Epiroc AB (publ)

Hello everyone and a warm welcome to this EPROC Q1 results presentation. My name is Karin Larsson and I'm heading the IR department. With me today to present the results I have our CEO, Irena Hedlund, and our CFO, Anders Lindén. And some of you might wonder why we pre-announced the results. Well, the reason is that the board yesterday decided to change its proposal to the AGM regarding the dividend. And as a consequence, we found it very logical to also release the report at the same time. For the presentation today, we will follow the same format as we always do, which means we first do the presentation and then we do Q&A. Today, we only do the Q&A over phone as we do not have any external visitors in the office. We have one hour for this call. So without further ado, please, Helena, the stage is yours.

Thank you very much. So from my side as well, welcome to the Epiroc Q1 presentation. This is my first report as CEO, and I must say I'm very honored to have the opportunity to lead this fantastic company. There will be a lot of talk about the COVID-19 pandemic today, and of course, the impact it has on Epiroc. But I would like to start with highlighting my priorities, because the priorities are valid also in the middle of this pandemic as well as in the long run. So I will, as new CEO, continue to focus heavily in innovation to secure that Edbrock are in the forefront when it comes to technology shifts ongoing right now, both in mining as well as infrastructure. I will continue to focus in growing our aftermarket, because this is what gives us resilience over a cycle, and it's also where we make a huge impact for our customers to become a productivity partner. We will strive for operational excellence in administration, in our service operations, as well as in our supply chain. Sustainability will also be very high up on my agenda and I'm really happy that we now have committed to goals for 2030 in line with the UN Agenda for 2030 and the Paris Agreement. If we then move over into Q1. So of course the COVID-19 pandemic has impacted the world and of course also our operation. but I must say that I'm really happy to see how well the organization have acted to mitigate all the challenges we have seen during the quarter and as you can see on the result we have had limited impact on the Q1 result still high customer activity and I'm really pleased to see the growth in parts and service close to 12 percent also good to see stable orders for equipment sequentially down year over year, but still more or less in line with what we saw in the later part of 2019. And of course, orders received in Q1 is slightly higher than in Q4, so that's good to see. We see lower revenue, and here we have an effect of the COVID-19, close to 400 million SEK. Most of that is related to equipment, where we had challenges to do commissioning. Good to see improved underlying margin despite the lower revenue. We have also communicated and put new members into the group management from the 1st of March to create a more efficient working structure. So I now have the presidents reporting directly to me. As you can see in the report, we expect to have a challenging Q2 in front of us. and we have therefore initiated a number of efficiency actions, and I will come back to that later on. So if we then look at the financials in detail, order intake declined 4% organic, and revenue declined 8% organic. Still operating profit at 1.9 billion, positive from currency and mix, and we had adjusted margin on 20.9%. Also an improvement in operating cash flow at 1.5 billion. Also yesterday we announced that the board proposed to the AGM to decide only on the first installment of the dividend and to postpone the decision for the second installment. Then I would like to give you an update on the situation with the COVID-19. So, of course, in Q1, we saw an impact in China. We had our factory in China closed three, four weeks. China represents 4% of our revenue, so that was a minor impact. But of course, the pandemic has impacted our operation now both in Q1 as well as in the beginning of Q2. If we start with the impact on equipment, We are operational in all our major sites, which is Sweden and in US, but we have some negative impact on supplier components, mainly from Europe. We have two of our smaller equipment factories closed due to lockdowns of countries, and that is in India and in Italy. And as I said, we saw during Q1, in the later part of Q1, challenges with commissioning. And commissioning is when we send technicians out to site to commission the machines to get them up running. And this, of course, has an impact on our revenue recognition. And we expect this to continue to be challenging during Q2 