Cargotec Corporation

Welcome to Cargotex 2022 results call. My name is Aki Vesikallio. I'm from Cargotex IR. Today's results will be presented by our CEO, Mika Vehviläinen, and our CFO, Mikko Puolakka. After the presentation, there will be a Q&A session. Please pay attention to the disclaimer in the presentation, as we will be making forward-looking statements. 2022 was a record year for Kalmar and Hayev. Driven by the strong performance of these two business areas, we reached all-time high orders, sales and comparable operating profit. Our service and eco-portfolio sales also reached new records. The year was shadowed by McGregor's results and rationalization of its portfolio had significant negative impact on our operating profit. With that, over to you, Mika.

Thank you, Aki, and good morning from my behalf as well. And thank you for joining the Cargotech Q4 2022 webcast. 2022 was an excellent year for our core businesses, Kalmar and Hayab. Together, they generated 3.4 billion in sales, which is actually more than the whole cargo deck in 2021, and 388 million of comparable operating profit. Their comparable operating margin for the year 22 was 11.3%, and we are well on the way towards our 12% target for 2025. Driven by the core business performance, we were also first time in Cargotech's history breaking 300 million euros comparable operating profit and also made a step change in our comparable operating margin as visible from the slide here. We were able to leverage our strong order book going into this year. And of course, we had in the beginning of the 22 And the demand remained strong throughout the year, and actually our orders grew by 10%, giving us a very strong starting point for 2023, with a 24% higher order book than we had at the beginning of 2022. Our sales grew by 23%. It's especially good to see the good performance in services growing, and our services revenue kept on growing well. In the CMD in November, we also the first time revealed the profitability of our core business services, which is very close to the 20%. I am especially delighted about the very strong growth in our ECO portfolio. Our ECO portfolio sales grew by 54%, driven by Kalmar and Hayab. This comes from the solutions that enable our customers to lower their emissions. Also sales of Kalmar's fully electric and hybrid solutions grew by over 50% from year 21. So we saw huge steps change in comparable operating profit and comparable operating margin, but it could have been a better year without the negative results coming from MacGregor. As you know, the conclusion of the strategic evaluation, the board decided in November that MacGregor will not be part of the Cargatex portfolio going forward. The active sales process has not started yet due to the uncertainty of the financial market and the early phases of MacGregor's profitability turnaround, especially into our offshore division. Now, if we would exclude the offshore wind segment, which is an attractive and hugely growing business opportunity, but requires investments and development of our pioneering technologies, MacGregor comparable operating profits would have been approximately 3% and 5% without offshore division overall. This is despite the very low sales volumes in still in 22. Now, we are taking all the measures necessary to execute the McGregor exit. During the Q4, we made a thorough assessment of McGregor's portfolio and the projects, and this resulted in one-off costs and write-offs for Q4. Mikko will tell you more in detail about the impact of the McGregor evaluation. As a part of the review, we are planning to rationalize the offshore portfolio, And there are more planning regarding significant cost reductions in offshore business as well as to McGregor overheads. As a result of these measures, McGregor will be in significantly better shape for the year 2023. And we are already today guiding that McGregor's comparable operating profit will be positive for year 2023. Now, looking at the market activity, we saw the high level of activity with a lot of our equipment actually working very close to the capacity continuing, and obviously also the sort of sequential and seasonal impact with the very high equipment activity in the logistics industries. With the exception of the China, where clearly the COVID restrictions still had an impact during the Q4. Overall, the market picture, I guess, has turned slightly positive in the last month or so. Overall, when we look at the growth at the moment, there are still significant economic uncertainties, of course, in the market as such. When you look at the container traffic, actually, based on the latest estimates, the container traffic actually declined slightly during the 22, but is