Kongsberg Automotive ASA

OSE:KOA

Earnings Call Transcript

[Operator]

Good day, and welcome to the Kongsberg Automotive ASA Q2 2020 Earnings Announcement Conference Call. At this time, I would like to turn the conference over to Mr. Henning Jensen, President and CEO. Please go ahead, sir.

[Henning Jensen;President and CEO]

Thank you, operator, and welcome everyone to our Q2 earnings call. And as is probably not a surprise to any one of you, Q2 was an extremely eventful quarter for us, obviously, driven by the outbreak and the global spread of the coronavirus. We've been doing a lot of communications with the investor community, obviously, in addition to customer and suppliers, et cetera, et cetera, in order to basically deal with all the effects from this. We've been extremely active on the investor communication front, obviously, very related to the capital increase that we did complete. And the second quarter of 2020 probably goes into the history as one of the worst quarters we ever had. That's kind of the bad news. The good news is that things are recovering. They're recovering at decent rates. We are, what I would say, slightly ahead of what we, in our earlier investor presentations, called the medium scenario. And we have Q2 behind us. We are well funded. We consider ourselves more than fully funded to next year. And we are seeing some good news in the market, particularly in the Chinese market, just to sort of give you a little bit of a framework of the whole thing. So let's flip straight on to Slide 3. I'm not going to go through the disclaimer slide on Slide 2, but I do encourage all of you to read it. Getting to Slide 2 (sic) [ Slide 3 ], this is basically our summary slide, and we're obviously going to get into a lot of detail later on. From a top line standpoint, revenues decreased by 48% in the quarter year-over-year to EUR 154 million. A very small portion of that was negative currency effects. And obviously, this whole downturn is driven by the coronavirus pandemic and the shutdowns related to that. In Europe and North America, or actually the whole Americas, our revenues declined by, on average, give or take, 56%, 57% in the quarter. The very good news is, in China, we actually grew by 25%, a remarkable figure year-over-year. That is partly attributable to the quick recovery in China from the pandemic but also significantly contributing to that market share gains for Kongsberg Automotive. We ramped up quickly, reaching a level of, give or take, 75% of prior year levels during the month of June, and that figure is still ramping as we keep going into July and August. Obviously, most purchasing departments have had other things to do, so our expectations of new business wins was very low. I'll get a little bit more into that later on, although that's not the main focus of today's report. We were awarded EUR 43 million worth of annualized business or EUR 160 million worth of lifetime business. The big change, as compared to prior quarters, is that a very significant portion of that was in our Specialty Products area. From a performance standpoint, with that kind of revenue drop, and I think we've been pretty clear on that in prior communications, obviously, from an adjusted EBIT standpoint, we came in at a very low figure. We actually had an adjusted EBIT loss of EUR 33 million, which is EUR 54 million lower than what it was in prior year. On that P&L line, there's no significant FX effects. The adjusted EBIT figures do not include impairment losses, which I'm going to get into in a second. That is a fairly clean operational figure. And the reason that we did not include that in adjusted EBIT was for, essentially, investors to more easily understand the fundamental operational performance and the fall-through effects, et cetera. From a cash flow standpoint, free cash flow for the quarter was negative EUR 14 million, 1-4. The capital increase, and then the only part of that, that was included in Q2 was the private placement portion with a subsequent offering for NOK 300 million that has been completed by now was actually completed in the third quarter. We repaid our entire outstanding credit facility balance. So that balance is down to 0. And at the end of the quarter, we had EUR 126 million in overall liquidity reserve. And if we only count the liquidity that's usable without being subject to covenant testing, we had a liquidity reserve at the end of the quarter of EUR 112 million. Total cash flow for the quarter, EUR 49 million, that obviously includes the capital increase incoming cash. From a gearing ratio, obviously, that also changed significantly, essentially doubling from 3 last year to 6 this year, mainly being driven by the change in earnings levels or deterioration in earnings levels, and then that is an LTM type figure. If you flip to the next slide, this is information that, to a large degree, you have seen before. I'm going to run quickly fast through this, but obviously, the whole pandemic, from an industrial standpoint, from a business standpoint, started out in China, hit China hard in February for a very short period of time. China started ramping up significantly, more or less, immediately following the extended New Year's shutdown in China and since then has never looked back. For the rest of the world, North America and Europe, they effectively shut down from somewhere in the mid- to late March framework. Europe is shutting down a little bit before, but it was really only a week before. And then that was followed by a ramp-up, and the ramp-up started a little bit earlier in Europe. North America came shortly thereafter. North America has clearly ramped at a steeper rate, so ramps faster. But Europe had a little bit of a head start. And as of today, North America is actually running at higher levels than Europe compared to last year. That has a lot to do with the distribution channel for the industry in North America, where they basically sell vehicles after dealer lots and not through orders. And consequently, they need to fill up the lots as the lots were pretty much emptied out during the pandemic-related lockdowns. Flip to the next slide, Slide 5. We've been through this many, many times. We took pretty quick action. We were actually one of the first ones out to take cost actions and did that already in March. Effectively, at the end of March, we had, give or take, 2/3 of our workforce and some kind of short-time work, some kind of furlough, some kind of permitting-type arrangements, which, obviously, to a certain degree, paid off, and we were able to not have a worse fall through than what we ended up having. At the same time, we very quickly recognized that this would lead to a need for additional liquidity, and again, we were out fairly early. And we raised NOK 1 billion through private placements. Getting that equity in allowed us to also negotiate with our banks. As announced earlier, we got EUR 20 million extra in our RCF, and on top of that, we doubled our utilization rate from 40% to 80% without being subject to any covenant testing, which obviously has provided additional liquidity for the company. In addition to that, we are working on that factoring program that we mentioned many times. And that is now entering into, let's call it, transaction mode. We've basically been [ created and approved ] for it. We've been going through term sheets. We have an agreed-upon term sheet. And now it's a question of executing it and setting up the proper entities and systems and processes around that. So we expect that to get into effect during the third quarter. As I said early on, following all these measures and all these activities, we do believe that we are fully funded, actually, slightly more than fully funded through the end of next year, which is sort of our model period. Under our current assumptions, a second wave could, of course, impact this position, but we do have buffers to cover for that. But who knows what's going to happen with the pandemic, and it's extremely difficult to forecast that, although when we get to the end of this presentation, we will give you an outlook for the year based on what we see in our order book today and how we see the market going, obviously, pending what's going on as far as the pandemic that there's no indication right now that, that's going to change. From an impairment