as well, depending on the mobility restrictions within countries. If we look on then on the aftermarket impact, our distribution centers globally are up running and fully operational. We are prioritizing the aftermarket, which means that if we have a shortage of components, we are directing those components to the aftermarket to keep our customers fleet up running. We have our sales and service operations up running in more or less everywhere in the world, except of course, where there's countries in full lockdown. Our consumers factories are also up running, all our major factories, but we have some impact of the lockdowns in India, South Africa and Canada. What we also saw in the later part of Q1 and what we also have seen in the beginning of Q2 is that some mines are temporarily stopped or have reduced activities to take care of the health situation. We also see that some construction customers have an impact, mainly in US as well as in Central Europe. So of course, with less activities or mines temporarily stopped or countries in complete lockdown, we foresee that this would have an impact on our aftermarket during the beginning of Q2. And of course, we'll say depending then on how long the restrictions will be in place. Of course, we have our resilience in the aftermarket, and that's where we focus on aftermarket, and we have a very agile setup in the organization. So we have initiated a number of efficiency actions. A number of short-term actions that includes reduction of additional workforce and consultants. We have implemented work-time reductions and temporary layoffs in Sweden, in the US, and in some of the countries where the country is in complete lockdown. And we have, of course, reduced external expenses. But we have also taken measurements to reduce our costs for the long term. We talked in the end of 2019 about an efficiency activity within admin and marketing. Then we expected this to be 300 million SEK on annual basis. We have added initiatives to this and we are executing now initiatives that will give us 500 million SEK in yearly saving. And we expect to have all of that implemented now at the end of Q2. We are also consolidating manufacturing sites. We have announced that we close one of our factories in Italy and moving that to India. And we also yesterday announced that we are consolidating two of our factories in Canada within tools attachment. And we continue with our work to improve our supply chain as well, since that is key for the future. As I said, I will focus a lot on the aftermarket, both short-term as well as long-term. It was good to see the performance in Q1. The aftermarket now represents 72% of our revenue. Solid development in service, very much related to the service products that we have developed with midlife rebuilds, with the components upgrade, etc., The rock drilling tool business was affected in the quarter still by the optimization of the product offering as well as an impact from COVID-19. But still good to see the development here in the quarter. Then I would like to spend some minutes on the priorities around innovation and sustainability. So in Q1, we entered into a partnership with Roy Hill. which is a large iron ore producer in Australia, to automate their full fleet of haul trucks. This is one of the larger automation orders that we have received. It will be different phases, and we booked the first phase, which is eight trucks, now in Q1. Very exciting project. We also launched HATCOM, which is part of our digitalization journey. This is remote monitoring for hydraulic attachment, and it's connected to my EPROC. So this is connectivity for attachment and drum cutters. We also launched a new DM-30 surface drill for single pass, especially for quarries and smaller mines. And together with that, a new assortment of Tricom bits for rotary drilling. And then back to the long-term sustainability goals. Really happy that we have developed goals for 2030. So we have set ambition to halve the CO2 emission from our operations, from transports, as well as from our equipment. Of course, our biggest opportunity here lies within our equipment. And we have committed ourselves that the equipment we sell 2030 should have halved the CO2 emission compared to the equipment we sell today. ambitious but possible with electrical vehicles so really looking forward to to drive that agenda also ambitious targets when it comes to health and safety and code of conduct and we're doing a lot of efforts now to create a safety culture in the company also ambitious targets on diversity and inclusion with the ambition to double the number of women in operational roles So by that I leave over to you Anders to go through the financials more in details.

