HMS Networks AB

STO:HMS

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to the HMS Networks Q1 presentation for 2024. [Operator Instructions] Now I will hand the conference over to CEO, Staffan Dahlstrom; and CFO, Joakim Nideborn. Please go ahead.

[Staffan Dahlstrom, executive]

Thank you. Good morning, and welcome to this quarter 1 call. Me and Joakim are in cold and a bit sunny Halmstad today. Maybe this is representing the report we'll do as well. We'll come back to that.

Let's see, we're going to a summary and introduction. I'll do a business update, and then Joakim take over to talk about the completion of Red Lion acquisition, some financial results, and we end up with a Q&A.

But a quick summary of quarter 1. As expected, we see a quite weak development on net sales and order intake. We need to dive quite deep into this to see what -- where is the underlying market demand and Joakim will guide us in a later slide about this. Since we have a weak top line, of course, also our EBIT is not great. But I must say that achieving a over 20% EBIT margin under these circumstances with a quite weak top line, it's not as bad as you may think. It's quite good actually.

We see cash flow that is still suffering. And especially regarding how we manage our inventory and suppliers and things like this, I'll also come back to that. And if we look on the long term, 12 months, this is history, but we see here over the period, it's quite okay in sales, but we have a year with weak order intake which have followed a very strong period, we're building up order and inventory at our customers.

With this, let us just move quickly into a business update for who are new on the call. HMS Networks, we are in industrial ICT, information and communication technology, quite well connected. We have almost 10 million Anybus devices installed. We have 0.5 million remotely connected machines supervised by our Ewon cloud. And as a country, we are both a technology company with 1/3 of employees in R&D, but also have customers in traditional quite conservative markets in the industrial area.

With acquisition of Red Lion that we'll talk more about, we add up to 1,200 employees around the world, 1/3 in sales, 1/3 in R&D, and we operate on the international market with offices in 18 countries, Sweden, our hometown is our home country, is still important, but represent a small portion, maybe 2%, 3% of our revenue.

Last year, SEK 3 billion in sales. So you can see that quarter 1 is weak. EBIT margin target is 25%. So we are slightly under that for quarter 1, and we have growth target. We have a growth history of 20% per year on average. And of course, this is also our ambition going forward to keep on growing.

We work with Industrial Automation and Building Automation, some segments there. The common denominator is the communication data exchange and how we help customers enable valuable data in these applications. Two types of customer groups, we talk about makers of industrial equipment and users of industrial automation systems.

And what's interesting to know is also how we go to market, where we, on the left side of the picture, work with a direct sales force to device manufacturers and large machine builders. And the more we go to the right, we work more with partners, distributors, e-commerce. And this also represent that on the left side, it's fewer but larger customers. On the right side, it's a lot of customers, but a smaller income per customer there.

We are in the last year of our 2025 strategy where we talk about the 6 pillars, organic growth. As I said, we've been 20% on the CAGR the last 10 years. We focus on M&A. We will talk more about our last acquisition, Red Lion. We focus a lot on people. Actually, today, we feel a bit sad because we just announced a reduction of 45 people in our cost reduction program that we'll talk more about later.

And we believe also that sustainability is key for us as a company, but especially for our customers, where many of our customers work with industrial applications where there can be a lot of improvement. In the last 2 years, we also added operational efficiency and sales excellence into our slate.

And the targets we have for the planet is we are working with science-based targets. We are just busy with applying and setting the targets, and we also try to focus with our customers to make sure we solve real important problems for them, where we can't really count the CO2 reductions on our own behalf, but on behalf of our customers, we call that the HMS effect and we want to triple that.

Happy and high-performing employees generate loyal customers. So we measure NPS, both on employees and customers, where we are quite in good shape. We had very good customer NPS before the component crisis, we went down to, I think, 27. Now we are back on 41. So we are getting back to good loyal customers again.

And we also work with more female managers because we think that diversity is important and getting more managers -- female managers will drive more female engineers and female salespeople, we think. We are at 22 right now, I think. And of course, continuing the growth target of 25% EBIT and also making sure that we continue our revenue growth targets.

