Good morning, everybody, and welcome to Kalmar's Second Quarter Results Call, the first of its kind as a standalone company. My name is Carina Gebert-Teir, and I'm heading the IR, Marketing, and Communications at Kalmar. Today's result will be presented by Kalmar's President and CEO, Sami Niiranen, and CFO, Sakari Ahdekivi. The presentation will be followed by a Q&A session in the end. Also, please pay an attention to the disclaimer, and with that, I would actually like to invite Sami to the stage. Welcome.
Good morning, and afternoon, everyone. My name is Sami Niiranen. I'm proud to be here presenting the first financial results of the new stock-listed Kalmar. During quarter two, Kalmar delivered solid profitability, as demand in many markets has stabilized compared with the high levels of 2023. A key highlight of the quarter was the successful listing of Kalmar. After several months of preparations, we are now ready for the next phase of our sustainable, profitable growth strategy as a publicly listed company. We noted that a mixed demand picture across the business continued in the second quarter, with stable demand in services, but some softness, especially in the North American distribution customer segment. Despite the continued complex macroeconomic and geopolitical landscape, we managed to deliver a good quarter with a solid financial performance.
We also continued to make solid strategic progress with detailing our Driving Excellence initiative, and I will go through this in more detail shortly. As mentioned, this quarter is a real landmark for Kalmar, as the de-merger of Cargotec was carried out at the end of June, followed by the successful listing of Kalmar on the 1st of July, 2024. As an independent company, we are now fully committed to execute our growth strategy and focus on capital allocation in the best interest of Kalmar and our shareholders. In the second quarter, approximately 40% of the value of our total sales was attributed to our Eco Portfolio, underscoring our commitment to sustainable innovation. Today, approximately one-third of our sales comes from services. Our extensive and active installed base of 65,000 machines globally provides a solid foundation for significant services growth, fueled by our innovative offerings.
We continue to see a mixed demand picture in the second quarter with regional variations. Demand for smaller-sized equipment used in ports continued to be solid, while delayed decision-making continued in orders requiring larger investments. Destocking was prolonged in distribution customer segment due to a softer North American market. Kalmar's demand is also impacted by the number of containers handled at ports globally, which is estimated to have increased by 3.4% during the second quarter and increased by 4% in 2024, according to Drewry's latest estimates. Examples of major orders received during quarter two included 14 hybrid straddle carriers, as well as three heavy terminal tractors. Our order book totaled EUR 925 million at the end of the second quarter. The order book is on a healthy level and provides a good visibility for the second half of 2024.
Our cost structure has already been adjusted to the lower order book level, which is evident from our continued strong profitability. Our sales totaled EUR 417 million in the second quarter, which was impacted by a slower market activity and the lower order book. Almost 80% of our sales come from geographies where the market drivers are most prominent, which provides a real opportunity to drive our initiatives, especially in these markets. Kalmar has been focusing on its Eco Portfolio for many years, with the purpose to contribute to the climate change mitigation and economic activities that can be considered environmentally sustainable. The share of our Eco Portfolio sales has been steadily growing, and in the second quarter, it accounted for 40% of Kalmar's total sales.
For Kalmar, the increasing interest in electrification and sustainable innovations promotes profitable growth, embodying commercial and operational excellence on top of customer satisfaction. Our comparable operating profit continued on a solid level, driven by improvements in both commercial and operational excellence. Our cost structure has already been adjusted to lower sales largely, which partly offset the drop in sales volume. The comparable operating profit was around EUR 52 million, leading to a margin of 12.6%.... This quarter, we have gone from a business area of Cargotec to a standalone, publicly listed company, reporting financial based on our two segments: equipment and services. To enhance transparency, we now provide comparable operating profit levels and other key financials for both reporting segments.
The good business performance, coupled with improved cost structures due to measures implemented last year and early this year, has made us deliver on the strong profitability this quarter. Sakari will provide you with more details about the two segments, performance. Next, I would like to recap and update you on our strategy that we presented in the Capital Market Days in May. As you well know, Kalmar's strength lies in our global leadership in the mission-critical heavy material handling market. We have built a trusted reputation by partnering closely with our customers, consistently delivering solutions that make a real difference in their operations. As we look to the future, our strategy is clear: to drive sustainable growth by leading the industry towards greater innovations, such as electrification, to accelerate service growth, and to drive business excellence.
