Cargotec Corporation

Welcome to Cargotech's third quarter 2023 results call. My name is Aki Vesikallio. I'm from Cargotech's IR. Today's results will be presented by Cargotech's CEO and interim president of Kalmar, Kasimir Lindholm, CFO Mikko Puolakka, and HEF's president, Scott Phillips. The presentation will be followed by a Q&A session. Please pay attention to the disclaimer in the presentation as we will be making forward-looking statements. With that, over to you, Kasimir.

Thank you, Aki, and welcome also from my behalf to this report and webcast. All in all, third quarter, was on a good level for us this third quarter in a row when we are performing on a good level. We can see some of the delayed decision-making around especially more expensive products in our product ranges, both in Kalmar and Hayeb. And we'll come back to that a bit later in more detail. We are also announcing an action plan to target 50 million cost savings, mainly for 2024. And we'll come back to that, how that is divided and how we are approaching that cost savings program. The planned separation of Kalmar and Haya are progressing according to plan. And with that said, Pekka Aleppetilä is now no longer available for the standalone Kalmar board. So we have an ongoing recruitment process regarding both chairman of the board to be for Kalmar and CEO to be for Kalmar. As mentioned, we have now three quarters in a row on a very solid level regarding our operating profit. Really happy to see the performance in Kalmar, Hayab and McGregor. Both Kalmar and Hayab performing on a very good level, and extra happy to see that McGregor is second quarter now in a row on the positive side, and the turnaround in McGregor is progressing according to plan. Sales increased, and then of course, as expected, our orders decreased by 20%. We are clearly seeing patterns that in the more expensive product ranges, the drop is clearly seen. And then we have other product ranges and businesses where we see a very good order intake also in Q3. But we'll come back to that more specifically in the sections around Kalmar and Haie. Orders received back to the pre-COVID level. So if you compare Q3 23 with the similar quarters in 2018, 2019, we are back roughly on those levels. And again, we'll come back to how the split is between Kalmar, Hayab and McGregor, and then even within those businesses. The order book remains on a healthy and good level above 3 billion. going into 24, we have a large part of the order backlog is securing the 24 net sales. Comparable operating profit, here you can see on a Cargotech level, this is the third quarter in a row and we are on a very good level. Kalmar and Hayab close to each other performance-wise, and then you can see the two quarters here that are very positive, and a positive change in MacGregor. And the market also supporting that going forward. Service sales continue to grow and of course this is an instrumental part for Cargotech also going forward and an instrumental part in the standalone companies to be in their strategy for the years to come. And we can see potential here to grow service and spare parts also going forward. But a good development and the trend continues in a positive way. The same said around the eco-portfolio. It's an instrumental part of the strategy for Cargotech and the standalone businesses to be as well. And we have taken steps here to secure that growth also going forward. We'll come back with an example around Kalmar, how we are progressing on the EV side in Kalmar through acquisitions. Then the announcement of the cost savings program. These steps are taking to secure a good and healthy business also going forward. That means that we're targeting to be above 10% comparable operating profit in the core businesses, also in a slower market. And this, of course, requires actions now, so we're looking at 24 and even partly 25 in this cost savings program. And this is, of course, building a foundation so that we can continue to improve, continue to invest in R&D and grow the business on the service side. And this is then giving that platform for the next couple of years. The cost program is divided between then group functions, Kalmar and Hayab. So we are targeting 10 million savings on group level, 20 on Kalmar and 20 on Hayab level as well. Roughly 50% of the cost savings will be achieved from reduction of maximum 350 roles globally. The estimated one of course is 20 million euros. targeting to get this process through as fast as possible. And parts of these costs will be recorded as part of Q4 results. And very important to see the change here that the cost would be booked above the comparable operating profit. And from now onwards, we see that when we are adjusting up or down in the businesses, that should be part of our day-to-day operations going forward and get away from these restructuring programs that we have had in the past. Then on top of this, we have had similar activities in McGregor throughout 2023. And all in all, that impacts 280 roles in McGregor, mainly in the offshore business and mainly in Norway. So our offshore business from a net sales perspective is clearly coming down and a profitability perspective that is increasing. a good thing, but we need to adjust here as well. And all in all, with the new cost savings program and with the ongoing activities in McGregor, this has an impact of roughly 650 roles within Cargotech, and that is a bit less than 5% of our total personnel that will be impacted or has been impacted by these initiatives. And for McGregor, estimated restructuring cost approximately 20 million euros in 2023. So these actions are then impacting Q4 from a cost perspective. Then I'll give the floor to Scott Phillips. Scott will present HIAB and where we are in HIAB. Please, Scott, the floor is yours.

