Konecranes Plc Ord

Here with me today, I have our president and CEO Anders Svensson and our CFO Teo Ottola. Before we start, a kind reminder, this presentation contains forward-looking statements. Next, Anders and Teo will walk you through our Q2 results. Anders will start with the group numbers, after which Teo will focus on the business segments. The presentation is followed by Q&A as usual. But now, Anders, the stage is yours.

Thank you, Keira, and welcome also from my side to this webcast for the result of the second quarter. The headline of the quarter is record high comparable EBITDA margin in all business segments. The demand environment remained healthy during the second quarter, even if it was down 11% on a strong comparable in the previous year. Sales execution was strong and we delivered above one billion of sales, up 13% versus the previous year. And that gave us record high comparable EBITDA margins of 14.3% and it was actually all time high in all business segments. And the profitability improvement was mainly driven by higher volumes and also by price inflation management and a strong strategy execution. I'll move into the market environment and start with our industrial customer segment. If you look at the manufacturing capacity utilization rate starting in the EU, it was down sequentially and also down on a year-on-year comparison with 2.3 percentage points. In the US, however, sequentially it was up, and if you look on a year-on-year comparison, it's actually quite flat. If we then move into the global manufacturing PMI, that was in expansion. However, if you look at the Eurozone, still in contraction, while US, China, India, and Brazil, clearly in expansion. I move over to our port solution customer segments. And here we normally look at the global container throughput index. And if you look at this, it continued on a high level. And on a year-on-year comparison, it's up 6%. And that should talk about a strong market climate for our port solution customers. I'm moving into the group order intake and net sales. Starting with order intake, we had a healthy order intake of 968 million, and that was down 11.5% versus a strong comparable in the previous year. However, the order intake is the strongest we have had in the last four quarters. And if you look into the different segments, so in service, we had an all-time high order intake. In industrial equipment, we were above the 300 and on the same level as in Q1 and actually ahead of the Q3 and Q4 of the previous year. And then you look into ports also here above the 300 million and the strongest order intake in the last four quarters. However, in the comparable one year ago, there were two significant order intakes. The first one was, and the largest one, was to Porto, Virginia, 36 automatic stacking cranes at the value of above 130 million euros. And there was also another one to Copenhagen Malmö Port. Our net sales execution was strong. We delivered 1 billion 32 million and that was up 13% versus previous year. We had an increase in all three segments. Geographical wise, we had an increase in EMEA and in the Americas and a decrease then in APAC. And the mix for the group was slightly positive for the quarter. Moving into the group order book. And here, our book to build for the quarter was slightly below one, thanks to the strong sales execution. And if you compare it to the previous year, we are 12% down versus Q2 23. And as you can see, that was a bit of a peak in the order book. Since then we have improved our delivery capabilities and also reduced lead times to customers. So going into the second half here with almost 3 billion order book is a strong position. Then I move into our group comparable EBITDA and here we delivered 147 million euros and that was 50% up on the previous year where we did 98 and that gave us a margin of 14.3% for the quarter that was up 350 basis point versus the previous year. And the comparable EBITDA margin increased in all segments and we're all time high then in all segments as well. And as I said in the beginning, driven by volume leverage, price inflation management and strong strategy execution. If you look at the gross margin, it also improved on a year on year comparison. Now we normally look at our financial target and our performance towards our financial targets. So if you look at the quarter isolated, it's very strong of course, both the group and all the segments are within the profitability range and actually in the top half of the profitability corridor. You can't look at one quarter isolated, of course. So when we look at rolling 12 instead, we can see that group are now within the profitability corridor at 12.3% in the rolling 12 basis. Service as well, 20.8. And you can see a strong performance also from industrial equipment and port solutions getting quite close to their profitability corridors as well. So that looks very good. If we instead then also cover sales growth target, which was to grow above nominal world GDP. If you look at the previous year, 23, we had a growth of 20.5% in comparable currencies versus 22. And so far this year, we are running at 7.8% growth in comparable currencies. So also here, I think we are delivering on our target. outlook and within our industrial customer segments we say that our demand environment within industrial customer segments has remained good and continues on a healthy level and we have seen that during 23 and also the first half year here of 24 the demand environment has remained good and we don't have we are not saying that there is no uncertainty anymore in the market of course there is but we see it as quite stable on a good and healthy level within the industrial segment interest rates are of course impacting customers negatively in the decision making process not that they cancel or discontinue projects, more that they take longer time on decisions when it comes to the larger projects such as process cranes, not affecting standard crane and component deliveries in the same way. Funnel continues to be strong, also containing process cranes to a large extent, and we see a good inflow of new cases also into the funnel. Then if I move to the port customer segment, we say that global container throughput continues on a high level and long term prospects related to global container handling remains good overall. And if we look at the pipeline here, it's also in a very good state. Short cycle products, projects of different sizes, And you know as well as we do that this is a project business fluctuating mainly depending on timing of decision making in larger customer projects. We haven't had a really big project in the last couple of quarters, as you are aware. I think delivering 300 million plus without those kind of projects is a very good level for us. And now we see, if we look at the second half, that there are some projects that come more into a decision-making process with customers. So we're looking positively towards that. Then I go into the financial guidance for 2024, starting with net sales expected to remain approximately on the same level or to increase in 2024 compared to 2023. And then we say that comparable EBITDA margin is expected to improve in 2024 compared to 2023. And as you know, we upgraded this statement in June. So with that, I would like to summarize that we are very happy with our performance in the second quarter and also in the first half of the year. We're looking forward to the second half of the year. And with that, I would like to invite our CFO, Mr. Teo Ottola, to dive a little bit more into our financial numbers. So go ahead, Teo.

