Good afternoon, ladies and gentlemen, welcome to the Cargotec Corporation Q3 2012 interim report conference call. At this time, all phone participants turn to listen-only mode until we conduct a question and answer session, and instructions will be given at that time. I'd now like to hand over to the chairperson, Paula Liimatta. Please go ahead, and I will be standing by.
Good afternoon, ladies and gentlemen. Welcome to Cargotec's January-September 2012 report conference call. My name is Paula Liimatta , and I'm the Head of Investor Relations at Cargotec. Today, we have a small live audience here in Helsinki and people on the phone lines. We will start with the presentation by our CFO, Eeva Sipilä. After that, we have time for your questions. Eeva, please.
Thank you, Paula. Good afternoon, ladies and gentlemen. Going straight into the highlights of our third quarter. Order intake was EUR 790 million, which is 11% down year-on-year. Sales grew 5% year-on-year and reached EUR 794 million. Our operating profit margin reached 4.9%, and really somewhat of a disappointment and as was pre-announced. What we are now guiding to approximately 5% operating profit margin, excluding non-recurring costs for the full year. Cash flow was a positive highlight with EUR 34.2 million positive for the quarter, the first nine months was a positive figure.
Going into some more key figures on the following page, maybe just to highlight a few additional ones. As mentioned now the nine-month cash flow was also positive at EUR 6.4 million. We've reached a phase in Terminals and Load Handling growth where we start to see a work in progress and inventories hence going actually a bit down. After a very sort of a very big increase and growth during the first half of the year. We still have quite a lot of accounts receivable due to the growth, 5% growth we've seen in the year.
We do expect cash flow from operations for the remainder of the year also to continue positive. Interest-bearing net debt at EUR 485 million, which gives a gearing of 39%. Nine months earnings per share, EUR 1.31. On the following page, you see a visual illustration of our performance. Here may be a few comments. From the period of 2010, 2011, I think you see here quite well the shift in our business.
We are gaining more share of sales in Terminals and Load Handling, where the profitability is lower than in Marine, which used to be a bigger part of our sales in the 2010, 2011 period. That kind of explains that drop. At the same time of course, as you are well aware, the current profitability is not satisfactory, and we have quite a few actions ongoing to improve that. Now come back to the more business area specific comments further down in the presentation. Starting with our Marine segment. Overall challenging market environment continues. As such, we don't see the market more the market having changed dramatically during the third quarter. It continues on a low level.
You are all well aware of the low number of ships being ordered, and that obviously has an impact on the demand for our Marine cargo handling equipment as well. At these levels, 143, arguably was a bit on the low side of order intake for us for the quarter. We were hoping for a few tens of millions more, but one project, two projects, these start to have quite a big impact when we are at these quite low levels. It's more a swing between the quarters than really a big change in the market as such. Continued the nine-month profitability 12.3%. We continued at a healthy level.
Third quarter was a bit on the lower side due to the mix we had in the quarter. Some of the postponements of deliveries from the third quarter into the fourth had a bit higher margin and left the third quarter at 10.3%. Again, this is a more quarterly issue. We do expect the fourth quarter mix to be a bit better thanks to the postponements even though there will again be further postponements from the fourth quarter into early next year. That is based on our understanding on together with the customers, what will be the year-end delivery rates.
Hence, of course, this was one reason we highlighted the other week in our stock exchange release that relatively speaking, the Marine share of marine sales of overall Cargotec will be somewhat lower than planned due to these postponements. Hence, obviously, that has an impact on the overall Cargotec profitability. Services grew slightly. That was a positive thing. It's a tough market also for services at this point when customers are a bit struggling. What we managed to get some progress in that, and we're happy for that. Going into Terminals segments, order intake was a positive, clearly positive. We had two very big orders from Asia Pacific that helped.
overall, sort of the market is from our market is maybe the best of the three segments we have. We also had sales growth of 27% year-on-year. again, this explains part of the growth we've had in Net working capital during this year. Profitability landed at 3.6%. here, the reasons behind that we are not making progress from the second quarter levels is very much related to a few things listed here on the bullet points. We have not been able to fully manage the larger deliveries. We have cost overruns in those projects. No one single reason.