And good morning from my side as well. So I will guide you through the HIAB results for Q3. I'd characterize the quarter as continued strong execution in our product supply centers as well as our customer support centers. So very nice job by Team HIAB within the quarter, and that's continued nicely throughout the year. On the side of the orders, I have the same story to tell you that we still experience impacts through delayed decision making. That combined with three other factors that I'll go into details on the next slide continue to have some impact in our orders as well as the seasonality that we've talked about in the past with regards to Q3. Equipment and service sales improved quite nicely and that enabled a nice development in operating profit improvement right in line with our expectations in terms of positive operating leverage slightly below 30%. I would like to start off with telling you about one of our exciting innovations within the quarter. So we've developed a solution through the use of virtual reality technology, and we call this HiSkill. So it's a training simulator designed to help customers onboard and provide ongoing training to crane operators in a safe, scalable, and cost-effective way. This is our response to the continued challenge that our customers experience in terms of operator shortage and especially skilled crane operator shortage. So the solution is designed to help improve certification pass rates. It reduces onboarding cost and helps to ensure all operators have the same base level of knowledge of the equipment, safety procedures, and daily tasks. There are five clear benefits that the innovation provides. It allows for safer operations through increased training and continuous improvement. There's less damage to equipment during training and the actual use of the equipment. As a consequence, training costs are lowered due to the virtual environment, and it's a much more sustainable method of training, which reduces the overall CO2 footprint. And last but not least, with the connected fleet insights that we currently have, we can continue to simulate actual operations through the use of machine learning. And we've got some concrete proof points for the benefits case from initial pilots that we've completed. And case in point, with one of our customers, we were able to reduce We were able to increase first pass certification rates from 45% to 95%. We've reduced the onboarding time by 25%, so going from eight weeks to six weeks, and that's enabled a 50% reduction in training costs and a significant improvement in profit per operator, all of which we and our customers are excited about in terms of the possibilities of helping them continue to be safer, more productive, and more sustainable with this latest innovation. So on to the numbers. So as I talked about earlier, we certainly experienced our typical seasonality in order intake, and that combined with a few delays in decision makings where a couple of orders pushed to the right, which we expect to convert in a quarter. resulted in a year-over-year decrease in order intake of 311 million euros. Keep in mind last year's Q3 was a bit of a tough comparable as we had a pre-buy effect from one of our last price increases in October of last year. So that was against a prior year quarter of 425 million euros. However, we continue to have quite a strong order book. We're over at about 900 million euros. Now, we still continue to see a significant impact from inflation combined with long lead times. And of course, interest rates are still causing many of our customers to be in a wait and see mode. But we still feel good about the level of the order book that we have within the business. Then moving to sales, how did we convert the backlog? Sales progressed quite nicely. It's the fourth quarter in a row we're over 400 million in sales. So within the quarter we have 420 million euros. That's compared to last year's quarter at 378 million. That's an 11% increase. It was 15% increase in comparable currencies. And services continues to develop nicely. We saw a 7% increase in services sales with the slight decline sequentially in equipment sales. This resulted in 27% of sales from services. So we're quite happy about that. And that's a consequence, as I mentioned at the outset, strong operational execution both in our product supply centers as well as our customer support centers. Supply chain continues to improve in terms of internal lead times. However, we still are challenged by the occasional missing component. But the team has responded quite nicely to each and every one of those challenges with good support from our customers. And then as a consequence of the increase in volume, as well as a sequentially, as well as a year over year, nice improvement in gross margin. We saw good development in profitability year over year at 62 million euros compared to prior year 50 million. So for a 24% increase and that resulted in 14.7% operating margin against 13.1% in the last year. In comparable currencies, it was slightly higher in absolute terms, but similar in terms of relative terms. So quite nice job from the team in terms of managing the continued inflationary pressures. I can say that our pricing is roughly at par with our cost development. So we're pleased about that. And so with that, I'll turn it back over to Casimir to take you through the CalMAR results.