We are fully committed to our long-term performance targets, which include a 5% annual sales growth over the cycle, 15% comparable operating profit margin, and over 25% return on capital employed by 2028. This will be delivered whilst maintaining a strong capital structure and committing to ambitious sustainability targets. The Driving Excellence initiative is a crucial step towards achieving Kalmar's long-term performance targets. Detailed planning has advanced, and Kalmar is planning to reach approximately EUR 50 million cross-efficiency improvements by the end of 2026, in line with the aim of reaching the previously communicated 15% comparable operating profit margin by 2028. These efficiency improvements also enable enhanced investments in sustainable innovations and service growth, the other two strategic pillars.
The main measures are related to actions in commercial and operational excellence that include active pricing management, supply chain and process optimization, and continuous focus on competitive operational cost base and faster decision-making. Now, coming to my last slide, I'm also very pleased to see how our close collaboration with our customers translates into a strong innovation pipeline. During the quarter, we launched the Kalmar electric empty container handler and unveiled the Kalmar Ottawa electric terminal tractor. In addition to that, we introduced the My Kalmar 2.0 digital ecosystem that provides access to all the fleet details, machine cards, and contracts.
Single point of entry to digital tools, such as the store function with parts and equipment upgrades, as an example, the insight function with performance analysis and data-driven, actionable insights, as well as intelligent solutions, taking a step towards the predictive maintenance to ensure operations continuity and top efficiency. So this ends my part of the presentation. I'll now hand it over to my colleague, Sakari. So thank you very much.
Hello. My name is Sakari Ahdekivi. I am the Chief Financial Officer of Kalmar, and very pleased to be here to present and to go a little bit deeper into the figures of the second quarter of the standalone Kalmar company. I will start my presentation with an overview of our performance on an LTM basis, similar to what we did in the Capital Markets Day. I will then drill deeper into the two segments, equipment and services, and then cover the comparable operating profit a little bit deeper in terms of a bridge and also discuss the balance sheet and the outlook. I think it's important to remind the audience that, of course, this is a bit of an exceptional quarter still in the... in terms of how we present the figures of Kalmar.
The P&L is a carve-out basis P&L, and the balance sheet is now the demerger balance sheet as of the 30th of June at the moment of the demerger from Cargotec. This, of course, means that while the P&L comparables are or the prior year numbers in the P&L are comparable and have been restated, the comparables in the balance sheet are, of course, not useful because the demerger balance sheet looks very different from the carve-out balance sheet that we have presented in the comparable periods. With those words, let's dive into the numbers, and on an LTM basis, our orders received are slightly below EUR 1.6 billion as a result of the EUR 375 million that we booked in Q2.
But more or less, I would say that the orders have been hovering around the EUR 400 million mark, or, or close to, for the, for several quarters now, leading to the order book of EUR 925 million, as Sami explained, which is still on a good level and supports our second half of 2024 very well. On an LTM basis, the gross profit is 25.5%, and we have a comparable operating profit margin over the last twelve months of 12.5%.
Sales LTM at EUR 1.868 billion, and then the leverage based on the demerger balance sheet at 0.6x EBITDA, and this is very close to the figures that we presented in the Q1 pro forma balance sheet, and also the gearing at 27.3% is very close to the pro forma Q1 gearing that we presented earlier. Return on capital employed remains on a good level at 20.2%, and over the last twelve months, we have generated a very, very healthy and strong cash flow. Cash conversion during the last twelve months has been 148%. So although the cash flow in the second quarter was clearly lower than in the recent quarters, the cash generation over the twelve-month period is very, very healthy.
