Good morning, everyone, and welcome to Konecranes Q4 Earnings Conference. My name is Kiira Fröberg, and I'm the Head of Investor Relations at Konecranes. Here with me today, I have our President and CEO, Anders Svensson, and our CFO, Teo Ottola. This time around, we have slightly renewed our presentation. I hope you like it.
Before we start, I would kindly remind that our presentation contains forward-looking statements. Anders and Teo will walk you through our Q4 results. Anders will start by presenting the group numbers, after which Teo will focus on our business segments. The presentation is followed by Q&A, as always. Anders, please go ahead.
Thank you very much, Kiira. Warm welcome from my side as well to the Konecranes Q4 2022 webcast. I will start with some highlights of the quarter. We had a solid closing to the 2022 year, and the demand sentiment remained solid throughout the quarter, despite market uncertainty that continued and macroeconomic indicators that were signaling weakening market conditions.
Our order intake continued good. We delivered EUR 879 million, which was 1% less than the comparison period in the previous year. Our delivery capability improved in the quarter. We had more component availability, and in several material categories, it improved. It's not over however. The component availability challenges, especially within electronic components, continues. Our supply chains remained fragile in the quarter, but held up well.
We managed to deliver above EUR 1 billion at EUR 1.021 billion for net sales. That was 8% up versus the comparison period in the previous year. That made us close the year with an order book of EUR 2.9 billion, and that's 42% up on the previous year. We delivered EUR 118 million of Adjusted EBITA versus the previous year of EUR 113 million, t hat was down from 11.9 percentage points of Adjusted EBITA to 11.6 percentage points.
I think this is a good achievement given the circumstances in the world with the Ukraine War, with the inflation, with material availability issues, and with the COVID situation that continued. The board proposal for dividend for 2022 is EUR 1.25 per share. I move into the market environment.
We follow a couple of macro indicators, and we start with the capacity utilization rate in Europe. It declined during the quarter and declined both sequentially, but also year-on-year with 1 percentage point. If we move into the US capacity utilization rate, it ended the previous quarter at 80, and now we ended at 77.5. That's the manufacturing utilization rate then. It declined both sequentially, but also year-on-year with 1.2 percentage points.
If we move into the manufacturing PMIs, it's not on the slide, but measuring the European one as well, it reached a low point in October and then increased during the quarter, but ended the year still below 50. That's the sixth month in a row then with below 50, meaning market contraction.
The same for U.S., but ended the Q3 at 52, signaling market expansion, but had a steep decline during the quarter and ended the quarter at 46.2, so also signaling market contraction. If we go into Brazil, India and China, China remained solid below 50 throughout the quarter, while Brazil started being far above the 50 mark, but had a steep decline and ended below 45 at the end of the quarter. India remained strong and were above 55 at the end of the quarter. I move into the demand driver then for Port Solutions. Here we measure and follow the seasonally adjusted Container Throughput Index.
The index declined in the beginning of the quarter, and that was driven by lower activity than in Europe, but had a strong ending at the quarter, and that was driven by China, but also recovery within Europe. I will now go a bit into the group financials, and I will then leave to our CFO, Teo Ottola, to continue more with the segments and the balance sheet. As I previously said, we managed to deliver EUR 879 million. We couldn't follow up the three quarters above EUR 1 billion, but we think that EUR 879 million for the quarter was a solid performance, and that's a 1.5% negative versus the previous year, and 4.5% negative than on incomparable rates versus the previous year.
We had a decrease in service order intake and an increase in industrial equipment and Port Solutions. The decrease in service was related to a strong comparable in the previous year, there we had a order intake of a nuclear modernization order of $59 million. If you strip that out of the comparison, actually we had a growth also in order intake for service on both reported and comparable rates, but also for the group on both reported and comparable rates.
Moving into Net Sales, we managed to deliver EUR 1,021 million for the quarter. Good to be above a billion mark, here we were 7.6% above previous year 4.4% above in comparable rates.
The increase was in service and industrial equipment, while we had a decrease in Port Solutions. That was expected due to the delivery schedule within Port Solutions. If we look into the markets, when it comes to the order intake side, we had a decrease in the Americas. That was then related to the nuclear modernization order. Otherwise, that was an increase. It was flat in EMEA, and it was a decrease in APAC. On the net sales side, we had an increase in EMEA that was actually a strong increase in EMEA, but a decrease in Americas and APAC.