Thank you Helena. I will as usual take you through the numbers briefly and you will be able to see the numbers clearly on the presentation. So if we then look at the result, the reported operating profit was on the same level as last year with the 1932 versus the 1930 or 1.9 billion SEC for the quarter. Comparable numbers, slightly lower with the 1911 versus the 1989, but obviously with a lower revenue. So the adjusted margin was 20.9 versus 20.3. This, of course, as you have noted, is supported by a currency and also with a little bit of a mix effect. If we look at the bridge, the currency contributed 1.3 percentage points, and we have had some tailwind in the quarter from the currency, but as you have seen, especially in March, in the beginning of March in particular, The currencies have been very volatile and we have seen some period end effects helping us. Also should be noted, of course, that this is a year-over-year bridge. It's not sequential. And so the base, the starting point, the base is last year's quarter one. The acquisition effect for the quarter is very, very small. And in fact, it's for the quarter, it's only the acquisition we made last year in South Africa, new concert mining that we have as an acquisition effect. All in all, organic decline of 0.3 from the lower volumes, but helped a little bit with the mix effect. If we then take a look at the segments, the equipment and service to start with, the effect on the financials is minor from the COVID-19, a little bit of revenue, but on the margin side, it's small. We expected a decline versus last year in orders to seed was stable though, versus Q4 also as expected. Both the underground and the surface orders received declined. The adjusted margin was actually an improvement. The reported margin stayed the same year over year, but an improvement of the adjusted margin if we adjust then for the efficiency costs, which... We can see on this one, this is to confirm the improvement of 24.8, despite the revenue decline organically of 8%. So we obviously have some support from currency and mix here. The flow through is negative, 30 to 35%. It's more than we would have liked, of course, but with the rapid change in demand and the situation, it's not unexpected. But this is only one quarter, as you know. If we then look at tools and attachments, the orders went down by 7% organically. It's a decline both in consumables and the hydraulic attachments. A little bit more negative in hydraulic attachments with the impact mentioned on construction. And also consumables as well as attachments had a negative impact from the situation and weakness in North America. Revenues of minus 5% organically, most of which is an effect of the COVID-19. It was almost flat if we exclude. It's not all that easy to calculate, but our estimate is that it's an impact of COVID-19. The margin at 13.5% is lower than last year, but if we adjust for the efficiency costs or improvement costs, it's 13.9%, which is in line with last year. Also here we see a little bit of a mix effect since the decline on the attachments is a little bit more than on the consumables. So if we then look at the profits bridge as confirmed organic decline, 5%, but the structure and other cost efficiencies adding back, as you can see, that's the 10 in the bridge. Then we get to the 13.9% and also a little bit support from the currency. Flow through also here, more negative, but mentioned by Helena, we continue to take actions on tools and attachment segments, for example, with the consolidation of production in Canada. And this is, of course, then a quarter. If we continue and look at the costs, financial, net, and tax, costs are sequentially trending down. If we compare like for like year over year as well as Q4 in 2019, they're a little bit higher in relative terms, and that is also what we are addressing with the programs that Helena mentioned. Interest net is rather stable. We have our base funding in place and there are not much of a movement. It can vary a little bit both the financial net and interest net from currency derivatives, but otherwise it's fairly stable at the 33 roughly. Exchange rates has been a challenge. in for us it's it was very much up and down in the in the quarter and I think we've all seen that it stabilized a little bit more towards the end of the quarter in the beginning of April taxes as expected below the 25% mark as we have as our guidance Looking at the capital structure, and this is obviously a slide I like to talk about, the net cash position has, for the first time as Epiroc, we now have a positive Net debt or actually a net cash position of 1.2 reported. In fact, if we then take away the 1.9 billion roughly effect of debt from IFRS 16, we have 3.1 billion in cash position. So it's a strong financial position and our first maturity on the base funding is in April of 2022 of 1 million euro. And we've also recently confirmed extension of our RCF, which was put in place as part of the listing. of 4 billion SEC. So that is now maturing in 2025. You also have heard and seen that the board of directors will propose to proceed with the first part of the dividend. We believe that we have a strong financial position that has not changed, but nobody knows how long or how severe this crisis will be. So I think it's prudent to take this approach and the second part will be decided on later this year. If we then look at the capital efficiency, we had a little bit of increase in working capital in the quarter. It's down from last year. It's normal that we have a little bit of an increase in working capital in the Q1. It's typically very low in the end of the year, in particular the inventory, but inventory is still very much a focus area for us, of course. We will continue to work on that. Maybe I should mention also on the return on capital employed, which has reportedly been gone from 31.7 to 26.2, but mainly from our increased cash position and the effect from IFRS 16. In fact, 4% of the drop is related to those two items. Finally, a word about the cash flow improvement compared to last year, quarter one of around a billion SEC. It's a good cash flow. It's not great. We have lower taxes, which we expected last year. We had a little bit of a catch-up effect from 2018. we have a little bit of a higher working capital that was also expected as I explained earlier and we have some other impacts but the 1.5 billion SEC in operating cash flow is from in a historical perspective it's good for Epiroc but I would call it decent not great and with that I conclude the the numbers part and the Helena will come back. Then we switch.