standpoint, we did take a significant charge of EUR 83 million as an impairment charge in the second quarter. If you remember back to year-end 2019, we actually passed the impairment test with no impairment charges whatsoever. However, for some of our business units, and then there's a lot of details on this in the quarterly report, we were relatively close taking the market expectations down as a result of the coronavirus pandemic. That obviously led to a change in a lot of the input variables, and that's what led us to taking the noncash impairment charge of EUR 83 million in the second quarter. If you flip to Slide 6, I want to talk a little bit about what happened to our revenues during the quarter because it's just a very, very, very remarkable difference in the different markets that we serve. As I indicated earlier, in China, we actually grew 25% in the second quarter. The growth was even stronger in April and May. In April and May, we were close to 30% growth rate in China. That -- let's use quotation marks, and that one "slowed down" to a 17% growth rate in June, but still very, very solid growth in China of 25% for the quarter. That compares to market developments for passenger cars in China in that same quarter of approximately 9% plus. So in other words, our growth rate in China was much stronger than the overall market development. Some of that is attributable to our market share gains, and some of that is attributable to essentially filling up the channel in China. If you look at off-highway and industrial, as we predicted in our various earlier presentations, we expected that the decline in revenues from off-highway and from industrial would be somewhat milder than what it will be for the automotive OEM business, which turned out to be true. April was a very rough month-on-month in that market with more than 60% decline year-over-year. May followed with slightly less than 50%. And in June, we were basically in the 12% range compared to last year as far as the decline. But for the quarter as a whole, we were 40% behind last year. And then comes the automotive business, which is obviously our largest business. And in the automotive business, devastating figures for April and May, close to 80% down in April, close to 70% down in May, and then recovering as the production restarted to being 25% behind in June. But for the quarter, as a whole, we were, give or take, 59% behind. Company-wide, 48% behind last year, obviously, same type of monthly distribution as we saw earlier. I talked about China, off-highway and industrial, very largely impacted by the biggest customer in that channel, which had a complete shutdown in more or less the entire April and also a large portion of May, which really drove the figures there. And as far as the automotive OEMs, I think we all know that story well by now, that story is that just about the whole automotive industry shut down worldwide outside of China and Korea during the lockdown period. Based on what we see today as far as order books, and I'll get more into that at the very end of this presentation, we have very consistently, over the past 4, 5, 6 weeks, seen an improvement of our order books just about every week. And it's been consistent, and it's been increasing. The customers are picking up the products they're ordering. Based on this, we're basically increasing what we believe will be our full year revenues to a level of approximately EUR 914 million for the full year. How that compares to earlier presentations, it is about an increase of EUR 30 million versus what we presented to our investors, to you, back on June 26 where the equivalent figure was EUR 884 million. Still, EUR 914 million is a year-over-year decrease of 21%. And on the table at the very bottom of Slide 6, basically it shows you what we're expecting as far as monthly declines for the remainder of the year. In the previous presentation and also in this one, as you can see, except for the last 3 months of the year, we're looking at significant increases versus the previous estimation, which is, in our opinion, fairly good news. Slide 7 is basically a graphical overview as far as our revenues and adjusted EBIT. I don't think I need to comment much on this one. Obviously, very, very dramatic changes. And then graphically, they look as dramatic as they do with the straightforward numbers. Jumping on Slide 8, that is our EBIT and net income figures showing equal effects. Obviously, when you start getting into true EBIT or non-adjusted EBIT and net income, that also includes the effects of the noncash impairment charge. Flipping over to Slide 10, new business wins. As expected, new business wins were very low comparatively to earlier quarters. The good news is we actually did have some wins, and then those wins were actually programs that we've been fighting for, for a fairly long period of time. They've been long in process. If we flip directly to Slide 11 and sort of look at the composition of it, you will see that we basically had no business wins in our Interior segment. We had some wins at a much lower rate than what we normally have in Powertrain & Chassis. And in Specialty Products, and then this is really attributable to mostly one single contract, which is huge, we actually had higher bookings for new business wins for Specialty Products in the second quarter of 2020 than we have had for a lot of quarters. So for Specialty Products, in order to sort of make a separate graph for it, it would actually have looked like there was no corona effect whatsoever. Slide 12, relatively meaningless as far as the trend analysis, given that the revenue levels are going down, and then there's a certain compensation for that effect and the LTM effect. So I'm not going to comment much more on that. Getting to Slide 14, that's a market summary. And there are some big differences here mostly driven by China. As I said earlier, if we do look at the global passenger car production, overall, it was down by, give or take, 45% for the quarter year-over-year. If we split that up and look at it in a different way and not just for every single region, but if we sort of just look at China and rest of the world, China was up 9%. Keep in mind, our revenues were up 25%. And the rest of the world was essentially down 62% in passenger cars. Now I haven't worked out the numbers as far as how we did in each of the submarkets on a year-to-year basis as far as trucks and as far as passenger cars, but if we look at our China revenues year-over-year, as I said, we were up 25%. If we look at the rest of the company and we look at how much we were down, we were down about 56%. So in other words, we were down slightly less than what the production volumes indicate, again, doing somewhat better than the market, some of that attributable to market share issues, some are attributable to basically having the right customer mix, and some of it attributable to filling up the channel. Getting to the truck markets, and it's a fairly similar type of effect here, but the China effect on total production is higher than what it is in the passenger cars. Overall, the market was down by 33%. In China, it was slightly up. In rest of world, it was basically down by 60%. So in other words, rest of world was very similar in terms of behavior as to the passenger cars. And again, we did slightly better than that. So just to give you a little bit of perspective on that. Flipping over to the segment highlights, and there's really not a whole lot of difference here. Looking at Slide 16, it's just very, very similar pictures. Obviously, the effect on earnings and sort of the steepness reflects, to a certain degree, the degree of profitability that you have, so you'll have a stronger fall through in the more profitable units. I'm not going to go through a lot of detail as far as the next 3 slides. I think they're fairly self-explanatory, and I don't think there's a whole lot of surprises there. You'll see revenue decreases, which are relatively similar. It's a little bit smaller for Specialty Products, primarily because of the off-highway and industrial end markets that we're serving primarily to that segment. That takes us to the financial slides, and Norbert, our CEO -- CFO, is with us. So Norbert, why don't you go through the financial slides, and I'll get back to you with the summary and conclusion.

