Cavotec SA

Morning and welcome to Cavitec's third quarter presentation. I am David Poggers, the CEO of Cavitec and together with me today, I have as usual, my CFO, Joakim Bahlqvist. So to start with a short introduction to Cavitec. I know we have a lot of new, we might have new comers in the call as well. So Cavitec has close to 50 years of experience and next year we will actually celebrate our 50 years anniversary, which is quite a cool milestone. Over these 50 years, Cavitec has built a strong position as a leading clean tech company with a global presence. Our offering consists of design and delivery of solutions to connect, to automate and to electrify ports, vessels, other industrial applications like heavy duty vehicles that are used in, for instance, the mining industry. Our most important competitive advantage is that solutions and services contribute to the decapitation of ports, mines and other industrial applications. This trend is strong all over the world and we are in it and we've been there since 50 years. A significant asset for us is our large install base in over 80 countries. The install base gives us a well established customer relations. It gives us a good reference, of course, going forward, and it also is a big potential for us looking after our equipment and then also continue to driving our service business. Let's turn to the next slide to see a little bit why our market is so interesting. What we have is a strong position in the market but it is driven by mega trends and regulations. The mega trends that drive our market are the urgent need to reduce greenhouse gases and also noise in critical infrastructures such as ports, container terminals and onboard on vessels. Our solutions are also supporting the reduction of emissions and noise in certain different industrial environments and for instance, the charging of the heavy trucks, as I mentioned. These mega trends are supported by international and local regulations that enforces the operations of ports, terminals, vessels and other industrial applications to really reduce the emissions and also then to reduce the noise of their equipment. We know everyone wants to walk away from the dependence on the fossil fuel and that's where we play a critical role. We operate within market segments that are critical to society where our solutions are needed to lower the emissions and to create a better environment. Cavitec plays a significant role here with our solutions and our leading technologies that are proven, reliable, efficient and safe and therefore perfectly suited to meet our customer requirements. So let me talk a little bit about the various business segments. We have two business segments, Ports & Maritime has the world leading solutions for ports, ships and other marine applications. We have UNIX systems, for example, automated mooring, shore power, crane electrification and connection and charging system, significantly improving the environment in the ports worldwide. Customers include, for us include then ship owners, operators, ports and terminals, port equipment manufacturers and of course also shipyards. Ports & Maritime is our largest segment and stands for the majority of the group sales and EDT. So then moving over to the industry solutions. Our industry solutions drive productivity and contribute to the customer's operational efficiency, electrification as well as occupational health and safety. The products include motorised cable reels, hose reels, radio remote controls, power connections, spring driven cables and hose reels. Customers is a wide variety of industrial sectors such as cranes, energy, processing and transportation, surface and underground mining and tunneling of course. And services of course an integral part of our business segments. So let's move over to some recent business updates, progress here. I have talked to you about in the last quarterly presentation that I had the pleasure of cutting the ribbon in our new facility in Chennai in India in beginning of July. This new facility will serve the large and growing market in India and it will also improve our supply chain and sourcing capabilities and support our operations across the globe. Our inauguration took place in July but even before that we completed our first deliveries back in April making important milestone. Since then we have received orders from both Ports and Maritime and English customers and we now have the production going on in Chennai facility and it's really pleased to see how it goes on. After the end of the quarter we had two major shore power orders were signed with a total value of 6.5 million euros. The first order includes a Power Move, mobile crane management system you can say, designed to serve cruise and row vessels in Italy. These deliveries are expected to begin mid of 2025 and would be concluded by the end of the year. The second order there involves also supplying of two Power Moves, shore power systems, scheduled for delivery in the first quarter of 2026. This system will enable the cruise ships to come into the ports and connect to shore power in order to switch on the auxiliary power. Of course this is critical when the cruise ships are coming in so that they can turn down the engine and you don't need to see any black smoke from the chimneys. These two orders are good examples of how we can contribute to the decommissioning of ports and also how regulations imposed on ports will drive the demand for our products. Those two products are now the first but we see a lot of things in our pipeline for more opportunities around Italian coasts but also to be spread along other coasts in Europe as well. Before I hand over to Joakim, I'll take a little bit of the overall picture of what we have done in the last quarter here. In the quarter we saw a good revenue growth of .1% and a strongly improved profitability. This has been the focus for me and Joakim since we joined and it's really good now to see that we are progressing stable in that direction. We report for the seven consecutive quarter a positive EBIT that grew .3% over last year. This is a great improvement, mainly driven by margin improvement in the ports and maritime segment. The EBIT margin improved to .8% and again a great improvement from the third quarter last year which is a result of the change program and the focus on priorities that we are carrying out. Also, following the focus on the change programs, we report a net profit for the fifth consecutive quarter. With this short introduction, I'll now hand over to Joakim and he will walk us through a little bit more of the details in the numbers.

