WashTec AG

XETRA:WSU

Earnings Call Transcript 2020-Q1

[Operator]

Dear, ladies and gentlemen, welcome to the conference call of WashTec AG. At our customers' request, this conference call will be recorded. [Operator Instructions]May I now hand you over to Dr. Koeppe, who will lead you through this conference. Please go ahead.

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

Ladies and gentlemen, I would like to welcome you to the presentation of the WashTec financial statement of the first quarter 2020. With me here in the room are my colleagues, CFO, Axel Jaeger; and Sergej Wolodin, Head of Global Finance and Accounting. Next slide, please. Before we come to the presentation and the figures of the first quarter of 2020, let me present a few words, say a few words about WashTec's present situation with regard to the COVID-19 pandemic crises. The current situation regarding COVID-19 changing rapidly and needs fast adaptation. WashTec's management's priority is to protect the health of all employees to be able to ensure business continuity. At the same time, we focus on cash management. The constant monitoring of the supply chain and suppliers is of great importance. We were successful so far and did not have large impacts here.Regarding China, we are also able to see positive effects. Production has almost completely resumed and the machine sold are likely to come back to the prior year's level. Another challenge in this situation is the closure of customer sites, which makes it more difficult for us to provide service installations. There are also signs of declining washing figures in some countries due to initial restrictions have been observed. I will come back to this later. Of course, the effects and challenge of the COVID-19 pandemic has a different impact in different countries, making it very difficult to make a general statement so far. The consequences of this pandemic cannot be yet assessed. However, WashTec's advantage strengths is that we, as a company with global footprint, can react adequately to the situation on a local level. Also digitalization helped us both of machines and internally -- in serving machines and internally to observe the situation and to understand the crisis, and I will present this later on the slide. I would now like to move away from COVID-19 to our actual topic of Q1 figures in the first -- let's say first a few words about WashTec's business model and current initiatives. Next slide, please. As with the last call, before we will present the final financial figures, I would like to give you a brief overview on the topics listed on this slide. I will briefly explain the WashTec business model and the focus on the 3 most important priority topics, which is company culture, our performance program and innovation by digital transformation. Next slide, please. As many of you already know, WashTec's business model consists of 3 areas. The WashTec check product range comprises all types of vehicle wash equipment, as well as the associated peripheral devices, wash chemicals and water reclaim systems. WashTec also offers comprehensive servicing packages spanning the entire product life cycle, including equipment maintenance, financing arrangements and operator management. The main revenue driver is the equipment and service product range. Next slide. The goal of WashTec is to focus on customer benefit in combination with entrepreneurship of employees. Digital transformation of product, services and business models can only be successful when the customer benefit is defined and proven to be valid. The COVID-19 pandemic accelerated our internal business to be executed online. For example, a large number of employees were sent to their homes in order to minimize the risk of the plant closing down. Important meetings are being held using video conferences. The change into, call it, internal digitalization was successfully executed within 3 days. But we also see how digitalization helped the customer in the crisis, not only remote access to the machine but also the evaluation of the washing figures have been very helpful.Working digital increased the efficiency, we have observed this strongly, and this will remain as a result -- outcoming result out of this crisis. Because we see disadvantages, we are taking this up and are constantly and even more effectively driving forward digitization at WashTec. Next slide, please. We have launched our Performance Program, which consists of an operational excellence program to streamline processes and cut costs in all parts of the business. This slide shows the overall approach and dependencies. We have presented this already at our last call on March 28. I don't want to repeat that. You may ask questions about this.Structural changes are driven by the headcount reduction. That is the program, bringing us down to the same headcount as of the end of 2017 by the end of 2020. This program has been accelerated, and further adjustment of headcounts have been initiated by a strong restructuring program in North America.We also reduced the number of temporary workers and prepared an execution plan to introduce short-time working. We call it in German, [Foreign Language], some -- I think the English term, the correct term is part-time unemployment, in the departments that require the adaptation of the business activity and capacity to the economic situation under COVID-19.The measures taken will enable us to react quickly to the respective situation. With this, we are sure that we have fast and effectively reacted on the crisis so far.Next slide, please. The last time I explained to you that WashTec is working on digital transformation in all its areas. For example, digital functions that are integrated in our new rollover system. Today, I would like to show you that digitalization is of great benefit to the operators of our machines. On the slide on the right side you can see the average washing figures in the first quarter of the year, one is for Germany and one is for China. This chart shows a multiyear comparison of the years 2018, which is in blue color; 2019 in red color; and 2020 in green color.In China, for example, you can see very clearly the average wash figures for the first quarter of 2020 are significantly lower than in the previous year, which is certainly also related to the restrictions due to corona. What is the benefit of such an evaluation for the operator? In general, the evaluation of the wash figures allows the operator to explain its resources, and to plan them ahead, employees, chemical consumption and to correlate this data with the data of weather and vacation season and start the flexibilization of the wash business.At WashTec, we were able to observe in real-time the impact of COVID-19 on the wash figures of our customers and plan our business accordingly. What you don't see, I have not taken this in, but the wash figures in Southern Europe, especially in France, Italy and Spain were down significantly compared to the wash figures in Germany. This indicates that in our -- in these states of Southern Europe, the restrictions through the COVID-19 pandemic crisis have been very much more restrictive than compared to Germany. Next slide. This has been just a few -- I've given you a few ideas about how we see this digitalization and real-time data, the current situation of COVID. I would like now to hand over to Axel Jaeger for the presentation of the Q1 figures.

