orders received decreased by 24%. First of all, it's good to recognize the fact that the Q1 2019 was an exceptionally high comparison period for us. The primary reason for the reduction in order intake is that we effectively lacked any large project orders, especially in automation during the Q1 this year. Very clearly, the practical issues related to closing the deals and also the uncertainty within the customers have slowed down the order intake in that one. However, the automation project pipeline still looks strong, and I believe in long term, this will further enhance the demand for such resolutions. Also, we saw some slowdown in other business areas towards the end of March as well caused by the COVID-19. The sales remained on a strong level. We obviously have a very strong backlog at the moment, and this will help us also throughout the rest of the year. Our comparable operating profit also decreased from the last year. The biggest reduction being in Kalmar. Mikko will discuss this more in detail, but it's primarily driven by the change in mix. A larger part of the delivery is coming from the project deliveries. And even within the project deliveries from a heavy crane side, where we had a lower margins, and we have had some cost issues also regarding our supply chain in China. Hiab profitability decreased also, but this was almost solely driven by the fact that we had some last-minute shipment issues and some of the larger shipments towards the end of March there, not delivered until April, without those shipment misses, Hiab would have actually exceeded last year's profitability. Even though MacGregor result was still negative, I'm actually pleased with the progress we are making. We are heading to the right direction. MacGregor is in the plan, and we expect the business to improve from the last year overall. Obviously, the current situation with uncertainty and the financial market being in disruption, we have put our strategic assessment regarding the Navis business on pause at the moment, and we will return into that one later in the year when the situation is more clear. Regarding the COVID-19 impact. First of all, obviously, early part of the year, we saw some disruptions in our business in China, both in terms of the supply chain, our own factory operations and customer demand. This has actually significantly improved during the Q1 and our operations in terms of supply chain are back in full force. And then we have also seen the customer demand coming back strongly towards the end of the quarter as well. Obviously, with the spread of the COVID-19 virus, we saw some further impact then in our businesses in Europe and North America towards the end of the quarter. The increasing uncertainty and the restrictions by the different law authorities is clearly slowing down the decision-making, and this was most visible in our order intake, where we didn't land any of the expected larger automation orders during the Q1. As said, however, we still see a strong pipeline in there. And if anything, the demand for more automated solution will certainly increase as a result of the learnings from this crisis. We had challenges in our supply chain coming from the different suppliers and closure of their factories as well, and that affected some of the deliveries and it obviously impacted the profitability also during the Q1. Regarding our own manufacturing facilities, our assembly units in Italy, Spain, Malaysia, and Ireland had been closed at some stage during the March. Some of these factories are already in -- back in operations, and I would expect all of these manufacturing facilities being back on stream during the May time. However, there will be capacity limitations with the safety precautions we are taking in our manufacturing units. Obviously, we have had delays in delivery schedules and caused partly by the supply chain issues, but also for the fact that quite a lot of the shipment capacity has been taken out as well, and this causes delays in the shipments as well. The other issue we are dealing with is, of course, access for our customer sites, whether they are shipyards, ports or other sites as well. And this is impacting the project deliveries, commissioning and obviously also for the specialists and services that are required actually physically on the sites. The visibility regarding the rest of the year is obviously weak. We do not know how the COVID-19 is going to sort of spread, what restrictions there will be by the different law authorities and how the customer demand will sort of behave towards the end of the year as well. Our focus very much is, of course, on the safety of our people, safeguarding our business, business continuity and our capability to serve our customers with the right services and on time deliveries, cash and cash position, that Mikko will discuss more in detail, and then adjusting our cost structure into this crisis situation. We have reacted very rapidly into this one by taking temporary measures in many parts of our organization. About 6,000 of our employees are now in a short week, 4 term -- 4-day work, the more respective salary reductions at the moment. And most of that has been effective from the April onwards. Also, I'm very proud of the fact that about 200 of our top executives have voluntarily agreed on 20% salary reduction across the board, and that has also become effective 1st of April. We have cut down our external services in different parts of operations. We have frozen our recruitments for the time being. And obviously, our travel is minimized. Also, of course, by the restrictions. But overall, we are not traveling at this stage. We expect that these temporary saving actions have about EUR 10 million saving effect per month for the time being. Obviously, we continue to monitor the situation and take further cost structure adjustments if required. The market environment in Q1 is, of course, shifting very rapidly at the moment. And what we see actually in terms of container traffic is sort of surges and drops in different places. With the strong consolidation of the container liners, we actually have seen about 20% capacity reduction in early part of the Q2 but that has enabled to maintain the cost or the pricing of the shipments at relatively high level. We also see different routing with the low fuel and bunker fuel prices at the moment. And all of those have different sort of impacts now in terms of the container movements in other locations. For example, in U.S., many ports, we saw first low volumes in the beginning of the year caused by the supply chain issues in China. We have now seen a surge of those volumes when the Chinese supply chain is coming back. And then incapability of some of the ports to actually deliver those containers further. So we have congestion happening in other locations. So quite a lot of things shifting