Kalmar Oyj B

Good morning everybody and welcome to Kalmar's second quarter results call, the first of its kind as a standalone company. My name is Karina Geber-Teir and I'm heading the IR Marketing and Communications at Kalmar. Today's result will be presented by Kalmar's president and CEO, Sami Niiranen and CFO Sakari Ahdekivi. The presentation will be followed by a Q&A session in the end. Also, please pay attention to the disclaimer and with that I would actually like to invite Sami to the stage. Welcome.

Good morning and afternoon everyone. My name is Sami Niiranen. I'm proud to be here presenting the first financial results of the new stock listed Kalmar. During quarter two, Kalmar delivered solid profitability as demand in many markets has stabilized compared with the high levels of 2023. A key highlight of the quarter was the successful listing of Kalmar. After several months of preparations, we are now ready for the next phase of our sustainable, profitable growth strategy as a publicly listed company. We noted that a mixed demand picture across the business continued in the second quarter with stable demand in services, but some softness, especially in the North American distribution customer segment. Despite the continued complex macroeconomic and geopolitical landscape, we managed to deliver a good quarter with a solid financial performance. We also continued to make solid strategic progress with detailing our driving excellence initiative, and I will go through this in more detail shortly. As mentioned, this quarter is a real landmark for Kalmar as the demurter of Carcotech was carried out at the end of June, followed by the successful listing of Kalmar on the 1st of July 2024. And as an independent company, we are now fully committed to execute our growth strategy and focus on capital allocation in the best interest of Kalmar and our shareholders. In the second quarter, approximately 40% of the value of our total sales was attributed to our eco portfolio, underscoring our commitment to sustainable innovation. Today, approximately one third of our sales comes from services. Our extensive and active installed base of 65,000 machines globally provides a solid foundation for significant services growth, fueled by our innovative offerings. We continue to see a mixed demand picture in the second quarter with regional variations. Demand for smaller sized equipment used in ports continued to be solid, while delayed decision making continued in orders requiring larger investments. De-stocking was prolonged in distribution customer segment due to a softer North American market. Kalmar's demand is also impacted by the number of containers handled at ports globally, which is estimated to have increased by .4% during the second quarter and increased by 4% in 2024, according to Drury's latest estimates. Examples of major orders received during quarter two included 14 hybrid straddle carriers, as well as three heavy terminal tractors. Our order book totaled 925 million euros at the end of the second quarter. The order book is on a healthy level and provides a good visibility for the second half of 2024. Our cost structure has already been adjusted to the lower order book level, which is evident from our continued strong profitability. Our sales totaled 417 million euros in the second quarter, which was impacted by a slower market activity and the lower order book. Almost 80% of our sales come from geographies where the market drivers are most prominent, which provides a real opportunity to drive our initiatives, especially in these markets. Kalmar has been focusing on its eco portfolio for many years, with the purpose to contribute to the climate change mitigation and economic activities that can be considered environmentally sustainable. The share of our eco portfolio sales has been steadily growing, and in the second quarter it accounted for 40% of Kalmar's total sales. For Kalmar, the increasing interest in electrification and the growth of our economy and sustainable innovations promotes profitable growth, embodying commercial and operational excellence on top of customer satisfaction. Our comparable operating profit continued on a solid level, driven by improvements in both commercial and operational excellence. Our cost structure has already been adjusted to lower sales largely, which partly offset the drop in sales volume. The comparable operating profit was around 52 million euros, leading to a margin of 12.6%. This quarter, we have gone from a business area of Carcotech to a standalone publicly listed company, reporting financial based on our two segments, equipment and services. To enhance transparency, we now provide comparable operating profit levels and other key financials for both reporting segments. The good business performance coupled with improved cost structures due to measures implemented last year and early this year has made us deliver on the strong profitability this quarter. And Sakari will provide you with more details about the two segments performance. So next, I would like to recap and update you on our strategy that we presented in the Digital Market Days in May. As you well know, Calmar's strength lies in our global leadership in the mission-critical heavy material handling market. We have built a trusted reputation by partnering closely with our customers, consistently delivering solutions that make a real difference in their operations. As we look to the future, our strategy is clear, to drive sustainable growth by leading the industry towards greater innovations such as electrification, to accelerate service growth and to drive business excellence. We are fully committed to our long-term performance targets, which include a 5% annual sales growth over the cycle, 15% comparable operating profit margin and over 25% return on capital employed by 2028. This will be delivered whilst maintaining a strong capital structure and committing to ambitious sustainability targets. The Driving Excellence Initiative is a crucial step towards achieving Calmar's long-term performance targets. Detailed planning has advanced and Calmar is planning to reach approximately 50 million cross-efficiency improvements by the end of 2026. In line with the goals of the year, we are committed to the aim of reaching the previously communicated 15% comparable operating profit margin by 2028. These efficiency improvements also enable enhanced investments in sustainable innovations and service growth, the other two strategic pillars. The main measures are related to actions in commercial and operational excellence that include active pricing management, supply chain and process optimization and continuous focus on competitive operational cost base and faster decision making. So now coming to my last slide, I'm also very pleased to see how our close collaboration with our customers translates into a strong innovation pipeline. During the quarter, we launched the Calmar electric empty container handler and unwield the Calmar Ottava electric terminal tractor. In addition to that, we introduced the MyCalmar 2.0 digital ecosystem that provides access to all the fleet details, machine cards and contracts. Single point of entry to digital tools such as the store function with parts and equipment upgrades as an example, the insight function with performance analysis and data-driven actionable insights, as well as intelligent solutions taking a step towards the predictive maintenance to ensure operations continuity and top efficiency. So this ends my part of the presentation. I'll now hand it over to my colleague, Sakari. So thank you very much.

