Earnings Call: Q3 2019

Oct 22, 2019

Good afternoon, ladies and gentlemen. Welcome to our news conference regarding the Q3 Quarterly Report. And today, we actually are going to talk about the profit increasing and the sales improving too. Mikko, our CFO will talk about the business development in the areas and then at first pick up the line and start talking about the group results. My name is Karina Gebater and I'm actually standing in for Hannah Maria Teikinen who is not available today. At first we start with the presentations and after that we have time for a lot of questions. Nicolas, please. Thank you, Karina. Good afternoon from my behalf as well as thank you for joining the Cargodec Q3 twenty nineteen Conference Call. In Q3 twenty nineteen, the good operating profit development trend continued in Cargodec. I'm especially pleased with the progress we are making both in Kalmar as well as in Hayab. In Macregor, further actions are being taken to improve the financial performance of the business. As usual, I will cover some of the group level development issues first, and then our CFO, Mikko Polakka, will cover the business areas more in detail as well as the detailed financials and the outlook and guidance for the year. Regarding the highlights for the Q3, obviously, we saw the strong improvement in operating profit continuing there, and I'm very pleased with both the Macra and Palmar there. The operating profit increased by 24% and in higher comparable operating profit increased by 41% compared to the Q3 twenty eighteen. Obviously, Macraeger financial performance is a disappointment for us at the moment, and we are addressing the issue as we speak. The Q3 twenty nineteen is also the first quarter that we are actually now consolidating the TPS numbers into our financial figures, and Mitra will cover that a little bit more in detail in the business area specific information. Happy to see that finally, the TPS acquisition that took a long time to get required authority approvals, especially from China, is now completed. The strategic rationale remains strong on that one. With the combined services operations, we are able to address a very large installed base with nearly 20,000 vessels in our combined installed base with the TTS and McGregor service operations. The TTS joint venture setups in China give a clearly improved strategic position for McGregor in an extremely important Chinese shipbuilding market. And obviously, with the combined operations, we are able to drive cost synergy savings that are estimated to be in the neighborhood of €25,000,000 €30,000,000 on annual level. Required in the acquired business, we have about 600 colleagues joining us from TPS, August onwards. In TPS, estimated revenues for the remaining of 2019 are about €50,000,000 and comparable operating profit roughly at the breakeven level, with 26% of the revenues coming from services. We expect to close the closing balance sheet during the Q4 twenty nineteen. And we also estimate that with the drive of the synergies and efficiency requirements in MacGregor, the restructuring cost from the combined operations will be about €40,000,000 in 2019. With that one, let me move into the market environment. Overall, in container traffic, we saw the growth continuing, about 2.6% so far this year, And the forecast from the analyst is expecting a further growth throughout 2019 and somewhat higher growth in 2020. I'd also like to take this actually opportunity to discuss the situation in port automation projects as I believe that there has been a considerable shift in the industry regarding the automation projects and prospects moving forward. In the last twelve to twenty four months, the industry has gained lot of experience in automation implementation, and we have seen the performance and competitiveness of the automated terminals to continue to improve. In my discussions with customers, and I have met quite a number of large terminal operators in the last few weeks, the discussions are not anymore if one should automate. The discussions are entirely about how one should go about automation. I would say that the train has now left the automation station already, and this progress will be inevitable. This does not mean, however, that we will see an explosive growth in orders. We see very little so called greenfield developments where we would have entirely new automated terminals to be invested. But primarily, the automation will happen within the existing ports, so called brownfield implementations and phased investment. Right now in Kalmar, we have 10 automation projects in the implementation phase, and these implementations are very important for us to standardize the technology and add new capabilities that our customers require further automation projects. I would say that the automation progress is now inevitable, and also would like to point out that I see that progress happening even in adverse economical conditions, and that view has been confirmed by our customers. To retain the financial competitiveness and cost efficiency in terminals, the automation is clearly required by our customers. And the confidence about the automation capabilities has clearly increased in the industry remarkably in the last six to twelve months. Regarding the higher market environment, we still see the construction output developing favorably, 3% growth in Europe. In U. S, the growth was lower. Clearly, this is primarily a supply constraint related to availability of manpower and materials. In housing starts, we saw further growth happening in the last three months in U. S. Again. In matricorn, the market remains weak. The bright spot would be the RoRo where we see actually continuing demand developing favorably. And also on the bright side, on offshore side, has been the fact that about 300 offshore support vessels have been recommissioned during this year that hopefully will then lead into the actual new vessel development in the coming years. Also, have seen the service demand growing in macro that is also visible in macro service growth numbers as well. Orders declined compared to comparison to put. Order development has continued in High Up, where we see further growth happening again in high up sector. In Kalmar, the orders declined. We had we did not sign any large project orders during the Q3. This business by nature is lumpy. We also saw a slowdown in some of the mobile equipment in certain product divisions in certain markets as well. But overall, I would see that the pipeline in Kalmar is still strong. We have not seen any cancellations of any of the larger projects we are currently engaged in, and we still view the market overall quite favorably. In Macgregor, we saw orders increasing. However, as a sign of the weak market conditions, the Macgregor organic orders actually declined by approximately five percentage points. However, our order book is at extremely good level at the moment, about EUR 2,200,000,000.0, and it's of good quality. And this obviously gives us a confidence for the rest of the year as well as moving then into the 2020. Sales increased by nearly €100,000,000 and