Cargotec Corporation

Welcome to Cargotech's second quarter results call. My name is Aki Vesikallio. I'm heading IR. Today's results will be presented by our CEO, Mika Vehviläinen, and CFO, Mikko Puolakka. After the presentation, there will be a Q&A session. Cargotech's second quarter was a record-breaking one. We broke new records in orders received, order book, and in comparable operating profit. Especially high-up and the service businesses had record performances in the quarter. On the other hand, supply chain challenges continued, and we expect them still to continue in the second half of the year. Please pay attention in the disclaimer in the presentation as we will be making forward-looking statements. So first, Mika will go through second quarter highlights and the market development and also the group level financials. Then Mikko Puolakka will take over and go through the business areas and our financials and the outlook. With that, over to you, Mika.

Thank you, Aki, and good afternoon from my behalf as well. Thank you for joining the Cargotech Q2 call. The second quarter, 2022, was a strong quarter for Cargotech. The demand in all of our business areas was strong, resulting to the record order intake. Despite the supply chain challenges, our revenue both in Kalmar as well as in Hajab developed favorably, and as a result of our capability to defend the margin of those businesses, that resulted in the record operating profit margin as well. Overall, when we look at the market development, we can see now the stabilization in the equipment running hours. Even though some of the numbers you see here on the slide are negative, one needs to remember that these are sequential development. If I compare the running hours here to the same running hours during the Q2 last year, those running hours are roughly stable or somewhat up. Very clearly, we saw exceptionally high running hours for some quarters, and we now see the stabilization of that one when further capacity is coming to the customer operations as well. Overall, on the market development, we see slower growth, however, at the moment. First of all, when you look at the container traffic development, the Q1 actually turned to be a negative quarter in terms of the container development or container traffic growth. That was really caused by the disturbances, first of all, from the war in Ukraine and secondly from the COVID issues in China. For the rest of the year, we expect the container traffic to grow again, with somewhat lower rates, as well as in 2023, one is expecting still a further growth in the container traffic. In the construction, both in US and Europe, we have seen the growth slowing down, but at the very high level of activity. At the moment, actually, the growth is really primarily limited by the supply factors, such as the labor and material shortages. The picture in the shipping side is very good. Last year, ship order number actually proved to be higher than expected, nearly at 2000 ships. And now that starts to be visible in the McGregor order intake during the Q2. We also see a more favorable development now starting to take place in the offshore side, both in terms of renewables, which has been a growing and very strong market for a while, as well as oil and gas, of course, primarily driven by the energy situation now, especially in Europe. As said, orders were at the very high level and across all three businesses. This very good order development resulted into the record high order book over 3.5 billion. As said, the excellent development despite the supply chain challenges in Hayab and Kalmar resulted in better revenue. That revenue in combination of our capability to defend our margins through sourcing actions and pricing actions resulted in good profitability in both of those businesses. McGregor is struggling with a number of issues, one caused by the very low revenue number, only 127 million in Q2, and Mikko will go through the McGregor situation a bit more in detail in a moment. Our services business goes from strength to strength. Another quarter of double digit growth, 13% combined. In MacGregor, we suffer from certain logistic issues related to some of the arrangements we are doing in our warehousing. And that's also impacting obviously for MacGregor profitability as well. Kalmar, excellent performance with 22% growth. In high up, the services growth was good, but that was really limited by the availability of track chassis that actually limits our revenue growth in installation services, for example. During the Q1, Cargotech announced a renewed strategy. Our strategic targets remain the same. We will drive for profitable growth and sustainability. As a part of the Remute strategy, we are really building from the very strengths we are having there. Leading very strong market positions, leading brands, strong services operations with double digit growth, investments in the leading technology and equipment driving for robotization, automation, electrification and digitalization. We are enabling our customers to go for more sustainable and safer operations. As a part of the renewed strategy announcement, we also described some of the next steps we will be taking. We are making good progress on those ones. We have now started the strategic evaluation of McGregor and have appointed advisors for that one. We already announced recently the agreement that enables us to plan for the heavy cranes exit in Kalmar. In terms of our capital allocation going forward, we will be driving for further development in our M&A pipeline. We are continuing to invest in our R&D in robotics, automation, electrification, digitalization. Our R&D investments actually grew another 13% during the Q2. and we are maintaining strong focus on our mission climate actions. Our eco-portfolio sales grew by 25% in Q2. Actually, on a comparable basis, if you take away the novice numbers from the previous year, our eco-portfolio sales were growing by 45% during the Q2. That very clearly shows a very strong market demand in this type of solutions from our customers at this stage. As a part of that exit plan we are now having on that one, there are a number of issues that we are working on at the moment. We have announced a combination of the two operational units in Kalmar, the automation business and mobile equipment into one operational unit into the so-called new Kalmar that will be headed by Michel van Roosendaal. The Heavy Crane exit agreement has following points. First of all, the business will be actually taken over by RCI Rainbow Heavy, which has a long time partner for Cargodeck and Kalmar. The crane automation as well as the services business will remain in Kalmar and this is highly attractive business for us. We also will be responsible for executing the remaining projects. We have about 140 million of backlog in the heavy crane side, and we want to control the execution and smooth performance for our customers. number of assets and employees will transfer into the rainbow as a part of this deal. We estimate that this deal will lead to the restructuring charges of roughly 25 million in Q2 and a further 11 million during the Q3. As a part of the strategy, our investments in the market leading technology and services are winning ground at the moment. Here are some of the proof points. We announced during the Q2 further investments in our production plant in Kansas in USA, enabling us to address the growing demand for electric vehicles. As a part of our sustainable portfolio and automation, we announced a very large agreement with the APMT in enabling us to drive further automation, for example, in Los Angeles port with automated straddle carriers. We keep on investing into the further expansion of our ECO portfolio. One example of that one are the new heavy cranes that are enabling more energy saving performances during the operations in EFER. And we are expanding our lifestyle services and more and more we are combining the new technology offering together with the service offering. A good example of that one is the recent deal in Sweden, where we are combining the delivery of the new electric forklift trucks with the total care services packages as well. And again, we see a strong demand both from services point of view, as well as technology point of view for these type of solutions. Sorry, I have a little technical issue here. With that one, I'd like to hand over to Mikko Puolakka for the business areas.

