Cargotec Corporation

Welcome to this news conference regarding Cargotech's half-year report 2020. My name is Hanna-Maria Heikkinen and I'm in charge of investor relations. Our business environment during Q2 was exceptional due to COVID-19 and related decisions and restrictions from authorities. Despite of those, our performance was solid. Both demand and our own delivery capability improved during the quarter. Good news is that our service and software was also resilient. We reacted rapidly to the crisis and started temporary cost savings, and our rapid actions are visible in our comparable operating profit. We have strong financial position and our total liquidity is 970 million euros. In May, we also announced our climate ambition to be one and a half degree company. Today, our CEO, Mika Vehviläinen, will go through the highlights and COVID-19 situation, and then our CFO, Mikko Puolakka, will continue with the business areas, financials and outlook. Mika will end the presentation with strategic progress and climate ambition. And after the presentation, there is a great possibility to ask questions and get solid answers. Please, Mika, time to start. And for your information, we are keeping required safety distance here.

Thank you, Hanna-Maria. Good afternoon, my behalf as well, and thank you for joining the Cargotech Q2 2020 call. First of all, I'd like to say that I'm very proud how our people in Cargotech performed during the Q2, delivering a solid performance in very tough and exceptional conditions. And I'd like to take the opportunity to thank all of our employees, our customers, and our partners for good performance during the difficult conditions. The Q2 started in a very difficult circumstances with the fast dropping orders, delivery difficulties due to the closure of our own manufacturing units and our supply chain issues as well. But we have seen a gradual improvement throughout the whole quarter. The solid performance was delivered by a few facts. First of all, we reacted into the situation relatively quickly. But more importantly, the investments and the developments we have done into our asset-light business model, our services and software, and to our control and processes were clearly paying off during these difficult circumstances. I'm also very happy that we made good progress in our strategy execution during the Q2, And I would say our strategy is even more relevant after this pandemic than it's ever been in terms of the sustainability, safety, reliability of automated, robotized, electrified solutions. I'm also very proud and excited for the fact that during the Q2 in our annual general meeting, we announced the target to be 1.5 degree company by 2030. As Hanna was already saying, we are covering, I'm covering the overall development. Mikko Puolakka will go through the business area specific, and then I'll talk a little bit about our strategy in the end. The orders dropped quite significantly, 27%, but we saw clear improvement over the quarter. May numbers were already much better than the April numbers, and June numbers were better than the May numbers. Also, our delivery capability improved through the quarter, and all of our manufacturing and assembly units are now back in operations. Our top line, of course, took a hit as well, coming from the delays or difficulties in customer operations, the manufacturing and delivery capabilities, and the issues with the logistics as well. That situation also improved throughout the quarter. Despite the difficulties, we actually delivered a solid operating profit, and actually our relative operating margin improved from quarter one. I'm also happy of the solid operating margin, both in Hajab and in Kalmar, throughout these difficult conditions. I'm also very delighted about the good progress we are making in MacGregor, where we improved quarter on quarter and year on year, and are heading to the right direction to watch the breakeven during the second half of this year. Again, very difficult quarter in many ways. The safety of our personnel, our customers and partners, of course, has been a top priority, and I'm happy that we didn't have any bigger issues with pandemic in our own operations or sites. The short-term actions we took in terms of the salary cuts, personnel, external work, travel cuts, et cetera, delivered a 10 million Euro per month savings that was very visible in our operating profit as well. Orders declined, but we have not had any major cancellations in any of our businesses, but we are still lacking any larger automation orders where the customers are waiting for the situation to clear. We did land one medium-sized automation order during Q2, but we still expect major automation orders within this year if the situation continues as it is at the moment. It's also good to see the services and software has been stable, and I come back to that one. The declines have been primarily related to the new equipment deliveries in Hayab. Now, when I look at the market conditions, the one I actually follow personally closely is actually our own data. We get real-time data from tens of thousands of pieces of equipment that are connected and operating by our customers, and that gives us a very good visibility about the activity, level in the cargo flow and logistics in different segments, in different geographical locations. Here, you see two graphs. On the left-hand side, you see Kalmar mobile solution index in running hours, and the right-hand side, you see Hayab loader crane activity index that takes into account the driving distances, crane cycles, operating times, drops, et cetera. As you can see, in the Kalmar mobile solutions, and this is a combination of many different segments and geographies, we reached the bottom of the