Hello, my name is Sakari Ahdekkivi. I'm the Chief Financial Officer of Calmar and very pleased to be here to present and to go a little bit deeper into the figures of the second quarter of the standalone Calmar company. I will start my presentation with an overview of our performance on an LTM basis, similar to what we did in the capital markets day. I will then drill deeper into the two segments, equipment and services, and then cover the comparable operating profit a little bit deeper in terms of a bridge and also discuss the balance sheet and the outlook. I think it's important to remind the audience that, of course, this is a bit of an exceptional quarter still in terms of how we present the figures of Calmar. The P&L is a carve-out basis P&L and the balance sheet is now the demerger balance sheet as of the 30th of June at the moment of the demerger from Cargotec. This, of course, means that while the P&L comparables are or the prior year numbers in the P&L are comparable and have been restated, the comparables in the balance sheet are, of course, not useful because the demerger balance sheet looks very different from the carve-out balance sheet that we have presented in the comparable periods. With those words, let's dive into the numbers. On an LTM basis, orders received are slightly below the 1.6 billion euros as a result of the 375 that we booked in Q2, but more or less I would say that the orders have been hovering around the 400 million mark or close to for several quarters now. Leading to the order book 925 million euros as Sami explained, which is still on a good level and supports our second half of 2024 very well. On an LTM basis, the gross profit is .5% and we have a comparable operating profit margin over the last 12 months of 12.5%. Sales LTM at 1.868 billion euros and then the leverage based on the demerger balance sheet at 0.6 times EBITDA and this is very close to the balance sheet and also the gearing at .3% is very close to the pro forma Q1 gearing that we presented earlier. Return on capital employed remains on a good level at .2% and over the last 12 months, we have generated a very, very healthy and strong cash flow. Cash conversion during the last 12 months has been 148%. So although the cash flow in the second quarter was clearly lower than in the recent quarters, the cash generation over the 12 month period is very, very healthy. Now diving then into the equipment segment. The equipment segment orders decreased by 21% and the order book then in the same direction, 29% and sales decreased 28%. The demand picture continued to be mixed with softness, especially in the North American distribution customer segment and also some decision making delays still in the larger equipment. Fully electric equipment contributed to 14% of the orders received in the second quarter. Profitability, however, despite the decline in sales remained very strong due to the successful commercial performance as well as the cost saving actions executed earlier. Service segment orders received have been stable with an increase of 2% compared to the second quarter in 2023, amounting to 137 million euros in the quarter and sales were stable, very slightly down compared to last year in the second quarter and the order book was stable. Profitability in service has grown steadily during the last quarters and was now at .3% and showing a good track of improvement now sequentially. Growing services is one of our key focus areas going forward and we see a significant growth upside from our large installed base and our innovation enabled offering. In addition, we will take advantage of the move to electrification and to deliver value through data-driven solutions in service. The good operational performance and the cost structure that we adjusted already earlier has largely offset the effect of the declining sales when we consider the comparable operating profit margin. The cost savings announced in connection with the Q3 2023 report are visible and delivering approximately 20 million euros already in the first half of 2024. As you remember, back in Q3, we announced a cost savings target of 20 million, which we then reiterated or actually increased the target level to 30 million later on. So this is clearly supporting our profitability in the first half year, which is shown here in the bridge on the left hand of the slide. The operating profit includes items affecting comparability, which were 16 million euros in Q2 and 25 million euros for the first half of 2024. These are all related to the de-merger costs from Cargotec. The total costs recorded related to the de-merger during 2023 and 2024 until the end of June were 40 million euros. The estimated total costs are 45 million euros, so 5 million more to come. However, this estimate may be subject to change. R&D expenditure in the first half year was 25 million representing 2.9 percent of sales. The return on capital employed remained on a very good level and supports and enables long-term growth for the company at 20.2 percent, although slightly lower than in the recent quarters. As mentioned, the gearing is 27.3 percent and the capital return is 27.3 percent. The average at the end of June is 0.6 times. Finally, we reiterate our outlook for 2024. The outlook for 2024 is unchanged. As published on July 1, 2024, CalMars Comparable Operating Profit Margin as a standalone company is estimated to be above 11 percent in 2024. And that completes my presentation and we can move over to the Q&A. I invite my colleagues back to the stage. Thank you.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key