Thank you, Mikko, and good afternoon, ladies and gentlemen, also from my side. Let's start with Kalmar, where the core businesses, meaning the small equipment, straddle carriers, as well as services performed very well in quarter two. Kalmar orders were down by 5%, but if we exclude Navis, which was divested in Q3 2021, Kalmar orders would actually grow 1% on comparable basis. In June, we got two very large straddle carrier orders, one in the US and one in Morocco, in total 85 units. We have had very solid demand from the smaller mobile equipment customer side. But however, due to the component availability, especially in our terminal tractor business, that has led to over 300 days lead times. And due to this fact, we have temporarily closed our order book during the second quarter. Despite the continuing component shortage, we were able to deliver actually significant volumes in equipment and in services in Q2. If we look at the core Kalmar business, meaning the smaller mobile equipment, also the straddle business, as well as all related services, that business grew in sales by 24% in Q2. However, like Mika said, we do not expect any easing in the supply situation during the second half of this year. Kalmar's profitability improved also significantly. This was primarily driven by the sales growth during quarter two. We booked also below the comparable operating profit in Kalmar, 25 million euros restructuring costs related to the heavy crane exit. And we estimate to book further 11 million euros in quarter three. And these are mainly costs which are related to the execution of the remaining order book for the business. Then when looking high up, excellent performance by all metrics, all time high orders. We had very good customer activity, both in Europe as well as in North America, especially with the larger clients. Our orders grew, especially in the truck mounted forklift business, as well as in demountables, but also the other business lines in high up were performing very nicely from the order intake point of view. Also, like in Kalmar, Hayab has been able to deliver good volumes in Q2, despite the challenges or bottlenecks in the component availability, as well as the truck chassis availability. and record high comparable operating profit 15.6% for the quarter, very much driven by the higher volumes, but also HIAB organization has done excellent work in the component sourcing and procurement area, as well as then in the price management, keeping the sales margin very stable year on year. When looking a bit forward in the second half of this year, it's also good to remember the seasonal patterns in high-up business. If we look, for example, years 2017, 2018, 2019, high-ups quarter three has been typically 10 to 15 percent lower compared to quarter two. Then in McGregor, finally a significant uptick in the order intake, very much driven by the merchant vessel contracting. This is a result of the order intake or the vessel contracting pickup in 2021. Merchant vessel orders were driving the order intake in McGregor. Roughly 80% of McGregor's quarter two order intake was related to merchant vessels. Also, service orders grew very nicely supported by the high vessel utilization. McGregor sales were unfortunately impacted and down due to the fairly low offshore orders in the past few quarters. The merchant as well as the service business has been stable in Q2. McGregor profitability for quarter two was unsatisfactory. This is driven by a few factors. As mentioned earlier, low offshore sales. We have done quite significant investments in offshore wind-related product development, and we unfortunately continue to have a negative result in a very limited number of offshore wind projects. Also, like Mika indicated, we have had some delays in service spare parts deliveries temporarily in quarter two. McGregor service is a highly profitable business, and also the merchant vessel results have been positive during this year, despite the fairly low volumes. When we exclude in McGregor first half results the offshore wind projects, McGregor comparable operating profit would be 2.1%, while now the total reported MacGregor first half results were minus 2.7%. A couple of financial highlights from the first half and the second quarter. We have a record high order book, almost 3.6 billion euros. And this is, of course, a very good basis for our deliveries for the several quarters ahead. Of course, very dependent still on the component availability as well as transportation availability. We had a significant improvement in the first half, comparable operating profit up by 24%, very much driven by the volumes, but also effective sourcing and price management. We booked in total 38 million euros items affecting comparability in the second quarter. Largest single item was related to previously mentioned Kalmar Heavy Grains exit, 25 million euros. Yesterday, June, net income was 62 million euros, up by 75%, very much driven by the volume growth. Our effective tax rate for the first half was 19%, very low compared to the historical levels, as we have been booking some tax income from an old tax dispute for which we have received a positive decision. And then when we look at the core businesses, Hiab and the future Kalmar, those were growing 26% in the second quarter and having a 12% comparable operating profit margin. Looking at our cash flow, that improved slightly from the comparison period. We actually generated 80 million euros EBITDA during quarter two, but then we continued to tie up some working capital in total 42 million euros during quarter two, mainly in inventories, working progress, goods in transit, and also inventories supporting the service growth. Our balance sheet is very strong. Gearing has remained stable. Our net debt to EBITDA ratio has been 1.2. And our balance sheet or financing structure is very favourable. No big debt repayments coming up in the coming years. And then we reiterate our guidance for 2022. We estimate the comparable operating profit to increase from last year's 232 million euros. Good to remember, like I said earlier, quarter three will be seasonally somewhat lower than quarter two, especially in high-up, and then we are expecting to have a weaker mix in quarter three compared to quarter two.