operating profit was up by 18%. Obviously, this improvement coming from good development in Kaumar and in High End. Also very happy to see that the continuing progress in our strategic focus area around software and services. In Q3, the Palmax services grew 4%. This is the lowest growth percentage we have seen for quite a few quarters. And primary reason for that one is that as our drive to also improve further our service operations profitability, we actually stepped out from number of fairly large maintenance agreements in Kalmar during the last few months, and that has then slowed down the growth percentages but improved our profitability in the business as well. Good progress continued in high up with 14% growth in Services. Mac record, the Service growth percent was 27%, obviously helped by the combination of the PTS numbers. The organic growth was about nine percentage points, so still very satisfactory number. And software sales, we saw 11% growth, primarily driven by the increase in the automation software sales. Service and software sales are now 34% of our and on the rolling four quarter or twelve months basis, the service and software revenues are now EUR 1,200,000,000.0, and we are well on our way to the €1,500,000,000 that we have set as our financial targets in that area. With that one, I'd like to hand over to Mikko Polakka, who will cover the business area in more detail. Thank you, Mika, and also good afternoon from my side. Let's start with Kalmar, where we had strong improvement in profitability in quarter three. Calmer orders were almost EUR 400,000,000, declined 19% like Nika indicated. And the decline is very much coming from two elements: automation and project orders, which can be lumpy and which can vary several tens of millions of euros per quarter, depending on what type of and what size of orders we get. The other element is coming from mobile equipment orders where we saw in certain product categories like RIPS, the stackers in China, order decline in quarter three. On this same note, it's also important to notice that Karma order book is almost EUR 1,100,000,000.0, so on a very good level. Karma sales grew 2%. The growth came primarily from services as well as from certain mobile equipment product segment. Service sales growth was 3%, and we saw nice development both in spare parts as well as in other type of services like maintenance services. Like Nika indicated, we reorganized and terminated some of our service contracts in the ambition to drive profitability in the service area going forward. Comparable operating profit for Calmar was almost €48,000,000 This is 24% improvement year on year. And the profitability improvement came from higher sales as well as favorable products and for business mix services and certain mobile equipment product categories as well as software profitability in quarter three. Then let's move to High Up where we saw actually a very nice development in all financial metrics. Orders grew by 4% and were above €300,000,000 Also, it's important to note that our quarterly orders fluctuate to a certain extent in high up. The quarter three is quite often lower than quarter two because of seasonality, our customers being on holiday season, especially in the Northern Hemisphere. We saw strong order development in Americas plus 27%, driven by truck mounted forklift as well as loader cranes. And then in Europe, we had a decline in orders as we had fairly high demandables orders in the comparison period in 2018. Pay up sales were up by 18%. Growth was 12% if we exclude the Effer acquisition, which we completed end of last year. And also our actions to improve the supply chain have been continuously yielding better and better results during 2019. And that has been also supporting our sales development in quarter three. Services also continued to grow. Service sales were up by 14%, and this is also in higher driven by both spare parts as well as different kind of other service contract. Impressive profitability improvement in High Up profitability was comparable operating profit was €34,000,000 41% improvement, and this is very much driven by the sales growth. Then let's move to MacGregor. And as Luca indicated, the PPS numbers have been now consolidated into MacGregor numbers since 08/01/2019. The markets remain challenging, both in merchant and offshore sector. Orders grew by 10%, but if we exclude the TPS acquisition, our orders in MacGregor actually declined by 5%. The TPS related orders were €21,000,000 in quarter three. The equipment orders related to container and bulk vessels declined, but we saw a good development, for example, in the RORO vessels. And services orders were up by 30%. Around 80% of our quarter three orders are now related to the merchant sector and then 20% to offshore. MacGregor order book increased significantly. This is very much driven by the TPS acquisition and the TPS business related order book amounted to EUR218 million at the September. Aggregor sales increased by 31%. And then if we exclude the DPS acquisition, the sales growth was 17%. Despite the difficult market, we were able to grow very nicely our Service business at 27% including M and A and then 9% excluding TTS. So also in MacGregor, well in line with our long term growth target. MacGregor quarter three profitability was a disappointment like said also by Micah. We made almost EUR 6,000,000 comparable operating loss. And there are basically three reasons for this low performance. We had low capacity utilization in several across several product lines in MacGregor during quarter three. We have had some single million project cost overrun still in quarter three in certain offshore projects. And then the overall price pressure in the market is quite significant as the markets are highly competitive. We have our offshore restructuring program ongoing as we speak now. We are reducing the capacity in that sector. And also the PTS integration activities are proceeding according to our plans. Then if we look our year to date first nine months, four months, good to notice that even though the quarter three orders were down more or less by Kalmar, it's good to note that the year to date orders are actually on last year's level. Sales are up by 11%. All business areas grow sales year on year. And even excluding the TPS and Effer acquisitions, we have been able to grow our year to date sales by 9%. Also good to note that we have been growing our service and software sales by 9% during the first nine months. The comparable operating profit was EUR 190,000,000. This is up by 10%. And then the IFRS operating profit is up by 26%, amounting to €162,000,000 Earnings per share was almost €1.4 to be exact 1.39 per share and this is also up by EUR 23. Our cash flow continued improving. We are now at EUR 153,000,000 in our cash from operations after nine months. This is some €110,000,000 better than last year. The cash flow improvement is coming from two sources, one being profitability improvement and then the second area being our cautious actions to improve the supply chain situation, both in Kalmar and in Hayab, and this is resulting