Hiab Oyj Unsp/Adr

Welcome to this news conference regarding Cargotech's half-year report 2020. My name is Hanna-Maria Heikkinen and I'm in charge of investor relations. Our business environment during Q2 was exceptional due to COVID-19 and related decisions and restrictions from authorities. Despite of those, our performance was solid. Both demand and our own delivery capability improved during the quarter. Good news is that our service and software was also resilient. We reacted rapidly to the crisis and started temporary cost savings, and our rapid actions are visible in our comparable operating profit. We have strong financial position and our total liquidity is 970 million euros. In May, we also announced our climate ambition to be one and a half degree company. Today, our CEO, Mika Vehviläinen, will go through the highlights and COVID-19 situation, and then our CFO, Mikko Puolakka, will continue with the business areas, financials and outlook. Mika will end the presentation with strategic progress and climate ambition. And after the presentation, there is a great possibility to ask questions and get solid answers. Please, Mika, time to start. And for your information, we are keeping required safety distance here.

Thank you, Hanna-Maria. Good afternoon, my behalf as well, and thank you for joining the Cargotech Q2 2020 call. First of all, I'd like to say that I'm very proud how our people in Cargotech performed during the Q2, delivering a solid performance in very tough and exceptional conditions. And I'd like to take the opportunity to thank all of our employees, our customers, and our partners for good performance during the difficult conditions. The Q2 started in very difficult circumstances with the fast dropping orders, delivery difficulties due to the closure of our own manufacturing units and our supply chain issues as well. But we have seen a gradual improvement throughout the whole quarter. The solid performance was delivered by a few facts. First of all, we reacted into the situation relatively quickly. But more importantly, the investments and the developments we have done into our asset light business model, our services and software, and to our control and processes, they're clearly paying off during these difficult circumstances. I'm also very happy that we made good progress in our strategy execution during the Q2, and I would say our strategy is even more relevant after this pandemic than it's ever been in terms of the sustainability, safety, reliability of automated, robotized, electrified solutions. I'm also very proud and excited for the fact that during the Q2 in our annual general meeting, we announced the target to be 1.5 degree company by 2030. As Hanna was already saying, we are covering, I'm covering the overall development. Mikko Puolakka will go through the business area specific, and then I'll talk a little bit about our strategy in the end. The orders dropped quite significantly, 27%, but we saw clear improvement over the quarter. May numbers were already much better than the April numbers, and June numbers were better than the May numbers. Also, our delivery capability improved through the quarter, and all of our manufacturing and assembly units are now back in operations. Our top line, of course, took a hit as well, coming from the delays or difficulties in customer operations, the manufacturing and delivery capabilities, and the issues with the logistics as well. And that situation also improved throughout the quarter. Despite the difficulties, we actually delivered a solid operating profit, and actually our relative operating margin improved from quarter one. I'm also happy of the solid operating margin, both in Hajab and in Kalmar, throughout these difficult conditions. I'm also very delighted about the good progress we are making in MacGregor, where we improved quarter on quarter and year on year, and are heading to the right direction to watch the break even during the second half of this year. Again, very difficult quarter in many ways. The safety of our personnel, our customers and partners, of course, has been a top priority, and I'm happy that we didn't have any bigger issues with pandemic in our own operations or sites. The short-term actions we took in terms of the salary cuts, personnel, external work, travel cuts, et cetera, delivered a 10 million Euro per month savings that was very visible in our operating profit as well. Orders declined, but we have not had any major cancellations in any of our businesses, but we are still lacking any larger automation orders where the customers are waiting for the situation to clear. We did land one medium-sized automation order during Q2, but we still expect major automation orders within this year if the situation continues as it is at the moment. It's also good to see the services and software has been stable. And I come back to that one. The declines have been primarily related to the new equipment deliveries in Hayab. Now, when I look at the market conditions, the one I actually follow personally closely is actually our own data. We get real-time data from tens of thousands of pieces of equipment that are connected and operating by our customers. And that gives us a very good visibility about the activity level in the cargo flow and logistics in different segments, in different geographical locations. Here, you see two graphs. On the left-hand side, you see Kalmar mobile solution index in running hours, and the right-hand side, you see high-up loader crane activity index that takes into account the driving distances, crane cycles, operating times, drops, et cetera. As you can see in the Kalmar mobile solutions, and this is a combination of many different segments and geographies, we reached the