Applus Services SA

MAD:APPS

Earnings Call Transcript

[Operator]

Ladies and gentlemen, thank you for standing by. And welcome to the Applus+ Q1 2020 Results Presentation Conference Call. [Operator Instructions] Please note, there will be no live Q&A for participants today. All your questions will have to be submitted via e-mail. I must advise you that this conference is being recorded today on Tuesday, the 5th of May 2020.I would now like to hand the conference over to your first speaker today, Fernando Basabe. Please go ahead.

[Fernando Basabe Armijo, CEO & Executive Director]

Good morning, all. Thank you for joining the call for the first quarter 2020 results presentation of Applus+. I'm Fernando Basabe, CEO. Also on the call is Joan Amigó, our CFO; and Aston Swift, Investor Relations. We are in different locations, although we'll try to make the call and the Q&A as smooth as possible.We sincerely hope that you and your families are healthy and doing as well as you can be in this crisis. We are fine. I'm pleased to say we have not had any fatality within our 23,000 employees, and some with some serious medical issues from the coronavirus have recovered. And I'm proud of how our people is managing in this crisis.In the agenda for today, I will run through the highlights. Joan will present the financials, and I will present the actions we are taking on the coronavirus and then the business review and outlook. At the end, we'll try -- we'll take your questions. But as you should have already been advised, we will take this via e-mail only to help the process be as efficient as possible. The e-mail address to send them is to Aston's, which is [email protected]. Aston will read them out before either Joan or I attempt to answer them. Please try to keep them short and to the point.As a reminder, for Q1 and Q3, we only show the profit and loss down to the profit before taxes level. And for the divisions, we just show revenue in Q1 and Q3.So starting with the highlights. We had a good start to the year with every division growing well until the middle of March, which is when the coronavirus started to materially impact our business. Up until then, we had been affected to a very small degree in our operations in China and Italy. Both of these are not material, neither was the impact.After the state of alarm was raised in Spain and other countries, the orders to close the outer stations started coming in. Our Labs and IDIADA businesses in Spain were also affected but with more of a time lag as they continued with backlog, but they also rapidly declined. Energy & Industry was materially impacted from the middle of March. And by the end of March, 90% of the countries that we operate in had put in place some form of lockdown or severe restrictions.The revenue impact on Energy & Industry has been the least, partly due to the global footprint, but mostly due to the essential nature of the work and of the assets we work on. The sudden drop in revenue meant that there was a delay before the cost reduced. These are committed and ongoing costs and the cost reduction programs had to be implemented. So the loss of revenue in the last 2 weeks of March, with mostly the same costs, meant the drop through profit was high, and of course, this was especially the case in the Auto Division. The drop through to profit in April will still be a lot, as I will explain, but not as bad as the last 2 weeks in March.Our priority was the health and safety of our people, preventing the spread of the virus, in line with government legislation in every country we operate in. We continued to support our customers where we could and manage the inspections in a coordinated manner to prevent contagion and an immediate focus on cash, liquidity and adapting our cost base.So the impact from the financial results of these 2 weeks of disruption at the end of the first quarter has been severe. After revenue growth for 2.5 months, we ended the quarter flat. Profit also grew well and faster than revenue for the first 2.5 months. But with a high drop through of revenue in the last 2 weeks, the adjusted operating profit ended the quarter down 28%. The margin for the first quarter, which is seasonally the lowest anyway, reduced to 6.6%. And adjusted free cash flow was EUR 30 million, which was considerably lower than the first quarter of last year. However, we ended the quarter with a strong balance sheet and high liquidity, which Joan will explain in detail.And with that, I hand it over to Joan, who will go through the financials in more detail.