Thank you, Mikko, and thank you, Mika. We have also sent out Save the Date invitation to our Capital Markets Day, which will be held 15th of November in Helsinki, followed by a site visit in Raisio, a high-ups assembly unit, also here in Finland. So, pencil in the dates in your calendar. So, with that, operator, we are ready for Q&A.

Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. We will now take our first question. Please say your name before asking your question. Thank you.

Hi, this is Johan Elias from the Kepler Chevre.

Thank you for taking my questions. I have a few. Now, starting maybe with the most important issue here, the McGregor orders, 300 million euro order intake. I can't see that has happened since the fourth quarter of 2014. You did mention a couple of big RORO orders in the quarter that I know is quite big for you typically. Is that what drove it, or is it this big container shipyard order intake that we saw last year that is now finally turning into orders, implying that we should sort of expect the order intake to be around this level for another couple of quarters for McGregor? That's my first question.

Okay, Johan, if I take that one, thanks for the question. Yeah, the McGregor outlook is actually very bright at the moment. So the order intake is actually a combination of what you just described. We have seen very good development in the raw-raw car ferry market, but also in the container shipping as well. And we had a number of orders in both vessel categories. As Mikko was saying, about 80% of the order intake was in merchant marine. This is the core business, the business that the traditional strength of the strength of the McGregor is that and as such the margin development on those orders and order book is very favorable for us. I think we will see that development continue favorably there's still a lot of vessels and it's a combination of number of vessels but also what you will see now is that when the shipyards capacity started to be full What typically happens, and we see it happening this time as well, is that the scope of our orders will be expanding. So, rather than doing just the design and key components, we are also now starting to do full deliveries, including a larger scope as well, and that's also expanding the order book as well.

Good. And I think you mentioned offshore, and we heard Alfa Laval this morning talking about offshore. capex being on the up going forward what potential do you see in the offshore segment for you not only in the wind i think it's it's it's an early phase but but in the traditional offshore vessels that that used to be quite a big part of of the business some eight eight years ago or so

That's right. So we still see a very favorable development on the wind sector, obviously at the moment, and that market remains very strong, but we have seen now a recovery of the oil and gas market as well. And if you look at the Clarkson estimate now about 30, 31% uptake predicted on that one, some of that will be sort of back in more into traditional oil and gas production and exploration type of ships as well, which is a good market for us as well.