[Axel Jaeger, Former CFO & Member of the Board of Management]

Thank you, Ralf. Good afternoon, everyone. We are now moving on with the financials of WashTec for Q1 2020. Effects of COVID-19 pandemic were clearly noticeable towards the end of Q1 2020. Next slide, please. In general, as most of you know, Q1 of WashTec is, in normal times, usually the lowest quarter, and business volume of WashTec is constantly increasing over the quarters of any given fiscal year accumulating in Q4 as the strongest quarter. Regarding business activities in Q1 2020, we do see a noticeable effect on COVID-19 towards the end of the quarter, i.e., the COVID-19 impact in March 2020 is considerably stronger than in January, February 2020. COVID-19 started in APAC, i.e., in China. APAC revenues are on an annual basis, roughly 4% of WashTec revenues. And therefore, the impact on global business volume was limited. However, with COVID-19 arriving in Europe, which stands for more than 80% of WashTec's annual revenues, the impact towards the end of Q1 2020 was material.Order backlog regarding the equipment and service segment is still above prior year. Free cash flow development was good due to the collection of accounts receivable from Q4 2019, which was the strongest quarter ever in WashTec's history. Next slide, please. Revenue development compared to Q12019 was mainly driven by COVID-19 spreading over the world from APAC to Europe in Q1 2020. Impact on EBIT corresponds, as stated with the regional segment sales volume. Good free cash flow development, again, as stated, based on focused planning and collection process regarding accounts receivable built up by the end of Q4 2019. Next slide, please. Revenues in Europe below Q12019 due to country-by-country lockdown restrictions coming into full effect in March 2020. In particular, as a result of the very weak March in the European countries most severely affected by the crisis, Italy, Spain, France and Austria, first quarter revenue was noticeably down compared to prior year. APAC revenues are below Q1 2019. However, APAC at WashTec is in a sense, China and Australia. The Chinese market is recovering again, but revenue there was nevertheless about 40% below expectations. North America revenues are above Q1 2019 since this region was not materially affected from COVID-19 in Q1 2020. However, as the crisis also started to spread rapidly at the end of the quarter, the first cancellations of already placed orders began to be received and the company reacted with extensive immediate measures. Next slide, please. EBIT development followed revenue development. Despite a 3.8% reduction in costs on a currency-adjusted basis relative to the prior year, it was not possible to offset the lost earnings contribution because of the lower revenue. The cost reduction related to personnel expenses, depreciation, amortization and impairment, other operating expenses and other taxes adjusted by the increase of foreign currency valuation. As of March 31, 2020, WashTec had 29 employees less than March 31, 2019. Next slide, please. Equipment and service revenue was down mainly because of postponed installations and the lack of service activities due to the local restrictions in various regions. The order backlog, i.e., equipment and service segment, at the end of Q1 2020 showed an increase compared to Q1 2019. Unlike in prior years, however, the order backlog provides limited indication as to business development in the months ahead. Given the current situation, this is determined less by the size of the order backlog and to a far greater extent by the various populations and restrictions in the various countries regarding logistics and installation works. In Chemicals, revenue increased mainly due to the regaining of a contract with a key account in North America and a number of restocking orders from key accounts in Europe. Next slide, please. Gross margin increased mainly due to an altered product mix from 58.2% to 58.6%. Decrease in personnel expenses was mainly due to a lower number of employees compared to prior year and a lack of severance payments due to a change on the management board last year. Decline in EBIT is mainly due to the negative revenue development in Q1 2020, the 3.8% reduction in costs, e.g., personnel expenses, amortization, depreciation, other operating expenses, on a currency-adjusted basis relative to prior year, could not offset the lost earnings contribution due to the lower revenues. WashTec responded to the COVID-19 crisis with extensive measures in addition to the existing cost reduction program. These include, but are not limited to, contingency plans, a CapEx freeze and forward-looking measures to safeguard the company's liquidity. Next slide, please. Net operating working capital decreased due to the slower start of business in Q1 2020. Additionally, as a result of payments received for the exceptionally strong Q4 2019, accounts receivable decreased substantially in Q1 2020. Net cash flow includes a prepayment of tax on investment income. A refund of the prior year payment will be received in Q2 2020. Due to COVID-19, a group-wide CapEx freeze was initiated. Therefore, cash flow from investing activities was significantly reduced. Bottom line, WashTec has responded to the crisis with extensive measures in addition to the existing cost reduction programs. These include establishing contingency plans and forward-looking measures to safeguard the company's liquidity. Given the current uncertainty due to the spread of COVID-19 crisis, credit facilities have been increased by a further EUR 35 million up to EUR 122.5 million. Next slide, please. Guidance 2020. On April 3, 2020, the company retracted the guidance for the 2020 fiscal year. In lieu of the rapid global spread of the COVID-19 pandemic in recent weeks, in particular, related crisis measures taken by the various countries and the severe economic impact and the development of orders received for the second quarter, it is not possible to reliably estimate our business development in fiscal year 2020 in the currently rapidly changing situation, hence, it is impossible to provide an updated forecast. Compared to the prior year, the company presumably anticipates an unforeseeable decline in revenue and EBIT. Next slide, please. Here, we see the WashTec share performance, and that was mainly driven again by the COVID-19 pandemic and followed the development of the SDAX, which deteriorated significantly by 26.09%.Next slide, please. Here you see our financial calendar. As of today, publication of Q1 statement, next publication of half year report will be July 28, 2020. Thank you.