[Norbert Loers, CFO & Interim Co]

Okay. Thank you, Henning. Good morning, everybody. So Page 21, we walk you through revenue changes by quarter -- for the quarter. You'll see that Interior dropped by EUR 36 million revenues. Interior actually had a pretty remarkable gain in market share measured to the outside markets. P&C is the largest drop, EUR 56 million; and Specialty Products, EUR 45 million, and there's a small portion that relates to FX and other effects. On adjusted EBIT, we also see from all the business segments the significant reductions in adjusted EBIT compared to the second quarter in 2019. We go to net income development, Page 22. Adjusted EBIT, a relative change quarter over -- year-over-year second quarter of EUR 54 million minus. Second quarter last year, we finished with EUR 20 million, and this quarter was minus EUR 33 million. We have still a few -- small amounts of restructuring costs, but they get smaller and smaller every quarter. The big amount here is losses from impairments from the impairment test, a small increase in interest cost and a bigger increase in other financial items since that quarter was also lots of, let's say, activities with financing and related costs. We have savings in taxes of EUR 15 million quarter-over-quarter, and that leads to a total net income of minus EUR 117 million for Q2 2020. And it comes to liquidity development, Page 23. I'm not going through all the individual numbers. But what is remarkable in that quarter is that we had very positive cash flows from other receivables and liabilities. You remember, in the past, that was more negative, and this quarter was very positive. We have positive cash flow, some change in net working capital, we have small numbers from restructuring payments and tax payments, we have also reduced CapEx numbers in that quarter and a small amount that relates to IFRS 16 lease payments. A big increase comes from the equity, EUR 63 million, we paid back on the RCF. And then we finally had interest paid in other financial charges and FX effects on currency. So that leads finally to available liquidity from the RCF, which is completely undrawn, EUR 70 million; and cash in our bank accounts of EUR 56 million; in total, EUR 126 million. Total cash flow development quarter-over-quarter, Page 24. The big driver, obviously, is the capital increase. And the free cash flow was minus EUR 14 million in the quarter, as mentioned already on Page 3. Net financial items breakdown we had in the second quarter, very small currency effects. It was almost 0. We had significant other financial items and interest payments that related primarily to IFRS 16 interest payments. When it comes to financial ratios, we try to, let's say, show most meaningful financial ratios and using for the adjusted gearing ratio our adjusted return on capital investments and exclude here the impairment effects. And you'll see here that for the second quarter, driven by the big EBITDA loss, gearing went up to 6.1. Also on adjusted return on capital investment, that was negative, obviously, in the second quarter. Also, equity ratio went down due to the impairment charges that reduced equity by EUR 82 million. And our capital employed was also reduced in line with that. So for the capital employed, we reduced that number by the impairment as well. So that's it on financials, and I'm handing over back to Henning.