activity, nearly 20% drop in the late April, early May. Since then, we have had a steady recovery on that one, and right now, we are roughly at the 90% level, so roughly 10% down, from pre-COVID situation. And I come back to the geographical split on that one in a moment. From the high-up side, you can see again similar, more than 20, in this case, roughly 25% drop in activity, but actually also very steady, recovery in the activity. And actually at the moment in high up loader crane side, the European activity slightly exceeds the activity level we had pre-COVID in January, February. And the US activity is roughly five to 10% lower than it was pre-COVID in the loader crane segments. The benefits of that data obviously are visible and help us in our own business, but they also be very helpful for us in directing our services operations, for example, and helping our customers. And I think it's very clear that after this crisis, the utilization of data, connectivity, et cetera, is going to be much wider spread, and that development will accelerate as good experiences of this one are coming through. From the geographical point of view, one can see that the activity level in Asia Pacific has returned close to the normal level. Even Australia, actually, we have some higher levels than we saw pre-COVID situation in there. However, the relevant markets where the most of the connected equipment are actually are the European markets and North America. You saw the recovery curve from roughly 20% down. The Europe has actually been more resilient market, and has also recovered somewhat faster than the US market, and is roughly now down 90%. You also see the 93%, which is the equipment utilization rate across the board at the moment, so we are slightly down still from the January, February numbers. The US market has lagged somewhat behind in recovery, but actually last week, where the data is based now on, we saw actually a surge of activity there, and we landed actually end of last week, 10% down, similar number to Europe. This could be somewhat to do with the 4th of July week, and then the sort of activities behind that one as well. But overall, sort of a sharp slowdown in many of our customers' operations, and then steady recovery during the last two months. If I talk about market conditions in a little bit more broader sense, obviously, in the first half, we saw quite a sharp decline in container throughput, 9.6% during the first half. Now, the market is expected to recover already in Q3, and the container throughput is expected to reach 2019 level during the quarter four. For 2021, market is expected to increase by 10 percentage points. Construction output also declined both in Europe and US during the first half, but actually in the last month or weeks, we have seen the activity level starting to increase again, where both the housing permits as well as the housing starts have started to increase in US again, and also we have seen increased activity level in most of the European markets. The MacGregor market conditions continue to be difficult. Even from the very relatively low level, we saw a further 33% decline in merchant sector during the first half, and even though the percentage increase actually in the offshore sector looks pretty good, it's actually coming from a very low activity level. In offshore sector, I would like to highlight that there has been a real transition happening in the MacGregor, and Proportion of oil and gas related activities in our offshore sector is less than 20% of McGregor offshore segment now. The fishery and aquaculture is an increasingly important business for us, and the real growth opportunities are now in offshore wind installations where we have landed our first of orders. And I expect actually the recovery in offshore sector happening through the sustainable energy investments and through the investments in fishery and aquaculture. Again, orders declined, but we started to see the recovery happening in the following months on that one. MacGregor orders were actually slightly up, but that increase came primarily from the addition of the TTS business into the MacGregor. The good news is that our order book is still at the good level, moving into the second half, and now that the delivery capability is returning, this is a good backlog to have. Sales decreased, customer obviously had a number of difficulties in their own activities. We had issues with our delivery capability to the site closures, and then on the supply chain and component availability, because many of our supplies also had closures. But the activity level and improvements have happened. As I said already, all of our manufacturing and assembly units are now back in operations, and also the supply chain is actually recovering close to normal as we speak. Very happy about our performance in software. Despite the difficult market conditions, our software sales increased further. We saw especially good progress in the software as a service or SaaS revenues in MacGregor and also in automation software. The services declined somewhat, and the Kalmar decline came primarily from the services that are related to access for customer sites, where there are a number of restrictions in place. High-up decline came solely from the installations and accessories, which are directly related to the delivery of the new equipment. The high-up maintenance and spare part businesses actually remained stable throughout the quarter. And the MacGregor service revenues increased, primarily coming in from the impact of the TTS addition into the business. Services and software is now 37% of our total sales. With that one, I'd like to hand over to Mikko Puolakka, who will cover the market area or business areas more in detail.