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on your telephone keypad.

The next question comes from Pono Leitinmaki from Danske Bank. Please go ahead.

Thank you. I have two questions.

Firstly, on the demand. Was it weaker than you were expecting in Q2 and was this mostly a US issue or is it like a wider thing and also, yeah, that is basically it.

If I start, thank you for the question. The demand, as we said, is sequentially stable. And of course, if you look back to the previous four quarters, even, we have been around 400 million euros plus minus something and two of those four quarters have been just slightly below 402, slightly above. So I think that has been the trend during the four, previous four quarters. Of course, what we have communicated earlier as well in the capital market today is that we have a flatter market now in 2024 and 2025. So it's pretty much in line with that.

But as such, the demand picture hasn't changed compared to the previous quarters. It's the same issues, if you like, in the North American distribution segment and in the larger orders or the larger orders. So the market as such is pretty much the same as it has been in the previous quarters.

Okay, thanks. Maybe a follow up to that. I mean, when you were still part of Carcotec management was kind of expecting the de-stocking in the US to end in a few quarters. And I guess was given in late last year. So seems that the de-stocking has continued for longer than maybe hoped for earlier.

I don't know if it has continued longer, but it continued during the second quarter. It continued, of course, during the first quarter as well. So it has continued up until the end of quarter two. Yes, affecting the distribution segment.

Thanks. And then secondly, on this excellence program and the 50 million number you gave, just to clarify, I mean, is this something that you were planning all the way to get to your targets, or is there kind of a reaction to the market developments in terms of fixed cost savings as well?

That's a good question as well. Thank you. It's a part of our long term strategy that we communicated in the capital markets days a couple of months ago already. And then we promised to get back with more details. And that's where we are as of today. And I can say that I'm proud of our team, how we have been able to quantify this excellence program already at this stage now in quarter three.

And you remember, we've been talking about the three strategic pillars, of which one is driving excellence. So this is kind of putting more color and detailing what we are doing in that area.

Okay, thank you.

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

Hi guys, it's Antti from SEB. Thanks for taking my questions. A follow up firstly on the North American distribution destocking trends. So could you provide a little bit more color when you see that kind of the inventory levels are, is there still kind of potential for further come or are we maybe reaching some kind of bottom on the second half?

We are not, let's say we are not giving predictions going forward, of course. But what we have seen what we have seen during this year is that both quarter one, quarter two, of course, the destocking has continued and it's a build up from the previous years as we have communicated earlier as well.

And maybe one data point to add is, as you know, we are following the running hours of our equipment and in the quarter two, the running hours in North America were a little bit down. So that's also, I think, a data point to follow.

All right, that's clear. And then secondly on your delivery times and your backlog rotation, I mean, there's been a lot of kind of changes with the supply chain also with your equipment portfolio mix over the past year. So could you provide a bit on color on how much kind of of your equipment backlog would you expect to deliver on the second half? How much is for 25 and what kind of a normal backlog or order to sales rotation nowadays?

If I start with the lead times, our average lead times vary between three to 12 months mostly and depending on the type of machine and type of portfolio and type of division as well. So three to 12 months, of course, meaning that we have still now in quarter three, quarter four, of course, possibilities to deliver the orders that we will take now in the next couple of weeks and months.

But we haven't actually specified how much of the backlog is delivered in the current year and how much is in the later year. And the other thing to, of course, always keep in mind is the service business, which has the faster turnaround of orders to sales.

All right. And then lastly, maybe a question on pricing and cost. So how have you seen kind of a input cost development throughout second quarter and what's your ambitions on your net pricing for future orders?

I think, say the peaks that we experienced a couple of years ago, of course, they are behind and it's a more like a normal situation as of today. When it comes to pricing, of course, we do our normal regular price adjustments. And of course, the key point here is to create customer value. And that's why as innovation and technology leader company, of course, we try to all the time develop the products that create more customer value, which also links, of course, to the pricing of the equipment going forward. But the situation is more normal than maybe two years ago, I would say.