[Henning Jensen;President and CEO]

Thanks, Norbert. Well, let's get to summary and conclusion, starting on Slide 28. This is kind of the wrap-up, and then we're also going to get a little bit into guidance. I see that there's still the summary and conclusion slides. So if we can flip to Slide 28. There we go. So obviously, looking backwards, Q2, heavily impacted by the pandemic, strongly impacted our revenues, earnings, cash flows. It also ultimately led to the impairment charge. We did a lot of cost controls, we obviously went through capital increase, we obviously did our bank negotiations. And I just wish to express a huge level of thank you and gratefulness towards both our equity investors and towards our banks for the support that has been shown, which has been absolutely remarkable. The measures that we made operationally, essentially, allowed us for Q2 to have a relatively limited negative overall operational cash flow, as I call it, or free cash flow, as others call it, of EUR 14 million before any of the capital increase effects, et cetera, came in. However, as we also explained many times, there's a certain delay effects, particularly on working capital, when the sales are building up. Again, we've got to build up working capital. So actually, the hardest hit on cash is not in Q2, but rather in Q3, which I'll get a little bit more into when we get to the next slide. All that being said, we did manage it tightly. Even if we had not completed the capital increase towards the end of the second quarter, we would actually have been able to a little bit more than just scrape by the second quarter without having had to subject ourselves to covenant testing for that quarter. So there was a little bit of safety margin in there. Obviously, the successes of the capital increase and the increase in both the amount and the utilization of the RCF or allowable utilization allowed us to get better on that. If we flip to Slide 29, which I see is already flipped, just trying to look forward, and I realize that most companies do not provide guidance. We have some internal discussions on that, and my strong opinion is we've been out with so much information and so much outlooks and so much indications as far as what we see as the future, obviously, as part of the capital increase process that we do owe you a revised view as far as how we look at it, given what we know today as far as the overall market and, obviously, assuming that there's not going to be any significant changes to that and, at least, hopefully, not driven by the pandemic. Given that, we are looking at, as I explained earlier, that our order book is slowly but securely improving. The status of our order book as of right now is that we do estimate full year revenues of EUR 914 million for the full year. That would imply a year-over-year decline in Q3 and Q4 combined, so for the half year, of approximately 15%, 1-5. From an adjusted EBIT standpoint, we estimate that our adjusted EBIT for the full year will come in somewhere in the range of EUR 20 million to EUR 23 million. And that indicates that we will have a slight positive adjusted EBIT in the second half of the year combined. And obviously, that leads to a more significant EBITDA for the second half of the year. From a cash flow standpoint, we will still be negative in the second half of the year. We're looking at a full year cash flow of around negative EUR 65 million. And given that we had, give or take, a little bit less than EUR 25 million negative in the first 2 quarters of the year, that indicates a negative EUR 40 million cash flow in the second half of the year, again, mostly attributable to the working capital increase. All these figures indicate an improvement of somewhere in the range of EUR 10 million to EUR 15 million compared to the June 26 update, regardless of whether that is the adjusted EBIT figure or if that is the cash flow figure. From a liquidity reserve standpoint, we estimate that at the end of the year, with the -- using the figures that I've just referred to, that we will have liquidity reserves of approximately EUR 95 million, and that takes into account that you do not utilize more than 80% of our RCF. If we were to do that, then the number would essentially be EUR 14 million higher. So in addition, obviously, we are still continuing to get the factoring program into place. The effect from the factoring program have not been worked into these figures. So that means that, that is additional buffer. So to make a quick conclusion, we're not out of the woods. We certainly seem to have absolutely the worst behind us. As far as the second half of the year, slightly better than what we've been indicating earlier. And we do intend the second half of the year to have slightly higher revenue figures based on what we see as our order book today. We do believe that we're going to return to black adjusted EBIT figures for the second half of the year. And from a cash flow standpoint, obviously, we need to rebuild our working capital after that decreased significantly during the second quarter as a result of the very low sales. But all in all, I would say that we're a little bit ahead of plan. We're doing a little bit better. We're ramping a little bit better. And I wouldn't say that the future, as of right now, looks extremely rosy, but it certainly looks a whole lot better than what it did just 1 month or 2 ago, and that is something we certainly appreciate and then charge hard. And as I said, revenues for the second half of the year, we estimate to be down year-over-year by approximately 15%. That obviously compares to the 48% that we were down in Q2, so a significant improvement on that. That pretty much concludes our presentation. I can see that we've gotten a lot of questions online. So I'm going to try to run through those questions relatively quickly before we get back to the operator and basically ask if there's any questions on the audible as well.

