Cavotec Group AB (CCC) Earnings Call Transcript & Summary

Ladies and gentlemen, good afternoon, and welcome to Cavotec Investor meeting today. My name is Johan Hähnel, and I'm Cavotec's Investor Relations Manager. And I'm truly honored to welcome you, be it in-person or remotely, as most of you are up here and looking at the camera right now. May I ask to please ask those who are in this room to turn off mobile phones if you have forgotten that. Here is our agenda for today, where our CEO, Mikael Norin, will introduce Cavotec at the glance, the respective Presidents, Patrick Mares, Ports & Maritime; Juergen Strommer, Airports; and Patrick Baudin, Services will go through a business update of Cavotec. Our group CFO, Glenn Withers, will update us on the company performance after that. f Then we will invite Mikael back on stage to talk about our investments for the future as well as ramp-up and conclusions. And as always, in these meetings, it is the third meeting we have, investor meeting, we will finalize with the Q&A session. So with that, let me now introduce you to our host here today, Mikael Norin.

Thank you very much, Johan. Hi. Huge welcome to everyone in the room and also everyone on the web following that are following us right now. We are incredibly excited about the opportunity to update you on Cavotec and talk to you about why we are so excited about the future of this company. Let me start with a short introduction to Cavotec. Cavotec has a long history in connection technology, whether it is connecting a port crane to power or an aircraft to cooling or heating. In each of these areas that we operate in, we are incredibly well positioned when it comes to mega trends, such as automation, environmental improvements and safety. It's our future focus, the possibility to work with what will be tomorrow standards today that actually attracted me personally to Cavotec. And in Cavotec, we talk about us connecting the future. Now we strongly believe that we can take an active part in contributing to a future world that is cleaner, safer and more efficient. In addition, of course, to being a successful and profitable company. Let me start with showing you a short video that gives you an overview of what we do. [Presentation]

Now as you can see in the video, our activities are split into 2 end customer divisions: Ports & Maritime, and Airports & Industry. And then both of those divisions are supported by a global services organization. Now you're going to hear from each of the business leaders in more detail later about their offerings, and how we look at the markets that they serve. And you're going to see why, again, we are so excited about the future for this company. Now as I'm sure you have noticed, there's been unprecedented focus on sustainability recently, a focus that is also driving new legislation in many of the markets and industries we operate in. These developments and the believes that we need to build a more sustainable world is also reflected in the expectations of many investors that we talked to. At the same time, looking from our customers' point of view, they are trying to operate in a profitable way in an increasingly competitive landscape. So it's no longer a choice between either a green agenda or financial performance. Now increasingly, companies are turning to technology to try to solve this dilemma, to maximize productivity, to become more competitive, but at the same time, improve safety and significantly reduce their environmental impact. We believe that Cavotec is incredibly well positioned to take a center stage in this evolution, and that is what this day is all about. Let's have a look at how we translate this overall trend into a vision for each of our businesses. In Ports & Maritime, we believe the end state is a fully autonomous maritime supply chain, where electrically power ships will be sailing, mooring, loading and unloading without human interaction. The market is already taking steps towards that end state. In Airports, we will be part of an evolution towards the fully automated airport, providing solution for airplanes to dock and be served at the gate with no human interactions. On industry, we believe in the vision of the fully remotely controlled industrial site, where we provide connectivity and control of battery-powered heavy-duty vehicles. Now actually, what is so cool about Cavotec is that we play an important role in this evolution already today, and let me explain how that works. Let's go on a trip together. It is a trip that involves international travel, but don't worry, it's all in the mind so no masks required. For our first stop, we're going to go to Norway. Imagine a Norwegian field with a ferry, powered by batteries, emitting no noise, no pollution and automatically docking and recharging without human interaction when at the key. Within minutes, they're ready to sail again. Now this is the future today that we have made possible. For our next stop, imagine you're sitting in the departure lounge at Dubai airport. I'm sure you're all missing sitting at the airports. And you're waiting for your next flight. Now what you will see is the plane being powered, cooled and fueled from connections right under the plane, with no clutter of polluting and noisy mobile equipment. This is the future today that we have made possible. For our next scenario, let's turn to an industrial side. Imagine that you are in Chicago, and you're looking at a large construction site where heavy-duty cement truck is pumping concrete under high pressure, with the operator remotely backing in that large truck inside the dangerous zone, but safely starting the pumping while standing at a distance, overlooking the operation. Again, this is the future today that we have made possible. Now what these examples have in common is that we have helped those customers do more with less, while protecting their people and equipment and reducing their environmental impact. We say that we have delivered profitable sustainability for our customers. Let's hear in more detail about our profitable sustainability ambitions for each of our businesses, starting with Ports & Maritime. Patrick?