Thank you very much, David, and good morning to everyone listening in. I can see that there's big interest in Cavatec today. We have many people on the call. I will walk you through a bit more of the details in the finances like David said here. Let's start with the revenue. As you can see here, the revenue grew with .1% in the quarter, mainly as a result of a change program. This is a very strong quarter for the industry segment with good sales of radio remotes and services. The currency effect had only a small impact this quarter with 0.3%. We have seen a more stable increase in sales the last quarters, but we sell to a large extent projects, which means that revenues can fluctuate quite a bit between the quarters depending on which projects have been completed and what milestones that have been achieved. As David described earlier, we continue to see a very strong interest in our solutions driven by both international and local regulations as well as the mega trends to reduce emissions, which David had talked about earlier. If we move on to the order intake, order intake has decreased in the quarter with 6%. As you can see from the graph, the order backlog has decreased a bit over the last year, which is a consequence of our active choice to increase the profitability in the order backlog. I just want to stress what David already has said that a large portion of the Cabotek business is project-driven and order intake can therefore fluctuate quite a bit depending on the timing of signing the orders and quite a lot between the quarters. Although we have a declining order intake here slightly in the quarter, the underlying market demand for our climate-friendly solution remains really good. This is driven by the customer's need to increase both efficiency but also to decarbonize and adapt to the new environmental regulations. If we move over to the EBIT improvements, and I can add to what David had said earlier, that we're happy but not yet satisfied with the profitability development. We have seen a stable improvement -over-quarter and it's really a result of our employees' commitment to implement our change programmes. Since last year, we have also increased our focus on our supply chain and improved our purchasing procedures, which we now are starting to slowly see adding to our performance. In addition to this, which is something that I'm also very excited about, is the cost reduction efforts that are being brought in across our product portfolio, which we expect to further support our journey towards our profitability goals. However, I want to underline that we are not in any way finished with the transformation of Cabotek, and we have a lot of initiatives and improvement activities on our to-do list, which will contribute further to the value creation. After our positive impact of these change programmes that we have implemented in Port and Maritime, I'm also very comfortable to see good results going forward in the industry segment. David will come back to that a bit more in his part later on in the presentation. Over to NetProfit. These stable improvements in the operating result is now also starting to show a significant increase in the cost reduction. We are now in the fifth consecutive quarter, and earnings per share has also improved significantly. This is really a proof of our ability to transform Cabotek and strengthen the financial health of this company. We move over to Cash Flow. Cash Flow decreased a bit here in between the quarters. It was negative. It was negatively affected temporarily by increasing working capital related to some lower prepayments from customer and timing of receivables and collection of them. Compared to the third quarter last year, the leverage ratios continued to move in the right direction and improved to 0.85 versus last year's 2.68. So we're very stable also compared to the second quarter this year. I can underline though that we have a very stable, still very stable cash position and plenty of headroom. So I feel comfortable about our cash flow situation. What I can say is that we continue also to have a very big focus on the working capital. So that will remain a focus throughout 2024 and also in 2025. Let's now move over to Ports and Maritime. Ports and Maritime, like David said, offers offerings of decarbonisation solutions for ports and vessels and automatic mooring systems and also shore power solutions. These offerings are sold as projects, which means, as I earlier explained, that revenue can fluctuate quite a bit between the quarters depending on which projects have been completed and what milestones have been achieved, which is something that you can also quite clearly see in the top graph in this slide. So Ports and Maritime shows a very robust profitability development with an EBITDA margin of .2% in the quarter. And as David has mentioned earlier, Cavitec also has signed two major shore power orders in October with a value of 6.5 million, which is very exciting for us. Let me now move over to David's, maybe the industry division. So the industry division showed a strong revenue growth with an increase of 11.6%, driven partly by a good demand for regular remote controls and services in this segment. However, we are not satisfied with the profitability development in the segment yet, and the EBITDA margin decreased in the quarter. But what I can say is that I feel very confident that the work that is now being done to implement our change programs also in this division will have a positive impact going forward. And as you know, David is still the interim head of the industry division, and a lot of activities have been initiated because of all the functions. By this, I will head back or leave the presentation back to you, David. Thank