Good afternoon also from my side. And let's start with Kalmar, where we had a sharp decline in orders in April. But like you saw from the previous slides, the order and customer activity improved in May and then further in June. Orders were 293 million euros minus 30%. The mobile equipment orders declined sharply in May and then gradually improved. Also, the automation and project orders declined. In general, we have a good sales funnel for the automation and project orders, but in the current environment, customer decisions take time. If we are looking at geographical areas, EMEA and AIPAC were more robust, and the biggest decline took place in Americas. Kalmar sales were €350 million minus 18% year-on-year, and we had a growth in automation and project revenues, as well as in software revenues, while the mobile equipment revenues declined. Like Mika showed, the services revenues declined, but this decline was mainly attributable to the kind of services which require physical presence at customer site, and this kind of site restrictions and the travel limitations have been affecting the delivery of those services. On the other hand, we have seen also increasing demand for remote services, and this could be a future trend also going forward. The comparable operating profit in euros as well as in percentage remained on good level despite the decline in sales. We had a favorable impact coming from sales mix. Services amounted 35% of the total sales, Also, the long-term investment that we have done to the asset-light operating model processes and procedures are making our operations more flexible nowadays. We have also been reducing workforce by 350 FTEs during the last 12 months, and this is contributing to the profitability of Kalmar as well. And then we have had temporary cost savings in place in Kalmar since April this year. In high up, the COVID-19 was very visible in orders and sales, but comparable operating profit margin remained on a good level, 10%. Orders declined very similarly, like in Kalmar, mostly in Americas, while EMEA and AIPAC were more robust. As we have a fairly short cycle from order to sales in high up, the lower orders in the second quarter were also visible in sales. The service sales declined like Mika indicated, but the service sales decline was mainly attributable to services which are related to new equipment. As mentioned, the comparable operating profit margin remained on healthy level. This is also coming in high up, like in Kalmar, from the sales mix services amounting 30% of sales. And then we have been also rapidly adjusting our cost base in the assembly units. We have done also in HIAP good progress in various productivity improvements, like customer pricing, as well as in the supply of material driving the cost down. And also in HIAP we have the temporary cost savings in action since April. And in MacGregor, we start to see the first impacts of the DTS integration clearly visible in the results. So the trend is going to the right direction. Orders grew by 4%. Merchant orders were flat, while we had a good order development in offshore and, for example, in the offshore wind renewable energy type of segments. TTS contributed to sales and orders. Sales grew 28% and even organically sales grew by 3%. In McGregor, we saw the service sales, even though they were growing, the service sales were to certain extent impacted by the COVID-19 situation, as some vessels had travel kind of entry limitations and there were also travel restrictions in place. Kalmar comparable operating profit was negative, minus 4 million euros, but significant improvement year on year as well as compared to quarter one. So the restructuring activities and also the TTS integration are showing clearly the signs of improvement. We had also growth in merchant business that contributed also to the profitability. And then, like in other two business areas, we have had also the temporary cost savings measures in place since April. The TTS integration is progressing very well, and due to this reason, we have also increased our savings target from the previous 15 million euros to 18 million euros for this year. So far, we have delivered 7 million euros and 11 million euros to be delivered still in the second half. A few words about our key figures. Order book on a good level, 1.8 billion euros. Our comparable operating profit, 43 million euros, 21 million euros lower than in Q2 last year. Biggest decline from high up, then in Kalmar and McGregor improving. We had 63 million euros of items affecting comparability. Here, the largest item, 40 million euros, was related to the divestment of our share in the Rainbow Cargotech Industries joint venture in China. That happened in June. And then the remaining 20 million was related to the restructuring of McGregor, DTS integration, closing of offices and laying of personnel. These 63 million euros are related to activities which we expect to improve our profitability going forward. We have also conducted the McGregor goodwill impairment testing in the second quarter, and the testing showed no need for impairment. In fact, the goodwill impairment testing headroom increased from 7 million euros in first quarter now to 37 million euros in quarter two. Our cash flow was 4 million euros for the second quarter, The decline compared to last year's Q2 is coming mainly from the lower profitability. We have been able to release cash from receivables. However, we have had somewhat higher inventories due to the supply chain disturbances. Our financial position and liquidity are strong. Gearing was 64% at the end of June, and excluding the 177 million euros of IFRS 16 leases, our gearing would be 50%. It's good to remember also that only part of our interest bearing debt is having a loan covenant. So basically the bank loans, which are amounting 37% of our total debt, are having a covenant. and the single only covenant is gearing, and the gearing level is, covenant level is 125%. So based on this, we have a very rich headroom to the covenant levels. Our liquidity, as said also in the beginning, very strong, 970 million euros. Roughly half of that liquidity is cash and the rest are bank facilities. Our debt portfolio is well balanced between different instruments, bank loans 37% and long-term bonds and Schultz sign 57%. No major loan repayments coming up in the next two years. And we have also raised 250 million euros additional debt in quarter two. And you can see those in the 22 and 2023 maturities. Then coming to our outlook, as we have been reading, countries are opening the borders, but however, the coronavirus pandemic is far from being over. There are big uncertainties related to the market outlooks. Also, the market situation and operating environments may change very rapidly. Due to these reasons, the visibility for the rest of the year is still weak. And in this situation, we are not able to give a firm guidance for the full year. If we look at the second half of this year, we expect that the market recovery continues like we have seen already happening in the second quarter. We also expect to have less component constraints from our suppliers and we also expect that Cargotech's own delivery capability improves going forward further. We also continue with a similar kind of permanent productivity improvements, which have been contributing to our quarter two results. And we continue also with some selected temporary cost measures. And these kind of cost improvements are also expected to contribute to our profitability in the coming quarters. And then I would hand over back to Mika, please.

