Alimak Group AB (publ)

STO:ALIG

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, welcome to the Alimak Group Q1 Report for 2018. Today, I am pleased to present the CEO, Tormod Gunleiksrud; and the CFO, Stefan Rinaldo. [Operator Instructions] Please note that this call, we will take questions from analysts, journalists and institutional investors. Speakers, please begin.

[Tormod Gunleiksrud, President & Chief Executive Officer]

Thank you for that, and good morning, and welcome to you all to this Q1 call 2018 with Alimak Group, and I think we just dive straight into it and move to Page #2.And that is just to make you -- to make sure that you are aware that when we are presenting the numbers and the comparisons that we include, this is important to have at the back of your mind that Avanti Wind Systems was consolidated as of 1st of February 2017, that while Facade Access Group was consolidated as of 1st of March 2017. It's good to have that in mind when you are making the quarterly comparisons.Moving now to the next page, Page #3, a few quarterly highlights as we did in the group and I did actually also touched on a couple of the highlights for the quarter. But let's start with what I consider being some of the most positive in the quarter. I'm very happy to see that Construction is back on good solid level for order intake on the quarter. And so I think if you compare that to the previous quarter, that was probably where we also said that we had some disappointment over the order side from construction. It was good to see that they were back on levels that are definitely supporting where we move forward. After Sales also had a very good quarter. I think they delivered on all the financial KPIs, had a good growth on top line, but even more so, I'm happy to see the margin levels that they were back on, on the quarter. So I think those were the 2 BAs that stood out during the quarter.If you look at overall group, I'm happy to see good organic growth on the order side of the -- 10% despite a very tough comparables in the Construction Equipment. We did have organic revenue growth in all business areas, except Industrial Equipment, and Industrial Equipment is really over the low life of the quarter, and I will get more details on that. However, I would like to mention with the quarterly highlights that wind that have been -- had caught some attention during the second half of 2017. They actually had a very good quarter, I have to say, both on order side, revenue side and the results side. So very happy to see that the changes actually took place in the overall markets at the very, very end of 2017. Also came through in a good fashion also on our wind business for the quarter.Underlying EBITA margin was an improvement and it supports the question why 11.6% is better than 11.7%. And here, I think it is important to go back to when they acquired company's chain into the group because both companies came in at EBITA margin level significantly below the old Alimak part of the business. And as such, when we compare it to Q1 last year, as I already said, I won't devote in with 2 months' comparables in with 1 month. So given the effect that they have now on the full quarter, we still consider the 11.6% being a better number than the 11.7%.If we then take a deeper look into the business areas, move to next page, Page #4, starting with Construction Equipment. I already said that I was happy to see orders being back on levels that are closer to SEK 200 million. We already said a couple of times that comparables for the first 2 quarters 2017, those are tough. We still believe that close to SEK 200 million is a good number on the order side. Followed by revenue, up 16% versus last year. So all in all, I think the top line was good, also strong, and with quarter 4 construction. Margin wise, EBITA adjusted at 9.5%, probably at the lower end of the margin band, but this is all about mix, and I think that will vary between the quarters. So of course, we would not like to see double digit on the margin side, but all in all, still for Construction, it was a good quarter as we see it.Moving now to next page, Page #5 takes us into Industrial Equipment, and let's start with what is on the positive side. Growth in order intake on the organic side, that is always nice to see that we are growing the order side. Already mentioned wind that did have a good quarter. Also happy to see what is going on, on the old Alimak side for the benefit of Alimak. Happy to see such move in oil and gas, also in other industry verticals. So on wind and the former benefit to Alimak, quite happy to see the order side of it. Decent level on the BMU side that -- as you have seen, those are coming in with very large orders, so they are coming in. So it's very much project-related business and that order side will be [indiscernible]. What I'm not happy with on the investors side is the revenue side, and revenues were low both on the legacy front of Alimak as well as on the BMU side.If we start with Alimak, it is slightly driven by the fact that we had a couple of low quarters at the latter end of -- or at the latter part of 2017, so we are a little bit on the receiving end of that. So that is all about exercising the backlog that we do have, make sure that we get it out of the doors when it's supposed to get out of the doors, so that we can invoice accordingly. BMU side, we are struggling with some slippages in overall building side of the project. That also leads to delays on our shipment. In addition to that, we have a couple of projects where we also have faced some technical challenges on the projects that are being dealt with. It will be sorted. Revenues will go up. But again, we are at all not happy with the level of revenue that came through in the quarter and subsequently also the EBITA result, also the margin that was following because 2.5% margin on the industrial side is actually not acceptable. And that will be dealt with, so this is all about going after the costs and that is also being addressed within the group, both cost part of it as well as the SG&A part of the costs when we are going forward.Moving then to next page, Page #6 takes us into After Sales. I already said that very happy to see the development that came through on After Sales during Q1. Order side up 13% versus last year organically. Very happy to see that this is continuing. Also happy to see that the pilot that we were running in the U.S. in Q4 last year gave us learning that we've been able to implement now when we started up rollout in other countries in Q1 2018. So we are actually seeing that -- this is coming through in a fashion that we also expected. Revenue side, growth of 9%, also marginally supporting the growth that we're having, and this is translated down into an EBITA adjusted of SEK 74 million on the quarter. And as I already said, very happy to see that we are back on margin level, about 27%, which is a significant improvement from the 25% that we saw in Q4. So all in all, I have to say very happy to see the pace that we are moving with on that side.Moving then to the next page, Page #7 takes us into Rental. We didn't also have too much to say about Rental other than it was a solid strong quarter from the Rental side. Orders up 14% and our growth on the revenue side of 7% and they delivered an EBITA margin of 11.6% versus last year's 8.6%. Q1 is always a challenge given weather conditions around the world. So all in all, I have to say that Rental did a very good quarter, so I'm very pleased to see the continuous development on the Rental side as well.If we move to next page, Page #8, Stefan will take you through a bit more group numbers. So I hand that over to you, Stefan.