To say here, maybe it should be stated as well that we had had some challenges in APAC in the quarter, mostly related then to COVID effects, affecting both people working on site, being off on sick leave, but also the suppliers, and we also had a close down for suppliers, et cetera, and also for ourselves. It's been difficult in APAC in the quarter.
I move forward then to the group order book. We ended the year on a EUR 2.9 billion order book, and here you can see represented by different colors the relative size of the different businesses. Service is the red one, and industrial equipment is the gray one, and the blue-green one represents Port Solutions.
The EUR 2.9 billion was up 42.2% on reported rates versus previous year, while it was up 41.1% in comparable rates. We had an increase in all three segments, and it was driven then by the largest increase in Port Solutions, as you can see also on the slide. It was somewhat lower, what, about EUR 150 million versus the Q3 period. It's positive that we start to deliver on our order backlog.
I move into our adjusted EBITA. We delivered EUR 118 million for the quarter. That was EUR 5 million up versus the previous quarter of EUR 113 million. The margin, however, declined from 11.9% in the previous year to 11.6% in this year. That was a decline of 35 basis points. The profitability increased in service.
We had a slight decrease in industrial equipment and a more solid decrease in Port Solutions that was primarily related then to lower underlying sales volume. When I talk about lower underlying sales volume, I mean that we had a growth for the group of 4.4% in comparable rates, but our pricing components is larger than that.
The actual volume growth was negative compared to the comparison period. We also had a slight decrease in our gross margin, that was driven by industrial equipment not fully compensated for the inflation with increased prices. We have taken the measures. They are in the order book, they haven't filtered through to invoicing yet fully. We have updated our Q1 2023 demand outlook. The world demand picture remains subject to volatility and uncertainty.
Within the industrial customer segment, we say, "Despite the weakened global macro indicators, our overall demand environment within industrial customer segment has remained good and continues on a healthy level." That said, we have started to see some signs of weakening within all three regions. Within ports customers, we say, "Global container throughput continues high, and long-term prospects related to global container handling remains good overall."
The financial guidance for full year 2023. Net sales is expected to increase in full year 2023 compared to 2022, and the A djusted EBITA margin is expected to improve in full year 2023 from 2022. With that, I will then leave over to our CFO, Teo Ottola, to continue with the presentation. Go ahead, Teo.
Thank you. Thank you, Anders. Welcome also on my behalf. As usual, let's take a look at the performance by business segments. Before that, however, we have added one new slide in the presentation, and we could start this section with that slide, actually. It's an adjusted EBITA bridge between the Q4 of 2022 and then the Q4 of 2021, where we are actually dividing or splitting the different change factors, the different deltas into various categories.
Like Anders already explained, the Adjusted EBITA in the Q4 of 2021 was EUR 113 million, and in the Q4 of 2022, EUR 118 million. There are four different categories that where we are splitting the delta.
The first one of them is volume pricing and mix combined. We have combined all of these in one bucket. The other one is variable cost, which is of course excluding volume impact because that's already in the first category. This is basically inflation and so-called performance in comparison to the previous year's corresponding period. The third one is fixed cost, which is basically the cost level below the Gross Margin. We have translation impact as a result of the FX changes. If we then take a little bit deeper look on these different buckets, the volume pricing mix altogether EUR 103 million positive.
Our, let's say, understanding and our view on the pricing in a year-on-year comparison is that our prices were around 10% higher than they were a year ago. That is, of course, with the sales that we have roughly EUR 100 million difference by itself. The volume impact in the Q4 of 2022 in comparison to a situation a year ago is a negative one, exactly like Anders already explained.
Our pricing is having a 10% impact, and sales grew by 4.4% with comparable currencies. The volume impact to the EBITA from that point of view is negative. However, our product mix was actually positive also both within the business segments as well as between the business segments.
This product mix positive impact almost compensated for the volume difference that we had in comparison to the situation a year ago. We take a look at the variable costs, like I said, this is inflation and of course so-called performance in a year-on-year comparison. Inflation obviously is creating a negative variation. We are compensating that by price increases like this picture also explains. The so-called performance component was a little bit negative in a year-on-year comparison due to project execution, due to inefficiencies caused by component shortages and other supply chain issues. The Q4 of 2021 actually was a very clean quarter from those, that point of view, like was the Q3 of 2022 also.
