Cargotec Corporation

Welcome to Cargotex first quarter 2024 results call. My name is Saki Vesikallio. I'm from Cargotex Investor Relations. Today's results will be presented by Cargotex CEO, Kasimir Lindholm, CFO Mikko Puolakka, HIEP's president Scott Phillips and Kalmar's president Sami Niironen. Welcome to the team, Sami. The presentation will be followed by a Q&A session. And 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. Welcome also from my behalf. My name is Kasimir Lindholm, CEO of Cargotech. Really happy and proud to present the first quarter results. This is the fifth quarter in a row where Cargotech has stable and good performance. All business areas are improving regarding operating profit margin. We have good and stable demand in Hayab and Kalmar. We'll come back to that a bit later. uh mcgregor's merchant business and service business performer on a good level so we see improvement and clear improvement in mcgregor in the first quarter we still have some challenges remaining in the offshore business also really happy to present strong cash flow of 174 million in the first quarter and and all in all the de-merger plan and all the work that we're doing internally and have communicated externally is progressing according to plan. I will go through the update and the plan separation of Kalmar and Hayab, group level development as such, and then I'll give the word to Scott and to Sami, and then of course Mikko will present MacGregor and all the financials and the outlook. And then we end up with the Q&A. So separation of Kalmar and Hayeb progressing according to plan. When we announced the Q4 results, we also announced the demerger plan. We have been working since then relentlessly on the project, both internally and externally. We have received consent from the bondholders and really happy to welcome Sami Niiranen, who started on the 1st of April as president of Kalmar and CEO to be of Kalmar. Cargotech and Kalmar Boards proposed to the AGM a large search process in both cases. Really happy to see the end result of that search. We have four new board members joining Cargotech, HIEB2B, and five board members proposed for the Kalmar Board. We have also proposed to the AGM a new governance structure for Kalmar as a stock listed company with the shareholder nomination board included. Then more technically, Kalmar is now report that the discontinued operations as of Q1 24, Mikko will come back to that what it means regarding the numbers. Prospectus is planned to be published in May, and then we follow that up with capital market stay events at the end of May. The proposed members of Cargotech Board of Directors, four new board members, as said before, we get an international board in place with a lot of expertise and knowledge from the industry and really happy to see that proposal then to the AGM. In a similar fashion for Calomar board, we have five new board members proposed to the board of Kalmar and also here an international board in place with a lot of expertise and knowledge from the industry and from the global business. The structure, no changes here. We are working towards a separation of Kalmar by first of And we are working towards a solution for McGregor in the second half of 24. And at the end of the day, you will see then two separate stock listed companies listed in Helsinki, in Kalmar and Haieb. And that is then the end result we are striving for. The timeline was announced and showed as part of the Q4 results, no changes here, everything progressing according to plan. We are in the stage of demerger and listing prospectus published then during May. We have two capital markets days, 28th and 29th of May for Kalmar and for Hayab. and then AGM on the 30th of May, and then again targeting having a separate listing of Kalmar on the 1st of July. Then to the results. All in all, a stable and good quarter regarding both Hayab and Kalmar. We can see Hayab now six quarters in a row on the 380 million euro level regarding order intake every quarter. So stable and good situation in Hayab. Similarly in Kalmar, we are on roughly 400 million euro. You're a mark for three quarters now in a row. So similarly, they're stable and good. And we are improving and increasing the order book in the case of McGregor actually quite substantially in the first quarter. We have adjusted the cost structures. I'll come back to that a bit later, both in Hayab and Kalmar. And McGregor is growing, so there we're actually going in the opposite direction, especially in merchant and service, also adding and recruiting some employees in those two areas. Sales down in Hayab and Kalmar due to the order book development and sales in McGregor continued to improve in the first quarter. Cargotech's total eco-portfolio also here positive by an increase of 1%, so all in all a stable and good development in the eco-portfolio as well. Then to the operating profit, as mentioned before, improvement in all business areas. We are in high ebb on a 16.6% level. Very good first quarter for McGregor. Scott will come back regarding all the details. In MacGregor, we are on a 6% level. Here, merchant and service above 10 again, like last year in OP, and then we have still losses in the offshore business, taking it down to the 6% overall in the case of MacGregor. But positive development going from 1 million euro OP Q123 to 11 million in this quarter. So a very strong development in McGregor. Kalmar on a very good stable performance level of 13.5. So all in all, I mean, really, really strong, good results in the first quarter. This is actually the all-time high first quarter for Cargotech on a 13% OP level. One reason here behind it is, of course, the cost saving program that we announced in October last year. And I'll come back to that shortly, how we have been progressing. Then there are, of course, other matters here. We have been good on the material cost side, on the sourcing side, and managing the supply chains in a very good way in the first quarter. Then, as promised, a few words around the cost saving program. We are then today announcing that we're closing this one. We announced that we're going to strive for 50 million euros in cost savings. We announced that in October 23. Now we are so far into the... process and the actions have been taken and we can see that that on group level we are able to to find cost savings of 10 million Kalmar is actually targeting and actually getting to the 30 million mark and high up 20 million in cost savings. So this was one part that was helping us on the OP side in the first quarter. Then on top of that, McGregor is targeting 10 million cost savings as well, mainly then coming from offshore and headquarter cost reductions. So this was, in short, where we are in Cargotech after the first quarter, and with that, I will give the word to Scott, and Scott will take you through Hayab's Q1.