now expected to grow again with the slight growth during the 23. Construction activity has declined, but is still historically at a very high level, and it's good to remind ourselves that construction is only one segment of the many in HAIAB, and also, for example, renovation activity is a very important driver for the HAIAB's construction segment activities overall. Regarding the vessel contracting, the vessel contracting declined, but is still at a considerably higher level and is expected to be at a considerably higher level than it has been in the previous years prior to 21. And this both fell for the McGregor future development. Our orders received increased again across all the businesses, and I'm especially delighted to see the very good order intake close to a billion euros in MacGregor that will set us up in a very good position for the year 2023-2024 for MacGregor. The strong order book, as I said, 24% up actually year-on-year, and overall, we have seen a very good market and solid market activity continuing also into this year. Revenue developed well. We are still struggling with the supply chain activities and component shortages, and especially Hayabi is also impacted by the shortage of the truck deliveries. However, our teams and operations have worked very hard to enable a higher revenue on that one and that of course then been driving the sales revenue growth, especially in Hayab and Kalmar. Our core businesses actually reached the revenue of over 1 billion euros during the Q4 and the operating margin in the core businesses was 11.9% during the Q4. The services performance continued in an excellent way, and we saw another solid growth and a nice growth actually across all the three different businesses in the services. In connection of our capital market day and the refocus strategy, we described our strategy going forward. It really is driving our growth coming from the sustainability solutions, solving our customers' emission and sustainability issues. There are four core elements on that strategy. Driving fast innovation, delivering new solutions, helping our customers to solve the sustainability challenges and driving innovation faster than any of our competitors can. Secondly, we are driving for the increased recurring revenues, a good evidence of course, that one is the great services growth we are seeing, but also further recurring revenues in terms of new solutions, combining equipment, services and digitalization. In addition to the excellent organic growth, we plan to also grow more inorganically. We have had a limited number of acquisitions, one again during Q4 in Haia, but we plan to accelerate this pace going forward. And latest, we aim to be the highest standard in ESG in our industries. Evidence of the good progress we are making in our strategy execution is in terms of the innovation. We are now moving in our terminal tractor also beyond the electrification and announced a technological operation together with Toyota to develop hydrogen-based terminal tractor solutions for the markets. Secondly, a great growth in our recurring revenues and services. An example of that one was a five-year agreement with the Swedish steel mill manufacturing there. The value of the contract was about 25 million over the five years. It's also an evidence of when we are moving our Kalmar focus more out of the large ports into terminals and logistics and industries, how the service opportunities on those segments are significantly better than they are in the very heavy port segments as such. And again, HAIAB concluded one acquisition during the Q4. Olsberg, this is actually also a technology initiative from our, Olsberg is a market leader and technology leader in high performance valves and control systems. And this will be one of the core competitive advantage for HAIAB and the HAIAB wants to own that technology going forward. Part of the great initiatives and the work we are doing in ESG, we are also able to close a financing of about 330 million linked to the revolving credit facilities in the sustainability sector. A reminder of our financial targets that we have set for ourselves in connection of the November capital market day. We are well on the way in here. Our eco portfolio grew more than 50% during the 22. Our emission intensity reduced during the 22 regarding emission and reductions. However, due to the high sales of also traditional equipment, this is a target we need to keep a close eye on. Obviously, we grew very fast thanks to the excellent performance, both in Hajab and Kalmar, and our comparable operating target in our core businesses during the Q4 was already actually 11.9%. With that one, I'd like to hand over to our CFO, Mikko Puolek. Mikko.