I would say several reasons depending a bit on the project. We have cost overruns in some cases on material and erection, transportation type of issues, whereas on other projects, it's more related to the number of engineering hours being higher than planned. Hence the that part of the projects costing us more. The share of services is clearly, relatively speaking, lower than a year ago, coming from over 30% now to 25%. Due to the difference in profitability between services and equipment, that also has an impact if you look at the year-over-year comparison.
Then, thirdly, as has been discussed earlier in the year several times, we continue to have a heavy R&D program in port automation, and that obviously then, impacts and increases our SG&A costs in this segment. We are working very hard with the Terminals management team now, new management since May on obviously getting a better grip on the projects, ensuring execution of the order book. At the same time, as you know, we are having certain personnel negotiations ongoing to also lower the cost structure. Those actions are ongoing.
Going into the third segment, Load Handling, a slight rebound of the profitability from second quarter as we had guided on EUR 191 million of EUR 192 million of orders. Okay number as such. Here we do see some weakening in the European markets, and I think this is in line with the overall comments on the economy and other companies in our sector. U.S. continue to be strong for us and that obviously then is has a positive contribution on the numbers. Sales up 7% year-on-year. Here, despite the rebound, obviously, the 3.1% is not a sustainable level we are satisfied with.
Yeah, we continue and will continue into next year with the profitability related actions. Coming back to cash flow, as said, EUR 34 million from the operations. After two quarters in the red, this was a positive change. Again, in line with how we see the business developing and as we are being able to start to deliver from the significant work in progress that has been on our books. Services sales are 3% year-over-year. It's been a tough year for services, but nevertheless, I think this modest growth is an indication that we've in certain areas made some progress.
The market continues to be challenging due to the fact that customers are very cost conscious in today's environment and are considering very closely what type of maintenance and service work they do now, what do they do next year and so on. Looking at the geographic and business areas split, the geographic split is quite stable and balanced between the three different regions. Here you see on the left-hand side, the share of Marine going to 33% from last year's 40%. That again is reflected in on the overall Cargotec profitability as I discussed.
Ongoing actions, we have quite a few things ongoing. We obviously have an interim President and CEO, whilst we are continuing the search for a new CEO, following the transfer of our previous President and CEO, Mikael Mäkinen, to head the Marine and the listing process of the Marine segment. We have announced already earlier that we will go into a more business-focused structure based on the three businesses, which will also we will start to use the brand names MacGregor, Kalmar, and Hiab when we speak about the three segments, and in that way, have a more segment online organization compared to the previous metrics.
Finally, we have in two big areas, employee cooperation negotiations ongoing. The first one related to the changes in the governance model and the changes of, in, integrating EMEA and services into our business segments. The other one related to our Lidhult operations on our plans to centralize reach stacker and empty container handler production to Poland. Final words on the outlook. This is as per our stock exchange release the other week, where we are guiding on sales to grow and you on 5% operating profit margin, excluding any non-recurring costs that may result from these ongoing personnel negotiations.
With that, I think, Paula, we're ready to take any questions.
Thank you, Eeva. Okay, we are now ready to take your questions. We will start with the questions from the people here in Helsinki, and then we continue with those of our conference call listeners on the phone lines. Before you state your question, please ask your question, please state your name and company so that everybody knows who is asking a question. We can now start with the live audience here in Helsinki.
Okay. [Lasse Lovell] from Handelsbanken representing from Skogman today. Hello. Could you tell if there's anything new to tell about the Marine listing?
Nothing new to report. We are continuing now the preparations based on our board's decision to have the readiness for a possible listing during the second half of 2013. There's obviously quite a lot of actions related to that. One was the one I referred to this sooner, to Mikael Mäkinen taking the position as head of that. I don't expect us to be announcing anything as necessarily specific more on during this year. The work now continues as earlier announced, the plans are obviously subject to market conditions in 2013 then as well.
Thank you.
Operator, we don't have any other questions from Helsinki audience, so we can take the questions from people on the phone lines.