[Joan Amigo I. Casas, CFO & Executive Director]

Thank you, Fernando, and good morning, everyone. I will start with the Q1 2020 revenue bridge.As Fernando said, good start to the year in all divisions until mid-March when the coronavirus materially impacted the business. For the first 2 months of the year, revenue grew by 3.4%, but in March, it fell by 7.2% after the sudden closure of many of the group's facilities and a sharp reduction in activity in the last 2 weeks of the month. Overall, flat revenue with a slight positive inorganic impact and neutral FX.Organic adjusted operating profit was down 29.7%. Incremental profit from acquisitions was 1.3%, and there was a favorable currency translation impact of 0.4%. The adjusted operating profit increased in the first 2 months of the year by over 4%, but fell more than 70% in March due to the sudden business disruption that resulted in a high revenue drop through to profit, especially in the Automotive Division at the beginning of the facility closures. Margin, as a result, was 6.6%, down from 9.3% in the first quarter of the year.Slide #8, the summary of the income statement. Below the adjusted operating profit, we have the amortization of intangibles by an amount of EUR 14.6 million, similar to last year, and the net of other results of EUR 0.4 million. Net financial expense of EUR 6.2 million was EUR 0.8 million higher than last year due to FX and some increase in finance expense as a result of drawing down fully on the revolving credit facility.This year, it's not easy to give guidance on many of the line items, including finance expense, but I would assume it will be a bit higher than it was last year. Although we are not reporting taxes on minorities at the Q1, the guidance I gave at the fiscal year resource for minorities of around EUR 22 million for the whole year, I expect, is too high now. However, we still expect the effective tax rate to be in the range of 24%, 26%, as it was in 2019.I'm sure you know that Applus+ usually generates a strong cash flow. But this first quarter, the adjusted free cash flow was EUR 29.6 million, which was EUR 17.4 million less than in Q1 last year, but the same amount generated in the first quarter of 2018. This was mainly due to lower EBITDA and higher working capital.The first quarter normally has working capital outflow. Q1 2019 inflow was a one-off due to strong revenue growth in Energy & Industry division in the last quarter of 2018. Working capital remains under control with similar debtor days as last year. CapEx of EUR 4.9 million is a net figure that includes the proceeds of disposals of some Auto stations that were agreed last year. Otherwise, the gross CapEx was similar to last year and was all committed and paid for before we took tight control of CapEx. So we are now, of course, closely monitoring and revaluating all CapEx with spending only where strictly necessary.For tax, we actually had a net inflow of EUR 4.2 million. This is not unexpected and is due to the explanation I gave at the year-end due to a refund from tax paid in advance that we were expecting last year but came in this year.Interest cash outflow of EUR 3.4 million, similar to last year, although I expect by year-end, it could be higher than last year. The cash dividends paid to minority interest was much lower than last year due to timing. And for the full year, we expect this to be lower than last year.Acquisitions include the second part payment for the acquisition of a vehicle inspection company in the Canary Islands and the acquisition of a small metrology company in Spain plus deferred payments of previously made acquisitions.Then we have the balance sheet movement in cash, starting with the new line item of around EUR 14 million per quarter after IFRS 16 was introduced. The increase of EUR 234 million in financing is the drawdown of the revolving credit facility of EUR 300 million less the repayment of some short-term maturity loans.So this then takes us to my final slide, where I will show you our balance sheet and liquidity, which we are confident that we have sufficient liquidity to manage this crisis. Our total net debt at the end of the first quarter was EUR 627 million, EUR 462 million pre-IFRS 16, lower than the position at year-end of EUR 644 million. You can see that most of the maturity of the borrowings is in 2024 and later, so there is no short-term maturity or refinancing risk. Current leverage is 2x, 2.2x after IFRS 16, whereas the financial covenant is set at 4x and is tested at the end of June and December, taking the last 12 months of FDA. The leverage is measured using the financial covenant definitions and so is before the application of IFRS 16. So we will comfortably meet the next covenant test at the end of June.Regarding liquidity, again, we currently feel confident with this. At the end of March, we had EUR 472 million of cash and undrawn facilities. And on top of that, in April, we signed new bank facilities for EUR 150 million. It means that we have liquidity for more than a year on our currently reduced revenue range, which we feel is sufficient to survive this current crisis.That concludes the financial slides. In the appendix, we provide further information, including a slide on the main currency rates. Now let me hand over to Fernando Basabe.

