Welcome to Cargotec's Financial Statements Review 2012. We will start with Paula Liimatta.
Good morning, ladies and gentlemen, and welcome to the conference call of Cargotec's January-December 2012 Conference Call. My name is Paula Liimatta, and I'm the head of Investor Relations. Today, we will have a small live audience here in Helsinki and people on the phone lines. We will start with a presentation by our CFO, Eeva Sipilä. After that, we will begin a Q&A session. Eeva, please.
Okay, thank you, Paula. Good morning, everyone. Going straight into our fourth quarter highlights, order intake of EUR 710 million. Here, when you look at the comparison, please bear in mind that the comparison is pretty tough. We had in 2011 in Kalmar a big more than EUR 100 million port project in that comparison. I think the 710 is a good number. Sales growth of 7% in the quarter and a full year of 6%. We booked restructuring costs of EUR 25.7 million, which is in line with what we published some weeks ago earlier already.
Operating profit without those restructuring costs was 4.4% for the quarter and 4.7% for the full year. We're happy on the cash flow of EUR 90.6 million for the quarter and obviously turned the year annual cash flow also to clearly positive. Going into slide number four, a bit more detail on the restructuring costs. Nothing new here. This is a list of the issues we have been discussing already since the second half, 2012. However, here now the full outcome of restructuring costs for 2012 of EUR 26.2 million. The EUR 25.7 million was the fourth quarter part of this.
As we announced earlier, EUR 19 million of this EUR 26.2 are costs that have a cash flow impact. The rest is more write down type of issues. Here you see the division between our segments as well as some costs on the corporate common cost items as well. With these measures, we target EUR 30 million of savings in 2013, roughly half coming from Kalmar. We also do expect to have a significant decrease in our corporate common cost row in 2013 due to the new operating model where, with a lighter corporate structure. Going into the full year figures, orders are EUR 3.058 billion.
We had sales of EUR 3.3 million, as said, 6% growth on the full year level. The operating profit for the full year, excluding restructuring costs, was EUR 157 million. Cash flow, EUR 97.1, a good comeback. Interest bearing net debt increased from a year ago to EUR 478 million. With a 39% gearing, we are comfortable with our balance sheet health. Earnings per share, EUR 1.45 then as a total due to a bit higher tax cost in the year than in some other previous years when we've had a bit lower rates.
Here on slide six, you see the performance development still on a quarterly and of course the trend is the challenge we have in the mix of business changing. We have less of MacGregor business and more of Kalmar and Hiab. As you all well know, the operating margin difference between the segments is still considerable, and that obviously weighs on the overall Cargotec performance. It's probably best I go into the segment specific comments in the coming slides. Starting with MacGregor, we're very pleased with the order intake of EUR 250 million for the quarter. It corrected nicely the rather low level of the third quarter.
As you may remember, we discussed then that we did see some postponements of orders going into fourth quarter. As you see now from the number that did materialize. As such, we're not indicating any big changes in the market. As such, the shipping market remains tough, especially on the financing side. Of course, that has an impact on the on how much cargo handling equipment is required for ships. But we're performing very solidly on the order book we have. The 16% margin is a bit inflated by a EUR 7 million capital gain on property in Singapore.
We excluding that capital gain, it would have been 13.3%. Still a very strong performance on the quarter and also on the full year. No, maybe nothing additional on MacGregor to note. Going into Kalmar, here clearly it, as you all well know, it's been a very challenging year, and fourth quarter was no different. We're obviously now seeing the impact of delivering some on the order book where we have had some challenges in the bigger project side, and that does affect the margin.
As such a good sales growth, we had a good delivery quarter in the fourth quarter. On the margin side, nothing new to note as such. We have been discussing about the fact that we have lower margin large projects ongoing, and we continue to have some cost overruns in those projects which naturally didn't help the overall profitability. As has been discussed, relatively speaking, the share of services has decreased in 2012, and that has an impact on the overall profitability service has grown, but we've had such strong growth in the new equipment side that relative share has decreased. We closed the year also with sort of with a theme of heavy investment in port automation technology.