Now, diving then into the equipment segment. Equipment segment orders decreased by 21%, and the order book in the same direction, 29%, and sales decreased 28%. The demand picture continued to be mixed, with softness, especially in the North American distribution customer segment, and also some decision-making delays still in the larger equipment. Fully electric equipment contributed to 14% of the orders received in the second quarter. Profitability, however, despite the decline in sales, remained very strong due to the successful commercial performance, as well as the cost-saving actions executed earlier. Service segment orders received have been stable, with an increase of 2% compared to the second quarter in 2023, amounting to EUR 137 million in the quarter.
And sales were stable, slightly, very slightly down compared to last year in the second quarter, and the order book was stable. Profitability in service has grown steadily during the last quarters and was now at 17.3% and showing a good track of improvement now, sequentially. Growing services is one of our key focus areas going forward, and we see a significant growth upside from our large installed base and our innovation-enabled offering. In addition, we will take advantage of the move to electrification and to deliver value through data-driven solutions in service. The good operational performance and the cost structure that we adjusted already earlier has largely offset the effect of the declining sales when we consider the comparable operating profit margin.
The cost savings announced in connection with the Q3 2023 report are visible and delivering approximately EUR 20 million already in the first half of 2024. As you remember, back in Q3, we announced cost savings, a cost savings target of EUR 20 million, which we then reiterated or actually increased the target level to EUR 30 million later on. So this is clearly supporting our profitability in the first half year, which is shown here in the bridge on the left hand of the slide. The operating profit includes items affecting comparability, which were EUR 16 million in the second quarter and EUR 25 million for the first half of 2024. These are all related to the demerger costs from Cargotec.
The total costs recorded related to the demerger during 2023 and 2024, until the end of June, were EUR 40 million. The estimated total costs are EUR 45 million, so EUR 5 million more to come. However, this estimate may be subject to change. R&D expenditure in the first half year was EUR 25 million, representing 2.9% of sales. Kalmar's return on capital employed remained on a very good level, and supports and enables long-term growth for the company at 20.2%, although slightly lower than in the recent quarters. As mentioned, the gearing is 27.3%, and the leverage at the end of June, 0.6 times. Finally, then from my side, we reiterate our outlook for 2024. The outlook for 2024 is unchanged.
As published on the first of July, 2024, Kalmar's comparable operating profit margin as a standalone company is estimated to be above 11% in 2024. And that completes my presentation, and we can move over to the Q&A. I invite my colleagues back to the stage. Thank you.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Panu Laitinmäki from Danske Bank. Please go ahead.
Thank you. I have two questions. Firstly, on the demand: was it weaker than you were expecting in Q2, and was this mostly a U.S. issue, or is it, like, a wider thing? That is basically the question.
If I start, thank you for the question. The demand, as we said, is sequentially stable. And, of course, if you look back to the previous four quarters even, we have been around EUR 400 million, plus minus something. And, two of those four quarters have been just slightly below EUR 400 million, and two slightly above. So I think that has been the trend during the four previous quarters. And, of course, what we have communicated earlier as well in the Capital Markets Day is that we have a flatter market now in 2024 and 2025. So it's pretty much in line with that.
But as such, the demand picture hasn't changed compared to the previous quarters. It's the same issues, if you like, in the North American distribution segment and in the larger orders, or the larger orders. So the market as such is pretty much the same as it has been in the previous quarters.
Okay, thanks. Maybe a follow-up to that. I mean, when you were still part of Cargotec, management was kind of expecting the destocking in the U.S. to end in a few quarters, and I guess this was given in late last year. So it seems that the destocking has continued for longer than maybe hoped for, at least earlier.
I don't know if it has continued longer, but it continued during the second quarter. It continued, of course, during the first quarter as well. So it has continued up until the end of quarter two. Yes. Affecting-
Okay
... affecting the distribution segment.
Thanks. And then secondly, on this excellence program and the EUR 50 million number you gave, just to clarify, I mean, is this something that you were planning all the way to get to your targets, or is there kind of a reaction to the market developments in terms of fixed cost savings as well?
That's a good question as well. Thank you. It's a part of our long-term strategy that we communicated in the Capital Markets Days a couple of months ago already. And then, we promised to get back with more details, and that's where we are as of today. And I can say that I am proud of our team, how we have been able to quantify this excellence program already at this stage now in quarter three.