[Fernando Basabe Armijo, CEO & Executive Director]

Thank you, Joan. I'll go now through the key points of the quarter for each of the 4 divisions, and I'll also give some information on the impact of the coronavirus already in April.So starting with Energy & Industry. It was expected to have another year of good growth, and in the first 2 months, it was on track before the impact. Growth of 4.2%, which was mostly organic of 3.3%, despite the last 2 weeks disruption was good. The regions with the stronger growth were Asia Pacific, Latin America and the Middle East. And oil and gas in total grew in line with the division growth. The larger and more resilient OpEx part grew strongly, and the smaller CapEx part continued declining. However, April is down materially, we've not closed the books yet, but from what we've seen so far, it is down around 25% compared to April last year. The Africa/Middle East region has been the least impacted with a fall in revenue of 15%, while other regions have been more impacted. In this division, the revenue fall is a combination of coronavirus preventing access to sites and also the low oil and gas prices prompting customers to delay or reduce scope of work. We have implemented cost reduction programs across all the locations and regional overheads, keeping in mind that we expect this disruption to be mostly temporary, and so we have to retain most of our people.The record-low oil prices we've seen recently will also impact this business going forward, especially the CapEx exposed work, which last year was 9% of the group revenue. Some of our customers have already announced material CapEx reductions in their budgets.So moving to Labs, the same story, with strong growth up to the impact of coronavirus, double digit in total and high single-digit organic up to the end of February. But this halted from the middle of March after the coronavirus impacted Spain. For the whole quarter, 9% total growth, of which approximately 3% was organic and the rest from the acquisitions made last year and one small one at the start of this year. For April, revenue is down around 35% compared to the same month last year. The main reason for this is that the operations in Spain that account for 70% of the revenue of the division have been severely impacted with 2 weeks when the Labs were closed at the beginning of April, and we only tested ventilators and face masks, which we did for free.Like Energy & Industry, we've implemented cost reductions, including the temporary layoff of the workers where there is some compensation from the government. The Labs are now mostly open for business in all countries, although, of course, right now, there is still a lot less business than before the coronavirus.In Auto, again, on delay impact of the virus, the division was performing well. If we exclude the Washington contract that ended on December '19, then the division was growing at around 2.5%. Washington was around 2% of revenue in 2019. But then in March, with the sudden closure of the stations in Spain from the middle of the month and very shortly afterwards in most of the countries, the revenue declined by 30% for the month. The only 2 countries where the stations have remained open throughout until today are those in Denmark and Finland, although the volumes are down on the previous year. For April, we therefore have seen a fall in revenue of 80% compared to April last year. We have participated in all the government schemes available in each country with temporary layoffs of staff where possible. In Spain, it is 1,500 people affected in April in this division. The stations will, of course, reopen, and the inspections that were missed will still have to be done. Costa Rica and Uruguay have already reopened, although with restrictions, which means we are currently performing less than half of the previous volume.We expect the majority of stations, including those in Spain, to be open and ramping up again by the middle of this month. And by the year-end, we expect most, but not all, of the lost revenue to be recovered, although with the health and safety measures we will have to implement, productivity will be lower.The last division is IDIADA, where, again, we had strong revenue growth of 8% up until the end of February, and then March was impacted and declined by 12%. Unfortunately, the biggest impact has been on the proving ground, which is normally close to 100% capacity and has been idle throughout this period. For April, revenue is down around 40%. Similar to the Labs division, the main facilities of the division in Spain were closed for 2 weeks, the first 2 weeks of April. And the remainder of the time, the activity level has been very low. We also have most of our employees in Spain on the government temporary layoff scheme. And in other countries, we've done the same where the activity level is low. In most of the other countries IDIADA operates in, we are open, although we've reduced volumes. China, as I said at the start of the presentation, was closed early in the year and affected but is now back to normal.So before I go on to the summary and outlook, I have a couple of slides on the actions we are taking on the coronavirus. First is health and safety of our employees, families, wider communities in which we work. We have, of course, as a minimum, followed the legislation and guidelines in every country that we operate in, and we have communicated regularly with our people directly and through regular updates on our internet. And we are stocking up on protective equipment and virus testing so that employees can return to work when business resumes. I mentioned earlier that the labs in Spain were closed except for testing of ventilators and masks. In fact, 1 department has been working nonstop to design new testing procedures to validate ventilators. Validation process would normally take weeks to do, and they've been able to reduce it to just 2 days. And other operations have been supporting the communities in which they work with donations of equipment.Liquidity, of course, has been an area of focus to make sure we can get through this period of uncertainty. As Joan explained, first, we drew down on EUR 300 million from the revolving facility we had available. In April, we've signed new borrowing facilities agreement to have an extra EUR 150 million liquidity available, managing our working capital, primarily ensuring we continue to collect on time and watching now for bad debts. As Joan said earlier, all CapEx spending now needs to go through a reapproval process, and this will reduce CapEx mainly in half 2. And as you know, we regretfully decided to cancel the dividend that we were going to pay in July.And to be more specific on the cost reductions, staff costs are our biggest cost. In 2019, staff costs were 65% of the total cost of the groups. All countries where we operate are using the governmental temporary layoff schemes where these are available. Spain is where this is the most material for us. And in April, we had approximately 3,400 people on the temporary layoff schemes of the government. This is out of a total employee base of 7,800 in Spain across all divisions and corporate. But not all countries have them, and we have to find other ways of reducing costs. Divisional management who are mostly still working from home have agreed to salary reductions as half, the whole Board and Executive Committee. In total, for the month of April, our costs, excluding depreciation and amortization, have reduced by 25% or EUR 30 million, and that is with an estimated revenue fall of 40% or EUR 60 million. That is a 50% drop through to profit, which effectively puts April into a loss-making position.So moving to the summary and outlook. In summary, we had a good start to the year before the coronavirus materially impacted our operations in mid-March. Spain, in particular, suffered from the sudden drop in revenue in the middle of March, which led to a high drop through to profit. But we ended the quarter with a healthy balance sheet and sufficient liquidity to last a prolonged period of disruption. We will provide an update on the full year outlook when the current crisis situation becomes clearer. But in the meantime, we'll be as helpful as we can on a short-term outlook. So we are giving a Q2 outlook, although there are still many uncertainties.For Q2, we expect revenue to be down around 35% and to make a small adjusted operating loss. Of course, this depends on a gradual improvement in the situation in May and June compared to April. The second half should be materially better in revenue and profit, with this being mostly driven by the recovery in the Automotive Division.And that concludes the presentation. Joan and I are ready to take your questions. As a reminder, please e-mail them to Aston on [email protected]. He will read them out as we are in different locations. And please keep them concise and to the point as much as possible.

