Okay, it's 1:00 P.M. here in Helsinki, and we are ready to start our Q3 2023 pre-silent call, hosted by our CFO, Mikko Puolakka. So my name is Aki Vesikallio, I'm from Cargotec's IR. First, Mikko will give a short introduction, and then it will be a possibility to send questions to Mikko. Please, use the raise your hand to state a question. Okay, with that, I think we are ready to start.
Thank you, Aki, and good afternoon also from my side. First, a short recap about our Q2 financial performance. Our orders were EUR 999 million, down by 28% from an all-time comparison period. You might remember that we got a year ago in Q2, 2022, a couple of very large orders. For example, in Kalmar's case, we got an order for 85 straddle carriers worth of EUR 150 million. So that drove our orders to all-time high level in last year's Q2. Where EUR 1.2 billion, a growth of 25%, and this is very much, of course, boosted by the order book, very high order book, and the then improving supply situation, especially in Kalmar.
The high equipment utilization is reflected also in our service sales. Service sales increased by 14. We saw nice development in all three business areas. And boosted by the strong sales, we had all-time high comparable operating profit, EUR 158 million, 13.2%, for the total Cargotec. Biggest impact came from higher sales in Kalmar and Hiab. Also, the gradually improving sales margins contributed to the profitability, so we have been increasing, especially in Kalmar, and in higher prices during the last couple of years by more than 20%, and this starts to be more and more visible also in our sales margins. And then MacGregor delivered a EUR 10 million comparable operating profit in Q2.
This was very much coming from the merchant and services divisions. We are still struggling with the performance of certain offshore wind projects which are loss-making. When we look at our order intake, after two very exceptional years, our Q2 orders were now back on the kind of pre-COVID level. The Q2 order intake characterizes actually quite well also today's market situation. Overall, I would say that our sales pipeline in our three businesses is on a solid level. However, the customer decisions, especially for larger investments, continue to take quite a long time, as we have seen throughout the year. Also, in Hiab's case, customers' investment decisions are impacted by long truck chassis delivery times.
For example, here in Europe, customers typically have to wait 12 months to get the truck chassis after ordering it from the truck manufacturers. And as all Hiab products are installed on a truck chassis, this is a factor which is impacting our customers' decision-making as well. In MacGregor, the good activity has to do in merchant and services, so there are. We have also announced some orders, larger orders in MacGregor, and I will come back to those later in this presentation. Perhaps one note also that, as you can see also from this longer-term history, typically the Q3 order intake is somewhat lower than the previous quarter's order intake due to the holiday season in the Northern Hemisphere.
Our order book is still exceptionally high, EUR 3.2 billion. We are currently talking, in Kalmar's case, roughly 9 months of order book with the current sales level. Earlier, it has been even 12 months. So thanks to the improving supply situation, the order books and how order book lead times are getting at least a bit more normal. In Hiab's case, we are talking currently about 6-7 months worth of sales of order book. Earlier, this has been as high as 9 months. The sales margins in our backlog are improving, and this is because of the bigger and bigger portion of the backlog projects or deliveries are with the higher full 20+% price increases.
This order book, of course, provides us a good visibility to the remaining year and also to the next year's revenues. However, I would still say that, due to some limited component availability issues, especially in Kalmar, as well as the Hiab truck chassis availability, the exact forecasting of deliveries is still quite difficult, at least in our quarters or couple of quarters time horizon. I mentioned that we have announced a couple of bigger orders during Q3. As you can see here, we have won a couple of straddle carrier deals for container ports in Australia and in the Netherlands.
And then also good market activity has continued in MacGregor, especially in the merchant vessel segment, where we have been winning deals, for example, for bulk vessels for cranes, and then ro-ro vessels, for example, ro-ro equipment like ramps. Of course, these are larger orders. We don't announce smaller equipment orders, and there has also been a solid inflow of smaller equipment orders, both in Kalmar and in Hiab. We have also made another move in the area of sustainability by acquiring the terminal tractor product line from Lonestar Specialty Vehicles in the US.
The transaction was closed on the first of September, and basically, we are selling, as we speak, this equipment, focusing mainly on the U.S. market. We don't anticipate that this transaction has a significant impact on Kalmar's this year's revenue, but it's a very good addition to our sustainable solutions offering. Our outlook for this year is unchanged, so we have twofold guidance for the core businesses, meaning Kalmar and Hiab. We expect the profitability to improve from last year's EUR 384 million, and then for MacGregor, we expect that MacGregor's comparable operating profit is positive in 2023.