You remember, we've been talking about the three strategic pillars, of which one is driving excellence, so this is kind of putting more color and detailing what we are doing in that area.
Okay, thank you.
The next question comes from Antti Kansanen from SEB. Please go ahead.
Hi, guys. It's Antti from SEB. Thanks for taking my questions. A follow-up, firstly, on the North American distribution destocking trend. So could you provide a little bit more color, where you see that kind of the inventory levels are? Is there still kind of potential for further calm, or are we maybe reaching some kind of a bottom on the second half?
We are not... Let's say, we are not giving predictions for going forward, of course, but what we have seen during this year is that both quarter one and quarter two, of course, the destocking has continued. And it's a build-up from the previous years, as we have communicated earlier as well.
... And maybe one data point to add is, as you know, we are following the running hours of our equipment, and in the quarter two, the running hours in North America were a little bit down. So that is also, I think, a data point to follow.
All right. That, that's clear. And then secondly, on your delivery times and your backlog rotation, I mean, there's been a lot of, kind of, changes with the supply chain, also with your equipment portfolio mix over the past years. So could you provide a bit of color on how much, kind of, of your equipment backlog would you expect to deliver in the second half? How much is for 2025, and what kind of a normal backlog or order to sales rotation nowadays?
If I start with the lead times, our average lead times vary between 3 to 12 months, mostly, and depending on the type of machine and type of portfolio and type of division as well. So 3 to 12 months, of course, meaning that we have still now in quarter 3, quarter 4, of course, possibilities to deliver delivered orders that we will take now in the next couple of weeks and months.
But we haven't actually specified how much of the backlog is delivered in the current year and how much is in the later year. And the other thing to, of course, always keep in mind is the service business, which has the faster turnaround of orders to sales.
All right. And then lastly, maybe a question on pricing and cost. So how have you seen kind of a input cost development throughout second quarter, and what's your ambitions on your net pricing for future orders?
I think, say, the peaks that we experienced a couple of years ago, of course, they are behind, and it's a more like a normal situation as at today. When it comes to pricing, of course, we do our normal, regular price adjustments. And of course, the key point here is to create customer value, and that's why as a innovation and technology leader company, of course, we try to all the time develop the products that create more customer value, which also links, of course, to the pricing of the equipment going forward. But the situation is more normal than maybe two years ago, I would say.
Yeah. Let's bear in mind that the other side of the equation is, of course, the sourcing, where we are, of course, which is part of our Driving Excellence program, and where we are working on the other side of the margin equation, as well as the fixed cost, of course.
I'm just thinking, kind of, you've been a little bit clearing an old backlog in the past 12 months, so is there a major difference between, let's say, gross margins in your backlog versus kind of the gross margin on equipment deliveries in the past couple of quarters?
I think we communicated something in the previous report as well about the successful commercial management, commercial performance, so which links to the active pricing management, of course. So of course, we are still seeing some effects from that one. And it shows the resilience also in our result today.
As we don't publish a margin on our order backlog, then I think we'll need to leave it there.
Mm.
Fair enough. That, that's all from me. Thank you.
The next question comes from Erkki Vesola from Inderes. Please go ahead.
Hi, guys. It's Erkki from Inderes. A few questions from me as well. So first, coming to the North American market, was it mostly lift trucks where demand has been weak, and have you seen our market share declining there?
Our market shares, we are not talking openly here, of course, but it's mainly related to the distribution and terminal tractor segment, I would say, not to the lift trucks. I would say the small and medium-sized mobile equipment are tracking still and performing well throughout the world.
Okay, great. And then regarding the Q3 demand, you may not be precise with this, but do you expect that there will be a normal seasonal sequential decline in order intake in Q3, or is there something that we should not expect that to happen again?
We are not, let's say, disclosing any, forward-looking predictions here. But what we can... If you look back, of course, the previous four quarters, we can see quite, I would say, quite, steady, EUR 400 million order intake that we have had, which pretty much reflects actually, the statement of, having a flatter market now this year and even continuing a little bit to the next year, as we communicated in the Capital Markets Days. So the demand-
Okay. Thank you.