We ended up spending some EUR 48 million in R&D in Kalmar business, so a substantial part of the overall EUR 75 million spent in Cargotec, and of course, a substantial increase from the previous years. We do consider that as an investment into the future and do see as such that the port automation market is very attractive and very interesting to us. We continue to believe in that our investments will pay back in the coming years. Hiab fourth quarter, good order intake, I think overall, despite the sort of a bit more negative overall sentiment in Europe, it was quite okay. Also of course helped by very strong Americas performance.
That of course gives a decent start for the year of 2013. Margin of 3.5%, we were able to improve on the previous couple of quarters, and that of course with the help of higher volumes, and that of course was something we're satisfied with and something we hope we can continue as we continue to focus on profitability in this segment very much as well. Looking at the overall Cargotec cash flow numbers, as mentioned, EUR 91 million for the quarter.
We did indicate already earlier in the year that with the, with the sort of increased growth in Kalmar and Hiab and their business model, which ties more capital, we this development of having a first half tying capital and then second half releasing it was according to our expectations. You will see from our balance sheet that we had a good reduction of inventories thanks to good deliveries in the fourth quarter. This of course gives a good closing for the balance sheet. Services sales grew 3%, this you can compare with the overall growth for Cargotec of 6% for the full year. Slowly but steadily going ahead.
Here, of course, the capacity utilization in some of our customer groups is having an impact on their need for services, the services business. On the geographical split or maybe on the segmental split here on the left-hand side, you see what I already mentioned, that we see the blue area, MacGregor decreasing, relatively speaking, 32% of overall sales compared to 39% a year ago, and Kalmar taking a bigger share of the overall relative composition of sales. On the right-hand side, you see the geographical mix here, maybe to note the positive development in Americas is visible here.
We're representing 24% of overall sales, and Europe 40% and flat on that and Asia Pacific a few percentage points down. Earnings per share EUR 1.41-1.45 for the year, and the board proposes for the AGM a dividend of EUR 0.72 per B class share and EUR 0.71 per A class share, which is in line with the dividend policy of earning dividend to be between 30% and 50% of earnings per share and the EUR 0.72 represents 50%.
Going into 2013, I think you've all noticed that we're happy, we've been happy to announce our new President and CEO, Mika Vehviläinen, who starts already in a month's time or even a bit less than a month's time, actually, first of March. He will then be in this next quarterly presentation. To conclude, before any questions just on the outlook, we are stating that overall sales, we expect them to be slightly below the 2012 level. At the same time, operating profit excluding restructuring costs to be at the 2012 level. Here the comparison figure is the EUR 157 million I mentioned earlier. A final comment on the efficiency improvement measures that we have been ongoing.
A note that may be better to expect a bit more of that coming on the second half of the year and not. Don't gear up your expectations from the first quarter to the max. That I think is pretty much what we had prepared for. I'm happy to answer any questions you may have.
Thank you, Eeva. We are now ready to take your questions. Let's start with the questions from the live audience in Helsinki. Please state your name before asking a question for a benefit of the conference call listeners.
Hello, Elina Riutta from Evli Bank. About the large projects in Kalmar with cost overruns, how much of those are still going to be delivered this year? How many hundreds of millions EUR? What is your expectation for Kalmar profitability this year? The cost overruns, have they developed as you expected during Q4, or has the estimate of those projects' profitability been worse than what you expected looking at Kalmar profitability now in Q4? Thank you.
Okay, thank you. On the large project side, due to being able to deliver some of the first ones in the fourth quarter, we have a bit less now remaining in the order book, roughly some EUR 250 million worth of sales for 2013 from the sort of group of challenging business, so to say. Then on the Kalmar profitability, as you can indicate from our guidance, as we do see the relative share of marine going down, the guidance is based on improvement in the other two segments.
On your final question on how did fourth quarter go, some sort of hiccup still, some sort of unexpected costs, but clearly are much more well in line with our expectations due to the work that has been ongoing with the sort of better and tighter management and better tighter re-reporting since summer.
Okay. Jan Karila, Nordea Markets. Just on a similar topic, relating to marine. Earlier in, was it in October, you said that you expected delivery delays around year-end. I don't know what. Did they occur? Is there something expected to be delivered now in Q1? What's the situation with those?
Well, the overall delivery volumes were very good in marine, so, I mean, there's no big impact on. As you see from the sales number we reported, typically there's always a bit of business going backwards and forwards over the year-end, so, but nothing. We were maybe a bit more cautious in October due to the market situation. Things went well both when it comes to sales and order intake.