Thank you, Anders. And before actually going into the business segment numbers, so we could take a brief look at the group profitability bridge. So this is the comparable EBITDA bridge between Q2 24 and Q2 23. Of course, this one looks very good. So the year on year improvement now is 49 million euros. As a comparison, of course, if we take a look at the first quarter, so there the year on year improvement was only 6 million euros. Now this is a clear step forward, obviously, in this respect. improvement year on year and of course also Q&Q basically comes mainly from two aspects. One of them is the underlying volume and the other one is net of inflation pricing. So as Anders mentioned, our sales are 13%. The price impact in a year-on-year comparison is around 5%, maybe a little bit more. But this gives us a very good underlying volume improvement in a year-on-year comparison, which obviously is visible in the operating average of the company in the second quarter. Then if we take a look at the price impact, so this 5% price increase in comparison to the situation a year ago, so it is more than inflation. So this is giving us a net of inflation pricing benefit in a year on year comparison. In comparison to the Q1, so we didn't basically have any underlying volume improvement in Q1 in a year-on-year comparison, because the sales was not that high. We did have net of inflation pricing impact also in Q1, but in the second quarter it was somewhat more. So then when we take a look at this Q2 versus Q2 again, so fixed costs continued to be well in control. And this, of course, emphasized the impact of operating leverage. Also the execution as a whole. So efficiency of the operations was very good. And this is also a positive delta in comparison to the previous year. We had good execution in Q1 as well in a year-on-year comparison, so this is maybe not a difference from a sequential point of view, but definitely on a year-on-year basis. So underlying volume improvement, net of inflation pricing and good execution overall throughout the company contributed to the big delta that we have in Q2 versus the situation one year ago. Then if we move into the segment level, start with service as usually, order intake 406 million euros. This is a growth of 8.5% with comparable currencies year on year. We had growth both in field services as well as in parts of the regions. We had growth in the Americas and EMEA, but a decrease in APEC. Agreement base grew also 5.7% year-on-year. Sales, 396 million euros, that is 8.8%, higher than a year ago in comparable currencies. Again, growth both in field service as well as parts, and also from the regional perspective, so all regions actually increased in sales in Q2 versus a year ago. order book basically on the same level as we were one year ago. Then EBIT A on an extremely good level, 87 million euros or 22.1%. A good improvement even by the pricing impact as discussed. Of course, underlying volume improvement. And also from the execution point of view, the quarter was good. And all of those contributed nicely to the profit improvement. Industrial equipment, their ordering cost 305 million euros. Decline in external orders of approximately 11% in an year-on-year comparison, again with comparable currency. We had year-on-year growth in standard grains as well as in components, but we had a clear decline in process grains. So the process grain funnels have continued to be good, but as Anders mentioned, the decision-making time times have become longer. And as a result of that, the process grain order intake was lower than what we had a year ago. Then again, in a sequential comparison, if we take a look at that one, so standard grains actually increased in order intake. In components, we had a decline. Sequentially, process grains were more or less on the same level as they were in Q1. The component order intake decline is primarily as a result of the price increases that we made in Q1. And usually there is pre-buying as a result of that. That was the case now as well. And Q2 orders were lower, exactly the same as we had one year ago also. Sales, 327 million euros. That is from the external sales point of view up 6.8%. We had growth in all major business units and of the regions in EMEA and Americas, whereas decline in Asia Pacific. Order book by some 5.8% in a year-on-year comparison. Then to the EBITDA, excellent result here. 32 million euros, 9.8%. This is almost four percentage point improvement year on year. Of course, driven by volume here as well, but primarily actually strategy execution. So for example, the optimization program that we have been running for industrial businesses, impacting mostly industrial equipment has been generating benefits. We also had one time positives in the amount of roughly 4 million here as a result of the project settlements that we did during the second quarter. Then on the port solutions side, we have order intake of €300 million. That is a decline of 27% in comparable currencies year on year. We had very good order intake in mobile harbor cranes as well as in straddle carriers. of the regions, if you take a look at that one. So we had actually growth in APAC, whereas we had a decline in the other two regions. And again, sequentially, order intake actually increased as a result of the same business units as we had in an year-on-year comparison as well. So, for instance, trail carriers. And then if we take a look at the early cyclical product groups like lift trucks, growth year-on-year, sequentially a slight decline. From port service, also important one. So there we had year-on-year more or less flat-ish situation, Q2 we had growth. Sales were on a very good level. This is a very high growth of 25% year on year, 348 million euros. We had very good deliveries in RTGs. We also had very good sales in port service, which of course is supporting the mix going forward or now as well. And then when we take a look at the EBIT, 36 million euros, 10.5% here. Also, like in industrial equipment, an improvement of almost four percentage points. Of course, driven by the underlying very big volume improvement, but also definitely price. And then mix was particularly good for pot solutions in this quarter as a result of the high share of service and, for example, RTGs.