you very much, Joakim. So let me go through, round off the presentation here before we move into the Q&A session. So talking a little bit about the key strategic projects that we have here. Although the -au-Matter segment will continue the execution of their change programs in order to further improve the efficiency, to become more competitive, etc., we also see that a lot more to do in the industry segment, as Joakim just mentioned, when it comes to implementation of the change program. As Joakim said, we have clearly plans and projects underway also within industry to improve the possibility. We started these exercises on the -au-Matter time, and now we see clearly the results coming through there. Compared to 22 and 23, we are now on a robust, positive, up-going trend for ports. We are now applying the same kind of methods and the same kind of plans and improvements on the industry side. And so therefore, I'm very optimistic that we're going to see the same things there. We work across the group to improve in sourcing and the supply chain. This has been a little bit of an untapped potential within Cabotek. The new facility in India is a part of our strategy to improve our supply chain and sourcing capabilities. We expect to see continuous effect from these enhanced supply and sourcing processes. Of course, some of that will further strengthen our profitability, but it also then gives us a more possibility to sharpen our offer and strengthen our competitiveness in the market. We also increased our focus on innovation and product development. This has led to us identifying product areas where we see exciting potential. One example there is within our radio remote controls, where we have a strong position, among other world-leading companies that manufacture heavy-duty vehicles, etc. Within all these areas we have identified, we see a good opportunity to grow with both new and existing customers. Another important priority that we have already touched upon in the presentation is to focus on untapping the service potential on the installed base. Potser Maritain has, over the past quarter, been successful in reaching out with its improved service offering and we will see the potential in this area. Our installed base is growing quarter by quarter. We will also see the same thing on the industrial side, where we have not been, but service, as we all know, is a perfect opportunity to stand by our products, to support the customer. If anything goes wrong, we are there to support them and therefore we tie up the customer in a very good relationship. They know that Cavatec products are something they can rely on. As Joakim said earlier, the whole group will continue to focus on developing our working capital and further strengthen our financial position going forward. And finally, as we said in the second quarter's presentation, the board is giving Cavatec management team the assignment to assess the possibility of moving the registered offers from Switzerland to Sweden. This assessment has now started, although we have no schedule or more detail to communicate today. But it makes sense to have the registered offers, certain benefits to have the registered offers where we are also listed. So, to summarize up, let me quickly summarize the key points that we have in this presentation before we open up for the questions here. We have had good revenue growth and we see positive business activities. There are a lot of things happening in the market, which of course gives us a good opportunity to capture more business. I feel that we have a very strong momentum in the organization with all the employees worldwide, which is a conclusion that I can draw by my visits when I'm out meeting the organization with colleagues and also meeting customers. We have now for two years demonstrated our ability to steadily improve Cavatec to where it should be. Our performance also shows that our clear strategic priorities and change programs are effective and they will contribute to building a stronger Cavatec going forward. So, to conclude, Cavatec has a strong position. It's a key player in the growing market driven by the need to create more sustainable solutions in the emission-free world. So, by that, I will end this presentation. I'm now ready to take questions. You can either call in or ask questions or write your questions in the webcast. Let us first start with some questions over the phone. Do we have any questions over the phone?

You can type in the number 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Lara Motadi from ABG Sundal Collier. Please go ahead.