So then going to Kalmar Q3. As mentioned before, a mixed demand picture. On the distribution side of our business, softer order intake, but on the other hand, in the mobile equipment, for example, very strong order. intake in Q3. So a very mixed picture. And of course, we need to respond to that as part of the cost savings program as well. We have been successful in managing inflationary pressures, and that can be seen in the result. And then I'll come back to a bit later what we have done around EV and our EV strategy and strengthening our position going forward in that area. So, very mixed demand picture. Then again, slower decision-making in a similar fashion as Scott was referring to in our high-end business. Similar patterns can be seen in Kalmar. And again, mainly then decision-making slower regarding our more expensive equipment. But in small and mid-sized terminals, we see good demand and our mobile equipment had a strong Q3. As on Cargotech level here in Kalmar as well, the order book remained on a good level and covering quite nicely to a large extent next year's sales. That said, we started to see some impact on the sale side due to the lower order intake over the last quarters. But again, above 500 million euros in sales in Q3 is still a strong quarter for Kalmar. Profitability on a very good level here again, several quarters in a row. Some elements were favorable sales mix, some elements in a similar fashion that we had in the second quarter around that we were able to produce a bit more than maybe expected and could deliver to the customers a bit more than expected towards the end of the quarter. And then, of course, on the positive side, impacting the results of that heavy grain losses again going down compared to the historical quarters. And then last but not least, from a Kalmar perspective, We have acquired the product rights of the electric terminal tractor product line from Lone Star Specialty Vehicles. This will, of course, push our ambitions forward in the EV development. We are continuing our own EV development project as well. And after rigorous testing, then together with our customers, we'll later come back to when we can launched that part as well. But this strengthens our presence in the EV development now. That will not have a great impact in 2023, but of course we expect sales from this transaction then in 2024 and onwards. With that said, I will give the word now to our CFO. Mikko Puolakka will then first go through McGregor, and then after that, our numbers on Cargotec level. So, the floor is yours, Mikko.

Thank you, Kasimir, and good morning also from my side. Before going to Cargotec Financials, let's have a look on McGregor, which had actually a very solid order intake, like McGregor has had during the already previous five quarters. We saw a very good ordering activity in the merchant vessels, like car carriers, heavy lifting vessels, and the Navy vessels. Clarkson actually has upgraded the 2023 merchant vessel contracting now recently to 1,549 vessels, and the previous estimate was 1,316. So just indicating the good ordering activity, especially on the merchant vessel area. Demand for services was also very good, both in merchant and offshore. We have been very selective in taking offshore orders, not to take that kind of orders which would compromise the offshore turnaround, what we are currently working on. McGregor's order book is 993 million euros at the end of September. This is providing, of course, good basis for 2024, but good to remember also that part of this order book will be delivered over 2025 and even year 2026. McGregor sales growth came primarily from merchant and service, also supported by the strong order intake during the past quarters. And like we have said earlier, we should now see higher revenues in the second half of 2023 supported by the order book. McGregor's comparable operating profit was 9 million euros. This improvement came from merchant and service volume growth. And then also McGregor has been working on fixed cost savings coming from the ongoing restructuring programs. The offshore business is still loss-making. However, we made in Q3 €2 million smaller loss in that business compared to the previous year. Without the MacGregor offshore business, MacGregor comparable operating profit in Q3 would have been 10%. So even with fairly modest revenues at the moment, MacGregor without the loss-making offshore business could make 10% comparable operating profit. You saw also in our interim report that we released the 18 million euros provision, which was related to the US export control legal case. And due to that reason, McGregor's quarter three operating profit was 24 million euros. As Casimir also already mentioned, the McGregor restructuring programs are continuing. We are targeting in overall over €20 million cost savings compared to 2022 cost level, and €14 million is expected to materialize already this year. A couple of highlights on Cargotec's overall financials. We have still exceptionally high order book, almost 3.1 billion euros. In Kalmar's case, we are still talking about six to 12 months delivery times. In Hayep's case, the order book is covering over six months of sales. So still longer than kind of normal situation. The eco-portfolio sales grew 13%. This is twice as fast compared to the total sales, so nice in line with our long-term sustainability strategy. All-time high quarterly cash flow, 184 million euros, and also our year-to-date cash flow is the highest in Cargotec's history. Our core businesses, Kalmar and Haiaver, continue to deliver very strong profitability in quarter three, supported by the volume growth and then actions to manage the inflationary pressures. And also our ROSI was now at the end of September, 14.8%. Here, we are still to certain extent burdened by the quarter four last year, McGregor significant one of bookings, but showing the nice improvement supported by profitability improvement of all three business areas. Like mentioned, the all-time high quarterly cash flow, there were basically two main drivers for our high cash flow in Q3. Very strong Q3 EBITDA, and then we were able to reduce 96 million euros from accounts receivables. Our inventories are still on a high level, approximately 1.1 billion euros. Inventories went down by 12 million euros during the quarter. But for example, in working progress and in goods in transit, we have still over 400 million euros, indicating the supply chain situation. Our financial position is very strong and has continued to strengthen. The gearing improvement came from very strong Q3 cash flow. With the current EBITDA generation, we could basically repay our interest-bearing debt within eight months. Our average interest rate is 2.8%. It was 2.1% when we started the year. This increase is coming from the market rate increases. Our committed liquidity is 780 million euros at the moment. It consists of 450 million euros of cash and then unused committed revolving credit facility of 330 million euros. And we reiterate our 2023 financial guidance. As a reminder, we expect the core businesses, meaning Kalmar and Hayab minus the group costs to improve from last year's 384 million euros. And then MacGregor comparable operating profit, we expect to be positive. So with that one, then I open the floor for questions.

