Konecranes Plc

Good morning, ladies and gentlemen, and welcome to the First Quarter 2019 Analyst and Press Conference of Konecranes. My name is Eero Tuulos and I'm the Head of Investor Relations at Konecranes.

I'm here with Panu Routila, the President and CFO - CEO of Konecranes. Panu will present the Group level highlights, followed by Teo Ottola, our Chief Financial Officer, who will then do the more detailed walk through the business areas.

Now, before jumping into our usual agenda, a small announcement; please mark in your calendars our next Capital Markets Day, which we are planning to host in London on November 21. More detailed invitation will follow closer to the event, but please save the date already now.

And I look forward to see many of you there. But now, Panu, with no further ado, the floor is yours.

Thank you, Eero. You are really persistent appointing me the CFO, because this was already the second time.

Good morning on my behalf also, everybody. Konecranes had a good start to 2019.

We continued to record strong year-on-year order growth in the first quarter, all business areas contributing to the growth. Our good order intake against weakening macro indicators demonstrates the late cyclical nature of our industrial crane business and our strong offering in certain growing industry segments.

The growth was led by Business Area Port Solutions, which booked a significant order for the greenfield Hadarom container terminal in Israel. As I discussed already in February, the order consists of a complete line of automated container cranes and software intelligence, including our own terminal operating system and Equipment Control System.

The Hadarom project is a landmark case for Konecranes and demonstrates well our capabilities of our Solutions business unit established already in last autumn. Business Area Service continued the good execution of its growth strategy.

On a comparable currency basis, order growth in Business Area Service was close to 4% in Q1. In addition, the annual value of the agreement base increased sequentially by approximately €9 million, although a part of this was due to a positive currency effect.

In Business Area Industrial Equipment, the strong year-on-year order growth was driven by industrial cranes across all regions. We made good progress towards our post-integration targets in the first quarter.

Sales grew by double-digit percent, reflecting the order growth we already saw last year. Our synergy savings program continues to progress well, which along with the operating leverage resulting from higher sales volume is reflected in the Group adjusted EBITA margin that improved to 6.4%.

And finally, our overall demand environment remains on a healthy level and we have reiterated our financial guidance for 2019. Let's then look at our key figures a little bit more in detail, while Teo Ottola will actually go the Business Areas more closely.

Orders received in the first quarter totaled approximately €848 million, representing an increase of approximately 24%. On a comparable currency basis, Group sales grew approximately 11% year-over-year in Q1.

The consolidated adjusted EBITA increased by approximately 30% to €48.3 million and the adjusted EBITA margin that improved to 6.4%. Free cash flow in the period was €28 million positive.

Net debt increased approximately 24% or €125 million, due to the adoption of IFRS 16 Leases standard. As usual, Teo will give more detailed walk through of the Business Areas, but couple of points to be highlighted here.

First, the improvement in the adjusted EBITA margin was particularly strong in the Business Area Service where the adjusted EBITA margin reached 15.7%, up by 3 percentage points from the year ago period. The improvement in Service was largely due to the operating leverage resulting from the higher sales volume.

We expect the sales growth in Service to slow down in the coming quarter slightly, which will also affect the rate of the adjusted EBITA margin improvement. We do believe though in the long-term growth of the Service business which is enabled by the Demag acquisition.

Second, the adjusted EBITA margin in the Industrial Equipment was 0.3% in the first quarter, which is clearly below the year-ago period. This was primarily due to the costs related to the optimization of our manufacturing network, weaker mix within our process cranes business, as well as U.S.

customs tariffs. The negative impact related to the U.S.

custom tariffs will likely persist for the time being. In addition, the activities related to our manufacturing optimization will likely create additional cost to us still until the year end, but after that will be gone.

That said, we expect the adjusted EBITA margin in Industrial Equipment to improve in full year 2019 compared to 2018. And finally, the order growth in Business Area Port Solutions was very good in the first quarter at approximately 46%.

Activity in the world's manufacturing sector was weak in the first quarter, although still remained in the expansion zone. Growth recorded in the U.S.

was clearly higher compared to Eurozone, where the manufacturing operating conditions fell below the 50 mark for the first time since June 2013. The manufacturing capacity utilization in the U.S.

declined in Q1, while staying approximately flat in Europe. As for the emerging markets, operating conditions in China improved for the first time since November 2018.