with your microphone, so could you take this one?

Okay, but I don't need to repeat everything? No, I don't. Okay, good. Then when we take a look at the networking capital and free cash flow, so there a networking capital reached 458 million euros. This is 11.2% of rolling 12-month sales. So it is in target of being below 12% of rolling 12-month sales. But sequentially we have an increase here. It is actually coming basically from all the business segments. But one of the big reasons is the project timing within Port Solutions. Consequently, free cash flow in the quarter was quite low, driven by the net working capital increase. But when we take a look at the rolling 12-month situation, our cash conversion still continues to be on a good level. And then as a final slide before the Q&A, so gearing and return on capital employed, our net debt was 438 million euros at the end of the second quarter, of course, up from the first quarter as a result of the dividend payment gearing 27%. And then when we take a look at the return on capital employed, actually now on a, let's say, comparable basis, we are reaching the level that is above So a very good level driven by the profitability improvement. And this one concludes actually the presentation and then we can go into the Q&A.

Thank you, Teo. Thank you, Anders. Once again, my apologies for the bad audio quality. I hope it gets better from now on. So why don't we start with the Q&A then? You can send us questions through the chat function, or then questions can be also asked on the line. And maybe we start with the questions from the line, please. So please, operator, go ahead.

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 Daniela Costa from Goldman Sachs. Please go ahead.

Hi, good morning. Thanks for taking my question. It's Ilaria here on behalf of Daniela. So my first question is around free cash flow. And in particular, so you had a sequential increase in networking capital this quarter. So my question is, how should we think about the evolution in the second half of the year? And then second question on pricing. I wanted to ask, do you think this pricing level is sustainable? And did you have major role match benefits this quarter, which you think might not be repeated going forward? Thanks.

