Hiab Oyj Unsp/Adr

Welcome to Cargotech's third quarter results call. My name is Aki Vesikallio. I'm from Cargotech's 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. And please pay attention to the disclaimer in the presentation as we will be making forward-looking statements. Strong performance continued in our core businesses Kalmar and Haiab. And we achieved again all time high comparable operating profit. Also orders received increased in all business areas. But on the other hand, we expect that supply chain challenges and market uncertainties will continue also going forward. As we already achieved our 2021 comparable operating profit level, we specified our outlook for 2022, and we now estimate that our comparable operating profit will improve by 88 to 118 million compared to 2021. With that, over to you, Mika.

Thank you very much, Aki, and good afternoon from my behalf as well, and thank you for joining the Cargotech Q3 2022 call. As Aki said, our strong performance continued also during the Q3. As you know, the Q3 is typically the weakest quarter for us in the year due to the seasonal fluctuations, and being able to deliver such high revenues as well as a record operating profit during the Q3 was a very good achievement from us. I'm especially happy to see the strong performance in our services business, where the strategic focus is clearly delivering results for us, and our services business has grown by 22%. Even more delightful is the great progress we are making in our eco-portfolio. The eco-portfolio revenues have actually now increased by almost double, 97%, and are already representing 27% of our revenues. The investments we have done into technology and services to drive the sustainability in our industry, together with the fast-changing landscape where our customers are more and more under pressure regarding sustainable solutions, is clearly delivering results for us. Looking at the market overall, first of all, what we see from our operating equipment data connected all over the world, the high capacity utilization is still continuing. We saw a slight decline sequentially from Q2 to Q3, which is, of course, partly explained by the seasonal variation. Overall, we see the stabilization of the data also year on year. obviously a lot of the equipment is now running at the capacity, and as we are now able to deliver more and more new capacity on stream, we accept those running hours to stabilize at the relatively high level at this stage. Overall, obviously, the market uncertainty is increasing there. If I look at some of the key indicators for us, the container traffic is still growing. The container shipping traffic is still actually almost at the full capacity utilization. We still see congestion continuing in the ports. Overall, we expect that the container traffic is still growing during Q4 as well as during the next year. We start to see some slowdown in the building sector and construction activity at the moment, and obviously such as housing starts. I think it's also important to remember that when you look at some of these statistics and we start to see potentially some decline in some of the indicators as well, we start to decline from historically high levels. So if you look at the absolute numbers now in number of the indicators over the last six, seven years, We are still operating at very high market activity in many of the segments as well. In ship side, we see slowdown in ship contracting. This was to be expected. The shipyard capacity starts to be full due to the very high contract activity in 21 and early part of 22. And that together with the higher prices and inflation in, for example, steel prices, is clearly slowing down the ship orders there as well. Our orders increased in all businesses and the new record high as well. Now, putting that in context, one needs to remember there is some positive impact there coming from currencies and also from the inflation now. Overall, one would estimate that our equipment pricing is about 10% higher than it was in the respective quarter in 2021. So overall, in terms of the volume of the equipment, one starts with the stabilization of order intake, but the order and the demand is still continuing at the strong level. When I look at our sales funnels forward and the performance year to day, we still see the strong demand curve continuing at this stage. This strong order performance is bringing a new all-time high in terms of our order book, which now stands at 3.7 billion, and obviously this gives us an excellent starting point going into the next year. We see no activity in terms of cancellations at the moment. I think the capacity utilization runs still very high, and obviously the increase in prices and the inflation is also giving us some protection in terms of the cancellation. together with the different contracts that we are renewing, including penalty clauses, etc. Again, as I said, Q3 tends to be our