After the slowdown in early 2019, Russia's manufacturing PMI picked up in March to its highest level since January 2017. In Brazil and India, manufacturing operating conditions improved throughout the first quarter.

While the Global Container Throughput Index has declined since its all-time high in late 2018, it still remains on a good level. In February 2019, global container throughput decreased by approximately 1% year over year.

Despite weakening global macro indicators, our own overall demand environment within the industrial customer segments is stable and continues on a healthy level. Also, global container throughput is still on a good level, even with its decline in the beginning of 2019.

Consequently, the prospects for orders related to the container handling remains stable. Our order book for 2019 is strong and we expect to reach 5% to 7% guidance range for the year-on-year sales growth in the full year.

Furthermore, we continue to expect an improvement in the Group adjusted EBITA margin in 2019 compared to 2018. Integration of MHPS continues to progress well and according to our plans.

The program is nearing its end in Business Area Service. And we are also close to our target for the overall procurement savings.

While we have completed many key synergy areas, a few important items remain in Business Area Industrial Equipment. First, our focus on product platform harmonization continues.

Our long term target is to reduce the number of platforms down to 11 to 14, from the current 20. In addition to cutting existing overlapping platforms, we will also launch completely new products.

As the result, our plan is to centralize the manufacturing of certain products to fewer sites. Second, the optimization of our manufacturing operations is still ongoing in Wetter, Germany and Vernouillet, France.

While good progress has been made in Wetter, we are still in discussions with the employee representatives on the potential closing of the factory in Vernouillet. The targets and expectations regarding our €140 million synergy savings program remain unchanged.

On a run rate basis, we reached €126 million of the total €140 million synergy savings target in Q1. Cumulatively €92 million of the amount was already visible in our P&L at the quarter end.

Furthermore, €133 million of our total restructuring cost estimate was booked at the end of Q1. Let's then continue with a few more words on the Group's financial performance in Q1.

As already mentioned, our order intake in the first quarter was very strong overall. Order intake grew in all Business Areas and in all three regions.

With comparable currencies, Group sales increased approximately 11% year-on-year. Also, sales grew in all Business Areas and in all regions.

The value of the order book at the end of March totaled nearly €1.9 billion, which is our record high and approximately €160 million more than at the start of the year. With comparable currencies, the value of the order book increased 17% from the year-ago period.

The order book increased also in all three different Business Areas. It is good to note that slightly less than €100 million of the increase in the order book will be recognized as revenue during the financial year 2019, while the remainder will be recognized in the subsequent years.

Group adjusted EBITA increased to €48.3 million and the adjusted EBITA margin to 6.4%. The improvement in the Group adjusted EBITA was mainly thanks to volume growth and synergy cost saving measures.

On a year-on-year basis, the group level gross margin stayed approximately flat. And finally, a couple of words on sales by Business Area and by region.

On a comparable rolling 12-month basis, the split of the Group sales between the Business Areas and three geographical regions has remained roughly unchanged from the previous quarter. Each Business Area contributes approximately one-third of the Group sales, with approximately half of the sales coming from EMEA, one-third from Americas and the rest from APAC.

With that, I hand over to Teo for a more detailed walk-through through the Business Areas.

Thank you, Panu. And as usual, let's start with the Service business.

Service order intake in the fourth quarter was €255 million, that is 7% higher than a year ago. Currencies benefited us this time, so we got a tailwind as a result of that one.

And with comparable currencies, the order intake growth was 3.8%. Order intake increased both in field service and parts.

However, in the modernization business, order intake declined year-on-year. And if we exclude this project-based business, the modernizations from the order intake, so actually the order intake would have grown by almost 6% with comparable currencies in Q1 versus Q1 2018.

Order intake also increased in all three regions. Sales were €297 million, there is an increase of 8.4% with comparable currencies.

Naturally, field service and part sales increased both of them, but also now in the first quarter part sales outperformed that of field service, then giving us a little bit better mix from the margin point of view than a year ago. Sales also increased in all three regions.

Adjusted EBITA for Service, €46.8 million, 15.7%, a very nice improvement both in euros and margin. This is naturally mainly attributable to the volume growth, as well as the synergy cost savings.