As we have announced earlier, earlier this year, the separation of Kalmar and Hiab, I'm happy to say that we are well progressing on that journey. Just to remind the reason why we are doing this: so ultimately, of course, we do this separation to increase the shareholder value. So in the future, we will offer for the investors the possibility to invest in two separate listed companies, Kalmar and Hiab, who are leaders in their own distinctive segments, have their own strategies, own customer base, and offerings.
During Q3, we have been focusing on designing the standalone operations model for Kalmar and Hiab, and then we have been also working on the IT and legal entity separation to ultimately targeting to enable the Kalmar listing in 2024. This year, and also most probably at least the beginning part of next year, we will be focusing on MacGregor turnaround with an ultimate objective to find a solution for MacGregor also during 2024. The Kalmar demerger and the MacGregor exit are independent from each other. One does not have to happen before the other one, so from that point of view, we are not dependent, for example, in Kalmar's listing with from the MacGregor exit.
Ultimately, after MacGregor exit, there will be then two separately listed companies, Kalmar and Hiab. Next year, Kalmar would go separate partial, meaning that we would be separating from the existing Cargotec all Kalmar-related assets and liabilities to a standalone Kalmar, listed Kalmar. We are not seeking any additional capital with this demerger. And then, during the interim period until we have found a solution for MacGregor, Cargotec would still consist of Hiab and MacGregor. And then, after MacGregor would have been divested or other solution found for MacGregor, then basically the remaining Cargotec would consist only of Hiab and would become basically Hiab.
As a concrete sign of the progress in the demerger, we have also made some personnel appointments for the future standalone Kalmar. Sakari Ahdekivi started on first of July as CFO of Kalmar, and then we have established Kalmar Demerger Committee. The Kalmar Demerger Committee supervises the separation and the demerger of Kalmar, and Pekka Ala-Pietilä is leading that demerger committee. And then we have appointed Tapio Kolunsarka and Teresa Kemppi-Vasama, current Cargotec board members, also to the demerger committee. So that concludes my part of the introduction, and then we can move to Q&A.
Thank you, Mikko. And as a reminder, please use raise your hand function to get a turn for your question. Okay, Tomi was the first one, so please go ahead.
Hi, Mikko and Aki. Tomi from DNB here. A couple of questions, but I'm starting with the Hiab, and if you can comment a little bit, the market activity and maybe by sort of end customer segments, what do you see in construction, building-related activities, maybe logistics, warehouses, and so on, and then maybe also on regions, North America, Europe, and so on?
Thanks, Tomi. Yeah, I would say that, similarly, like in Kalmar, Hiab's case, the decisions for larger investments tend to take a longer time, and these are often also, to a certain extent, mostly impacted by the longer truck lead times. The larger investments or the larger equipment are typically used in construction segment, and we all have been reading in the newspapers that the construction segment is suffering at the moment. On the other hand, it's good to remember that in Hiab's case, the construction segment accounts for roughly 25% of total Hiab revenues, and out of that 25%, roughly half is related to new building construction, and the other half is related to building refurbishment activities.
So, it's good to remember that Hiab is not construction-only type of segment. I would say that the last mile logistics type of solutions, like tail lifts, as an example, have been actually doing very nicely. And then from the market point of view, for Hiab, US has been somewhat more stronger than the European region. It's good to also remember, in general, that Hiab is the solutions what Hiab is providing are really essential for our daily lives.
Things what we have on our breakfast table or things what we consume on daily basis, for example, at home, need to be delivered somehow to the store near you, and often these are delivered using Hiab solutions or Hiab's competitor solutions.
Just a follow-up. Is North America growing or is it just relatively better than Europe? And then maybe that just have you seen any dramatic or sudden drops in customer demand? Are customers calling in and saying that, "Okay, now it's over. We are not willing to place any orders at this stage?
Yeah, I would, in general, I would say that the U.S. is performing better than Europe, so it's the relative performance. As you have seen, during the last three quarters, Hiab orders have been fairly flat. Within that environment, the U.S. has been performing better than Europe. What comes to customers' activity, we have not seen any abrupt changes in customers' behavior. Like I said, especially in larger investment decisions, for example, heavier cranes, which can be more expensive, it just simply takes longer time for customers to make the decision.