lowest quarter in a year, and the fact that we were able to deliver such a strong performance in terms of revenues and profitability owes a great thank you for all the people in Cargotech who have worked very hard to be able to make this happen, despite the continuing challenges in our supply chain. We still see those supply chain issues continuing into the Q4, and at least to the first half of next year as well. So we are in no way sort of out of the woods in terms of those challenges, but we are working very hard to enable those deliveries to happening. very satisfied with the services. This, of course, has been our strategic focus area for a number of years now, and very clearly the high equipment running in ours, and especially the work we have done in terms of self-help, driving higher spare part capture rates, better services performance, better utilization is delivering results for us, and the sales, strong sales growth was visible in all of our different business areas. The Cargotech strategy focus remains in solving and being the global leader in sustainable cargo flow for our customers. We are solving the logistics industry's sustainability issues by investing in technology and delivering better services for our customers. Now, exactly almost six months ago, two quarters ago, we announced a refocused strategy, and we are now actually executing on that one. The refocused strategy had three elements on that one. Strategic evaluation of McGregor business, plan to exit the heavy crane business in Kalmar, and review the operational model to support refocused group. Now, already last quarter, we were able to announce the strategic exit from the heavy crane business in Kalmar, and we are now in the final phase of asset transfer in there. The deal is effectively now done from our side. During the Q2 and Q3, we were able to conclude a review in our operational model to support the refocused group. The work in McGregor's strategic evaluation is continuing and progressing, and we will update the market when we have any conclusions from that one. Regarding the operational mode changes, we are actually making our businesses more independent, owning more of the capabilities in-house to be able to drive focused strategic performance and deliver results. As a result of the changes in operational mode, we are moving more than 100 persons from the group focus areas into the business areas. In Cargotech, we have very successfully developed and driven our digitalization and technology developments, partly through the central capabilities in our group level. Now we believe that our development is mature enough to be able to move all of those assets, and especially the great talent we have in our digitalization and technology capabilities, directly into businesses where the alignment and integration into our customer-facing activities will be even better. We are also moving all sourcing activities, including direct as well as indirect sourcing, into the business areas for them to be able to drive that more effectively. And sustainability and technology functions are also moving to a great extent into the business areas. Now, from Group point of view, this means that Cargodec will be more and more focused only on the listed company duties, as well as then providing the back office services and processes for our business areas. The investments that we have done in technology and development and services are now clearly yielding results, as you can see from our numbers. And we keep on sort of going down that road. Our R&D investments grew again about 7% in Q3. A couple of examples of that one. In HIAB, we are really looking to sort of go into the new application areas as well to sort of build more resilience in the business. And one important breakthrough for us has been a rail segment that has been not been a strong point for Hayab in the past, and we have achieved major breakthroughs on that one. In solving our customer climate challenges, we are delivering increasingly market-leading capabilities, for example, more than 500 Kalmar hybrid straddles. Just to give you an example, those 500 hybrid straddles now operating are yielding more than 400,000 tons of CO2 savings in our customer operations. And we keep on investing in the innovation and transformation and be very focused on providing sustainable solutions. A great example of that one is that the first in our industries, Hayab has now introduced the first products that are built from the fossil free steel. Last but not least, our services are performing very well, and we keep on adding and driving more advanced services. An example of that one is the new high-performance services that enables us to drive sort of the customer optimized performance and help them to be even more effective and even more sustainable in their operations. And with that one, I'd like to hand over to Mikko, who will cover the financials and the business area performance. Mikko.