Hi, Lara from ABG here.

Good

morning.

As you know, your order intake was down slightly this quarter and your order backlog seems to have normalised. Obviously, as you mentioned previously, your business is order-driven and orders can fluctuate between quarters, but your -to-bill has been below 1 for some time now. When can we expect to see a positive trend in orders?

Okay, I can start there, Joakim, and you can fill in. As you know, we don't really speculate in the forecast in terms of giving indication where we see, but I can confirm that... But if you look back to our quarters, we have always finished. We have strong fourth quarters. That's just the pattern in the company. At the same time, from that point of view, I'm confident. I'm sleeping well during the nights for that reason. We also know that right now we have a very high tendering activity in our order intake in the pipeline of opportunities. As I mentioned, we have the Power Move orders in Italy. We see big opportunities coming around there. We see also that spread out to the rest of Europe and also, to some degree, this is also funded by the European Union. At the same time, we also see a similar trend now in the UK, where there's also a lot of opportunities that they just need to catch up. So I'm very confident in what we see in terms of the order intake and the tendering activity. So I'm not really worried about them, even if we have to some degree decreasing order intake in the last

quarters. Joakim, anything to add there? No, I think you summarized it well. We see very high activity in the market and a lot of interest for our solutions. So we look forward with a positive mind.

Okay, great. Thank you. My second question is on the development in your industry segment. Maybe you touched on this a little earlier, but can you just give some examples of the initiatives that are being put into place to further enhance profitability?

I'll give that to the industry president, David.

Yeah, okay. So as you know, I'm acting interim for the industry president position here. And it gives me a perfect opportunity to actually dive deeper into the business there, to meet the customers, to talk about the products, to discuss the various tenders, etc. So it's a very good opportunity, even though it's a little bit of double work here, of course, for me. But nevertheless, I see there that we are now more precision and accuracy when we are tendering. We're looking, we're turning around the stones. We are making sure we were working as one, seamlessly between sales and engineering, as well as operations and sourcing. And again, everything we did in a similar way on the Ports & Maritime side will now be and is now repeated also with a strong focus on the industry side. So with that said, I'm confident that we will see a positive trend there. At the same time, then, when I'm out meeting, I was in the US a couple of weeks ago on a mining conference or mining exhibition, and meeting our customer on the radio business, which is an important part of our business. The customer wants, they like our products, they like dealing with us, they see a clear difference dealing with Cavitec versus our competitors, and they just want to do more with us. Of course, it comes that we need to upgrade to some degree a little bit of the product offering. We need to customize the offering a little bit to the customers. But the customers are there, the market is there, and it's just opportunities are lying around and we will capture them. I'm confident with that. It will require that we need to speed up some things, then we're more focused during 2024 on new product development, which will then, of course, generate order intake opportunities for both Ports & Maritime, but also for the industry side. So I'm very confident that we're going to turn around also and creating a similar trend as we've seen on Ports & Maritime, also for the industry business.

Okay, thank you, very clear. I was just wondering a little on your current lead times in both your segments. How did the lead times look? And have they changed now? Have the change programs had any impact on these in terms of efficiency and so on?

I could say that the lead times vary quite a lot between the different projects, but we're continuously working with improving lead times. That's clear. That's a big work that's being done across our production sites and in the whole organisation. If you're looking at the Ports & Maritime segments, we have longer lead times. We have between one to two years. If you then look at the industry segment, lead times are typically shorter. That's three to six months usually, and could also be up to a year. So, but having said that then, if you look at the backlog as of now, most of those deliveries will happen during 2025.

Okay, thank you. And just the final one, it's obviously very promising to see that services is growing. What can we expect in terms of growth within this business offering?

David, do you want to say something about services? I can say something.