When we are looking our sales pipeline, the pipeline size is not getting smaller, but things in the pipeline are not in this—especially in these larger investment cases, they are not moving forward as fast as they would perhaps in a more normal situation move.
Thank you. I continue with more questions later.
Okay. Please, a reminder, raise your hand if you want to state a question. Okay. Johan Eliason, please go ahead. We cannot hear you, Johan.
There you go.
Yeah, there you go. Perfect.
Sorry for that. So I missed the beginning of your presentation, but can you just remind me in your different divisions, are there any big specific orders that will impact this quarter or impacted the same quarter last year in Hiab, Kalmar, and MacGregor?
Yeah, if I recall correctly, we did not have in Q3 last year any that size of, any of that magnitude, one-off orders what we used to have in Q2 last year.
Mm-hmm. And have you sort of announced any or, are you likely to announce any big orders this... I mean, what you said on decision-making sounds like there, there is no big orders, but I think you sent out something on MacGregor.
Yeah. I mean, these are what you can see here on the screen. These are the large orders what we have announced.
Oh, okay
... during Q3. So couple of straddle carrier deals in Kalmar and then a couple of larger deals in MacGregor Merchant Division.
That's it. Okay, good. Thank you.
Thank you, Johan. Antti Kansanen, please go ahead.
Thanks, Aki. And hi, Mikko. Maybe first question on pricing: Could you remind us how much kind of a cost-plus pricing do you have, mainly regarding the larger projects where you would automatically see kind of your sales prices coming down with the inputs? And I understand that this is not happening right now, but maybe what's your views going forward? What do you see regarding kind of input costs and how is the customer appetite for your, not perhaps price increases, but holding up with the 20% increase you've achieved in the past couple of years?
Yeah. Thank you. I would say that if we look the input costs, we have not seen a dramatic change in the input costs. For example, if we think steel, yes, certain steel grade prices have declined, but we are using typically in our solutions quite high grade steel, where we have not seen a significant price decline, at least yet. So from that point of view, the input cost is on a fairly high level. What comes to, for example, labor cost, we still anticipate that also for next year, there is certain labor inflation which we need to take into account. And for that purposes, we have also...
During this year, we have done some single-digit price increases, for example, in our service area. What I said also earlier is that now we start to see bigger and bigger portion of our order book deliveries coming from those kind of all 20+ type of price increases. While, for example, last year, we had still in our deliveries and also early part of this year, we had still deliveries which were stemming from orders which we got back in 2021, where we did not have yet the full 20%, that's only 10% price increase. We are not intending to reduce prices.
I mean, our view at the moment is that even with price increases, we don't believe that price decreases, customers would not order more.
Okay. Then, I think you mentioned this before regarding Kalmar and the lead times, but I didn't get the number. So could you perhaps repeat it, and then I'll follow up on that one?
Yeah, in Kalmar's case, we are talking about 9 months at the moment. Earlier it has been 12 months. Perhaps in a more normal situation, I would say Kalmar, Kalmar could be at 6, 6 months. We are still, even though the component availability situation is improving, we are still having couple of articles which are causing gray, gray hairs. One is steering, steering axles, and the other one is the engines, engines. And even though also the supply situation for these components has improved, there are every now and then shortages, which has been also during this quarter, has been preventing us or delaying our deliveries to customers.
Okay. And kind of based on your comments, it appears that kind of the order inflow is fairly similar as in previous quarter, taking into account the seasonality, and that's the pre-COVID levels. But on volume terms, that's 20% lower, and your backlog is kind of stretching early next year. So how do we think about what you need to do for next year? I mean, if your workload on your factories drop quite substantially when you get rid of the excess backlog, what are the actions that you are kind of planning for next year if we see a weaker situation from that side?
We would be, of course, looking for example changing the shift patterns. In fact, we have also already during this quarter reduced for example temporary workforce in certain areas just to adjust the capacity according to the needs, not necessarily because of the order book, but because of for example just some deliveries have been delayed due to the fact that the trucks have not arrived in time. So the first area for us would be to reduce the number of shifts and then also temporary workforce.
And like we have said also in the capital markets day, we continue to maintain our so-called plan Bs or the scenarios, actions for different kind of scenarios, and then would be prepared to deploy that kind of actions if the situation would so demand.
Was it 10% kind of a EBIT margin that you are seeing, something that you can defend even in a weaker cycle for the core, core of Cargotec?
Yes. Basically, those scenarios have been built so that we can maintain our profitability at or above 10%.