Okay, so if we start with the free cash flow question, correct. So networking capital increased from Q1 to Q2, generating lower cash flow than for the second quarter than previously. This is, however, in line with so-called normal fluctuation. And the target that we have set to ourselves on mid-term basis is that we should be below 12% of rolling 12-month sales. And now we are at 11.2%. So we are within the target. There are no major changes in, let's say, terms and conditions with customers. So there is no structural change. This is more like project timing topic, the balance between inventory and advance payments when it comes to the ports business and of course also when it comes to the process grains in industrial equipment. So nothing dramatic, nothing alarming. We are within the target. You asked about H2, so that will also then depend on the project timing. And that is the reason why we actually usually refrain from giving any guidance on the cash flow due to it being, let's say, very difficult to estimate as a result of the timings. And then, of course, it's always the one time event then at the end of the quarter that what the balance sheet situation. But like I said, nothing to be concerned about in this respect. The pricing impact, what we have been saying all along is that we are expecting to be able to do a small positive delta as a result of net of inflation pricing impact. This has been the case for several quarters in the past, and we believe that we will continue to be able to do that going forward as well. Second quarter from that perspective was somewhat better than the first quarter and was somewhat better than the previous quarter, say Q3 and Q4 from the delta point of view. This is primarily as a result of the mix. So the impact mostly comes from ports and it's also driven by the product mix and how the timing of the deliveries has come about. But the basic thing is that we believe that we will be able to do a small positive delta as a result of the net of inflation pricing. Raw materials, I think you asked about those as well. Now that the raw material costs have been going down, We have benefited from that one to some extent, for example in the second quarter. We will most likely benefit from that a little bit going forward as well, because of the cost levels of the raw materials being what they are versus the pricing earlier. But this is not in a way a structural gain, so this will even out over time. But for Q2 and maybe to some extent in the near future, we will be seeing a small additional positive delta as a result of this.

Very clear, thanks.

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

Hi guys, it's Antti from SEB. A couple of questions from me as well. First one is on kind of the mixed comments that you made firstly on the industrial side regarding slower orders and process grains versus components and standard grains. So I need to kind of better understand will this have a major positive mixed impact on margins going forward as I assume that there's still a kind of a margin difference between the lower margin process grains and the rest. And on the same theme then on the ports, also wanted to understand how big of an impact did the positive mix has on Q2 and would you expect that starting to normalize going forward?

If I start and then you compliment. So looking at the industrial side then first on the order intake here. So given that process cranes are a little bit more affected due to high interest rates in the decision-making process than standard cranes or components that will, of course, have some effect on deliveries, but since the lead time of those are much longer, that effect gets diluted. So we don't expect that that mix change in order intake will have a significant effect, positive effect, on the margins going forward. There can be some effect in some quarters, but then again, it's fluctuating since it's project deliveries, much like on the port side, but in smaller scale. And then your question on ports. Here, it's more about what kind of deliveries we have in each quarter, and those are project deliveries. If we deliver, then, in a quarter, products with an averagely higher margin than other products, then in that quarter, margin goes up. And if we have a good service sales quarter, then margin goes up. So it's more dependent on project deliveries than the underlying sort of sustainable continuous business, which we have all the time. So that mix is dependent on project deliveries. And that will vary in quarters going forward as well. So if you want to compliment anything or...

Maybe just a couple of additions. So yes, of course, part of your question was that is there still a margin difference between process grains and, for example, components? Yes, there is. So of course, if this kind of thing would continue. So structurally, it would be impacting margins. But like Anders said, we are not really believing that there would be a structural change. This is more like a timing topic. And process grants funnels continue to be good. So the expectation is that the that the orders will flow in at some point of time as well. As an overall comment regarding the mix though, we can note that we are now slightly more optimistic or positive on the mix impact as a whole for the group this year. In the beginning of the year, we were a little bit hesitant. We were of the opinion that maybe the mix is even negative. But now we can say that based on the current understanding, the overall delivery mix will be somewhat favorable this year in comparison to what it was the year before. And this is primarily driven by service. So the higher share of service and a good share of port service within ports are some of the drivers that are impacting this comment.

say as well that process cranes is a little bit like the ports projects in terms of order intake it's a bit lumpy and also here when you don't get so much in one quarter the probability that you will get more in the next quarter increases so we don't see a structural change that there will be no process cranes going forward so i think that's important to state as well

Okay, that's very clear. I guess you kind of touched upon my second question already, but that was more on the guidance upgrade in June and kind of the reasons behind. I mean, obviously, these Q2 margins were at least much stronger than I had expected, but was this more about the mixed comments that you mentioned, that you see a stronger mix for the full year, or are there something on the strategy execution that is actually moving well ahead of your plans, or what were the main reasons?

