Earnings Call: Q1 2021

Apr 27, 2021

Good morning, everyone, and welcome to Konecranes Q1 Earnings Conference. My name is Kira Froebari, and I'm the Head of Investor Relations at Konecranes. Today, here with me, I have our President and CEO, Rob Smith and our CFO, Teo Ottola. Before we start, I would kindly like you to pay attention to our disclaimer. This conference is to discuss Konecranes Q1 earnings. Due to the securities laws in United States and in some other jurisdictions, We cannot disclose information on the contemplated merger with Konecranes with Carcotech. In case you have any Questions or you are willing to have more information on the merger, please visit the website, www.sustainablematerialflow dotcom. As for our today's agenda, Rob will start by walking through our group level performance, after which Theo will go into more detail in the 3 businesses. Without any other comments, Rob, the stage is yours. Thank you very much, Kona. And ladies and gentlemen, welcome to our Konecranes 1st quarter earnings conference. Kona Crane's delivered a strong start to 2021. High performance and improved business excellence Across the whole organization resulted in an all time high adjusted EBITA first quarter margin of 8%. This is versus 2.7% in the Q1 last year, and it's our 3rd consecutive quarter of record profitability. Strong first quarter orders and the ongoing excellent execution and traction from our strategic initiatives Gives us a very solid foundation for the full year 2020 performance. While the COVID-nineteen related market volatility is not over, Overall market sentiment has improved in the Q1 compared to previous quarters in last year. Activity remained high in the port sector And is improving in our industrial customer sectors as well. Our first quarter order intake grew 6.3% year on year in comparable currencies. And in all three of our business areas, the orders received were flat or increasing versus 2020. And boding very well for our full year 2021 results, Good first quarter order growth, especially in our short cycle products, were received in all three of our business areas. Quarter 1st quarter sales were down 6% in comparable currencies due to COVID-nineteen, Due to lower order book and very much to components and logistics challenges, our team has overcome these COVID related challenges in the first quarter, and I expect we'll continue to do so in the quarters to come. And I'd like to sincerely thank our Kona Crane's employees and our business partners For their impressive and continued focus on safety and on business continuity, it's on a very good way. Today, we've updated our demand outlook for the Q2, and we have also reiterated our full year 2021 financial guidance, Whereby both our sales in 2021 and our adjusted EBITDA profitability for 2021, we expect will improve versus 2020. If I may go to the Q1 key figures. I've covered most But let me touch the last 2. Positive first quarter cash flow of $18,000,000 compares to $54,000,000 last year. And our debt, debt of €569,000,000 is sequentially Lower versus the Q1 of last year, thanks to positive cash flows during 2020. Moving now to the market environment for our Service and our Industrial Equipment businesses. In EMEA And in America, as a matter of fact, the PMI was at a record level in the Q1. The manufacturing PMI was at record levels in the Q1. And our industrial capacity utilization is improving in both cases versus Previous times, but it's still below COVID-nineteen levels, pre COVID-nineteen levels. And in the BRIC countries, the PMI in the BRIC countries It's improving in China. It's improving slightly in Russia and very understandably in Brazil and in India declined in March. The market environment for our Port Solutions business. Strong recovery in 2020 was the container throughput index And it's at an all time high in the Q1 of 2021 and ended February of 2021, 16% higher In the Q1 of 2020. In addition, I talk about Konecranes telemetry data Coming off of tens of thousands of our connected equipment in ports and in industrial verticals worldwide. And excitingly, 2021 equipment utilization is higher than it was in 2020 in each week we've had this year. So moving to our Q2 demand outlook. The worldwide demand picture remains subject To volatility from the COVID pandemic. In Europe and North America, the current demand environment within the industrial customer segments, it has improved And it is approaching pre COVID-nineteen levels. And in Asia Pacific, the demand environment is improving and also is improving outside of China. It also remains below pre COVID-nineteen levels. And the global container throughput continues to be at record high. And the long term prospects for the container handling industry remain good overall. So let me reiterate now our financial guidance. We got a very good start. In the Q1, orders We're very helpful, and we expect and reiterate our expectations for net sales in 2021 to exceed our 2020 levels. And we also expect, thanks to the great traction of our strategic initiatives and the good performance record, we expect our full year 2021 adjusted EBITA margins Also to improve versus 2020. Group order intake and sales is next. Our group order intake was $763,000,000 in the Q1, and this is up 6.3% versus the Q1 last year On a comparable currency basis, FX was a headwind in 2021 in the Q1, But in comparable currencies, all three of our businesses had positive order intake and development year on year. Import Solutions, the 4th quarter momentum was continued in the Q1, and our order intake grew 18.4% from the previous year in comparable currencies. The Industrial Equipment's external Order intake grew by almost 6% in comparable currencies, driven by our components business. And the service order intake was up by 0.1% in comparable currencies. Order intake for service was positive in EMEA, was also positive development in the Americas And it's still lagging in Asia Pacific for understandable COVID reasons. In addition, our service agreement base grew 1.5% from the previous year and 0.7% in consecutive quarters in comparable currencies, and this demonstrates the resilience of our service business model. Sales were NOK704 1,000,000, which was down 6% on a comparable currency basis