Thank you, Mikko. Also welcome Kasimir and Scott back to the stage. And with that operator, we are ready for the Q&A.

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.

The next question comes from Antti Kansanen from SEB. Please go ahead.

Hi, guys. It's Antti from SEB. Thanks for taking my questions. I'll take them one by one. First, I'll say a question on the fact that you referred that on the more expensive product categories, you are seeing some hesitation. Is this more kind of related to the interest rates that clients are hesitant to do any bigger CapEx investments? Or is there kind of a feeling that these product categories, the pricing is a bit too high and kind of the steel prices rolling over and so forth? And kind of relation to that, are you seeing on the input cost side something that would allow you to lower your prices going forward while maintaining solid gross margins? Thank you.

Yeah, I can. Hey, auntie. Good morning. So I can start on the HEOP side. What I would say is, is that it's definitely much more to do with the interest rates. And so therefore, the cost of financing and then the time frame, of course, is stretched out in terms of the the cost side. The second question, as we've stated before, what we see is, is that, yes, commodity prices came down somewhat. However, that was offset by an increase in energy costs, which should be easing. It looks to be easing over time and then now under pressure again with the latest events and that's occurred in the Middle East. But labor rates more or less offset the commodity price deflation. So we haven't yet seen the cost side come in as we originally anticipated coming into the year.

Yes, thanks, Antti, for the question. From a Kalmar perspective, I mean, similar topics are there. And plus, in some areas, for example, in terminal tractors, we can see some destocking from the high orders and high deliverables that we have seen over the last quarters. So that is slowing down a bit the activity. But the main part of that is the high interest rates compared to the history that is slowing down decision making. So that's the main one.

All right, very clear. Then the second question is on MacGregor, and thanks for providing clarity on how the ex-offshore business is doing. But can you give some numbers on how much offshore business you still have? left in terms of share of backlog or kind of revenues that you expect to book in 24, 25, any color on that would be appreciated.

Yeah, I mean, overall, of course, we are not discontinuing the whole offshore business. There is still opportunities to develop that business further, but we have been very restrictive with the orders in order to make sure that we take only in orders where we are kind of technically on solid ground and where we can see that project margins are on a sufficient level. There is still tens of millions of euros of order book in the offshore business. The offshore business made eight million euros comparable operating profit loss in quarter three, two million euros smaller than a year ago. And we continue to work on further improving it, ultimately taking it to the positive side.

Yes, and we have earlier referred to, we have roughly 20 projects of, let's say, mid-sized projects. To a large extent, those are produced during this year, a handful of them next year. So in that sense, our risk in the offshore is gradually going down quarter by quarter.

All right. And then the last one from me was a bit of a technicality regarding to the savings program and the 10 million that you are targeting. On a group level, I mean, one would also assume that given kind of the demerger plans, there's a bit of a need to add kind of corporate functions because of the listing of Calmar and so forth. So is this a gross or a net number? And it seems a bit high given that kind of the group costs have been ranging between 40 and 45 million. So how should one think about the kind of net impact?

Basically, this is our group cost as is, so this does not assume any kind of hirings. If there would be hirings, and there will be some hirings as the Kalmar demerger process continues, but those hirings will be then in Kalmar costs. We have not disclosed yet any dissynergy number, but we are... quite confident that we can manage these synergies in a good manner going forward. So this 10 million is purely related to the group costs as is today constructed. This is coming from various activities we are putting on hold or stopping at the moment due to the ongoing demerger process.