Thank you, Mikko. Despite the difficult conditions, we have kept on executing our strategy. And as I already said, I do believe actually that the ingredients for our strategy has been enhanced by this crisis. First of all, we keep on continuing driving our productivity, as Mikko was saying. As a part of our asset light operational mode, we have exited our joint venture in China, Rainbow Cargotech, and we also exited our manufacturing assembly unit in India and moved to contract manufacturing model. This will give us a further flexibility and more cost effectiveness in our supply chain. As a part of our productivity measures, In addition to temporary measures, we have also reduced our permanent headcount by 429 during the first half. We have also made drastic reductions in our external workforce as a part of our asset-light operational mode benefits. The restructuring costs were significant in Q2, but obviously, the largest part of that one was related to the exit and the write-off of the Chinese joint venture, RCI. The sustainability is a big opportunity for us. Our sector that we serve, the logistics industry, is responsible for roughly 7% impact on the global CO2. carries. We have now, as I said, already committed to be a UN-based ambition of 1.5 degrees. As a part of this science-based initiative, I have signed a uniting businesses and governments to recover better statement, where we urge the governments to actually direct their stimulus and incentives towards more sustainable solutions. We do believe that we have fantastic opportunities, and we keep on investing. Our R&D actually increased again by roughly 10% during the Q2, and we keep on investing specifically for electrification, automation, software, and robotics. We do believe that the sustainable product portfolio and sustainable product offering for our customers is a long-term growth opportunity for us, and the proportion of our sustainable product portfolio increased again, during the Q2. With that one, I'd like to thank you for your attention. I think we turn into the Q2.

Thank you, Mikko. Now, there is a possibility to ask questions. So, handing over to the operator.

Thank you. If you would like to ask a question, please signal by pressing stair 1 on your telephone keyboard. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach your equipment. A voice prompt on the phone line will indicate when your line is open. Please state your name before posing a question. Again, press star 1 to ask a question, or pause for just a moment to allow everyone the opportunity to signal for questions. You may also ask questions online. Thank you. We'll now take our first question, thanks. Caller, your line is open.

Hi, it's Felix from Nordea. A question on the column or sales mix in the backlog. Could you describe on the split with being the mobile solution and automation as well as how long will the backlog carry workloads going forward?

The mix was more weighted towards the automation and project solutions as the, as obviously we had a sort of a stronger project execution in that one. However, the mix within that one was relatively good as well and resulted in a good operating margin there as well. For the automation project side, we have a backlog that extends well into the next year. In mobile equipment, we also have a very good order backlog towards the second half of the year, but obviously, we would like to see the orders recovering, which it has done already throughout the quarter, supporting further the second half performance.

Okay, thank you. And then perhaps a question regarding sort of the month-over-month development during Q2. So in mid-July, you've commented that order intake had not sort of recovered from March and April decline. So I'm wondering, was June substantially higher in terms of order intake than May and April, or how did this evolve?

Yeah, we saw a solid increase month on month from May was clearly better than April and June was then better than the May, so it was a fairly solid trend across the board.

Okay, and then finally on the temporary cost savings measures for H2, How much do you expect to achieve these in Q4 and Q3? Are we talking about similar 10 million euros per month run rate or how do you see this going forward?