A small negative deviation in a way in a year-on-year comparison from the performance part. Fixed cost, minus EUR 8 million tells that our fixed costs are that much higher than what they were in the Q4 of 2021. And this in this context, basically mostly comes from inflation. Actually the underlying growth within the fixed expenses or fixed cost is very, very modest. But the inflation is impacting this one as well. Then the translation impact a relatively big number this time, EUR 6 million as a result of the currency changes, of course euro-dollar, impacting quite a bit here as well. This is in a way a summary of the bridge that we have now put into the presentation.
If we take a look at the segment performance and start with the service as usually, order intake EUR 283 million. That is a decline both in reported as well as comparable currencies for the reason that Anders also already explained, a very big modernization order one year ago. Excluding that one, we would have seen growth in the service order intake. There was actually growth both in field service and parts in a year-on-year comparison. We had a decrease in the Americas from the regional point of view. We were approximately flat in EMEA and APAC in a year-on-year comparison. If you take a look at it sequentially, the order intake declined there as well.
Americas and APAC were declining, whereas EMEA was more or less on the same level as in the Q3 . Agreement base, the number of the value of the agreement base EUR 307 million roughly at the end of the year, 3.4% growth with comparable currencies. Good to remember that the Russian business agreement base is not included in this number. Adjusting for that, we would have seen a maybe a percentage point higher growth for the agreement base in a year-on-year comparison. Sales were EUR 376 million. That is up 7.7% with comparable currencies. There was increase both in field service as well as in parts, and also in all of the regions.
Adjusted EBITA is on a very good level. The euro number is EUR 78-79 million and 21.1%. There is actually an increase in a year-on-year comparison, a very small increase, but an increase anyways, which is driven by higher sales. Higher sales obviously driven by pricing, as already discussed during this call, The Gross Margin also slightly increased within the service business.
A very solid performance from the service business. Industrial equipment, Order intake EUR 306 million. This is 7.8% higher than the corresponding period a year ago. The, maybe the most meaningful number from the order intake point of view, external orders year-on-year with comparable currencies +2.9%. We had in a year-on-year comparison increase in standard cranes and components.
The process crane order intake declined in a year-on-year comparison. From the regional point of view, increase in Americas and EMEA, whereas APAC decreased. If we take a look at sequentially order intake declined from the Q3 . The explanations are very similar to what they are in a year-on-year comparison. Actually, standard crane orders even increased in a sequential comparison. Process crane orders declined, and component orders, the short cycle product category was more or less flat in a Q3/Q4 comparison. Sales EUR 377 million. That is an increase of 9.2% year-on-year. External sales with comparable currencies, 9.2%. Increase in all major business units as well as in all regions.
Order book, of course, on a good level, on a high level, as was already visible in Anders' presentation as well. Adjusted EBITA, EUR 22 million. That is 6%. There is a slight decline in the margin. The volume development has been quite good. As Anders explained, the cost inflation is still impacting the price increases that we have done during the first half of last year are impacting, but maybe not to the full extent yet during the Q4. We still have a little bit of the, let's say, negative delta as a result of price inflation relationship in the Q4 of 2022. Port Solutions order intake was EUR 356 million.
That is almost exactly on the same level as it was a year ago. From regional perspective in a year-on-year comparison, there was an increase in Asia Pacific. There was a decrease in Americas and EMEA. If we take a look at it by business units within the ports business, actually lift trucks and automation parts did very well in a year-on-year comparison.
Sequentially, the order intake declined from the very good level that we have been having in the Q3 . Again, if we take a look at the short cycle product categories within ports business, lift truck orders declined in a sequential comparison, whereas port service was more or less on the same level both in Q3 and Q4. Net sales declined 2.6% with comparable currencies.
This was primarily as a result of timing of the deliveries. Project timings impacted that way. It of course then also means that the order book continues to be on a very good level, EUR 1.6 billion, 60%, more than 60% up year-on-year. adjusted EBITA, EUR 21 million, 6.5%. There is a decline both in euros as well as in margin. The main reason clearly for the decline is volume. The underlying volume is quite a bit lower than what it was a year ago. Also a little bit performance topics from the project execution point of view. Like said, the comparison period was very clean from that point of view, as was the Q3. Now we had a little bit more of that, nothing dramatic.
