Arjo AB (publ) (ARJOB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Arjo Q2 2020 Call. [Operator Instructions] Today, I am pleased to present President and CEO, Joacim Lindoff; and CFO, Daniel Fäldt. Speakers, please begin.

Thank you very much, and good morning to everyone, and welcome to this Q2 call for 2020 for Arjo, and thank you all for dialing in. And I will, as said, together with our CFO, Daniel Fäldt, take you through the Q2 report that we released a few minutes ago. Moving on to Slide 2. We will start by giving you a business update for the quarter with some highlights from the business and outlook for the year. Daniel will then walk you through balance sheet items. And we will finish off with a short summary before we open up for questions. And as always, we aim at keeping this call to an hour and finish at 9:00 at the latest. If we move into Slide 4 and Q2 highlights. After a strong Q1, where we started to see the first effects of COVID-19 in the end of that quarter, we now have concluded a Q2 clearly impacted by the pandemic. The trends from Q1 -- or rather end of Q1 have continued, and we have, as an organization, done a good job to adapt to the situation. We have continued to support our customers and their patients during this challenging period, and at the same time, made sure to continue to develop Arjo for the long and short term. Q2, isolated, has seen a better-than-expected outcome in net sales, where we post a 2.2% organic growth compared to a very strong Q2 of 2019. We've also seen a significantly increased profitability, where keywords have been operational leverage and good cost control throughout the value chain. Our net sales development in the quarter is a result of excellent development of our U.S. Rental business. Core Rental is growing both based on new long-term contracts secured in addition to a COVID-19 effect, and our Critical Care side of Rental is seeing a clear uptick as an effect of the increased number of COVID-related patients. Furthermore, our capital sales of medical beds and therapeutic mattresses has grown significantly across the world during the quarter. And our smaller Diagnostics business has also seen an increased demand. And overall, the organization in total has done an excellent job to ramp up output and customer support to meet this demand. As expected, after end of Q1, the restricted access to health care facilities in general and in long-term care facilities, in particular, has led to a larger decline in our Patient Handling, Hygiene and Service business during the quarter. The postponement of elective surgeries has also led to large drops in our DVT sales in U.S. and in Europe. Our Rental business in Europe has also seen unexpected low volumes in the beginning of the quarter based on health care focusing on adapting to an expected inflow of COVID patients that in some countries didn't come. Gross margin in the quarter increases to 45.2% versus 44.4% in Q2 of 2019. The main drivers are significantly improved operational leverage in our U.S. Rental business through the increased volumes and a well-managed cost base. We've also seen improved gross margins in our medical beds business as we are selling more high-end medical beds, an effect that we have been talking about for quite some time. We're also seeing good effects on our continuous improvement work in our supply chain, where the increased volumes have been successfully translated through operating leverage to higher margins. Given the lower sales of Patient Handling, Hygiene, DVT and Service, there is an adverse product mix effect, but the positive actions have compensated well for this. We've also, within, for example, Service, made sure that we have hibernated in an okay way, preparing ourselves for the increased activity that we started to see in the back end of Q2. The gross profit development, together with a very tight OpEx control during the quarter, has led to a significant increase of adjusted EBIT of almost 50%. This is also better than our previously indicated number from mid-June, and this is mainly driven by a good close to the quarter in mainly Rental U.S. and our Service business in Europe that, as said, is starting to ramp up again. Our financial position remains strong, and we have a solid performance especially in accounts receivables throughout the quarter. Our operating cash flow has improved significantly, and cash conversion is at its all-time high of 129% for the quarter. I am very pleased with how the organization has reacted to the current situation and how we have continued to support health care in this unprecedented situation. We are showing that we have stability within the company and a good understanding how we can perform short term, and at the same time, continue to invest in the future. Moving over to Slide 5 and the outlook. We are now gradually seeing restrictions across the globe being lifted, and access to health care facilities is improving slowly. We expect that this will give us possibility to step by step reenter into discussions around project in Patient Handling and Hygiene, starting to see our Service business bounce back and also have DVT business return to a more normal state over the next half year. At the same time, we expect demand for capital investments in medical beds and therapeutic mattresses to come down to more normal levels and our Rental business to show the same pattern when the current situation is more under control. The development is still uncertain and we are obviously following it as closely as we possibly can, but we do have more visibility than what we had after Q1. And in line with the communication from the 11th of June and based on our own assumptions, we, therefore, expect to see organic net sales growth in Q3 and Q4 within the 2% to 4% target interval. And as a consequence of the continued good cost management, we expect operating expenses to continue to decline as a percentage of sales also in 2020. We are expecting a step-by-step return to a more normal situation during the second half of the year, and we have a backlog situation that is better than the same period last year. Together with current good operational performance in our Rental business, we believe that we are well positioned to end the year in a solid way, given the circumstance. Move over to Slide 6 and North America. And if we look at some more details around North America, we had a slight decline on organic net sales in the quarter in North America. However, this should be seen in the light of a very strong Q2 of 2019 where the region grew almost 16%. The quarter has also seen a very strong development of our Rental business in U.S. Our core Rental business is growing, both driven by larger long-term rental contracts that we have secured in Q4 of 2019 and the first parts of this year, but obviously also by short-term COVID-19 effects. Our Critical Care side of Rental has experienced a significant uptick in the quarter, driven by the increased number of COVID-19-related cases. The overall higher volumes and the good setup that we achieved after the larger restructuring program in 2019 have led to significantly -- significant operational leverage and thereby a gross margin uptick. Our Rental setup is fairly cost -- fixed cost heavy. And when volumes reach above certain thresholds, margin expansion becomes significant. This is also why we believe that Rental also for the future can be a good profitability driver given the plans that we have in place globally for the