[Henning Jensen;President and CEO]

One question is, during the third quarter, we discussed the impact of transition to electric cars in the medium to long term for both Interior and Specialty Products. Could we elaborate on this impact also on Powertrain & Chassis? Well, on a gear shifter basis, electric cars also have gear shifters. It's just that they don't change gears, but they work for the purpose of indicating whether the cars will go forward or backwards or basically to be being parked position. So from a system standpoint, the shifter itself is also in place in an electric car. And fundamentally speaking, it's the identical shifter that you have in a combustion engine car. The best example of this is the Tesla model lineup. As some of you may remember, a long, long time ago, Daimler, the owner of Mercedes, was one of the major shareholders of Tesla. And consequently, they inherited their gear shifter from Mercedes. So in other words, we are using the same gear shifter. It happens not to be from us, but I'm just using it as an example, that the gear shifter is the same. The thing that's different is that it's a simpler actuator on the other end of the gear shifter in order to shift it. So it is slightly less revenues per vehicle for P&C for an electric car than it is for a traditional combustion engine or a hybrid vehicle. So as I think I've outlined a couple of times, the more electric cars you sell, it's going to slightly negatively impact P&C on the passenger car side. It will impact Interior somewhat positive, maybe even strongly positive. And in our Specialty Products area, it's pretty much neutral. So long story short, we are not positioned in a way where we're very exposed to what the powertrain of the car will be. We make no engine components. We make no transmission components. Yes. There's a comment here that when I switch the slides, please wait a couple of seconds due to lag in the system. I apologize. I'll try to do it better next time. How -- China, as the future of car business, with their focus on electric vehicles, how active are you in this market? We're extremely active on the Interior side. We are somewhat active on the FTS side, particularly on battery cooling-type projects. And also for our P&C, we do have shifters in the electric -- in some electric cars in the Chinese market. Next question. Should we expect payable days outstanding to revert back to 130 to 160 days that we saw before 2019, which had exceptionally low payable days outstanding, give or take, 100 days? I think you should probably get a better indication if you look at -- I mean the second quarter is kind of extreme because we stopped a lot of material inflows. I mean it's very hard to understand the payable days from the second quarter financials. If you look at previous quarters, fourth quarter 2019, first quarter 2020, and you assume probably a couple of days more than that simply because of the shift in -- sorry, a couple of days less than that, simply because of the shift in some of our balance between China and non-China, you're basically fine, but it's sort of in that type of neighborhood. To what extent is the ramp-up in July due to pent-up demand and deliveries from April, May, et cetera? That is a very good question, and it's a very difficult question to answer. I think it's very different by region. I think in North America, it's probably somewhat related to pent-up demand as they're trying to fill up the dealer lots. In some cases, the production of vehicles in North America goes into actually filling up the channel. In other areas in the North American market, you actually see the cars flying off the lot once they arrive. So they're not really successful as far as filling up the channel. But that there's some effect of pent-up demand and delivery vehicles that have been ordered a long time ago but not produced, et cetera, et cetera. There's some of that, but to quantify it is -- nothing is impossible, but it's certainly something that I cannot provide you with a meaningful figure on. There's a couple of questions related to the capital increase, and I'll try to take those sort of in combination from at the very end here. If capacity utilization is down at contract plans over a sustained period, how does that impact the company from both an operational and financial standpoint? Well, that's obviously -- if you have less volume in the plant, you basically have less utilization. You have a fall through that is somewhat over-proportional to your normal profitability rates, and you obviously get a harder hit on the bottom line than you get on the top line and measured in percent. And the instruments that we have is to flex some of our costs if this is sustainable, and it sort of lasts for a long time, then we actually got to go through and potentially take some permanent measures, which we have not done as far as taking out people. But if it goes on for a long time, you cannot continue on temporary measures for an extremely long period of time. And the limit for that is pretty much set by legislation. And in some countries, it's as short as 6 months. In other countries, it's as long as 18 months. If we start extending beyond that period in -- where our plants are operated, then we will have to look at permanent measures. And whether that is just related to taking out people or that's also related to closing down some of our smaller plants, that is something that we have not yet taken a position on. A couple of questions from Petter at Sparebank in -- who I assume is on the phone and one of the analysts covering us. Interesting to see China growth. Do you see similar trends in Europe and North America? No, we do not. I think it's going to be a while until we start seeing year-over-year growth in markets outside of China. Can you give us some color on the positive change in outlook on revenues and what segment it relates to? I would say that the recovery is slightly stronger in some areas. The areas where we're seeing the strongest recovery would be in commercial vehicles in Europe, to a lesser extent, commercial vehicles in North America. We're seeing strong recoveries in most of the North American OEMs, and we are seeing decent recovery rates in the, what I would call, mid-range European vehicles. So not necessarily the premium vehicles. We're seeing recovery there too, but somewhat weaker. We're seeing little recovery in the lowest end of the market as far as cars. But in the mid-range, we're seeing a relatively decent type recovery rates. I hope that's good enough for giving that perspective. Some color on whether working capital effects, whether that is recurring in nature.Well, the working capital effects, there are sort of 3 of them, right? It's receivables, it's payables and it's inventories. Now what this period has allowed us to is to have an extreme focus on inventories and controlling incoming material flows, et cetera. And even as we speak, during the ramp-up, we're actually ordering less material than we're consuming. So net-net, we're still consuming inventory. And I think that at least a portion of that is something that is sustainable. Receivables and payables, that's just more mechanics, and it's relating to somewhat time delayed effects of whatever the revenues were. So yes, payables is basically a result of incoming material, primarily. Receivables is 100% in effect of whatever is coming in as far as sales. Given that our sales are growing much stronger or are growing in China and declining elsewhere, year-over-year, you will see net-net that actually our receivables days will go up because we have longer payment terms in China than elsewhere. Next question would be should we expect more impairments to come? Well, hey, I'm never going to say that you should never expect anything, but the analysis that we've done now is based on our current market view for the next couple of years. And as of what our opinion is right now with -- I mean impairment is not something that you do piecemeal. Impairment is something that happens if your carrying value is high and if your book value is basically higher than what you can justify as a carrying value, which is what happened in the second quarter. So fundamentally speaking, the answer is no, but it's obviously market-driven. And the final question from Petter. The improvements in order intake for the quarter-to-date, what segment is that related to? That is actually across all the segments where we're seeing this effect taking place, not just in 1 segment, but pretty uniformly across all segments. I see. Next question comes from a person I actually have a conference call with tomorrow in order to further discuss. I can explain most of your questions. I think I'll defer those to the phone call tomorrow since it just requires a little bit of -- almost like a little piece of paper in order to run a little table. It's very, very quantitative questions. As far as next question, given the Chinese market has a somewhat different approach to payables, can you manage to maintain this change in working capital discipline while growing in this market? How much working capital and CapEx do you expect to dedicate to growth in China over the next year? As far as the working capital, the effect that growing stronger in China than any other place, that will increase your receivables days. It will not necessarily change your payable days significantly. As to the CapEx dedicated to China growth, Norbert, do you want to answer that one?