Coming to this previous question on these terminals, you said that if I got you right, EUR 250 million would still be in the order book of, as you said, challenging orders to deliver. I kind of missed it. How much was it originally? How big of a chunk was it, and how much is left, and how long would it take to deliver this remaining?
I think we used the figure in October in the same event of EUR 300 million, roughly. That has now come down due to the deliveries in fourth quarter. Majority of that is related to 2013 sales, the number I gave. There will be probably some tails in 2014, some of the final sort of milestones, but majority in 2013.
Okay. Thank you.
Hello. Elina Riutta from Evli. About the R&D costs, you said that the total for this year or last year was EUR 75 million. What do you expect for this year?
For this year, we expect somewhat of a decrease, specifically in Kalmar due to sort of the new management taking some reprioritization decisions in the second half. But as such, we do expect to continue as such to build on the competence and invest also, but somewhat less than in 2012.
Finally, about the market outlook in the different segments, could you talk perhaps a bit about what you're seeing in Marine and what you're seeing in Hiab and Kalmar and Marine orders, if there was a kind of positive bounce back from the Q3, the market as a whole, are you seeing it stabilizing on these levels, or what's your expectation going forward? Thank you.
Okay. On the market outlook on MacGregor, as such, there's no big change. It really is still a market where single big orders can impact the quarterly ordering intake flow. It was a bit negative in third quarter, and then we had a positive in fourth quarter. As such, we do see in the segments that we highlighted, RoRo and offshore, that there is activity and then there is a possibility to win some big orders as well, which would help on the quarterly outlook. As such, the overall market, there's no bigger change yet in it to be noted, but no reason to be negative either.
I think it's in that sense, as we have indicated earlier. On the market outlooks of the other two, in Kalmar, container activity is expected to improve a bit in 2013 from 2012. If you look at just overall global throughput estimates from some of the external parties involved in the market, there are geographical differences, thanks to the good global presence of Kalmar, we see that we will be able to profit from those areas where market and demand will be a bit better.
Interest in the automation sector continues, and that of course is an area where hopefully we will also see a bit more smaller business, not just these bigger projects. For some ports, a more lighter or smaller solution can also be something worth looking into from a sort of efficiency potential point of view. In Hiab, Europe as said is been sort of okay-ish. Of course it's not a sort of booming market, but I think also the latest comments from people following the truck market even more closely than we have been sort of flattish, some a bit negative, some a bit positive, but overall okay-ish. U.S. continues strong.
We have no sense to change our view on that, and that of course with our relatively speaking high and better position in that market, that of course supports the overall Hiab. Let's see. I mean Europe of course there are some concerns on the European market. We can't claim to be experts on all the macro things that can or may happen, okay-ish.
Okay. If there are no more questions here in Helsinki, operator, we would be ready to start with the questions on from people on the phone lines.
As a reminder to the telephone participants, you can press star one to ask a question. We have a question from the line of Eugen Sebrecht. Please go ahead with your question.
Yes, good morning. My first question on the savings side, EUR 30 million you mentioned for 2013. 50% is at Kalmar. Where is the remaining? Is that in the corporate line, or does that come, the lower corporate cost line, does it come on top of the EUR 30 million? To what extent in your EBIT target of EUR 157 million you have factored in a buffer? I mean, you mentioned here the terminals, the bad projects, which were quite a strong burden in Q4. If I understood right, you had only EUR 50 million sales of these bad projects and EUR 250 million are still remaining. To what extent you have built that in? That would be the first question.
Okay. On the savings question, yes, of the EUR 30 million, Kalmar is about half. We do expect the corporate common costs down from last year's EUR 46 million to somewhere closer to EUR 30 million range. There will be some smaller savings obviously in MacGregor and Hiab to sort of sum it up to 30 something.
Then on your next question on our guidance and if I understood it right, we have continued and sort of done obviously a very thorough review of all the projects we have in the backlog in the occasion of financial accounts to be sure that we are correctly provided for the things we know. In that sense, certainly we sort of the base case is that we then start to have a very good grip of the items and the problem areas and then that we have sort of taken those into account.
Okay.
Of course, it doesn't mean that we are sort of, we have a crystal ball that we know everything that can happen later on. We have tried to be as thorough as possible.