... has been sequentially stable, overall in quarter two.
Okay, very good. And then finally, about this efficiency program, what is the drop-through of this EUR 50 million? I mean, what's the expected EBIT impact from 2026, 2027 onward?
Today we are announcing the program and the improvement efficiency program initiative, but not going into the details. Of course, we will get back to you in our interim reports later on this one, but now we will start, of course, implementing and executing this continuous improvement type of program. But it's worth mentioning that, of course, we talk about EUR 50 million cross-efficiency improvements, which means that we have two other important strategic pillars, which are called investing in sustainable innovations, as well as growing services. So, of course, we want to benefit from this Driving Excellence program into those other two strategic pillars as well.
And that's why we're calling it growth, because we are also investing in some, some other areas. So this enables us to invest and at the same time, be on, you know, on the journey towards the 15% target in 2028 on all fronts.
So that I just can't squeeze any more information out of this EUR 50 million, and what's the impact is going to be?
No, not, not today.
Okay. Thank you so much.
The next question comes from Mikael Doepel from Nordea. Please go ahead.
Yes, thank you very much. Coming back to the US distribution customers, which you mentioned, maybe you could just remind us of how much you sell to distributors overall, as a group and in the US particularly. And I know you're not giving predictions going forward, but would you say by the end of Q2, where were the distributor inventory levels compared to what you regard as a normal level? Let's stop there.
Let's say, let's say overall, the number that we are disclosing is from 2023, and that was a part of the Capital Markets Day material as well, which says that 40% of our sales is coming from the distributor segment. So 40, 40% of our sales.
Okay. And the distributor-
And, and, and-
-inventory level?
Talking about the North American market, of course, we have, we have, several distributors in that region, of course, but we do have them everywhere in the world as well, or elsewhere in the world.
Okay. And by the end of Q2, would you say that distributor inventories were still elevated?
Uh-
Just making sure here that when we talk about the distributor, we're talking about the dealers, and 40% of our sales-
Mm
... comes via dealers. But then if we are talking about the end segment, the customer segment-
Mm-hmm
... the distribution segment, so that there is not a confusion here on. That we are talking about the end segment or the dealer network that is contributing to the sales of Kalmar products.
Yes, and the distribution segment, that's also. That was also disclosed in the Capital Markets Days, and it's one of our four strong customer segments, of course.
Mm-hmm. Okay. In terms of demand and overall, could you talk about a bit, you know, give some color what you see across, across other regions right now, for example, Europe, APAC? What are you seeing in terms of demand, across the, the regions and, and the products? How would you describe your sales funnel and, and so on?
I think what we reported is that in quarter two, we saw the softness in the North American market, as well as some prolonged prolonged decision-making, delayed decision-making in the larger equipment orders. Whereas the small and medium-sized equipment performed well. And then, like Carina mentioned in the beginning of the call, we are monitoring, of course, carefully, you know, the running hours, operating hours of our equipment across the world, and we can see, of course, the same trend in North America, a little bit softer market there in the operating hours as well, whereas the other regions are stable.
Mm-hmm. All right. Then coming back to the price versus cost, which you talked a bit about previously, but just wondering here, I mean, would you say that currently you are pricing ahead of your input costs or overall cost development, or would you say that you are pretty much on par? How would you describe that relationship?
Yeah, I can take that one. Thank you for the question. If I go back to the bridge I was showing, I mean, how we're compensating for the lower volume comes from several areas, but you can split them into two. One is the commercial side, i.e., the pricing versus the input cost, which was presented in that graph. And the other side is then the fixed cost, which includes, of course, the SG&A, as well as the factory overheads. And all of that is contributing, at the moment, in a positive way to compensate for the lower sales. So I would say that looking back at Q2, we definitely have, compared to the previous year's second quarter, benefit from that side.
Okay. Okay, good. And maybe just a final one, also for you, Sakari. I guess in H1, you reported on a carve-out basis. How are you gonna report then in H2 this year?