[Norbert Loers, CFO & Interim Co]

We have some CapEx dedicated to China growth. It is not very capital-intensive growth we have there. So the growth in gear shift systems comes with relative easily scalable additional investments. And the growth in Interior, where we grow in our seat comfort systems, is almost completely invested for all the business we have booked. And we don't foresee there highly capital-intensive, new programs to be won. We have invested in these programs in Europe and in our U.S. facilities.

[Henning Jensen;President and CEO]

Very good. Thanks, Norbert. Let's continue on the question list. Just give me a second. It's a small screen for some reason, and there's a lot of questions. Do you benefit from weaker dollar and euro? Well, it depends a little bit on where the question comes from. Obviously, we're a global operation. We are exposed to different types of currencies. Ultimately, we report in euros. Fundamentally speaking, from an operational standpoint, the stronger the dollar is versus the euro, the stronger those revenues translate into revenues denominated in euros and the stronger the earnings from our dollar operations, which, for all practical purposes, are also the Chinese operations, given their close correlation from a currency standpoint. Fundamentally speaking, earnings-wise, the higher the dollar and the lower the relative euro, the better it is. We are operating in other countries, too. We have big operations in Poland. Most of the revenues out of there are denominated in euros. Obviously, there's local cost in Polish currency. That would be the same thing for Slovakia, that will be the same thing for Sweden, that would be a similar thing for our Norwegian operations, not so much for our U.K. operations. So fundamentally speaking, since those have more local costs than local currency revenues, obviously, want those currencies to be as weak as possible. If you have more questions on that, I would recommend that you contact Norbert, our CFO, directly, and we can sort of get a better transparency on that one. Let's see. There's a question about general terms and liabilities under the factoring agreement. This is a pretty standard factoring type arrangement. You basically sell your receivables. You collect those. You -- it basically functions like a loan. It's very similar to that, although it's off-balance sheet. And the pricing of that, which, ultimately, is the interest rates, very similar to what we presented in the previous presentations that we have made. Continuing the question list, and I hope I'm going to be able to finish this within a reasonable time slot. The questions are sort of adding on as we go. In off-highway and industrial, have the positive monthly sales trends construed into July with the deviation? Has demand at the main customer in that segment now moderated and was just restocking? Well, specifically, on that biggest customer, that biggest customer is scrambling to basically produce enough because his end market demand is so high that he is not able to meet demand. Obviously, he has other suppliers than just us, and there's absolutely no sign that, that recovery is slowing down. So that's actually very good news from our standpoint. Next question. In terms of improved revenue development versus previous presentations, this is all 3Q-based, with Q4 broadly flat. Is this a function of management visibility being better for Q3? Or is there something else driving this? And you're right on the spot. We have much better visibility as far as Q3 than Q4. And most of the updates from our customers also come in Q3 rather than Q4. And obviously, the reason for that is that the OEMs are also focusing on their short-term planning rather than their medium-term planning. So you're spot on. It's mostly attributable to Q3. Next question. When do you expect to see positive effects from the restructuring costs and investments in 2015? As I suspected, there should be around EUR 30 million in incremental cash flow benefit. How much of this target has been achieved so far? That is a little bit of a longer question than is probably good to start investing here. On an extremely broad level, I would say that prior to our -- or actually, in fiscal -- towards the end of fiscal 2018, we had delivered pretty much EUR 20 million out of that EUR 30 million benefit. And there came a little bit more to it in 2019, obviously, with the huge declines in volumes. It's more difficult to calculate exactly what it is. If you need further explanations on that one, again, please contact Norbert, our CFO. Do you -- does management expect any other EUR 25 million of receivables and liabilities to reverse in future periods? And can you give us some color on what these items are? Do you want to cover that quick one, Norbert?