[Operator]

[Operator Instructions] The first question we have is from Eggert Kuls from Warburg Research.

[Eggert Kuls, Senior Analyst]

I have a few questions. First of all, can you please give us a feeling about the decline in business you have faced in April? Because I think in April, in all of your important regions, you had the negative impact from the corona disease. So this could give us maybe a better feeling what's going on in Q2 and maybe also in the third quarter of 2020? This is my first question.

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

Okay. Should I -- we'll answer this and then we go to the second. April situation is like this that compared to -- and we're still somehow in April inside that, first of all, the vacations has been earlier. So when we compare week by week, the situation has been difficult. What we know, and we noticed from the wash figures that Southern Europe is very restrictively shut down and therefore, also activities in sales and services are very restricted. However, when you look at the wash figures which we presented, for example, in Germany, this also indicates that business activities were not as much shut down as we have had that in Southern Europe. At all, when we summarize this, the situation is from the April data, very difficult to judge out of this situations. We closely have to observe when we come out of the lockdowns in Southern Europe, how these things continue. And of course, we have -- and we are doing this right now. We are calling the customer to see what kind of restrictions which we will have in the future or how we can release, let's say, and start installation in these areas. Again, we have basically there a weekly task force that is trying to push out the machines. Axel do you want to...

[Eggert Kuls, Senior Analyst]

Okay. Then regarding the free cash flow, which was very impressive for the first quarter, but I think it was clearly in -- a result of your high business volume in the fourth quarter and late shipments in December so it was not that surprising. What I ask myself in this collection is, is your former outlook on free cash flow of an improvement in 2020 compared to 2019 still valid? Or is that also under review due to the COVID-19?