and decreased in all three of our businesses. On a rolling 12 month basis, our group sales by business and by region were very consistent with how we finished 2020. In our Q1 'twenty one order book, at the end of the Q1 2021, Our order book was sequentially up by €150,000,000 approximately from the end of 2020 and exceeded €1,800,000,000 Our year on year Q1 2020 order book 'twenty one order book decreased by 4.8% To about by €100,000,000 It continues to be the case, very importantly, that we've not So now moving to the adjusted group EBITDA. The EBITDA the group adjusted EBITDA in the Q1 was 56,000,000 And that compares favorably to $21,000,000 in the Q1 last year. And our 8% profitability on the EBITDA adjusted level of 8% compares to 2.7% last year. All three of our business areas improved their profitability versus the Q1 of 2020. Service, at 16.7 percent profitability, had its 3rd consecutive quarter of record profitability. The Industrial Equipment's EBITDA was positive in the Q1 at 0.1%, not yet enough obviously, but 4 10 basis points better than this time last year. And our Port Solutions had a and by the way, that industrial equipment was that profitability increase was Very demonstrated very good progress on our strategic initiatives, especially in the Process Crane Business turnaround. And Port Solutions had a good start to the year and profitability was 7.5%. Improved Project management benefited not only industrial cranes, but also benefited our ports business and the Cost management continued and part of the positive margin development on a year on year basis came from reversing a project provision That's based upon having now secured a change in supply concept for one of our projects. So in conclusion, before I pass a detail, although the pandemic continues, Kona Crane's has established a rock solid foundation for growth and future success. We maintain our clear strategic focus in our commitment to business excellence, to high performance and to sustainability. In our Q1 performance and the previous quarter's performance This position Konecranes very well for the future, and we will emerge from this pandemic stronger and on a very strong level of new capability and achievement. So let me turn it over to Teo now, who's going to take you through each of our businesses, and then we'll get to the Q and A afterwards. Thank you. Phil? Thank you. Sure. Thank you, Rob. And let's Let's go more in detail to the business areas. And as usual, let's start with the service business. So service order intake in the Q1 was €255,000,000 That is a decline of a bit more than 4%. However, with comparable currencies, the order intake was almost exactly at the same level as 1 year ago. Order intake declined both in field service as well as in spare parts. However, quite similarly in both of those areas, so there was not a significant product mix change within the Q1 in the order intake. When we take a look at the situation regionally, So order intake decreased in the Americas and Asia Pacific, particularly actually in Asia Pacific, But increased in EMEA. And when we take a look at the Americas, so actually, the decline came as a result of the currency changes. So If we take a look at it with comparable currencies, so we had growth also in the Americas. In the sequential comparison, order intake Increased, and particularly, that was the case in the Americas, where we had the order intake a little bit on the low side in the 4th quarter. So the recovery From the Americas point of view, it was very good now in the Q1. When we take a look at the service agreement base, Agreement base was €284,000,000 at the end of Q1. Like Rob already mentioned, we actually came back to the growth path, both in a year on year comparison as well as in sequential comparison. And also here, particularly in the Q1 of 'twenty one, The growth was particularly strong in the Americas, where also the agreement base was a little bit lowish Well, the change was not that beneficial during the Q4, but a great recovery in the Americas also in that respect. Then when we take a look at the sales. Sales, euros 278,000,000 that is more than 8% Lower than a year ago, but again, with comparable currencies, 4.3%. Both field service sales as well as parts sales decreased. And when we take a look at it from the regional point of view, so we had a decrease in sales in Americas as well as in Asia Pacific, but the sales increased in EMEA, Signalling again the good progress that we have been doing within the service business in EMEA, also in these pandemic conditions. When we take a look at the order book, Order book was €255,000,000 and that with comparable currencies as well, almost exactly on the same level as we were 1 year ago. Service adjusted EBITDA and EBITDA margin. So EBITDA was €46,400,000 That is a margin of 16.7%. So it's actually an almost 3 percentage point improvement in a year on year comparison, An excellent profitability for Service in the Q1. Gross margin improved on a year on year basis, But also the cost management, both from the variable and fixed cost point of view, was done excellently. And as a result of that, the margin improvement It's very good. Then moving on to the Industrial Equipment and Industrial Equipment order intake and sales. Order intake, euros 277,000,000 That is a slight decrease in a year on year comparison. However, then when we take a look at the situation from the external order Point of view, which is maybe more important from the market development point of view. So in comparable currencies, the order intake increased by almost 6%. When we take a look at the order intake by business units, so actually, the order intake decreased In standard cranes as well as in process cranes, but improved quite well in the component business. And then again, by regions, orders received decreased in the Americas but increased in EMEA and Asia Pacific. Then in a sequential comparison, again, when we take a look at in comparison to the 4th quarter order intake growth, And it actually went up both for components as well as for standard cranes, but then there was a slight decline in the process cranes. And of the regions, when we take a look at that in a sequential comparison, so Asia Pacific did particularly well. From