An indication of which is that we are here stating that the Gross Margin actually increased within the Port Solutions. The issues within the execution by no means are massive. A little bit, let's say, to the negative in comparison to the situation a year ago. Finally, before going into the Q&A, a couple of comments on the net working capital and cash flow. Net working capital was, at the end of the year, EUR 581 million. That is 17.3% of rolling 12-month sales. The net working capital has been increasing during the year, as we can see from the slide. There was a very small increase from the Q3 to the Q4 as well.
As we can see, the rotation in a way improves the relation between the rolling 12-month sales improved. Inventories declined during the Q4 . And of course, then the in a way, the same deliveries then moved into the AR at the end of the year. Cash flow in the Q4 was positive, EUR 91 million, of course, as a result of the relatively good result. And that was barely enough to make the cash flow, Free Cash Flow positive for the full year as well, so EUR 25 million on a cumulative basis at the end of 2022. Of course, the main reason for the low cash flow still continues to be the net working capital accumulation. Gearing and net debt.
Net debt decreased from the Q3 level slightly to EUR 688 million. That corresponds to gearing of 48%, which also of course came down from the previous quarter's level. Finally, the Return on Capital Employed on an adjusted basis, say very stable on the level of 13.4%. I guess that with these comments, we can then move into the Q&A.
Thank you, Teo. Thank you, Anders. Before we turn the line on, we have a couple of questions through the chat, so maybe we could start by them. First one is regarding industrial equipment. This is not now my words, but industrial equipment is the black sheep of the company. What we can expect on that area?
I think, in industrial equipment, we have had a difficult time since the inflation started to really compensate for the with the prices for the increased inflation. We have now taken all the right measures. Looking forward, we are compensating for that. We are recovering, and we are also, with easing of our supply chain issues, getting up the productivity within industrial equipment.
We shouldn't forget, without industrial equipment, our service wouldn't have the kind of growth that we have had. We are sort of populating the market with our equipment, and then we are servicing our equipment. We are also servicing third-party equipment, of course, but our own equipment is critical as well in this. If you look at it integrated, it's actually very nice business.
Teo?
Maybe worth adding to this one is that when we have been talking about the efficiency improvement activities within the Industrial segment or Industrial business area consisting of two segments, Service and Industrial Equipment, we have been talking about an efficiency improvement targets of EUR 30 million-EUR 35 million within the next three years.
And of course, this is combined for the Service Industrial Equipment business area, but a clear maturity, a very big deal of these expected efficiency improvements would be taking place within the Industrial Equipment sector. The actions that we have been discussing regarding those ones are in relation to product platform changes and go-to-market changes, among other things, but those are maybe some of the most relevant ones here.
Thank you. We have another question, which is related to the Russian write-offs, and this question actually came in while you were, Teo, discussing the EBITDA bridge. What impact did the Russian write-off accumulated to? There, I think we need to now remember that all Russian-related write-offs, so they have been adjusted for, so they are not included in the bridge. Perhaps you can show it.
That is correct, like Kiira said. These corrections that we have done, they have been adjusted for from these numbers. However, if we take a look at the brief summary of that one, at the end of the year, the adjustments in relation to the Russia-Ukraine crisis and Russian business are all together in the ballpark of EUR 38 million. There is also a sales impact because we have, in a way, canceled POC sales that were already in the books, and the sales impact is slightly smaller amount. It's about EUR 30 million, EUR 32 million or so. The P&L impact is EUR 38 million within the adjustments.
That is basically impairment of the assets in Ukraine, or impairment of maturity of the assets in Ukraine, and then the impacts of the canceled projects that we are not delivering to and in Russia. In addition to that one, of course, the overall decision of withdrawing from the Russian business or not taking new orders and sales is, of course, having its own impact to these numbers as well in the way that the business does not exist anymore. We have not been giving the actual profitability numbers. We have been referring to the Russian business having been around 2% of our total group turnover.