Gross margin improved as a result of these items, and of course, the slightly improved sales mix also supported the EBITA development. Then when we take a look at the order book on agreement base, so actually the order book reached €234 million.

It is up both year-on-year as well as sequentially despite the good sales in the first quarter. Order book increase in comparable currencies year-on-year was 5.5%.

And also the agreement base, which is very important for us going forward naturally as a base of our growth potential so that also continued to increase to €253 million is the agreement value at the end of Q1, there is an year-on-year growth of 5% with comparable currencies and a sequential increase of a bit more than 2% with comparable currencies, so all-in-all a very good quarter from the Service business overall. Industrial Equipment and Industrial Equipment order intake, order intake reached €321 million, with the total orders.

And then when we take a look at the external orders from external customers, that actually builds better off the market demand that we're seeing, so there we reached €276 million and also actually an increase of roughly 17% with comparable currencies. The increase came from process cranes, from standard cranes, but anyhow the component order intake actually declined year-on-year.

Also the component order intake increased sequentially. So in comparison to the fourth quarter, we actually increased the order intake, but the first half of 2018 for component orders was good and the comparables as such a little bit tougher.

Then when we take a look at the sales €275 million altogether, and again, the external sales that are decisive for our profitability within the Industrial Equipment, €234 million, showing an increase of 4.5%, which is approximately €10 million. The adjusted EBITA was €0.8 million and the percentage 0.3%.

So there is a clear decline both in euros as well as in percentage, despite somewhat higher external sales. Panu already referred to the reasons.

There are three to four main reasons. One of them is the integration project related operational extra costs that we have not booked as adjustments and are burdening the result.

The other one is the particularly process crane margin erosion, so gross margins have been on a lower level than a year-ago. And the third one is then the tariff related costs particularly between China and the U.S.

And also maybe as a fourth technical reason, as you can see, so the first quarter of 2018 actually was good. It was better than our second quarter in 2018.

So also from the profitability point of view, the comparables were a bit tough in the first quarter. When we take a look at the order book, so it reached €639 million, there is an increase of 17.4% with comparable currencies.

So we are on a good level, when it comes to the order book. Port Solutions and Port Solutions order intake that was €330 million.

It's a very handsome growth of 46%, like, Panu mentioned. So we have a one big Hadarom container terminal order impacting that one also a big one for RTGs in the U.S.

And then if we take a look at the other business units, particularly the lease trucks, so there we also had order intake growth both year-on-year and sequentially. Then when we take a look at the port service, so there actually we are a little bit behind in an year-on-year comparison even though sequentially there we are also on the same level as we have been.

So also Q1 2018 for port service was a good quarter. So there also the comparables are maybe a bit tough.

Mobile harbor crane business, order intake was down in an year-on-year comparison. But overall, of course, as discussed a very good order intake for Port Solutions.

Sales did also well, €242 million that is an increase of 20% with comparable currencies, particularly RTG deliveries were high in the first quarter, generating a high sales revenue. Then when we take a look at the adjusted EBITA, so that was €10.6 million or 4.4%.

There is an improvement both in euros and margin. This is mainly as a result of the higher volume, of course, the synergy cost savings as well.

Gross margin actually declined a little bit in an year-on-year comparison, but the volume improvement was more than enough to compensate for the gross margin slight decline. And then the order book in the Port Solutions, that looks very good.

We have reached the level of more than €1 billion, also increased year-on-year is very high 20%. And as we can see from the column, so the order intake in the fourth quarter of 2018, as well as in the first quarter of 2019 has been very good and the order book has been increasing as a result of those very high order intake quarters.

Then still before going into the Q&A, a couple of comments on balance sheet and cash flow as normally let's start with the net working capital that was €425 million at the end of the first quarter. So now during the past year, the net working capital has been relatively stable, also naturally the relation to rolling 12-month sales has been relatively stable at 13%, and now at the end of Q1, 13.1%.

The free cash flow for the first quarter was €28 million and for the rolling 12 months, it reached about €100 million. And now, of course, the net working capital didn't really create any major change for the first quarter cash flow, as net working capital development was pretty flat.

When we then take a look at the gearing and net debt, so here we actually have the same impact that Panu already briefly mentioned. So despite positive cash flow in the first quarter, our net debt seems to have increased.