to lower net working capital levels. And cash flow continues to be our focus area also going forward. Our financial position is strong. We issued two bonds during quarter three, one for €100,000,000 and five years, the second one for €150,000,000 and seven years. Thanks to the renewal of the long term debt portfolio, we have been also able to reduce our average interest rate to 1.8% versus last year's 2.4%. Our net debt has increased by €300,000,000 since the beginning of the year and €200,000,000 almost €200,000,000 of this increase is coming from the IFRS 16 risk change. And then approximately €100,000,000 is coming from the DPS acquisition, including also the debt that what we have taken hold. Our gearing is 65%, including the IFRS 16 and then excluding IFRS 16 impact 52%. The return on capital employed improved from end of last year, 8.6% now September. And last year, it was 8%. The improvement came from the profitability improvement. That's the main driver for the ROCE development. Last but not least, our outlook for 2019. We reiterate our profit guidance and expect our comparable operating profit for 2019 to improve from 2018. And with those words, I would then hand over back to Farina. Thank you, Mikko and thank you, Mika. Now it's time to open up for dialogue and let's start with questions from Helsinki. Any questions? Thank you. Good afternoon. It's Erki Wessel from Inderes. Talking about your gross margin, it seems to have been on a fairly constant decline during the for several quarters already and you have been compensating this by squeezing the SG and A. How long will this trend these trends continue? Fill in with the details. It's true actually. If I look at from 2017 to 2018, we had a decline in gross margin. And from 2018 to 2019, we have also experienced gross margin. However, the difference is that the decline from 2018 to '19 on gross margin is solely coming from MacGregor gross margin. So actually, in Hyderabad Kalmar, we have stabilized the gross margin development already for this year. I'm actually quite kind of confident about the capabilities to actually return some of that gross margin higher than Karl Markey. Supply environment has softened. We clearly, when I look at our sourcing, are able to see several pockets of opportunities in sourcing to drive the cost down, which is adverse or the opposite situation that we had in 2018 where it was more seller's market. And also the pricing actions we've been taking on the product side, both in Kalmar and Hyapar should be yielding further results So I would say that on that one, we have stabilized, and I would expect be quite positive on that front there. Think macroecor, clearly, difficult market situation has led to the situation where the pricing pressures are there. And then when the older projects have sort of ended now from sort of 2016 and 2017 into 2018, that has led into quite a clear decline in the macroeconomic gross margin, which is part of the profitability issue we have. And perhaps to add there is that we have done also price increases in the previous quarters, and these have certain lead time as we have still fairly long lead times, especially in the higher product. So certain price increases have been made and those will be then later this year. Okay. If I may continue on your SG and A, is the current level on a volume twelve month basis sustainable either in terms of euros or percentages? We are looking also on the SG and A. So overall, we have productivity improvement measures, not only on the corporate level where we have this company wide shared service program ongoing, but also we are looking other areas in DSG and A like the sales efficiency, this kind of activities. And you can see also from our business area results that we have incurred certain restructuring costs, both in High Up and in Kalmar as well in addition to MacGregor. And these are related to the productivity initiatives what we are doing together to use. Any more questions from Helsinki? If not, then we can continue with the international questions. We take our first question. Please go ahead caller. Hi, Mikko Magnus here from UBS. A couple of questions from my end. So first, could you expand a little bit on how your year over year demand trend developed over the course of the three months in Q3? And also if you can give us some indications on how Q4 has started? That would be our first one. If I start with the higher, we've seen the positive demand trend continuing in the business. And Mikko was pointing out as well, one needs to be careful not to look at sequentially because also last year, Q1 was the highest order and it declined on Q2 and then declined further on Q3. That's the seasonality we see. But on year on year, we have seen a continuous improvement happening across all the quarters in there. And if I look at the Q3 demand, we had a very well Mick already mentioned that one large government or military order last year in demountables that was not repeating. So if you exclude that one, the European development was also positive. In Europe, in Hyab's case, it's quite a mixed bag. We've seen softening market in U. K, I guess, the Brexit peers around that one. Also Sweden and Denmark and as well as Benelux have been somewhat softer. But then the rest of the Europe actually has shown good demand development continuing there as well. In Kalmar side, the project come and go. So I think it's more a question of lumpiness and the timing of those projects. The pipeline still looks good on that one. Clearly, at least from my point of view, I see the strengthening of the belief on need to automate the increase in the industry all the time, although that obviously takes a while to sort of land on order books and deliveries there as well. On the mobile equipment in certain areas and like in China, we saw sort of a of the market on there as well. That's, of course, against a fairly strong Q3 demand that we saw across the different product lines in last year as well. Macriver market remains to be weak, I mean, in merchant and in offshore overall, order intake was down organically about 5%. It. Thank you so much. Therefore, I don't think I've seen any major changes on the demand as such. Perfect. That's very clear. And on the TTS acquisition, could you talk a little bit about the savings and the phasings of those savings as we go forward in the next one to perhaps three years? And could there be more restructuring coming through on the TTS part in 2020 than you have just announced? Quite a lot of the restructuring will happen at Landes. We have now kind of warned or indicated in the Q4. We expect the savings to be in the ballpark of €10,000,000 from the TTS related integration. Obviously, we are looking for MacGregor related direct savings, especially in offshore area. And the remaining then happening in 2021, 2022, Some of the savings due to the Chinese competitive restriction and this whole separate are pushed back by that whole separate period and only land in 2021 there as well. But we expect that within 2021 end of 2021, we will have reached that twenty five million to €30,000,000 savings. Perfect. And