Thank you, Mikael. I'm actually very excited for the opportunity to share with you where we're going with the Ports & Maritime business. So let's start with a video. [Presentation]

At Ports & Maritime, we are developing, manufacturing and implementing innovative automation and rectification technologies for the global Ports & Maritime markets. We're offering solutions to our customers to make their operations more efficient, reliable, safe and sustainable. We do not just provide a product, but a complete solution, including support over the full life cycle. And we're always trying to find a better way for customers, understanding that for them, every minute matters. In this picture, you can see MoorMaster installation. It's our automated mooring solution that we invented to moor and release a vessel within 30 seconds, saving time in a safe way. This is sustainable profitability. We offer our customers systems and solutions basically divide in 4 market segments to help them achieving profitable sustainability by: reducing moor in time and improving worker safety with our automatic mooring, the MoorMaster; by reducing vessel emission with our Shore Power offering, both on the ship side and on the shore side; by enabling electrical vessels by providing fully automated charging; and by supporting ports and reducing pollution by providing electrical power to their cranes and e-trucks. So I'm now going to dive a little bit deeper in each of those segments. So let's start with automated mooring by hearing directly from an end user. [Presentation]

The underlying business logic in maritime automation is to lower operational expenses while also achieving a safer and greener footprint. So let me tell you how that works for MoorMaster. This first graph illustrates a typical port is by a large passenger vessel to a port not equipped with our MoorMaster. The conventional way to manually moor a ship of this size will normally take about 10 minutes. Then it will spend about 45 minutes off loading and loading before another 5 minutes that are spent to release the vessel so they can sail again. Now using our MoorMaster, the vessel is instead moored in only some 30 seconds and released in 15 seconds. This means that a ship can leave the port 15 minutes earlier and therefore sail slower to its next port. This so-called slow steaming reduces fuel consumption. It also means that a vessel can shut down its engine sooner after arriving at the ports and thereby, drastically reducing pollution and noise in the ports. A ports, by the way, which is often situated in or close to a city, just like here in Stockholm. Now an alternative use of that same vessel and same safe time is for the port to offload and load more gifts and vehicles and thereby, generating more revenue through improved productivity. Now if this ship, in this example, was electrical, it also mean longer charging time and therefore, using small batteries and having lower initial investments for the operator. Now if this would have been a containership calling on a large cargo ports, the time saving would even be higher. In that case, conventional mooring will take more than an hour, and the saving will be close to 1 hour for each mooring. And that time can be used to unload and load more containers as well as turning off the heavy diesel burning engine sooner. Now while the business case is different for each port, saving time will lead to significant fuel savings. That's a fact, and this is the most tangible benefit of a MoorMaster system. At the bottom line, the fuel savings through slow steaming, less waiting time in the port in itself pays for the MoorMaster system. However, the environmental benefits have not gone unnoticed by the market, saving time and fuel saves the environment. And a great example is the port of Helsinki. They first installed a MoorMaster system in 2017 and then ordered a second system in 2019. And the port has a stated objective of carbon neutrality and sees the introduction of automated mooring as an important step in their efforts to reduce pollution. This is the future today that we have made possible. Now then what does it mean for automated mooring market development? Initially, MoorMaster was only installed in niche segments where the customer had an operational limitation where conventional mooring impacted the performance of its ports. In the second step, we now see automated mooring becomes the market standard for high-frequency ferries that see a lot of benefit from the system as well as addressing the environmental concerns. So while the ferry market will continue to grow, we also expect high utilization and greenfield container thermals will be the next to follow. At Cavotec, we believe that each minute will matter more and more and that automated mooring will have a given role in each port of the world in the future. Now let's move to Shore Power next. [Presentation]