And so we are first of January entering to holding company mode regarding Cargotech. So there are activities that we have taken out from our future in that sense that we are not on Cargotech level anymore, actively investing in in development, for example, on the IT side and so forth. Otherwise also the activity level has been taken down and we're going into holding company mode. More and more of the functions and the work around the functions and development of functions is happening than in Kalmar, Hayab and McGregor. Partly taking down the level of activities and investments on Cargotech level and performing as a stock listed company. All the duties continues as normally, but in a holding company mode.

Okay. And then the final technicality regarding the savings, is this 50 million fully in 24, I mean, all else equally or EBIT is 50 million higher or this some kind of a run rate number and the full P&L impact is then kind of a 25.

This will be visible in 24 in full, so it should be a cost level 50 million euros lower compared to this year's cost level. Everything else kept unchanged.

All right, very clear. Thanks so much all from me.

The next question comes from Mikael Dopel from Nordea. Please go ahead.

Good morning, everybody.

Let's just start off with a brief follow-up on the cost savings. So just to be clear there, these are not really related to the spin-off of Karma. So any of these synergies that you get from that will be covered by additional cost takeouts. Is that the way to read it, just to be clear on that?

Yeah, I would say that this is just, if we look Cargotech as is, this is a cost saving to address the low order book and low order intake, what we have now seen. And then, of course, when we have the dissynergies, we are looking additional measures to offset that dissynergy.

On that topic of Kalmar spin-off, just if you could give an update on how that project is proceeding now, and if you have any updates on the timetable, it would be great.

As such, the whole project is proceeding according to plan, and we are earliest coming back to this topic as part of Q4 and 2023 release early next year with any updates earliest then. But all in all, regarding the IT streams, legal streams, listing readiness streams and all that we are preparing is progressing according to plan. And all in all, very happy with the performance of the full team. We have roughly 200 people involved in the project. So it is, of course, a complex exercise with a lot of work streams, but very pleased with the performance and everything going according to plan so far.

And then just a final question before I get back in the queue. So just in terms of demand, how do you see that demand environment evolving in the Q4, you know, overall across your business segments? Any incremental slowdown in size? I think you mentioned deed stocking in some products. Is that going to continue? Any regions that are sticking out? You know, any color you could give there would be helpful, actually.

Yeah, sure. In terms of HIAB, we don't expect to see significant sequential changes in those three factors that I've talked about each of the last two, three quarters that are impacting the order intake. We still see those valid. I think in the prior quarter, I was asked about the difference in the demand patterns between, let's say, Europe and North America. That still on balance remains unchanged as well. Slightly more negative in Europe, slightly more positive in North America, about unchanged for us in APAC. So we expect to see that, relatively speaking, continue forward sequentially into the next quarter.

On the Kalmar side, we expect a similar pattern as here in Q3. So again, we expect that the good water intake will continue on the mobile equipment side. we foresee a similar softness in the market in the more expensive product ranges going into Q4. So on that level, that's our expectations. Then how it will look like in early next year is too early to say.

McGregor's case, very similar kind of picture, so merchant market continues to be active. We continue to see good demand in services, and we will be selective with the offshore orders.

Just a brief follow-up on the destocking you mentioned. I mean, how do you see that evolving? Will that be an issue for you still? in Q4. I think you mentioned terminal tractors, right? So will that still be a headwind for you in Q4 or even into 2024? How do you see that?

I think, as mentioned before, I think that situation will remain in Q4 in a similar way as in Q3. So we don't see any changes as such to that, but it is in that business the order intake is clearly on a lower level than compared to the past.

Or should we take the next question?

I just said that that was all for me, so thank you very much. You can take the next question.

Thanks, Mikko. Thank you, Mikko.

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

Hi, thanks. I have a few questions. Firstly, starting from the orders. How much was the price changed in Q3? And if we think about kind of volume terms, how much did they change compared to one or two years ago?

Thanks for the question. As communicated before, over the last two years, we have increased prices by roughly 20%, and we haven't made any adjustments to those prices here during 2023.

So, I mean, that implies quite significant volume decline to the past two years level. So, do you think this is like the trough in demand or do you think it's too early to say? I'm thinking that the kind of year-on-year trends were a bit less negative than in Q2. So, do you kind of see stable at the low level or further declining or maybe made kind of some improvement?

Scott, do you want to comment that from a higher perspective?

Yeah, just to reiterate what I had replied earlier question, we don't expect to see significant changes to demand in terms of the factors sequentially. So I think too early to tell at this point whether this is the bottom or not. But we see actually quite good level of stability in the first three quarters of this year and even back to the fourth quarter last year. So I think too early to call on our side.