years to come in this area. The organic net sales growth in the quarter was held back by lower volumes in Patient Handling and Hygiene for reasons explained before. Also medical beds in the region saw a decline as we, last year, Q2, had the large Kindred order delivered in the U.S. For DVT, the decline was significant in the beginning of the quarter based on postponements of elective surgery. We expect a step-by-step return to normal during the second half year where the first signs of this is seen in June and continuing in Q3. The region has organic net sales development of the year-to-date of 2.6%, and we absolutely continue to see North America as a market with significant potential of profitable growth short and long term. Moving to Slide 7, Western Europe, where we have seen, as a region, a growth of 0.8% organically. U.K., as the main driver of this, had double-digit growth with good development in capital sales where an increased demand has been related to COVID-19. U.K. did see lower volumes in Hygiene, DVT, Service and Rental due to the problem to access health care facilities. Our Continental Europe business was held back by the extensive restrictions and low access to health care facilities. Some countries like Spain, where we now have established ourselves as a significant -- with a significant installed base of high-end medical beds, on this, for us, a new market, did see some uptick based on COVID-19. But most other countries, France and Germany included, saw negative effects from the imposed restrictions. Given that many of these health care systems are well invested already, the need for extra capital equipment from Arjo to meet this crisis has been low. The postponement of elective surgery and refocused only addressed a forecasted inflow of COVID-19 patients that did not materialize to the extent expected, has led to very low service sales and low Rental volumes. This trend was very visible in the beginning of the quarter where we are -- where we, in the end of the quarter, are seeing a step-by-step return to more normal volumes in these 2 areas, something that we believe will continue to develop also in the months to come. Our restructuring program in Europe is being implemented quicker than initially expected. A larger part of this quarter's SEK 18 million in items affecting comparability is related to further steps in this program. We now expect the cost for the program to be around SEK 70 million with a significantly higher percentage of the estimated savings which is SEK 50 million on a yearly basis, to be realized already in 2020. On a year-to-date basis, Western Europe has grown organically with 1.5%, which, given the circumstances, in my view, is a good performance. Moving to Slide 8 and some more details on Rest of the World. The region grew organically with 17% in the quarter with markets like Australia, South Africa and our distributor markets in Eastern Europe performing well. The demand for medical beds has been higher than normal, and we have done a good job to secure profitable business in this area. The impressive growth should be seen in the light of the very tight restrictions that many countries in these regions are experiencing. As an example, our fast-growing market, India, has seen significant decline in the quarter as access to health care, also for our Rental business in this country has been very limited. Year-to-date, Rest of the World is growing organically with 7.6%, well aligned with our plans for the region. And also with the turbulent market environment, we continue to build our Rest of the World region as planned, and we'll be well positioned to continue our journey also when the current situation around the pandemic has stabilized. Moving over to Slide 9. And -- or sorry, Slide 10, and our gross margin. If we start off with some details on gross profit and gross margin development, we continue to do a solid work across the organization also during these turbulent times. Our gross margin increases with 80 basis points compared to Q2 2019 to 45.2%, and there are a number of areas driving this improvement. Our restructuring program in our U.S. Rental business in 2019 has given the wanted efficiency results also on normal volume levels. This, combined with a very strong performance in both our core and Critical Care side of U.S. Rental, has led to significant positive operational leverage and higher gross margins. As stated before, a well-managed Rental setup with high-volume inflow is a profitable business for us, and our plan forward is, as you know, based on this assumption and related actions. Another positive is the gross margin uptick in our medical beds business. The increased overall capital sales of medical beds in the quarter is giving a slight negative product mix, but as a category, capital sales of medical beds has seen an uptick of approximately 10 percentage points on gross margin versus last year. This is well aligned with our previous discussions on the need to move Arjo up the specification ladder in this category. Categories like Patient Handling, Hygiene and DVT, where we normally see above-average gross margins, have all been affected by lower volumes due to COVID-19 and has therefore held back gross margin development in the quarter. Our Service business has, for obvious reasons, seen significant net sales decline during the quarter. We have managed to compensate some of the drop through good cost control throughout the organization, and we have, in some Continental Europe markets, also been supported by governmental programs. But on the flip side, we have had large extra costs due to COVID-19 in our Service and Rental business due to strict safety processes and personal protection equipment needed to secure the safety and well-being of our staff. Our estimates are that support from different furlough programs and the mentioned extra costs is evening out for the quarter. Our supply chain has continued to work in an efficient way also with the local disturbances we have seen in different regions. Increased volumes in some capital categories have been used to compensate for lower fixed cost coverage in categories where volumes have been dropping as an effect of COVID-19. At the same time, our initiated action plans around logistics have started to pay off, and we have a number of activities in our supply chain area that will continue to generate continuous improvements in the quarters and years to come. Moving to Slide 11. Based on the development described on previous slides, we see our adjusted EBIT grow with almost 50% in the quarter versus Q2 of 2019. The outcome is also better than expected in the communication from the 11th of June largely based on good quarter close, both to our Service in Europe and our Rental business in the U.S. Translation effects adds a positive SEK 7 million compared to Q2 2019, which is slightly less than expected on the 11th of June. It has been a quarter far from what we could consider to be normal, but I'm very pleased with how we have and are handling the current situation. We focus on supporting our customers and their patients as well as we can, and at the same time, ensuring good profitability growth in areas where we can make a difference here and now. Alongside this, we continue to work our plans to develop Arjo for the future, both organic and inorganic, areas that we will be talking more about when we invite you to our Capital Markets Day that will be held in the beginning of November. With that, over to Daniel.