[Axel Jaeger, Former CFO & Member of the Board of Management]

Well, of course, we are constantly working on our free cash flow and on our performance to make it better. But it is retracted as the entire guidance for 2020, officially. But we are, of course, ongoing working on free cash flow, especially in this situation where, so to say, cash is king. So we are working on the financing side and on the side of optimizing net operating working capital.

[Eggert Kuls, Senior Analyst]

Okay. So this probably means -- that means also that your CapEx spending will also be restricted, at least, for the...

[Axel Jaeger, Former CFO & Member of the Board of Management]

We do have a CapEx freeze. We have a freeze.

[Eggert Kuls, Senior Analyst]

Yes. Okay. Okay. So -- okay. And then lastly, your top line development in North America was rather impressive in the first quarter. This was partly due to the win back of the customer -- of a major customer in the Chemicals business. I wonder, how much of the increase was due to this single customer?

[Axel Jaeger, Former CFO & Member of the Board of Management]

I think if we look at North America, especially in this Q1, there are 2 effects: First of all, yes, we regained the chemical contract and the full effect of this chemical contract comes now because as we mentioned before, the last quarter of 2019 and the first quarter of 2020, we are working getting everyone in place and bringing all the different sites into organization. Second effect that helps us in North America was, of course, the work we spent during the last fiscal year to get more efficiency in this organization and to, so to say, to professionalize the organization. And last but not least, of course, North America is the last part of this planet that was hit by COVID-19. So I think we will see a stronger COVID-19 effect maybe in Q2.

[Operator]

The next question we have is from [ Constantino ] from HSBC.

[Unknown Analyst]

Yes. I'm representing Mr. Richard Schramm. I'm his working student. So I have also some questions for you. Like in North America, you had a very nice sales growth of more than 20% on the sales side. But the EBIT you reported, it's like it declined for about 10% compared to last quarter. Like, what is the reason behind that?

[Axel Jaeger, Former CFO & Member of the Board of Management]

So first of all, we are still -- as I mentioned before, we are still working on the reintegration of the chemical contract, and this will be finalized by the end of Q1. Second of all, we had some work to do with the execution of orders and execution of orders that were expected to come in the course of the fiscal year. And third of all, when I look at the EBIT, many of the efficiency measures that we initiated last year, they are now taking place, and we will see the full effect in the course of the -- of now of the 12 months of fiscal year 2020.

[Unknown Analyst]

Okay. I see. So maybe another question I got about the Chemicals business. You said that you had, like, from all the segments, Chemicals was the one that was growing the highest. So the thing is, why was -- why couldn't you offset the loss you had this quarter by the strong growth of the Chemical segment?

[Axel Jaeger, Former CFO & Member of the Board of Management]

Well, overall, if you look at our revenues, the Chemical segment is a nice segment because its aftersales is very stable, and people tend to wash cars around the year if they are not restricted by measures like we see as of today initiated by COVID-19. However, it is a growing segment, and the segment is not large enough to compensate for losses in the machine and service segment.

[Operator]

The next question we have is from Aliaksandr Halitsa from Hauck & Aufhauser.

[Aliaksandr Halitsa, Equity Analyst]

I was just curious if you could elaborate a little bit on the -- you mentioned that you're going to accelerate the personnel adjustment program with further headcount reductions in the U.S. Could you just talk a little bit more to what extent do you plan to do that? And what areas are you targeting there?

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

Okay. Two things. The first advantage is because of this headcount reduction program, we're already breaking, and breaking even harder is easier. Just to let you understand, our original goal was to go down by end of 2020 on 1,820 headcounts. And of course, many of those people already left the company, the headcount is still in the data because contracts end and so on and so on. But the economic or the impact on the salaries and so on have been put into the accruals in 2019. At the end of today, this program was also initiated to change skills to put younger people in and maybe to have the people who are closer to retirement, helping them into this retirement setup. But since we have the situation of COVID-19, we stopped this phase. And basically, these 1,820 are already in the books. Yes. So there's additional measures, which will then lower this figure of 1,820. The potential, we're still working on. And it's a little bit too early to say. But as we announced, we have a strong restructuring effort in North America, and we had short-term measures taken. And I just put that figure out just to get you the idea about 30 headcounts in April, which you don't see yet in the data of March. But we acted there immediately. And of course, are further studying how the situation will carry on, and working on the restructuring program. Does this give you some better ideas what I meant with that?

