Hiab Oyj Unsp/Adr

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

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

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