A short business update before I leave to Joakim for first quarter. We see a quite mixed market, weak demand in Asia, especially with our large customers in Japan will keep on very high inventory level. Europe shows signs of improvement on order intake, but from a quite low level. And in North America, we had a very good quarter 4. We're taking a step back now, a temporary setback, we think. And this is mainly coming from slow order pattern at large customers, but we see good progress on distributors and smaller customers. So the market is starting to wake up there, but customers need to flush out their inventory.

When you talk about component crisis. We think we are back to normal. Most of our products have short lead times, which is part of our problem. Since we have short lead times, customers reduced their lead time too in their systems, and this makes us not get so many orders.

So the destocking continues. We estimate that SEK 180 million is destocking in quarter 1, and Joakim will show a graph on this a bit later. And the 2nd of April, we completed the Red Lion Controls acquisition, primarily in North America. 86% of their revenue is in Americas.

And we are now starting a restructuring program announced today. And this is actually 3 parts. One is a cost saving part to be ready for more growth initiatives going forward, but we've also done some early findings with Red Lion, and Joakim will come back on this to take away some early identified double function, but we're also doing some structural changes here in Europe, especially in Sweden, where we need to do some changes to improve efficiency and more innovation in our R&D teams.

So Joakim, let's talk about Red Lion and financial results.

[Joakim Nideborn, executive]

Yes. Thank you, Staffan. And we're starting with Red Lion. And I've put together 2 different views. One, a little bit more about the practical things around closing and what's happening now, and then also a short business update for Red Lion for the first quarter.

But let's start with some of the practicalities what's happening now. So we managed to close pretty much as planned on the 2nd of April. We'll consolidate Red Lion from the 1st of April. So we're going to have a full second quarter of Red Lion in our numbers. And happy to say that all the approvals and permits we needed to get is in place without any big problems. So that was good to see and also as expected.

And now we have set full speed, and we actually started a little bit already in March with -- to set the plans to make the -- to try to realize, especially the sales synergies, also a little bit on the cost synergy side which we're going to talk about shortly. And everything is going well. We're quite happy, and we've had a lot of progress so far with the team in Red Lion.

Well, I think also it's good to mention, which I can come back with probably in Q2 with some more color to it is that we have decided to go for a so-called 338(h)(10) election in the United States. It's very technical thing, so sorry about that. But what it really means is that for -- from a tax perspective, we are recharacterizing this share purchase as an asset purchase, meaning that we're going to get a tax deductible depreciation or amortization over time.

And since this is a pretty big purchase price, this is going to impact the tax rate of the group with a pretty big amount. So we expect some 2% to 3% decline in tax rate for the whole group due to this asset. So that's -- I think that's a positive. That's something we, of course, have taken into consideration when we made this acquisition. But there's a lot of details to be answered. I think I can't give you a better approximation than this 2% to 3% at this point in time.

This should be in place over the time in which the asset is being depreciated. And right now, that would probably be 15 years with the current rules. Also, as I think you know by now, we have a bridge financing in place, and that is, of course, intended to be replaced by a directed share issue, and that is something that we expect to be able to launch pretty soon.

Going over to the business update of Red Lion. I think we have some good signs here in the business, similar to what we see in our U.S. business, except for the fact which Staffan talked about, the direct business having a temporary setback. Here, we see that the order intake has been improving in Q1 in comparison to the second half of 2023. And we also see gradual improvement throughout the quarter, throughout the first quarter.

And now remember that Red Lion, as we also had this stocking effect in 2022 and maybe beginning of 2023 as well. So that has been reversed to the most part, and now we see that business is coming back.

To report on the full year numbers, 2023, we saw that Red Lion had net sales of SEK 1,314 million. And I just couldn't resist noticing that it was 314, which is pie. Yes, is our strategic target. They're sort of half an hour ago, I didn't react to that before, so I just had to mention that, sorry about that.

And then an operating margin of 21% in the business. So quite solid, just in line with what we expected to see. We can also say that over the last 5 years, Red Lion has shown a CAGR of -- on the top line of 4% and average operating margin of 20%. So this is -- we couldn't be official with this before, but now have to close, and we can tell you this. And of course, we see that there is potential to speed this growth up. And as I said, we're looking into all this store sales synergies, and it's not quantified yet. We hope to be able to get back to you soon with our plans, what that looks like.