[Aston Swift, Vice President of Investor Relations]

Okay. Thank you, Joan and Fernando. And I have the first question from Will Kirkness from Jefferies. How does the business expect working capital to progress? Are receivables strained at the moment? And has that been easing?The second question, what is the outlook in oil and gas regarding OpEx, volumes and pricing? Any signs yet that the oil price shock is accelerating competitors exiting the market?And third question, any more detail you can provide on the cadence of the second quarter? Based on divisional comments, April looks to be down 40%, so May, June, down more like 33%. What is the drop through to revenue? And do you need longer-term restructurings?

[Fernando Basabe Armijo, CEO & Executive Director]

Okay. A lot of questions. And I think, Joan, if you can please take over the first one on working capital, and I'll try to answer the other two.

[Joan Amigo I. Casas, CFO & Executive Director]

Okay. Perfect. Working capital in this first quarter, as I explained, mainly affected for the seasonality. But obviously, you cannot forget also the lockdown in the Auto Division. So obviously, the mix of the division is also impacting in the working capital. You know that Energy & Industry, for instance, is a division that requires more working capital; whereas in Auto, the working capital is negative. So depending on the mix of the division is also impacting. On top of that, during last year, we did certain investments for the now -- then the new Automotive Irish contract that we have paid during -- in terms of CapEx that we have paid during the Q1. That also has impacted the working capital in the first quarter. Going forward, what we expect in the second quarter is that maybe the working capital will increase a little bit, mainly for this mix, as I said, in terms of the divisions, but we feel extremely comfortable in the way that we are managing account receivable. Just to let you know that, for instance, during the first quarter, the working capital amount of the Energy & Industry is even a little bit lower than it was last year in the first quarter. So we don't really foresee up to now with information that we have, any problem in the account receivables and, therefore, in the working capital.