Thank you, Mika, and good morning also from my side. As usual, let's start with Kalmar, where the solid customer activity continued in quarter four across all Kalmar divisions. Now with 1.4 billion euros order book, we have an excellent start for year 2023. 100 million euros higher than what we had when going into 2022. Despite continuing component shortages, Kalmar had high deliveries during the last quarter. Having said this, it's good to recognize that we have still, for example, a couple of hundreds of terminal tractors waiting at our factory yard for missing components. So still quite a lot struggling with the component shortages. Thanks to Kalmar's prudent commercial actions and higher volumes, Kalmar has been able to protect the sales margins and increase profitability in Q4. The full year comparable operating profit for Kalmar was 190 million euros. This is up by 58% or 70 million euros higher than 2021. The heavy cranes, which we are currently exiting at the moment, made 20 million euros loss in 2022. And for this business, we have still roughly a 50 million euros order book, of which most of that will be delivered during 2023. And we expect that we still have some single digit million euros of negative impact in Kalmar's result in 2023. The new Kalmar excluding heavy cranes did 12.5% comparable operating profit in quarter four and 11.3% for the full year. So this is a clear step change from the past years. And showing that Kalmar is heading towards the right direction after refocusing its business from projects and mega terminals towards the equipment and services for smaller terminals. In HIAP's case, the overall demand, roughly 400 million euros orders, was on a good level in quarter four, and the full year orders in HIAP were up by 5%. Also in HIAP, we had a very solid start. We will have a very solid start for 2023. 200 million euros higher order book compared to what we had when we started the year 2022. In HAIAP, like also in Kalmar, we have still exceptionally high or long lead times. HAIAP's order book covers currently three quarters of sales, and this is a reflection of component shortages, as well as the low availability of new trucks. And this is not expected to significantly improve in 2023. Despite the supply chain bottlenecks, HIAP was able to increase volumes to a new record quarterly level. High volumes were the main driver for quarter four profitability improvement. And in HIAP's case, the full year comparable operating profit was 224 million euros, 58 million euros better than 21. MacGregor had a paradoxical quarter. Very strong order intake in merchant as well as in services. Those two divisions, merchant and services, represented almost 90% of McGregor's full year order intake. Positive in the order intake is that these orders are coming to the businesses which have been already profitable in 2022. These Squad 4 orders originate actually from the very strong vessel contracting back in 2021, driven very much by the car carrier vessels. All in all, McGregor full year orders grew by 50% to almost 1 billion euros. And this is of course a good start also for McGregor for 2023. On the other hand, McGregor profitability was very disappointing. Merchant and service divisions delivered positive results in Q4, and also for the full year. The weak performance in McGregor comes solely from the offshore wind business. McGregor's Q4 comparable operating profit includes €24 million costs related to offshore wind new technologies. These are costs for additional engineering work and also potential project risks, so kind of forward-looking risks we have taken into account in the Q4 bookings. Like Mika said, we have also initiated further restructuring measures in MacRecord to make the result more robust in 2023. And let me describe those actions a bit more in detail. The McGregor Merchant and Service divisions delivered solid performance and clearly comparable, positive comparable operating profit last year, despite low sales. And here we will focus on delivering those orders, what we have been winning during 2022, and the sales are expected to improve both for merchant and services. In offshore, we downsize the organization and also rationalize our product portfolio. We shall exit certain businesses like fishery and research and certain MacGregor mooring solutions. These restructuring actions will deliver on an annual basis roughly 19 million euros cost savings, of which 14 million euros will be visible already in 2023. For these actions, we booked project costs, like discussed earlier, to cover the project risks for projects containing new technologies. And also due to exiting the certain businesses like the fishery and research, we wrote off 25 million euros of intangible assets and then did a 63 million euros goodwill impairment during quarter four. These are naturally non-cash items in our cash flow outlook. Looking at a couple of highlights from last year. We start the year 2023 with record high order book, almost 700 million euros higher order book compared to a year ago. In line with our strategy, eco-portfolio sales grew 53%, much faster than the sales for the traditional products. And the majority of our eco-portfolio sales are related to our core businesses, Kalmar and High Up. Despite the disappointing result of MacGregor, Kalmar & Hayab delivered a strong year, taking the total Cargotech comparable operating profit 43% higher. Core businesses Kalmar & Hayab delivered 11.3% comparable operating profit for the full year. and almost 12% for Q4. And this is in line with our ambition to take these businesses first to the 12% level and then to 15% by 2030. A clear disappointment was our net result, which was burdened by the weak MacGregor performance, and then one of costs related to reshaping the business portfolio. In all in all, the one of costs were 210 million euros. It's good to note also that less than half of this is actually cash effective. Our cash flow improved in the second half of 2022, driven by higher profitability, as well as reduction in inventories, especially during quarter four. Our total 2022 cash flow was 231 million euros. This is 62 million euros better than a year ago. We have a very strong balance sheet. Gearing continues to improve, driven by higher profitability and cash flow. And also, our net debt to EBITDA is now 1.2, which we consider to be a good level. We do not have any major debt repayments coming up. Approximately some 50 million euros interest bearing loans are maturing in 2023. So also from that point of view, a good liquidity situation. Our loan portfolio is also very well hedged against raising interest rates. About 60% of our loan portfolio is with fixed interest rate. When going to the dividend proposal, our board of directors is proposing to the annual general meeting a dividend of 1.35 euros for each of B shares. This is in line with our dividend policy of 30 to 50% payout ratio. When we eliminate one of costs from our 22 results, our EPS would be 3.37 euros, and against that number, the dividend payout would be 40%. Dividend would be payable on 4th of April 2023. Then our guidance for 2023. As mentioned earlier, we have a record high order book of 3.5 billion euros, and this gives a good basis for this year in all our three business areas. We have also initiated additional actions in MacGregor to make the offshore business more robust. Based on this, we estimate the core businesses, meaning Kalmar and Haiap, to improve comparable operating profit from 384 million euros in 2022. Furthermore, we estimate the MacGregor's 2023 comparable operating profit to be positive. MacGregor's sales is also expected to increase driven by the strong order intake in 2022. Please note that we change also our comparable operating profit definition for 2023 We include the PPA amortization in comparable operating profit, like we had it in 2020 before the intended merger with Konecranes. The impact of PPA was 4 million euros in core businesses last year and approximately 12 million euros in MacRecord. And we will publish our restated 2022 figures, meaning this PPA change before our Q1 2023 results. So then I hand it over back to Aki.