Maybe, as we have been discussing also earlier, so the, we cannot utilize the Ukrainian manufacturing facility, obviously, in the way that we earlier planned, this has created a need to manufacture crane structures elsewhere, this has created a cost, approximately EUR 1 million per quarter, which is also visible in these numbers that we can see in this slide. That has not been adjusted for.
Yes. Thank you. Okay. I think that we could now open the line for questions, please.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. Please state your name and company. Please go ahead. The next question comes from Antti Kansanen from SEB. Please go ahead.
Hi, guys. It's Antti from SEB. A couple of questions regarding industrial equipment. I mean, on the outlook comments, you are flagging some signs of weakness on the demand. If we look at what's happening, kind of the short cycle business components and standard cranes are doing better than the process cranes. So what does this tell you, kind of where we are in the cycle and how do you kind of where are you actually seeing the signs of weakness?
Yeah. Thanks, Antti. I think, if you start with the macro indicators that are showing, sort of declining utilization in both Europe and the, in U.S., and we have our TRUCONNECT, where we can follow utilization of equipment. We also see in our connected equipments that are utilized to a somewhat lower level than previously. We have our sales funnel, within industrial equipment, in the industrial segment, where we can see that we have slightly fewer cases in the funnel, and also the value of the funnel is slightly less than previously. We have also seen that decision-making is somewhat longer than previously. It hasn't hit us in any way so far, but we see signs of weakening in the different regions.
Back to your question about the what can you conclude about the process cranes being in a way or weaker than the Standard Cranes or the Componentry. Of course, you are absolutely right, that is not according to the model. It's, but I would say that it is rather a coincidence than other, than anything else. I wouldn't really conclude anything on the position where we are regarding the cycle based on that one.
The key thing is still just to take a look at the development within the components, within lift trucks, Standard Cranes to some extent, and try to conclude it there. As we discussed, the components were more or less flat in a sequential comparison. Lift trucks came down. Service number is visible as we can see it. There are signs of weaker demand which have not really massively at least been in a way materializing in the order intake.
All right. That's very clear. The second question is on the sales guidance for this year. Could you a little bit talk about how do you see that divisionally and also price versus volume? I'm quite interested on the Port side, how much of that big backlog you are kind of scheduling to deliver during 2023?
I think we are not really giving any more details on how we see that. What we can say is that we go into the year with an order book, as you could see, which is very strong at EUR 2.9 billion. A large part of that to be delivered in 2023. If you compare, we have EUR 500 million more going into 2023 being delivered in the year than we had going into 2022. I think we are fairly confident that we go in with a strong backlog, and we have done the pricing changes, etc. , needed to keep our profitability going forward. We already did that earlier in 2022, and that are reflecting into the later half of 2022, but also now in more into 2023.
We are not giving any guidance on specific sales development per segment, etc., Going forward.
Okay. Perhaps on the EBITA guidance, it's a very nice bridge chart that you provide for Q4. Could you kind of conceptually talk about 2023 profitability improvement in the same terms?
I think, if you look here at the different businesses, I mean, it was mentioned by Teo as well. In the service, we have improved our profitability, from 21.0% to 21.1%. We have seen sort of, an underlying performance improvement also driven by pricing, as Teo mentioned, and not by volume. Service is a volume business, the more we can get our Componentry business in line, of course, there's an opportunity to drive additional productivity. The productivity in service is driven when we don't have supply chain constraints hindering us from doing the right sort of planning of our service technicians, et cetera. There is potential, going forward.
There's nothing that doesn't say that we could keep the development that we have had within that area. When it comes to the Port side, we have been challenged by lower volumes in the year, as mentioned. That impacts our profitability. We now see we go in with a very strong order book and improved delivery capabilities. Even though we also had some project-related performance challenges within Ports, that is not something which will follow us into 2023, what we believe. In the Industrial Equipment, we have already talked about the compensation of pricing versus inflation. Also here we have had, like Teo mentioned, impacts from the war with EUR 1 million per quarter related to not being able to operate our Zaporizhzhia Plant.
We have also seen here COVID effects of, lack of availability impacting our business and our ability to plan, in our different production facilities also closing due to COVID in Asia. There's an underlying... We go in confident, with that in our pocket.
Maybe.
All right. Thanks so much.