I think we had several reasons here. One is, of course, we had a good volume leverage in the quarter that gave us a good result. We had, like Theo said, a positive mix, both for the group and then especially in port solutions. Theo also touched the price inflation situation, which was maybe more positive in the second quarter than it usually is. Very clean quarter in terms of performance. No performance issues in either process crane side or in the port side, which can sometimes impact somewhat negatively. And then we had a 4 million legal case that was decided in our favor, that of course also helped the result positively in the quarter. We are still expecting for the third quarter an improvement year on year, but we are not maybe expecting that it's at the same level as the second quarter.

And maybe to clarify that the mix was not a major reason behind the upgrade in the financial guidance. It was more the other things that Andres was describing, like strategy execution, so the operational efficiency that we are more comfortable with now maybe than earlier, and then of course the net of inflation pricing as well.

Okay, that's clear. Congrats on the great quarter and thanks for the answers.

Thank you.

The next question comes from Tom Skogman from Carnegie. Please go ahead.

Yes, hello, it's Tom here from Carnegie. Great to see good numbers. I assume you have had some good orders a couple of years now, and it's filtering through in sales, and I can see that number of employees was up by only 2% year-on-year, so clearly less than sales growth. But when I look into next year, the order book is a bit down, and the number of employees is actually up. On the other hand, you have these new modular products coming, you know, that should give a lot of savings, but I don't really know whether that will lead to mainly savings on the supply side, or will you need less own employees to deliver these? And what do you think about this kind of number of employees going into next year? Is there any kind of reason to consider some cuts in order to keep the great momentum going, as you probably will have less help from top line next year as it looks now?

Thanks, Tom. If you look at our performance, if you go back to 2022, during 2023, we increased number of employees by 64. And then you look in this quarter, a number of employees increased roughly 70 people. And we got roughly 70 people with the acquisitions we made, roughly 60 with the Cox acquisition in April, and roughly 10 with the Dungs acquisition. So that's very much aligned with the number of people coming in for acquisitions. So we are generally not increasing number of people. And if you compare to the level of 2022, I think we have shown internal efficiency improvement quite significantly. It has to do a lot with our strategy execution and what we decide to prioritize in the company as well to drive efficiency and to drive value add for our customers. We talked about the order intake previously. It is lumpy when it comes to the process side of the industrial segment and the port side. I mentioned that we are positive regarding the process side in the second half of the year as well as projects coming to decision making with port customers in the second half of the year as well. So I think you need to look more on an annual basis when you look at at order intake development and of course it will shift from year to year a little bit and you know some of those port projects they offer deliveries in three years from now so you can't really look at half a year and sort of compare it can you however give some comment on the order backlog beyond the current year and what is for delivery this year We do that once a year in the annual report. I don't have the numbers in my head, but we did that. So if you look at the annual report, you will find that. And of course, that's updated. But as we have stated, we didn't get any significant large orders in the first half year. So it's mainly those significant large orders that has a really long lead time. Most of the other products are delivered within 12 to 18 months, even if they are big products.

It is correct what Anders is saying that we are not actually disclosing in the appendixes the order book timing on a quarterly basis. Maybe it's fair to say at this point of time anyways that the decline that we have in the order book is not for the current year. So the order book for the current year is now on par or actually slightly higher than what it was one year ago for 2023. So your point about order intake and order book going forward, so the decline in the order book is for the years beyond this year, when we take a look at the current situation.

Yeah, and then I wonder about the gross margin and SD&A cost development. I don't think you mentioned that much in your presentation about that, and you have done some pretty big changes to how you distribute the macrains, for instance. So how is the margin improvement split between these items?

Let's say that the two main items that we have in the optimization program are the platform renewals or reduction of number of platforms as well as renewals of platforms and then of course go to market which you are now referring to in your question. We are maintaining the same forecast for the overall results of this optimization program 40 to 50 million euros as we have been having, it had an impact in the second quarter as well, several millions, less than five though, but several millions anyways. And then to your question that do we split the savings between these two main items? So unfortunately not. So we are just saying that both of these topics have had an impact and will have an impact. And we have been able to proceed with them as planned. by and large, in some cases even quicker than what we planned. And we are happy with the results of the program from the financial point of view. But the more accurate split, we unfortunately do not disclose.