Thank you, Kazimir. And greetings, everyone, from my side. So in terms of first quarter results for Hayab, we had improved comparable operating profit, certainly sequentially and year over year as well. So we're really pleased about that. As Kazimir mentioned, we had a stable demand for the sixth quarter in a row, roughly around the €380 million mark. Our sales declined slightly, and that reflects, of course, the declining order book. But at the same time, really pleased as a result of the improved profitability. Our cash flow improved year over year significantly. So all in all, a strong start to the quarter. So getting into the order intake development, for roughly the last six quarters in a row, we're at about the same level. And we see the same level of developments in the market in terms of demand, in terms of the quote to activity. Our order book is now at 770 million Euro level. So we have good coverage still for the balance of the year, but it's down 31% year over year. We had a 1% improvement in orders year over year, so that's on roughly still the same level. We see a couple of factors that are still impacting order intake if you think about compared to the peak period. There's still a significant delay caused by the high interest rates in the markets, a little bit of inflation as well. So we see that the decision making in terms of converting opportunities into orders is roughly double the time that it's been in the past. And that continues to be the case through the past quarter. At the same time, though, really pleased that loader crane orders improved year over year, driven significantly by a large order that we want in the wind segment. So really pleased with this, but I'd characterize it certainly as a stable level. Haven't seen yet the factors to indicate that the demand curve is expected to go up, but rather looks pretty flat at this point in time. Then in terms of the sales, we had 415 million euros of sales in the quarter. That's a 4% decline, as I mentioned earlier and mentioned by Casimir, a factor of the order book. More impacted in the loader crane business, but still on a good level. And then quite pleased with the service sales. We're up 4% year over year. And that brought us to 28% of overall revenues. Our supply chain still continues to improve with a strong focus in creating collaboration with our suppliers on at least two fronts. So we're working hard on supplier development to make sure that we can flex up and down the demand, we can introduce new products effectively. And at the same time, that's translated into better and better delivery precision. partially supported by better and better capacity planning. And the third element that I'd add to this is that we've been working hard on the quality side of the equation as well. So overall, really nice development first quarter in terms of sales. And that translated into a good development and a good level in terms of profitability at 16.6%. So a strong start to the year. That's 12% improvement versus last year. Two factors really that are at play here around trying to successfully manage the inflationary pressures that we've seen the last couple of years. So a combination of pricing and productivity, which helped significantly in that drove the increase in cash flow that we saw in the quarter. So really pleased about that. And then last, I'd like to end as usual with a new innovation. So we introduced, I'm really pleased to announce, our MyHyob app. This is a digital assistant that's designed to make life easier, which is core in our strategy for both the operators as well as our service technicians. It puts the operators in a position to get instant insights about the equipment with easy access to support within Hyob. So we think that this will be a user-friendly opportunity to improve efficiency and the operation of the equipment at the same time have a good impact on uptime as the operators and the service technicians, fleet managers will get push notifications when it's time to execute on the planned maintenance service events. So that should all in all make for a much better experience in working with the support that we offer globally. And our objective here is to continue to drive the curve upward in terms of safety and productivity and the overall operator experience for the HIAB equipment. So really pleased about this one. So with that, I'm going to turn the floor over to Sammy and take you through CalMAR.