Thank you Mikko and thank you Mika for the presentation. So with that, we are ready for the Q&A operator.

If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. If you are using speakerphone, please make sure your mute function is turned off. Voice prompt on phone line will indicate when your line is open. Please state your name before your question. The next question comes from Massimiliano Severi from Credit Suisse. Please go ahead.

Yeah, hi. Hi, everyone. A couple of questions for me. The first one would be clearly on McGregor. And we had talked before about the offshore project and the restructuring costs that was related to restructuring costs of last year. to be delivered in late 2022, early 2023. I was wondering, do you have an updated schedule for the commissioning of these offshore projects on which there have been quite a lot of cost overruns?

Thank you, Massimiliano, for the question. The largest offshore projects which we are currently delivering They are, I would say, 90% ready from the construction point of view. The installation for that project will happen during this year and the C-trials will take place in the beginning of 2024.

Okay, thank you. My second question would be maybe on the sales growth. And I was wondering if you can help us understand in here Ben Kalmar more or less what is price versus volume in terms of sales growth and how much is left in terms of higher prices in the order book versus what we are seeing now in the top line.

Good question and not that simple, so I'm oversimplifying maybe on my own answer. But overall, when I look at the price levels that the customers were able to buy new equipment at the Q4 22, they were roughly 20% higher than they were at the beginning of the 21. Now, obviously, with the long lead times, the price realization comes in slower than one would expect, so I would say a rough number perhaps for the sales growth coming from the pricing would be around 10% for the 22. And it's good to note that a significant part of the equipment that was ordered that the 20% price increase is to be delivered actually only during the 23.

Okay, thank you. Very clear. And just related to that, a quick follow up. Do you expect to be able to pass on even higher prices in 2023? Have you gone ahead with your usual price increases at the beginning of the year or you expect to keep prices stable or maybe decreasing them on your orders?

We still see the inflationary pressures actually coming through in the component level. We know that some of the raw material and steel qualities are actually having lower prices for 2023 than they had in 2022. But overall, I would say that the inflationary pressure is still in the product cost coming from the component pricing as well. And then, of course, from the labor inflation and energy, although the energy is not directly a big item for us, but for some of our suppliers it is. So overall, I think there is still pressure for pricing increases there. Having said that one, it's very clear that in our last pricing increase in October, there was probably more pushback on the pricing that we have seen in the past, but we are still planning or already have partly started to execute in the pricing increases now in the beginning of this year.

Very clear. Thank you very much.

Thank you.

The next question comes from Antti Kansanen from SEB.

Please go ahead.

Yeah. Hi, guys. It's Antti from SEB. Maybe a follow up on the previous question and looking at the guidance for the core divisions on earnings growth. So could you maybe talk a little bit? How do you see kind of that split into delivery volume growth, pricing growth, and perhaps kind of a margin expansion that you have in the backlog. So what's really driving earnings growth on Kalmar and Hayab in 2023?

The primary driver would be the increased deliveries and revenue growth coming, of course, partly from the built-in pricing increases in the backlog. I would not bet at this stage, and we are not counting on the potential margin expansion on that one. I mean, it is still very hard to predict on the component and product cost pricing, even though we've seen some pricing relief in some of the steel qualities, as I said. At this stage, the pricing pressures and inflationary pressures clearly continue throughout the whole second half and Q4 as well. So we are not making any assumptions yet on capability actually for margin expansion at this stage.