[Norbert Loers, CFO & Interim Co]

Yes. It has a lot to do with accruals and release of accruals. It's also when we have development costs we're going to charge out to customers. We first capitalize them, then we have a negative cash flow in other. And when we finally sell them and cash them in, we have positive cash flows from these items. It's also other receivables and payables for VAT receivables and payables that's in that category. Yes, we had very strong cash flows from that in the second quarter. Primarily, some of that will swing back in the third quarter.

[Henning Jensen;President and CEO]

Very good. Thanks, Norbert. Next question, very simple one. Do you produce anything for Tesla? Yes, we do produce for Tesla, and it is mostly in the Interior segment. We have all the heat seats for Tesla, and we have some of the comfort functions in the seats for some of the programs of Tesla. So yes, Tesla is a valued customer. We also -- we not only produce for Tesla in North America, we also produce for Tesla locally in China. Next question. Is there any views, possibilities of acquisition, consolidations or joints with other companies? I'd love to give an out -- a really inclusive answer on that one. Frankly speaking, our focus has not been on that for the past quarter. Now that we're sort of starting to get our head a little bit above water, we can start looking at those possibilities again. But as of right now, there is no expectation that, that's going to happen in any kind of short term. Next question. Have new business wins started to recover in line with general ramp-up of production? That is -- the answer to that is fundamentally no. The month of July has -- July and August are basically vacation months and typically slow periods, and they've been very slow periods from a sourcing activity standpoint. So we are not seeing significant recovery on that one. What amount of furlough compensation have you received during Q2? That basically means, I assume, what kind of compensation we've received as a result of having furloughed workers, and we have received that from various governments around the world. Norbert, do you have an approximate figure for that for Q2?

[Norbert Loers, CFO & Interim Co]

That is about EUR 6 million for the quarter.

[Henning Jensen;President and CEO]

EUR 6 million for the quarter.

[Norbert Loers, CFO & Interim Co]

EUR 6 million.

[Henning Jensen;President and CEO]

Very good. Would you consider the outlook to be conservative? This question is from Mats, one of our other analysts. As you know by now, Mats, I am inclined to be somewhat of a conservative person. So if conservative means do we really believe that we're going to make this? The answer is yes. The last question -- or not last question, but last question from Mats being you mentioned that you covered for liquidity through 2021. What kind of market outlook is that based on? That's based on what we've just indicated as far as 2020 and the previous guidance as far as 2021. So if you look back to that June 26 presentation, you see the assumption for that. Then there's a question, could you please confirm your previous estimate that the cash flow breakeven point for KA operations is somewhere between EUR 1.80 billion and EUR 1.150 billion in total revenues, depending on whether you're in low growth or in previous growth mode? That is confirmed. Next question. Automotive business was down 59% for Q2, which is greater than the wider market decline for light vehicle production in Europe. What is that underperformance related to? I'm not quite sure if I completely agree with the assumptions posed in the question. If I look at rest of world, and Europe isn't a whole lot -- European large vehicle car production was down by 62%, and we were down 59%. So I don't think that, that is underperformance. I actually think it's a slight overperformance. But I do not think that it is something that is of great significance, but it's at least something in the right direction. What is the outlook, especially for Interior, given that no new orders or no new business awards were made in the second quarter? How many contracts typically make up the revenues generated in the quarter? Let's put it this way. In a typical year, we typically win somewhere between 3 and 5 significant programs in the Interior segment. These are the big sourcings. We did not lose anything in Q2. We did not win anything in Q2. I would say that we are lined up for a -- things look favorable for one program that has the possibility of an award in the third quarter for Interior. And then there are 2 others that are either going to happen in Q3 and Q4 as far as my current view. So I don't see the danger that this is something that's going to impact us significantly. Then you have a question on impairment. Can you explain this further? Didn't really understand from your comments what this relates to.What I would suggest that you do there is there's an entire page in our Q2 report related to the impairment. I recommend that you look it up there. And if you still have questions, then you can get back to Norbert and ask that. What does noncash flow EBITDA items, including IFRS of minus EUR 20 million for 2021, represent? Is it leasing expenses and restructuring costs? Norbert, do you want to take that one?

[Norbert Loers, CFO & Interim Co]

Yes. IFRS 16 is included in that. It is, yes, IFRS depreciation mostly. That is the lion piece of that.