[Fernando Basabe Armijo, CEO & Executive Director]

Okay. Thank you, Joan. So the second one was on the outlook, oil and gas, and OpEx volumes and pricing. Okay. So OpEx, and we've experienced this before, I think, will remain -- volumes will remain quite stable. But what we've seen in this -- in April and starting in March is some delays in shutdowns that were programmed for these months. So I think here, on one hand, the impact of the virus will obviously delay some of the OpEx work. But I don't think the OpEx volumes overall will change materially. Pricing, of course, we will -- I'm sure we'll see more pricing pressure. And what will clearly go down is CapEx, and this is early. This has a time lag. So the CapEx projects that we are working on will continue, but it's difficult to see new projects coming up to the market in this environment.Competitors exiting the market, I think it's too early. We'll see them, but we haven't seen anything in these couple of months yet. What we will see and we were seeing it already, but I think will clearly accelerate, is we won't see competitors invest in and trying to move to other geographies. So most of our competitors, I guess, will go back to their core and try to minimize the crisis.And your third question, detail on the guidance of second quarter. Well, April has been horrible. We expect in May, our auto stations to start opening. And I think this is already in the case of Spain unless there is -- the situation changes dramatically. I think by mid-May, we'll be able to open. And in June, volumes should start picking up. In the other divisions, IDIADA, also May should be better than April and June better than May. The Labs is more -- I would say, more stable, where we are -- I mean April was very tough because the first 2 weeks, everything was closed in Spain. But the volumes they are having now are more what we would expect for May and June. So I think the big swings will be in Auto and IDIADA. Energy & Industry, more stable, so we don't expect material changes in May and June compared to what we have seen in April or at least not as much as in the Auto Division. So we are counting on some recovery, mainly based on opening the auto stations. It's our most profitable division. It's 40% of the profit of the group. And well, we've been close for business in April. So this is where we have to see a big change and, of course, in half 2. Okay?Sorry, to answer the last point, you need longer-term restructuring. I think it's early to say probably some activities related to oil and gas CapEx. It's not that big anymore for the group. But I think the rest of the business, we expect a significant -- most part of it to start recovering, and we will see. For the time being, we are not restructuring. So we are taking furloughs, temporary layoffs on -- depending on each country. But yes, I think oil and gas probably will need some restructuring for the -- down in the year.

[Aston Swift, Vice President of Investor Relations]

Okay. The next questions are from Paul Sullivan from Barclays. First question, is there a timetable for reopening testing centers in Spain? How have regulations adapted to the lockdown? For example, do you have more time to get your test certificate?In oil and gas -- second question, in oil and gas, do you expect pricing to deteriorate further as it did in the last slowdown and indications from customers in oil and gas?Third question, within Energy & Industry, is the decline year-to-date in April purely a function of site closures?And then the last question, can you quantify the proportion of savings coming from furlough schemes? And as these costs come back on, will you make more permanent cuts?

[Fernando Basabe Armijo, CEO & Executive Director]

Okay. The first one was business you have most confidence can revert to clear levels. Sorry, Aston, there's too many question.

[Aston Swift, Vice President of Investor Relations]

Sorry, the first question was the timetable for reopening testing centers in Spain.

[Fernando Basabe Armijo, CEO & Executive Director]

Okay. Yes, mid-May, I think it's -- I'm not sure if it's the 16th or the 11th, but there is a timetable. And it -- theoretically, it could change per region. But as it is today, it's the same for the whole Spain, and we will start opening in mid-May. Of course, it's a big question mark whether the drivers will come or not. The regulations adopted to the lockdown so far, what the government has said is nobody will be fined for not going through the inspection in the -- during this lockdown period, but they haven't said yet how much time will they give to catch up. So whether this is going to be 1 month or up to the year-end, we don't know yet. So it's -- I tend to think that they will have a few months, and association of vehicle inspection companies in Spain is asking for a longer-term period than a few weeks to catch up because there's no capacity to do it.Okay. The second, in oil and gas, pricing to deteriorate further, yes, I'm sure the customers will come again and ask for price decreases. I think we have to take that as business as normal now. And what we will see, as always, it depends if we can, if they give more volume on exchange, what is the competitive situation, if we can adapt salaries. So I mean this is something we've gone through it already. We know how to do it. It's more difficult now because there's not that much to reduce. But on the other hand, also the customers need our services. And our relations are good, long-term relationship. So I'm sure we'll get to do arrangements.The decline year-to-date in Energy & Industry is not only a function of site closures there. We've seen in Asia Pacific some projects already that were about to start being canceled. So I think it's already a combination. Most of the impact in March and April is due to the closing of sites, but I think there's already some impact from the oil price. Still small, but I think there's some.Next question, I think, was about proportion of savings coming from the furlough schemes. Well, most of the cost reductions I mentioned are coming from this scheme, so EUR 30 million in April. The -- I don't have exactly the figure, maybe Joan has it and can answer, but I think the major part of it is coming from furlough schemes.