Okay. Then on the marine side, maybe as a second question, order strong, margin strong, even if you adjust here for the capital gain margin was good. How sustainable is here the order intake? Are we still at the EUR 180 million average order intake potential at this current point of the cycle? Or do you see a higher quarterly order intake coming in in 2013? Also here on the margin, is it 13% sustainable margin? Then maybe then also on terminals, the order intake was relatively weak.
You didn't have any larger projects as far as I know, but Konecranes, I think, mentioned that this terminals market is still quite positive and the latest outlooks here for container traffic are also not bad. Is the overall market still in a good shape and are there projects in the market pipeline?
Okay, on the MacGregor margin. Yes, very strong performance in the fourth quarter. I would always caution to use just one quarter margin as a sort of any linear indication. This is project business and the mix does vary as you see from last year. Overall, we are satisfied with the health of the order book we have in MacGregor. I would be maybe a bit more cautious than using the 13% as a sort of go ahead proxy when it comes to the projects.
Of course in MacGregor we also need to then balance the needs to invest in the ongoing work done on the growth opportunities and the structural separation. I would expect some, a bit more overhead pressure on to in the business as well. On the, yes, then you had your second question was on MacGregor on the ordering intake. As said, it is the market is such that one or two single bigger orders can impact the quarterly numbers. It's very difficult for us to guide on an exact number.
I would say that the run rate you have seen is something we expect to continue in the short term. Then as said, the quarterly variations can be somewhat, this fourth quarter is more in line with the market we as we see it than, but than the third quarter low, but somewhere in between it, the average probably lies.
Okay.
Of course, it's still too early to say on the second half. If financing improves, the market could improve, and then there's some sort of different views on that obviously in the shipping market. We'll obviously be able to comment on that then later in the year as we know a bit more.
Okay.
Your final question was on the Kalmar market outlook. Yes, we do agree with your, with your comment on the expectations on overall container volumes, providing a good market. I think our issues have more been internal issues than we cannot really blame the market and we don't sort of intend to blame the market either. There are some geographical differences. It's not an equally good in all places, but there's some areas where it's actually very good. It's the balance is still positive.
Okay.
We just need to make sure that we sort of focus our activities on the more positive areas.
Maybe very lastly on your competitor, Palfinger, which is also active here in load handling. He was quite positive here on the overseas market and also as far as I saw, marine plays a role. To what extent there is a positive read across to you or is there any also more competition rising, arising here from that side? Thank you. That was the last question.
Okay. If I assume Palfinger means with overseas outside European sales-
Yeah.
We certainly have that same view in US and Americas. I think Asia Pacific, the volume, the market size is not as significant.
that it would sort of have a big impact. Yes, there's certainly good markets in those areas as well. As said, Europe okay-ish and positive good growth in Americas.
Is it becoming a competitor in marine? Because, I think it has acquired here also into the marine crane business. Can you elaborate about that or?
Yes, I understand, they have entered some smaller marine cranes. I think the sort of the bulk of the marine and MacGregor cranes are very different in size and scale. We talk, but of course there are customers for various types, but it's when we talk about MacGregor cranes, it is very big and heavy cranes for big cargo, dry cargo, or merchant ships and offshore vessels. I think we have a bit of a different a different offering in that market.
Thank you.
Our next question comes line of Tom Skogman. Please go ahead your question.
Good morning. This is Tom Skogman from Handelsbanken. I got a couple of questions starting with MacGregor. Can you confirm, as you have done so far, that the EBIT margin will remain above 10% also in 2013 in this division?
Based on the order book health, we are looking at, we are expecting a double digit, yes.
Okay. About the savings, you mentioned EUR 30 million of savings. First of all, how will this materialize? Should they expect 30 of them to be materialized this year, implying the run rate will be much higher by the end of the year? Should we expect just perhaps EUR 15 million of this to materialize this year?
I believe we at least we tried to be clear in our release that we talk about 2013 savings. We are actually some of those actions will have more more clout in 2014 as we progress. This is a 2013 number as said in the guidance of that EUR 30 million is a bit weighted towards the second half.
Right. The run rate saving will be, you know, significantly bigger than by the end of this year. That must be the conclusion that we approach some EUR 50 million of savings then, I guess.
Well, I think we've given the number of 30 for 2013, and we deliver on that first and then we comment on anything what we do in 2014 later on only.