Good. That should bode well for your divestment process of MacGregor, so you don't miss the opportunity similar to what happened in 2012-2013. Can you say anything? You mentioned you have hired a banker, so are you talking to any potential buyers for the MacGregor division already?

It's in early phases at the moment, and we have seen interest sort of increasing towards MacGregor, but we have now hired the advisors, and we'll keep keep you updated once the plans will progress further.

Okay, good. Then a question on Hiab. It seems like order intake was really good in the quarter. Again, I was sort of expecting it to slow down. But is this also an issue about taking market share? I guess your competitor with sourcing in Russia might be a little bit more impacted by... by the geopolitical situation and the war in Ukraine and Russia. Any comment on that?

I think it's primarily driven by the fact that especially the large fleet customers in the US placed a number of large orders during the quarter as well. We also see a positive development in the military side of the business, where we have seen acceleration of the order intake from some of the deals that we have announced. while ago and that's really driving the demand and primarily but that's Mikko was saying it's crossed across the different business line and across the different markets we see overall still a very favorable development.

Okay and then on this echo share which I think is interesting The number you presented was the 25% of your total order. I guess most of this is in Kalmar and to some extent here. So how would it look like in the Shabby in your sort of core business remaining after the potential divestment of the McGregor division and this winding down of the heavy cranes? Are we talking about above 50%? 30 or 40 percent, or how should I think about it?

Most of these eco portfolio products are actually within the core businesses themselves. So that remains strong. It really has been. I mean, we clearly have seen the customer demand increasing. And as I said, we had a 25 percent increase. And if you take the Navis numbers out from last year, it was 45 percent increase.

sales of the eco portfolio and it's also in terms of our total revenue it was if I now remember correctly like 23 percent of our revenues in Q2 and very good order development on that side as well for example in Kalmar forklift trucks nearly 40 percent of the order intake was for fully electric forklifts during quarter two

Yeah, that sounds good for your future profile as well. And then finally, just a small detail here. You announced this large capex for the Ottawa plant. Where will your full year capex number end up at around?

Last year, our capex number was approximately 65 million euros. We expect to be somewhat higher on the capex this year. Not all these Ottawa-related capex numbers or investment will land on this year yet. So it will be 2022-23, slightly higher than last year's 65 million euros.

Okay. Thank you very much. Thank you.

We will now take our next question.

Hi, it's Massimiliano from Credit Suisse. I had just a couple of questions. The first one would be maybe on the Kalmar business. If you could provide some more color on the heavy crane side versus the core side for this quarter in terms of maybe how many sales were actually related to the heavy crane business and the margin profile that Kalmar core would have excluding the heavy crane side?

Out of the total Kalmar revenues, the heavy cranes were representing approximately 10 million euros in Q2 and roughly 40 million euros in the first half of 2022.

A warning on that one, as Mikko indicated earlier, we actually expect that proportion of the deliveries to be somewhat higher in Q3, that will have then a diluting impact on the margins.

Okay, yeah, it makes sense. And in terms of component shortages and the delayed sales, because in the past quarters you provided very useful quantifications of how much of your sales were were actually delayed because of component shortages and supply chain issues. If you could comment on where delayed sales were going in Q2 and maybe the outlook for H2, if you see it getting better or worse given China. You had commented that there would have been a lag between the lockdowns in China and component availability.

If I start with China, first of all, I think right now there's a catching up to be done. I think they are roughly two weeks delayed in terms of shipments out of Shanghai. at the moment but one needs to remember that there is a delayed impact so most of the issues that we actually saw happening during the heavy COVID restrictions are only starting to be visible for us in during the Q3. And a very large part of that one is not the direct. We don't have that many components coming directly from China, but I think we can see our suppliers actually being impacted by that one. So that is still will be very much visible during the Q3. Overall, there maybe has been some easing of the list of the critical suppliers has somewhat reduced, but we still week from week, and it keeps, you know, you have one component, then the next one becomes a bottleneck and so forth. Overall, the missed revenues is probably in the same ballpark as we had in Q1. And still today, and I think for the remaining part of the year, we are not capacity constrained. We could deliver more, but we are clearly supply constrained, and that situation we expect to be continuing in the second half as well.

Okay, perfect. So in the second half, due to this China situation, would you expect it, I know that the visibility is limited, but would you expect it to be stable or perhaps it could worsen again before actually getting better towards the end of the year?