Again, everyone knows that the more we grow our install base, the more we're growing our opportunity to generate and create service revenue. That goes without saying. At the same time, as I mentioned before, and this is my experience within Calcotec, it's also my experience from our previous companies, that if you are active on the service side, you work with the customers and you never walk away from the customer who has a problem, we will help the problem with the customer. If it's our fault, we will pay for it. If it's their fault, we expect that to be sorted out in a different way, of course. But having the mindset and having the attitude within the service to work with customer, a customer who has a problem is not a happy customer. If we are fast in solving the problems, we are fast in responding to whatever they want, we are fast in sending our field service technician, then an unhappy customer would be a happy, loyal customer going forward. That's why we invest, and we are probably the company in our industry, which is most spread out, because we clearly believe in being close with our service staff, hardworking 24-7, out in the feed in the various markets, so that we can always support our customers whenever they need. That generates business. It generates business for the service side, yes, but it also generates business for the new sales. That's valid for ports maritime, it's valid also for industry. So service is and will always be an important portion for us for multiple reasons.

I think you're just adding to that. We have big untapped potential in the installed base over these 80 countries that David has already talked about. But then, of course, we have also a growing base year on year, and we're also working with increasing the penetration with service levels agreement on that equipment, part of the equipment also. So we have a lot more work to be done on the services side. We have a very active team, a very professional team there that is really driving the business and really building the relationship with our customer and to some extent helping us to sell the second time.

Great, thank

you. Thanks, Laura. As a

reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.

Should we read some of the questions? I can read some of the questions if we have no more people on the phone. I have one question here on... Are there any internal capacity or production constraints in the ports and maritime or industry division going into 2025 and 2026? Do you want to say something on that?

Yes, I can do that. And the answer is, of course, we looked into how we can plan the capacity in our facility. We have done the investment in Chennai in order to open up a second hub for the domestic market but also for the export market out of India. We have today... We have today the production or the capacity set up to do more in our existing facilities. India is one thing there, but also in our existing production facilities that we have, we can do more with the capacity, the capacity that we have. So I'm not worried for that, of course, as Joakim mentioned before, ports and maritime have longer lead times and cycles in their products. It's not because we are not ready or we don't have the capacity, it's more related to its complex products, high-tech technology products that need to be engineered and then they need to be sourced and then they need to be assembled. And that's just the type of equipment, it's more complex and bigger equipment normally than on the ports and maritime side. Industry is more of a flow business, it's more stable and therefore normally shorter lead times. The lead times is not driven by the fact that we don't have the capacity, it just takes time to actually engineer, take an order, engineer it, source it, and then actually assemble it and ship it out. And then in many cases, we also commission our equipment as well with the customers. So it is not related to that we don't have the capacity, it's more related to the nature of the business.

Okay, we take one more question, which starts with congratulations to the impressive improvement in profitability, margin, cash flow and debt level ratio so far this year. Thank you for that. When in time do you expect sales in ports and maritime to take off long term given the need for efficiencies, regulations and productivity, not the least in US and Europe? Is this cyclically driven or other underlying trends? Maybe David, you can say something about

that. I think we talked a little bit of that, I can

drill

a little bit more around that. We have the regulations, it's there, and we see it clearly on the west coast of US, we talked about that before, but we have not the same regulations on the east coast of US. However, there's a trend, you want to be green and you want to be seen as green. So there is not just driven by regulations, but also driven by image and the way they really want to have our solutions in order to be able. I talked about the Miami skyline before, where the cruising ships and the skyscrapers, you don't really want to see black smoke or having equipment that is creating noise when you have a cruise ship laying more or less inside the city of Miami. So those things are happening. The same thing we talked about on the mining side, we have been in the electrification of the mining side for a long time when it comes to the underground mining, naturally, because you can't use diesel engines underground. However, we see the same trend going now also for the overground mining, where again, they want to reduce the dependence on the fossil fuel and therefore go for electrical solutions as well there. And there, of course, our equipment also plays a very important role also for the overground mining. So I think it's a long-term trend. I think there's a lot of things happening. In many cases, when it comes to ports of maritime, it is long products. It's complex products because our equipment is... To some degree, we can deliver our equipment, but in some cases, they are just upgrading completely entire ports installations and big investments. And therefore, of course, we are part of that game and we are part of that business. But again, building out a berth in a port is a major investment and it takes time. But we are there and we see opportunities and we see that growth. When it comes to the shore power solutions that we now see, the two orders there in Italy, there is a trend and it will, but it's driven by the European Union, driven by regulations, driven by the mega trends, but it also takes time before they are applied in the various countries. But we see a clear trend driving in the right direction. And as I said so many times, it is a fortunate situation to be... We've been 50 years in the industry, which is now becoming very, very hot and very, very... So to say, on the focus to do and we'd be here. This is our home territory that all of a sudden over the last years and the coming years for sure, is just going to be more and more important. So it's a little bit of a sweet spot position to be in. But it is long project-driven cycles that take some time.