the sales point of view, sales, euros 228,000,000 That is a decline of as much as 14%. However, again, when we take a look at the external sales and comparable currencies, the decline is 7.6%. Sales decreased in basically all of the business units, so standard cranes, process cranes and components. And when we take a look at it regionally, So there was a decrease in Americas and EMEA, but an increase in Asia Pacific. And again, this one say that from the equipment point of view, in Asia Pacific, we have been doing Very well from the volume point of view in comparison to, for example, the 2 other regions. Then when we take a look at the adjusted EBITDA, so like Rob mentioned, we are on the positive side here. The improvement It's very, very big in comparison to the situation 1 year ago. However, we have to remember that the comparison period included A €5,000,000 cost overrun in a process crane project. So the comparables are this €5,000,000 in a way easier Or as a result of that, a little bit easier than they otherwise would be. However, when we take into consider when we take a look at the Underlying performance, so we actually have been improving as a result of the strategic initiatives that we have done, Particularly regarding the process crane business improvement activities, but also otherwise within the Industrial Equipment business. And then we have been able to improve despite quite a lot lower volume in the Q1. Gross margin, of course, also improved, But that one was partially helped by the onetime cost overrun in a year on year comparison, But a good improvement in the profitability. Industrial Equipment order book, €663,000,000 that is a decrease of roughly 10% with comparable currencies in a year on year comparison. Then Port Solutions and Port Solutions. Order intake first, euros 270 €6,000,000 that is this is an increase of more than 13% in a year on year comparison. Regionally, the orders increased in the Americas But decreased in EMEA and Asia Pacific. And when we take a look at the business units within the Port So actually, RTGs, lift trucks, mobile harbor cranes did actually pretty well in the Q1. Then of course, it's also important what happens in a Sequential comparison, obviously, we came down sequentially from the Q4 because the order intake was very good there. But when we take a look at the shorter cycle products Within the port solutions like lift trucks. So we had sequential improvement from the Q4 to the Q1 in the order intake for lift trucks, for example. Then on the sales side, euros 236,000,000 that is a decline of 6.4% in a year on year comparison. And then taking a look at the adjusted EBITDA, €17,800,000 or 7.5 percent, a very good improvement here as well as in the Industrial Equipment. But also here, we had a comparison period or we had in the comparison period a cost overrun provision of €80,000,000 In relation to the Port Crane project, now in the Q1 of 'twenty one, we were actually able to release €5,000,000 of that provision, improving the EBITA in the Q1. So actually, the delta as a result of these two items is quite big now in a year on year comparison. However, when we take a look at the other topics in the business, so the volume was lower, obviously, reducing in a way to margin. From the leverage point of view, mix was also weaker than what it was in the Q1 of 2020. But the project execution also in addition to this one project creating the onetime topics was actually on a good level and the cost control there Also in the Port Solutions business on a good level. So there was actually an underlying improvement in the operation in the Port Solutions as well, even if, Of course, the volume and the mix took the margin then in a way into the wrong direction on their half. Gross margin, of course, improved on a year on year basis as a result of the cost overrun delta that we have in a year on year comparison. Then when we take a look at the order book, order book was €949,000,000 That is roughly or actually almost exactly, again, on the same level as it was 1 year ago. And then finally, before we go into the Q and A, a couple of Comments on cash flow and balance sheet. And first, of course, the net working capital situation. Net working capital ended at €352,000,000 That is 11.3 percent of the rolling 12 month sales. Net working capital increased a little bit in comparison to the End of the last year. This is mainly as a result of the inventory and work in progress, normal, let's say, project timing type of topics. And we are still in a historical perspective on a very good level in our net working capital turns. Cash flow was obviously a little bit lower Than it was a year ago as a result of the net working capital situation. But on a rolling 12 month basis or cumulative 12 month basis, we are still on a very good level in our free cash flow. And then when we take a look at the equity and net debt, Net debt declined a little bit, obviously, from the end of last year. So did equity. So what happened with the dividends The theory is that we they have been taken out from the equity, but we had not paid the dividend by the end of the Q1. So It's not increasing our debt level here yet. However, the equity change impacts Obviously, the gearing and the gearing is on a slightly higher level than what it was at the end of the year, but the ballpark, of course, continues to be the same. And then finally, before the Q and A, return on capital employed, that has improved as a result of the profitability improvement year on year. Profitability improvement obviously very good, but also then that the capital employed is a little bit on the lower side now than what it was earlier. So all in all, good development in that one as well. And this slide actually It's the last one in the presentation as such. And now we can go into the Q and A. Thank you, Teo. Before we go into the Q and A, just a kind reminder, due to the securities laws in the U. S. And other jurisdictions. We won't be taking any merger related questions. In case you have any questions regarding the merger, please visit www dot sustainablematerialslaw.com. And until the completion of the merger, both Carcotech and Konecranes operate fully independently and separately. Operator, please let's now