The visibility and predictability of that one is really, really hard at the moment, because it keeps on changing such a quick variant. And then, of course, you have COVID issues. I think the COVID is still pretty rampant, and that's impacting our sort of absentee, but very much our suppliers as well. So at this stage, as I said, generally, I think there is a trend of starting to see easing off, but that situation changes from one week to another. So the visibility is still there. There is certainly opportunities to do quite well on the second half as well, but the situation is fragile.

Yeah, very clear. Thank you very much.

Thank you. We will now take our next question.

Hi, Mika Mikko, Akim Magnusson with UBS. A couple of questions from me. So first, order intake again very strong and could you comment a bit on backlog extend and if you have any cancellation charges that customer would would would incur if they decide to not take deliveries?

Yeah we have, if I start from the end of the question, then we have introduced cancellation charges during this year for us. Overall we have seen very little if at all cancellations at the moment. I think one of the maybe the safeguards we all have at this stage with the very high inflationary situation is that I think the customer's decision potentially to cancel is more unlikely than typically because of simply if you now cancel and then you reorder that equipment is likely to cost you considerably more at the moment so that's one one thing and again underlying operations with our customers remain at the very high level at the moment and and and all of the main categories in terms of construction and container movements and then logistics overall the activity level is still very very high on on on that one and perhaps on the question and what is the sort of

Yeah, on your question concerning the backlog coverage or extension, I would say that in Kalmar's case or Kalmar mobile equipment case, smaller mobile equipment, we are talking about four quarters with the current component availability situation. And then in HIAP's case, the current backlog basically covers close to three quarters of sales, again, with the current component availability situation.

To simplify, if you place an order on those categories of equipment, you're more likely to have it in the second half of the 23 rather than the first half.

Perfect, thanks a lot. That's clear. And with respect to the cancellation charges, is that a charge proportion of the value of the order or how does it work?

Yeah, of course, always a question of negotiator. Generally, it's a fee or charge against the value of the order.

Perfect, thanks. And then secondly, how much did the currency contribute to revenue and order growth? And was it different across Kalmar and Hieb in the quarter?

All in all, during quarter two, the currencies had approximately 4% unit impact in order intake as well as in revenues. And this is pretty much similar for Kalmar and for Hieb.

But it's good to know that I think... If you look at the Hayab performance, I think what makes it particularly excellent is the fact that, of course, as we have a US dollar exposure in Hayab, unlike we don't have that so much in Kalmar, is that we are hedging that one so actually the current dollar strength is not coming through in the higher numbers at this stage because those deals that we delivered during the Q2 had been hedged sort of mostly during the 21 actually okay got it that's clear

And then, could you comment a bit on the price-cost situation across Hjälp and Kalmar? I mean, in Q1, you suggested Kalmar was lagging a bit there, and given what you've seen in Q2, it doesn't seem to be a major issue, but how do we see, how did that turn out in Q2, and what do you expect for the second half?

I would say overall in HIAP we've done well in defending our margin and it's really a combination of sourcing activities and proactive pricing meeting the market demands and I would say in most of the product areas in HIAP the margin has been roughly at the stable level in Kalmar we were a little bit slower maybe to introduce some of the pricing but then we have introduced them last year successfully number of surcharges for customers and they started to have a positive impact already in q2 and that has also helped the situation in Kalmar excellent thank you and yes sorry final one and a follow-up there could you help us with quantify the ebit a margins on camera mobile in the quarter and what was

core margins for the group in the first quarter.

Basically, what I showed in one of the slides for the second quarter, the core businesses, meaning high up, as well as the Kalmar, New Kalmar, that delivered 12% comparable operating profit margin, and for the year-to-date June, so for the first half, it has been slightly above 11%. Perfect.

Thank you so much. Thank you.

We will now take our next question.

Hi gentlemen, it's Erkki from Inderes. A couple of questions from me as well. First regarding Kalmar, the demand drivers in the second half look a little bit questionable as content traffic growth expectations have been cut all the time. I mean, what are the customers playing now and how is your own quotations number developing?

Yeah, on that one, so our sort of sales pipeline actually has remained pretty stable now in the first half of this year and still very strong. The Q2, we landed as we announced two fairly large or large straddle carrier contracts with APMT, especially the Los Angeles one being fairly significant. At the same time, the demand in the mobile equipment remained robust. But as Mikko was saying, we closed actually the order book for most of the Q2 for terminal tractors because of the long lead times. And that obviously then reduced the order number compared to last year on that product sector.