[Stefan Rinaldo, COO, Acting CFO & Senior VP]

Thank you, Tormod. Looking at the group performance, start with the order intake and say -- just conclude what Tormod said before that we had a good quarter for the order intake side with organic order growth in all areas, all business areas here. And that's, of course, especially happy to see that if you compare with the fact that we had in the Q1 '17 all-time high records of order intake in construction and it was generally a very strong quarter. So as a comparable, it was tough and still we have on an organic basis here a good development in Q1. So that is a good foundation to build on for the coming quarters as well as for the full year 2018. The revenue, as Tormod also pointed out, was good in most areas, except in industrial where we can see that the scheduled delays and also some of the order intake from more, let's call it, the shorter cycle of the industrial machines that we have on the old legacy side of Alimak that came in, in Q1. We are a little bit suffering from that during the quarter, but we also had during that quarter -- or this quarter that we have finished definitely projects and orders that we were thinking and planning to get out through the door and that had been delayed due to customer scheduling and also our own factory scheduling. That's concurrent delays to say that current revenue from coming through. But it's still, I would say, from the other side, quite good. On the margin side, we've seen, of course, both the scheduled delays on industrial machines as well as, Tormod pointed out, issues with some other projects on technical side and site constraints. 11.6% margin in the quarter is, I think, an underlying improvement. We have, in 2017, the comparable quarter, only part of the acquired business in. And now, in this quarter, they are fully incorporated. So on a comparable basis, with the acquired businesses in full both ways, it is definitely a margin improvement and a good continued growth based on the margin for 2018.Next page is #8 -- Page #9. Tormod brought up on the operating side of the business the low points and I will then have to say that on one -- another low point from the group was with the cash flow in the quarter. Very disappointing and not satisfactory at all. We are working with that. And when you start looking at the details and see where it comes from, you can see that it's actually a consumption in the working capital. I have, in earlier quarters, said that I'm not worried about the working capital. We are not talking working capital. I had to reconsider that statement, of course, after this quarter because it is a fact that looking at the numbers when it comes, it's a buildup of inventory, which is, of course, to some extent, a good sign because that means that we are preparing for the growth. There is stuff being -- coming in and prepared in the workforce. But at the same time, of course, it's not satisfactory to have such a negative effect in one single quarter. So we are definitely going to focus on this Q2 and Q3. I'll have to say, though, I think that we will have some effect in Q2 still from this, since most of the buildup is sitting in the inventory and it has to pass through, cycle-wise, through receivables before it can be collected.So more to do on the -- both project scheduling and the growth issues here [Technical Difficulty] going forward.That means without cash flow that the net debt went up for the first time here a little bit. Last time, it was due to the acquisitions, but we have been able to ship off on the net debt to every quarter up to now, and we have the small increase due to this relatively weak cash flow. Still, I would like to point out that the work with looking at how we effectively use our cash is continuing. So looking at the balance sheet, we have been able, during the quarter, to amortize SEK 60 million on the debt by making sure that we are getting more and more efficient through the integration processes on using cash sitting out, and that depends on jurisdictions into our group cash tool and also getting it sorted out so that we can use that to deliver on the debt side, and so the structure is getting better as well.Next page, please, Page 10. Tax expense for the period was 25%, and I expect the midterm rate to be moving between 26% and 28% in the group. 2017 ended the quarter with 8%, which was pointed out a onetime effect. I think most deductions have that, which are exposed to the U.S. market, whether there was a change in the tax registration in U.S., but we are back on 35%, and I expect that given a little bit of we're going to see the earnings coming through, we will end up being the full year around 26%, 28%. We are, of course, addressing that with the integration activities through our legal structure and the tax structure per country. But it will take some time to get into [ 11 ] where we are seeing some, say, rates -- rights tax in each country where we operate.Next, Page #11. On the earnings per share, we have no change on the share -- the number of shares outstanding. We have no dilutions, [ pre-dilution ] or anything weighting for that. So that's the fair number of shares. And based upon that, the earnings per share was SEK 0.97 in the quarter. The comparable in the quarterly report is at SEK 1.07, if