Thank you, Anders. So then to sum it up, a solid Q1 despite the effects of COVID-19. I'm especially happy to see the growth in service as well as the improved margin. And I'm glad to see the speed the organization is now adopting to the new situation and finding new ways to serve our customers and keep our customers up running with focus on the aftermarket. We are of course monitoring the situation closely day by day and we're taking firm actions to lower our cost, both temporary as well as permanent. But also in times like this, we continue to focus on innovation and sustainability. So this is then our guidance for Q2. So as it looks like, we expect Q2 to be challenging. It is, of course, very much depending on to what extent the lockdowns of countries will still be there and the temporary stopped mines when they will start to resume operation. But we expect a lower demand on both equipment and we expect a significant impact on both revenue and profit in Q1. But we will carry out the necessary actions to lower our cost base and adopt our organization to this situation and at the same time strengthen the company and our customer relations for the future and build a stronger company for the future. Thank you very much.

Perfect. Thank you both Helena and Anders for a great presentation. And it is indeed a fantastic company we are working for. And we will try to use this challenging times to get better with the customers indeed. So now it's time for the Q&A session. And as always, we would be grateful if you could restrain yourself to just one question with one follow-up to make sure that everyone gets their questions answered. So with that, please, operator, go ahead.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press 01 on your telephone keypad now. If you would like to withdraw your question, that's 02. Once again, if you would like to register for a question, please press 01 on your telephone keypad. And our first question comes from the line of Max Yates from Credit Suisse. Please go ahead. Your line is now open.

Thank you. Just my first question is on the 12% aftermarket growth. Obviously, that's quite a lot stronger than what we've seen at peers. I mean, could you talk about what you think is driving this? Were there any sort of larger orders in here? Or did you see any sort of customer restocking potentially ahead of any disruption that they may be sort of thinking about? So just any color on sort of what exactly was driving that is my first question.

So we had, we'll say, a number of larger service orders, mainly related to midlife rebuilds, upgrades for major components, et cetera, that supported the growth in service in Q1. Not so much, we'll say, the signal that customers are, we'll say, overstocking. So it was more larger initiatives using our service products.

Okay. And just my second question, I just wanted to follow up on the cost savings announcement. So could you just confirm that there's two separate programs? So one is 300 million SEC and one is 500 million SEC. So the total is 800. And then I just wanted to understand how much of that saving was recognized in 2019 and what you're expecting for 2020 to come through. So how those cost-saving programs phase and just confirming that it is a total of 800.

So we have added to what we said in Q4. So the total program is 500 million. So it's not, you know, you can't add them on top of each other. So we have added 200 to the 300. So it's 500 in total. We started the execution in Q4. We did not get that much contribution in Q4. In Q1, as Anders said also, we started to see costs going down. But the majority of the execution will now happen in Q2.

Okay, and should we recognize the full 500 this year in the P&L, or actually is it more run rate and then phased over 2020 and 2021?

It's run rate, and we expect to have it then fully implemented so that we can get the contribution from this in the second half of this year.

Okay, thank you.

Thank you. Our next question comes from the line of Lance Orson from Bucket. Please go ahead. Your line is open.

Hi. Morning, Helena. Anders Karin. I hope you're all well. Maybe just to clarify Max's question, I mean, these larger service orders, Helena, can you give us a sense of the order of magnitude of these? How much might a bigger upgrade or rebuild order be? And then just looking forward as opposed to backwards on your aftermarket business, if I go back and look historically at your parts and service business, obviously held up really well in prior downturns. I think we saw low single, mid single-digit declines during the weakest quarters in 08, 09, and then 16. I think your consumables business is slightly more cyclical. I think we saw double-digit declines in some quarters and prior downturns. Maybe with that as a reference, I'm trying to understand how we might think about Q2 and, indeed, rest of 2020 in your service and consumables businesses, acknowledging, of course, that your visibility is pretty low at this point.

So if we start with the first one there, the size of the rebuild, it's not really that the growth comes only from that. So it was a higher activity in general in Q1. And then on top of that, a couple of larger rebuilds that supported the growth. If we look on the aftermarket, as you say, that holds up under normal conditions, I would say. The situation that we are in right now with full countries in lockdowns, as well as mines temporarily stopped to handle the health crisis. Of course, it's very much dependent on, you know, when our customers will resume operations and how long the lockdowns will be in the different countries. And I think if we, you know, to give some flavors on this, of course, South Africa is one of a big mining market. and they have been in lockdown now for a couple of weeks. That of course has an impact both on personal service as well as on consumables. If we take Peru for example, it's the same. They have also been in lockdown, the mining activities there. But we also start to hear more positive signals now the last week that that mining is seen as essential and that mining starts to resume activities in some parts of the world. But it's really depending on how the health crisis develops and when authorities and governments will take away mobility restrictions within a country as well as, of course, if a country is in complete lockdown. So that's – but clearly, you know, if a country is a complete lockdown and all the mining activities stop, then, of course, it has a temporary impact as well on our off-market.

It sounds like you're not willing to offer much quantification around that. Maybe I could try and be specific for TNA at least. I mean, the negative 7% organic in Q2, what was that in March, just as a reference point?

More or less similar, I would say.

No, and I think at the same time, there was not so much impact in March, really. We saw a little bit, as I mentioned. We say that the organic revenue is obviously mostly related to COVID-19. a little bit of slowdown towards the end of the quarter, which means March, but not dramatic.

I'll go back in the queue. Thank you.

Thank you. The next question comes from the line of Guillermo Pena from UBS. Please go ahead. Your line is open.