All right. Thank you.
Thank you, Antti. Tom, please go ahead.
Yes, good afternoon. This is Tom Skogman from Carnegie. I wonder whether you have seen any cancellations so far or any problems with payments from customers, for instance, in the construction segment?
We have not seen cancellations in abnormal magnitudes. I mean, in our normal business, we every now and then see cancellations, but nothing beyond that. We have not seen customers delaying unnecessarily their payments. And we are keeping a very close eye on the customer payment behavior. Actually, we have seen quite nice cash inflow from account receivables collection during the quarter.
Okay. And then the big surprise, I guess, in the Q2 was that sales, you know, really took a step up, and now you should know what you have delivered in the Q3. So I mean, you have a great order book, so is sales more or less on the Q2 level despite holiday season, or are they kind of between Q1 and Q2?
Basically, even with the strong order book, we typically see in this Q3 somewhat lower sales due to the holiday season in the Northern Hemisphere. In the Nordics and Central Europe, July, August are typically months when we don't deliver as much, even though we would have the order book.
We should expect sales between the second and the first quarter, basically. I mean, that's how it sounds like.
Yeah, we don't specify the quarterly, but typically... I mean, if you look higher up as an example, if you look higher up, also historically, the revenues have been 10%-15% lower in Q3 compared to Q2.
Then I wonder about Hiab's total construction exposure. I know that, you know, pie chart that you show, but then you have a lot of retail and logistics. And, I mean, I would just assume that, you know, Bauhaus and other DIY stores are part of the, you know, the, the retail segment there. So could you open up a bit about the total exposure to construction and also from a perspective on how large share of the Hiab cranes are used in infrastructure construction applications?
Oh, I don't have those details. But, I mean, with this 25%, we have been trying to be as true to the kind of end-use segment, irrespective of Hiab product or solution. We have been trying to associate that as much as possible to the end-use segment. So the 25% is... Of course, every now and then, some customer who is using loader cranes for some other transportation, they might transport also construction goods or construction windows or whatever it might be. So Hiab products are quite versatile from the end-use point of view.
But I assume there is more construction exposure than you show in the pie chart, because construction, retail, retailer selling, you know, stuff for construction activity is part of the construction chart there, so.
Yeah, but for example, in the US market, often the retailers are not only for the new kind of house buildings, but also for the refurbishment activities.
Okay, then, moving to MacGregor. So I could not really understand what you meant about the demand situation, you know, and maybe we know what vessels have been ordered. So, what should we expect in terms of order generation now in the Q3 and how, you know, when should these, you know, orders start to really roll over in MacGregor?
Yeah, I mean, in MacGregor's case, I would say that the customer activity has been very similar to quarter... In Q3 compared to Q2. So we see good activity, especially in this kind of car carrier, PCTC vessels or ro-ro, ro-ro type of vessels, and then some orders related to container vessels and some orders related to bulk, bulk vessels, like illustrated in this picture. I would say that MacGregor could even get more orders, but customers are having currently the situation that shipyards are pretty much full, fully booked until 2025, 2026. So the customers are not in a hurry from MacGregor delivery point of view to place the order immediately.
What comes to MacGregor orders turning into revenues, we start to see now in the second half of this year, Q3, Q4 , an improvement in MacGregor's revenues, as we have been booking some of the orders already during the previous four or five quarters. But it's also good to remember that some of these MacGregor orders are for multiple vessels, and the deliveries can extend over, say, 3, even 4 years.
Also, we continue to be selective in the offshore sector-related orders, so the margin thresholds are clearly higher nowadays in the offshore side. The demand has been driven by the merchant and services sectors.
And then finally, about the Kalmar demerger. You highlighted that will happen in 2024, but is it... I mean, in the second half is probably what we are looking at, you know, after summer time next year. Is that right?
We have not set the exact timing. It's in 2024, and what I said earlier is that we are now doing the legal entity and the IT separation. We believe that these are the kind of longest lead time items, and when we are enough advanced with these, then we can come up with a more detailed timetable.
Okay. Thank you.
Thank you, Tom. Erkki, please go ahead.
Thank you. Hi. Hi, Mikko and Erkki. First, just to check, did you say that in addition to Hiab, you have seen solid inflow of smaller orders? Was it in Kalmar or in MacGregor?