start the Q and A and open the line for questions. Thank you, The voice prompt on your phone line will indicate when your line is open to ask a question. Please state your name and your company name before posing your question. We kindly ask you to limit your number of questions to 2 to allow an opportunity to everyone to ask their questions. Sebastian here from Commerzbank. I have two questions, obviously. And the first one is on the group and one High level view. The demand has been coming back very strongly as things have obviously paid out in quarter 1. Would you say that the quarter one increase in orders and also what you are currently seeing with regard to the Q2 and eventually beyond, so particularly for solutions, obviously, but rather above your expectations when you enter the year. And would that eventually also Require a certain, yes, setup in hiring activity. So the question is more related then to service, obviously, where The overall demand momentum seems to be the strongest and where we had in the past, in that at a certain point in time, you're just reaching the tipping point where you have to add More personal capacities, so that's one block. And the other one quickly on Spot Solutions and more on the order backlog conversion Yes. We have all been surprised positively by how fast you are turning the book into revenue, and the order book has now further swollen in the 1st quarter. So Also, when you think about the overall execution and conversion from the order book in 'twenty one? Maybe I take the first one, Teo, and you take the second one. Sebastian, those are good questions. And as we say, we were very pleased with the order intake in the Q1. And being up 13% year on year is a very good way to start the year, especially with the Q1 order intake having a strong Amount of short cycle products for year for in and out sales during the course of this year for all three of our business units. So a very good start. We think that on a going forward basis, we expect that the demand outlook that we described It's a good way to understand our expectations for the rest of this year, and we'll continue to update that as we go. In terms of adding back cost, another very good question. Our explicit intention is to be very careful on any cost add backs and make sure that Should they come, they would be under proportional to the increases in revenue. And each of our businesses is very focused on that And it's an active part of the business system for each of our businesses and an active part of our group business system. Okay. So then if we take a look at the backlog situation and particularly Regarding the Port Solutions business, you're right. So we have been able to sort of deliver and recognize revenue quite well Now already based on the order book. However, the big picture remains the same as it has been, so that the order book for the Port Solutions is lower for this year than what it was 1 year ago for the previous year. So the overall big picture comment remains that we will be we are expecting that the sales for Port Solutions will be lower this year Than what the sales was for 2020. And then at the same time, one can maybe repeat what we have been saying regarding The other businesses as well. So in service, we are obviously expecting growth and in Industrial Equipment to be approximately flattish from the sales point of view in relation to the previous year 2020. Important, obviously, is When we take a look at the sales or revenue recognition sales, it's then the short cycle products that have been referred to a couple of times already during this call. And in the ports business, that is the lift trucks, obviously, in addition to port service. And then, of course, in the Industrial Equipment Component business and then in Service, obviously, most of the business, maybe excluding some of the modernizations, R2B, let's say, mostly in and out business for the current year regarding the order intake that we get now. Very helpful. Thank you. We'll now take our next question. Rob Teo, Kieran Magnus here from UBS. Of course, 2 from me as well. Then first on your industrial equipment business, could you help us with some comments on how demand has progressed through the quarter and maybe how April started? Sure. I mean, the exciting thing about the industrial equipment order book, We've talked about the momentum in the components business, which is clearly in and out business during the course of this year. And the Q1 was up sequentially from the Q4 and started the year on a very good way. And April sales and components has also been on a good way. Maybe adding on that one. So when we take a look at the business units within Industrial Equipment, so like Rob said, components have been On a good level, both in year on year as well as Q on Q comparison. And then what we were referring to the order intake, Order intake having increased with comparable currencies by 6% in a year on year comparison, both standard cranes and process cranes. Order intake was actually down. So it means that the component order intake was actually quite good in the Q1 in comparison to the situation 1 year ago. Maybe in this COVID environment, more important even is that what happens sequentially. And as already said, so sequentially, both components and standard claims improved in comparison to the Q4. And then, of course, the volatility probably continues to be the case Going forward as well and the pandemic is not over. But of course, based on what we saw in Q1, The order intake into components, in particular, was quite good. Perfect. That's very encouraging. And could you help us a bit with the growth in the industrial service contract base? I think this is the 2nd quarter running with a Quite distinct step down in the growth there compared to some of the prior quarters. What should we expect here going forward? And also do you have any Comments on how you stand on the penetration of the Demag service base. Have we had all the taken all the low hanging fruits here? Or should we Should we expect this to continue to drive growth acceleration in the service space? Yes. Good questions, Thiago. There's still fruit to go. Our service team is working very hard and not just to convert the Daymag installed base, but