And then maybe if we think about kind of the order growth on Q4 on those divisions, obviously kind of the volumes are down as you have made price increases and Just thinking you have your workload covered for the first three quarters, but how should we be concerned about kind of if the volumes continue to trend down that at the end of this year, there will be kind of a negative impact on your fixed cost absorption or kind of overheads of the factory floor and so forth. So how would you kind of assess what type of demand decrease can you handle and maintain kind of a strong earnings in back half of this year?

Well, maybe I'll start with one cost item that actually has been sort of hitting us actually throughout the whole year, and that's the indirect cost. Because of the large supply chain challenges at the moment, our production is not sort of running very smoothly at the moment, and we are forced to take, you know, almost ready equipment out of the line, waiting outside for additional lacking components, bringing them back online again, etc. So actually, if we assume that the market starts to slow down slightly and the supply situation starts to stabilize, there are real opportunities to actually take out some of the cost that is coming from the very unbalanced situation. at the moment so that will certainly help us but overall I would say that the what we see from our equipment activity what we see our pipelines we do not see necessarily indications on any slowdown on the market however it's also clear that the today's situation is not healthy the fact that customers are forced to place orders sort of 12 months ahead is not a situation I think that can sort of stay there. It's very clear that if you look at the truck deliveries and high up deliveries, typically before the COVID and supply chain constraints, we were talking about two to three months delivery note. At some stage, we need to be able to stabilize the situation that we get back to that kind of more reasonable and healthy lead times and same is true for the calmer equipment. So I do expect at some stage that the book to bill would need to be negative for that situation to start to stabilize as well. But there's no signs of any particular weakening in the market at this stage.

All right.

Yeah, I would add there that, like we discussed in the Capital Markets Day, we have done also a lot of activities in order to improve our resilience and agility, what comes to the cost base as well. So from that point of view, we are also well equipped in this kind of environment.

Okay. And then maybe a bit on McGregor in a sense that How should we kind of, is the year guidance of positive earnings very back-end loaded in a sense that the savings will most likely kick in late in the year? Could you talk about a little how you expect to convert the container backlog into revenues through the year, kind of H1 versus H2, how the dynamic will work?

Yeah, I would say that the services, first of all, the underlying performance is excellent and that will continue fairly steady throughout the year. We've been building up a significant backlog on the merchant side. I would expect that start to deliver already better results early part of the year, but again, probably a little bit more backloaded on that one. After the measures we have now taken in the offshore segment, and some of the overheads in McGregor overall, I do expect actually that the offshore should turn to the most healthy numbers fairly early overall. So, I would expect that we will enter the year already at a pretty good situation, but I would still say that the results are probably more back-weighted in terms of that you should see a continuous improvement throughout the year.

Okay, and then just a short specification on the 14 million of annualized savings for 23. This is not the run rate number. This is kind of an actual year-to-year EBIT bridge improvement.

Yes, correct. That 14 million relates to costs this year versus costs last year. And the 19 million means that additional 5 million would come then in 24 still.

Okay, great. Thanks, guys.

Thank you.

The next question comes from Ponu Leighton-Maki from Danske Bank. Please go ahead.

Yes, thank you. I had a couple of questions, maybe on the same lines that were already asked, but just on MAC record, you're guiding for positive EBIT and consensus was expecting for margin of 4.6% for this year. So, I mean, it's bit of a range if it's like zero or is it almost five so can you kind of give any indications what are your expectations do you think like macro could go to three percent what do what you commented was the underlying without these losses or or any any comments on on what should we expect

Well, I don't think we are going to give any particular number here, but it's obvious that the willingness to guide for positive results, usually we would take a certain safety or cautionary measure to make sure that we are able to deliver to that number.

Okay, and then did I understand your previous comments kind of correctly that you would see break-even already from the beginning of the year?

We'd like to be in a positive side as soon as possible. Let's see how that pans out. That really depends. The biggest winger in a way is the merchant ship equipment deliveries because of the strong backlog. And that's the sort of how much of those deliveries we are able to get out on Q1 versus the rest of the year is still a question mark.

Okay, thanks. Then on demand, you already commented on that, but you said that you see no signs of any particular weakening in the market at this stage. Was this referring to high up or both high up and calmer?