Thank you, Joacim. And now some comments with respect to our working capital development and cash flow. We are pleased to see that our consistent focus on managing the working capital throughout the organization continues to pay off also in the second quarter. While we see a somewhat increased level of difficulty for our supply chain in optimizing the inventory levels given the current COVID-19 business environment, we've been able to fully compensate for this by a strong development in receivables collections. We are especially pleased with the progress made in this area. I would like to point out that our working capital base level has improved from 108 to 100 in the quarter. The net positive impact on working capital in the quarter, along with the EBIT improvement, means that we can report a record operating cash flow number of SEK 613 million and SEK 899 million year-to-date. Subsequently, cash conversion, as Joacim mentioned earlier, far exceeded our target and came in at 129.2% for the quarter and at 101.9% for the first half of the year. Cash flow from investment activities was SEK 161 million in the quarter, where the lion part, as per usual, relates to fixed assets in general and mainly in our Rental fleet in particular. We expect the pace of these activities to increase somewhat in the second half of this year, given the positive development in our Rental business in the first half. Slide 13, please. Given the positive profit development and cash flow performance, our net debt continued to decrease for the third consecutive quarter and is now around SEK 5.6 billion. Meanwhile, our cash position remains strong, and our net debt-to-adjusted EBITDA has decreased from 3.4 to 3.2 like-for-like since the end of last year and from 3.5 since Q2 2019. The equity ratio decreased marginally to 38.9%. Finally, some of you may have noticed that our net financial items were on the high side in the quarter. This relates to mainly a provision that was booked for interest expenses of SEK 23 million relating to an ongoing internal review of value-added tax for the years 2013 to 2018. On top, we had some negative FX revaluation effects relating to cash pools and internal loans. So mainly items of a nonrecurring character. With that, I hand our word back to Joacim.