Thank you very much, Scott, and good morning, everyone. My name is Sami Nirane. I'm thrilled to be here as president and proposed CEO for Kalmar. For those that don't know me, let me take a moment to introduce myself before we get into the presentation. I'm a 51-year-old Finnish Swedish citizen with over 25 years of international business experience. For the last two decades, I worked with Epiroc and Atlas Copco in various international and senior positions. This has given me a very good understanding of our customer needs and challenges and why I think Calamar is so well positioned to address them. The reason why I joined Calamar is because I saw significant opportunity in this business to address some key market needs. The first is around the increasing demand for more sustainability. And the second is providing innovation support, innovation support and efficiencies across the logistics space. Calamar is uniquely well placed to address those challenges facing the market. That is what made me join this company today. And that is what gets me excited about the future of Calamar. So let's now move on to our first quarter results. So building on a strong year in 2023, our momentum continues with a good start and continued strong profitability into this year. Our commitment to operational excellence is showing results. Solid and successful execution continued both in commercial and operational excellence, as well as delivering a strong cash flow in quarter one. Demand was sequentially stable from the fourth quarter and Kalmar's orders received amounted to 402 million euros. The business environment in which Kalmar operates is complex and underlying demand drivers are slightly mixed. However, many of our customers and partners are performing well. Demand for mobile equipment used in industries and small and mid-sized terminals remained good. but we continue to see delayed decision-making in larger equipment orders and destocking in the distribution customer segment. In the first quarter, Calomar's orders received decreased by 15% from the comparison period while service order intake increased. As you know, our business is at the forefront of innovation in the industry. In the first quarter, despite the continued delay decision-making in orders of larger equipment, we secured some major orders which positioned us well for continued growth. Examples of the major orders included two fully electric and eight hybrid straddle carriers to a customer in the Netherlands, and two new electric order strats and retrofitting of two existing hybrid straddle carriers to a customer in the US. Our order book decreased by 5% from the end of 2023, totaling 971 million euros at the end of the first quarter. And then Kalmar sales declined by 10% from the previous year and amounted to 439 million euros, impacted by lower order intake in the second half of last year. Our service sales decreased by 7% and totaled 137 million euros, representing 31% of sales. Eko portfolio sales continued growing and improved 10% year on year, equaling to 40% of Kalmar total sales. We also had a strong cash flow driven by high profitability and a reduction of networking capital. So our profitability continued strong, driven by continued improvements in both commercial and operational excellence. Kalmar's comparable operating margin increased to 13.5% and amounted to 59 million euros. Margin improvement was also supported by cost savings actions that we launched in quarter four last year. and these actions offset the decline in sales. And they are now to a large extent implemented, and we foresee 30 million euro annual savings for Kalamar instead of the original estimate of 20 million euros. So this summarizes our first quarter. I'll now hand it over to you, Mikko.