Similar in Kalmar, too early to say anything around Q4 and Q1 as such. But I mean, in Kalmar, In the different businesses, we can see some stabilizing levels, even though they, again, differ quite a lot from each other within Kalmarna.

Okay. Thanks. Then on the order book, can you kind of give an indication how much of the order book will be delivered in 24, like how much of that carries into 24?

Let's come back to that when we are publishing our quarter four results. Like Casimir said earlier, out of this close to 3.1 billion euros, still it covers a very good part of next year's sales expectations. So definitely a good basis for next year.

Okay, thanks. Maybe a final one just on the kind of timing of the cost savings announcement. I recall that you have previously communicated that you have plans to keep the margin at 10% even in a downturn, and it seems that you are now taking action. But I mean, was this more like you saw the Q3 orders were down, so now is the time to do something Just thinking of the timing, why do you do it now and not earlier or wait a bit later?

Thanks. Very good question. I mean, we, of course, have somewhat of a luxury in the business that we can see so far ahead regarding the order backlog for next year. Then, of course, now when we see the patterns more clearly that we have order intake softer in some divisions in Hayab and in some in Kalmar. And then we have, of course, working on a turnaround in McGregor offshore. Those are the bases that we have had taking these actions. So I would say clear signs that there are differences between the ordered intake, between divisions, and this was now maybe the second quarter where we saw those differences, and then we react early enough so that we can be on above 10% operating profit in the core businesses also going forward.

Okay, thank you. That's all from me.

The next question comes from Tommy Raylow from DNB. Please go ahead.

Hi, this is Tommy from DNB.

I'm also trying to get a little bit your assumptions in terms of the order activity or demand levels connected to the cost savings actions. Is this sort of a 900 million quarterly level, is it a bottom or are you preparing for lower levels, 800 million per quarter, or what's the sort of big high-level assumption behind the cost savings in terms of activity?

We have taken the decisions based on the cost savings, based on the order intake that we have had over the previous quarters. So we're responding accordingly. And again, important to show that we take actions early enough so we can stay on a healthy and good level regarding the profitability also going forward. And again, for the core businesses, the target is to remain over 10% operating profit going forward.

And based on your divisional commentary earlier, Hayeb and Kalmar, similar to the third quarter levels, it sounds that 900 million is sort of a a stable level what you see for the fourth quarter if you can comment any any backing there in in terms of pipeline or how has the fourth quarter started also

I mean, overall, if we look at the sales pipeline, also what Scott and Kasimir commented, the customer activity or RFQ activity is on a good level. So we do not necessarily anticipate the kind of worsening of the situation from the current level. It's a very similar kind of behavior. what we have so far seen also in quarter four compared to the previous quarters. Of course, it's good to remember that our comparison periods to last year have been on a very high level. But if we are looking at the sequential development of orders in our core businesses, that has been on a stable level.

Thank you. And then maybe a question on the guidance. You are already actually tracking above last year's full year clean EBITDA on the core businesses for the nine months. Any kind of comment or visibility you have for the fourth quarter? Should we anticipate the typical seasonal improvement from the profit levels going into the fourth quarter.

Overall, if we look at quarter four from a core business point of view, it's good to remember that we start in the core businesses the quarter with the lower order book than we started a year ago. So like in Kalmar's case, that impacted the quarter three revenues and the kind of starting order book is important for the quarter four. Why we have not specified more in detail our outlook for the remaining part of the year is due to the fact that there are still supply chain challenges, even though the component availability has been improving quarter after quarter. Also the truck availability continues still to be an issue for HIAP. So from that point of view there are here and there deliveries which we have experienced in quarter three and most probably we experience also in quarter four delays in deliveries due to these mentioned reasons.

Yes, and on top of that, now the planned cost savings program, we anticipate that that will impact Q4 from a cost side, but too early to say. We start the union negotiations basically now, and too early to say how much of those costs will impact Q4 and how much will be taken in Q1. So there are some uncertainties in that area as well.

Thanks. And the final question on the split. Listening to your comments, it sounds that you really haven't had any second thoughts. If the market conditions are weak or weakening, that you would back off from the split. That's how I hear it. But my question is actually on the McGregor side. Any interest anywhere? I know that you are focusing on the turnaround and not in a way a process to find a solution, but has there been any interest for the business potential deal also?