Thank you very much, Daniel, and if we can move to Slide 15 and some key takeaways from the presentation. After a strong Q1, where we started to see COVID-19 effects in the back end of that quarter, Q2 has been a quarter impacted by the current pandemic. Our organization has adapted well to the current situation, and I am very pleased to see how we continue to support our customers and their patients and at the same time develop Arjo short and long term. Q2 continued to see good organic growth with 2.2% with the year-to-date figure at 2.8% for the first half year. Our Rental business in U.S. and our global capital sales of medical beds and therapeutic mattresses has compensated the drop that we have experienced in other categories like Patient Handling and DVT. Both our implemented restructuring programs and current continued efficiency programs have proven vital to secure good profitability also during periods like this. The operational leverage that we currently see in Rental U.S. is a good example of this and well aligned with our plans for the future. Our cost control throughout the organization has been good during the quarter, and we're also analyzing how these new ways of working can help us to work more efficiently also when the market has returned to a new normal state. We increased adjusted EBIT for the quarter with almost 50% versus Q2 of 2019, we also continued to perform well on capital employed and we are posting an all-time high cash conversion of 129%. Based on the [ signs ] of restriction lifting step-by-step across the globe during the second half year, we feel confident in resuming our guidance for the remainder of the year. We are following the development closely and have plans in place to react where needed to ensure a continued good, profitable growth of the company both short and long term. With that, I would like to say thank you for listening, and we would be happy to try to answer any questions you might have. So moderator, please open up for questions.

[Operator Instructions] And our first question comes from the line of Annette Lykke of Handelsbanken.

My first question is on how we model the benefits you have right now on the Rental business in U.S. How should we model this after COVID-19? Will you be able to keep these high earnings, or as we potentially see a lower volume in 2021, how should we see that? Would you be able to compensate with the restructuring you have done? Or should we see a dip in margins? And then also on the OpEx level, can you maybe quantify a little bit? I know it must be difficult, but what could be sort of the savings be associated with lower travel, marketing costs, et cetera? And what is related to your restructuring programs?