And I think one addition to that, it's so easy that we get snowed in on only talking about the optimization program. Let's remember that that is the initiative in industrial equipment primarily, with some effect for service as well. The strategy execution program is much, much wider. So when we talk about strategy execution and performance as a component in the improvement, it's much wider than just the optimization program. I just wanted to highlight that.

Thank you. Let's now take the next question from the line, please.

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

Hi, Anders. It's Tommy here from DNB. Congratulations on the strong set of numbers for the second quarter. A couple of questions. Firstly, Wondering about the industrial equipment. As we see order backlog is down, your run rate orders are roughly 300 million per quarter, suggesting sort of 1.2 billion sales for full year. Do you believe that you can grow or stay flat sales for the industrial equipment for this year compared to last year?

Yeah, so I think I mentioned it and Teo mentioned it. Standard cranes are growing. Components are growing. Where we are not growing is in the process crane, which is then, as you can understand, quite a lot down. And then what we see in our sales funnel, in the number of projects, in the value in the sales funnel regarding process cranes, it's actually very strong. And we see that those projects are coming closer to decision making. So from that perspective, and given that we have similar performance as in Q1 and better than in Q3 and Q4, we are very confident about the industrial equipment going forward in terms of water intake and in terms of growth as well. Then I want to also remind that When we launched the strategy, we wanted to grow significantly faster than the market in service and significantly faster than the market imports. And we said more in line with market and industrial equipment. And the reason was that we felt that we had more to do in terms of fixing stability and profitability before we focused on growth. And we are still working on, I think, stability we have to a large extent already completed. And we are now working with the optimization program as the main engine on the profitability phase. While we, of course, already on some parts are in the growth phase, like components, for example, and standard cranes. But there are still some things that we're working on to... to fix in terms of the profitability phase. So I think we are very much performing in line with our own plans and in line with our own expectations when it comes to industrial equipment and we are not worried about the lower order intake in process grains in the first half year.

Maybe a follow-up to that. So essentially I know that you don't give divisional guidance, but if you were to rank, the sales increase this year is more tilted to services and port solutions, because I have some difficulty to calculate growth, unless the backlog is faster deliveries in industrial equipment at the run rate is 1.2 billion of orders.

So you are correct that the strategy is that service and ports should grow quicker than industrial equipment, just like we communicated in the capital markets day. And that's still the target. There are elements, as I said, within industrial equipment where we have a growth focus. and that is also being delivered on and that is the standard cranes and the components and we have not had a growth focus in the process cranes and rather a stability and profitability focus in that side and I think the team has been fantastic in performing that and they are improving and coming into the growth phase as well going forward in a much better shape than when we were two years ago.

excellent thank you and then if you could just maybe describe a little bit the end market conditions if there's any surprises which show strength which weakness if you can comment

Yeah, if we start with the demand outlook, I think I've gone through that already. So if we then look into the geographical markets, and I think that has been covered quite well also in Teo's run through. But Americas, and especially North America, is performing very well and stable on a very strong level. Europe somewhat improving, and I would say Germany in Europe may be above expectations. If you look at the macro indicators, you would assume that it's not performing very well at all. And for us, it's actually doing better than macro indicators would indicate. Northern Europe, also quite strong. Southern Europe, a bit weaker. Middle East, quite strong. And then in APAC, we have much more competition, but I think we are holding our market share in the top tier market. Anything to add, Theo, on that?

Nothing to add.

Just a follow-up and clarification. In terms of the customer industries, any particular positives or negatives to highlight from there? What do you see in metals, energy, automotive, general manufacturing?

So starting with the strongest one, I would say it's power, where waste to energy, nuclear, et cetera, is very strong. We have logistics on the port side as well, very strong. General manufacturing, I think, is performing at a very good level. Maybe not strengthening from now, but very stable at a good level. Other strengths we have seen in automotive, aerospace has been strong for us as well. We have seen strength in green steel, also in the quarter. Otherwise, metals is maybe not at any peak. That is... at an okay level. Pulp and paper has been weak. We have seen some tens of coming back in pulp and paper, which is positive. And then, of course, defense, I would say, is also a strong sector currently. Yeah, I think that summarizes most of it. And the rest, I would say, are flat.