As mentioned before, we are fully focusing on the turnaround of McGregor. Now we can see two quarters in a row where we are on the positive side. So a lot of good work done and really happy to see the change here. And again, merchant and service performing already on a good level, and we are working on the offshore side and continue on the offshore side to make sure that we can turn that around as a separate business as well. And the market is good in the merchant. We have a good order backlog going into 2024. We still feel that we need a few more quarters with positive development in the turnaround, and as said in the Q2 report, that we will then look in the second half of 2024 for solutions for McGregor. Thank you.

The next question comes from Tom Skogman from Carnegie. Please go ahead.

Yes, good morning. This is Tom from Carnegie. I wonder whether there are any kind of excess inventories as dealers at the moment, perhaps not only your product, but also Palo Fingar products for Hayab and competitor products also for Hallmark.

Good morning, Tom. So in terms of the inventory levels, they're certainly higher than pre-COVID, largely due to the extended truck lead times. Once we see some relief from the truck lead times, which we're, depending upon the OEM and geography, seeing a little bit, we expect for the inventory levels then to come down. So certainly, I think the quick answer to your question is they're higher than pre-COVID level.

Can you confirm that it's really related to already ordered trucks or have dealers ordered cranes from you and Palatinger and they are now sitting with them without any end orders?

Yeah, I can't really give more color on the composition of the inventory, how much is excess inventory and reduced activity level, because we're not seeing that in our connected data as such, Tom, but certainly can provide color relative to waiting on truck chassis in order to complete the installation.

And for Calamar?

I mean, similar pattern in that sense that yes, the inventory levels are higher compared to pre-COVID levels. And as Mikko mentioned here before, in some areas we're lacking some components and that increases our inventory levels and also goods in transit. So higher level than pre-COVID, but then again, we're expecting over time that that will get back to, or let's say that levels will normalize over time, but a bit too early to say when that will happen.

And we have had in the US, like Kasimir mentioned, in the terminal tractors, customers have had in some areas higher inventories, and they are now doing certain destocking activities in the coming months.

All right, thank you. And then looking at Matt, Greg, did you take any restructuring charges in the third quarter that were not booked as an EOI item in the third quarter?

To clarify, so what we have said earlier is that in core businesses, when we are now doing this 50 million euros cost savings program, we are booking the non-recurring costs related to that program above comparable operating profit. That is estimated to be approximately 20 million, but timing, like Kasimir said, is still dependent on the Works Council negotiations. We will, of course, also disclose and open in our quarterly financial statements and interim reports how much these kind of non-recurring costs we have had in Kalmar and Hayap. What comes to MacGregor? These McGregor activities are stemming from initiatives which were originally already put in place in 2022, and they are more related to the structural changes in the offshore business mainly. And these costs we are booking below the comparable operating profit under the restructuring cost line.

And what was the large posted EU item in McGregor in the third quarter?

This was related to the 18 million euro provision release. This provision was related to a US export control case, legal case, which we were able to close successfully and no kind of additional costs were charged to us for that and we were able to release that provision in full. We made this provision in 2022 and now released it in September.

And when I look at service sales, how large share of your service sales in Hayab and Kalmar relate installation of product, i.e. things that will come down when new equipment sales come down next year?

Yeah, this insulation share has gone up, of course, year over year as a consequence of the increase in the equipment sales. We don't see a material impact whatsoever to the margin, Tom.

I'm not talking about the margin. I'm talking about the service sales relating to installation of equipment. How large is that?

We don't disclose that level of detail on the service sales, Tom.

level in our investor presentation, so you can check it, there is roughly 10% around.

Okay, and then finally, are there any kind of ideas that you would like to do acquisitions now, and I guess price starts to come down considerably, given that you are in this demerger process? You have a good balance sheet, and if you sell McGregor, I mean, you know that you will be able to get some money from that as well.

All in all, the M&A strategy is strong, particularly on the high-up side. And of course, as always, we're looking at different targets, and especially on the high-up side. In Kalmar, there's more focus operationally, internally at the moment. And of course, then in McGregor, we are focusing on the turnaround in offshore. So the demerger plans as such doesn't... prevent us from moving when we see something interesting in the market to the right price levels.

Perhaps I should also just ask about the manufacturing footprint. Now we have a clear downturn in volumes and you have some smaller factories. I realize, I mean, you acquired the effort business, and now you say, for instance, that volumes in orders are down considerably for large high-end cranes. Do you consider doing something to the manufacturing footprint this downturn?

Yeah, we continue to evaluate all those options, Tom, so we'll continue to do so moving forward.

And as part of the cost savings programs, there are parts in there that are reduction of floor space regarding offices and warehouses and so forth. So that element is in the cost savings program as well.

Okay, thank you.