Hi, good morning, everyone. I wanted to go back to the midlife retrofit growth that you saw in the quarter. I guess this is not, this midlife crisis, so to say, is not a single quarter event. And I wanted to see if you have an estimate or an estimate of how much of your fleet or installed fleet or available fleet is actually under the same conditions, meaning that it will need to be retrofitted. I understand that it will not be in Q2, obviously, but But as we go through 2020 and 2021, have you estimated how much is in that need? And then second question is regarding on an estimate of how many of your customers' minds, so to be, are in production lockdowns, as I presented before, if I may. Thank you.

So if we take the midlife rebuild, so we developed that product a number of years ago, and that is to support our customers to resume full productivity from our equipment. And of course, we did this because we saw the tendency that customers wanted to prolong the life of the machines, more hesitations when it comes to placing orders of new equipment. And we have successfully been growing the mid-life rebuild products, as we shared at the Capital Market Day last year. Of course, I foresee that if we end up in a situation where customers are more hesitant to buy new equipment, then of course this is a good alternative. because it is very much where we strip the machine down, we replace the major components and we bring the machine back to original productivity, which of course is very attractive. So that is of course an opportunity for us and we are working hard to offer that product to our customers. When it comes to the number of mines that are temporarily stopped now or under lockdown, We are monitoring this day by day and it changes also day by day. So it's very difficult to say a number or to put a percentage into this because it really changes every day. And as I said, it's very much related to the health crisis development in each and every country. But of course, the countries that are in complete lockdown, The effect right now is, of course, there. But I would say that when it comes to temporary stop mines, many of these mines also try to start operation again. So I would not like to quantify this because it's really moving. It's moving every day.

Okay, thank you. And then as a follow-up, the retrofit or the midlife rebuilds, Can you give us an indication of how profitability is around these projects?

No, we don't disclose that, but it's a good product for us.

Okay, thank you. I'll stay back on that.

Thank you. Our next question comes from the line of Andreas Boski from Nordea. Please go ahead. Your line is open.

yes good morning most of my questions have already been answered but now you have a very strong balance sheet do you think that you will be able to find any larger acquisitions to do or is it mainly bolt-ons that you're going to do you think

Yes, as I said, we have a very strong balance sheet and we are, of course, always looking into opportunities to expand both organic as well as with M&A. We are looking into opportunities close to core, which is very much in the tech technology area and in the aftermarket area. So I would like some more of what say smaller ones add-ons to the core of EPROC.

Okay, thanks. Thank you. The next question comes from the line of Andrew Wilson from JP Morgan. Please go ahead. Your line is open.

Hi, good morning. I have a sort of bigger picture question, I guess, Selena, just around some of the supply chain opportunities you've talked about and also the portfolio. We've seen some change in terms of exiting some product lines. I just wondered, I guess, if you could get your sort of take coming into the role on what's been said before and kind of whether you think there are bigger opportunities, different opportunities, and sort of where we would potentially see the benefit coming through in the numbers just to try and, I guess, get a fresh take on some of those initiatives.

So the supply chain program, as we have described earlier, that's a large revamp of our supply chain with the main target to improve our availability of parts and consumables to our end customers, to lower the transport cost and to try to reduce the tonnage that we send by air and move more and more over to sea, as well as, of course, reducing the tight capital. We are in the middle of this program and this is a project that we need to do very carefully, of course, because it includes closure of a number of stocking locations out there, creating regional distribution centers globally. So it's a fairly big exercise to also to change from air shipment to sea, of course, from a lead times perspective. So we're in the middle of this project and I expect it to continue another two years before we see the full effect of it. When it comes to the portfolio, We have mainly been focusing on the portfolio of consumables, as you said. So we have exited a number of product lines and we have also, we have exited and we have also, we'll say, restructured quite a lot of our manufacturing facilities within the RDT business or the consumerist business. I don't really foresee that there will be a lot of more work needed when it comes to the portfolio. I think we have done what we need to do. The portfolio is now positioned in line with the equipment we have and also when it comes to, let's say, tying the consumables together with equipment and giving our customers, let's say, a lower total cost of ownership, you know, with the digital tools, et cetera. So a lot focus on, let's say, on the innovation side now on consumables.

Thanks. That's very helpful. And just as a follow-up, it's slightly adjacent, admittedly, but just could you just give us a little bit, I guess, of colour around the different trends you've seen in mining and construction specifically. I feel like we've sort of focused more on the mining side in terms of the question. Just interested if you've seen very different trends and sort of very different customer behaviours, that would be helpful.