Excellent. Thank you very much. I'll leave it there.

Thank you. Let's now take the next question, please.

The next question comes from Mikael Dopel from Nordea. Please go ahead.

Yes, thank you. And thanks for taking my questions. I just want to come back to the earlier question around the mix. I mean, it's obvious that the mix plays a role. uh in terms of profitability depending on what you deliver but given that you have an order backlog now um for the equipment side of your business both for industrial as well as sports i think your visibility into the second half revenue should actually be quite good there partly also on the service side so my question is really that do you see any meaningful change in the mix new revenues in the second half of this year compared to what you saw in q2 that would be my first question

Maybe if I take high level and then Teo your compliment. So we said that the mix was slightly positive for the group now. Flat in service, slightly down in industrial equipment and then positive imports. And that is exactly the mix that we are expecting for the rest of the year as well. Then, of course, within that, you have mix between the products. And those are dependent on project deliveries. And, of course, on the longer deliveries, we have good visibility. On the more short-circuit products, we have less visibility. So we are not giving any mixed forecasts either going forward, more than what we have said regarding the sales outlook and the profitability outlook. But there will be no significant changes.

Okay, so no significant changes H2 compared to Q2, I guess is what you're saying.

Maybe I will add a little bit to the mix within the ports where it actually was very good now in the second quarter. So maybe we do not expect within ports the mix to continue exactly on as good level as it was now in the second quarter. This doesn't take away the earlier comment that we believe that now in a near-on-year comparison overall the mix for 24 will most likely be slightly better than 23. But I mean, this isolated Q2 from the ports point of view was really good. So maybe that can even out a little bit. But then, of course, in relation to the mix between the different segments, like Anders pointed out, so there, of course, it's crucial that what are the deliveries and what is the share of sales in service versus industrial equipment versus ports.

And also, of course, we expect a better mix this year than the previous year still, even if it's maybe not at the same level as in Q2, but still a better mix than the previous year.

Okay, understood. Good. And then my second question is on the larger order you mentioned, I think, in the opening remarks as well and also commented here now, seeing some better activity there. I think you mentioned process cranes at least. Some big orders might be finalized there. But do you also see improved activity on the port side on some bigger projects there? Or is this only related to the industrial equipment business?

I think that must have been a misunderstanding. It's primarily related to the port side and it's not increased activity, it's timing of the customer projects. So when the customer comes to a decision making in those larger projects, And that we see that that timing we haven't seen in sort of the first half here for the larger project. We now have some of those customer projects that we have been following for years that are coming to decision process in the second half of the quarter. Then we also said that if we don't see a structural change of process claims, even if there are delayed decision making in the industrial side, and if you don't get projects in one quarter, then the likelihood of getting them in the sequential quarters increases. So that comment was mainly related to ports, but it's also somewhat applicable to the industrial side.

Yes, because you also said that you see a good sales funnel there also in process grains.

Yes, and that hasn't changed. The sales funnel has been the same in process grains all the time, actually. It's more decision-making timing.

Right, right. Okay. Well, that's very clear. Maybe just a final one. I'm not sure if anyone had anything. I think Teo already went through this a bit in his presentation. But in terms of the short cycle product demand, any commentary around that in terms of what you see in the market right now going forward?

We are seeing the, let's say, environment going forward relatively similar to what it has been, which is of course in line with our demand outlook as well, particularly for the industrial side, so that the markets have been good. We are expecting a healthy situation going forward as well. And this is applicable to the short cycle part of the business as well. So nothing dramatic, no major changes. I think that when we discussed those short cycle products regarding ports, for example, so one of them was going up year on year, the other one Q and Q. you cannot really find a very clear direction one way or the other. So from that point of view, expected stability is maybe the word to be used.

Okay, that's fair. Thank you very much.

Thank you, Mikael. We have also received some questions through the chat function. So maybe this would be a good time to take those. And we could start with one question regarding the newly announced US tariffs on SDS grains. So what will be the impact of the newly announced 25% US tariffs on SDS grains on your business and the SDS grain industry as a whole?