[Joan Amigo I. Casas, CFO & Executive Director]

Yes, Fernando, just to add something. Obviously, once you have in your P&L 65% of the labor cost, obviously, this is the most important one. But there are certain variable costs, like could be even subcontractors or consumables or T&E, that overall, it's around 60% of the total cost that obviously has also been reduced. But by far, the most important part is the labor cost with this furlough.

[Fernando Basabe Armijo, CEO & Executive Director]

And then you ask if we will look to make more permanent costs -- permanent cuts. I tried to answer this in the -- before. I think in most of our businesses, all the people will come back after the furlough or at least we will try to keep, as much as possible, the jobs until we see we have more visibility on the pace of the recovery. I think the area that -- well, I have seen we stopped that it will recover is the oil and gas, their CapEx side, at least not for next year. So in that area, we will have to look to do more permanent cuts.

[Aston Swift, Vice President of Investor Relations]

Okay. Thank you. The next few questions come from Pedro Alves from CaixaBank. First question on Automotive Division. Can you give us a fair range of how much of the inspections lost in the first half could return in the second half?

[Fernando Basabe Armijo, CEO & Executive Director]

Okay. Aston, it's easier if instead of reading them all, we answer them one by one. Otherwise, I tend to forget all -- some of them. So how much will be recovered? It's difficult to say because one thing that we cannot estimate fully yet is how much productivity we are going to lose because of the health and safety measures we will have to take. So I think if -- with the same productivity, I would say 80%, 90% would be recovered in the next probably -- in the coming year. But the first estimations are that we will lose something in the range of 15% productivity because of the social distance in the stations, the inspectors will have to work mask, gloves, they will have to change them. So this will all impact the productivity. And the stations, well, are designed to work almost at 100% productivity. So I also think the compliance rates will go down everywhere. So theoretically, all the inspection -- all the cars that have not gone through the inspections will have to go. But something we experienced in the past in some countries where there are economic difficulties is that compliance rates go down, so -- and that's, again, difficult to estimate in an environment like the one we are. But -- so my best estimate is that we will recover around 90% between this year and next year, and the major part of that should come up this year.

[Aston Swift, Vice President of Investor Relations]

Okay. Second question on Energy & Industry, what is your base case for oil and gas CapEx decline this year based on conversations with customers?

[Fernando Basabe Armijo, CEO & Executive Director]

Okay. In Q1, CapEx was down already 7%, and this was a continuation of the trend because it already decreased last year. So I think something in the range of 15% for this year is what I think we should consider.

[Aston Swift, Vice President of Investor Relations]

Okay. Next question on IDIADA. How is the activity evolving these days, given the gradual reopening of auto manufacturers' plants? And what is the outlook for the midterm, considering the challenges in the Auto sector?

[Fernando Basabe Armijo, CEO & Executive Director]

These days, it's recovering, especially in our main facilities in Spain because, as I mentioned before, they were closed 2 weeks and now, well, they are opened. And volumes are starting to come, and it is improving. One of the difficulties we have is that many customers come from outside Spain and stay 1, 2 weeks in our premises in Catalonia when then they test their prototypes. And when they use the proving ground, they normally do it like that, so it's a few weeks that customers come. And well, of course, they cannot come now, so still the proving ground is suffering. It's not totally idle now, but we don't expect it to recover until at least July. So we have difficulties. The business is improving. We think after July, it will be much better.And your question on the midterm, well, I think our customers were already suffering, and this is going to be a huge hit for the auto manufacturers. So we do expect IDIADA to be impacted. We were growing almost 8%. I think I mentioned January and February. It's a division that we have invested a lot in new technologies to support the -- our customers developing EVs, advanced driving assistance systems, autonomous vehicle. So I mean we are well positioned in the areas where our customers will continue to invest. The more traditional part of combustion engines will suffer more and, I think, will decline quicker. But to be honest, it's very, very difficult to predict how this is all going to work next year. So I think it won't grow as in the past, but I still think we will be very well positioned to take advantage in the areas where our customers will continue investing.