Let's bear in mind that the other side of the equation is, of course, the sourcing, where we are, of course, which is part of our driving excellence program and where we are working on the other side of the margin equation, as well as the fixed cost, of course.

I'm just thinking kind of you've been a little bit clearing an old backlog in the past 12 months. So is there a major difference between, let's say, cross margins in your backlog versus kind of the cross margin on equipment deliveries in the past couple of quarters?

I think we communicated something in the previous report as well about the successful commercial management, commercial performance, which links to the active pricing management, of course. So of course, we are still seeing some effects from that one. And it shows resilience also in our result today. And as we don't

publish a margin on our order backlog, then I think we'll need to leave it there.

Fair enough. That's all from me. Thank you.

The next question comes from Erki Vessela from Endiers.

Please go ahead.

Hi, guys. It's Erki from Endiers. A few questions from me as well. So just coming to the North American market, was it mostly lift trucks where demand has been weak? And have you seen our market share decline there?

Market shares, we are not talking openly here, of course, but it's mainly related to the distribution and terminal tractor segment, not to the lift trucks. I would say the small and medium size mobile equipment are tracking still and performing well throughout the world.

Okay, great. And then regarding the Q3 demand, you may not be precise with this, but do you expect there will be a normal seasonal sequential decline in order intake in Q3? Or is there something that we should not expect that to happen again?

We are not, let's say, disclosing any forward-looking predictions here. But if you look back, of course, the previous four quarters, we can see quite steady 400 million euro order intake that we have had, which pretty much reflects actually the statement of having a flatter market now this year and even continuing a little bit to the next year as we communicated in the capital markets days. So the demand has been sequentially stable overall in quarter two.

Okay, very good. And then finally about this efficiency program, what is the drop through of this 50 million euro? I mean, what's the expected EBIT impact from 26, 27 onward?

Today we are announcing the program and the improvement efficiency program initiative, but not going into the details. Of course, we will get back to you in our interim reports later on on this one. But now we will start, of course, implementing and executing this continuous improvement type of program. But it's worth mentioning that, of course, we talk about 50 million euro cross efficiency improvements, which means that we have two other important strategic pillars, which are called investing in sustainable innovations as well as growing services. So of course, we want to benefit from this driving excellence program into those other two strategic pillars as well.

And that's why we're calling it gross because we are also investing in some other areas. So this enables us to invest and at the same time, on the journey towards the 15% target in 2018 on all fronts.

So that I just can't squeeze any more information out of this 50 million. What's the impact going to be?

No, not today.

OK, thank you so much.

The next question comes from Mikhail Doppel from Nordea. Please go ahead.

Yes, thank you very much. Coming

back to the US distribution customers, which you mentioned, maybe you could just remind us of how much you sell to distributors overall as a group and in the US particularly. And I know you're not giving predictions going forward, but would you say by the end of Q2, where were the distributors in the middle levels compared to what you got as normal? Let's start

there. Let's say overall, the number that we are disclosing is from 2023. And that was a part of the capital markets day material as well, which says that 40% of our sales is coming from the distributor segment. So 4-0, 40% of our sales.

OK, and the distributors level?

And then talking about the North American market, of course, we have several distributors in that region, of course. But we do have them everywhere in the world as well. Or elsewhere in the world.

OK, and by the end of Q2, would you say that distributors were still elevated?

Just making sure here that when we talk about the distributors, we talk about the dealers and 40% of our sales comes via dealers. But then if we are talking about the end, say the customer segment, the distribution segment, so that there is not a confusion here on that we are talking about the end segment or the dealer network that is contributing to the sales of Calmar products.

Yes, and the distribution segment, that was also disclosed in the capital markets days. And it's one of our four strong customer segments, of course.

OK, in terms of demand and overall, could you talk about, you know, get some color, what you see across other regions right now? For example, Europe, APAC, what are you seeing in terms of demand? Across the regions and the products, how would you describe your sales funnel and so on?

I think what we reported is that we see that in Q2, we saw the softness in the North American market as well as some prolonged decision making, delayed decision making in the larger equipment orders, whereas the small and medium size equipment performed well. And then like Karina mentioned in the beginning of the call, we are monitoring, of course, carefully, you know, the running hours, operating hours of our equipment across the world. And we can see, of course, the same trend in North America, a little bit softer market there in the operating hours as well, whereas the other regions are stable.

All right. Then coming back to the price versus cost, which you talked a bit about previously, but just wondering here, I mean, would you say that currently you are pricing ahead of your input costs or overall cost development, or would you say that you are pretty much on par? How would you describe that relationship?