About the cost base in Kalmar, you seem to have a bit less large project left in the order backlog now to deliver, and then you also are scaling down your cost. Is it so that you don't put your hope on more large product orders this year? Can you mention how many products there are still to be likely ordered this year in terms of larger scale projects?
Well, in Kalmar, we have three parts of the business, and we need to develop and take good care of all of them. We need to develop our service business, and there, of course, the overall market activity of more containers being the throughput growing helps on and on our we have a good install base. On the volume equipment side, we need to take care of our competitiveness. We have initiated and as we have said today, have now finalized the discussions in Hudiksvall and are proceeding with those actions.
Then the third area is this large project area where of course the main focus has been to improve our own skills and competencies in project management and handling our own competence to be able to take more business. We do plan to take more business and as I was saying earlier, we see the automation market continuing to be a very attractive market to be in. We would want to continue that, be the number one player in that segment as in that part of the Kalmar business as well. Then, when exactly customers will decide on projects that, as always, is difficult for us to comment.
We, the activity continues and we would hope to be part of that activity, depending then on whatever the timing is.
There are still the large products are more or less flat year-on-year in terms of like, let's say, whole discussion. There is no material deterioration given the quite weak growth in container volumes in 2010.
Well, I think overall number we have when we talk about big projects is a small number. I mean, we booked, was it, 4 last year. The in that sense, we, it's difficult to sort of say that there would be sort of material changes the way the percentages come big. No, we see that the market activity is continues to be there. I think of course both we and the customers want to see some of the first ones delivered.
Of course the better performance we are able to generate when we start up those first ones, that's probably the best marketing we can do on our part for the coming business.
Okay. Thank you.
Our next question comes line of Sebastian Growe. Please go ahead with your question.
Good morning, it's Sebastian from UBS. I've got a few questions regarding the cost savings also, assuming EUR 30 million back-end loaded cost savings and guiding for flattish EBIT development, it includes even EUR 7 million one-offs positive from capital gains in marine. Do you see then the marine business dropping to an EBIT level of around about EUR 100 million? Is that a fair assumption? About 10%+ margin only. Second question would be regarding the Hiab business. Can you give us an update on your move into China with CNHTC? What do you expect here for revenues and EBIT? Will it be hampering your margin in 2013?
Last but not least, on Kalmar, can you remind me again on how much of those more challenging or negative margin projects you have to work off this year? Thank you.
Okay. At this point, we would really not want to give more detailed guidance on exact numbers on the segments. We have stated what we feel comfortable stating today, and that is for operating profit excluding restructuring to be at the 2012 level. At this EUR 1,157 to use as a comparison. That includes the sort of contribution of MacGregor as well as Kalmar and Hiab. On Hiab China, the work is proceeding. We are still waiting for the final permits from the Chinese regulators regarding the Sinotruk venture.
We have certainly continued to work to have our sort of the key people in place and to be ready with that. We don't foresee big investments in 2013 for the start of the business. Certainly any investments we foresee are, are in the sort of CapEx guidance I gave earlier. Your final question on Kalmar, to repeat what I said earlier on the 2013 expected sales of the sort of order book related to big, big projects where we have had the challenges, I used the number EUR 250 million, and that's all. Hopefully that answers your question.
Okay, thank you.
Our next question comes line of Krister Magnergård. Please go ahead with your question.
Yeah, hi, Krister Magnergård from DNB. Just two questions on Kalmar. When it comes to the large projects, we have had some cost overruns this year. When you're taking new project orders going forward, do you have to raise the price on those orders, or do you expect costs to come down on those orders? That's the first one, and the second one is, given that the project order, the large project order is not new to your business, I guess the automation project is new, but large orders is something that you have delivered on before. What has changed in the market given that you have experienced so much extra costs for these orders now compared to the history?
Want to compare the large projects order now compared to the history, what has changed, basically?
Okay, to start with, well, actually I lost my thought on the first part, so I'll start with the second part, and then you can may perhaps help me repeat the first one. Yes, it's correct that we have certainly struggled in big projects where there is no automation component involved.
That, what has changed, I think the challenge has been that for several years in between when there was very limited big projects and then when the market came back in a rather short time frame, we, I think in hindsight, you can say we overstretched our resources in those, and the projects were more. There were more of them, they were bigger and then more in some also in more complex areas than where we are, where we had experience in operating into. That all has, those all reasons have sort of led to the problems in that specific group of projects.