then finally, sorry if I missed this a little bit, but could you develop on the components within the positive mix impact in Kalmar again? I just missed that. I think certain mobile equipment deliveries generally have a higher margin than some of the project deliveries. And then also we had a very good delivery in software, including the navies portion of the software in Q4. So overall, that we would say that the mix was favorable pretty much across all the product portfolios. Okay. So there's also a favorable mix within Software, is that right? Because I look I think the balance between Equipment, Service and Software was relatively similar between Q2 and Q3, but margins were quite On the service side, we had actually in services, we had a relatively low growth in Q3, primarily because we stepped out from a number of the larger maintenance agreements that did deliver on top line but didn't deliver adequately under the bottom line. And that both obviously helped on the mix as well. Okay. Got it. That makes sense. Perfect. Thank you so much. We take our next question. Please go ahead caller. Thank you. It's Leo Carrington from Credit Suisse. Just to follow on profitability. In CALMoD, how do you see the mix changing in upcoming quarters? It sounds like everything was fairly favorable in Q3. How sustainable do you think that mix is going forward? And then in high up, would you say the margins are now back to more normalized levels? Or are there still more efforts that can be taken in Poland to improve margins further and get productivity at that factory at optimal levels? I would say that the Kalmar mix would remain probably fairly constant moving forward. If you look at total backlog mix, that's fairly similar on the what we see in terms of deliveries as well. So I don't expect that I don't think that Q3 was exceptionally positive in terms of mix either. I think you'll see the similar improvement moving forward as well in there. And as we discussed on the gross margin side as well on a previous question, as I said, that gross margin side has stabilized now in Kalmar, and we expect that to improve moving further. In Hyderabad, Q3 tends to be a difficult quarter for us. So obviously, from the relative operating profit, we actually came down from Q2 as expected. And then again, we expect a bounce back on Q4. So again, we expect a sort of further improvement year on year on Q4 as well. You certainly had a sort of primary supply issues in two main factories, one related to truck mounted forklifts and the other one related to lower cranes in Poland. And we've seen improvement happening in both of those locations, and there are further opportunities. It's a gradual improvement. We have not suffered from any major component shortages anymore. So the improvements are primarily coming from our own operational development, and that's obviously a continuous improvement. I would expect further improvements happening in the Q4 in those areas. Okay. That's very helpful. Thank you. We take our next question. Please go ahead caller. Hi. It's Anke from SEB. Thanks for taking the questions. First one on Hayab's order intake and the organic growth numbers, if we kind of exclude the effort impact on the growth in Europe especially, what kind of growth rates organically did you see in Q3? So higher orders grew 4% in quarter three, including Sverdrup. And then excluding Sverdrup, the order growth was actually negative. So orders declined by 2%. Okay. You mentioned that in Europe you had some in the comparison figures you had some big orders. If you compare that impact to the Effer one, which one was larger? If we would look the organic like Mika said, if we would look take the organic development in high up in quarter three and excluding this military order in the mountables, then we would have grown in quarter three this year. Okay. And then on the other hand, Americas showed quite strong order growth. Was would that have been positive without the contribution of one large order that you flagged in the report? Yes. Correct. That's correct. And then maybe still coming back to the segment's profitability, if we compare it year over year, which I guess are representative in terms of seasonality, Was there can you quantify at all if there was any impact from positive or negative mix and then from the supplier and component shortage issues? Or is that kind of earnings leverage that we can get from the headline figures a fair representation of what is your operating leverage in that division currently? I would say that when you look at the Kalmar and High Up, the primary driver for the profitability improvement was the volume. We did not decline any further. I'd say the gross margin was stabilized, but did not give a positive impact on that one. And the operational leverage it was not yet that visible. So it's by far the biggest factor there clearly was on a year on year basis was just a higher delivery sales volumes. Okay. Fair enough. And then maybe a bit more technical question regarding the one offs, which were a little bit higher than expected. Is there what kind of a level of quarterly one off costs should we expect going forward on Q4 and then going into 2020? We expect some €50,000,000 one off costs related to quarter four. Out of this, 40,000,000 are related to Bankregor, like we indicated also on the DTS slide. So the total year one off costs are expected to be somewhere in the ballpark of €70,000,000 75,000,000 out of which majority would land in quarter four. Twenty twenty, I would say that it's a bit too early to say at the moment because it depends also on the progress of the TTS integration. In addition to the corporate side savings, obviously, is also the productivity initiatives happening in the business areas and Kalmar and Highab as well. There we are now trying to leverage the investments we've done in our capabilities and drive further productivity there as well. It's more a continuous improvement basis, but some of that will land into restructuring as we move forward. Okay. That's all for me. Thanks. We take our next question. Please go ahead caller. Thank you. This is Antti from Danske Bank. I would like to ask about the service contracts that you terminated in Kalmar. Can you quantify what magnitude of sales they generated last year? And also what their EBIT contribution was last year? I can't even remember that number myself, Antti, but I would say that they're not non Cinti. We talk about tens of millions of euros of sort of service contract revenues in an annual basis with very low or in certain cases, even negative EBIT margin. And obviously, not very much point on being there. We have tried to renegotiate some of them, and we may not be able to do that one. Whereas in some certain other contract areas, we've been able to come to a more successful conclusion. So we effectively have stepped out of those ones. And I would say without those ones, you would have seen the growth rate in Kalmar to be closer to what you saw in the previous quarter. Okay. And then secondly, you appeared quite upbeat with regards to automation projects at ports. Would you mind