Yeah, I can take that one. Thank you for the question. If I go back to the bridge I was showing, I mean, how we're compensating for the lower volume comes from several areas, but you can split them into two. One is the commercial side, i.e. the pricing versus the input cost, which was presented in that graph. And the other side is then the fixed cost, which includes, of course, the SG&A as well as the factory overheads. And all of that is contributing at the moment in a positive way to compensate for the lower sales. So I would say that looking back at Q2, we definitely have compared to the previous year's second quarter benefit from that side.

Okay, okay, good. And maybe just a final one. I guess in H1 you reported on a carve-out basis. How are you going to report them in H2 this year?

Yeah, so Q3 will be a normal quarter. So then we are a standalone company with a standalone P&L, so that the individual quarter as such will look normal. But then, of course, when you look at the cumulative numbers, it will be a combination of the first half year carve-out in the P&L and then the second half will be the normal standalone. So that will continue, of course, for the remainder of the year until we reach 2025.

That's very clear. Thank you very much.

We have more questions in the queue, but as a reminder, if you wish to ask a question, please dial pound key 5 on

your telephone keypad. The next question comes from Tom Scogman from Carnegie. Please go ahead.

Yes, hi, this is Tom from

Carnegie. As the order book now gets smaller and as you have highlighted weakness in the terminal tractor segment for some quarters, I wonder whether there are some pockets in the order book where you really will fight under absorption of fixed costs in factories in the second half. So we get a better understanding of how the order book is distributed between the products and factories.

Well, of course, we don't split the order book by the product, but perhaps to give you a flavor of how we deal with under absorption is, of course, we adjust the cost in production on a continuous basis. So the direct labor that we have there is, of course, adjusted to the demand picture as well as possible.

And you feel certain that you have not lost market shares in any any product now during this period of weaker order? So,

yes, that's what we say. But we are not going into the market share discussion here, of course. But we are, you know, as an innovation and technology leader, of course, there is a great request and interest in our products, including electrification, which you could see in the eco portfolio sales as well. It's really developing favorably.

And if you consider where we continue to see the issues, if you like, is the distribution segment in North America and then the larger orders. And that's, I would say, same for the competitors. So it's the general market situation.

And then about this new efficiency program, I realize it's early days, but can you, I mean, you have your background from EPROC and so on. I mean, how do you, what do you want to achieve? I mean, is it, you know, changing the way of doing business, splitting the company into smaller parts? Have you seen in some other, you know, companies, you know, we need more kind of redistributed responsibility out in the organization, etc. What do you want to achieve? Because you only have four factories. So, I mean, this program cannot really be about, you know, closing factories or so. So what do you want to

achieve? If we start, let's say holistically, of course, this is a combination of both commercial and operational excellence activities and actions. And of course, active pricing management, supply chain actions, which are some of them related to the sourcing part, indirect and direct sourcing, of course, process improvements, as well as staying competitive in the cost base overall. So it's a wide area, of course. And what I coming from EPROC and those companies, of course, what I want to and what we want to achieve is, of course, to have a full focus on our key three key strategic pillars, which are innovation, service, and then the driving excellence and really get the be the industry best company, of course, in the driving excellence part, as well as we are in the other two areas already. So and that is a vital part, but it's also fueling, of course, you know, benefits to the other two strategic pillars, which we have mentioned in the presentation as well. So it's a key, of course, to be very efficient on the process side as well.

So I think it's important to think about it as a continuous improvement on a very broad, with a very broad scope across many areas. So this is not a traditional cost saving exercise, if you

like. And do you plan to decentralize the company more or do you want to have more power in the head offices? You want to achieve changes or how do you see that?

Oh, no, no, no further details today, as I mentioned to another question as well. So this is the information that we have disclosed today. And it's a good information. It details it quite a bit already in the areas what I just mentioned. So but no further details at this stage.

Okay. And then finally about these running hours as you collect data from all kinds of equipment. So what is the big picture you see? What do you see in Europe? You said in North America, it's down, but what about Europe and some

machine

specific data?

Yeah, good question. The big picture is that we can see the softer North American market from those operating hours and then we can see a stable situation, more stable situation elsewhere, I would say.

And if you compare Q2 last year to Q2 this year, actually the running hours are slightly positive up from that time, but especially now if we look at the North American in the Q2, so those running hours are down compared to the previous quarter.

Okay. Thank you.

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you, Sami and Sakari. Thank you for a live Q&A session. And we will revert back to you in our third quarter call on November 1st. Thank you and have a great day.

Thank

you very much. Thank you very much.