Thank you, Annette. Thanks for the questions. Starting off with our Rental business in the U.S. We need to look upon this in 2 ways. We have the core Rental of our business in the U.S. that is growing very nicely also during the quarter, where as I indicated during the presentation, a part of that increase is due to contracts that we have secured already before the COVID-19 pandemic, and they will obviously remain and we will increase our volumes in U.S. core Rental using our fixed cost. They continue to use our fixed cost base in a good way in the U.S. There is also, in core Rental, a portion of COVID-19-related extra volumes that have come in during the quarter, and that would obviously not be seen in -- when the pandemic has slowed down. But as I said, core rental is already secured on a slightly higher level than what we had during, for example, Q4 of 2019. The Critical Care side of our Rental business that we have been discussing for quite some time is very related to different flu seasons. And it is a significant increase in terms of units in use of our Critical Care business in the U.S. in Q2 versus a fairly slow Q2 of 2019. And that uptick will most probably remain -- or will remain during the peaks of the pandemic, that obviously, then the need for our critical care units will go back to a more normal state and be back to fluctuating with flu season as it has before. But all in all, I must say that we have, with the help of the restructuring program, as we said during 2019, we have lowered our cost base in U.S. Rental with around SEK 30 million on a yearly basis compared to 2019. We are working in a much more efficient way, I would say, in the U.S., and I'm looking forward to have that as one of the growth engines going forward. But obviously, the very high ramp-up in this quarter is related, to a large extent, to our Critical Care units in the U.S. On OpEx...

Can I...

Yes. Sorry?

Just on the Rental business, I guess, right now, there's not a lot of price or ASP discussions with your clients due to the dramatic need for critical medical beds. But is that -- I mean I sort of recall that was more like an issue ahead of COVID-19. Do you think that will return again?

I didn't -- it was the question if we -- if the prices has gone up now or...

No. I assume they have not, but I also assume that before COVID-19, price was a key parameter and discussing with clients that there was some price competition as well within these areas. Or maybe I'm wrong on that.

No. You -- when there are price discussions in -- as I said, in medical beds, if we look at capital sales for medical beds, that is a very price-competitive environment. But -- and we have -- I would like to underline one thing, and that is we have not used the current pandemic to increase our prices. We are on the same price level as we were before the COVID-19. So we're not taking extra advantage of the pandemic by increasing our prices here. So the extra gross profit is coming from higher volumes and a good product mix in terms of critical care -- in critical care units. When -- the interesting part here is that we believe that we, for the years to come, have a good possibility to increase our offering in terms of outcome discussions also in the area of Rental. And that is something that we look forward to continue to discuss with you all during the Capital Markets Day. On the OpEx question, Annette, the -- again, good cost control during the quarter. Obviously, as you indicate, there is savings based on less traveling and less marketing. And there will be a part, and difficult to say or estimate exactly how much, but a little bit more than half of that saving is things that would probably come back into a -- pretty naturally into the P&L again when things have slowed down. Whereas the other part is something that we are currently, as I indicated also during the presentation, is cost that I believe that we have every intention of scrutinizing and seeing whether that is something that we can invest in different things going forward because we have very clearly discovered new ways of working and also more efficient ways of handling our relationships with our customers during this period. So it's not only negative what has come out here. We have also drawn a number of learnings on OpEx and throughout the value chain on how we're interacting with our customers.

Our next question comes from the line of Kristofer Liljeberg of Carnegie.

Yes. Coming back to this U.S. Rental business. You don't want to quantify how much extra earnings you had in the U.S. Rental business versus last year, I guess that was pretty significant. And also, now with the U.S. hospitalization starting to increase again during the summer, which is normally the very lowest flu season. Could we expect a similar positive situation for this segment in the third quarter? At the same time, as you would see other capital equipment-related business, European Service, for example, picking up in other geographies so that we would have made a very favorable situation in the third quarter.

I would not be able to quantify fully the effects in the U.S. But what I can say is that if you look at our core Rental business, it is up around -- for our Rental business in total when it comes to units, the units is up around 10% for the quarter versus the quarter before. One should then remember that the main part of those units in use are core Rental where we are doing a good job both with long-term secured contracts and COVID-19-related volumes to use our fixed cost base in a good way. But the very nice add-on for us in the quarter is obviously the units in use for our critical care units, which in Q2 of 2019 due to a slow flu season was fairly low, but is obviously on a very high level for Q2. And on your question there, if we just take that related to the...

Could I ask the...

Yes. Sorry?

I think if I remember correctly, I think you, some point in the past, have indicated that a good or bad flu season in the first and second quarter could mean maybe SEK 10 million on the EBIT line. I don't know if that's correct. And if so, it seems the year-over-year effect maybe have been SEK 20 million in this quarter. Is that something you could...