Thank you, Sami, and good morning also from my side. Let's have a look on McGregor's result, and like Casimir already elaborated, McGregor had a nice development in the first quarter. Another great quarter with a strong order intake, €267 million of orders. That included also €150 million order for multiple merchant vessels. The quarter one orders in McGregor demonstrate McGregor's really strong offering in various merchant vessel categories, like the car carriers, which have been very active now in quarter one. The merchant equipment and services represented roughly 90% of McGregor's total quarter one order intake. So actually the offshore is a rather small portion of the overall McGregor business. McGregor's order book is now over 1 billion euros and this is roughly, out of that roughly 92% is related to merchant vessels and services. So the offshore equipment order book is only 87 million euros. McGregor's sales grew 29% and this is very much driven by the last two years strong merchant order intake. McGregor had a significant profitability improvement in the first quarter from 1 million to 12 million euros comparable operating profit. And this is very much supported by the merchant vessel related revenue growth and as well as also cost savings. So costs were basically flat and revenues grew significantly. However, the offshore business is still loss making. We have a handful of offshore projects, which are in the late delivery phase, but unfortunately still generate losses. And these projects we aim at delivering during 2024. We have also a dispute related to a larger equipment delivery, which is for a monopile installation vessel. So all in all, in the coming quarters, our focus in McGregor is very much on completing these offshore projects and turning also the offshore business to the positive numbers. It's good to note that the core of McGregor is in a very good shape. Excluding the offshore business, McGregor scored one comparable operating profit would be actually 11%, so on a very good level. So in the coming quarters, we continue with the MacGregor offshore turnaround activities. And in addition to that, we aim at delivering another 10 million euros cost savings during 2024. Before going to Cargotech Consolidated Financials, a couple of words from my side about reporting Kalmar as a discontinued operation. As you have noticed, our external reporting has changed quite significantly now in quarter one. As the Kalmar demerger is highly probable during the next 12 months time, i.e. we aim at listing Kalmar on 1st of July, Kalmar is reported as discontinued operations from Q1 onwards, and this is according to the IFRS regulations. The idea of the discontinued operations is to separate from Cargotech's continuing operations, i.e. from Hiab and McGregor, all such revenues and costs which would not exist when Kalmar is no longer a part of Cargotech. If we look at the discontinued operations orders and sales, those are actually one-to-one with the Kalmar segment as you have seen. The differences between Kalmar segment and the discontinued operations arise in profitability. There are basically three drivers for the profitability difference. First of all, Kalmar depreciations are stopped in the discontinued operations reporting. This is roughly 7 million euros comparing to the Kalmar business area reporting. Then some Cargotech group overheads are also allocated to the discontinued operations. These are overheads which would not continue after the demerger. And then thirdly, all Kalmar demerger related costs are reported under the discontinued operations. The result of the discontinued operations is calculated up to the net profit level, so to the lowest profitability level, in other words, of the financing costs and taxes. However, I would like to emphasize that this discontinued operations does not represent a standalone Kalmar or remaining Cargotech kind of full profitability, not from P&L point of view and not also from the balance sheet point of view. Cargotex consolidated income statement as you have seen in our entry report is shown also on this page that describes the financials of continuing operations so those are the kind of officially reported numbers for the quarter one we calculate separately a net profit for the continuing operations this is 47 million euros for quarter one This profit excludes all Kalmar-related income, operating costs, financial expenses and taxes, as described earlier. However, as Kalmar is still part of Cargotech, we still need to calculate the consolidated net profit of Cargotech. And for this purpose, the net profit of the discontinued operations is added as one line item only on Cargotech's P&L as is shown here with the red rectangle. So the discontinued operations net profit 34 million euros, that consists of Kalmar segment operating profit with those adjustments which I described on the previous page, then deducted by financial expenses and taxes. So when you compare the continuing operations versus the Cargotech total, there is approximately 40% difference in orders and sales. And this difference is the calmer part, i.e. the discontinued operations. The continuing operations meaning, here at McGregor, order intake and sales growth are very much driven by the good development in McGregor. Continuing operations comparable operating profit improvement is driven by MacGregor turnaround, as explained earlier, and then also HIAP's solid work to manage inflationary pressures and HIAP's increasing comparable operating profit percentage. Cargotec's total items affecting comparability were 17 million euros, and out of this, 2 million is related to MacGregor restructuring. The rest of the items affecting comparability are related to Kalmar demerger and therefore those are not shown under the continuing operations. Operating profit percentage is the same for both reporting dimensions. However, please note that this is just a coincidence. And Cargotech's closing was all-time high, 21%. This was highly contributed by all three PAs' good profitability development. And also the MacGregor's turnaround is also clearly visible now in Cargotech's return on capital employed. Looking at the cash flow, we had a really strong cash flow in quarter one, like also in the last three quarters. During the last three quarters on Cargotech level, we have generated 650 million euros cash. For the quarter one, there were basically two main drivers for the strong cash flow. First of all, the solid EBITDA in all three business areas, and then the networking capital reduction, especially in Kalmar and McGregor, very much driven by the receivables collection. Cargotech has a very strong balance sheet with now only 3% gearing and leverage 0.1 times of EBITDA. We have repaid actually now in March a 100 million euro bond and we do not have any significant debt repayments in 2024 anymore. As Kasimir mentioned, we have received the consent from the bondholders And out of the total Cargotech debt, we split roughly 50-50, the outstanding debt between Cargotech and Kalmar. And we have received all consents for the demerger related debt arrangements by now. So both companies, Cargotech and Kalmar, will have a very strong balance sheet as of July 1st, 2024. Last but not least, our outlook for the three businesses. I would like to remind you that the outlook has been defined on the basis of the business area reporting in order to keep it relevant throughout all these reporting changes, what I have described earlier. So please continue to follow also the BA results. Those are comparable between this year and the previous years. And that's our outlook for here. We estimate comparable operating profit to be above 12% and for Kalmar above 11%. And then for McGregor, we expect the comparable operating profit to be above last year's 33 million euros. So with that, then I believe we have the time for the Q&A. And before that, just a reminder that like Kasimir said, we have the Capital Market Days for Hiiab and Kalmar at the end of May 28th and 29th and just before the AGM. So all are warmly welcome to these events and please register in time before 8th of May.