talking a little bit more about this? Is this something that you see materializing into orders potentially in Q4 or early twenty twenty as you see it now? I don't necessarily see that landing soon, but I think that's why I wanted to flag that because I think the discussion around automation has now moved from should I automate or not, does it make sense or not. You don't have that question anymore. Everybody I meet in the industry is talking about how should I now automate. And the biggest driver is that when you look at the existing automation projects, their performance clearly has gradually improved. And when you look at the cost competitiveness of those terminals now, whether it's in U. S, West Coast, whether they are in Australia or elsewhere, they are clearly able to actually show very high competitiveness against the manual terminals. And I think that's what has shifted now to customer thinking around that one. So again, as I said, I don't think you see a lot of major greenfield projects that would then sort of have a big impact in terms of order intake. But we will start to see more and more the consideration about how do I go about doing the brownfield, what should I do in terms of my current terminal to actually start to increase the automation stage. And people I've seen a number of terminal operators showing me the cost curves when it comes to the labor cost development. And at the same time, with the consolidation of the shipping line area, the pricing pressures they are under. That balance of power clearly have shifted between the terminals and the shipping lines and the terminals are getting under further development and the kind of you will see the, you know, the cost curves going up and the pricing curves going down, and that's what's really pushing now the sort of the automation forwards. And somebody told me that I'll have to automate or I'm not going to be in the business very soon. Again, one needs to be careful. I don't think we see any quick explosion of orders here. Think this will happen. I think, as I said, I think my only thinking here is that the train now has now left the station. It's moving ahead, but it's still picking up speed slowly. Okay. And finally, finally, if I may, how would you assess Calamari's competitiveness in supplying an automation solution? Are you competitive enough against other suppliers, including the Chinese? Absolutely. I think Chinese suppliers might talk about involvement in many of the automation projects, but I don't think they've done much in terms of the actual automation capabilities and software outside China. Most of the automation related Chinese equipment is done by the automation providers such as ABB and Siemens. In terms of equipment related automation, if you look at the 10 projects we are currently in implementation of, that's quite clearly the leading portfolio with the very demanding technical features that customers are requiring. They are both in intermodal markets as well as this sort of integrating the port and logistics facilities together. And I think from the technology capability point of view, we are in an extremely competitive position now. Okay. Thank you. That's all. Thank you. We take our next question. Please go ahead caller. Hi, good afternoon. It's Manu here from Nordea. My first question would be on Hieb. If I could just ask once more about the organic order intake trend in Q3. So I think you reported $3.00 €7,000,000 of Q3 orders and then that included €31,000,000 like larger one off order. And if I strip that out, then I think you said that even with that stripped out your growth would have been positive. Did I understand that correctly? That is correct, yes. Excluding Effera orders would have been €289,000,000 for quarter three this year. But then if I exclude this €31,000,000 larger order to get the kind of base order trend, then that would have been down? We had €294,000,000 including this fairly sizable amount of military order. And this year, our orders were €289,000,000 excluding Ester. Okay, fair enough. Then I get it. Then the second question is on Hybet. I mean, you still comment about the order intake trends during Q3 that did you kind of see any change in this July compared to or June compared to kind of September, October? No, I don't think there were actually kind of €100,000,000 a month and fairly steady orders, obviously, some seasonal variation depending on the market. So Nordics, usually July is somewhat softer. And then in Middle Europe, we move to August as well. But we haven't seen any particular trend forming there. We see fairly steady demand continuing in all the market areas. But as I said, Europe is a fairly mixed bag, so we clearly have seen some of the markets, especially U. K, kind of slowing down when we are moving towards this potential Brexit there as well. Okay. Then on the TTS, I think you showed here on the slide that you have €50,000,000 of sales that you expect to generate in 2019. So just to confirm that, that is the kind of for the whole of TTS for full year 2019 and not the number you are going to consolidate? That's correct. I mean the big difference of course when you go back look at TTS reported numbers is that they reported the consolidated numbers including the joint ventures. We will report the Chinese joint ventures on equity basis. And that, of course, has been about 30%, if I remember maybe correct, about the TTS revenue. So that leaves that gap there. Okay. And then in terms of MacGregor, I mean, you comment about your thinking around that obviously, there's a very big cost restructuring and cost cutting exercise going to be done in the fourth quarter. So when do you think that you would be able to reach black figures again on the kind of external Our level must be that the next year would be a breakeven or a slightly positive year for us. That's where we are targeting. Okay. And then on the Kalmar end market outlooks, I mean, you were very clear about the way you think around the prospect of automation orders. But if you kind of just think about the current developments, are you seeing some slowdown in China? Then, I mean, these are bigger orders are lumpy and although they will continue to be on the table, but are you seeing that customers are getting more hesitant in terms of their decision making that they still fully agree with whether they need to automate, but do you feel that they have the urge to do it? Or are they kind of more in a wait and see mode given the uncertainty overall in the global economy? I think there's probably an element of sentiment on the decision making overall in there. But I would say that the automation decisions are more driven by the pressures related to the pricing environment and the cost development and efficiency measures. So I think in that sense, potential downturn in economy is not necessarily impacted. We have seen some other industries actually that has even some cases forced automation development because the efficiency gains are becoming more important on that one. So I think it's somewhat independent from the overall economic development. But obviously, overall, the