Excellent. Thank you. Just to remind our phone participants that star followed by one to register your question. Our first question comes from Jürgen Siebrecht . Please go ahead, sir, announcing your company name.
Good afternoon, Jürgen Siebrecht from HSBC. Firstly, on Marine, I have a question on the margin. This was 10% in Q3, just above your internal benchmark. What is the run rate here for the next quarters? Do we have to extrapolate this margin level, or was this also mainly driven due to the delayed deliveries? Also on Marine, in terms of the cycle, at Q2, you guided your order intake levels of around EUR 180 million for the second half the quarter. We are now at EUR 140 million. What is here your expectations for the coming quarters?
Then maybe also on your optimization measures, the things you have so far announced, when do you expect corresponding effects to bite in? Do you still see a material further optimization potential beyond, to, beyond that what you have announced so far? Thank you.
Okay. Thank you for the questions. If I start with your question on the Marine margin for the quarter. That was the third quarter being only at slightly above 10% was related to the mix of deliveries in that quarter. We do expect that the full year level is then around the nine month figure. In project business, you have to sort of bear with some variance in the margins between the quarters. But no change to our expectations on a healthy margin as such.
Going into your question on the Marine cycle, yes, this EUR 143 million was a bit below our own expectations as well. We had a few orders that we were hoping would be signed during the third quarter that were postponed and hence the change. A few tens of millions again do move between quarters at these levels. It's only one or two projects you really talk about when I think that there's a very difficult to currently sort of estimate on the sort of decision-making. We don't see sort of, I wouldn't expect big changes on what we've seen in the three quarters of the year so far.
Again, in any single quarter, one EUR 20 million deal can come or go. That of course remains something that we also have a challenge to estimate even to the final weeks of the quarter.
EUR 180 million, theoretically is possible, from the state of the cycle, like quarter on average?
It is possible, based on our strong market position in with the sort of deals that are being discussed.
Okay.
Then your final question was on the optimization, when do we expect the effects. With the ongoing negotiations, we are hoping to close them well before, well before the year-end, and hence have the new organization and new setup from 1st of January when it comes to the way of working. And then obviously what comes to the plans relating to Lidhult, as we announced in the release after the negotiations. Any actions of course, do take a bit more time because we are talking about transfer of production. I would really refer to what we said in the release two weeks ago.
positive effects can still be expected for 2013 or?
Correct. Yes.
Yeah. Thank you.
Thank you. Our next question comes from Christer Magnergård. Please go ahead announcing your company name.
Yes, Christer Magnergård from DNB. I have a couple questions. First of all, the Marine listings. Given the possibility you have in the rest of the market, are you satisfied with that potential to leave the Marine division with the Terminals and Hiab should you run a different type of IPO Marine and the comfort? Secondly, if you do the split up of Terminals and Hiab, is it theoretical that you can divest any of those two divisions or is there a difference between the two?
Okay, thank you. Starting with your first question, we are not satisfied with a 3% margin, roughly we are currently delivering in Terminals and Load Handling. For those businesses to develop sustainably, to have money to invest in the businesses, we do need that to rise. There is many moving parts in the Marine listing timing, some related to Marine, some related to very much to the IPO market as such in Asia, and then some related obviously to the sort of remaining businesses and the health of them. We need to of course balance those.
It's difficult to give you one number on it, but it is certainly the health of Terminals and Load Handling is one important question in the discussion as we need to consider that what's the sort of overall shareholder value created from the listing. To your other questions on divest possibilities to divest any of the other segments, there are no such plans currently.
If we can talk about price points for terminals in terms of as well. Will the R&D costs come down in 2013 already or will they remain high? Secondly, services, you talk about that they get a mixed effect with the lower share changes. How will that look going forward for the quite big backlog for the terminals that you will deliver on in 2013?
Okay. On the first question on the R&D costs, we do expect that we will do some prioritization in the R&D work as well, and that should lead to possibilities to look into some savings, but at least we don't expect a similar step-up from as we saw this year from 2011. We're currently kind of working on the plans and budgeting for next year. We can perhaps guide a bit more exactly than going ahead, but that's the kind of how the thinking what we have now.