also 3rd party installed bases. And I think that you see that well reflected in our agreement based growth of 1.5% year on year. You also see it reflected in the as Tayo said, in a COVID environment, sequential comparisons are very important as well. And sequentially, our agreement base is up 0.7% from the 4th quarter. I think it does a very good job of talking about and demonstrating the resilience of our service business model. And part of that is converting the installed base. Part of that is very much benefiting by the telemetry capabilities and the very strong digital backbone in our service business that Gives the ability to provide that service experience and the life cycle experience to the customers worldwide at top levels, and that's a very important part of that growth. Thank you so much. Could you favor us with an update on what kind of penetration rate you have on the Demag business now? I think you had 20% when you announced the deal in 2017. Is that something that we're ready to talk about, Teo? I think that's something we haven't touched for quite a while. I'm not sure we're ready to talk about that one this morning. We haven't actually been touching that now for a while. And of course, it's one of the frequently asked questions, and we will probably need to Find a way to come back to that question, but we haven't given any unfortunately, any updated numbers Regarding that one, we have been saying that the contract base or the agreement base development that we have been having, Which was actually quite good apart from the Q4 of last year, which was not in line fully with Our expectations, but otherwise, it's been quite good. So it has been supported by the Demag installed base and the conversion from that one. But obviously, it's not the only reason behind the growth in the agreement base. And as you said in the numbers, the slight dip in the 4th quarter was Fully caught up and now back on a very good track already in the Q1. Excellent. Thank you so much, Bost. Okay. Thank you. We'll now take our next question. Please go ahead. Your line is open. Yes. Good morning, everyone. Thank you very much for taking my questions. It's Artyom from Credit Suisse. My first question is about logistics and components shortages, which you mentioned in your reports. Could you maybe talk a little bit about How this picture compares in Q2 to Q1 at the moment? And also specifically On the Volvo procurement from Volvo, could you maybe talk a little bit about which impact do you Specs from them shutting down production for 2 to 4 weeks? And how much of the backlog do you have for Volvo engines? That's my first question. Okay. Good questions. The component availability and the logistics Challenges are something that companies worldwide are experiencing, and there's quite a bit of tension in the supply chain. However, at the same time, people are working very hard to solve that in Real time in all the different companies and supply chains. And our supply chain team has been quite successful in overcoming these challenges so far. We've had interruptions. They did impact our Q1. They continue and impact our Q2. However, we've been able to overcome those to a large extent. Teo can even quantify that for you in just a second. The Volvo shutdown will have an impact Potentially, but once over time, this is a moving picture. And our view of the Volvo impact, we've been able to Very actively with Volvo also in the demand supply environment been able to shape the demand for our port solutions mobile equipment Towards material where we have availability. So we're working to mitigate that. We've done so and made already a very good impact on the mitigation And making a prognosis right now on that one item would be inappropriate because in real time the team is working To further reduce any impact that would bring for us. You want to talk about the Q1 impact too? Maybe we can quantify that, like Or I could have mentioned or at least try to quantify the impact for the sales for Q1 is probably somewhere between €20,000,000 25,000,000 It's Split basically between the Service and Industrial Equipment Board Solutions did not have major impact as a result of the component shortage Or delays in, let's say, component availability in the Q1. And maybe it's fair to say that even this €20,000,000 €25,000,000 is not only as a result of the component shortages. This estimate, in a way, includes also Impact from COVID restrictions that, for example, service business has been having, particularly in Asia Pacific, where there have been shutdowns that have been impacting our business. But all of these together regarding the Q1, Maybe somewhere between €20,000,000 25,000,000 sales. Then when we take a look at the situation going forward, so obviously, It may be fair to assume that the situation will continue to be tight. And like Rob said, we will need to manage that very actively. Our conclusion on managing those cases based on today's information, obviously, you can see in our financial guidance, which is that we are Saying that the sales in 'twenty one will be higher than the sales in 2020. These are real time actions being taken decentralized all over the world. This time, the year started, a lot of empty containers. We're in the wrong place. To a large extent, that part of the challenge has been overcome. We had the Suez crisis for 10, 14 days, also now in the middle of working itself out, largely overcome. Our supply chain teams, but our customers and our suppliers and the whole world's industrials are working very, very hard to overcome these things in quite innovative ways. So it's a moving picture and you see our estimates and our expectations reflected in the Q2 demand outlook. We'll continue to keep that updated It absolutely reflected, as Teo said, in our full year guidance. Understood. Thank you very much. And my second question is around services. If you were to pick one big effect holding back The sequential growth in service orders and revenue, will this be COVID or low utilization in your customer factories? And I guess, as a second part of this question, if that's COVID related, limitations of accessing customer sites, is there anything You're doing at the moment to maybe improve that situation proactively