you recalculate on the quarter-by-quarter basis, but I would say that this is what's calculated before our rights issue in 2017. So on a comparable basis with the name same number of shares as a base, it should have been SEK 0.93. So it's a slight increase on earnings per share going forward. And the Board of Directors, as we report in Q4, have suggested SEK 2.30 per share to be closed dividend to be taken out of the Annual General Meeting in May. And that represents approximately 43% of the earnings after tax in 2017.And so we expect that the earnings, the net profit and on a rolling basis is now SEK 5.43, slightly up from what we had at the end of last year.Next, Page #12. This is the sort slide that we normally use and have used now for quite some time. I would say that the only thing that's been added to this, compared to what was shown in Q4 here, is the last bullet where we basically say that we believe now that the nonrecurring costs that we had in '17 are in, of course, and we believe that most of the remaining integration costs that we have up to the estimated SEK 110 million will be spent during 2018 as we now move into continued integration with legal structure, legal advice and so on and getting the right holding and the tax structure in each countries and also merge and move into different office structures and move people around.So with that, I would switch quickly over to Page 13, next page. Give a little bit an update on what we used these SEK 110 million for. Well, we can say that the status right now is that the joint After Sales concept, the Alimak Service concept, that we have planned to launch into all major markets during 2018. We have, as Tormod mentioned, a U.S. pilot that was coming on stream in Q4 2017. We learned a lot. We could see that on the margin also in 2017 in Q4. And we have long been able to capitalize on the [ launch ]. We took the toughest market, probably the most complex market to get this done. And in short, it was a way of making sure that we could use the full After Sales staff regardless of legal -- their legal entity they were attached to in a combined offer into the market. And with that base and the learnings, we are now rolling this out as we speak in Brazil and in U.K. and in Singapore, and the remaining major countries are following in the Q2 and Q3.So we are quite eager to see that we now have been able not only start these activities through the pilot, but actually learn from it and also will be able to roll it out and execute on these without any major glitches coming through in the coming quarters.On the procurement side, it's progressing well. We have identified savings under execution. We are continuously going into the wave 2 and 3 where we are now looking at the sign, the functions, specifications as well on the articles that are joint nature but maybe not specified exactly the same, to find the commonalities that enables us to bring this to existing suppliers as well as new suppliers and getting better deals with better and bigger volumes. It's going well and we have continuous renegotiations with suppliers both new and old. The only thing I can mention on the procurement side that it's an interesting observation is that we are able to achieve a good savings, but we also see as younger in the markets, that there is increased awareness from the supply chain on both the development and the raw material prices and, of course, also tariffs and the changes in the general trade conditions around the world. We see that when we renegotiate certain agreements with suppliers, but we still believe that we are able to fend off any of these increases and adjustments through our savings. So we have no reason to change that, but it's just a general notice if you can see that it's definitely getting tougher on the supply side.On the streamlining of administration and support, we are executing that now in 2018 in all countries. It's a merger of premises, offices and functions. We have -- some countries have already moved into joint and shared offices. And we are also -- we have now updated legal footprint per country defined, and we start implementing that now during Q1 in 2018.So with all these activities ongoing, I believe that -- next page, Page 14, and that brings us back to why we are doing this. And yes, we have done acquisitions and we have also reestablished our mid-financial targets where we have still that revenue growth target of 6% organically. Looking at where we ended up in Q1, I would say it's we're well on the way of executing on that and reaching these targets. We are on the growth path to have that target within reach. The EBITA margin of 15%, which we have also announced before on the midterm, we took the first step in 2017. I think 2018 first quarter is another building step forward on achieving that for that expected return. And on the leverage, 2x EBITDA. That is something that we already moving around, that's 1.7x in the quarter. So all considered and where we ended up in Q1, I still believe said margin improvement definitely coming through. On a comparable basis, growth is there. Downside for us this quarter cash flow and downside is, of course, also the industrial, but we are on the way from the midterm financial targets. And with that, Tormod, I hand it over to you to wrap it up.