kind of the decision making around investments in this kind of uncertain environment is potentially slowing things down. We have not seen any cancellations or nature, but obviously, as we can see from orders, this is making certain areas might have slowed down. And if you look at the order intake, you had in these larger orders or automation orders. So can you just remind us about the kind of level you had in 2018 and what you've booked so far in this year? How is that mean? Do you expect to be able to still book something in the fourth quarter? Or will these orders then be interesting to 2020 potentially? If I would say so that in the automation, the quarterly orders, they have been varying, I would say, from €50,000,000 50,000,000 60,000,000 to €120,000,000 per quarter. So that's why we have said that it's quite lumpy if we are looking at past quarters. Q3 this year was actually funnily enough, even though I just talked very positively about automation, this was the first quarter. We actually didn't land any significant new automation deals and people made some very small projects in there. And that clearly had an impact there as well. But again, I what I my discussions with customers and we see the pipeline being there, the question only is the kind of speed of decision making and obviously how the deals land in between the different suppliers. If I may ask you still about the do you have the 2018 number, for instance, for the full year, which will be a bit more comparable than the quarterly fluctuations? And if the automation and project business is approximately €400,000,000 in revenues, so that's giving the kind of rough proxy also for the orders. And the year to date, it has been running at the same level this year? More or less. Thank you. So to date numbers, we are not actually that far off from the last year. And there also, the other thing is that, especially in this automation side, these order lead times are particularly wrong. A lot of the orders we landed actually in 2018 are actually primarily driven in revenues in 2020 as well. I'm quite comfortable of taking few weak orders in between as well. It doesn't really impact our revenue profile that All orders which are landing on automation and project division are automation orders. There are also manual manual equipment, manual cranes. We take our next question. Please go ahead caller. Yes. Hi, this is Johan at Kepler Cheuvreux. Coming back to the TTS acquisition, I think you said or explained one of the reasons for the weak profitability in MacGregor But on when I read the note, it looks like TTS actually had a positive contribution on the EBIT line by €1,900,000 or so. Could you explain this? TTS had a positive impact in that ballpark. And like Mika said in the beginning of the presentation, we anticipate roughly breakeven result plusminus zero result for the full year, I. E, for this period when we have been consolidating the business. So MacGregor's low profitability is coming very much from the kind of MacGregor original business, the project cost overruns, offshore business, low capacity utilization and then the overall very competitive market where the sales margins are very tightly competed. Okay. And then the associated income you reported was a negative €1,000,000 this quarter. Is anything of that coming from the joint ventures in TTS now? Or how has those been accounted for if you don't account them on the revenue line? We have not yet taken as the JV numbers have not yet been verified, we have not included any numbers from the DTS joint ventures yet in the results. Target is to get those into the quarter four results. Okay. So that is then mainly relating to the Kalmar division. If I look at the margin in Kalmar, I must say it's really impressive having looked at this business for the last fifteen years. I think this 11.5% margin I get to if I exclude the joint venture income here is clearly the highest you've ever reported. And you say this is not a one off in the quarter. Should we continue to expect good profitability at this level? Or is there any sort of seasonality now? Because historically, to my knowledge, at least, it's the fourth quarter that tends to have the best margins in Kalmar and not the third quarter. Yes. Would say overall that if you take a longer time line, and you have looked this a long time, there clearly has been a steady improvement in calmer profitability, except last year, managed to screw it up ourselves with the supply chain issues. So that was an anomaly in that one. The underlying improvements were there, but they were obviously not visible as we were not able to get the equipment out as such. And now that the supply chain situation has stabilized the improvements what we have seen in the mobile equipment business in terms of operating profit improvement, the improvements from the continuous growth of the services and then the improvement in the project execution in our businesses in the automation side and project side have actually led to a situation. And that's when we indicated this 10% operating profit target. We clearly saw an improvement opportunities within Calmax. So we are now delivering against those funds when we got away from unfortunate 2018 numbers. And is it still so that you're running the sort of the software and the automation projects business on a breakeven level? So the main profit driver remains the mobile business with its services attached to it. Okay. Again, if you look at the if you go a little bit further back in the history, we had years where the project business was a loss making as well. But I think overall project execution capabilities have clearly improved over the last three, four years in there. And that's, of course, partly we got away from these kind of whoopsies, as somebody called them technically. Yes. And now we saw your peer, Konig Crane, this summer walk away from their margin target. You still have your 11% margin target, but obviously not to a firm year. But I think you said set them in 2017 and said they would be reached within three to five years. So that's 2020 to 2022 or so. Are you still comfortable with that? Or are you seeing the different cycles in the different divisions that you have now, obviously, with the weaker expectations on MacGregor, for example, making the 10% target realistic or unrealistic? How do you feel about that? When I look at and we track that target against in all our businesses, we track against our annual plans. We also track against the strategic target. And I would say that we are mostly on track. The big deviation that is, of course, very visible now this year as well is the deviation in macro, where we are actually down 20,000,000 or so against the last year, which is very unfortunate. We obviously need to kind of sort out the situation. We are taking the actions now in there to make sure that we return to the breakeven, slight positive next year. With that one but then a big question for us and sort of the biggest unknown in our future operating profit improvement would be around the market recovery in Matrigor. Obviously, there is a very weak leverage when the