And we also set a new manager in place. Sergio Resendiz, who is our General Manager for HMS Americas, who is now taking over as General Manager for Red Lion from April 2 already. So we're convinced that, that will be very good.

Now going over to the financial results of HMS. And maybe first, I think we are not at all surprised about the numbers we see. I think this is very much in our expectations. We were maybe hoping that order intake would have come back a bit more. And I'll make some more comments on that shortly, but I think very much in line with expectations from our side.

And you see on the order intake, we have SEK 473 million, which is a small uptick versus Q4, but still on low levels. And we still see a lot of these inventory adjustments at our customers or orders that you already have place, for instance, in Japan, where they don't need to place orders for some time yet to come.

Looking at the reported figures, we have an organic decline of 36%, which looks dramatic underlying. We believe it's not so dramatic actually. So we're going to have a look at that shortly as well. What we can say though is that we've seen a small uptick in pace in March and the beginning of April.

So we see that the business is starting to pace a bit better, still not super fast pickup. So we think that we'll probably see a rather slow development during Q2 and then we see a more positive outlook for the second half of the year, which we also elaborate on in the report.

I think Staffan commented already on the market. So I'm going to skip that for the time being and go over to this slide that I think you've all probably seen before, where we try to show you what we believe is the underlying growth and also those strange deviations in the market due to component situation. And we'll show this since Q1 2021, we've seen a lot of boost orders or earlier placed orders during 2021 and 2022. So accumulated more than SEK 1 billion, which is, of course, for us a lot.

And then since Q2 last year, we saw this destocking, the green bars, and here, you see them that we have SEK 180 million in the first quarter, which is the highest level we've seen, and it's very much so that we see, especially in Japan, we see a lot of those really long orders with the big customers not going to place orders this year, maybe some in Q4.

In Germany, we see a similar pattern. Orders will come back a bit earlier, but there's still a lot of inventories on the shelves that needs to be reduced. And then maybe a little bit surprising for us, we saw a weak order intake from the direct business in U.S. So I think all in all, if you adjust for all those destocking activities, maybe we can look in this slide and try to explain how we see the underlying market.

What we try to do here with the middle blue colors is to normalize Q1 2023 first, which was quite simple. So that's the SEK 682 million as reported. And then we try to normalize this in Q1 '24 order intake from SEK 473 million, deducting SEK 80 million revaluation of the backlog, which is positive. And then deducting the SEK 180 million from destocking.

And then we get to SEK 635 million and a 7% decline in the underlying market really. So I think, yes, the market is a little bit weaker than what it was a year ago, but it's not as bad as you see when you look at the reported figures. I think that's important to keep in mind. And this destocking will, of course, come to an end at some point. And we believe that it will phase out throughout the year, and then we should have full go.

Looking at the sales. We have SEK 616 million, organic decline by 20%. And I think what you really see here is the fact that before we've had -- I think we said this in Q4 as well, we've had a really strong backlog from all those early placed orders. And now we're starting to get to a level where that is actually back to normal. So I think we were using -- we're eating SEK 137 million of the backlog in the quarter. And still with that order intake, we can't really get to a sales level that we think is where we should be.

And of course, there will be some pressure on this for the future as well. So now for the coming quarters, we need to see the orders come in to be able to deliver good sales. So it's really back to normal, I would say. This is how it used to be in our business. It's just that you get comfortable over a couple of years when you have this backlog to eat from. But now it's really we need to get the orders in.

We see a pretty big destocking, especially on Anybus, not surprisingly with the embedded business and also Ewon, where we have inventories in both the distributor side and the end user side. So looking at the installed base, we can see the number of installed devices. That is actually trending quite well. But in terms of our sales and the distributor sales, we still see that there is some improvement to be made.

So very good for us to see that we have underlying growth in the installed base. I think that was important to see for us. And then the rest will sort itself out in time. On a positive note, we see Intesis, our Building Automation business, continuing very stable with a growth of 5%, also meeting good comps in 2023.