very rapidly as well. The construction output remained at the higher level in Q1. And at this stage, it's quite difficult to project how that will develop in U.S. and Europe throughout the rest of the year. There we clearly have seen already a strong move is, unfortunately, a further slowdown of the ship ordering and ship contracting where we see an impact actually for the drastic reduction, both in merchant side as well as in the offshore side and offshore side, of course, not being helped by the -- what we see happening with the oil prices at the moment as well. As said, orders decreased somewhat in MacGregor. We saw a sort of slowdown in order intake in Hiab towards the end of the March. And again, the lack of large orders in Kalmar clearly impacted the project ordering. And in terms of the mobile equipment, we saw actually still a strong order intake in the sort of intermodal, smaller container handling equipment. The logistics sector, especially in U.S. was fairly slow, but actually has now shown some sign of light when we move into the Q2 and especially e-commerce-related deliveries actually are running at the very high level at the moment. The industrial side was relatively okay in Europe, but we have seen quite a rapid deceleration in some of the industrial segments in Europe at the beginning of the April in there. However, our order book remains strong, and this, of course, gives us a very good basis for the rest of the year as long as we can get this supply side and our own manufacturing units back in operations as we expect during the May. The sales remained at high, helped by the big backlog. And as I said, some early issues in China and then a little bit slow down towards the end of March, partly driven by the issues with the shipments, ship capacity and different constraints in the logistics chains as well. I'm particularly happy about our performance in services. Our services and software increased and continued to sort of grow during the Q1. In Kalmar, relatively flat as well as in Hiab, and the demand continued at the group level. In MacGregor, the 24% increase comes primarily from the inclusion of the TTS services. Without TTS addition and the MacGregor, services would have been flat. But I'm happy to see that the good demand in our services business has continued despite the practical issues related, for example, to site access, et cetera. Software sales increased still in Q1, primarily driven by the deliveries of the automation software as well. And services and software constitutes about 35% of our sales during the Q1 '20. Then I hand over to Mikko Puolakka, who will cover the business area financials for us.
Thank you, Mika, and good afternoon also from my side. So as usual, let's start with Kalmar. In Kalmar, our orders were in quarter 3, EUR 334 million, a decline of 35%. This decline came mostly from the Kalmar automation related projects or orders where we had quite high orders in the comparison period. In general, there is a good demand for automation solutions, but customers are postponing investment decisions in this kind of uncertain market environment. We continue to see also certain weakness in smaller mobile equipment, especially in that kind of mobile equipment, which is used in industrial applications like wood processing, steel industry or car industry. Kalmar sales were EUR 404 million, staying on last year's level. The sales for the automation and project business grew actually in quarter 1, and this is very much supported by the good orders that we have received during 2019. The sales for smaller mobile equipment declined due to the weakness in orders in the previous quarters. As Mika already referred, Kalmar's operating profit -- comparable operating profit declined from the comparison period. It was EUR 26 million, 21% decline. And this decline is due to 2 reasons. The first reason is that we had now, during quarter 1, higher share of project revenues or revenues coming from larger projects where typically the relative margin is lower than in smaller equipment or in services. And then as Mika also referred, we have had some challenges in project business related supply chain in China that was burdening also our Kalmar margins in quarter 1. Then looking Hiab. In Hiab, our orders were EUR 296 million, decline here 13%. Basically, we saw a decline in all kind of equipment-related orders and in all regions. Positive thing is that Hiab service orders grew by 13% in quarter 1. So showing there a nice development. Hiab sales declined were EUR 302 million. And also like Mika referred earlier in his part, due to the coronavirus-related delivery or logistics chain delays, we were not able to deliver all planned deliveries during March. But those will be then delivered in quarter 2. And Hiab operating profit for quarter 1 is EUR 30 million, and this was very much impacted by the decline in sales. Then in MacGregor, where basically, in general, we have been progressing according to our plans and restructuring activities, what has been already announced earlier. In MacGregor, the orders for quarter 1 were EUR 151 million, this is 8% decline. We saw decline in the merchant ship orders driven by the very low new build orders by the shipyards. Our offshore related orders grew, and this is very much driven by the orders received in the sustainable energy area. MacGregor service orders grew by 20%, and this has been supported by the TTS acquisition. Excluding TTS, the organic order growth would have been flat. MacGregor sales were EUR 153 million, here, a 10% increase compared to the previous year quarter 1 and the comparable operating profit was minus EUR 5 million, despite being a negative operating profit, it was according to our expectations for quarter 1. There are basically 2 drivers for the loss-making quarter 1, the low capacity utilization in certain offshore as well as in merchant product lines. And then also the very low order activity and the tight competition concerning deals available in the market. We announced already in 2019, significant restructuring actions in MacGregor, and we are targeting to achieve EUR 15 million cost reductions during this year. So far in quarter 1, we have achieved EUR 3 million cost savings. Then Cargotec total financials. Our order backlog is EUR 1.9 billion, like Mika said, offering a very good basis for the coming quarters, revenues, assuming that we can deliver those -- that backlog in this corona environment. Comparable operating profit, EUR 40 million. We had EUR 13 million items affecting the comparability between the periods. And in this EUR 13 million, we have a 1 EUR 5 million booking related to the Rainbow Heavy Industries associated company where we -- where we reduced our ownership from 8% to 6%. The net income for the period was EUR 11 million. Earnings per share, EUR 0.18 and ROCE for the rolling 12 months