Thank you, Mikko. Thank you, Kasimir, Scott and Sami. Please come back to the stage and then we are ready for the Q&A session.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Ponu Leytinmaki from Danske Bank. Please go ahead.

Hi, thanks. I have a couple of questions. Firstly, starting from the margins, which were very good, was there anything exceptional in Q1 that you would expect to kind of fade away, given that the guidance that you kept looks a bit cautious relative to what we saw in Q1? Was the pricing exceptionally good and is there anything that will turn in the coming quarters?

Thanks. Yeah, thanks for the question. Just I can get started from the high upside. On no exceptional help in the quarter in terms of the margin on the high upside. Yes, specifically then about pricing. We certainly saw throughout 23 our level of discounts as you would expect with the pricing pressure and the expectation of of our costs coming down and that translating pricing was higher year over year versus 22. So we expect to see relatively a stable situation in pricing with a bit of pressure potentially in the second half of the year. But at the same time, we certainly are looking towards the revenue curve to start more matching with the order intake that we've had over the past 12 months, which is what we talked about in Q3 results, which triggered the cost savings programs that we executed on. But that's from the high-up side.

And if I continue on the Calomar side, of course, as mentioned in the presentation, we got a lot of contribution from the cost savings actions and activities that were launched end of last year. That helped our margin in quarter one.

Okay, thank you. But can I just ask a follow-up on the guidance? So, I mean, it still looks a bit cautious, so is there kind of, what are the main drivers behind this guidance or is the thinking just that you will give a guidance when the companies are split anyway?

Yeah, we're leaving open the potential for revising guidance yet later in the year. We're still cautious about the order intake, as I mentioned earlier. And so if you think about back to in Q3, what we talked about was in the case of HIEB, we were talking, depending upon how the developments go, that at least 12% was in, let's say, a worst case scenario for the year. And that's still the position we're taking now until we have time to see a bit more of the demand outlook.