[Aston Swift, Vice President of Investor Relations]

Okay. And the final question from Pedro is on the balance sheet. What is, in your view, a fair range of revenue drop in the second quarter for leverage to reach 4x EBITDA set by the debt covenant?

[Joan Amigo I. Casas, CFO & Executive Director]

Okay. I think we have already provided clear guidance for the second quarter, saying that the revenue will be down around 35%. And even we estimated small losses. And with that, we feel extremely comfortable that we'll meet our covenants. So we don't really see any risk for our debt covenant during 2020.

[Aston Swift, Vice President of Investor Relations]

Okay. Thank you. And the next question is from Alexander Mees from JPMorgan. Revenue was down 25% in Energy & Industry in April. Was this a function of work being postponed, and we expect this to come back in the second half?

[Fernando Basabe Armijo, CEO & Executive Director]

Yes, part of the work was postponed, especially on the OpEx side. Some of the shutdowns we were supposed to be doing have been postponed. And yes, this part should come in the second half. But on the other hand, what we will see is a progressive impact of the oil price crisis, no? So I think on the Energy & Industry, on the second half, we don't expect revenue decline of 25%. But we don't expect the recovery of the shutdown cancellations to make a huge change because we will start seeing a higher impact on the CapEx side and on whatever they can delay.

[Aston Swift, Vice President of Investor Relations]

Okay. Thank you. Question from Robert Jackson from Santander. Can we have visibility on Applus+'s renewable exposure and potential longer-term growth strategy?

[Fernando Basabe Armijo, CEO & Executive Director]

I don't have the figures now of how much we do in the renewable industry. I don't want to give wrong figures, Robert. So if you don't mind, we'll -- we can e-mail you afterwards with how much we are doing on the renewable. On the long-term strategy, we are -- we have been investing in, during the last years, in many areas within the Energy & Industry division out of oil and gas. So we're doing a big effort in construction, in power generation, not only in renewables but also in other areas as nuclear, where we have now good contracts in Canada. We also have good contracts in the U.K. And well, aerospace, we were also investing. This is now also heavily impacted by the crisis. So yes, renewable energies is one of the areas where we have invested. And we will continue investing more, although I must say that the service is required in that -- in the construction phase and also in the -- once the assets are operating, it's much, much lower than what oil and gas requires or even what, of course, nuclear requires. So it's an area of growth, but it's not material enough to compensate what we are going to suffer in oil and gas.

[Aston Swift, Vice President of Investor Relations]

Okay. Next question is from Enrique Chavez from Fidentiis. The first one is for the CapEx guidance for 2020.

[Joan Amigo I. Casas, CFO & Executive Director]

Okay. In that moment, I think it's difficult to say. It will depend on the level of recovery and the level of activity. We already have some CapEx already committed, like it could be the CapEx required for the new Irish contract. But I would say that most likely, the CapEx amount will be quite below last year.

[Aston Swift, Vice President of Investor Relations]

Second question, updates on M&A. Are you still confident to close meaningful acquisitions in 2021, that's next year?

[Fernando Basabe Armijo, CEO & Executive Director]

We were working on several deals, and they are all on hold. So we haven't said no, but we are not progressing now. So I think we need clear visibility before making a decision on whether to go ahead or not. So I think if things recover, we have a good half 2. And of course, we don't expect to go to the same level we were last year. But if we see a clear recovery and things getting better, yes, we will continue with acquisitions next year. But for the time being, we are not going to do them until we have a much clearer view of the future.

[Aston Swift, Vice President of Investor Relations]

Okay. Thank you. And then the final question here is margins by business units. Could you provide some visibility about how the margins of the different business units are performing?

[Fernando Basabe Armijo, CEO & Executive Director]

Well, we don't give margins in Q1 in normal circumstances, so even more difficult in these circumstances. We'll provide them in half 1. I think you can imagine that Auto, with 80% revenue down, is losing money. IDIADA, with the fall in revenue that they've had, is not in a good situation either. So I don't think it is -- they are meaningful now. So I think the margins that we've seen in March or April or even the ones we are going to see in Q2, I don't think are -- give any further guidance of what's going to happen in half 2 and doing the recovery. So we'll keep them in half 1. And I think half 2 will be a much better measure to see what the impact is going to be more permanent on each of the divisions.