market returns in there, but that's very hard to predict at this stage. In all the other areas, when you look at what we sort of when we broke down that target setting and where we are getting that from, we are actually tracking very well against that target. Okay, excellent. Then just finally then on these supply chain issues you had. I think you mentioned last year that the inventory buildup, etcetera, that you experienced during this period tied up an extra 100,000,000 to €150,000,000 in cash. And now you mentioned that you have released some of that. Is there still more to come from that item? Or have you released what you saw as unnecessary capital high up last year? Yes, would say that definitely we are not yet optimally operating. We have done some short term kind of perhaps one could say more brutal actions in order to get the deliveries out and improve the inventory levels. But as we have also opened in our recent Kalmar and IAP Stargardt visit, there are long term opportunities to improve end to end supply chain basically from the order to the cash as the end to end process. But that will take some eighteen to twenty four months to extract all benefits from those long term development. So you mean this 100,000,000 and SEK 150,000,000 number is rather in eighteen to twenty four months than by year end? We have, for example, in automation, some deliveries happening in quarter four, and those are for those, we have been now building a work in progress. And when those happen, then for example, that will release some cash in quarter four. So there are certain short term results, which we expect to become visible already in quarter four. But then as said, some of these more process related developments take some more time to land in the net working capital. Okay. Thank you very much. We take our next question. Please go ahead, caller. Yes. Hello, this is Karl Dukkis from ABG. Thank you for taking my questions here. So of course, very solid development in both Kalmar and EIA in terms of margins. I'm just a bit curious here. We've touched upon it. But if we go into Q4 here, how should one think about margin improvements year on year? Because if you look at sort of incremental margin in Kalmar, it was more than 100. So I mean if we what should one expect in Q4? And in terms of here, incremental margin was a bit better. But shouldn't you also receive some tailwinds from just the fact that you don't have any more headwinds on the supply chain side? I mean, you would say that the comparison point will be quite soft, obviously, when you look at our performance, unfortunately, from last year. So it's quite clear that we will have year on year improvement. I do think that we see continuous improvement happening in the supply chain situation. And I expect a pretty favorable sort of development year on year, in Kalmar and Hayat. The situation in MacGregor will be difficult in Q4. Overall, we are looking profit improvement in 2019 compared to 2018, and this improvement is coming from Kalmar and High Up, while MacGregor's is weaker than last year's. So that's basically indicating that the absolute and relative profitability in those SPUs or business areas should improve. Understood. Just one final follow-up there. Sorry. Okay. I was just finalizing that the profitability for those two business areas higher than Karma is expected to improve on a full year basis. All right. Thank you. And did I just understand it correctly that you intend on taking about €50,000,000 in charges in Q4? Correct. All right. Perfect. And just related to that, really, I mean, what is your view on restructuring charges in Kalmar and Hayab going forward? Do you feel that you are quite pleased now and there is no need to do anything further? Out of this €50,000,000 €10,000,000 is related to other two business areas, I. E. Kalmar and Hayab. We are doing certain actions as we speak in improving the productivity in these SBUs and our business areas. And those will incur those restructuring costs. And as said earlier, I would say that it's a bit too early to give guidance for 2020 restructuring costs as we have not yet guided the year as well. But we have indicated in the past the investments we have done in tools, processes and capabilities enable us now to start to drive the productivity. And I would expect that productivity drive to continue also in 2020, and that will then ultimately lead to some kind of restructuring costs in 2020 as well. Understood. And just final question for me, and that has to do with let's say that Hyjal enters a scenario in 2020 when organic sales growth is, let's say, 5% to 10% negative. What is your view on the business today in terms of your margin resilience? It's been a couple of years since we saw negative organic growth in those ranges, but that year margins really declined quite significantly. I think a couple of things as we talked about already. Productivity, I do think that helps us. We have opportunities in the gross margin to sort of return in on that one. Those will obviously help quite a bit. And then we have Berkley and I think like many other peers quite a lot with a very detailed plan execution plans as well. Especially in high up, we have quite a few opportunities. We still have a too large manufacturing footprint with too many facilities. And right now, we are not in the position to be able to address that one because of the strong demand and delivery situation. But if the demand would go down, that would enable us to sort of address that manufacturing footprint and cost associated on that one as well. So I'm fairly comfortable with the margin results I have in-depth in both in Hyavan and Kalmarak at this stage and the preparations we have done to sort of the potential slowdown. Thank you. We take our next question. Please go ahead caller. Yes, this is Thomas Goghman from Carnegie. I was wondering about this kind of overhead cost cutting. You have moved some people to Bulgaria, etcetera, and you have earlier communicated that E and L savings in 2019 and 2020 would be 10,000,000 and €20,000,000 respectively from from this exercise. And now I can see that the internal number of employees is up by almost 30% year on year. So I wonder what's really going on there and what can I not see from these numbers? Yes, that said that we have this €50,000,000 overall €50,000,000 cost improvement program, CargoTech wide cost improvement program, 30,000,000 is coming from the indirect procurement related savings and then €20,000,000 from this consolidation of the back office activities. And we have said that this consolidation of the back office activities, the savings there are coming towards the end of the kind of execution period, I. E, 2020. And the reason for that is that when we are moving work from the countries to the center, we need we are having double costs during the transition period. So from that point of view, we expect to see savings in 2020 for this exercise. On the indirect procurement area, we have been progressing according to the plan, and the cumulative savings are close to €30,000,000 in that area. I was actually looking at these headcount