[Tormod Gunleiksrud, President & Chief Executive Officer]

Thank you for that, Stefan. And if you move to the next page, Page #15, I think we have arrived at the page where we try to sum up the quarter as we see it. And again, just to start with Construction, After Sales, very happy to see that orders are back on a good level in the Construction side. After Sales, I already touched on that a couple of times. Happy to see all the financial KPIs that came through from After Sales for the quarter. So all in all, I think those BAs probably stood out a little bit where they came from.Happy to see an order intake growth over 10% for the whole group on the quarter. What we are definitely not happy with is the revenue development on the Industrial side for the quarter. Having said that, it's good to see that all the other BAs had good growth during the quarter. But again, Industrial side is -- what needs to be addressed is also what is being addressed.Underlying EBITA margin adjustment -- adjusted improvement, again, why the 11.6% is considered to be better than the 11.7%. Both again back to the acquired properties that were in only for 1 month and 2 months and will make the comparison to Q1 2017. So all in all, there is actually quite an improvement if you made that comparison.Integration activities running according to the plans that we have set out for the integration activities. Happy to see that this is coming through. Probably I should also add to this what Stefan also was addressing, the need for maybe also take more thorough view on where we are on the working capital side of the group. I think that needs to be addressed in a maybe slightly different way than what we used to do in the past. So we're now looking forward.I think, by that, I will summarize pretty much the way we consider the quarter to having come through. And by that, we have also arrived at a point where we open up for questions to those of you who might have some on those. So please go ahead.

[Operator]

[Operator Instructions] And our first question comes from the line of Mattias Holmberg of DNB Markets.

[Mattias Holmberg, Analyst]

A couple of questions here. Looking at the sequential improvement in the Construction order intake from the quite depressed levels in Q4, when I read the report, you say that you've seen no catch-up effect in the order intake. And sort of looking back at my notes from the last quarterly conference call, Tormod, you mentioned that you expect the full year organic growth in the Construction division to be positive. I was just wondering if sort of this quarter and the beginning of the year has been in line with your expectations and that you still stand by this comment about the full year organic growth being in Construction being above 0.

[Tormod Gunleiksrud, President & Chief Executive Officer]

Yes, I do.