ROCE in quarter 1 was 6.5%. Our cash flow for quarter 1 was EUR 23 million. This is slightly lower than in the previous year's quarter 1 and mainly driven by the lower profitability. Our net working capital has increased. That's quite typical in the beginning of the year when we start to build the equipment for customers' orders. Of course, in this kind of situation, we need to monitor very closely our inventory as well as also the accounts receivable development. Our debt portfolio is well balanced. Our gross debt is approximately EUR 1.1 billion and here, it's good to note that the 83% of our debt portfolio or outstanding debt is long term, so maturing after 1 year or later. Our gearing was 57%. And when we exclude the IFRS 16 lease liabilities, roughly EUR 180 million. The gearing was 44%. Our liquidity position is very strong. At the end of March, we had EUR 281 million of cash and cash equivalents in our possession. On top of that, we have a fully unused committed EUR 300 million revolving credit facility. We have EUR 183 million of loans maturing in the next 3 -- sorry, in the next 4 quarters. So the total net liquidity at the end of March was almost EUR 400 million. On top of this EUR 400 million, we have EUR 150 million commercial paper program, of which we have utilized at the moment 50%. And then we have roughly EUR 130 million of unused bank overdraft facilities. In early April, we raised, in addition to the previously mentioned facilities, EUR 200 million, 2 years bank loans. So overall, in the beginning of April, we had EUR 800 million liquidity. And as you can see from the right side here, we don't have any major repayments coming up in the near future. The Board proposes a dividend of EUR 1.20 per B share. And basically, the dividend would be paid in 2 installments. The first installment, EUR 0.60 per B share would be paid directly after the approval of the AGM. In practice, the payment would happen in the early part of June. In addition, the Board is proposing to the AGM additional approval or authorization for an additional installment of EUR 0.60 per B share. And this dividend would be paid based on the Board's evaluation later. However, the authorization would be valid until the next AGM. The EUR 1.2 maximum dividend proposal represents approximately 55% dividend payout ratio when we calculate the EPS, excluding the items affecting comparability. And with those words, I would invite Mika back to talk a bit about the outlook.
Thank you, Mikko. On 27th of March, we issued a statement where, we said that at this stage, the visibility is very poor. And this exceptional situation, Cargotec estimated it's not able to give a guidance for 2020. We will give a guidance as the situation will further clarify itself. It is also quite clear that the Q2 2020 is going to be challenging for us. We see issues both affecting our supply side as well as uncertainty in the market affecting the demand from our customer side. The supply side will be affected by components shortages coming from our suppliers, potential closures of our own manufacturing facilities and then uncertainty regarding shipment availability and logistics slows overall. On the demand side, obviously, customers' demand is hard to predict at this stage. And we see those both affecting the Q2 2020 considerably. Now for the first few weeks of the April, we have seen the order impacted negatively already. It's quite difficult still to draw any definite conclusions on those ones. The orders tend to be quite back-weighted for every week. And of course, we had an Eastern holiday also impacting the first couple of weeks in April, but we have seen a slowdown in demand being there. And obviously, for the whole year, it is very difficult to give a specific guidance, has to answer then the regarding the COVID impact, customer demand and the potential restrictions is still very high. It's a very challenging operating environment. One indication that we follow actually alive, and we can get data on a continuous basis, is regarding the equipment that we operate in the logistics sectors. A lot of our equipment is today connected and these are the numbers from the last -- in April for the last week. Actually, I wouldn't worry very too much about Africa because we have quite a small number of equipment connected. So that's not statistically relevant. We have seen the operation in our sector recovering in China, but they are still somewhat down in there. In Europe, actually, the reduction in operating hours in after 2 weeks, was considerably higher and after 3 weeks, we still see operating hours being down roughly 12%. In U.S., the operational activity of the equipment is even further down. That's also a good indication for us to see where the market is going. And as we clearly see at the moment, there are restrictions in the logistics sector and how our equipment is operated. And that certainly is going to impact our demand at least in the short term. However, I would say that if you look at sort of beyond the current crisis, I would say that our strategy is actually even more relevant than ever. The investments we have done in digitalization, services and connectivity are now clearly paying off in terms of the data and how we are able to support our customers. And though those benefits are clearly visible to our customers and, of course, to our own organization as well. Looking into more long term, it's very clearly that the lessons from this kind of crisis will further enhance the demand for automated, electrified and robotized solutions and the investments we are doing in R&D and that we keep on doing in the future will put us in a strong position and Cargotec will emerge from this crisis, stronger company than ever, both financially and from the competitive point of view as well. Thank you very much. And I think we are now ready for Q&A.
Yes, exactly. Thank you, Mika. Thank you, Mikko. Could you Mikko, kindly also come here, please, and then we are ready for the questions.
[Operator Instructions] We will now take our first question.
Can you hear me?
We can.
Yes, it's Peter Testa, One Investments. I had a couple of questions, please. One was just on the order backlog. If you look at how that helps you understand how to prepare for the rest of the year. On Kalmar, how much of that order backlog is for execution in 2020? And is there a big difference between the smaller logistic units and the larger units? Larger orders?
Thanks for the good question. In Kalmar, I would say that we need to separate 2 parts of the order backlog, the project-related order backlog, one could say that it's in the average 2 years in the delivery time. And then in the services and the smaller equipment related backlog, that would be approximately maximum 2 quarters in the delivery time.
Has that been changing that backlog period? On the smaller equipment?