with customers? Sure. I think the best way to understand that is primarily COVID restrictions In terms of the intake on the services side, but also those COVID restrictions, we're all Working very hard to improve those. The vaccine is coming and it's rolling out more and more. Our service team has also been very proactive in working with the customers to Enable safe site access. And overall, we see an improvement in the Q1 versus the environment before that. And we expect gradually as everyone is working to solve these challenges, it to improve over the course of this year, certainly to stay flat and In no case do we expect any declines over this year. Thank you very much for taking my questions. Sure. We'll now move to our next question. Please go ahead. Your line is open. Hi, good morning. Rob, it's Aurelio from Morgan Stanley. Thanks for taking my question. I will take 2, please. So my first question is around raw materials. I guess you touched on component shortages and the impact that, that is having in the business. I would be curious to know if you're suffering in terms of raw materials and what your pricing Has been over this period and I know that you have hedging policies in place, but I would be curious to know if you have seen obviously more pressure in the supply chain and how you're Passing on, Bryson, greet us to you to customers. Sure. There's a lot of different levers to pull to work against To work in that kind of environment, there is a pricing lever, and to an extent, we're able to use that. There's also the supply chain The team working very hard to have enough options in our supply base with our business partners to mitigate or overcome inflation on a raw material basis. All those levers combined are how we're working to work through this and to make sure that we're able to improve our profitability this year versus last year And be successful also in a tenuous or in a tough raw material environment. Okay. And you touched on Canal's good improvement in the short cycle businesses in all three business areas. I would be curious to know what the performance has been in the kind of service part of your Board Solutions business. And be it I understand that Flat access has been an issue for kind of your industrial equipment business, but I would be curious to know what the case has been for ports. Let me let Teo talk to that one, and let me just pick up on one last element of what I was talking about before. It's crucial to be successful in this kind of environment that there's a very strong communication within the company and on the demand and the supply side. And our supply chain team and our businesses are working extremely closely together. So real time information on things like raw materials And material costs. So we can pull all those levers, not just on the buying side, but also on the pricing side, on the sales side. So that good communication is an element of the successful pulling all those different levers to work against the material inflation or raw material pricing. Do you want to talk to the port specific question, Teo? Yes. If we take a look at the port solutions and take a look at the so called short cycle products, so Particularly, they are lift trucks and port service. And when we take a look at the lift trucks, so we have been discussing how sequentially the order intake has been improving now for a couple of quarters, and the improvements have been quite good as well. The development is not as clear in port service side, so that the port service has been much more stable Than some of the, let's say, equipment related short cycle products like lift trucks or components in the Industrial Equipment area. So I guess that it would be maybe fair to say that the port service is following a little bit similar pattern as, In a way, Industrial Services following within the industrial customers. So If we take a look at the external order intake with comparable currencies in Industrial Equipment, so It is 6% year on year in Industrial Service. It is basically flattish with comparable currencies. So actually, the component order intake improvement is more and the similar thing we have in the Port Solutions, so that the Port Solutions order intake improvement 13%. So it is much higher than what we are seeing in the port service. So the Pattern, in a way, is the same. What are the reasons behind all of this is then obviously a good reason, but a good question, but That's how it visible to us. Then regarding the other business units that we have within ports, Strel carriers, RTGs, etcetera. So then it starts to get a little bit difficult whether we categorize them as short cycle or long cycle products. So let's not maybe go there now. Yes. That's very helpful. Thank you very much. Thank you. We'll now take our next question. Please go ahead. Your line is open. Yes. Hi, it's Antti from SEB. Thanks for taking my two questions. First one would be a follow-up regarding the situation with the Despite supply chain and the inflationary environment we are in right now, I guess this puts pressure on price hikes. So How are you seeing this impacting demand? Are you seeing, let's say, pre buying inventory risk book among your customer base, Anticipating price hikes, maybe making investment decisions a bit faster today? Wadi, I mean, Especially in our industrial equipment business, there are just thousands and thousands and thousands of customers All making different decisions. Potentially, there's a little bit of that, but we also think that the COVID recovery is a part of The demand increase as well. On the port side, the ports business operates in a longer term environment with very large capital Project plans over multiple years. And I don't expect the inflationary discussion has Anything to do with the long term decisions and the investment decisions of our ports customers. So I think that's probably the best way to look at those two questions. So you said to you? Maybe one addition. It is actually a good question. And typically, of course, we have been saying That customers do not buy cranes in inventory, and that continues to be the case. That's not what happens. And typically, customers have then acquired the cranes that they need regardless of the inflationary