And maybe on the commerce side, of course, we are one quarter down the road here, and it still remains quite a mixed picture with the demand drivers, of course, and the guidance is for the entire year, 2024.

Okay, thank you. Just a final question. On the MAC record, it seems that the project losses are still continuing. Does this impact your thinking of when do you expect to be able to sell it? You have talked about second half this year earlier, but should we think about 25 now if you still have the project losses there?

Regarding the timing of starting a sales process for McGregor, no changes. The target is to start that in the second quarter, and the target is still to have that process finalized during the second half of 24. So no changes there. Both the merchant and the service business performing on a very good level. And we have roughly 10 projects in the offshore still to be delivered that are are loss-making and challenging for us, and one of them is a larger one. But of course, looking at the order backlog for McGregor, over a billion, only 89 million of that is offshore, so the offshore challenges are getting smaller and smaller each quarter. And that's, of course, important for us and, of course, important for the sales process of McGregor. So no changes there. And actually, both merchant and service performed at least or even a notch higher in Q1 compared to last year.

Okay, thank you.

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

Hi, it's Tommy from DNB.

Two questions on McGregor. Sorry if I missed this, but how much were the offshore bad project related sales in the first quarter?

The offshore, basically offshore related revenues were roughly 10% of the total MacGregor Q1 revenues. So it's a fairly small piece of the business. However, the losses were close to 10 million euros in Q1. So without that, MacGregor profitability would have been 11% instead of the 6%.

Exactly. Thank you. And the second question, if you could comment your overall or maybe even divisional service profitability development. Last CMV you mentioned 19.6% for core. Any updates on that?

We will actually come back to the services related topics in our capital markets day. So if you don't mind waiting for a couple of weeks, so we would come back with more details there.

Regarding maybe the targets, I mean, on a cargo tech level, the profitability targets are not valid now going forward. And then we have, as Mikko referred to in the Capital Markets Day, you will see then the long-term targets for both Hayab and Kalmar going forward. So by end of May, we'll have a full answer to your question.

Happy to wait. Thank you very much.

Even before that, so for commerce sake, those targets are in the prospectus and prospectus is due around mid-May.

Thank you.

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

Hi, guys. It's Eki from Indres. Just regarding MacGregor's profitability, did you make a say that it would have been, okay, 11% excluding offshore, but do you see that as a sustainable level going forward? I mean, back in the day, MacGregor made some 13%, 14% EBIT margin, at least in 2010, 2012. So where do you see your targets? Of course, this is all subject to cycle phase, but anyway.

Yeah, I mean, McGregor has been enjoying, like I said, a couple of years, a good order intake, mainly coming from the merchant and services. And like this quarter one showed, with this kind of revenues and eliminating the offshore losses, I don't see a reason why McGregor could be a two-digit comparable operating profit business company. at the moment it's unfortunately diluted by the offshore losses but without the offshore like quarter one showed a nice profitability potential for the business

Yeah, last year, service and merchant was 10% OP level in 23, and now you see the 11% here in the first quarter. So in that sense, historically in 23 and now early 24, we are on the 10, 11% level.

Thank you. Then please remind, I may have missed it, but where do you see that the offshore project would be delivered totally?

I mean, as mentioned, we have roughly 10 projects to be finalized to a large extent this year, one bigger one. And most of these will be finalized during this year. So when we enter into a sales process of McGregor, of course, the tail of offshore is quite minimal.

So we talked about a few millions regarding 25 in terms of revenue.

yeah a few projects left in in 25 so it will be a really small portion of the total mcgregor or the backlog and sales going into 25 and we haven't taken any new orders since q1 23 any orders that are of this project pilot type of of projects we haven't been been entering to those rfqs since march 23.

Okay, thank you so much.

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

Thank you for the great questions and the great answers. Just a reminder to register to our CMD. The last day for registration is 8th of May, and our second quarter results will be published 8th of August, a little bit later this year due to the planned separation of Kalmar. Hope I see you all in May. Thank you. Thank you. Thank you.