As I said, we talked a lot about mining. I think when it comes to construction, that has been more impacted by the lockdown of countries and the mobility restrictions as well. And we saw that in the end of Q1 and also in the beginning now of Q2, and especially, I would say, in US as well as in Europe. But on the other hand, as I said, we also see China picking up again on the construction side. So that is good to see. But it's very much related to, let's say, the lockdown of countries on the construction side.

That's great. Thank you, Len.

Thank you. Our next question comes from the line of Maddy Singh from Bank of America. Please go ahead. Your line is open.

Yes, hi. This is Maddy from Bank of America. Just one question on performance in the OE segment. That's one area where, you know, I think the pressure still remains quite significant. Could you talk about that? And, you know, we have also seen capex cuts by some big miners. So do you think that OE performance actually gets worse in the medium term before it gets better? Thank you.

On the equipment side, of course, we saw during the later part of last year a drop. But from that point, it has been very stable. And you can see that also in the numbers now for Q1. Of course, this depends, I would say, also how long this situation will remain. But I think it's quite, I would say, natural to believe that mining houses will be cautious, especially when it comes to larger investments. And I think we saw that also in Q1, that it's more smaller orders. It's not these really large orders that we landed maybe during 2017 and 2018. So we see a more cautious behavior, but at, we'll say, a solid level, difficult to predict you know, how that will play out in the coming quarters. But I think our focus is really, let's say, on our resilience and making sure that we, let's say, protect the aftermarket now. Because I think for our customers, that is the most important thing now to keep their operations up running.

And do you think the... progress or growth in the aftermarket side is going to be more than enough to offset any pressure on OE in the future as well.

It's difficult to say. It has, of course, a lot to do with the production level in the world within mining, which is very much dependent on the metal prices and, of course, the overall demand in the world. Mining is, of course, connected to a lot of or dependent on a lot of other industries. So difficult to predict, you know, what will happen. I think as it is today, I don't think anyone, to be honest, can really predict what we have in front of us. I think we need to, we know what we know today and we need to act, I would say, based on that. And for us, we'll say really protect our aftermarket and do whatever we can to support our customers during these difficult times. And really be there for them and be a partner and help them out now.

Thank you very much.

Thank you. And the next question comes from the line of Robert Davies from Morgan Stanley. Please go ahead, Robert. Your line is now open.

Yes, thanks. Morning, everyone. Thanks for taking my questions. The first one was just on your aftermarket sort of offering. I'd be interested in how much of that is sort of possible to do remotely. You mentioned sort of, I guess, the balance between, you know, spares and consumables versus sort of actual site access and service. I'd just be interested to know how much of that sort of service and sort of repair can be done sort of via video link or via Skype or kind of what have you.

So as of today, you know, there's not a lot that can be done, let's say, in a digital way. But of course, we have our workshops, you know, up running close to the mining sites. So we have our own workshops where we can do repairs and do major overhauls. I think the majority of our aftermarket is, of course, related to the sales of parts. Then service is, of course, a way to help the growth of parts. But the majority is, of course, parts. And that we can, of course, deliver even if we can't do the service on site.

Maybe you can also say that, you know, if a site is in a lockdown, it's a lockdown for the customers, employees, as well as for our employees. There are exceptions, of course, where foreigners are not allowed in. We see that, but those are exceptions. But, I mean, if it's a lockdown, it's a lockdown. And what you can do remotely would need some sort of assistance or somebody at site.

Understood. Thank you. And then just a couple of follow-up questions. One was just on where you are in terms of some of the logistical disruptions. I know you've mentioned China, I think, in some of your prepared remarks. So just wondering in other regions and just sort of tying into that, that transition you mentioned from doing more sort of freight into sort of sea and shipping, is that sort of part of the response that you've seen or kind of part of your response in terms of what you've seen here, or was that something you had kind of going on in the background anyway that was part of the bigger program?

So, as I said, of course, we are also impacted by logistic disruptions. And on the inbound side, it's mainly in Europe with the lockdown of Eastern Europe as well as Italy. And we also have signals now the last week that some of our suppliers are starting to operate again. So far we have not really had any major disruptions in our supply chain and our ability to really deliver machines or deliver aftermarket to our customers. Then on the outbound side, of course, there is more challenging because there is simply not enough lanes open, both when it comes to air as well as sea. And I think here our team is working day and night now to find, say, reroute the goods and find the best possible way to get the products to our customers. But it is, you know, I expect, I will say, especially the outbound transport side to be challenging, as I think most companies do today, especially in Q2.