Yeah, maybe regarding the product mix comment that we have been discussing earlier as well a little bit regarding the future. There may be one can conclude that if we take a look at the current situation, for example, in the Q4 , and it applies for the full year. The mix impact has been positive. It most likely will not be that positive in 2023. The mix between the segments will probably change to the worse. And it is maybe even so that also at least within ports, the mix most likely will change to the worse.
I guess this is something that one can in a way conclude from the order book that we have at this point of time. I think that the overall the margin development very much boils down to what Anders was saying about the order book, being much higher than a year ago, and then that what is the delivery schedule of that one. How are we constrained by component availabilities or other topics within this year.
All right. That's very clear. Thank you.
The next question comes from Massimiliano Severi from Credit Suisse. Please go ahead.
Yeah. Hi, good morning. Thanks for taking my questions. My first one would be on Port Solutions and execution challenges that you mentioned. I was wondering, first of all, if these projects are already ongoing or have they been finished? If I should think about how should I think about these execution challenges potentially affecting also 2023? Maybe which measures have been taken to avoid these execution challenges in the future?
When we take a look at the challenges as we have been talking about them, like already said, there's no reason to exaggerate the impact of those because the Gross Margin is basically up year-over-year even with these challenges. These are primarily projects that are at the very, let's say, towards the end of the period of those projects. They are not- I cannot say that they would be completed, but they are to be completed. We feel that adequate measures have been taken and we are not expecting any kind of, let's say, trend-wise weakening of the performance as a result of project execution. I would rather maybe say even so that this is kind of normal fluctuation and volatility.
Like already said, Q4 2021 was very clean from a project execution point of view. Q3 2022 was also very clean. We even had within the ports a small positive one-off there in the Q3 . This now in comparison to those two, this is maybe weaker performance in a way, but it doesn't mean that we would be having any massive issues in this respect.
Just to clarify, it's not really related to maybe cost inflation hitting the margins on your backlog. This is more of a one-off, and you do not generally see any larger than usual issue on cost inflation on your backlog in projects.
This particular challenge that we are talking about here now is not pricing related. This is more like project timing execution, related topic. When we talk about the order book margins, as already discussed, I think that it applies to all of the businesses. Of course, the order book is big in industrial equipment and ports in particular in those. We are quite comfortable with the margin levels that we have within the order book.
Okay. Thank you. My second question is going back to the topic of process cranes and the turnaround. I was wondering if you can give us an update on whether process cranes were profitable in 2022. If they are not profitable, how would you think about 2023 and process cranes turnaround continuing to be somewhat of a tailwind for industrial equipment going forward?
I think Teo mentioned it a bit in his part of the presentation, process cranes are unfortunately still in the red for us. We have a lot of initiatives ongoing, we have communicated around these as well, what we do in terms of our different platforms and go-to-market models, et cetera. We also communicated that that will in 2025 then contribute with an EBITA improvement of EUR 30 million-EUR 35 million, and it will come at a cost of EUR 30 million-EUR 35 million. We are executing on that plan, proceeding according to our own plan. Most of that related cost will then be taken within the first 12 months of announcement, which was basically one quarter ago.
Taking a look at the 23, from the process crane point of view in particular. I think that it would be fair to say that the war impact that we were now discussing in connection to the 2022, this EUR 1 million per quarter, unfortunately it will not completely go away. We were not intending to update on the number every quarter because of course the impact has been there on 22 as well. I mean, it will not be vanishing just like that. I think that it will continue to burden the process crane profitability, and hence it's not at all guaranteed that it would be with black numbers in 23.
Obviously, we are working the best we can to make it happen. Of course these extra costs may impact that plan to some extent. Of course, this we can probably comment the process crane profitability then on a quarterly basis going forward as well. Maybe not with a number, but whether we are on the black or on the red.
We have, you could probably add as well that, the lead time to filter through from the price increases has also been longer in ETO cranes and pro-process cranes, than in the short cycle products. That would then help us a bit during 2023 as well.
Yes. Clear. Thank you. My very last question would be, again, on the order book of Port Solution, if you could maybe comment. I would expect it right now to be more tilted maybe towards mobile equipment than it has been historically because of supply chain issues. I was wondering whether it is the case, if you can help us provide more or less the split between short cycle equipment and then large cranes. More or less, in terms of the mix of 2023, how much do you expect to be able to sell in terms of revenue generation capacity? And I don't know if you can provide any color at all about how much could be large cranes versus mobile equipment.