What you saw here, this is something we're very proud of, and where we feel we're really contributing to a cleaner, safer and more efficient world today. So do you know that Cavotec owns many world records when it comes to Shore Power systems? Starting with the first cable management system delivered here in Stockholm in 1985, followed by the world's first on-ship system in 2004 to Evergreen and the world's first onshore equipment in 2007 to the Port of Long Beach. We also delivered the first containerized solution for retrofitting ships for Shore Power to Hyundai Merchant Marine in 2014. We have today the most broadest product range in the markets. They're able to actually cover all kinds of applications with 35 years of experience and continuous customer-led innovation. We have positioned us as a leader in the Shore Power markets. Unpacking the benefits of Shore Power, let's start with the environmental and health aspect. And as an example, our Shore Power installation at the Port of Long Beach in California is estimated by the port to have significantly reduced the risk of cancer among people living nearby. Next, for the operations of the port, our system provides increased efficiency and lower operational costs for connecting and disconnecting reliable power supply to the vessels. And finally, the minimized footprint of our systems makes it easy to build retrofit in existing vessel with a plug and play approach as well as optimizing installations on new vessels. This is the future today that we have made possible. Now the Shore Power market is driven by a global ambition to reduce pollution, and it's triggered by new government regulations, forcing fleets and ports to adapt Shore Power. We believe that by 2025 some 400 ports in the U.S., Europe and China will have to be equipped to supply electrical power to their ship customers. We also expect that in the same time period, around 1,000 containerships, somewhat 6,000 bulk cargo ships will have to be equipped to receive Shore Power. So in conclusion, we expect the Shore Power market to grow substantially in the next 5 years. Now let's change gears and talk about automatic charging for e-ferries. [Presentation]

Isn't this fantastic? This is delivering the future today. Cavotec has developed and brought into operation the most powerful automated charging system for e-ferries in the world today, a 5-megawatt fast battery charger. The automation and the speed of our charging system is the key enabler for electrical vessel market development. Without this technology, there wouldn't be any e-ferries. This is the future today that we have made possible and another great example of how we deliver profitable sustainability for our customers. Now let's talk about the market potential here. Norway has been the early adopter of e-ferries and represents addressable market for charging worth EUR 75 million over the next 5 years. We strongly believe that the rest of the Nordic countries and then the U.S. and some other countries will follow as they already actively running design studies to electrify their ferry routes. We also see a growing interest from other countries with large ferry networks, such as Japan, South Korea, which are currently running feasibilities as we speak. And finally, let's look into port electrification, and more specifically automated charging for e-trucks. [Presentation]

So did you note is that the core technology used in this application is the same we're using for e-ferries. So when we look at electrification and automation of ports, it's not only the ship to show electrical connection that is changing, the electrification of the rest of the port operations is accelerating quickly, if not quicker. An area of port electrification has a huge growth potential is automated high-power charging of battery-powered for trucks. Efficiency safety and vehicle uptime are key drivers in this area when ports are considering converting their fleet of diesel-powered trucks to zero-polluting e-trucks. And the Cavotec solution that you saw meets all of these 3 requirements through a fast, automated, high-power charging solution that also keeps workers safe. So this is the future today that we also made possible. The Port of Long Beach and the American Association of Port Authorities have already recognized what a breakthrough this technology is. We're very proud to be awarded 2020 Facilities Engineering Award for this solution. And this is exciting as it shows this -- now already early acceptance in the industry for our solution, and it opens the doors for significant growth opportunities. So talking about the market potential. We know there are about 40,000 diesel-powered terminal trucks in ports around the world today. About 2,000 of those trucks are located just in California, which has a legislation for zero-emission ports by 2030, and over 0.5 billion in government funding to drive this change. So to summarize, Cavotec is at the right market at the right time with the right solutions. The industry is undergoing a fundamental shift towards sustainability, are also looking for improvements in productivity, and I believe we are uniquely positioned to provide profitable sustainability for our customers. So thank you for your attention. And with that, I'll now hand it over to Juergen.

Thank you very much, Patrick. We're happy to have the chance to talk to you about Airports & Industry today. Let's start with the short video showing our offerings to you. [Presentation]