[Mattias Holmberg, Analyst]

Great. Another thing, looking at the comments and also what you've talked a bit about here during the quarter in the BMU large project delays that you've seen both with your customers and some internally, as I understand, could you just give some indication of how much of the 19% year-on-year organic decline that is because of these orders? And also, if you expect these orders to impact Q2 or Q3 on the positive side instead?

[Tormod Gunleiksrud, President & Chief Executive Officer]

I don't think we have disclosed too much details number-wise around the different businesses in the BA. I think what we have said now is that the 2.5% margin that we ended up with is sort of a normal acceptable level for the Industrial business as such. And that we are putting in place measures that are addressing both the project management part of the BMU business because this is where we have the most complex project and the most advanced kind of project management that we do have within the group. And what we are stressing here is to make sure that this is in place from the date that we are building a project and make sure that whatever we are building it also something that we are able to deliver in a good way, got all the way from specification to [indiscernible] and -- or a good thing, not in a good way. So we have all the focus on making sure that we can improve it. And as I said, 2.5% of the overall Industrial business is not an acceptable level. So I would suggest that we are answering that question [indiscernible]. We won't move from that level going forward. So it will need the product.

[Mattias Holmberg, Analyst]

Great. Just finally, would you like to give any sort of elaboration on how long it may take for the efforts that you're doing now on SG&A, et cetera, to show effect in the division?

[Tormod Gunleiksrud, President & Chief Executive Officer]

That has, to a large extent, been executed. So we're actually on a good pace on that.

[Operator]

Our next question comes from the line of Johan Dahl of SEB.

[Johan Dahl, Analyst]

Tormod and Stefan, I was wondering what are the risks of sort of the penalties on your part due to these problems in the BMU operations?

[Tormod Gunleiksrud, President & Chief Executive Officer]

I think to a large extent, we actually managed to escape penalties. But what is normally caused when you are delayed? It causes logistics costs that are higher than what you normally would have because sometimes you have to use means of shipment that is not what's calculated in order to reach the milestones that you already have. You have to put on additional people on site, both for the installation part as well as for the commissioning part. So it adds up whole [ stockyard ] did not really have in your costing schedule, and that is problematic. On the penalties side of it, I think we have managed to escape most of those because these things really need to get in place when the building is coming up because otherwise it gets extremely expensive. So I think what is -- what this leads to on our other side is that the execution and the cost in particular on the people side, on the logistics side is increasing quite a way above what you have in the calculations.

[Johan Dahl, Analyst]

But as it is, I guess, it's a percentage of completion, sort of accounting here. As you've pushed sort of invoicing forward in time, I guess this is still to come. Is that a fair assumption or...?

[Tormod Gunleiksrud, President & Chief Executive Officer]

No, no, it certainly needs to come. That is absolutely sure. So whenever we manage to reach the milestones than it is coming and when we are producing the cost of it. That is also coming out. What we would struggle with is if the delays are not on our side because then we are stuck or we are trapped in a position that there's no turnout. We have to continue the fabrication because drawings are delayed from the customer side and maybe we don't have good enough protection on our contract to be compensated for that. Those are words that are sort of lost in the factory and those are harder to catch up with because we need to produce something all the time. So that causes a lot of admin in shifting of resources on to other projects as well. So it always drags with it activities that we certainly would like not to see.

[Johan Dahl, Analyst]

Okay. Just finally, have you made any reassessment of the sort of end-user growth in the BMU market? I guess, you've talked about 7% something at the time of the acquisition, just an updated view on that. And secondly, have you revised in any view expectations for net procurement savings through materials have really skyrocketed? Alternatively, what's your view on pricing towards your clients to compensate for that shares?