I think we keep on monitoring the situation and depending on the overall business performance and the situation, the activity level is clearly increasing and hence, for example, some of the part-time part-time, work-time reductions are such that we need to evaluate whether we can keep them in force going well after the summer holidays. But it really depends on the market situation overall and where we stand then in terms of the demand, for example.

Okay, thank you. That's all for me.

We'll now take our next question. Thank you. Thank you very much for taking my question. My first question is around McGregor's goodwill impairment test, and I just wanted to understand a bit better what made you more positive in current market environment, considering there are not that many improvements in the lead indicators, and also how do you assess the likelihood of McGregor right now in the coming quarter or two compared to maybe Q1.

Perhaps I take that question. Thanks for the good question. The McGregor goodwill impairment improved, like I said, and the improvement was mainly related to the changes in the weighted average cost of capital. So we have not changed the business outlook or the outlook used in the goodwill impairment testing. We have kept that on the same level what we had in the first quarter. and these improvements were related to the changes in the weighted average cost of capital interest. So no changes in the McGregor outlook between quarter two and quarter one. But like said also in the presentation, the TTS integration is progressing very well, even a bit better than what we have expected, and that's expected to contribute to the McGregor profitability also in the coming quarters.

Thank you. My second question is around restructuring charges. I can see you've increased them by 50 million euros. If I'm not mistaken, I think in the previous statement related to Rainbow joint venture, you mentioned 35 million of costs associated with it. So I guess two questions. Firstly, where the incremental restructuring charges are coming from? And also, secondly, out of 100 million you expect to book this year, how much of that is cash, and how much of those cash charges yet to be booked in Image 2?

Yes, basically the restructuring charges for the second quarter were 72 million euros, and then we had approximately 11 million euros, kind of positive one-time item, arising from the Rainbow Heavy Industries listed company share treatment in our books. So basically, Approximately 40 million euros of Q2 restructuring costs are related to the rainbow cargo tech industries divestment, and then approximately 20 million euros are related to McGregor restructuring, TTS integration being the largest item. We have said that approximately our estimation for the restructuring costs is approximately 110 million euros for this year, and that is including for the rest of the year mainly personal related restructuring, so those would be cash impact. Out of the total 110 million euros, I would estimate that approximately 30-40% would be cash impact and roughly 60% non-cash.

Okay, that's very clear. Thank you very much. And maybe could you elaborate a bit more on SIAB and CalMA specifically in terms of those monthly run rates? The color you've given so far is very helpful, but a lot of companies also help analysts with the May-June year-over-year run rates just for us to understand better dynamics for each tool and their good run rates. So maybe you could talk a little bit in terms of the year-over-year where maybe the quarter ended in terms of order intake in Calmar and here, please.

Well, if you look at the equipment run rate, and we had two examples here. The one was the high uploaded grain activity level, where we actually have seen that the activity level in Europe has recovered actually relatively fast, and actually we are somewhat above the early part of the year. run rates in that one, and then slightly behind that one in US. You can see that it's been a bumpy ride, but that's primarily related to the fact that there has been quite a number of public holidays in both markets during the sort of Q2 as well. When I look at the Kalmar equipment, European recovery, I think, has been somewhat ahead of the US recovery. However, the data from last week actually showed US catching up, but I'm a little bit still hesitant on that one, because the previous week, which was the 4th of July week, was still down a bit more, but there could be just a sort of bounce back of that one as well, and we've seen the US data being somewhat behind the European data on that one. Interestingly, I was comparing the Hayap data, because Volvo published their data, I think, yesterday, or a few days ago, and actually, you could put those charts on top of each other, and they would correlate extremely well, so that's a good validation of the data itself as well.

Suri, just to follow up on this, I appreciate that it's a very helpful market call. In terms of your order intake, obviously, the heat was maybe harder than operational data you track. So I guess thinking about the actual order run rates, have they followed very similar patterns as the ones we discussed or June and May are still quite, are still double digits down year over year?

Well, a little bit varying. The June numbers started to be much closer to the normal run rate than the previous months in that sense. So clearly the sharpest declines we saw. in the early parts of the April, and then the recovery of that one, and further recovery of June again, in terms of the order run rates, and the first two weeks of July also show a solid progress in the orders as well.

Okay, thank you very much for taking my questions.

Thank you. We'll now take our next question.