Okay, thanks. That was actually what I was going to ask next. What was the impact of this closure of the order book and how long will it last?

We have not quantified the impact, but let's say closure of the order book was valid, I would say, during the whole May and a good part of June, so majority of the second quarter. and it had volume-wise a significant impact, which was partially compensated by this, to a great extent compensated by these large straddle orders, which we got during quarter two.

Do you see that these orders would come back later in Q3 and so forth?

Yeah, the demand continues to be strong on that one. The activity levels remain high at the moment. So we have now opened the order book again on that one.

Okay, thank you. And then finally housekeeping order. Mikko, what is going to be the group tax rate in the second half of this year?

That depends, of course, our country mix to a great extent, but if you use roughly 30% as a proxy, as said, year to date, June was 19%, but it was impacted by this one of tax decision, but 30% would be a good proxy for this year.

For full year or for the second half?

For full year.

Thank you so much.

Thank you.

We will now take our next question.

Yes, hi, it's Tommy from DMV. Still wondering if you were able to quantify the delays, delay impact in terms of sales in the second quarter.

Yeah, it's a bit difficult to quantify the magnitude, but as Mika said, definitely we could have delivered some tens of millions of more revenues during the second quarter if we would have had the needed components. We have enough assembly capacity, both factory capacity and personnel, but we are still significantly limited by the certain component availability.

And is this level expected to continue also in a way some tens of millions in the next couple of quarters? Correct, yes. So there's no easing, there's no improvement.

not in sight. Let's put it that way. I wouldn't count on that. When I said there is a sort of somewhat underlying trend of the number of suppliers or the list of the critical component suppliers is reducing, but the new challenges are popping up and it's so unpredictable still at the moment that I certainly wouldn't count on the clear improvement during the second half.

Then are you able to quantify the cost over and relating to the wind offshore in the second quarter?

We have approximately 10 million euros in the first half of this year. Like I said, if we exclude these offshore wind projects during the first half of this year, MacGregor results, the rest of the MacGregor profitability would be 2.1%. And the full McGregor first half results, as we have reported, are minus 2.7%. So it's a sizable number, very much related to the first of its kind technology for the offshore wind business, where we see opportunities going forward.

You booked 27 million last year. Is it possible that the number by the end of this year would be similar?

We tried to do a prudent assessment of those offshore wind projects end of last year. It's good to remember that when we have booked these costs in the past, that takes the project profitability to a very low level and it remains there until, it remains on a low level until we close the project. So that is why we have this drag during this year in the offshore wind projects. We expect the service business to deliver a strong year and also the merchant now gradually thanks to the improving order intake will also improve profitability.

It's good to note of course when you look at the McGregor I mean the revenue was exceptionally low with only 127 million and the issue combined with the cost overruns with the fact that the offshore revenue remained very very small of course and had an impact there.

And then maybe on the pricing Are you able to comment on the pricing component in the order and sales growth?

Yeah, I would say that on a year-on-year basis, we are probably somewhere between 15 to 20 percent higher, depending on the type of equipment in there. Overall, when I look at that one, we've been able to defend our margins to quite a large extent by pricing increase and then additional surcharges in Kalmar side as well.

And then I think you wrote that you are monitoring the pricing environment after completing price increases. Have you planned price increases also for the second half?

Yeah, we actually did a pricing increase round in a number of product categories during the July.

Good. Final question, if you may. The sales mix. Is there anything else? You mentioned the heavy equipment share may be bigger in the third quarter. Is there something else since you raised this issue for the third quarter?

the heavy grains, Kalmar heavy grains volumes, and then also MAC record volumes growing in the second half compared to the first half. And then taking into account what I said also earlier, that typically high up quarter three revenues are 10 to 15 percent lower than in quarter two due to the less delivery days in the northern hemisphere during the summer break time, customer summer break times. Perfect.

Thank you very much.

Thank you.

We will now take our next question.

Yes, hi, this is Tom from Carnegie. I wonder about these heavy crane project losses that you seem to book as EO items. I mean, when will you move over to reporting heavy cranes as a discontinued business instead?