This is as a result of the IFRS 16 Leases standard, where the lease liabilities have been taken to the balance sheet and the impact to the Group is approximately €125 million, as a result of that change. And then, it naturally impacts our gearing as well.

Capital employed and return on capital employed or particularly the return has been developing little by little in the right direction as a result of the profitability improvement. So with those words, we can move into the Q&A session.

All right, let's start by taking questions from the audience, so [this is just not here] [ph], so let's start by Erkki, well, Antti, you can go first, you got the mike.

Thanks. It's Antti from SEB.

The first question is on Industrial Equipment and on the EBITA. Could you please quantify the effects from the higher temporary operational costs and the tariffs and what kind of a figure should we expect for the coming quarters this year?

Okay. I will firstly comment a few words, and then Teo may comment that he's not commenting too much on the numbers.

The nature of this optimization - or cost of the optimization of the manufacturing footprint are of temporary nature. They are likely to continue about until the yearend, when we actually do the changes in the manufacturing footprint.

And that is the major part there. Then the other one already named process crane margin situation and then U.S.

customs. Teo, how much do you want to open up?

Maybe not as much as what you would like to hear, but maybe some, so that there are three different items. And if we take a look at the tariffs first, so that is the smallest one of those.

And now, the tariff impact can be some millions on a yearly basis, which - and may be a little bit more in relation to in Q1, because some of the mitigating activities will be done during the year, but that is not a major cost as such. Then the two other ones are bigger ones and there we are talking, on a quarterly basis, we are talking about several millions per explanation topic.

So these two, the operational costs, and then the, let's say, margin difference in Q1 compared to the margin that we had in Q1 2018.

What is to be noted is actually in this manufacturing optimization is that, we have a clear plan. We are executing the plan.

It is to be noted also that these are the costs that may not be booked as restructuring costs. And therefore, they are of a nature of being temporary now during this year.

Thank you. And then should we then assume that the P&L impact from the synergies rest of 2019 is mostly will hit the Industrial Equipment division line or what kind of assumption should be made on that one?

We have said that, we have - we are keeping the €140 million overall plan. We have never really divided it into between the different Business Areas, but we already said here earlier today that majorly the Business Area Service has been already majorly done and before also I explained that ports Business Area majorly done.

Okay. Then maybe on the demand trends, very strong external order growth in Industrial Equipment.

Could you comment on which industries or regions did you see the best development in the process cranes? And then, secondly, the component orders decline, should we read something into that as a leading indicator or as a trend or is it just a single quarter with difficult comparison figures?

Yeah. The first may be commenting the overall demand environment, I think, like we said also in the report that we are pretty strong in certain industry segments and that has actually helped us.

Maybe to name, for instance, paper - paper and pulp industry, maybe steel industry and maybe also waste to energy industries, those have been rather strong in this one. Now, what comes to the component, it was slightly lower now, but still actually sequentially upwards and I wouldn't read too much into that yet at the moment.

So the sales funnel looks pretty good on the components as well.

Okay. And then maybe a final question on the factory in France that you are now looking into restructuring.

How many people work there currently?

The negotiations concern about 100 people.

Okay, thanks. That's all for me.

Maybe as a continuation to what you asked about the synergies, et cetera, so especially if we take a look at the remainder between €126 million and €140 million, which is the run rate, missing run rate still. So, vast majority of that would be Industrial Equipment, so maybe 75% to 80% also would be Industrial Equipment.

There you are correct. Then when taking a look at the demands, and Panu commented the industry segments, but maybe a little bit on the geographical area, so the Northern American situation from the industrial crane point of view, seems to be quite okay.

From the European perspective, let's say, Germany is a little bit of a question mark. Eastern Europe seems to be doing pretty okay.

The Nordic countries are pretty okay. And then, France is actually pretty okay.

UK has been weakish for us. Then when we take a look at the Asia Pacific, so now some people have been commenting China having been doing better.

We have not clearly seen that yet. So we can say that China is roughly on the same level as it has been, but it hasn't deteriorated either.

So this is in a way, as a summary, this is mostly from the Industrial Equipment or industrial crane point of view, where it at least to a large extent may be applicable to the Service businesses.

Yes, it's Erkki from Inderes, a couple of questions from me as well. Coming back to Industrial Equipment, considering that the additional costs that we're talking about will be there for the rest of the year, what gives us you guys the confidence that the EBITA margin will improve?