That has been -- you mean that, has the backlog structure changed? Or?
Yes. If you look at the smaller and light equipment, the roughly 2 quarters, if you look at the overall visitors there were to your coverage you have, has that been changing in the current environment?
Not drastically.
Okay. And then on Hiab, you have just under 400 million of orders, and we've obviously heard from some of the truck makers today that the environment is tough on construction and trucks in general. And I was wondering if you could give some sort of sense with needing some in-for-out orders still for the year. How you think about preparing Hiab for more difficult environment maybe for the balance of the year in terms of production, structure or staffing and so on?
The overall, obviously, it's hard to predict at the moment. Most of the major truck manufacturers actually have stopped their production for the time being. And I think if you order a new truck at the moment, for many of you, the availability is summer, in August. I think this will impact the Hiab demand now in Q2, we should see that visible. We have taken the same short-term temporary measures as we have done in other businesses in terms of the 4-day work week with the staff functions, cuts in executive salary. And then obviously, some of the Hiab manufacturing units have been shut down, primarily due to the kind of the restrictions by the authorities rather than our own will. Our unit in Poland for Hiab is in shutdown for 2 weeks, and we expect that to come back online now by May as well. And obviously, we need to monitor the situation and see how do the truck manufacturers sort of production and the customer demand is behaving. We have quite a lot of flexibility, and it's good to recognize that generally, our sort of setup is quite asset-light at the moment. We are not vertically integrated, and we are having purely an assembly operations. So how do we play with our own suppliers and with the assembly capacity is going to be quite critical in the coming weeks and months.
Right. Okay. And then the other question I have was just on, say, cash flow and balance sheet. And if you could give some sort of sense on how the cash advances part on your balance sheet, how you expect that to develop through the period?
If you refer to the…
EUR 80 million.
Yes. If you refer to the advanced payments what we have received, of course, those are very much related to the Kalmar automation and project business. So typically, with those large projects, we get the advanced payments and milestone payments. And should the larger orders be postponed, then of course, we would be consuming the advanced payment balance as we are still executing the backlog project. So that kind of delay of new automation projects would then reduce the balance of advanced payments. If that would be the the situation?
I have another question on this. Yes. Yes, that I understand. Yes, and so it depends on who is on their pipeline conversion, basically versus the revenue here. And then the last question was just on the -- in the short-term risk statements, you make a point about MacGregor and the operating environment it's in and so on with its 2 major customer segments. And then at the very bottom of that, you say if this were to persist for the long term, there could be some write-down of risk to the goodwill amount. I was wondering whether that is something that's under review at any point for the half year, or how -- why is that in the short-term risk statement, I guess, I would say.
Yes, we have -- as -- due to this very kind of exceptional situation, we have performed a kind of a extra goodwill impairment test for MacGregor now in the first quarter -- at the end of first quarter. And as a result of that goodwill impairment testing, basically the headroom in the goodwill impairment testing has shrunk from EUR 170 million to EUR 7 million. So at the moment, we don't have a need to do the impairment. But should the market outlook decline further from the current one, there is this kind of risk. And we have been highlighting and opening also the MacGregor goodwill impairment testing in our interim report in the note #3 more in details.
We will go to our next question.
It's Artem from Crédit Suisse. My first one is around trading environment. Could you maybe help us a little bit with quantifying what you've seen in April in terms of demand maybe in year-over-year terms across the 3 businesses, please?
Yes. As I already said, it's slightly challenging to draw too many conclusions. I would be a little careful with that one. First of all, our orders tend to be, even in the month, be back-weighted. And quite often, they are back-weighted in a quarter as well. And then obviously, we had an Easter holiday. So after 2 weeks, we saw quite a significant reduction in the order intake year-on-year. Actually, last week was somewhat stronger again. So the Easter holiday clearly had an impact on that one. But I think it's in early days to draw any significant conclusions on that one. But I think it is clearly a downward trend, and I expect that to continue on -- within Q2. But how strong that trend is, is at this stage, too early to call.
Well, I guess maybe, and you can help to understand a bit better the phasing throughout Q1 because in your statement, you're saying that Jan, Feb was normal months. But if you look at year-over-year growth rates, this either implies that March declines were very severe or that Jan, Feb were also down in year-over-years. So maybe any color on how we should be thinking about the exit run rates for Q2? It would be helpful.
Yes. In MacGregor, we didn't really see -- I would say there are not significant sort of trends there. I mean, obviously, there are larger onetime orders for ships. And there was not a significant trend as such within the quarter as sales. In Hiab, I think the trend was quite visible. The January, February orders were still relatively good. And then we saw orders slowdown in March, especially in the last 2 weeks of March. And there, where we saw a slowdown happening on the Hiab equipment. In Kalmar, we saw a slowdown, first of all, impacted in China in the sort of January, February time-frame and then China coming back quite well in March. And then if you look at the mobile equipment, we saw the sort of intermodal container handling type of equipment to actually be relatively strong throughout the whole first quarter, including the March. In the industrial segments, we actually saw a slowdown towards the end of March in the equipment side on that one. In the Logistics sector, actually, the early part of the year was slower than we expected in North America, and there has been no indications of actually that strengthening. We know that, especially the logistics around the e-commerce is actually running at relatively high rate. In the larger projects, it was fairly easy. I mean, the whole month was very quiet. We didn't land any larger orders on that stage. And, and it's hard to predict, but it could well be that the larger project orders would only land in the second half of this year and not earlier than that.