The Heavy Grains order book, like Mika said, is some 125-130 million euros. It takes approximately two years to deliver the majority of this order book. We have booked now, based on the prudent risk assessment, this 25 million euros. for quarter two, some exit-related bookings still in quarter three, but we expect that we should cover from these bookings basically the project risks until we have delivered the order book. We have had a quite significant one of items in this year also in the past years and these are mainly related to Kalmar especially to this heavy grains business as well as McGregor restructuring and now with the new refocused strategy of Cargotech we expect that we have a

reshuffle the business portfolio so that we do not need to have this one of items like we have had in the past so this means that if the business will now run at the zero EBIT margin the next two years until all the projects have been delivered is that right

basically the heavy cranes order book deliveries are having a single digit profitability margin. If we can execute those projects better than what we have done based on the current risk assessment, then of course we do not necessarily need to use all those risk provisions.

Okay. And then the dollar hedging in high up, We know, of course, that the dollar has strengthened a lot. So, when will that impact the margin positively?

We start to see, due to the long lead times, we do not necessarily see any visible impact during this year. So, we start to see that more starting from the beginning of next year.

Okay, thanks. And then the new strategy is the review of the operational model. to support the refocused group. Can you just help us to understand, you know, what are we talking about? Is it possible to split CargoTech into two companies, into Hayabat and Kalmar, or is it just to take out head office costs and move that into the business areas rather than we're talking about?

Yeah, if you think about actually now with the combining first of all the Kalmar into the one business area and then potential possible exit for MacGregor, we would actually end up with only two business areas now in Kargotec and obviously the requirements in terms of the headquarter activities and support for that one. So effectively we are looking at what activities should be retained in the a group cost and what activities would be better actually shared directly in the businesses themselves and that review is going on.

Okay and then about this the automation business so is the plan to sell now automation solutions using whatever Kone Crane said PMC or Rainbows Crane so is that what we should understand if you plan to keep automation on?

I don't think so. I think it's primarily focusing on the capabilities we have in automation. First of all, of course, to still serve the straddle business that is highly successful and having a good progress for us. And then also using the same automation software capabilities we have built for other parts of our businesses in Kalmar Mobile Equipment and potentially even in Hayab.

So you are walking out basically of automating RTG and RMG cranes, etc. I mean, that's not, the plan is not to do that.

That's not in our focus anymore.

But isn't like the facilities then oversized that you have there? I mean, is there a big opportunity to cut back on fixed costs a lot then? You have built up, I don't know how many people you have working for and what the fixed cost base is in automation.

I think it's a highly skilled team that we can certainly leverage in other businesses. And part of the current deployment of the automation technology has been actually done in combination with some external resources and partners. And I would assume that that part of the business would be ramped down.

And then this very large order growth in column or many dynamic orders, there is this It sounds like, I mean, the market cannot grow like this. So who is losing market here? Is it so that especially like U.S. customers want to buy from Western suppliers or what's going on behind the scenes that they don't know as outsiders?

Sorry, Tom, was it about Kalmar?

Yeah, I mean, the Kalmar market cannot grow like this, what you have shown the last.

Yeah, let's remember first that we have had a growth spurt in the container traffic. And as we know, these investment decisions always become delayed on that one. So we've seen some of that impact happening there. And it's good to remember now that with the refocus strategy, actually the primary customer group for Kalmar is not anymore the large container ports, although we still serve them with the straddle solutions. But it's primarily the sort of inland terminals and logistics yards, etc. And that, as we know, has been a business that has a sort of clear underlying growth trends driven by e-commerce and changing the logistics, etc. And we assume that and expect that market to continue to grow going forward as well.

So for the new columnar, how large is port terminal and how large is inland terminals and logistics?

I would say that roughly speaking, and this of course varies, the larger container terminals would probably represent not more than maybe 20%, 20-30% of the revenues. The rest is actually smaller inland terminals, logistics operators, etc.

Four terminals is 20-30% of new kind of business goals.

Was that right? Yeah. Okay. Thank you.

We will now take our next question.

Yeah, hi. Just a couple of follow-ups from me. It's Massimiliano from Great Swiss. The first one would be on McGregor. And given that all the shipyards are – not all the shipyards, but the shipyard capacity is almost full – When do you expect this increase in order to flow into revenues and what are your capabilities to scale up very quickly? I know that McGregor is very outsourced, so when should we expect this larger, this big increase in order to flow through revenues?