Okay, we take one other question here. Could you develop a little bit more in detail what is required short-term, long-term to become more of a higher margin system integrator, internal work or acquisitions being considered?

Okay, I can take a little bit of that to start with Joakim there. Yes, of course, we want to work closer with our customers. And one thing is to sell the equipment and ship it to the customer and they take care of it. We don't really believe in that. We believe more into selling equipment to the customer and selling solutions to customers. So actually going on board on vessels and installing, helping our customer to install our equipment and integrate it into their vessels or in their ports. So it is... But again, it requires the long-term relationship and we need to be there with our people. We need to be there with our people speaking the right language in the right countries and working close to the customer. So that is something which we will continue to embark on that direction. We're already there, but we see that also growth. If internal work or acquisitions being considered, I think it's clear. When I joined Cavitec two and a half years ago, we were not really in the shape and form and performance to do acquisitions. Now we see clear that we have changed the direction of the company, we have turned around the company, we're going in the right direction. Of course, that also makes us now to activate our acquisition radar, so to say, to look into where are the things where we can grow into. Are there partners or product types or are there other things which we could step into in order to improve our offering and work closer to the customer. So that is something which we're now definitely starting, where we are already visiting some opportunities and that is more to come for that. Because now we are ready for that, we were not ready two years ago, but now we're ready

for it. Good. Another question regarding industry here. Revenue increased and driven by industry. Do you see a more positive development in that segment now? Maybe I can say a few words before I hand over to you, David, there. I think one of the things that we're doing now with the industry segment is really the same that we've done in the Port and Maritime segment. We're using all the capabilities, all the knowledge in the organisation when doing the deals. And we're really making good progress there and we could start to see that on the contribution margins on that business also. So I really think that the business is starting to become much more... The underlying business is starting to become much more healthy. Then of course it takes a bit of time. But the segment has a very big potential going forward. We often talk about the Port and Maritime segment or division, but the industry division also has a very big potential. David?

Yes, I can echo that one. It's exciting times right now at Cavatec. That's a good summary because I'm really optimistic about the way that we're going forward there and the momentum that we have created in Port and Maritime. We're also creating it right now within industry, working more with the customers, closer with the customers and more actively there to drive the business going

forward. Yeah. We have another question that you could say is industry related. So it's really good we have the industry president with us here today. Can you, for example, cooperate with the Bure company Algon on industrial radio controls, which seems to have done increasingly well in Q3, to improve both companies?

Yes, and the simple answer is yes, of course. Bure is the majority owner of Algon. They are a big owner also in Cavatec. But of course there is opportunities there. We are, to some degree, very much complementing each other. We have the EX proven solutions with explosion safe. They don't really have that on the Algon side. At the same time, they are very strong in certain market segments, push buttons, etc. We are more into the more, a little bit more sophisticated, high-tech joystick solutions, etc. But of course there is an opportunity there to cooperate and to work closer with each other in order to see what makes sense for both companies. That is something which we are checking up on. We are doing that, of course. Whatever makes sense for both companies, but it's valid for Algon, it's valid for other companies. If it makes sense to cooperate, one plus one becomes three, then of course we should take that opportunity.

Okay, I think that is all the questions we have at the moment. So, if no further questions, then maybe I hand over to you, David.

Okay, so then thank you very much. We have no further questions. I'm looking forward to speak to you at the end of February when we will present our fourth quarter in the year-end report, really. So, thank you very much for that. Thank you for listening in. Good questions. And that you share the positive view that we have about the company. And that is good news here. Thank you very much.

Thank you, everyone. Have a good weekend.

Thank you.