bottom of the activity, nearly 20% drop in the late April, early May. Since then, we have had a steady recovery. on that one, and right now, we are roughly at the 90% level, so roughly 10% down from pre-COVID situation. And I come back to the geographical split on that one in a moment. From the high-up side, you can see again similar, more than 20, in this case, roughly 25% drop in activity, but actually also very steady recovery in the activity. And actually at the moment in high up loader crane side, the European activity slightly exceeds the activity level we had pre-COVID in January, February. And the US activity is roughly five to 10% lower than it was pre-COVID in the loader crane segments. The benefits of that data obviously are visible and help us in our own business, but they also be very helpful for us in directing our services operations, for example, and helping our customers. And I think it's very clear that after this crisis, the utilization of data, connectivity, et cetera, is going to be much wider spread, and that development will accelerate as good experiences of this one are coming through. From the geographical point of view, one can see that the activity level in Asia Pacific has returned close to the normal level. Even Australia actually, we have some higher levels than we saw pre-COVID situation in there. However, the relevant markets where the most of the connected equipment are actually are the European markets and North America. You saw the recovery curve from roughly 20% down. The Europe has actually been more resilient market, and has also recovered somewhat faster than the US market, and is roughly now down 90%. You also see the 93%, which is the equipment utilization rate across the board at the moment, so we are slightly down still from the January, February numbers. The US market has lagged somewhat behind in recovery, but actually last week, where the data is based now on, we saw actually a surge of activity there, and we landed actually end of last week, 10% down, similar number to Europe. This could be somewhat to do with the 4th of July week, and then the sort of activities behind that one as well. But overall, sort of a sharp slowdown in many of our customers' operations, and then steady recovery during the last two months. If I talk about market conditions in a little bit more broader sense, obviously, in the first half, we saw quite a sharp decline in container throughput, 9.6% during the first half. Now, the market is expected to recover already in Q3, and the container throughput is expected to reach 2019 level during the quarter four. For 2021, market is expected to increase by 10 percentage points. Construction output also declined both in Europe and US during the first half, but actually in the last month or weeks, we have seen the activity level starting to increase again, where both the housing permits as well as the housing starts have started to increase in US again, and also we have seen increased activity level in most of the European markets. The MacGregor market conditions continue to be difficult. Even from the very relatively low level, we saw a further 33% decline in merchant sector during the first half. And even though the percentage increase actually in the offshore sector looks pretty good, it's actually coming from a very low activity level. In offshore sector, I would like to highlight that there has been a real transition happening in the MacGregor. Proportion of oil and gas related activities in our offshore sector is less than 20% of McGregor offshore segment now. The fishery and aquaculture is an increasingly important business for us, and the real growth opportunities are now in offshore wind installations where we have landed our first of orders. And I expect actually the recovery in offshore sector happening through the sustainable energy investments and through the investments in fishery and aquaculture. Again, orders declined, but we started to see the recovery happening in the following months on that one. MacGregor orders were actually slightly up, but that increase came primarily from the addition of the TTS business into the MacGregor. The good news is that our order book is still at the good level, moving into the second half, and now that the delivery capability is returning, this is a good backlog to have. Sales decreased, customer obviously had a number of difficulties in their own activities. We had issues with our delivery capability to the site closures, and then on the supply chain and component availability, because many of our supplies also had closures. But the activity level and improvements have happened. As I said already, all of our manufacturing and assembly units are now back in operations, and also the supply chain is actually recovering close to normal as we speak. Very happy about our performance in software. Despite the difficult market conditions, our software sales increased further. We saw especially good progress in the software as a service or SaaS revenues in MacGregor and also in automation software. The services declined somewhat and the Kalmar decline came primarily from the services that are related to access for customer sites, where there are a number of restrictions in place. High-up decline came solely from the installations and accessories, which are directly related to the delivery of the new equipment. The high-up maintenance and spare part businesses actually remained stable throughout the quarter. And the MacGregor service revenues increased, primarily coming again from the impact of the TTS addition into the business. Services and software is now 37% of our total sales. With that one, I'd like to hand over to Mikko Puolakka, who will cover the business areas more in detail.