We would maybe rather not talk about the numbers exactly, but I think that your underlying question is that is the order book tilted more towards the shorter cycle product offering within the port? I would not necessarily draw that conclusion. The reason is that we have definitely longer delivery times when it comes to the mobile equipment than what we have been having previously. The same applies to many other product categories. Of course, the order book in a way is basically quite long when it longer than usual regarding most of the product groups that we have.
The key question then from the mix point of view, which I think that you are after, is then that what is the delivery capability regarding all of those business units and particular product groups. That is what will be decisive then from the P&L point of view in 2023. We are a bit cautious on commenting that in any more detail because the future is an uncertain thing after all.
Okay. Thank you.
Let's now take only two questions per person so we have enough time to take questions from everyone waiting for their turn. Please, let's continue.
The next question comes from Tomi Markus Railo from DNB. Please go ahead.
Hi, Anders, Teo and Kiira. It's Tomi from DNB. A couple of questions. Firstly, I respect you have the outlook, but can you say anything how the year has started, especially for the short cycle business? Are these Q4 levels good proxy where you start the year with the comment that demand is overall healthy in terms of component and services and stuff like that?
Yeah. Basically, we don't go in and comment within existing quarters. If you read and listen to what we say in our outlook, it continues on a healthy level, and we haven't seen anything that would deviate from continuing as we said, that flat or increasing quarter-over-quarter or year-over-year, as Teo mentioned previously, on the short cycle products. If something would have changed in the last weeks, we would have mentioned that.
Okay. Thank you. Have you seen any order cancellations or signs of that?
There are always order cancellations to some extent, but we haven't seen more order cancellations than we do in have done historically in previous quarters. No sort of escalation in any cancellations, and not within any project such as specific projects that we couldn't sell to others. More as we normally have within price list products that we then can sell to another customer. Nothing that indicating any sort of increased cancellations.
Then, then maybe on the, on the currency or ForEx impact. Do you think or do you believe, expect, any negative, currency impact on EBIT, this year due to the strengthened euro compared to U.S. dollar?
I don't think it's our job to speculate on currency development going forward. So I think what we normally say is that changes between U.S. and EUR of 10% has an effect of roughly EUR 10 million on our adjusted EBITDA. And that's about what we can say regarding that.
Which obviously comes with a delay because there is a hedging process in place.
Okay. Finally just checking what Anders you said on booking of the efficiency improvement costs. Can you please repeat that?
No. It's what we announced in already in the Q3 report. That we are making initiatives to improve the profitability of the industrial equipment segment. We have a project that will reward us with 30-35 million EUR EBITDA improvement in 2025. It will come at a cost of one-time cost of EUR 30-35 million. Most of those costs will be booked within the first 12 months from when we announced.
We already booked costs related to that program now in Q4?
Yes.
Okay, perfect. Thanks.
Please state your name and company. Please go ahead.
Thanks. I was just wondering if you had any plans for refinancing the debt maturing in 2023.
We have actually refinanced the debt maturing 2023. There will be refinancing needs for the year 2024, which at this point of time has not been refinanced, but will be planned during 2023.
Thank you. Can I just ask a follow-up on what we should consider the right level of inventory for the business in the medium term?
The level of inventory and as a normalized case is that is a very challenging question because it is so much depending on the product mix that we have. We cannot really give a very good guideline on what is the correct number because the work in progress in long projects, of course, starts to accumulate in a very early phase. Then on the other hand, you can have an inventory of spare parts. It is a lot, let's say, depending on the mix. I would maybe concentrate and focus on the indicator that we are also showing ourselves, which is the net working capital as a whole in relation to rolling 12-month sales.
This has proven to be, let's say, the one of the best indicators for net working capital efficiency, including inventories.
To add to that maybe that we target to be clearly below the 15 mark, and we are currently at 17.3, so we will work on that during 2023.
Thank you.
The next question comes from Antti Kansanen from SEB. Please go ahead.
Yeah. Hi. Thanks for the follow-up. It was on something that, Anders, you said about industrial equipment and services, and it's obviously an enabler of services. Could you elaborate a bit? How do you look at those two businesses? Is there more kind of a collaboration to be done? How do you look at kind of an equipment profitability versus lifetime profitability, including the services? Maybe talk a little bit about around that theme.