[Tormod Gunleiksrud, President & Chief Executive Officer]

First, if we start with the market side, we still believe that there is a strong and good market out there on the BMU side. And I'm also very positive because, to be honest, we have, as I've said a number of times, we have really been active only in the high complexity, immediate complexity part of that market, and there are definitely ways of addressing other parts of that market going forward. So I think when you look at the market and the opportunity on the BMU side, and you can add After Sales to that as well, then I think this is still an acquisition that we are very happy that we went forward with. All in all, market-wise, it's for us to make sure that we are putting the right things in place so the inducted BMU part of it, when it comes to the savings that we deal with in our business case as when we were looking at this, I think we have still pretty much on our feeds to support that also going forward. We do not see any significant changes or major changes. That's an area that we were looking into. So we still consider this to be good. It's -- at the end of the day, this is really about pace on the execution side to make sure it is coming true in a way that is supporting the financial targets that we have before.

[Operator]

Our next question comes from the line of Kenneth Toll Johansson of Carnegie.

[Kenneth Toll Johansson, Financial Analyst]

First, I have 2 questions. One is on the good organic growth in the Industrial Equipment. What are happening in -- I saw some large orders in the BMU side, but what's happening in the sort of old Alimak businesses? Some of those are late cyclical. Are you seeing some more interest there as well? That's the first question.

[Tormod Gunleiksrud, President & Chief Executive Officer]

We do. So on the order side, we are definitely seeing that. I think I was also pushing the format in the presentation. We see that things are moving on the oil and gas side. We were awarded project on Johan Castberg in January, so things are moving there, things are starting to move. Also on the second phase of [ Johan Sverdrup ]. So we see that things are moving on that side. What I'm probably not that happy with it is the pace we see that we managed to take part of the portfolio from Avanti into other industry verticals. So that is also something that we are stepping up our activity level on. And because we are also convinced that there are pockets out in the industry verticals that are not getting the right attention with the right products, and that is really also what we're expected to get from the Avanti portfolio. So all in all, on the order side, I'm quite happy with what I see, also on the negative part of Alimak. Definitely on the Wind side, as I already mentioned, was also good on the order side for the quarter. On the BMU side, as I also said, some large projects are coming in. It is further business. Once they're coming, they tend to be big, but it also causes some volatility over the quarter. So all in all, I am not really disappointed about the orders. It really goes back to the revenue side, and the revenue side is causing the disappointment. It's made up by the BMU side of it as well as the negative part of Alimak.

[Kenneth Toll Johansson, Financial Analyst]

Okay. And you see that it's more delays and things that causes higher costs rather than the pricing situation on the market being very pressured.

[Tormod Gunleiksrud, President & Chief Executive Officer]

Yes, I do.

[Kenneth Toll Johansson, Financial Analyst]

Great. The other question I had is also on the management changes that you write about in the reports. Did you have sort of agreements that the managers of Avanti and the big company would stay for a year? Or what happened there?

[Tormod Gunleiksrud, President & Chief Executive Officer]

You know what, when we acquired these companies, we said that we want to run business at least year 1. So they -- we were trying to not mix up the businesses. We were trying to isolate it to make sure that we, as the old management of Alimak, have the opportunities to learn based in an environment that was not changing too much over the year. But of course, when we now introduced the changes as of January 1, 2018, with a new structure and people are changing positions from CEOs to business area managers and the CFOs to business area controllers, then this is a slightly different change in the daily life of -- or professional life of a number of people. And it has given us 1 year to learn the business. We have identified strong potentials in those organizations, and it is very much front-end driven because we want to drive more of the manufacturing from the group side. So it gave us real time to take good, strong managers going forward. And of course, people who have been CEOs they would like to be CEO also in the future, the same for CFOs. So I think it is as simple as that and I think competency on that is sort of an HR element.

[Kenneth Toll Johansson, Financial Analyst]

And you don't see when you do these reorganizations now, you don't have a lot of salespeople or more those kind of functions that are leaving the group from Avanti and Facade Access?

[Tormod Gunleiksrud, President & Chief Executive Officer]

No.

[Operator]

Our next question comes from the line of Carlos Val-Carreres of Augustus Capital.

[Carlos Val-Carreres]

We have a question regarding the comment that you have made in your release about the Chinese market and the Construction Equipment decision that you commented that there are 2 players and they are currently out of the business. I would like to understand what that's in play for the profitability of the business that we may expect some recovery margins here for the rest of the year. And taking last year's margin as a reference, you had a 13.9% margin. So could we expect the final margin could be in line with the previous year or could even be a little bit higher?