[Aston Swift, Vice President of Investor Relations]

Okay. Thank you. Two questions I'll read out from Pablo Cuadrado from Kepler Cheuvreux. First one on working capital. You have managed to keep working capital under control during Q1. What are your expectations for Q2, taking into account the difficult business conditions?

[Joan Amigo I. Casas, CFO & Executive Director]

Okay. As I said, I think it's quite difficult to -- right now to give guidance for these financial items. But I would say, in the second quarter, due to the recovery in Energy & Industry, they start growing a little bit. And the rest of the divisions and also the seasonality, I would expect that working capital in the second quarter could increase a little bit as usual. But we feel quite comfortable with the way that we are managing mainly account receivables, and we don't really foresee any problem. But I think most likely, working capital should increase a little bit during the second quarter.

[Aston Swift, Vice President of Investor Relations]

Okay. And second question on IDIADA. What is the utilization rate that you're expecting for IDIADA in the next few months? And is the proving track already back in operation?

[Fernando Basabe Armijo, CEO & Executive Director]

The proving track is in operation, although it's, I would say, less than 50% of the capacity being used now. And what we expect is to continue improving, especially as people -- customers are allowed to travel from other European countries to Spain, and that's necessary for us to improve significantly the utilization rate of the proving ground. But overall, I think the guidance we gave for April on IDIADA is -- that's more or less the utilization rate, and that should improve in May and June, but difficult to say how much.

[Aston Swift, Vice President of Investor Relations]

Okay. Thank you. From Alvaro Lenze from Alantra. On Energy & Industry, the breakdown of performance in April between oil and gas and the other end markets.

[Fernando Basabe Armijo, CEO & Executive Director]

It was, I would say, similar. So oil and gas grew in -- sorry, Aston, the question was in April?

[Aston Swift, Vice President of Investor Relations]

Yes, it was.

[Fernando Basabe Armijo, CEO & Executive Director]

In April. Now in April, I think everything is down, and oil and gas is down much more than the other end markets. So I don't have the figure here, but most of the decrease is coming from oil and gas. We had several shutdowns in Canada, in Northern Europe, Australia that were postponed.

[Aston Swift, Vice President of Investor Relations]

Okay. Angel Perez from Renta 4 has one question. Could the recovery of volumes lost in the first half imply cost growth in the second half? Or will you have to invest in CapEx and OpEx?

[Fernando Basabe Armijo, CEO & Executive Director]

The increase in volumes in Auto will clearly require more cost. So on one hand, the productivity will be lower. And on the other hand, we will have to open in order to -- because we don't have the capacity unless we open in some areas where we don't open on Sundays, we'll have to open on Sundays, and that requires paying extra time for some people. So yes, in the case of Auto, the higher revenue will also come with higher cost. In the other divisions, no, I don't expect volumes to go above the normal capacity that we have.

[Aston Swift, Vice President of Investor Relations]

Okay. And the final question is from Andy Grobler from Crédit Suisse. Which countries have announced a postponing of vehicle inspection requirements? So in the U.K., there's a 6-month grace period for carrying out the vehicle inspection. Have any of our contracts have a grace period?

[Fernando Basabe Armijo, CEO & Executive Director]

Not that I'm aware. All of them -- I mean Denmark and Finland have continued operating as usual. In the case of Ireland, the facilities are closed 100% now. And what the government has said is that they will -- as I mentioned, they will not find people that have not taken the test, but they haven't said the period in which all those cars have to pass the test now. And I think that is the same in Spain, for sure, and in some countries in Latin America. So we don't know yet. My expectation is that they will give a few months to catch up.

[Aston Swift, Vice President of Investor Relations]

And that is it. There are no more questions.

[Fernando Basabe Armijo, CEO & Executive Director]

Okay. Thank you, Aston. Thank you all for joining. And well, I hope we've answered your questions. If there's something left, please e-mail to Aston, and we'll try to answer as good as possible. So thanks, again, to all, and stay safe. Bye.

[Joan Amigo I. Casas, CFO & Executive Director]

Thank you. Bye.

[Operator]

That concludes our conference call today. Thank you for participating, you may all disconnect.