Hi, it's Erti from Inderes. A couple of questions regarding your post structure. It seems that on your C&A side, sales costs, admin costs, and other OPEX, they were all down by more than your sales. I mean, in marketing costs, obviously, travel restrictions played a role. But was there anything more structural in these savings, or was it only temporarily else that they developed?

Mikko can maybe fill in as well, but I mean, obviously, the short-term initiatives, such as the travel, was very visible, for example, in sales and marketing costs, but at the same time, we have continued our productivity efforts, and as I said in my presentation, we have reduced nearly 500 people from our permanent sort of headcount throughout the first half as well, so there are underlying productivity efforts that we keep on executing, and the one thing we have discussed, for example, in the past has been the Kalmar world-class supply chain effort that was handled as a specific item in one of the investor events, and that program is now starting to sort of deliver some of the savings as well that are start to be visible in there. And then, of course, the efforts we have done in the global business center and consolidating our back office also is visible in there.

And as said during the presentation, we have been reducing in Kalmar 350 FTEs during the last 12 months time, in McGregor 600 FTEs since 2019, and gradually these permanent reductions become more visible in our cost structure. And like Mika said, the temporary cost savings, 10 million euros per month, consisting of reduced work time, practically no travelling, reducing the external services, also reducing kind of internal development activities, are all contributing in our quarter two cost base.

So should we be expecting that most of the savings that we saw in SG&A in Q2 will come back when your top line starts to increase again?

Not necessarily all of them. I think some of those things will actually probably move into more sort of permanent behavior or cost levels as well. So I don't expect them to fully come. The one that I think we are sensitive for is the employee-related salary cuts, et cetera, as the activity levels have picked up. But they are planning to be continued at least till end of August, and then we will review the situation again in August.

Fair enough. Thank you so much.

Again, if you would like to ask a question, please press star 1.

We have actually received a couple of questions online, so maybe we can continue with those. So, first of all, for MAC record, did I understand correctly that you expect the margins to be positive in the second half?

I think Ofi said that we expect to reach the break even during the Q2. Sorry, during the second half.

Right. Could you please talk a bit about the activity level for TTS? It seems they booked some 30 million in orders in Q2 versus 40 in Q1. Have they been impacted specifically? by COVID-19?

I don't think the TTS has been specifically. Overall, we've been satisfied with the TTS operation. It's been profitable during the first half. And actually, when you look at what's happening in the shipping industry at the moment, more than 60% of the merchant ship orders in the first half actually came out of China. And again, very clear support from Chinese government. And actually that's the market. MacGregor would have struggled to have an access, and now, of course, through the joint venture structures in TTS, we have an access for that specific market growth as well, and also the joint ventures within TTS have been positive throughout the first half.

I would say that, of course, in the beginning of the year in China, the coronavirus was impacting to some project deliveries, but as we have been progressing with the year, the APAC getting less impacted by coronavirus, the project deliveries in McGregor overall, including TTS, have been progressing well. Most of the COVID impacts are coming in services where there are travel restrictions limitations to access the vessels.

Then a question about the cost actions. I think we discussed quite widely the temporary cost savings and actions, and those will be reviewed in August, but how do you view the need for replacing the temporary cost actions with more permanent ones?

I think we are continuously looking for further productivity improvements in there, and that's under the review at this stage. So we need to look at, again, the market development and make the right decisions at the right time.

And then going back to the order trends, we discussed that and the comparison month by month, but how about from geographical point of view, especially in high-up?

The decline in US has been stronger than it was in Europe.

How about any comments about how the Q3 has started?

I think I mentioned already that the first two weeks' data on orders is showing solid progress in the business.

Then handing back over to the operator, there should be one follow-up question.

Yes, we'll now take our next question. Thank you.

Thank you very much for taking a follow-up from me. That's Artem from Credit Suisse. I have two. Firstly, on McGregor, could you help us with understanding a bit better what was organic decline in orders in McGregor specifically? And also, maybe could you talk a little bit about how you think about profitability of the business maybe already early in 2021, considering that the backlog is quite long? And obviously, backlog is down quite considerably year over year.