Well, the plan, the order book and what we know what we are going to execute later this year gives us the confidence, that we are going to still exceed the EBITA margin that we had last year.

Okay, then about Industrial Equipment, you said the demand remains in a healthy level. What should we read into this?

Does it mean flat sales or something else?

Well, maybe not going too much into that, but saying that the healthy level continues, even though the macro indicators show some weakening in the world, we can't really see that too much in our numbers. So the healthy level stable, maybe slight increase.

So flat plus would be the interpretation?

That's your definition.

Okay. Thank you.

Any further questions from the audience or…? If not so, let's then take questions from the telephone lines.

So the, operator, please go ahead.

Thanks for taking my question. My first question would be from the Industrial Equipment.

Could you just double check what you said about the cost impacts for this year? You said that the tariffs were a couple of millions for the full year.

Then you talked about the closure cost being a few million per quarter. And then you mentioned a few million per quarter for the mix impact as well.

So was that only for Q1 or was that for the full year that we should expect the mix impact?

Well, if we start with the tariff, so there the comment was that the tariff impact for the whole of 2019 will be some millions, which means that, of course, on a single quarter basis, it is not a huge number, even though maybe Q1 is a - has a higher impact than some of the other quarters, because we have time to do some mitigating activities. Then, when we discussed about the two other reasons: the extra operational costs, as a result of the integration activities; and then the margin difference in comparison to the situation a year ago.

So there, on a quarterly basis, so for Q1, we are talking about several millions per case.

Okay. And if I may, on that mix in Q1, so was that only a Q1 issue or is that an issue for the whole of 2019 that the mix will be weaker?

Yes. The mix is - when we talk about the margin erosion, so it's a combination of mix and project execution, if you may say so.

So there are both items included, and this is now, let's say, year-on-year comparison Q1 to Q1, and we do not expect a similar weak impact for the quarters to come.

Okay. That is clear.

Thank you. Then my, I guess, next question would be on the services and the operating leverage you have achieved in the last three quarters has been exceptionally strong at 40%, 45% drop-through from sales.

And is there any reason why that type of a drop-through should not continue for the remainder of 2019?

Well, the sales growth was particularly strong now in the quarter, it was like 11%. Now, we have said that we expect, let's say, around 7% sales growth in the Service business.

We believe that this is coming through. It's majorly coming from the acquisition.

We have the huge Demag installed base, which we are attacking, that's giving us, for years to come, a lot of work. We have to remember that it takes some time to train the people.

It takes also some additional cost to train the people, to convert, first, the customers into the agreement base. And then over the time actually this agreement base gives the adjacent business, which typically has been with the multiplier 2 to 4.

So this will - this is going to happen in the future. Now, this quarter was particularly strong and that's why the EBITA margin climbed to very high.

We said that, we expect the rate to slightly go lower in the sales growth, and that will have a small effect also in the EBITA margin. Though in the long run, we expect that our operating leverage is on a good level, and actually continues to increase in the overall EBITA margin as such.

There is maybe one additional thing that one can mention and it is in relation to the synergy savings. And now what we have been commenting regarding the Service and the synergy savings is that Service obviously has been doing the integration maybe a bit quicker than the other BAs, which means that the impact of the cost synergy savings will be fading away from Service sooner than from the other BAs.

So now that we have been able to enjoy that in the quarters in the past, so this may give a little bit, let's say, a lower impact going forward and there is maybe a small reason for caution regarding this one. It is not a huge impact, but a point to be taken into consideration.

Okay. And then maybe you talked a bit about the structural long-term growth potential in the Service business, but how about the margin side?

I mean, we come a long way in a couple of years on the margin front in Service already. And if you look at some of your Swedish best-in-class capital goods company, so they post Service margins in the plus 20% range.

So do you see - and Demag, you acquired also had margins in the 20% range. So do you see kind of any fundamental reason why we wouldn't potentially be able to reach that type of levels in the - maybe in the future?

So we said in our Capital Markets Day one-and-a-half years ago that our target is in the high-teens. Now, in the post-integration target period, we don't see actually any reason why it can't even climb higher.

Okay. And final question on the port…

That was in these positive…

Yes. Thank you.

Very clear. And final question on the port order outlooks, I mean, we've seen very strong activity, but how is the, kind of, pipeline looking.