I think typically we have seen about 12 months cycle from the ship order to our order cycle and other 12 months from the order into the revenues as well. And I think we primarily look at the good order intake now during Q2, which we expect to continue to be having a revenue impact from 24. Then on that one, some of those orders that are fairly sizable can be a series of ships. For example, one of them was a series of 12 ships. So obviously that revenue will be actually deployed over multiple years when those ships are built there as well. But primarily, the revenue impact should be visible from 2024 onwards. In terms of the scaling, actually, as you pointed out yourself, the McGregor is an asset-light operation mode. so we are relying on the subcontractors which are usually located close to the shipyards in China, Korea, Japan and other locations and that supply chain is actually very much intact and I think we should be able to ramp up the visibility at the moment on that one is quite positive.

Okay clear, thank you very much and my second one would be on Hieb and Kalmar prices because I remember that in July 2021, you put up prices significantly. And if I look at Q2 revenues, these price increases have already flowed through revenues completely, or should we expect something more from that July 2021 increase in Q3?

I think if you think roughly and simplify it almost now, as Mikko was saying, three to four quarter cycles because of the lead time. So the Q1 pricing increases were relatively modest. some of that has floated into the Q2 this year the Q2 pricing increases I think we were starting to be a little bit more aggressive that had probably a small impact on Q2 but you would actually primarily see the first half pricing impacts from 21 to be visible in our second half revenues now this year

If we think that the high-up and then the Kalmar core businesses have been growing roughly 26% year-on-year, roughly more than two-thirds of that is coming still from the volume growth and one-third from the price impact.

Perfect. Very clear. Thank you very much.

We will take now our next question.

Yes, hi again, it's Johan. Just a bit of a follow-up here. On these heavy cranes, you've given the IPs to your Chinese partner, Ryanbo Heavy. Didn't you get anything paid for that? Or is it just to make sure that you keep some service revenues in the future? And do you still own the shares in Rainbow Heavy? And what's the plan with those?

Thanks. Mikko, maybe you take the Rainbow Heavy shares. I can't remember the actual situation.

We still own shares in Rainbow Heavy. If I remember correctly, the ownership is roughly 4%. Originally, it was around 7%. We have divested some of the shares. We are not planning to be a long-term shareholder there. So, the ownership has been gradually declining.

Coming back to your question, so we looked at the multiple options here, just simply ramping down the business and selling the whole business to an outside partner. There was some interest for that one or then this option. And from our point of view, the business case on this option was the most attractive. We did receive a payment for the IPR and the assets we are moving. It was in a sort of single million. single million, but what made this primarily attractive was the fact that we are able to retain the services business related to this type of equipment in-house, retain the automation capabilities and then having the control on the closing of the open projects.

Okay, excellent. And these charges you announced in relation to this development, is net of the potential purchase price you receive them. Yes. Yeah. Okay, that's all for me. Thank you very much. Thank you, Johan.

We will now take our last question.

Hi, it's Magnus here again. Just a couple of follow-ups. I mean, first you talked about pricing hikes about 15% to 20%, and then you had 4% FX on top of that. Does that mean that your volume growth in the quarter was significantly negative or am I missing something?

No, actually, Mikko, what did you take from that?

Are you referring now to orders or sales?

Now it was sales, but yeah, yeah.

Yeah, we got roughly 4% tailwind in sales as a total cargo tech, taking into account the strengthening, for example, of the US dollar during quarter two. And then I said, yes, we have been increasing prices and the kind of cargo tech core business is the price increase. impact has been roughly one third of the total quarter two sales growth.

So two thirds of volume. When I talked about pricing increases, I was talking about the order in price levels now and comparison to last year.

Okay. So we still have some conversion on the sales, of course, in those prices as well. So what should we expect on pricing? in the second half of the year? How much growth contribution should we get from pricing in the second half?

Obviously, as I said, the main pricing increases were really around the Q2 last year and the summer last year. And then with the three to four quarters delivery time, that pricing should be more visible in the second half of the year. Okay, thank you.

And then finally, to Thomas' point on the FX impact, I think a couple of years ago, you had a quite significant tailwind from FX in here. But I mean, do you have any assessment of how much that could help margins through the course of next year?

Yeah, correct. We have said that typically kind of one cent US dollar change should contribute a couple of million euros to high up. If it's strengthening US dollar, that would have the positive impact, the weakening US dollar negative impact. But like Mika said earlier, the hedges, what we have been doing now for the deliveries, what we are now delivering, those have been done already in 2021. and due to the long lead time, so we are currently not seeing yet the impacts from the stronger US dollar that will become more visible in the beginning part of next year.

Okay, thank you so much.

Thank you. Okay. Thank you for great questions and great answers, Mikko and Mika. Our third quarter results will be published on 26th of October, so stay tuned.