Thank you, Mika, and good afternoon also from my side. Let's first have a look on Kalmar, where we had an excellent performance in quarter three. Solid demand continued in quarter three, even when taking into account that we were still partially limiting our terminal tractor order intake during the quarter. Kalmar orders grew by 12%, and it's also good to remember that we had last year in Q3 roughly 25 million euros heavy grains orders. So on like-to-like basis, Kalmar Q3 order growth was as high as 19%. This is also the first quarter for a while when Kalmar order book declined slightly from the previous quarter, thanks to good delivery volumes. Kalmar sales grew by 40% year on year. Deliveries progressed well in all divisions, including also services, despite continuing challenges in getting components on time and in needed volumes. We have seen also delays in transportations. If we clean the currency impact from sales growth, the quarter three sales growth would have been 33%. Out of this 33% in Kalmar, roughly one third comes from price increases and two thirds from volume growth. So strong, strong deliveries in quarter three. Kalmar's profitability improvement was very much driven by volume growth. And then if we look to kind of new Kalmar setup, so excluding the heavy grains, Kalmar quarter three comparable operating profit was close to 11%. Then moving to high up, which delivered also a very good quarter, despite quarter three being often seasonally the lowest quarter within the year. Like in Kalmar, demand in Hayab was robust across all Hayab divisions. Like Mika mentioned, Hayab launched also some new products during Q3, like the rail loader cranes, and these have been attracting also good demand from the market. Hayab sales was up by 23%. Here the currency impact was approximately 5% units. In HIAP, we were able to deliver both equipment and services reasonably well, despite the continuing component and truck chassis availability issues. And in HIAP also the profitability improvement was very much driven by the higher delivery volumes. Moving to MacGregor, which had another good quarter in the order intake after the 301 million of orders, which we won in the second quarter. In MacGregor, the orders growth was very much driven by merchant vessels like car carriers, as well as then services had a good quarter as well. McGregor order book starts to be now on a very good level. It's already 57% higher than a year ago. However, the quarter three sales was still a fairly small number or low number due to the fact that the past quarters higher orders start to generate revenue more or less starting from the second half of 2023. Merchant vessel and services profitability improved year on year, while the low margins in certain offshore wind projects still continue to dilute the overall MAC record results. If we look at MacGregor year-to-date September comparable operating profit, that was minus 1.1%. However, when we exclude the offshore wind business, which has been very low profitability, MacGregor year-to-date comparable operating profit would be 4.2% positive. Couple of highlights from quarter three. Our order book continued to increase, and like Mika said, this 3.7 billion euros will provide a good basis for our 2023 revenues. We start to have a sizeable eco portfolio revenues, almost 700 million euros year to date. This is 51% year on year growth. Our comparable operating profit has developed nicely, up by 31%, very much driven by the good performance in our core businesses, Kalmar and High Up. The core businesses' Q3 comparable operating profit was 10.6%. It's good to remember that this number includes also all Cargotech Group overheads, so taking a very prudent view on that profitability. We booked, unfortunately, still 43 million euros items affecting comparability in quarter three. 11 million of this is related to the heavy grains exit, which we announced in the second quarter. And in that connection, we also said that in the third quarter, we would book certain costs still related to that exit. This 11 million is related to project related liabilities. Additionally, in order to be prudent, we have booked in McGregor a €18 million provision. This provision is related to McGregor's US government-related business. Our Q3 cash flow was good, and this was very much driven by mainly Kalmar and McGregor orders related advance payments. Despite the good cash flow, our net working capital is still very much higher than it should be for the current volume levels. Inventories, especially working progress, as well as goods in transit, those have been the biggest reasons for abnormally high net working capital. These inventory items have been very much impacted by component shortages as well as earlier mentioned transportation delays. Despite having a higher networking capital than normally, we have a good liquidity situation. At the end of September, our cash was 432 million euros and committed long-term unused credit facilities were 300 million euros. Our gearing has continued to improve, now 30%, very much driven by good cash flow, and this is very well within our 50% target. The average interest rate on our loan portfolio was 1.3% at the end of September, and we do not anticipate this dramatically to increase due to the fact that approximately 60% of our debt is with fixed interest rates. Due to the strong quarter three, we have specified our full year outlook. We expect the full year to be at 320 to 350 million euros comparable operating profit. This would mean that our full year result would improve by 88 to 118 million euros from 2021. We have a relatively wide range in our guidance, and this is simply due to the fact that we do not anticipate any improvements in the supply chain compared to previous quarters. Therefore, the deliveries to customers may be delayed with the short notice, and if we don't get the needed components. And naturally, should these kind of delays come, those could have a direct impact then to our profitability. So a short reminder about our capital markets day before we finalize. So we have a capital markets day on 15th of November and warmly welcome to that event.