Both high up and calmer at the moment. If you look at the sales pipeline, you would say that the In volume terms, especially in high up, the market is stabilising already. So in volume terms, the 22 in high up is actually sort of even or slightly down from 21 numbers already. And the pricing is going to be a relevant factor moving into the 23. But we don't see a particular weakening. The underlying demand and activity, both in Kalmar and high up, as well as the sales funnel we are seeing, are looking very solid.

Thank you. Just the final one, if I may. On the FX impact or US dollar in high up, I think we have previously discussed that you should get some margin benefit going into 2023. Do you still see this happening given what has happened in the FX rates?

Yeah, I would say that definitely in 2022, we did not get a significant tailwind, but in 2023, now that we are able to deliver That kind of order book, which has been hedged earlier in 2022, we expect that there should be some tailwind there. Of course, we cannot predict the FX rates any better than the others, but assuming the current environment, there could be a small tailwind.

Okay, thank you.

Thank you.

The next question comes from Axel Ekros from Adrigo. Please go ahead.

Hi, Axel here from Adrigo. I have two questions. The first one is, how do you think the spare part capture rate will change when you sell more electrical equipment in higher wind Kalmar?

Yeah, obviously less spares, but we expect that our kind of capture rates are significantly higher in there. The way we approach the technology and sort of deployment into electric vehicles is consisting of number of components that we are putting together. And there are two factors, first of all, in terms of the availability of those components compared to say a diesel engine, if you use today a Cummins or Volvo diesel engine, which of course has a multiple different ways of sort of getting the spare parts. There will be a more restrictive sort of supply of those ones. And secondly, then again, in terms of installation and service, actually, the high voltage electric equipment requires specific certification as well. So for the services capture rate as well, we expect that we will be at a considerably higher level than we have been in the traditional equipment. And we expect that to offset the the sort of the actual spare part demand by vehicle. The other thing of course is good to put this, despite the very strong growth we are seeing in there, we have a huge installed base of tens of thousands of equipment and before that transfer into the electric equipment will take that, you know, that one should expect about a 10 year sort of lead time before it will be significantly visible in the spare part demand.

Okay. All right. Thank you. The second one is, do you see any risk of order cancellation in Hayab or especially Hayab when you have such a large order book?

We see no signs of that one. First of all, of course, because of the inflationary equipment, people like to hold on to the orders because they know that if they come back to the market and reorder, you have to do it at a higher rate. High-up overall is in a very particular situation because the primary driver for high-up deliveries And lead times is actually not the Hayab's own manufacturing, it's truck lead times. And the 22 was a very tough year for the truck deliveries. And that has sort of built up the lead times in Hayab as well. And for Hayab to be able to sort of claw back some of the lead times, et cetera, that requires that the truck manufacturing situation improves.

Okay. Yeah. Thank you.

That's all for me. The next question comes from Tommy Raylow from DNB. Please go ahead. Hi, this is Tommy from DNB.

Question on Hayab. So the orders are down 2%, probably volume terms closer to 10%. Can you just a little bit talk about the regional or geographical performance? Where did you see most of the weakness, and maybe also from the end market point of view, construction, logistics, recycling, military?

Start with this. Start maybe with military. We see a lot of activity coming up there. It's not yet particularly visible in our numbers. As you know, the military procurement and the cycle times are relatively long, but in terms of the actual activity, And upcoming procurement, we see a very significant sort of opportunities coming through from the military side of that one. And I think overall the military revenue for the 22 was only about 100 million. as such but I think there's significant upsides on that one going forward but again the cycle times are quite long. In terms of the other specific segments we haven't seen a particular softening on any of the segments and of course sometimes slightly difficult to also directly read on those ones because the truck might be deployed in multiple segments. Overall, the US activity has remained at a good level at the moment, and we see from key accounts and others, the demand continuing. The weakest spot maybe we saw in the European market was the France during the 22, and I can't exactly sort of explain that at this stage. Then again, a lot of the other middle European countries continued at a good level.

Okay, that's fine. Thank you.

The next question comes from Tom Skogman from Carnegie.

Please go ahead.

Good morning. I have two questions. First of all, I wonder about the risk level in the Kalmar Heavy Crane order book. And secondly, I wonder whether you have some kind of discussions regarding the divestment of MacGregor at the moment, or is everything kind of postponed one year as you highlight that the margin kind of improvement will come in the second half of 2023 in MacGregor?

Maybe you take the first one.