[Aliaksandr Halitsa, Equity Analyst]

Yes, that's helpful. Maybe if you could also mention what areas or roles are you looking to reduce personnel in, admin or also sales, marketing?

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

At the end of the day, this whole headcount reduction program was meant to make flatter hierarchies, take hierarchy levels out, push people more into direct phases and so on. Of course, as usual, you have people leaving also direct sales or service positions. And due to the current economic situation, we are not rehiring those, yes. But in general, this is more or less was the strategy to support coming back to a double-digit EBIT based on the headcount end of 2017. Now the next situation, what we're going to do with the current situation, this is scenarios which we talk basically daily about this, but it's not -- it's too early to present. But as I said, it helps that we are already on the break because we're just -- can break even harder based on how -- based on the idea, which I gave you just a minute ago.

[Aliaksandr Halitsa, Equity Analyst]

Okay. And then maybe also on the -- you mentioned that you have seen already some order cancellations. Could you talk about whether it was from -- on part of key accounts or direct sales? Or it's just across the board?

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

So it definitely the key accounts, of course, review their orders, also due to the situation of the oil price and the current overall situation. As we stop our CapEx and have a look at the economic situation, various similar things are done by the key accounts. We have not yet observed that by the direct sales. So there's always the question of financing on the direct businesses, so businesses who are not in the key accounts, is effective. So far, we have not observed this yet.

[Aliaksandr Halitsa, Equity Analyst]

And then you mentioned already oil price. Could you potentially see that it would be detrimental for the key accounts business in the near term? Or how has it been historically correlated with the oil prices?

[Axel Jaeger, Former CFO & Member of the Board of Management]

Well, in general -- I mean, first of all, not all of our key account customers are big oil companies. But taking the fraction of the big oil companies, they are, in a way, of course, carefully, if the oil price is at levels that we saw to last week. Yes. So that's always difficult.On the other side, as you know, coffee and carwash is the most profitable thing you can do if you run a station. So yes, they are -- the fraction of the big oil companies, they are carefully with CapEx spending. But in the end, if they evaluate their business case, then as I said at any station, the carwash and the shop with the coffee is one of the profit -- most profitable things you can do. So we see, we see carefulness, but we closely monitoring the development over the next week.

[Operator]

The next question we have is from the line of Michael from Commerzbank.

[Michael Junghans, Equity Analyst]

Gentlemen, I've got a couple of them left on the desk. I just want to ask about the wash figures what you show on Slide #7. So are these your internal figures, what you presented to us? Or are these industry-wide numbers? And would you also add the numbers to the vertical axis? Or have you decided to leave them blank?

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

These are internal figures, and we intentionally changed or didn't show the Y-axis. But you can see, of course, the differences in the different years. Usually, when we look at those figures, you see the wash weather. So you see, let's say, pollution in the air or [Foreign Language], let's say, from the plants, which usually then helps in adding the washes. I just wanted to give you an idea that we use this, basically, real-time coming in data to manage the crisis. To my knowledge, there's no database, which is officially available as it's only our WashTec figures, yes.

[Michael Junghans, Equity Analyst]

Okay. Then I will talk about your European business. So could you say which customer groups are currently showing, say, the greatest reluctance to invest at the moment in new carwash equipment overall? And how does the lower oil prices fee impact business here? So I would guess it would be a rather negative impact here, a rather negative factor?