pressures. It may have an impact on the competitive environment. So that's why we have been commenting that when raw material prices are going down, So it's from the pricing point of view, a little bit easier for us than when they are going up, even if we will be increasing our prices in line with the raw material Of course. But regarding the destocking or restocking, so it is possible that Part of the component good order intake in a way is pent up demand. That maybe could have happened In Q1, for example, and I'm not sure of that, but it is possible that there is, to some extent, this kind of an impact as well. This is Obviously, something that we will know after Q2 and Q3. But as of today, we obviously there's no way knowing for sure. No, Andy, we make we regularly make price adjustments. And so there's nothing particularly unique this year versus in previous years on the pricing side. What is Nick, is the increasing recovery from the COVID situation. And therefore, my view that, that has that's certainly the stronger element of The stronger factor in any increases that we're talking about. All right. That's very clear. Then secondly, now you're kind of anticipating market activity gradually returning to pre COVID levels, and I guess, in some cases, it's already close to that. You mentioned that you will be careful with adding cost, but could you talk a little bit about where you see the most comfort on maybe Moving to growth phase, adding additional investments, adding costs in selected places And in which areas there's still, let's say, substantial profitability, cost control improvements where the focus remains to be on margins rather than Driving growth. So, Ani, I mean, all of our businesses are very focused on cost And incremental cost and incremental revenue. And so as revenue is growing, we're all very focused and committed to making A smaller any cost changes would be on an under proportional basis To the sales increases we expect to achieve. So each of our businesses are working hard in that direction. I think maybe to the second part of your question, We're very excited about the profitability turnaround underway in our industrial equipment business. We've talked about process cranes many times. Across the process, Crane business continues to be on a very good trajectory in terms of improvement. In the 400 basis points year on year With lower sales, I think is a very exciting demonstration of traction of the strategic initiatives And our especially as it impacts our industrial equipment business. So as you rightly say, our focus in industrial equipment is Primarily on the profitability increase, but we're also excited about revenue growth there. On the service side, we're excited about growing revenue and Profitability and the same story in imports. So it's not that there's only a focus on the one or the other. The commitment, however, is as we grow sales All right. Very clear. Can I quickly squeeze in additional one regarding the process crane business? What is the size of the business today? Just to get a feeling how much of the year on year EBIT improvement comes from that turnaround. It is around €200,000,000 business, but we haven't actually given the volume split From one quarter to another regarding that one. And we actually what we have been commenting regarding the turnaround, So actually, it is so that we are willing to walk away from deals provided That the margin level that we would be aiming at is or we would be getting is not something that we would be Happy with or willing to do the business. However, then what we have noticed is That even if some of the customers may walk away first, so many of them also come back. So it's maybe fair to assume that as a result The change in the steering mechanisms that we have done, the business will be shrinking a little bit, but not necessarily A large amount in comparison to what it has been. Okay. Thanks. Thank you. And we'll now take our next question. Please go ahead. Your line is open. Yes. This is Tommi from DNB. Also a question on the components. If you could comment also that share of the industrial equipment business in addition to what you said on the process trends. Well, you got us on a slippery slope, Tommy. I think we'll let Teo comment that one. But we talk about those 3 businesses or those 3 areas of business. I'm not Particularly clear that we give specific references to their size. It is an excellent question, but I'm afraid that we will give the same answer We have as we have basically been given so that the component business is 25% to 30% of the total Industrial Equipment Business, a little bit varying on depending on the type, as is the case also for the process crane business. So obviously, It is more lumpy from the order intake point of view, and then it is also more volatile from the sales point of view. But the standard industrial crane business is the biggest part of the Industrial Equipment business as a whole. We'll now take our next question from Magnus Kruber. Magnus, again, thanks for taking my follow-up. I want to discuss a little bit EBIT bridge and how we should think about The temporary cost savings that you had last year. I mean, I know you have been talking about being agile on the cost base and but I just want to see if there's anything specific we should think about With respect to Q2, when we model out our EBIT bridge for the next quarter? That is an excellent question as well. And I don't know if there is anything specific as such, Except for the things that we have already been commenting a little bit earlier, so that when one takes a look at our P and L, and of course, We are not showing all of the rows there, but what you can see is the personnel costs and the so called other fixed costs separately. So you can see That we have been reducing the personnel costs roughly in line with the volume, if you now take a look at the Q1, Q1 comparison, for example. And then We have been reducing costs much more on the so called discretionary cost elements, which is basically all the other fixed costs, Including the classic example of traveling, obviously. And now when When we go into the Q2 and Q3 and we take a look at the comparison, so maybe it's fair to say that Q2 and Q3 of last year, So