On Kalmar Heavy Cranes actually deliveries last year, Kalmar Heavy Cranes margin has remained very stable, actually improved in 2022 compared to 2021. I said earlier that Kalmar Heavy Cranes made roughly 20 million euros losses and this loss is more or less on the 2021 level due to the fact that delivery volumes have been fairly small. But overall, the project execution has progressed well. And as you saw, we have booked in quarter two and quarter three, roughly 35 million euros of exit, Kalmar Heavy Crane's exit related project risk reservations for the event that there would be some hiccups in the project. But so far, it has been progressing well.

In terms of the question of MacGregor, there are no active discussions going on at the moment, and we actually have not initiated the process as such. Two things really we'd like to see happening. The first one is the capital market and the financing situation to ease off. Effectively, to put it straightforward, we'd like to see that the private equity has a better access for capital and can be part of the equation in terms of starting the process. And secondly, of course, we would like to show that there is a clear track record of the measures that we are now taking to deliver the profitability during this year.

Does that mean that we should not expect the divestment this year? It's rather like in 2024, to be fair. I mean, not to have wrong expectations.

I think it's good not to have the expectations that anything happens at least at the early part of the year. I think we probably want to create a track record and sort of monitor the financial market. So, unless there are any surprises, I would not expect that process to be sort of initiated until towards the earliest, towards the end of this year.

Okay, thank you.

The next question comes from Auntie Kansanen from SEB.

Please go ahead.

Yeah, hi, two follow-ups. First to Mikko, and perhaps you already mentioned this earlier, but regarding cash flow into 2023 and especially working capital, where you have been kind of tying up money for two years, what should we expect from that in 2023?

Yeah, we have guided, first of all, we have guided improving results in the core businesses as well as in MacRecord. So the expectation is that the EBITDA should contribute positively to this year's cash flow. Secondly, like you said, also, we have been tying up basically now during two years quite significant amounts in our networking capital, especially in inventories. Our inventory days have been roughly 130 during 2022, and this is highly dependent actually on the supply chain development. Should the supply chain get a bit more normal, for example, from truck availability point of view, for example, in the second half of this year, then we could also start to release some cash from the networking capital. So highly dependent on the supply chain development, still the networking capital.

Okay. And then the second was a follow-up on the MacGregor divestment question from Tom. And And you've been talking about kind of the external conditions and the MFA market and private equity not being as active. But to be fair, how much do you think it's due to the fact that MacGregor is not profitable? I mean, if you would be making, let's say, 3% to 5% EBIT margin today or late last year, would that situation be notably different? I mean, is it just more about turning it around and waiting for external issues to improve?

I think it's really both, and it's not either or, because the combination really, especially at the moment, is tricky. So you have a lower performing business and higher sort of risk attached to the financing at the moment. If the business would be higher performing, probably the financing would be not such an issue. And again, if the financing would be easier, maybe the performance wouldn't be such an issue. So it's really the combination of those two at the moment that it's making it difficult and our view is that in order to try to maximize the value, we'd like to see both of those develop into the favorable direction.

But in a sense, you kind of doing the dirty work now with the restructuring and the write-offs and things like that, that should kind of improve the situation, right?

Yeah, absolutely. I mean, we are taking very harsh measures at the moment. And of course, unfortunately, it was very visible in the Q4 result as well. But those measures will now be starting to deliver very clear financial impact on the macro already during the 23. All right.

Thank you. The next question comes from Massimiliano Severi from Credit Suisse.

Please go ahead.

Quick follow-up for me. You mentioned that the projects in Kalmar-Evi Cranes, the execution is going well. Do you expect even where you are now to maybe be able to release some provisions during 2023 or is it very much in line with what you expected when you took the provisions in the first place?

At the moment, I would say that it's too early to say. Like I said, we have roughly 50 million euros order book, 47 million euros to be exact, and most of that will be delivered by the end of this year. So, towards the end of the year, we should have then better visibility about the final project execution. And then, of course, we can review also the remaining provisions that have been made for this exit.

Overall, what we did in Q4 that was visible was that we went very thoroughly through the whole existing project portfolio, and as a result of that one, we took further sort of reserves and cost increases on some of those projects to be able to make sure that we are conservative enough in terms of the expectation for the ongoing project implementation. In Macregor.

Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you for the great questions and for the great answers. So our first quarter results in 2023 will be released on 27th of April. See you then.