Okay. And then in terms of those large orders, automation in projects, how much of that was in your order intake last year, please? In Kalmar?
Mikko.
That was approximately, what would I say large individual orders, we got roughly, if I remember correctly, 6 orders last year, amount EUR 150 million, EUR 160 million for the full year.
Okay. And my last question is on cost savings. First, I just wanted to confirm I heard correctly, you're currently around at EUR 10 million a month. And secondly, are those cost savings temporary or you expect some of them to be retained as maybe volumes start coming back and this market improves?
Yes, we have 2 types of cost savings. Some of are more structural that Mikko described already that have been ongoing already before the corona crisis. And then due to the crisis, we have taken further temporary cost savings, those temporary cost savings impact is roughly EUR 10 million a month for those ones, and they obviously are affecting us as long as we have those measures in place. Obviously, we are now monitoring the situation and forming a picture. What is the demand shape going through this year and then based on those ones, we then need to decide whether some of those savings are more structural and would have to be more sort of permanent and which one of those would then return with the activity. So with the fairly poor visibility at the moment, it's too early to sort of decide where we are with those ones. The structural savings that we have communicated before, they are continuing as plan.
And we will go to our next question.
Magnus here from UBS. Could you give us some color on how Hiab's order intake declined in Europe, Americas and APAC? At least, that will be helpful in Q1.
There's not a significant difference. The APAC is quite a small market in there. So I wouldn't sort of -- in terms of the U.S. and Europe, I think we saw a fairly similar pattern in both places, relatively strong January and February and then a slowdown in the last 2 weeks of March, both in U.S. as well as in Europe. Not a huge difference between those 2 markets.
Okay. Were you still declining in January and February in those markets?
No. January and February were fairly stable, I think, they're roughly at the same level as previous year.
Perfect. Great. And then how is the current situation with Hiab and deliveries from Europe to North America?
The -- it depends on the manufacturing facility. We deliver it from multiple factories. The main factories for North America have been the facility in Spain that actually has been shut down. We expect that to sort of come back in line now. The Irish factory that has been doing quite a large part of this business in U.S. is actually -- is closed at the moment, but we expect that to return by sort of May time frame into the -- returned further, you have had issues with, as I described, quite a lot of the container line capacity has been taken out of the traffic. So that will also partly impact the shipment schedule. So we have a certain situation where we are missing sales because even though the equipment is ready, we can't find a shipment for that one. That's what happened with Hiab at the end of Q1 as well, the equipment, actually that we were supposed to ship was waiting for that one, but we couldn't get the shipment organized as well. So the situation is very fluid because it's impacted by the component availability where we've had issues, it's impacted by the how we are able to open and open and keep our own facilities open and then the availability of the shipments as well. We certainly will, I think, struggle in all those 3 areas still in the Q2.
Got it. And can -- how many weeks has the Spanish and the Irish facility been closed, respectively? At this point?
Well, I think, maybe took about a couple of weeks now.
Okay. Perfect. And then just finally, could you help us quantify the mix effect you saw in Kalmar on the EBIT line business will be? That was all.
Sorry, would you mind repeating that?
Yes. Sorry. Could you help us quantify the mix effect on the Kalmar on the EBIT line? The adverse mix effects from project business?
The mix impact, I would say, would be somewhere between EUR 5 million to EUR 7 million -- roughly EUR 5 million for the first quarter.
We will go to our next call.
This is Antti from Danske Bank. I would like to ask about your comments on the second quarter. I think you are making it quite clear that the second quarter looks bad to put it in simple terms. And if I understand correctly, you are not even excluding the possibility of an EBIT level loss for the group. Is this mainly because of a severe top line sales weakness? Or is it some extra costs that you'd expect? Or is it even a potential write-off of MacGregor goodwill that could bring your second quarter EBIT to a loss?
The second quarter, I think, is, in a way, if I use the term, 'perfect storm', in a way that we will, I think have issues with the demand side with the uncertainty and still the restrictions being in place with our customers. So I would expect the orders to be impacted by that one. And then it's also being impacted by the operational issue from our side, as we discussed already. So in terms of our delivery capability in Q2, we'll have a number of different operational issues. And both of those will have a negative impact on our operating profit. The magnitude of that one at this stage is quite difficult to estimate. I mean, so much depends on the restriction, so much depends on the -- our suppliers' capability to deliver and our capability then to ship the equipment as well as the customer demand, and there are question marks around all of those topics. And I think Mikko already commented in terms of the headroom for the write-offs, we need to evaluate the situation again and at end of the Q2 and see where we are with that one.
Okay. And then second and final question. When are you going to test the MacGregor goodwill at the next time? And related to that, do you sleep well with your balance sheet? Or how would you describe the situation? I know that you are still a bit away from your covenant levels, but how do you feel about your balance sheet, given the challenges that there that they are in front?
Yes. Concerning the first question, we will test MacGregor goodwill at the moment, on continuous basis basically, it's under scrutiny every day. Of course, we don't update the calculations every day. But all the time when we are getting new information, we need to evaluate whether that information will impact the MacGregor goodwill valuation. So the answer there is that it's a continuous evaluation. When it comes to the balance sheet, in our opinion, our balance sheet is solid. Our -- we have -- in some of our loans, we have 125% gearing covenant, as a covenant, as a single covenant. And at the end of quarter 1, our gearing was 44% when using the covenant calculation principles. So in my opinion, we have significant headroom in our covenants.