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

Let me just answer this twofold. When we look at the revenue, so the existing orders, and we explained that our orders on-hand is -- the orders on-hand of last quarter, the current work is to make sure that these things get installed, having restrictions in the installation more in the south than in the north. I mean this is what we presented.The other thing you're asking is then more or less a question about order intake. And I think at the beginning, I answered the question already that the April is very difficult to read because of the Easter effect, Easter holiday effect and the shutdowns in the combination. So the assessment of reluctance to invest is a topic which is for us, a little bit too early. We, of course, do scenario planning, but we will see more evidence in the first weeks of May where we have all these effects away and where we come back out of the lockdown and see what the interest of further investments are within the different groups of the OEM with the difficulties we just mentioned that the CapEx is, to a certain extent, frozen at these customers and for example, the direct customers.And one of the thing is that, especially in the last years, we made great success in increasing the percentage of direct customers compared to the OEM customers. Therefore, we really have to see how those direct customers come out of the lockdown and how much impact that made to them.

[Michael Junghans, Equity Analyst]

Yes, sure, fully understood. But however, on the -- with respect to the direct sales business, do you see -- so especially in Europe, do you see, I would say, now like an increased price pressure? Or like an increased competitive environment on the side of your direct sales business in Europe?

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

No. Axel, you want to...

[Axel Jaeger, Former CFO & Member of the Board of Management]

Yes. I mean direct sales are usually individual operators. They've planned such a project for a very long time. They have the financing, and they don't run big CapEx planning. So no, we don't see it. We see, so to say, thank God, in this area, business nearly as usual. Given that we are allowed to do our installation work, that's especially in Northern Italy or in France, the problem, if everything is ready and we cannot execute the installation, that are orders that are usually postponed until these restrictions are taken off and we can do the installation work.

[Michael Junghans, Equity Analyst]

Okay. Fully understood. And coming to my question on Asia Pacific on the business there. So on your presentation on Slide #2, you wrote that you sold machines in China almost at last year's level. However, if I remember in the Q1 report, you said that revenue in China was 40% below your expectations. So which line here is the correct one? And then I would also ask about your business in Australia. So I guess it's a roughly 50-50 split between sales in China and sales to Australia. So wouldn't it be a right assumption to make that there is a risk that demand in Australia would probably slow down now in -- now with the beginning of Q2 or probably also in Q3 in the light of the plunge in the oil prices?

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

Okay. Let me take the first question because this was on the slide related to COVID-19. And this is meant to be read like this, and I apologize if this was not the case. We might want to add on this before we put it online. The last year's level meant that coming out of the lockdown in China we now see already, let's say, 80% in the months' segment that were coming back on the machine level. That is what we meant about. And that's, let's say, then almost 4 years level. This is, of course, not an indication. And I indicated that in my reading, let's say, into my spoken words, that China is for us when -- if there's no second wave coming in and things happening something where we usually saw the last year's growth, and we might be able to come back there at -- almost at the year's level 2019. But we will see. This is very premature. This is no guidance. But this also indicates that, at least, the Chinese market seems to coming back.

[Axel Jaeger, Former CFO & Member of the Board of Management]

Okay. And maybe a few words on Australia. I mean Ralf elaborated already on China. Overall, if I look at Australia, I can say that the order backlog in this year in Australia is better than before. And that we see, so to say, the fruits from our initiatives from the new Managing Director, who did his work there for the last 12 months. So we are, in general, positive for Australia. However, no surprise, COVID-19 adds some uncertainty to the situation. So we have to see how it develops. But from the order backlog and from the organization, we have less people. They are working quite successful. Australia looks good. But we have to see what COVID-19 does to the region. But hope is that there is not a second wave.

[Michael Junghans, Equity Analyst]

Yes, of course, makes sense. So just another question here about, you booked EUR 0.5 million for impairment, loss of trade receivables. What was the driver behind it? And might we see, like, more impairments on this line over the upcoming months?

[Axel Jaeger, Former CFO & Member of the Board of Management]

Not necessarily. We did some impairment bookings based on the situation, but that was more of a standard given our evaluation. And we are very focused, especially in this situation on dunning and collection. And you can see it in our numbers, some account receivable may take longer, but we are after every single account receivable to collect it.

[Michael Junghans, Equity Analyst]

Okay. And do you have like -- could you give a little bit of a guidance how much of other operating expense you could probably save in 2020 compared to 2019?