And then in the automation area, obviously it's been more related to the fact that we have been developing the automation and understanding the scope and exactly engineering hours required has not been an area where we have been very successful so far. But I think I got my thought on your first part of the question, how do we go ahead, but maybe you can still help me repeat the first part of your question
Yeah. When you will receive large orders in the future, do you have to raise prices on those orders to get decent profitability? i.e., do you have a higher cost level than you earlier expected even going forward? Or do you think that the cost level on the large project orders will come down compared to what you have now?
Yeah. Yeah. That's actually a good question. We're obviously working on the cost level together with our joint venture in China, Rainbow-Cargotec Industries. That is an important part of the supply chain we have planned for big cranes and that we do have pretty ambitious plans on the cost setup. I think most importantly, however, is the competence we have when taking projects, estimating which projects we take, what exactly is the scope and required so that we price accordingly. We and that we sort of take into all the components that need to be take based on our experience now where we know what can happen.
I would certainly expect that we, that just by gaining more competence and, it's been a painful learning by doing, but of course it tends to be a pretty effective way to learn on how to manage projects. That is a significant area. Obviously we need to price our projects so that we can earn some return for our shareholders.
Good. Thank you very much.
Our final question comes line of Pekka Spolander . Please go ahead with your question.
Hi, this is Pekka Spolander from Pohjola Bank. A couple of questions, first about the Chinese joint venture with Rainbow. Could you give us an update, how is the project going on at the moment, and when can we see some effect on the numbers?
Yes, the factory has now been built. It is ready for anyone going around the Taicang area. The first orders have now been taken by the joint venture, and they are starting work on them. We would expect towards the end of the year some of the first deliveries to come out. We have already been taking deliveries from the parent company, Rainbow Heavy Industries , which is the supplier also of MacGregor, and they have used their existing operations to supply some of the deliveries we have done. Obviously, this purpose-built factory is where we really get the sort of efficiency and the competitiveness at the level we have intended to.
Okay, can you give us any kind of idea what kind of effects we might see, some cost savings this year and some sales increases 2014? Is it, relative to the current business operations, is it remarkable figure we could expect, or how would you say?
Well, I think most of our shareholders would certainly want to see a significant improvement in Kalmar gross margin. I don't know if remarkable is a word I can use, but certainly significant. Of course it doesn't come overnight. We have very sort of recent experience from starting up Poland operations a few years ago. Even in a very successful startup like that was still there is of course a ramp-up and learning period. But where you need to see the outcome, I would say is more on the operating profit line.
Then of course in future sales, yes, when we have it up and running, it will provide us a basis to then sell more than our supply chain has been able to do today. I think right now it's the first priority is get it up and running and your profitability up, and sales, growing sales comes only follows.
Okay. Another question. You have already discussed quite a lot about the Kalmar cost base, but what could you say about the general cost development in the business at the moment? Do you see the raw material prices stable or up or down, and how about labor costs? Related to this question also, what would you say about pricing situation? Any changes there in the fourth quarter or in the beginning of this year?
Overall on the raw materials, we don't see big changes. We don't see pressure up, also I think overall maybe it's the, there are some specific areas where there some small differences. We're more sort of looking that we shouldn't have an uphill from raw materials. We do need to sort of improve in our way of working to get a significant reduction in cost. On labor, maybe in the European region there is a bit less pressure. Then again, there are some areas in the world where we see quite high inflationary pressure on labor costs.
It really is difficult to give a global figure as such. No, maybe no sort of significant changes on that area either. Your final point on pricing. We haven't really seen much change in the fourth quarter. Of course, it does depend on the outlook, for instance, in Europe, how things develop. It's certainly not in Europe. The customers are not really looking forward to price increases, obviously, when everyone is a bit sort of uncertain about the future. As said, our main challenge perhaps has not been on that side.
We need to be better on that side, it's more through sort of having a better knowledge of what business we take and to in some cases then choosing not to take some business.
Okay, thank you.
We have no further questions.
Okay. If we don't have any more questions here in Helsinki either, we thank you for your attention and I would like to wish you a good day. Thank you.
Thank you.
Ladies and gentlemen, thanks for your participation. This concludes today's conference call. You may now disconnect.