Yeah, I mean, we have seen in Kalmar in the smaller container handling equipment, which are used in smaller ports. We have seen continuing good order intake. Also, in smaller equipment, which are used in industrial operations, we have seen good order intake. In this kind of larger investments, what you can see on this page, we have not seen in that magnitude orders what we saw, for example, last year. So that's the situation in Kalmar's case. In Hiab's case, especially in the larger loader cranes, which are more expensive and which are highly dependent on the truck, especially the heavy truck deliveries, we have seen customers delaying their investment decisions.
But then, for the smaller and less expensive equipment, for example, defense business-related equipment, we have seen solid inflow during Q3.
Thank you. Then secondly, how would you describe the equipment utilization rates in Hiab and in Kalmar? And how is this kind of spares, wears demand and other service activity in these two businesses?
Yeah, I mean, when we are looking at the utilization, both in Kalmar and Hiab, we continue to see high utilization rates. Nothing abnormal, both in Kalmar and in Hiab's case. So and that's also visible in the ordering of spare parts also, what we see in the service areas. Utilization rates continue to be on a high level, and therefore, for example, in Hiab's case, due to the fact that the truck deliveries are taking longer time, we kind of see that some customers are just spreading their assets, and especially when customers are extending the life of the equipment, then they might need also actively spare parts services in general.
Finally, would you agree that your spare and wear prices have followed suit with new equipment prices, so 20%+?
Sorry, can you repeat?
Your spare and wear pricing, has it followed the same pattern as your new equipment prices?
Yes, and as mentioned earlier, we have done some price corrections or increases in the services also during this year. Not so much for the not so much in the equipment area, but in services.
Very good. Thank you.
Okay, I don't see any hands up at this point, so maybe, is there any questions from the telephone lines at this stage? If no questions from the telephone line, so let's take Tomi Railo. Please go ahead.
Yes, thank you. Specifically, what do you see in lift trucks demand overall? If you can comment, that product, particularly.
With the lift trucks, do you mean reach stackers, empty container handlers?
Yeah.
Yeah. Like mentioned, basically, this kind of smaller equipment, which is used typically in smaller terminals, intermodal terminals, smaller ports, we have continued to see solid order intake in that area. On the contrary, in this kind of larger equipment, like straddle carriers, yes, couple of deals, larger deals booked this quarter, but less this kind of large orders compared to last year. But in the smaller container handling equipment, we have seen solid order flow.
Then maybe, relating to the split, just wondering, how do you make sure that you are focused on, let's say, the market and the performance and the deliveries, and not just on the split? In other words, does it impact your sort of business performance or market being in the marketplace? What kind of sort of programs are there that you ensure that the focus is not fully on the split preparations?
Excellent question. Very relevant question. I would say so that, of course, to a great extent, group level personnel are involved in the separation, and then few individuals on Kalmar and Hiab side. But when we think sales activities, sourcing activities, delivery activities, it's actually the divisions within Kalmar and Hiab who are responsible for that kind of activities, and they are not involved in this demerger preparation. So we have tried to keep the critical sales and delivery organizations kind of impact from the demerger activity so that they focus only on sales and delivery.
Okay, thank you.
Thanks, Tomi. Johan Eliason, please go ahead.
Yeah, hi again. I was just curious a little bit if you have seen any sort of changes in the marketplace in terms of competitiveness. I mean, you have in, on the larger cranes in Kalmar that you have left, you've previously competed with the, with the Chinese, obviously, and then we are then seeing that, you know, Western Europeans and the U.S., they tend to favor more Western suppliers today. Now you're into the smaller, smaller business, mainly in Kalmar, but you still have SANY, for example. Do you see any change there in, in the market dynamics that you have a bit of a benefit over SANY, for example, also?
Not really. I mean, no, I would say that in the bigger picture, whether it's Kalmar or Hiab, no major changes in the competitive landscape.
Yeah, and the SANY is not that strong in Europe. They are a big competitor in China, where Kalmar is also number two.
Hmm. Yeah, that's true. And likewise, do you see any changes in China then for you, sort of, to the negative side?
No, no, at least so far not. We have made deliveries to China and in those areas, for example, certain smaller container handling equipment, the business has been as usual.
Hmm. Okay, good. Thank you.
Okay. Do we have any further questions? If not, then we will enter into our silent period, and we will be back on twenty-sixth of October with our Q3 result release. So thank you for the participation and for the great questions, and see you in a couple of weeks. Thank you.
Thanks. Bye.
Bye-bye.
Thank you.