And then maybe I already commented on most on the backlog, but maybe just put it in some numbers as well anyway. To the left, you see the backlog, and you see that SEK 137 million destocking to SEK 641 million in exit backlog in Q1, which I would say is pretty much where we would expect to be in that range. Of course, it could be slightly lower.

But looking at the right-hand side, you see why I say that. So we come from a situation before this component situation where we are around SEK 0.2 million, maybe just below. And now if I look backlog in relation to net sales, and now you see in Q1, we're down to SEK 0.22 million, so pretty much it evened out. And now it's about just to get orders in.

Geographic distribution. We see actually the European business is slightly lower than what it normal is, used to be 60%, 62%. And now you see that Americas are performing a bit better, and this is also because of market momentum is coming back earlier in Americas, I think we talked about that before as well, so not surprisingly.

Going over to looking at the results. I think here are some comments that need to be made, so you understand it, and I'm also going to comment on the restructuring program a bit more. But first, we're delivering SEK 133 million in adjusted EBIT, so 21.6% margin. And we have 3% integration costs taken for the Red Lion integration.

So that's why we're not show these adjusted numbers going forward since we're going to have a lot of amortization of intangibles from now on as well. So you get a real feel for what the underlying business is actually showing.

Then we can also say that gross is slightly lower than we saw last year, 62.6%. And here we see 2 things impacting. The fact that we have lower volumes gives us some underutilization of some fixed costs. That's not a lot we can do on that. I think the recipe is to get back to better volumes, and that will be handled.

And then the second thing is the product mix, which is a little bit weaker, where we had some more custom sales with a slightly lower margin that's impacted the margin a little bit. But with all that said, I think the 65% that we saw last year might take us a few quarters to be back on that level given the volume situation.

Looking at the OpEx, which is, I think, important to understand in the first quarter, we are showing SEK 256 million reported. And then we had that integration cost of some SEK 3 million that I were referring to before. We have been quite careful in taking on cost in Q1, and we've been holding back some initiatives.

We're also capitalizing a bit more in R&D. And we -- I think we communicated that already in Q4 that we're starting a new big project within the brand Ewon, to come with the next generation of remote access product that we're very excited about, but it will cost us some money, of course, and it's a big project. It will carry on throughout the year.

So the majority of those SEK 21 million that we capitalize is related to that project. And we have had a very -- an intense start on that product in the year. So you'll see a slightly lower pace going forward, but it will still be a pretty big product for us.

And then let me comment on the restructuring program and the underlying OpEx, so you understand what's what. If I start with the underlying OpEx in Q1, adjusted for this integration cost, we have SEK 252 million, which is a 13% organic decline compared to Q1 '23, even more in relation to the run rate in Q4, where we were at some SEK 310 million, I think.

And what we are really doing, I mean, there's no reduction of people in this number. We're going to get back to that restructuring program. But so far, there's no reduction of people. We are holding back a lot of initiatives, initiatives that we would like to do, but we also need to see that the market is coming back on a good pace before we can launch those things.

So certain market activities, there are some development activities. There are some IT projects that we would like to start up. But we will do that in a careful way when we see order intake is pacing as we want. And then -- so that means that you will see a higher run rate from the underlying OpEx going forward. I'll give you some more comments to that shortly as well.

What we are doing now is basically 3 things. We're doing some early realization of synergies with Red Lion, where we see some high-level managers in certain countries where we will not need 2 managers to run those business. And we're also looking at some other functions that we'll have a look in the coming months or so.

We're also doing a restructuring of the Anybus business where we had a fantastic development in terms of orders and sales the last few years, but maybe not in terms of offering due to 2 heavy processes that takes too long time to get the stuff out to the market. So we're changing a lot of those development processes, and then we'll also get by with a lighter organization within doing so.

And then we're doing some fine-tuning of the organization, especially in Europe here and there, no particular big things to mention, but it's some things here and there that we're trying to get done here. So this program, we just initiated and we do this to be able to launch all these growth initiatives that we think are key for the long-term business and then we need to create the space for that, given the slightly lower business.