Good afternoon also from my side, and let's start with Kalmar, where we had a sharp decline in orders in April. But like you saw from the previous slides, the order and customer activity improved in May and then further in June. Orders were 293 million euros minus 30%. The mobile equipment orders declined sharply in May and then gradually improved. Also, the automation and project orders declined. In general, we have a good sales funnel for the automation and project orders, but in the current environment, customer decisions take time. If we are looking at geographical areas, EMEA and AIPAC were more robust, and the biggest decline took place in Americas. Kalmar sales were €350 million minus 18% year-on-year, and we had a growth in automation and projects revenues, as well as in software revenues, while the mobile equipment revenues declined. Like Mika showed, the services revenues declined, but this decline was mainly attributable to the kind of services which require physical presence at customer site. And this kind of site restrictions and the travel limitations have been affecting the delivery of those services. On the other hand, we have seen also increasing demand for remote services, and this could be a future trend also going forward. The comparable operating profit in euros as well as in percentage remained on good level despite the decline in sales. We had a favorable impact coming from sales mix. Services amounted 35% of the total sales. Also, the long-term investment that we have done to the asset-light operating model processes and procedures are making our operations more flexible nowadays. We have also been reducing workforce by 350 FTEs during the last 12 months, and this is contributing to the profitability of Kalmar as well. And then we have had temporary cost savings in place in Kalmar since April this year. In high up, the COVID-19 was very visible in orders and sales, but comparable operating profit margin remained on a good level, 10%. Orders declined very similarly, like in Kalmar, mostly in Americas, while EMEA and APAC were more robust. As we have a fairly short cycle from order to sales in high up, the lower orders in the second quarter were also visible in sales. The service sales declined like Mika indicated, but the service sales decline was mainly attributable to services which are related to new equipment. As mentioned, the comparable operating profit margin remained on healthy level. This is also coming in high up, like in Kalmar, from the sales mix, services amounting 30% of sales. And then we have been also rapidly adjusting our cost base in the assembly units. We have done also in HIAP good progress in various productivity improvements, like customer pricing, as well as in the supplier material driving the cost down. And also in HIAP, we have the temporary cost savings in action since April. And in McGregor, we start to see the first impacts of the DTS integration clearly visible in the results. So the trend is going to the right direction. Orders grew by 4%. Merchant orders were flat, while we had a good order development in offshore, and for example in the offshore wind renewable energy type of segments. TTS contributed to sales and orders. Sales grew 28%, and even organically sales grew by 3%. In McGregor, we saw the service sales, even though they were growing, the service sales were to a certain extent impacted by the COVID-19 situation, as some vessels had travel kind of entry limitations and there were also travel restrictions in place. Kalmar comparable operating profit was negative, minus 4 million euros, but significant improvement year on year as well as compared to quarter one. So the restructuring activities and also the TTS integration are showing clearly the signs of improvement. We had also growth in merchant business that contributed also to the profitability. And then, like in other two business areas, we have had also the temporary cost savings measures in place since April. The TTS integration is progressing very well, and due to this reason, we have also increased our savings target from the previous 15 million euros to 18 million euros for this year. So far, we have delivered 7 million euros and 11 million euros to be delivered still in the second half. A few words about our key figures. Order book on a good level, 1.8 billion euros. Our comparable operating profit, 43 million euros, 21 million euros lower than in Q2 last year. Biggest decline from high up, then in Kalmar and McGregor improving. We had 63 million euros of items affecting comparability. Here the largest item, 40 million euros, was related to the divestment of our share in the Rainbow Cargotech Industries joint venture in China. That happened in June. And then the remaining 20 million was related to the restructuring of MacGregor, DTS integration, closing of offices and laying of personnel. These 63 million euros are related to activities, which we expect to improve our profitability going forward. We have also conducted the McGregor goodwill impairment testing in the second quarter, and the testing showed no need for impairment. In fact, the goodwill impairment testing headroom increased from 7 million euros in first quarter now to 37 million euros in quarter two. Our cash flow was 4 million euros for the second quarter, The decline compared to last year's Q2 is coming mainly from the lower profitability. We have been able to release cash from receivables. However, we have had somewhat higher inventories due to the supply chain disturbances. Our financial position and liquidity are strong. Gearing was 64% at the end of June and excluding the 177 million euros of IFRS 16 leases, our gearing would be 50%. It's good to remember also that only part of our interest bearing debt is having a loan covenant. So basically the bank loans, which are amounting 37% of our total debt, are having a covenant and the single only covenant is gearing. and the gearing level is, covenant level is 125%. So based on this, we have a very rich headroom to the covenant levels. Our liquidity, as said also in the beginning, very strong, 970 million euros. Roughly half of that liquidity is cash and the rest are bank facilities. Our debt portfolio is well balanced between different instruments, bank loans 37% and long-term bonds and Schultz sign 57%. No major loan repayments coming up in the next two years. And we have also raised 250 million euros additional debt in quarter two. And you can see those in the 22 and 2023 maturities. Then coming to our outlook, as we have been reading, countries are opening the borders, but however, the coronavirus pandemic is far from being over. There are big uncertainties related to the market outlooks. Also, the market situation and operating environments may change very rapidly. Due to these reasons, the visibility for the rest of the year is still weak. And in this situation, we are not able to give a firm guidance for the full year. If we look at the second half of this year, we expect that the market recovery continues like we have seen already happening in the second quarter. We also expect to have less component constraints from our suppliers and we also expect that Cargotech's own delivery capability improves going forward further. We also continue with the similar kind of permanent productivity improvements, which have been contributing to our quarter two results. And we continue also with some selected temporary cost measures. And these kind of cost improvements are also expected to contribute to our profitability in the coming quarters. And then I would hand over back to Mika, please.