Yeah. No, we are working on our strategy update now for the CMD on 10 of May, where we will more in detail talk about our strategy going forward. Clearly there is an opportunity to, as we have combined these two segments into one business area, to look more on end-to-end profitability to really understand our profitability in the different legs that we have of the business.
To kind of increase collaboration.
But it-
... and cooperation. That was one of the reasons for the, for the new, let's say, structure in.
Yeah. It won't mean that we'll start reporting only together or so. We will keep reporting separate as we do today.
Yeah. I was thinking kind of if you look at the process cranes, there's been a couple of questions regarding the margin weakness over there. If you look at the service opportunity in process cranes and kind of the lifetime profitability, including the services, how does that stack up against the component and standard crane business today?
Yeah. Versus the component business, of course, it's not the same because you're not comparing...
Mm
apples with apples. Components is basically a part of the service on the cranes, the process cranes. I think it's difficult to compare. I think for us, it's important to understand the life cycle margin, and we haven't been working in that way previously. That is something we more will look into to really understand where we should not water the plant and where we should water the plant.
All right. Thanks.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad.
We have some questions in the chat function. A couple of questions related to the inflation, so I think that we could take them here in between. What should we think of raw material inflation developments in 2023? Could that become a tailwind to group margin in the course of the year? If this inflation occurs, should we see a downside risk to the pricing? That would be one question.
Okay.
Go ahead.
Okay, okay. I think that when we take a look at the inflation picture as a whole, of course it's extremely difficult to say that where the inflation would be going. That depends on the overall economic environment and the central bank's rate increases and all of that. Of course it would be realistic to think that the material inflation would be declining because we have been seeing raw material prices going down as a result of how the economies have been doing. It is quite possible that the material inflation would be lower in 2023 than what it has been in 2022. It's not certain, but it's possible.
If that happens, it has typically been a piece of good news for us, so, let's say, declining raw material prices are maybe an easier environment for us even though raw materials technically are a pass-through item. There is maybe a potential to, in a way benefit a little bit from the margin point of view. I would not, however, exaggerate the impact of this one because by definition we are passing it on to the customers.
The environment where raw material prices are going down is definitely easier for us to manage than the other way around. From that point of view, maybe it would be to some extent a positive thing. Again, it may be that the labor inflation is somewhat higher even in 2023 than what it has been in 2022.
That's at least a possibility given the current sort of, status where we are.
Thank you. I think we could now take, still, at least one question from the line, please.
The next question comes from Erkki Vesala from Inderes. Please go ahead.
Hi, Anders, Teo, Kiira. Just regarding what Teo took up, the labor inflation, what was the labor inflation last year, and what kind of inflation do you expect in 2023?
The labor inflation has been somewhere between 4% and 5%, maybe 4.5%, 4.5%-5% or so. Whether it will accelerate or not is an excellent question. It might, but that's not in a way of course certain. Let's say between 4% and 5% for the full of 2022, and of course, higher towards the end of the year than in the beginning of the year.
Yes, I'm not sure if you're going to answer this. Regarding your, either ongoing or planned, price increases in tendering currently or in 2023 in total, are you still raising prices altogether in 2023 as we speak?
We are raising prices on basically on a quarterly level when it comes to the service side, and have been doing so. We will probably not do it on a quarterly level going forward if the inflation sort of starts reducing. We are taking all the measures needed, and we learned our lesson being late a bit in the industrial side during the early days of this cycle. We have learned, and we are quick. We are taking all the measures that's needed.
As Teo mentioned, now we have raw material prices at the end of 2022 was lower than at the beginning of 2022. What we are mainly battling now going forward is then labor inflation.
Okay. Thanks. A final one to Teo, just a housekeeping question regarding corporate tax rate, a ballpark figure for 2023.
It was a little bit more than 27%, 27.4% or 5% now in 2022. I would use roughly the same. No major change to be expected.
Okay. Thank you so much.
Okay. I think that we start to run out of time here, so it's time to conclude our today's conference. I thank you all for participation. Just as a reminder, Q1 interim report will be then reported on April 28th.
Mm.
We'll meet then again. Thank you. Thank you very much.
Thank you very much.