We think it's also good. This gives us a chance to do some things that we've seen that we maybe should have done and are putting it in place. So the program in itself will impact some 45 positions, out of which, 25 of them are in the headquarters in Sweden. So that's, of course, a rather big chunk, and we're starting negotiations with unions today to get that done as well.

We'll see yearly savings of SEK 55 million from this program, out of which SEK 30 million will impact 2024. We're going to see a full effect from Q3 going forward. So we expect to close everything during the second quarter. And that also means that we're going to take restructuring costs in the second quarter. So far, we believe it's going to be around SEK 35 million. Of course, we'll get back to you in the Q2 report with exactly how it ended.

But I think the important takeaway if you're trying to model this and get an opinion about the HMS business for the rest of the year, maybe a bit counterintuitive, Q1 in terms of OpEx will probably be the lowest quarter in terms of OpEx in 2024, since we will kick off those growth activities in place as orders coming back. Of course, it's -- we need to see those orders coming back, but we're quite sure that, that won't be the case.

So the restructuring program will give that space. That's how you should see it. So you will not see a reduction of the run rate compared to the level you see in Q1. And I think you also understand that if we're 13% down versus Q1 2023 and maybe some 20% down in terms of Q2 2024 -- sorry, 2023, there are some things that need to be done here.

Looking at the earnings per share, SEK 2.28. Also low net financials, not a lot to say here. This will look a little bit differently going forward. Now we'll be taking on some debt from the 1st of April going forward. So maybe that will be more to talk about in the future.

And also we would like to say a few comments on the cash flow, which is, of course, very low with SEK 58 million. And I think what we are seeing right now is, well, maybe first, the fact that we have slightly lower sales than before. Of course, accounts receivable would be lower. But the main thing is that we are now in March for the first time seeing reduced inventory. I think we've been having -- growing inventory for 2 years or so.

And even if in the quarter, we have a buildup of SEK 22 million, we're starting to see the decline in March, and that is something we will continue to see throughout the year, especially on the second half of 2024. We're going to see this inventory build up and a cash flow -- or a cash flow release there.

At the same time, you see a mass reduction in accounts payable of SEK 71 million. So what you really see here is that we're buying less components since we have what we need on hand. And maybe you should see this as a bit of a onetime effect that before you can see the inventory reduction, you need to see the payables reduction.

So of course, when all those come together in the quarter, while you see a pretty weak cash flow, and on top of that, also we have some provisions that were released for like bonuses and share savings program and so on. That is also impacting the cash flow where those provisions have been replaced with actual money that are flowing out.

That is often the case in Q1. So that's nothing extreme here, but that's also impacting the weaker cash flow. So we should see an improvement from this going forward. And from the second half, we should also see a release on working capital that will help us.

Final slide for me, looking at the debt situation a little bit and the leverage, which is, again, maybe not so interesting. We see similar levels of -- maybe this is the interesting part, the interest-bearing net debt, so to say, which is SEK 98 million, same as we saw in Q4 '23.

And the reason we see a similar level is that we've been doing pretty heavy investments in both intangibles and some tangible assets with some IT infrastructure that we've put in place. And we've also done repurchases of shares for our share savings program in the Q1. So that's why you don't see a growing cash level basically. And from Q2 onwards, this is going to look completely different with a lot of debt on that balance sheet instead, but we'll get back to that when we have it.

With that, maybe Staffan has some closing remarks before we move into Q&A.

[Staffan Dahlstrom, executive]

Thank you, Joakim. Well, as I said here, it's a bit chilly but sunny weather outside the window here. I think that's also what I feel about the report. We are a little bit disappointed, but it was expected. But we see start to see signs of recovery and customers are getting more positive. So I think this is quite much in line with our expectations.

And you see on the underlying market demand is not that bad, but it's important that you -- we drill down to see this beyond the weak order intake. So all in all, a quarter that is as expected, but we are quite excited about the second half of the year here.

So with that, should be open for Q&A.

[Operator]

[Operator Instructions] The next question comes from Joachim Gunell from DNB Markets.