Do you have any large orders in the pipeline or at least one of your competitors commented that there is no more large orders in the pipeline?

Well, typically, we have had one of these bigger orders per year. Now, we have had actually very - in a very short time period, two bigger orders and that has benefited us.

I would not start to argue here publicly when next one comes. And we have some under negotiation, but as said before, it's very difficult to exactly time when do they come and what is the timing, all those.

I think, we are now concentrating majorly this year now in the small-to-medium sized orders.

Okay. Thank you.

Yeah. Thank you.

And then the next question please.

Yes. Good morning, gentlemen.

Two questions from my side. The first one is on Service.

And Panu, you hinted to slightly slower sales growth from the strong level of 12% in quarter one for the next quarters. Could you just give us sort of an idea of what would be a reasonable growth rate assumption for fiscal 2019 as a whole?

Is that more tilted towards the 4% order growth that we did see in the first quarter here? And along those lines, can you also comment on the quality of that expected sales growth from Demag's installed base, i.e., regarding the mix for spare parts sales versus field services?

That would be the first one. And then second one is on Industrial Equipment and on the footprint adjustments that you're currently carrying out and that's from my point of view simply going on faster than expected.

Is this the right way to look at things that is this all against the background of coming up with these new products faster than you eventually had planned earlier on or is there any other explanation for that stronger cost that are related to these footprint adjustments? Thank you.

Okay. Firstly, talking about the sales growth in the Service business, I - we have not given any guidance on exactly what the Business Area growth in sales would be.

We are not going to do that now either. We do believe actually that this continues the sales, it is largely upon us to carry it out.

So we are very confident that we will reach it. Now the order intake was around 4% and we have to remember that in what is coming to the sales, there is also, in addition, the agreement base that never flowed through the order entry.

So the order received are separately from the agreement base and those two actually together make the sales growth in the quarters and years to come. So we are very, very happy with what we've reached now in the first quarter as such.

Now, the sales was somewhat higher in the growth. We expect that to be slightly lower in the coming quarters as we already said.

This Demag sales opportunity and Demag opportunity that continues to come, we are continuing to be very confident on that as well, and the reason being we see what is happening there in the market, we are capturing that. It takes little time, as I already mentioned that we train the people, we convert the customers the agreement base and then actually during the time we then actually make also the adjacent business with those customers.

So it takes some time and we never promised that it will be a fast one. It will take years, but it is very steadily coming.

The question regarding the Industrial Equipment footprint, this is now going through the planned timetable as well. We have said already earlier that we have product group and product harmonization to be done.

We are going down with number of platforms and we are actually unifying these platforms. It's a very important part of the work what we do in our product management.

The platforms are used across all the different brands what we have, so that will actually, in the future, give us huge benefits to be able to use the same platforms across the different brands. Now, this is timed for this year, the footprint optimization.

It has proved out to be a slightly more cumbersome in France; in Germany, we reached an agreement with the labor union and workers council quite well for the overall agreement last year and now we are detailing the plans what we are doing in Wetter in Germany. And the process goes through now in France with the legal ways how it is carried out in France.

And then, would these planned adjustments have any impact on the magnitude of the margin expansion for the Group as a whole that you had planned for? And I think on the last conference call you said we should eventually take the prior years at the yardstick, which was always 100 basis points or even higher than that as a margin expansion, how should we think about that?

We are not really commenting the impact of these topics separately to the margin expansion. So the margin expansion potential is as a whole, and then, of course, we are doing all the activities that we need to do to be able to manage that as well as we can.

Okay. But directionally would it be, at least, from the general trend, the right assumption to say you're eventually doing better simply in Service and this is what finally paced in the faster adoption so to speak of the plan concept at the Industrial Equipment set along the lines, the right way of thinking?

That's a fair conclusion.

Okay. Very good.

Thank you so much.

So next question, please.

Hi, Panu and Teo. Magnus here from UBS.

A couple of questions. First on the Service side you have seen a couple of quarters in the row with improving industrial service contract base value.

Could you favor us with an assessment of how the growth rate compared between the legacy Konecranes business and Demag?

Due to competition reasons, we are not commenting exactly how that is between those. We can just say that we are very happy with the speed we are actually capturing this Demag installed base.