Yeah. So Q3 will be a normal quarter, so then we are a standalone company with a standalone P&L. So that the individual quarter as such will be, look normal. But then, of course, when you look at the cumulative numbers, it will be a combination of the first half year carve-out in the P&L, and then the second half will be the normal standalone. So that will continue, of course, for the remainder of the year until we reach 2025.
Mm-hmm. Okay, that's very clear. Thank you very much.
We have more questions in the queue, but as a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.
... The next question comes from Tom Skogman from Carnegie. Please go ahead.
Yes, hi, this is Tom from Carnegie. As the order book now gets smaller and as you have highlighted weakness in the terminal tractor segment for, you know, some quarters, I wonder, you know, whether there are some pockets in the order book, you know, where you really will fight under absorption of fixed costs in factories or so in the second half. So we get a kind of a better understanding of how the order book is distributed between the products and factories.
Well, of course, we don't split the order book by the product, but perhaps to give you a flavor of the how we deal with under absorption is, of course, if we adjust the cost in production on a continuous basis. So the direct labor that we have there is of course adjusted to the demand picture as well as possible.
And you feel certain that you have not lost market shares in any product now during this period of weaker orders or?
Yes, that's what we say, but we are not going into the market share discussion here, of course. But we are, you know, as an innovation and technology leader, of course, there is a great request and interest in our products, including electrification, which you could see in the Eco Portfolio sales as well. It's really developing favorably.
If you consider where we continue to see the issues, if you like, is the distribution segment in North America, and then the large orders. And that's, I would say, same for the competitors. So it's the general market situation.
And then about this new efficiency program, I realize it's early days, but can you... I mean, you Sami, you have your background from Epiroc, and so on. I mean, how do you... What do you want to achieve? I mean, is it, you know, changing the way of doing business, splitting the company into smaller parts that we see in some other, you know, companies, you know, with more kind of redistributed or distributed responsibility out in the organization, et cetera. What do you want to develop with this? Because you only have four factories, so, I mean, this program cannot really be about, you know, closing factories or so. So what do you want to develop with this?
Yeah. If we start, let's say, holistically, of course, this is a combination of both commercial and operational excellence, activities and actions, and, of course, active pricing management, supply chain actions, which are some of them related to the sourcing, sourcing part, indirect and direct sourcing, of course, process improvements, as well as staying competitive in the cost base overall. So it's a wide area, of course. And what I...
Coming from Epiroc and those companies, of course, what I want to, and what we want to, achieve is, of course, to have a full focus on our key three key strategic pillars, which are innovation, service, and then the driving excellence, and really get- be the industry-best company, of course, in the driving excellence part, as well as we are in the other two areas already. So, and that is a vital part, but it's also fueling, of course, you know, benefits to the other two strategic pillars, which we have mentioned in the presentation as well. So it's a key, of course, to be very efficient on the process side, as well.
I think it's important to-
But do you-
to think that it's... Think about it as a continuous improvement on a very broad, with a very broad scope across, across many areas. So this is not a traditional cost-saving exercise, if you like.
Do you plan to decentralize the company more, or do you want to have more power in the head office as you want to achieve changes, or how do you see that?
Oh, no, no further details today, as I mentioned to another question as well. So this is the information that we have disclosed today, and it's a good information. It details it quite a bit already in the areas what I just mentioned. So, but no further details at this stage.
Okay. Then finally, about these running hours, as you collect data from all kinds of equipment. So what is the big picture you see? What do you see in Europe? You said in North America, it's down, but what about Europe and some-
Mm. Yeah, I-
-machine-specific data?
Yeah, good question. Big picture is that we can see the softer North American market from those operating hours, and then we can see a stable situation, more stable situation elsewhere, I would say.
Yeah. And if you compare Q2 last year to Q2 this year, actually, the running hours are slightly positive, up from that time. But especially now, if we look at North America in the Q2, so those running hours are down compared to the previous quarter.
Mm.
Okay, thank you.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. Thank you, Sami and Sakari. Thank you for a live Q&A session, and we will revert back to you in our third quarter call on November 1st. Thank you, and have a great day.
Thank you very much.
Thank you very much.