The next question comes from Erki Vesela from Indears. Please go ahead.

Hi guys, it's Erkki from Indra. Just a couple of questions from me. First, just to clarify, the annual savings, will that 50 million euro fully drop through to EBIT when it has materialized?

Correct. It will come to EBIT. So if our costs would be, for example, it's basically so that this 50 million is compared to 2023 cost level. Our fixed cost would be 50 million euros lower in 2024.

So it's 50 million plus on EBIT level. so to speak.

This is also to support the kind of profitability. Of course, we have not yet disclosed what do we expect for next year's revenues, but like Kasimir said, this is to offset certain lower order book and lower order intake, what we have seen now in the coming quarters.

And then another clarification, is this 50 million It's not a run rate at some point of time. It will be fully visible in 24 P&L.

Fully visible in 24 in the fixed costs of Kalmar and Hayev.

Okay, thanks. And then another one regarding the heavy cranes business in Kalmar. What was the impact of the heavy cranes in terms of sales and EBIT? And how long will Kalmar still have this drag in the coming quarters?

Yeah, the heavy grains revenues were low double-digit revenue in Q3, and the profitability was a low double-digit couple of million euros loss in Q3. Two million euros smaller loss compared to last year's Q3. And the order book is 8 million euros at the moment. Most of that will be delivered this year. Okay, very good. Thank you so much.

The next question comes from Antti Kansanen from SEB. Please go ahead.

Yeah, thanks for the follow-up question opportunity. This was for Scott on the availability of the truck chassis. So could you talk a bit more about how... Is this a very unchanged picture from the previous quarters? I mean, if you look at the products that are relevant for HIAB, is the situation improving and what's kind of realistic in your point of view going forward to expect that the truck makers delivery times would start to normalize, what needs to happen, so forth. So a bit more clarity on this.

Yeah, we see that still remaining on balance, stable, sequentially. As I mentioned earlier, a few markets and a few OEMs will receive improvements. In most other markets, the lead times still remain quite extended compared to pre-COVID. I think the indications are, and it's early to tell at this point, but the indications are that should start to normalize moving forward. But it's hard to tell timing-wise on our side. We just don't have that level of insight when the order books will be fully open and stay open on the side of all of the OEMs. But we would expect that the lead times to start to normalize moving forward.

And you kind of feel that with this kind of underlying demand and workload for your end clients, your orders would actually be higher at this point of time if the truck lead times would be, let's say, normal?

All indications are that that's a good assumption. If you had lead times that were normal and then combined with easing of interest rates, then those seem to be two of the biggest factors that has created a more challenging situation on the order side.

Do you think kind of higher, if we look at the order book, it's still roughly six months of revenues and prior to COVID, it was usually between three, four, something like that. Do you think you will go back to kind of the previous business model where the lead times are quite short and the backlog is relative to sales? It's smaller or has the business changed?

We would expect to see at some point in time a return roughly to pre-COVID levels. We wouldn't see any reason to think differently at this point. But timing wise, it is difficult to tell. And as Miko mentioned earlier, we certainly will revisit that point when we do the full year report in early next year.

All right. Thank you.

The next question comes from Mikael Dopel from Nordea. Please go ahead.

Follow up on the call.

Sorry, Mikael, the line is bad.

Yeah, can you hear me now?

Yeah.

Good. Sorry about that. So just had a quick follow-up on the total cost base going into next year. So if you look at your full cost base and if you exclude the flat savings, so the underlying base, what are your expectations heading into next year? So do you expect, you know, balance higher, flat, or maybe lower overall costs when you consider all the key items like raw materials, wage inflation, and so on? Any comments on that?

I guess what we have referred to earlier, that if you look back a year or two, and we expected that raw materials would increase, and they did, and we expected the interest rate to increase as well. And then we have the salary costs. We expected those to increase. And then you have the logistics costs as well. And then what has been A positive development is that raw materials have come down and so has the logistic costs. But then on the other side of the coin is that we still have a lack of some components where the prices are quite high. And then we have the salary increases that were clearly higher than we expected. So I guess all in all, those pluses and minuses are balancing each other out to a large extent. That's how we refer to this topic in Q2. And I don't think we have changed our minds after Q3 either. So that's roughly how it looks in our business. And again, then on top of that, we have the interest rate component here that, of course, has impacted our business and our customers' businesses like in almost any other industry.

Thank you. That's all I had.

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

Okay. Thank you for the great questions and for the great answers. We will be back with our full year results release next year.

Thank you very much. Thank you.