[Joachim Gunell, analyst]

So if we can just start off by, can you talk about how this cost-out program can be seen in the light of the former one you had in 2019 when it comes to timing as such because that actually marked the kind of, call it, the trough for end markets. So just the timing of announcing this right now.

[Staffan Dahlstrom, executive]

I would say, Joachim, I think the reason why we do it, as we said, is 3 different things. I'm not sure we have thought so much about the specific timing, but it's also after a couple of years with good growth, it's time to do some changes. And we have some double function. We see that, as I said, operational efficiency is part of our strategy going forward. So I think the timing itself is more like we see now. It's a good timing to do when we see a quite weak result, but it's also -- yes, what say, Joakim, the timing...

[Joakim Nideborn, executive]

I think it's really 3 things, Joachim, that we're doing. The Red Lion stuff. I mean that is a given. I mean that's because we made the acquisition now. So that has nothing to do with the market. What we do in Anybus has actually nothing to do with the underlying market. It's just that we see we need to get a better outlook from that organization.

And I think those are 2 big things in this. And then the fine-tuning we are doing, well, yes, that is because of the market. But I think the -- yes, so I think the Red Lion is maybe driving this. And we feel let's do everything at once. Let's try to do it rather quickly. We know that announcing these kind of things always creates worrying organizations. So that's where we like to do everything at once basically.

[Joachim Gunell, analyst]

Perfect. And when it comes to the wider technology offering here complemented by especially the Ethernet switches from Red Lion, I think we talked about on the previous call how this could ultimately enable for you to move up in the value chain. So provide some thoughts about how you see that unfold over the coming years.

[Staffan Dahlstrom, executive]

Yes. The reason why we acquired Red Lion is 2 things: a, very good market access in North America; and b, product that complements us and makes us be able to do much more cross-selling.

The Ethernet switches, as you mentioned, is a way for us -- I mean, Ethernet switches are in every system, in every machine. And here, I would say that our switch we get with Red Lion is more ruggedized, more industrial. So we may not compete on the price here, it's more for advanced applications. So this is a good opportunity for us to play cross-selling with our customers.

And we see some of the technology we have in Anybus, for example, is also something that they need on their switches with new technologies such as time-sensitive networks and things like this. So there we see a very interesting and good mix. And actually, some of the Red Lion gateways have similar things in crossover between Anybus and Ewon.

The new area for us is really their visualization product, the human machine interfaces. That's a quite new area for us. But of course, we sell a lot to machine builders and end users, they buy these products from other companies today. So we see an opportunity, but also realize that this is a new market but require different skills to sell. So we are quite humble when we look on this HMI market and how to make that successful.

[Joachim Gunell, analyst]

That's helpful. And then sorry, I mean, I'm listening in to the Ericsson call here with one ear. So sorry if you already commented on this. But in the Q4 results, you talked about that you have this ongoing channel check with your customers. You said that -- you echoed this again that there's somewhat of a more wait and see. But can you discuss just the nuance shift in terms of what your customers are ultimately saying today versus 90 days ago and with regards to timing of order momentum, et cetera.

[Staffan Dahlstrom, executive]

I think when we talk to our distributors, they say that they see better demand. We actually have some data from this in U.S. called point of sales. So we see that the end market is actually growing compared to quarter 4 last year. It's not a great market, but it's a good size there.

But we can't see it in our numbers yet, because, first, the distributor need to flush out their inventory, then our direct customers, that in some cases, also have a channel to market, need to take out their inventory. So we see the early indicators that the market early, the underlying market demand is actually improving compared to last quarter, but it's not fully visible in the order intake yet.

[Joachim Gunell, analyst]

Perfect. Final one for me. Joakim, can you say anything about how we should think about purchase price allocation and the implications on tax rates, et cetera, in light of now consolidating Red Lion into our models?

[Joakim Nideborn, executive]

Yes. So I think purchase price allocation, I'd like to get back within Q2. We try to take 1 thing at a time, right? We've been working pretty hard to get this report out in time, and now we're going to dig into that.

The tax rate, I did comment on, Joachim. So I said that we're probably going to see a reduction of tax rate in the whole group by some 2 to 3 percentage points due to the Red Lion acquisition and that 338(h)(10) election filing that we're going to do.