It is more than that.

Yes. Okay.

I can say it's more than that because we obviously need to relate to the fact, and that may be answering also your second question, because, obviously, if the pandemic continues and the spread of the virus continues in the U.S., we will continue to see, given that we have life-saving equipment and therapies in our Rental -- in our Critical Care Rental base, we believe that, that would obviously continue. As long as the virus is spreading in that dramatic way as we currently see in the U.S., we will continue to help health care and thereby also having units in use for Critical Care. But at the same time, if we -- if the pandemic continues in the U.S., we will obviously continue to have difficulties to get access in the U.S. to health care facilities, especially in long-term care, so we will have kind of the same story for the U.S. also going into Q3. Our hope is obviously that the lines of the pandemic decreasing and thereby Rental going down and will meet in a good way the access to health care facilities and the opening up of elective surgeries, but that is something that we are monitoring more or less on a daily basis. When it comes to Europe, we have had a little bit of a reverse situation there because Rental in Europe has not performed well during the second quarter. We have seen, in some countries, lower volumes. If you take, for example, Germany, lower Rental volumes than we saw in Q2 of 2019. What we're now seeing in the back end of the quarter and going into Q3 is that due to the lower levels of COVID-19-related patients, elective surgeries coming back, our Rental revenue is coming back with that and also our Service revenue is coming back. The uncertainty here is more how quickly we can get back in with our sales force and start building a good pipeline for Patient Handling and for Hygiene and how quickly we can get back in and installing this equipment. So that's the uncertainty in Europe. But as you're stating, I mean, we do have better access today. We see an uptick in Service and in Rental in -- mainly in the back end of June, and that is a trend that we hope will continue also going into Q3, but it's a slower step-by-step approach.

Recently -- because in the second quarter, you had this lockdown both in Europe and more or less for the entire U.S. when it comes to hospital access and then you have a good ICU Rental business in the U.S., but maybe the Rental business will be as good in the third quarter. Although this is [ isolated to southern U.S. ], you still have a certain amount of equipment that you could ship so maybe that's not different versus the second quarter. At the same time, you have Europe being better and other parts of the U.S. being better. So could it be that it's kind of a perfect situation for you in the third quarter?

Yes. I mean the way that you're describing it is obviously the scenario that, that would be a good one for us. We are maybe too over realistic, if I may say so, and are -- we believe that it will take time to, so to say, get sales up and running again in the main capital categories in Europe and also in the U.S., and that is maybe putting us at slightly in a more realistic position than what you just described. But it is true to say that we see it opening step-by-step in Europe. We see opening step-by-step in the U.S. There is a need to get elective surgery going. And if we get elective surgery going in the U.S. in the bigger regions that is now, so to say, not as affected, then obviously, that will have a good effect, for example, on our DVT business. And what we are doing with our rental fleet, especially with the critical care or ICU solutions that we have is that we are shipping them around and trying to follow the flu, if you can say that, and trying to help the states that have a bigger need. So we're obviously following the flu with these ICU units. So we will continue to -- as long as we see a spread of the virus in the U.S., we will support health care with these critical care units, and that will have a positive effect to us. So yes, there are many, many bad things with COVID-19 from a more global perspective. But obviously, our Rental business in the U.S. is profiting from that.

Our next question comes from the line of Sten Gustafsson of Nordea.

Yes. Firstly, on the U.S. Rental side, is it possible for you to comment on the current capacity utilization, specifically on the Critical Care side? Is there -- is it possible for you to increase your business there, given that we are seeing new daily records of COVID patients coming out from the U.S.? That's the first question. Second of all, is it possible for you to quantify the total impact on sales related to COVID-19? I mean, obviously, you have some positives and some negatives. But what's the net impact on sales from COVID-19? That would be helpful. And also, if you could confirm, when you talk about OpEx savings and some of it will increase again, you mentioned half. But is that half of the year-over-year delta in OpEx from Q2 '19? What half are we talking about? That would -- if you could clarify that, that would be helpful.