The contract base is actually a very important base for the growth of the Service business that gives us the base to work well.

Perfect. Thanks a lot.

And coming back to - and also to the question you get before. You talked about the multiplier of 2 to 4 times on the revenue side.

Could you just give some more color on exactly what you meant there?

Well, typically, when you have a service agreement, it gives you the umbrella agreement with a certain customer and typically then it gives with the multiplier of 2 to 4, 3 to 4 adjacent business like more, let's say, other products - other service products, maybe some spare parts in addition and higher value differentiated products as well.

Okay. Good.

Thank you.

Hi, good morning. It's Julia from Goldman Sachs.

I have one question. Could you let us know how much of the Demag fleet is now percentage wise Service compared to what you had when you started the acquisition?

Can you repeat the question please?

How much of the original Demag fleet is now been service? How much has this grown?

That is a number we are not publishing at the moment due to competition reasons.

Okay. Fair enough.

And in terms of the restructuring, can you give us kind of a timeline when are you expecting to have resolved the issues in France?

There is a legal process that continues about until the year-end.

Okay. Thank you very much.

Thank you for taking my questions. Two questions both probably housekeeping, I suppose.

The IFRS 16 effect you mentioned, did this have any material impact on your profitability metrics and cash flow in the quarter?

It has an impact on the P&L from the point of view that it actually lowers other expenses by roughly €34 million, and then it increases our depreciation by about €31 million. So there is an impact on EBITDA level, if you want to take a look at that one, and then the remainder the €3 million, between €34 million and €31 million.

So this is then going to be booked in interest expense. So it basically improves the EBITA or EBIT number with roughly €3 million on an annual basis.

It does not have, to begin with, an impact to the cash flow statement, because these are leasing agreements. And the nature agreement as such doesn't change.

What changes is the handling of it in accounting.

Okay. Thank you.

And in terms of the - a sort of recognition of that €3 million delta on the quarterly basis, is it roughly evenly spread through the year?

It is evenly spread throughout the year, yes, correct, roughly evenly spread.

Okay. Thank you.

And second question, unrelated, the 28% tax rates that you reported in Q1, is that a sort of fair assumption for full year?

By definition, that is the fair assumption for the full year, because the system is so that we estimate the tax rate for the full year. And then we are using that throughout the year, and change if need be on a quarterly basis.

And, as for 2018, so also for 2019, probably the biggest impact or biggest item that might be moving this up or down is then the restructuring costs and whether they happen in the places where we can deduct those in taxation or where we do not want to book a deferred tax asset. So it's actually the timeline that we are thinking for tax deductibility in the countries where the restructuring takes place that is the biggest uncertainty item in the tax rate.

Okay. Thank you very much.

Thanks for taking my follow-up question. In terms of the order backlog again and your sales guidance, so could you just help us to understand, how much did you expect to deliver from the backlog in sales in 2019?

And it seems you have a couple of bigger port orders there, which will drag over several years.

We haven't - on a quarterly basis we haven't built down the order book for the different years directly. But the way to take a look at that is that if we - if you take a look at the increase in the order book and compare that to the situation one year ago, so the difference is roughly €300 million in the order book.

Out of this €300 million, €100 million or slightly less than that is something that will be in a way impacting 2019 versus 2018. So we have given the delta, even if we do not give the exact number for the 2019 as such.

But the €100 million is an additional sales roughly, slightly more than that, that we are going to see as a sales boost compared to 2018, provided that we can deliver, of course, according to the order book that we have.

And to follow up on that, so we have a similar type of profile then for the remaining €200 million in the 2020/2021, given the long lead time of some of the port projects?

There is more in the order book now for 2021 than there was one year ago for the deliveries in two years' time. So there is a difference there, but it's not huge.

So a vast majority of the remainder of the €200 million is impacting 2020 now than, of course, comparing to the situation that we had one year ago.

And presumably, most of that is in the Port Solutions business.

Most of that is in the ports, but however one can say that also regarding the Industrial Equipment, because there the process crane order intake has now lately been doing pretty okay. And there, we have, of course, longer projects.

So also we have now also within the Industrial Equipment order book that is for 2020.

Thank you.

So, do we have any further questions from the audience? If not, then we conclude today's conference.

Thank you very much for active participation and see you all again in the summer. Thank you.

Thank you.

Thank you.