[Operator]

The next question comes from Gustav Berneblad from Nordea.

[Gustav Berneblad, analyst]

Yes. It's Gustav here from Nordea. Just a couple of questions. When you sort of comment on expecting orders to normalize in H2, can you just specify what is the basis for this? Is it the inventory levels among your customers? Or is it the dialogue specifically or any flavor here would be helpful to get more conviction in this?

[Joakim Nideborn, executive]

Yes. So I think good question. I think what we're trying to do is we try to keep a tight dialogue, especially with those direct customers that we have, and also that we now keep a large inventory with -- especially on the embedded business, where we have the biggest of this boost effect.

And basically, what they say is that I think the majority assess that they've had inventory enough to cover the first 2 quarters throughout the year. There are also some that said that they have inventory enough to cover the first 3 quarters and a few, especially in Japan, that basically have inventory for the rest of the year.

So that's why we say that we're pretty convinced that we will have a release into the third quarter, and then it will progress to be even better in the fourth quarter just because of those large customers. I think we've been seeing them placing very little orders over the last 2, 3 quarters. And at some point, when they are out, I mean they need to refill because they still have some demand on their end. So I think that's why we can be quite sure that we will see this recovery in the market.

[Gustav Berneblad, analyst]

That's helpful. And then maybe just you commented on being a bit more careful here on taking on costs in Q1. So just if it's possible to quantify this or what is it more specifically, is it you're traveling less, less fares and so forth? Or what are you cutting in on if we sort of exclude the restructuring program?

[Joakim Nideborn, executive]

Yes. So I think if I just talk about Q1 first, which is down from -- I think we had SEK 310 million in Q4 or SEK 309 million maybe it was, and now we do SEK 252 million underlying. So that's, of course, a massive saving, and with the same number of heads in the company.

So I think we're doing less traveling. We're doing less customer activities, less seminars, and we have been holding back some IT projects that we wanted to do, but we're postponing them a little bit.

And also on the R&D side, we're taking it a little bit easy, not taking on external consultants to get things up and running and so on. So I think we've been very careful. And to do that forever, would definitely hurt the growth long term. But I think we also want to -- we want to be a bit careful here and see that the orders are actually coming back as we expect, and then we're going to release these initiatives as well.

And that's why I can't really quantify what -- how -- I mean, of course, we know what scenarios we're looking at in terms of OpEx, but we will need to do that in a careful way in relation with orders coming back. So I don't want to give more color than, I think, what I already did in terms of explaining those savings going forward.

[Gustav Berneblad, analyst]

That's fair. But just for -- is it fair to assume that Q2 to Q4 last year is a sort of a good proxy for the cost base if we also include the restructuring program, would you say?

[Joakim Nideborn, executive]

I mean if I answer that, I would have given that color that I didn't want to give.

[Gustav Berneblad, analyst]

Sorry, sorry. And then just a final 1 here. I mean now a couple of years out from COVID and I mean, we had the supply chain issues, the high freight rate and so forth. Are you seeing signs of the near-shoring trend intensifying? Or are you expecting this to intensify from these levels? Or can you give any color here?

[Staffan Dahlstrom, executive]

I think this continues. And especially when it comes to putting more manufacturing in China, I think more and more Western company are finding regional alternatives, maybe not national, but regional. We see a lot of activities in Mexico towards North America. We see a lot of activities here in Europe. So I think that will continue.

And I think also we've seen that the cost of -- the upfront cost is one thing, but I think people also realize that transportation cost, risk cost and others also is something you need to work into your equation in there far away manufacturing may be not so favorable at this time. So the near shoring is continuing.

It doesn't mean that everybody move out of China. No, there's still a lot of things that is ongoing there. But we see that the new investments may not be made there.

[Operator]

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Staffan Dahlstrom, executive]

Thank you, operator. And everybody, thanks for joining this call. We look forward to the coming quarters here. As we said, we are quite positive about the longer-term future, but right now, we are in a somewhat weaker period but we keep on fighting both to win new customers but also manage our cost side in a reasonable way going forward. So stay tuned and I look forward to hear you quite soon. Bye-bye.