Absolutely. The U.S. Rental capacity is fairly stretched right now. That's also why Daniel indicated that we will -- given that we have on Rental, on the core Rental side, seen a good inflow of good long-term contracts in Q4 in the beginning of this year, we will continue to invest in the Rental fleet in the U.S. and that is what we will do also during Q3 and Q4 to meet that, I would say, long-term demand that we have on the core Rental side. When it comes to the Critical Care side of our Rental business, we are more or less on maximum as we speak. We -- there is a turning time of these units where we need to bring them into our rental depots. We need to clean, disinfect and get them back in a safe way for -- obviously, for health care, but also for our own staff. And we are at the level right now where we will have difficulties to increase to a higher level. And these units, we can't build new of these in a short term. That would have taken too long. So this is probably the max level that we have currently. But it is a good max level for us, and we're obviously trying to help where we can. The total impact of COVID-19 in the quarter, if you look from a net sales perspective, I would actually say that it has, on pure net sales, been negative to us because I had actually hoped to post a slightly better development in Q2 than what we have seen on net sales. So all in all, I would obviously have preferred a world without COVID-19 for so many reasons both -- starting, I would say, obviously, from global health and the terrible fact that people are dying and getting seriously ill by this flu, but it is, for us, also I would say, a little bit of a slight decline versus what we had hoped for. So Arjo is obviously in a better stage when things are more normal, that would be my view. But we are doing a really good job in making sure that we secure short-term deliveries on our commitments and continuing to allow ourselves to invest for the long term. On the OpEx side, for some clarification, when Annette asked around the OpEx, if we take the OpEx savings that we have versus last year, it's around just short of SEK 40 million on comparable currencies for the quarter. And my discussion earlier on was that I believe that a little bit more than half of that SEK 40 million will be cost -- will be returning into a normal quarter during normal times in terms of travels and marketing, but that there are costs that is a little bit less than the 50% of that saving that we're currently evaluating whether it is cost that we need to inject back into the P&L to be able to drive a good business or if we can actually do business in a different way. And I believe that based on those, I would say, SEK 15 million, SEK 20 million, that there would be possibilities for us to use part of that money in a different way.

And our next question comes from the line of Carl Mellerby of SEB.

In Q1, if I recall, you commented that you have a pretty solid backlog for those segments most hurt -- most severely hurt by COVID-19. Is this still valid? Or have you seen any kind of cancellations? And then, secondly, I can see that you take a charge of SEK 7 million in the quarter related to damage claims and disputes. Could you elaborate a bit more in detail on what this is relating to?

Yes. Starting off with the backlog, that is still on a good level. Also, when we're entering into Q3, it is higher than it was when we entered into Q3 last year. We haven't had cancellations from that backlog. Where we have had, I would say, discussions with our customers, that was mainly in the beginning of the quarter where we had a lot of demand of short-term deliveries of medical beds. So that was more in-and-out demand that is not seen in our quarterly numbers, so that was more discussions. But we never had any, so to say, financial risk on those cancellations. What we have now in the end of Q2 is a solid backlog where we have, well, every intention of delivering that out during Q3 and Q4. And the backlog situation, as said, is a -- yes, it's better than it was the year before. So that is obviously giving further strength to the outlook discussions that we had. When it comes to the SEK 7 million that we have booked in the quarter, that is based on assumptions on an ongoing claim that is the -- as we can see it right now, the max assumption on that claim that is currently running with a customer around, I would say, delivery discussions and whether we have fulfilled our part of the delivery. So that is an ongoing discussion that we have with a customer in Europe.

[Operator Instructions] Okay. So no further questions coming through at this time. I'll hand back to our speakers for the closing comments.

Thank you very much, moderator. And again, thank you, everyone, for listening in when we have summed up a very good Q2 for Arjo, where I am very impressed by how the organization has handled the current situation and how we have continued to build Arjo, both short and long term for the future. So thank you very much, and have a very good summer.