Yeah, so on MacGregor, the way I look at the business, first of all, the order intake without TTS was down eight percentage points. But the way I look at the MacGregor overall as a business, you have more than over 250 million of high profitable services business. Now, we have struggled in the equipment side of the business due to the low volumes and then some of the projects we had last year. Now, we are well on the way to actually correct that situation. We are executing the TTS strategy, as Mikko was saying, slightly ahead of the time, and this is all self-help, and we will bring the cost level down on that one, and obviously, the aim is to make the equipment business neutral, first of all, so it will be on a break-even level, and then, when the market starts to recover, and will eventually start to recover, this is a fantastic opportunity for MacGregor, because we will be having much better leverage, our cost base is different, than it was previously in both companies in a combined effort, and we will be able then to really leverage that much lower cost base into the recovery market on top of the already profitable services business.

That's very clear, thank you. My second question is around cash flow, and it's very interesting to see some working capsules build up despite quite considerable revenue contraction. Could you maybe talk a little bit about why working capital has been such a big headwind in Q2 and how should we think about in H2 this year?

As I said, we have been reducing accounts receivable, but in inventories, we have seen increasing kind of inventory days or lower inventory turnovers, and these are driven by some constraints still in the supply chain. So we have, for example, working progress due to some missing components. We have a very tight focus on inventories, receivables, as well as accounts payables, and of course, very much try to optimize that, keep the inventories on an optimal level. Target is to make positive cash flow also for the second half of the year, very much depending on the market situation, but positive cash flow is the target.

a situation stabilizing, more reliable logistics services, our MAUs and our suppliers getting back to the normal operating movement, we have very good opportunities to drive that down to inventory days in the second half as well.

Right. Thank you very much. And the last question is around the profit breach for the remaining part of the year. Could you maybe help us with... With the major moving parts like mix, whether there is any FX input from here or anything else we need to be aware of in terms of monitoring our H2O bridge phase.

I think some of the elements are fairly solid. The backlog in the project and automation covers the year. Same situation in the macro or equipment business. We have the backlog covering the year. In Hayab and Kalmar Mobile Solutions case, the order intake in Q3 still has an implication for the Q4 revenues and profitability, and that's the one that is sort of harder to predict at this stage. We expect the temporary cost savings to continue, if not at full extent, to a certain extent, at least throughout the year, probably to a very large extent, similar to the Q2 and Q3, and then, depending on situation, it's still early to predict on the Q4 on that one. I think those would be probably the biggest elements of the bridge.

And I don't expect that we should have in high up, for example, from currencies, major up or downside effects. There is certain backlog to be delivered. And even if the currencies would significantly change, those would not necessarily have a major impact for this year.

Okay, that's very clear. Thank you very much for your very extensive answer.

We'll now take our next question.

Thank you. Hi, this is Johan at Capital Chevrolet. Congratulations to a very decent performance during these tough times. I have some questions, though, regarding what you mentioned about the border potential in MacGregor seemingly coming out of China. Do you have some sort of agreement that you're not allowed to cooperate in the market, TTS and McGregor, would that have any sort of negative impact on your potential to gain any merchant orders or shipbuilding orders in China in the recovery?

I think that practically means that as long as the orders are primarily for the Chinese shipping lines supported by the Chinese government, those orders are likely to land into the TTS joint venture, but that's, of course, part of our operations and then helping. Again, we don't consolidate the joint venture similarly that the TTS used to do, so you will see the operating profit impact, not the order or revenue impact on that one. And by the way, there are 11 months to go on that competitive restriction. So we expect to be able then to sort of look into integrating our operations in China more together after that one.

Okay, good. And then coming back to Kalmar and the automated torch, can you make a good case on productivity performance of the automated port versus a manually operated port during this pandemic, both lockdowns and sickness levels, et cetera, potentially impacting it. Do you have any sort of good data to share?

I would need to look into that one, honestly, being probably a bit too busy. And obviously, the port performance is affected by the external impacts as well. So, obviously, the lockdowns impact the capability to deliver into and from port as well. But generally speaking, I think when you obviously have to deal with a considerable lower level of employees, your safety, is completely different. You can operate remotely from the different locations in some of these cases. So I think there's a good case to be made, but honestly, I would need to look into that one a little bit and maybe a good point to come back to when the situation clears a little bit and then compare the performances automated versus manual.

Yeah, looking forward to that. That's my question. Thank you very much.

Again, if you would like to ask a question, please signal by pressing star one on your telephone keypad. It appears that there are no further questions at this time. I'd like to turn the conference back to you for any additional or closing remarks. Thank you.

Thank you. And thank you for active participation and good questions and good answers. Q3 report will be published on October 22nd. Before that, I hope that you have some time to enjoy the summer and please stay safe and healthy. Thank you.

Thank you.