I actually think that, at the moment, we are -- and of course, this is also partly relative with the competition in a very good position, actually. We have about EUR 800 million of cash or cash equivalence available at the moment. And, and I would say that I looked at our balance sheet and cash position as an opportunity when we move through this crisis and potentially, how can we actually take an advantage of that one.
We will go to our next question.
Good afternoon. It's Manu Rimpelä from Nordea Markets. If I may continue on the topic of the MacGregor goodwill. Could you talk about the fact that you changed the kind of assumptions, which I can fully understand, given in your goodwill testing. But where do you see that kind of assumption could change? Because I guess that you're still doing the long-term kind of a review of the cash flow profile. So in the next couple of quarters, so where do you see is the kind of biggest risks that we -- could have to change the assumptions, which would lead them to a write-down?
Basically, there are 2 elements in the goodwill testing. One is the top line and profitability outlook, how we see the MacGregor business, both in short term, meaning the next 5 years and the kind of over the cycle growth rate. And the other element is then the weighted average cost of capital, i.e., the interest rate, what we are using for discounting the cash flows. Both have been updated now in quarter 1. So we have taken down the long-term outlook. We have reduced roughly 20% the next years -- next 4 years revenues. And then also over the cycle growth, we have reduced from 1.6% to 1.3%. So if there would be kind of further reduction in this short-term or long-term growth rates, those would then, of course, impact the goodwill valuation. And this, as mentioned also earlier in the earlier question, this is something what we evaluate now on a continuous basis due to this extraordinary market situation as well as, as the headroom in the goodwill impairment testing is at EUR 7 million.
Okay. Then moving on to Hiab order intake. So I think you've reported around 13% decline year-on-year base. And assuming that March would be some 40% of the Q1 and January, February, I think, you said were roughly flat. So is it fair to assume that we had some 30% decline in March order intake?
It's probably not quite in that stage. It was more visible. And again, I think the early March was fairly okay. The last 2 weeks were already where we started to see a more significant decline in there. And at this stage, it's quite hard to predict how that will then evolve now into Q2.
Okay. And -- do you have a breakeven point for sales in Hiab? And/or are you willing to share that with us?
Well, that flexes obviously as well depending on what we do in cost structure. The Hiab, one is to remember, first of all, that we are still doing extremely well in services. That's still going strong and the proportion of the services increasing on that one. And the investments we have done in terms of the manufacturing setup and assembly also gives us a lot of flexibility. So we are in a quite a strong position in Hiab to actually weather a storm at the moment.
Okay. And then on the Services business. So I mean, have you seen any bigger impacts under restrictions? Or do you expect that those will become bigger for the Services business? Are you able to perform most of the services?
There has been actually restrictions in terms of customer access or access to customer facilities in shipyards, in part in ports and some other locations. So in that sense, I'm quite delighted that the services, despite those restrictions has been performing quite well and obviously, that's still a risk that we carry into the Q2 as well in terms of how those restrictions will potentially impact the services delivery in Q2 as well. But so far, so good.
Okay. And final question. Do you have a sense about the backlog quality that, did you see, for instance, during the financial crisis? Did you see a lot of cancellations taking place in the backlog and is there any difference between Hiab and Kalmar, for instance?
Well, Kalmar obviously has that project backlog that is pretty solid. So I don't think there you'll see because these are generally ongoing projects. So I do think that they will actually progress. The delays, there are more to do with the practical restrictions on access -- as we discussed customer site access, et cetera. But I think that backlog is pretty secure because those are heavy investments that we have been committed by the customers in many ways. In the mobile equipment side more, we haven't really seen cancellations. What we are seeing is postponement request by customers, partly driven by the practical issues of people working remotely, et cetera. So I think this is some postponements of the backlog from Q2 to Q3, now both in Hiab as well in Kalmar. It's not a significant part of business. But there is some -- we have seen very little in terms of cancellations.
We will go to our next question.
This is Peter Testa again. I just wanted to ask a bit of on the restart part of the exercise. And given the information you've had about your supply chain and how that's caused some difficulties in Q1. When you look at how you're preparing the restart with your supply chain, especially given your more assembly basis in your own facilities. Obviously, this is the critical point. When you look at the visibility that you're getting on part availability or would you be looking for your supply chain to create some buffer stock to make sure there would be availability. How are you managing that supply chain restart to make sure it's smooth? And how long do you think it will take?
It's an excellent question, and it's -- it's an exercise, I think, there the transparency towards our customers and transparency to our supply chain is absolutely essential. So the sales and operational planning is going to be a key role to manage the capability, sorry, capability to ramp up and ramp down when necessary and managing that will also be very often the supply chain or sort of net working capital, I'm not accumulating too much of that one either. So it's something that we follow-on practically on daily basis, both with our customers as well as with our suppliers. I think the good news, of course, is that -- thank you, Hanna. Good news, of course, is that the backlog is still relatively high in all of the businesses at the moment. So we have quite a lot to deliver from our backlog, and then it's a more question of our delivery capability and the restrictions around that one. And for that one, we generally have a better visibility.