On the share of services, yes, certainly, due to the, thanks to the good order book in Terminals, there, that will sort of support the, support a good start for the year in equipment deliveries and then hence, many things can of course happen during next year. And we can also maybe perform a bit better in our services business to balance the share. But as said it depends on, now it's clearly been that the big project side has been more active, whereas the services market has been, has been somewhat more, more challenging, and that is also then reflected in our order intake and how we move ahead.
Certainly we continue to be actively focused on the services business. One key focus area for when we now integrate the services is really to push for segments, within segment, the optimal mix of services and equipment and ensure that the new equipment sales support services and vice versa, at each customer. I would certainly expect some results from those actions.
Okay, thanks.
Thank you. Our next question comes from Pekka Spolander. Please go ahead and announce your company name.
This is Pekka Spolander from Pohjola Bank. Hello. A couple of questions. first related to Terminals, where you have quite large order books, but problems with the margins, as you mentioned. How could you describe the pricing situation with the new orders at the moment? Have you changed your pricing system somewhat? Or what can we expect from orders now coming in in Terminal side?
I think we clearly have a lot better insight into how we need to, how much work we need to put in the pre-calculations. We have much tighter control on the overall project management process, kind of ensuring that the cooperation between sales and delivery organization is more seamless. There are many ways in which we can improve that will help the overall profitability of the projects, irrespective of the pricing situation. I think that obviously big projects, there is a lot of attention and a lot of work related to them. In that sense, it's always pricing is always somewhat challenging.
At the same time, what really is important for customers in these big automation projects is that the supplier can deliver and it starts to work. That is where you make the money, that you have a successful start of the operation. As said, it's a balance, but I would more say that the work is on, the kind of issues we've had are more internal making than anything else. Of course, we need to focus on them internally and ensure we have the right competencies working with them.
Okay. Thank you. The second question, related to Polish factory. Can you tell something about the sort of capacity utilization or the workload in the factory? Are you running at the full capacity or what could you say about that?
I think we are running a rather balanced operation. By adding shifts, you can of course always get more out, and we're not sort of running flat out from a shift point of view, if that was your question. Of course, with the ongoing negotiations, we need to start to sort of think of how we ramp up and add capacity and the learning curve, both what comes to the discussions related to Lidhult, also the ongoing in-investment we have on the paint shop. Kind of in the short term, we will be more adding capacity and in a way to support the successful operations next year.
It is a well-running operation currently. Otherwise we would obviously not be investing more into it.
Okay. Thank you.
Thank you. Our next question comes from Johan Eliason. Please go ahead, announcing your company name.
Hi, this is [Johan Eliason]. I might have missed some of the question because there's an echo sometimes, but I hope you excuse me for that. Just on Marine, you say some orders were delayed from Q3 into Q4, and then some others into Q4 into Q1 next year. Is that one single customer?
ingle customer. It's several different projects. There's no trend in that way from one customer. It seems to be more sort of market issue where customers are not so necessarily pushing to delivery as they were in the boom times. It's more balanced, and there's maybe more flexibility from the demand point of view.
Is it, one type of ship? Containers, bulk, offshore?
Again, not any one single type now. I'm trying to sort of recall the list. It is more on the merchant ship side. Not deliveries in offshore have not been postponed. In orders, it's the discussions are somewhat lengthier in both segments. If we talk about deliveries, it's on the merchant ship side.
Okay. Then, you have announced how many you want to lay off, and you've started to take some one-offs in the quarter, et cetera. Could you give an estimate for the one-off charges you expect to come here and potentially the benefits?
Well, unfortunately because of the ongoing negotiations, it's very difficult to give any comments on that. Certainly the third quarter number was a very small number, and it will be bigger just considering the number of people we are discussing. I would suggest to use a rough proxy kind of based on that. So it, but I said, unfortunately, today I'm not in a position to guide more specifically on that.
Okay. Thank you.
Thank you.
Thank you. We appear to have no further questions from the phone lines at this time.
Okay. Well, in that case, we thank you all with Paula for today. Thank you.