[Axel Jaeger, Former CFO & Member of the Board of Management]

I mean that's an interesting question. I mean I would suppose that our other operating expenses are lower because we cannot travel. We have no overnight stays. We have no flights. But on the other hand, it is good. I'm not so sure because if we cannot travel, our sales people are not on the road. So yes, at least for the first half, I would expect operating expenses to be lower just due to the restrictions. But on the other side, I could live, so to say, with higher travel expenses if the revenue comes in and our sales force is on the road.

[Michael Junghans, Equity Analyst]

Okay. Then you talk about supply chain risks in the report. So could you say about the kind of production materials, which are currently affected by a potential bottleneck? And how many weeks they are left until you see difficulties in material procurements?

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

Okay. I think in the first part of quarter 1, we, of course, had an eye on China. But since China is more local for local, we had the few materials where we also take out of China out of our plant to check-in plant or to output plant secured and came out there without any problems.The second phase of the first quarter, Italy came into focus. Northern Italy is basically the part supplier of the German machine involved. And therefore, we managed all the things. We didn't have any difficulties yet. We had one supplier helping them to talk to the Italian government and so on. And with another supplier, we exchanged the part, which we could, but we managed, without complications, that. But of course, there had things to be managed. And we have plotted our Italian friends are now coming out of the lockdown and are back to business. And at least in Europe, this works well that the supply chain is working.

[Michael Junghans, Equity Analyst]

Okay. So my last question would be on CapEx. Could you shed a little bit more light about where do you see CapEx by the end of the year? So can these -- you spent EUR 600,000 in Q1. So any hints where you might be at the end of Q4?

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

That's really too early. Basically, we stopped every CapEx. And then now we are releasing this, if at all, depending on the business situation. And the problem right now is that April, coming out of this lockdown, the business situation is, when we just look at the last weeks, is severe and of course, that will change. And we have to get a little bit more in May and June. And if we see possibilities to use CapEx to, let's say, speed up innovation and come back out of this crisis, we will use that, but these are discussions. And as usual, that's not a lot of CapEx we are using up there. So our prognosis by the end of the year is very difficult. For the moment, everything is shut down.

[Michael Junghans, Equity Analyst]

Okay. But might this impact your introduction of the SmartCare carwash products in the Q4? So the...

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

No. No. No. It's more like what can we add 2 things on that. But these are ideas. As I think every company would like to make the use of such a terrible year not being remembered as the year of shutdowns, but being the year of maybe introducing something. And so we are working on things, and the SmartCare is not affected.

[Axel Jaeger, Former CFO & Member of the Board of Management]

And I can assure you, of course, we do a CapEx freeze, and cash is king, as you say. However, we don't do stupid things. So if we see unavoidable investments or if we see that we need here and there investment to bring our business or make our business more successful, then we'll do it. But the selection criteria and the process is much more strict than it was before.

[Operator]

The next question we have is a follow-up from Aliaksandr Halitsa from Hauck & Aufhauser.

[Aliaksandr Halitsa, Equity Analyst]

One follow-up on the SmartCare product portfolio. You were targeting, I think, the first shipments in Q1, Q2, if I remember correctly.

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

Q2.

[Aliaksandr Halitsa, Equity Analyst]

Q2. Okay. Could you mention if that's still happening? Or has there been any cancellation so far on this side of things?

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

No cancellations. More or less, we have to see whether the orders can be installed, same problem as we used to work on this. And currently, it's a fine-tuning in the sense, short-term work and so on and shutdown days to accomplish the goals. This may be a little bit conflicting, but this is fine regulation. So, no impact.

[Aliaksandr Halitsa, Equity Analyst]

And what countries were they meant for, those machines, the first ones for deliveries?

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

Europe. It's basically Europe. Yes.

[Operator]

[Operator Instructions] At this time, we have no further questions from the audience. I'll hand back to the speakers if there's any closing comments.

[Ralf Koeppe, CFO, CEO, CTO & Chairman of Management Board]

Ladies and gentlemen, thank you very much for attending the Q1 call. I wish us all good health for us and our families, and talk and see you later in the next future. Thank you very much. Greetings from Augsburg.

[Operator]

Thank you. Ladies and gentlemen, thank you very much for your attendance. This call has been concluded. You may now disconnect. Have a great day or afternoon ahead. Thank you.