they included some sort of cost avoidance type of activities Or they can be categorized as cost avoidance, mostly in relation to temporary reduction Of, let's say, capacity in terms of having 4 days, weeks and having Vacation time used and those kind of things, government subsidies. And this was mainly the case for the Q2 and for the Q3. And then when we take a look at the Q4 of last year and Q1 of this year, so from the personnel cost point of view, We are basically more into a normal situation. So the year on year comparison in Q2 Can have this kind of an impact that there was cost avoidance in the Q2 of 2020. But then if you make a sequential comparison to Q1 of this year, so that shouldn't be so much the case because now we have been in Q1 and already in Q4 in a very normal situation. Then obviously, we have this discussion on how much of the reduction in the so called other fixed cost Is then cost avoidance, how much is volume dependent and how much is structural? And there are probably A part of all of those. And then we are not really willing to give an estimate on how much each and every of those categories would be. But like I said, there is an element of all of those. And again, the traveling, obviously, works as a good example Because when we go back to new normal, so there will be, to some extent, traveling most likely, even if not on the same level as with pre COVID situation. Magnus, maybe to add a little additional color to that question. What I would what I'd emphasize When we do our EBITDA bridges, our profitability bridges, one of the elements in the bridge is performance. And the performance are all the different it's a combination of all the different decisions that the team has taken and actions they're taking on The items that they can control and influence. And as was the case in the Q1, our expectation is that the performance element of The EBITDA bridge or the EBITDA bridge continues to be a very strong component in that overall bridge. Perfect. Thanks a lot. Thanks for opening up with that. That's very useful. And I wanted to return to The cost inflation side again, I mean, we have seen logistics costs being high for some time now. But I guess now we start To the raw material and component costs coming through as well. And you already mentioned it, you're sort of taking price action on this. But Is there any time lag between your pricing action, for example, and the cost inflation coming through? Or do you think they are sort of well timed to Meet the high cost as they filter through the P and L. No, I mean, there's nothing set in stone on what kind of Frequency, one would make those adjustments and our team is working very hard to do the balancing in as close to real time as possible We're on shorter frequencies, so there's not any significant time lags. So like I said, the supply chain team and the commercial Teams in our businesses are working very closely together to be taking decisions and taking actions on the cost side and on the pricing side and Very good timing. Maybe as an addition to that one, so what Rob says is, of course, true. And one way to Private is that when we are using quite a lot of prefabricated components, so we are not actually buying that much direct raw material, But more like prefabricated components. So it takes a while before the cost inflation comes to us. So it basically gives us time To increase the customer prices. And it's more like a question of then that what is the market Willing to take on rather than that we wouldn't have the time to do it. And the sales configurators that we are using In large parts of the businesses, so they actually allow us to pass the information on also to the sales force so that people will be knowing What is the cost level with which we are operating? Thank you. And we'll take our final questions from Aurelio Calderon from Morgan Stanley. Please go ahead. Hi, it's Aurelio from Morgan Stanley. Thank you for taking my follow-up. I noticed that you don't disclose this in your report anymore, and I guess it will be a little Maybe just aggregate this. But I would be interested to know what the performance was At MHGB, Mag, given that I think you've closed the acquisition in early February last year, so to be able To compare things on an organic basis, if possible. So let's start by saying the closing was actually 1st week. I think it was the 2nd or 3rd January of last year. And we're very pleased with the wonderful progress that Konecranes and MHE Demag integration team has been making. It's been a very successful integration over the course of last year, and the MHE Demag business is a very exciting and vibrant part of the overall crane Konecranes business. We picked up some additional industrial products with the MHE Demag full acquisition. That's on a good way. And our team, that's a part of the world that's been especially hardly hit with the COVID-nineteen. In In spite of that, you saw that the Asia Pacific sales are clearly larger than they were pre MHED, Meg. And as the region recovers Through COVID, we expect that proportion of sales and those amounts of sales to continue to increase. So In a very challenging environment, we've done a very good integration as well as a good business performance. And so we're pleased with that. And Maybe Teo can decide if he wants to unpack some numbers associated with that or not or put some further color on that. But we certainly appreciate the question, Reggie. That was basically a perfect answer, but I can, of course, refresh the memory from the A few that we have said that the MHE Demag sales of the group sales were roughly 4%, order intake the same during 2020. We are not disclosing that separately anymore because it's fully comparable in, let's say, Q1, Q1 situation already. But as a whole, like Rob said, the integration has gone well, And the acquisition as such has been a success. Okay. That's helpful. Thank you very much. Thank you. We have already run out of time. So unfortunately, it's time to conclude our conference. I would like to thank everyone for the active participation and good questions. And just as a kind reminder, We will issue our half year financial report on July 28. Have a great day, everyone. Thank you. Thanks a lot. Thank you. Bye bye.