And you've also probably heard that there are some quite dramatic cost increases on certain lanes or routes as well. So we saw that already in March a little bit, and that will probably continue also until this crisis is over.

Understood. Thank you. Thanks, Bert.

Thank you. The next question comes from the line of Edward Perry from HSBC. Please go ahead. Your line is now open.

Hi there, yes. Good morning, everyone, and thank you for taking my questions. My remaining one really just focuses on gold, and I suppose in light of the very strong fundamentals here, what are customers saying as we progress through 2020? Might we still see continued order growth here in both equipment and service, or in spite of the sort of positive market dynamics, will operational and supply chain issues weigh in?

So, you know, as you say, we'll say gold is still holding up and is still strong. And we saw in the beginning of Q1, we saw increased activities on exploration for gold. But there are also gold producers now that are under lockdown, you know, because the country is in lockdown. And they have also, in some places of the world, been forced to reduce activity to handle the health crisis. So I think it's a little bit too early to say what will be the later part of this year, what will be the activities in gold. But of course, if the prices are where they are today and the health crisis will be managed, then of course activities should resume in gold. That's my view how I see it.

Thank you. And perhaps just to follow up on service and looking a bit further forward, what impact do you expect this crisis to have on your digital and automation solutions? I mean, have you already observed any acceleration in customer conversations about six cents and other offerings as these restrictions on physical labor are enforced?

Yeah. I think this, you know, of course, in the immediate situation we are in right now, of course, you know, our customers are dealing with the situation right now. But there's also a lot of discussions ongoing when it comes to automation and digitalization. So I foresee that that will, you know, that will continue and hopefully also intensify as we move on here. I think that it is the right path for the industry. And of course, here we make sure that we are close to our customers and that we can try to do these type of projects, even if we are not allowed to travel right now, but we still have our automation centers built up regionally now. So we have teams in Australia, in South Africa, in Canada, US and in Chile to support our automation projects now locally, which of course is good in times like this when we can't travel.

I think an interesting effect of this situation is the increased use of digital tools. And I think we see let's say the skill level of using digital tools will increase. We've seen some very interesting examples, not the least within our service when it comes to the operation, when it comes to training remotely. Most of our white-collar people, like for other companies, are working from home or in split teams, and it's going quite well, to be honest. And I think that will be, you know, a lasting effect of this, yeah, it's a crisis that people will actually be more used to using digital tools and more skilled.

Thank you both.

Thank you. Our next question comes from the line on of Galsberg in some city. Please go ahead, the line is open.

Yes. Hi, Helena. I was late on the call. Maybe you touched a bit on it, but I want to come back to the service growth. When we met in February, Helena, we talked about the lag from equipment coming down and how the service growth could be impacted. I think you said then that there is still a positive lag to be seen from the equipment not consuming spare parts until after 18 months. I get that we will have shutdowns, but underlying and looking at spares, Are there reasons to believe that underlying demand could still strengthen from that we are utilizing the new equipment as we go forward? If you could comment on that, please.

Yeah, so as we discussed here a couple of weeks ago, of course, I would say our fleet start to consume parts and service, you know, after one and a half to two years. And of course, we have put a lot of machines in the market the last couple of years. So the underlying potential is there for sure. Of course, very much depending on what happens now. I think what we see now is, of course, it's a temporary situation with healthy minds also now put under care and maintenance. Of course, that is temporary. So it's very much dependent on how long this crisis will be there, with lockdowns, with mobility restrictions. But of course, underlying, there is a healthy potential.

Okay, good. My second one is on equipment deliveries, and you commented that we could have a big impact given that key regions are closed to business. That delivery drop, I'm trying to understand how equipment deliveries developed in March and in early April, that significant impact. Are we down 40-50% already now, or what is the magnitude roughly?

We have not really quantified it, but really what this is about is our ability to send technicians to site to do the commissioning of an equipment. So of course, in a way, you know, if we can't do it in March and the lockdown is still there in April, we can't do it in April. But of course, eventually that will happen because the machines are already in the country, but we can't send the technicians to site. So very difficult to predict, you know, how that will play out in Q2. But if the mobility restrictions are as they are today, and if the countries are still in lockdown, then it will have an impact. And you saw the impact in March there, close to, it was 300 million related to equipment.

Okay, cool. My very last one is, my final one is on something else, leaving COVID for a bit. Could you talk about ASI a bit more and the cooperation there from 2018? It's interesting to see that you're going after automation of mixed fleet that opens up a new wallet for you on automation. If you could talk a little bit about the latest development there, Helena.