Okay. So when you look at your supply chain ramping up and making sure the full part availability is you can ship the complete unit. I mean, do you have a sense on going from the current situation to restarting? Is that something you would expect to be running smoothly by late May, earlier than that? What do you think?
I think what we -- and understand, again, this is a fluid situation, but what we understand from the authority restrictions and all of our manufacturing locations effectively have been shut down due to the request from law authorities is that some of them are already back in line. The Malaysian factory, for example. And what we understand from the local authorities at the moment by mid-May, most of our manufacturing facilities would be up and running. We do observe. And of course, the safety is important for us. So we, for example, can't operate the manufacturing and assembly units at the full capacity because we keep safety distances within the manufacturing facilities, et cetera. So that will slow down some of the deliveries, but in a way, that also gives us a pretty good visibility for the supply side as well because we have a fairly high backlog still in most of the factories. We know where the capacity restrictions will be. And so I think managing this one in the next couple of months is actually relatively easy as long as we are able to predict our own manufacturing rates correctly. It gets more tricky down the road, obviously, where the sort of the demand side is more questionable. Right now, it's a more question of delivering to the backlog and having the right sort of understanding of our own capability in terms of the manufacturing capacity.
Okay. So you've been able to give the same visibility to your supply chain. I know you're expecting on communications they should be able to start in parallel with yourself, or because you're able to give them firm orders basically.
And we'll go to our next question.
Yes, this is Tom Skogman from Carnegie. I would like to understand a bit better this Hiab situation still. So currently, I understood that your factories closed in Poland for a couple of weeks. But what about these truck deliveries? Are there like inventories of this somewhere? Or is it the situation now that you will not have any trucks for several months to install your loading equipment on, and how you then book revenues in your profit and loss account?
There is a number of trucks already in the system at the moment to be delivered already. We have a certain amount. It varies a lot from location to location, market to market as well. In Effer facilities, for example, in Italy, where the corona restriction hit quite early, we have number of ready equipment that actually has been in the backlog and has customer orders. We haven't struggled to organize deliveries, getting trucks actually to pick them up, and deliver to our customers, which are waiting for those ones as well. So we have such sort of buffers who build up backlogs there that we can -- as soon as we can get the transportation organized, we can deliver and recognize the revenues on those ones as well. The planned shutdown for the Poland is 2 weeks, and that's primarily driven by the component availability. The truck buildup, of course, goes through the supply chain as well. Obviously, it depends on how soon they come back online as well. And it's not an immediate issue for us. There are trucks that are to be delivered, are at the dealers, et cetera, that we fulfill into the capacity. The question is more, I think, towards the end of the Q2, early Q3 to see where the situation is in there.
So is it -- what it looks now for your revenues, Q2 and Q3 are equally bad basically then? Because if you don't have trucks to install, I mean, I guess you cannot -- you cannot book a large share of the revenues if you cannot fully deliver it and install the equipment of yours?
I think the Q3 is still too early to predict. Let's remember that we have a very solid backlog of about EUR 400 million in Hiab that is well over 1/4 of deliveries already in the backlog today. And then we need to see how the sort of the demand will develop during the Q2 as well.
Of how much of this can you -- of the revenues from a crane can you book in your profit and loss account if you cannot install it?
A very large majority of all our shipment is not our installation, first of all. We usually book the revenues upon the shipment or delivery as well. And it's good to remember, again, there are a very large number of -- if you look at the truck supply chain, they go through the dealers. The dealers still have a number of trucks available at the moment. So even if you would sort of order a new truck today, I mean, there is a backlog in there, and then you would look at toge of deliveries there anyway. So...
Okay. And then on this goodwill discussion, could you help us to understand where the goodwill comes from? You have a bit more than EUR 1 billion of goodwill, and it has been on a high level for many, many years. So please help us to understand how it is split between the divisions and the different acquisitions you have done?
There are roughly 50% of that is related to MacGregor, and this is coming from the offshore acquisitions in the early or some years backwards. And you can see also in the note number 3, that the asset value in the MacGregor goodwill impairment testing is over EUR 500 million. So that gives a fairly good kind of information about the size of the goodwill.
Yes. So it is good news and [half slot] acquisitions, in particular and then are, or too risky?
For example.
We'll move on to our next question.
It's Magnus Kruber from UBS. I think we saw 1 of the truck OEMS this morning suggesting the utilization of their fleet has come down by sort of 20% in Europe since the start of the year. Do you have sort of a corresponding data for your fleet and your cranes in Hiab? And how do you think that would impact your service business if utilization is similar for your cranes?
There is some data actually in my presentation regarding the utilization at the moment, where we are about 12% down in utilization now in the mobile equipment in Europe and about 22% down in U.S. at the moment. The -- actually, you can look at in both ways. In the longer term, of course, if the running hours go down, that will impact the service requirements. What we are now doing at the moment is that when we actually see the variability and utilization to be quite high, we actually contact customers where the utilization has gone down to suggest that this might be a good time to actually do some of the preventative maintenance and do the maintenance rounds when the equipment requirement is not that high. And then you play it the other way with there are also some customers where the equipment is running at the very high hours at the moment, which also then means that there will be further maintenance requirements down the road as well. But -- so in short term, it actually, the lower utilization also gives you service opportunities. And obviously, we have the advantage that we have the visibility with our customers. Obviously, in the longer term of this utilization rates remain lower, that would really mean that also the maintenance requirements could come down, respectively, as well.