numbers that's present time. By far, the biggest driver in headcount increase, of course, is the M and A. So we have added the FFEL and TTS operations that and altogether added several hundreds of people into our operations. We've been also adding headcount in our manufacturing facilities. We're going to double shift in some of the factories due to the delivery situation. So that's adding quite a lot of headcount. The third area of addition actually has been around the services, direct personnel. We have growing services. We've obviously been hiring service personnel on that one. If I look at the kind of S and G related personnel development, that tax fee is in the negative territory. We are actually, this year, taking out probably some hundreds of positions in SG and A position in the businesses as well. But obviously, the growth in the volumes and the growth in services as well as the M and A is then delivering more headcount. Building our models, is it kind of right that the saving in 2019 from this is like EUR 10,000,000 and that splits between Hyab and Kalmar mainly? And then next year's EUR 20,000,000 savings, that is kind of mainly seen on lower corporate overhead costs? Or will that be also split into Hyab and Kalmar? Hyab, Kalmar and MacGregor. So this for example, this centralization of the back office activities that is touching all our three businesses, not so much the corporate to some extent there, but not mostly the benefits are in the SBUs Most of business accounts that we are taking out and we are talking about several 100 people is actually coming from our country operations, the back office in the regions and countries. So those are business related headcounts. And they are then replaced by more central services. Okay. And then I wonder about the health of the ETS order book. Now you have had control over that asset for like three months. So I assume you have start to have some feeling about the health of the order book and the pricing in the or sales margin in the order book. How does it look? Overall, I think the process is bidding process, etcetera, we are fairly satisfied with what we've seen in TPS. And there are a few, less than one hand, of identified projects that are a bit of a more question mark that we are now addressing. And that's part of the closing balance sheet discussion there as well. I would say overall, it's been fairly positive with a couple of identified issues that we are now addressing. Okay. And will those be booked as EO charges? Or will you book those also as if you do some order book corrections, will that be booked as normal earnings then or? It's too early to say. It depends on the items, whether they are related to the original purchase price, whether they are related to the order book. So that is something what we are now currently, as we speak, going through, and that is expected to be finalized in quarter four. To sort of open that up a little bit, when Nico talks about this restructuring cost you indicated in Q4, Some of that, of course, is personnel related restructuring related to synergy savings and savings. There will be some assets that we need to renew in light of the current market situation. And then, for example, facilities is a failure. If I then maybe have a sort of long term leases coming from both sides that we plan to discontinue as a part of the kind of streamlined operations as well. Okay. And was there some impact from FX on EBIT in the third quarter? Instant, very small. And for example, on the top line, the impact was 1% unit positive. The dollar has strengthened a bit. Shouldn't that start to help higher, especially in the coming quarters? In the coming quarters, yes. At the moment we are still delivering the fairly long order backlog from the previous quarters. All right. Thank you. We take our last question. Please go ahead caller. Hi, it's Mano here from Nordea again. I would have a follow-up question on Could you help me to understand if I look at the EHAB margin performance in 2016 and 2017 and then compare that to kind of what you're delivering now in Q2 and in Q3. So I mean, it looks to me that your deliveries margins are still kind of clearly below what you did in '16 and 2017, but you're talking about having solved most of the supply chain issues. So with the kind of strong growth you have in sales, so you should be able to get that operating leverage. So what is really different today compared to where we stood in 2016 and 2017? And obviously, the question is that do you think that the kind of margin level is closer to where we are today rather than where we were in 2016 and 2017 if you're able to solve the issues you have? I guess you're talking about comparable operating profit percentage, right? Yes. Yes. And the biggest single difference actually comes from the Effer acquisition, although it's a profitable operation, the kind of the percentage operating profit and the percentage gross margin are lower than in the rest of the higher business. So that, on its own, has already a dilutive effect. I'm turning to Mikko here, if you remember the actual number. Yes. It's something like one percentage comes from Ether alone. And then as we said, we clearly lost gross margin because of the supply chain challenges and the cost increases from 2017 to 2018, and that's now stabilized. We need to sort of try to turn that back on with the pricing increases and better sourcing initiatives there. We also lost, obviously, net team with the supply chain challenges and related costs. We are not out of that one yet. I mean, is improving, but we have put heavy cost on that one. And then obviously, one, our cost level overall in SG and A is higher. We have invested more into the different process development, CRM systems, service management tool systems, higher R and D and then on the digitalization efforts as well. So part of the profitability improvement sort of or profitability change has come from a higher cost level that we operate in. We are now looking at productivity improvements in higher at the same time as well, but we do want to invest for the future capabilities as well. And if you look, for example, for the two this year, we had roughly €50,000,000 higher sales than now in quarter three, and we did in quarter two fourteen point one percent operating profit. So it's also a bit this low quarter three season, which now impacted the profitability. Okay. And if I compare it to 2017, when you had €50,000,000 of less sales, but 39.4% margin, so I can shave off like 1% from Effer, then some step up in investments and then still some double cost or extra cost from just sorting out all of these issues related to supply chain and factory footprints and so forth? Or is there a fundamental reason beyond those why the margin should be different? So I think you captured it pretty well. Okay. Thank you. There are no further questions at this time. I would like Okay. To place a call back to our It seems like there are no further questions online. Thank you for a very active dialogue and please remember that our full year result will be published the February 6. Thank you all. Have a good day.