Yeah, thanks. So the tariff has been implemented on the 1st of August this year and it's applicable for deliveries from the 1st of August into the US, which means that all orders being delivered after that will have to pay the tariff. All Chinese. All Chinese. That is important. Also corner cranes, Chinese manufactured, are facing the same tariff. So we have some order backlog on that being delivered in the beginning or first half of 2025. The cost related to that is 100% taken by the customer according to our contracts. So it's not having an impact on Konecranes in terms of our deliveries with being affected by this. And of course that we have an outsourcing network in different regions. We can then produce the similar products in other regions to avoid the tariff. puts us in a, from that perspective, competitive position. However, we should also know that the cost level in China is very competitive to other regions. So we offer our customers different different alternatives. They can buy Chinese produced and pay the tariff. They can also buy European. And we are also setting up so that we can supply BABA qualified equipment going forward.

And maybe overall, so how these tariffs will impact on the industry as a whole. So that's maybe a little bit too early for us to comment on that. That kind of generic commentary. Then next question from the line, is the improved, or not from the line, from the chat, is the improved balance sheet and outlook likely to result in any change in capital allocation, for example, in share buybacks or M&A, especially given your new board chairman? Any insight?

No, I would say it's the same comment as we have said previously. We have activated ourselves in M&A, focused on bolt-on acquisitions. And then we can widen our geographical reach. We can widen our product portfolio. And we're also looking into other sort of solutions for customers in the material handling industry. But with that said, we're not going on a rampage to spend everything we can on acquisitions. It's important that we make the right acquisitions at the right time. And we still have the whole range of things we can do with the money. So all the way from paying back loans to buying own shares to increasing dividends, etc. So nothing is basically excluded. But it's of course a better position to be in than not having that position.

And then a third question from the chat. How about pricing on new equipment now when some raw material prices are coming down? Teo?

Yeah, so the effect normally for us on raw material changes is not significant because we don't buy a lot of raw material. We buy a lot of processed material with a lot of value add inside it. It's not a significant effect. Should it be sustainable that steel prices go down, we would over time then adjust ourselves, of course. We tend to compensate inflation with pricing towards our customers and make sure that we are not on the negative receiving side there. But our intention is not to make a lot of extra money on pricing. We are there long term with our customers. However, if we should adjust every time the steel raw material goes up or down, we would have to do that all the time. So this will sometimes be a bit positive for us and at other times it will be a bit negative for us. Like Theo said, in the second quarter it was a bit positive. And then, of course, if you look at the larger product, like steel structures for ports product, et cetera, that is, of course, adjusted when we quote new projects with a new material. And that is a natural hedging. When we get the order from the customer, we at the same time place the order to the supplier. So there's a natural hedging there for us to eliminate the project risks from that perspective.

Good, thank you. I think we still have a couple of minutes time, so we can take one last question from the line, please. Operator, go ahead.

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

Thanks for taking my question. I just wanted to ask about this efficiency improvement program in the industrial business. How much of the targeted kind of earnings improvement have you now achieved and how much is still left of the total number that you are aiming at?

Yeah, so we said that this program will yield 40 to 50 million profit and loss improvements in a run rate at the end of 2025 and it will come with a 40 to 50 million cost to achieve that. In 2022 we had one and a half million, in 2023 roughly 11 million and we have also said that we estimate that we will deliver roughly 11 million also this year and then the rest will of course be after that.

And this is on the industrial equipment side.

This is on the industrial equipment. And then you have the service side, which we haven't actually talked about. Yes, but it's been a few million. But it's a few million, but we haven't said that, the number. So this is on the industrial equipment side.

Okay, thanks. But out of the 11 million this year, did you kind of get half in the first half or was it kind of more loaded to first half?

No, we have been getting half in the first half, so it is not back-end loading. Okay. Yeah, great.

Thank you.

Thank you, Panu. I think that we have now run out of time, so it's time to conclude this conference. Thank you for all the questions and active participation. And as a reminder, we will report our Q3 interim report on October 25, so we'll be back here in the studio then at the latest. And I would like to wish you all a very good summer. Thank you.

Thank you.

Bye-bye.