[Henning Jensen;President and CEO]

Okay. Good. Let's see. We're getting down to the last couple of questions. Can you please address your longer-term thoughts in valuing the specialties business, particularly since management notes it materially outperformed the automotive business in terms of order intake? Can you please give some details on the bright spot for the specialties business? That's a little bit of a deeper question. We have essentially 3 business units that are organized in our Specialty Products area. These are fundamentally niche businesses, operating in niche markets with a high degree of technical differentiation. They're typically, not always, but predominantly relatively low volume programs. In some cases, they are tailor-made. In some cases, it's fairly standardized components. What characterizes a niche market is obviously that there are fewer players. It's, generally speaking, less competition, and the applications are very specialized. From a capital productivity standpoint, these are outstanding businesses. From a margin standpoint, these are above average, which is fairly normal for niche businesses. So they are very well performing. My thoughts in valuing those, I don't think a phone call is the right one for that one. If you want to contact us and have a conversation about it, we can certainly have that. In terms of outperforming the automotive business in terms of business awards, that's probably a little bit of a too broad and too hard statement for me. If you look at business awards over a couple of quarters, then I think you can make those types of comments. If you look at it for 1 single quarter, you got to keep in mind that we do not control the timing of when the awards come out or when the request for quotes come out and when ultimately this turns into revenues. So from that standpoint, I don't think you can make the judgment that, from an order intake standpoint, it outperforms. I think you have to look at it on a little bit of a longer time frame in order to arrive on that conclusion. There's 3 questions left, and they're all related to the capital increase. So I'll try to take them together. How many shares are there now in total with the capital increases that were completed in the third quarter? That would be the repair emission. The quick answer to that is it is approximately 10.5 billion shares. Then there's 2 questions, and one is related to what does it take to be invited to participate in the private placement? And the other one is how can a company justify a private placement to investors that think in so short terms? Why wasn't there a holding period to that? I think we've been through most of those discussions and questions before. We were basically in a position where we were dependent on raising funds due to the nature of the timing of it and due to basically having failed once. We decided to do that in the form of a private placement and a repair or subsequent offering following that, which we did. Overall, this was very successful as can be evidenced by the oversubscription in the subsequent offering. As I've said before, yes, it does lead to a dilution in terms of ownership share in the company, even if people exercise all their rights. However, it's also a question of having a slightly smaller share and something that's also more valuable. So from a value standpoint, we think that was an equitable type of transaction and structure. In hindsight, given the success, particularly of the subsequent offering, one can always argue that the issue price could have been higher, could have, should have, would have. That is extremely difficult to ascertain in that moment. And keep in mind that in the private placements, we had, give or take, 85% of the book that was subscribed at the share price that ultimately was used as the issuance price. What does it take to be a participant in a private placement? That's essentially a first come, first served type arrangements. There's one legal restriction, and that is no participant can participate with less than EUR 1 million. And it's pretty much a first one, first served. And once you have the funding desired, committed, then you basically stop those activities, which is what we did. I hope that does answer most of those questions. Let's see if there's any other online questions. There is not. Operator, I don't know if you have any questions on the voice channel?

[Operator]

Sir, we can check. [Operator Instructions] Our first question is from Peter Jurik of Tresidor.

[Unknown]

Most of my questions have been answered. I would just have one on Slide 23, the liquidity development bridge. Could you detail more as to what is exactly in the EUR 25.2 million inflow from other receivables and liabilities?

[Norbert Loers, CFO & Interim Co]

We already had that question. It is non trade receivables and payables. So it's -- for example, if we issue -- or if we capitalize first development costs and we charge them in a later point to our customers, it's VAT receivables and payables. It's also driven by accruals, release of accruals or building of accruals.

[Unknown]

Okay. And so presumably, that will normalize back in the second half of the year and as a component of the cash outflow that you're expecting in the second half of the year, or...

[Norbert Loers, CFO & Interim Co]

Yes, exactly. I mean that is the category that is hard to predict since there is no, let's say, direct relationship with business items we have a clear visibility to. And some of these payables and receivables are purely driven by authorities who have, on VAT, make payables or give us receivables.

[Henning Jensen;President and CEO]

Any other questions, operator?

[Operator]

Yes, we have one more, sir. Our next question is from Mr. [ Sonal Sodhi ] of Morgan Stanley.

[Unknown Analyst]

Yes. Sorry, very quickly. In terms of your cash flow guidance for the second half of EUR 40 million, EUR 45 million, so in terms of the cadence or the timing, I guess, just to confirm, this falls mostly in the third quarter and then fourth quarter, the seasonality helps you again.

[Henning Jensen;President and CEO]

Give me a second. I'll be able to give you a more exact answer. Yes, Q4 is going to be a slight negative cash flow. The lion's share of the cash flow is going to take place in Q3, that is the negative cash flow. And as I said earlier, most of that is related to the working capital part.

[Unknown Analyst]

Got it. And good job managing through the crisis and speaking cleanly also.

[Henning Jensen;President and CEO]

Thank you. No more questions, operator?

[Operator]

No more, sir. Thank you very much.

[Henning Jensen;President and CEO]

Very good. Well, in that case, I apologize to everyone for going a little bit overtime. It wasn't unexpected that there was a lot of questions today. Again, thanks for your interest and thanks for your commitment to the company. Looking at the list of participants, most of you are shareholders and/or analysts. So the -- both the interest in the company and the investment in the company is something that's highly appreciated from our side. And we're certainly not going to have as frequent updates as we've had over the past couple of months for the next couple of months, but we look forward to next time, which is our Q3 earnings report. Thank you very much.

[Operator]

This concludes today's conference. Thank you, everyone, for your participation. You may now disconnect.