Yes. Do you have any similar data for Hiab as you have for Kalmar?
We have not quite as much equipment is connected in the same way as in Kalmar. But the data we have actually is quite well correlated with the data I showed from Kalmar.
Okay. Okay. Got it. And then I sort of refer -- and return to the sort of this built on a prospect, and specifically I am returning to Spain on that. And in Italy, would we consider mid-May as a sort of initial start-up date as well?
It's what we -- again, this is very much driven by the decisions like the local authorities in different locations. What we understand and the indications have been is that sort of mid-May, pretty much all of our production facilities should be back online. But as said, the situation remains quite fluid, and it's too hard to predict.
Yes. Absolutely. Got it. And, I guess, finally, on the components shortages, is there any particular component that you are short of that you could sort of highlight? And is there both issues with deliveries from -- and also within Europe as well as from China?
One of the biggest issues we are dealing at the moment is actually Volvo engines and the availability of the Volvo diesel engines to some of our mobile equipment and -- and that certainly we'd like to see sort of Volvo ramping up the production. Again, we have quite a large backlog. We have a good demand on that area. And we are now relying on other engine manufacturers to replace that equipment, if so required.
We will take our next question.
It's Tomi from DNB. I'm also trying to ask a little bit on the Hiab, maybe scenario wise, if you would assume that the business sales for to, say, EUR 1 billion level, would you be comfortable that the business is able to remain at the 10% profitability, for example, if you would just sort of explain the profit -- the operational flexibilities and so on?
I think with EUR 1 billion of revenues, and if you would adjust our operational activity in that one, that 10% would be well within the reach. And I don't see that to be a problem. And as such, I mean the operation flexibility, obviously, that would require certain measures to be taken to achieve that as well, but they are well within our reach as well. The Hiab situation overall is fairly interesting because we are pulling, obviously our customers at the moment as well. And on the weekly basis. On the last poll, out of the 28 larger fleet customers, we contacted 26 of them, they're believing that they will be back in full operations within the month. And obviously, 1 month take the view that that's fairly optimistic scenario. And we are not basing our own planning on those scenarios as well. I don't believe in the very sharp being here. And I think we kind of need to adjust our operation to be able to sort of take necessary measures as we see more visibility in the market.
And the second question on pricing. Have you seen any pressure, for example, on the services pricing environment or indeed equipment as well?
No, we have not seen -- I think the pricing is not coming up on discussions much at this stage. I think if people are more concerned about the availability and the delivery times.
We will go to our next question.
It's Antti from SEB. Just 2 questions. First on Hiab and touching a bit on what you said just a minute ago. If we are expected to see a bit of a slower recovery in terms of volumes going into late 2020 and '21. Do you think that this would be a time where you do some further cost restructuring on a more sustainable basis and not only on let's say, the short term, COVID-19 impact?
Absolutely. I mean, we discussed them and that, for example, when it comes to the current manufacturing footprint of the Hiab, we are not in the optimal position at the moment and the strong demand we have seen in the last 2 years has not enabled actually as to look into that one. And we've obviously done a number of different scenarios and plans on that one. And if we see that the demand would remain at the somewhat lower level now in the coming quarters, that's where then there would be an opportunity for us to do some structural changes in there as well.
And what about Kalmar production setup? Is there a similar type of payer plans…
No, the Kalmar…
[indiscernible] scenario there?
Yes, Kalmar is pretty much where it needs to be. We have 3 large manufacturing facilities, 1 in Europe, in Poland, 1 in U.S. and third 1 in China. And so that's a fairly optimal setup for us as it is.
Okay. And then a second question. I guess you mentioned that you're happy with your balance sheet and you have enough liquidity to maybe do some strategic moves during the downturn. Could you maybe elaborate where you see opportunities or where you would like to add something in your portfolio?
Well, I think, well, let's see how this situation, but there are certainly a number of our competitors who will be more distressed than we are in this situation, and this might be an opportunity to then sort of do bolt-on type of acquisitions or look at the adjacent product categories. But it's a little bit early to speculate on that one. But clearly, we want to sort of beef up our capability as well to do moves if those opportunities arise later in this year.
Do you want to elaborate at all in which businesses you see some competitors struggling at the moment?
Too early to look into that one. But I think it's primarily, I would be -- I think the Hiab is quite an interesting area, especially, there are still a number of sort of smaller competitors in there. The Kalmar business tends to be more consolidated. And obviously, after the TTS acquisition, the MacGregor space is already pre consolidated. But there are also adjacencies in all of these areas that we are looking into.
And there are no further questions at this time.
Okay. Thank you. Actually, we have received one question online, and it's related to the final acquisition price of TTS. So can you please give an update regarding that?
Certainly, I mean, the closing of the balance sheet is still under the discussion. As far as I know at the moment, it's heading into arbitration and that arbitration is only taking place as far as I understand in 2021. So we do not expect to see any clarity on that one until next year.
Okay. Thank you. Thank you for all the good questions and good answers. Please stay safe and healthy. We are publishing our Q2 report on July 17. Hope to see you there -- then. Thank you.
Thank you.
Thank you.