[Tormod Gunleiksrud, President & Chief Executive Officer]

I think let's start with the Chinese market because I think we have said now, not only for a couple of quarters, we have actually said for a couple of years that if there is anything in the strategy that has been a little bit disappointing -- or not a little bit, but that has been disappointing and that has not lead up to the sort of story that we have on to the IPO[indiscernible] was the same in China. And we have been extremely cautious taking business in China because we saw that the sort of general business conditions was such that competitors took orders without even getting down payments on orders, and they ended up getting no payments at all. And we consider that to be business model not very interesting and definitely not sustainable. So if you go back to 2012, 2013, and look at who were the largest players in China in the construction business when it comes to hoists, they were [ Sung Yang ]; [ Sung Yang ] probably the #1; [ DJJ ], #2; and then [ Baoba ], #3. And we have seen that these players have been struggling more and more. We can say hold one[indiscernible] that in other business that are being conducted that way, it's not sustainable. The first proof of that, we got really, at the very, very end of last year, that's where [ Baoba ] really started to get into trouble. And I think shortly after New Year, we heard that they had filed for bankruptcy, and then shortly after, it was the same with [ DJJ ]. So it basically just took out #2 and #3 in that market. Do I believe that this will change the market? Yes, eventually, I believe that the market will get into something that is functioning more well. I think the remaining players, they also understand that there is no sustainable way of doing business. Actually not getting paid or getting extremely long credit on, it's just not really work and support the business. So eventually I think it's something that will change. We are definitely addressing our part of that market. As I've said, we will continue to be extremely cautious. It is not a very small part, what we still believe is addressable. Being that cautious. And at the same time, we are looking at financial players on the leasing side that we could enter into cooperation with in terms of supporting the business. So all in all, yes, I think the market is changing to the better. Will it have a major impact on what we are doing in that market? Not a major, but every change counts. So we will see improvements in that market going forward. But if it's, I shouldn't say insignificant, insignificant, but build it up on the big numbers as a result of changes in that market.

[Operator]

[Operator Instructions] And there are no further questions at this time. Please go ahead, speakers.

[Tormod Gunleiksrud, President & Chief Executive Officer]

Thank you very much and thank you for all of you that got through that. Okay, I think we have couple of questions that came in via the webcast. And question #1 is [ Corey ]. You read -- you write that you're unhappy with project management on the investors' side. What part of investors is this relating to, legacy [or acquired]? And can you elaborate on what you need to do to improve? I think I've addressed it already. Our most advanced projects where there is heavy project management execution is sitting is really on the BMU side. Here, we, as I've already said, we need to make sure that we have a watertight process from the bidding stage of the project to it is actually handed over and warranty starts running on the delivery side. There's a number of elements that needs to be brushed up. First of all, it is to make sure that all the specifications that a customer is calling for is fully accepted, understood, and also costed in a proper way, all the way back to the factories. That is number one. Number two is to make sure that we have element in place that also regulates delays on customer side. So late changes on the customer side, how that is dealt with internally in our organization. That needs to come through both with the cost impact scheduled as well as scheduled impact on the delivery side. I think those are the main elements in the fast improvement that needs to be put in place when it actually comes to project management. Second question that came in is, do you expect -- what did we say, the working capital to reverse always in Q2? I think Stefan was touching upon that as well. We will see this one -- will begin in Q3 before I expect to see some major improvements coming out of it. Stefan also said that the vast majority of the working capital increase actually comes from inventories. That is for still projects to be executed. And before this, really turns into receivables. This is going to take at least a quarter. So the main effect of this will be seen in Q3 moving forward.So by that, I think we have also answered the questions that came in via the webcast, and I think it remains for us a moment to say thank you all for dialing in and listening to our quarterly results presentation. And to all of you, have a good day and a good week. And again, thank you all for dialing in. Thank you.

[Operator]

This now concludes our call. Thank you for attending. Participants, you may disconnect your lines.