Yeah, so we took a share in ASI Mining two years ago with ambition then to be able to offer our customers in the surface space mixed fleet automation. And we have done a couple of pilots with some smaller initiatives during these two years. And now in Q1, we landed this first order with Roy Hill, which is a really exciting project where we will automate 77 haul trucks for them. And that is, of course, it goes well in line with the pit wipers we have on their sites. But that is really a fully integrated solution. So this is software, it's hardware, and no equipment that comes from us. So very exciting projects. It will, of course, take some time for us to establish the product, to work out all the challenges that come with developing a new technology, but it's a very exciting step for us.

Okay, thank you.

Thank you. Our next question comes from the line of Lars Olsson from Barclays. Please go ahead. Your line is now open.

Hi, Elena. Thanks for taking my follow-up. Just on the different trends across your different metal exposures, I guess a follow-up to the gold question earlier. I mean, obviously, the health crisis has obscured any differences between the different metals as mines have shut down. But if you look at what you were seeing maybe before the crisis or what you expect to see post the crisis, can you point to any material differences by metal from a capex or from a new equipment standpoint I'm particularly interested in whether you see gold and perhaps copper be better, stronger or worse than other metals?

I think it's quite difficult to answer that. If I look on the mines that are now temporarily stopped, they are all over the commodities, so it's not really related to the price development the last quarter. It's only related, I would say, to the health crisis. As I said, if gold keeps up, the longer the uncertainty will be there. If gold can still keep up, that would, of course, help support, let's say, the activities in gold. From a pure, let's say, demand supply standpoint, of course, there is a lot of new projects on its way also into operation within copper. Some of these projects are also now temporary stopped, which, of course, is not, you'll say, that can't go on forever. The mining houses have already done the big investments in some of these sites, and they are just ready to start operation, and then this happens. So I also foresee that copper, you know, activities in copper should continue when the crisis is over. Of course, at what level, that depends very much, I would say, on the development in the world and the growth rate in the world.

Finally, just on mine shutdowns, I mean, you pointed to positive signals earlier, which is obviously great news. But if instead we see these positive signals reverse and mine shutdowns extend beyond the sort of current three to four weeks into six, eight weeks or even beyond, what will be the implications on your spare parts business? I'm just trying to understand at what point we might start to see sort of cannibalization more broadly across your spare parts business.

Of course, you know, if let's say that mines will be closed down for six months or 12 months, then of course it has an impact. And that was more what we saw, you know, during last downturn there, 15, 16 as well. But of course, you know, we are agile and resilient and we adopt organization to whatever level it will be. What we see right now is that, of course, this is driven by the health crisis. But, of course, there is a relation with the number of active mines and especially the production level in those mines and the aftermarket. But at the same time, you know, as we have also talked earlier about, we have, you know, roughly 50% customer share of existing fleet. So that is also an opportunity for us, of course, to grow the aftermarket, not really depending on the activity level out there. And that is hard, hard structured work to, let's say, gain back market share on our own fleet. Of course, we're doing that at the same time.

That's great. Thank you.

Thank you. Our next question comes from the line of Guillermo Pena from UBS. Please go ahead. Your line is open again.

Hi, Guillermo. Again, I wanted to get some housekeeping on the savings, I guess. First of all, you know, whether you could, you know, give us an indication of, you know, which divisions and to what extent actually the savings are going. and how temporary do you do you expect them to be if your activity goes back up to the levels that you were in 2019 should we expect the savings fully disappearing thank you so as i said we we are we are implementing temporary actions uh to save to save costs and that we're doing in all divisions

And when it comes to the permanent savings, I would say that majority of our cost structure is related to the aftermarket, of course. You know, that is the cost we have out in the customer centers. It's related to supply chain, administration. So a big portion of the savings from these programs will end up in parts and service as well as tools and attachments.

But I should also say that the numbers that you are referring to, the 500, they are not temporary. They are permanent cost reductions. And then, of course, we are, as Helena said, with our business model, we have additional activities to support the agility that we talk about.

Thank you, everyone, for asking very good questions. I'm sorry for interrupting you. We need to stop now because we've already filled an hour. In case you have any follow-ups, please feel free to reach out. We, the three of us, and also Mattias Olsson and my stand-in, Jimmy Kristoffersson, are happy to help you with any questions. If anything was unclear, just drop us an email and we will take it from there. And also, we would like to thank you for taking the time. We would like to wish you successful investments. And above all, stay safe. Thank you.

Thank you so much. Thank you.