I'm going to start talking about airports. In airports, we are providing state-of-the-art cloud support equipment for powering, cooling, heating and fueling equipment through our in-ground solutions. Both commercial and military customers improve their efficiency and safety while reducing pollution with our systems. We have a full portfolio of cloud support solutions, making us the only provider of a complete fully integrated system. We also have the widest range of temperature control solutions, which has been the success factor in geographies with extreme temperatures, such as Bahrain airport. This is a strength as the world is experiencing more and more extreme temperature events. An additional strength is that we have our own engineering and manufacturing in the world's largest aviation market, the U.S., which has given us the largest installed base of in-ground systems in the world. Being approved as a supplier to the military aviation market is also a strength of ours. As you can see to the right, we have a wide range of customers from airports in Dubai and Miami to aircraft manufacturers, such as Airbus and Boeing. Frankfurt airport is one of our customers in Europe, which we have a very long-standing relationship with. Frankfurt airport, as all of our customers, are looking for profitable sustainability solutions, and this is how they frame it. As you're fully aware, the aviation market is going through turbulent times. However, global population growth will continue and with the merchants of a growing middle class in developing countries. We, therefore, strongly believe that the world demand for air infrastructure will continue to grow. Another aspect is how critical the aviation industry is in keeping the global supply chain moving. The increased focus on fast deliveries will further drive this development. In a challenging environment, the focus on productivity drives investment decisions while the pressure to address environmental challenges have increased. We are well positioned to support our customers with these challenges today through delivering profitable sustainability solutions. Taking a closer look at the COVID impact on our airport business, we find that the market dynamics are changing from large greenfield project to expansions and upgrades for existing infrastructures. Actually, we are currently tracking more projects for decision in 2021, then in the beginning of 2020, and we expect an increase for the years to come. What we see for these projects is that customers want to move to flexible gates that can accommodate various aircraft types and sizes, thereby increasing their efficiency. Let me explain you how we do this today. At Bahrain Airport, our E3 system increases the flexibility of the gate. Configurations, enabling the airport to either have one wide-body aircraft at the gate or 2 narrow bodies. This maximizes the gate utilization and increases operational efficiency. In addition, being able to faster connecting the services to the aircraft as the aircraft can turn off the engines sooner, which decreases fuel consumption and pollution. Furthermore, having the system in-ground reduces the congestion at the gate caused by the mobile equipment. This reduces the risk of damage to the aircraft while increasing safety for the workers on the ground. Actually, the International Air Transportation Association estimates that damage to aircraft is costing the industry nearly USD 10 billion per year. Also, our solutions contribute substantially to reducing the environmental impact today. To the right, you can see some examples of how CO2 equivalent our solutions have eliminated as measured in the number of round trips from Stockholm Arlanda London to London Heathrow. In total, these 3 airports alone, our solutions have removed the CO2 equivalent of more than 27,000 round trips and counting. In conclusion, we see continued need for air infrastructure, but the dynamics of the market are changing towards less greenfield projects and more expansions and upgrades. Our customers want increased flexibility and efficiency of their assets and the smaller environmental footprint. Our E3 System solution means that we are uniquely positioned to provide profitable sustainability for our customers. Now let us turn to our Industry business. In Industry, we provide a wide range of solutions to electrify and remotely control heavy-duty vehicles. We work very closely with leading OEMs to provide customized solutions that enhance productivity, increase safety and reduce environmental impact. Our portfolio of products includes remote controls, power connectors and cables. Our equipment is integrated in heavy-duty industrial machines, such as from Sandvik, operating in some of the harshest environments in the world, where they must withstand extreme temperatures on a 24/7 basis. Our remote controls are installed across a wide range of industrial equipment to increase productivity and make the operation safer for the end user. GS Global of the U.S. is an example of a new customer that is now integrating our remote control units. Another core capability is connecting electrically powered equipment. Our power connectors and reels are trusted by the leading OEMs, such as [indiscernible] to provide the reliability and performance they need. Let's talk about our growth strategy for Industry. In the past, we've been dependent on a few larger OEMs, as you know, who are increasingly operating in mature segments. Our geographical reach has also been limited. We have recently invested in our sales and marketing capabilities to target new OEMs with growing segments in new geographies where our technology plays an enabling role. We are particularly targeting applications that are moving towards electrification, such as heavy-duty vehicles. Let me show you what I'm talking about. [Presentation]

This is the future today what we have made possible. What you saw in the video is how remote control solution saves time and labor. Without remote control, that same task would have needed several operators. In the next step, the operator can be removed entirely from the work site, and instead, he can control several machines at different sites simultaneously from a single remote location. This translates into safe labor and increased productivity. The risk of an accident is a factor anywhere where heavy machinery is operated. By moving the operator away from the asset, we save lives today. In conclusion, we are targeting high potential OEMs in new geographies with growing segments where we can provide the enabling technology. Our solutions save lives, drive profitable sustainability for our customers. Next, I would like to hand over to Patrick.

Thank you, Juergen. Now let's talk about how we keep all these core technologies, which you've heard about running. But first, let's again, start with a short video to give you an overview of the Services business. [Presentation]

In Services, our core mission is to help customers maximize the availability and to extend the total lifetime of their installation. Our trained and certified service experts are available around the clock to support the thousands of installation we have around the world. A number that is growing by the day. So what's so exciting about the Services business in Cavotec is that we have a huge untapped market. We now have a very good understanding of this potential. To address this potential, we have developed a large range of service products from inspections to comprehensive maintenance agreements, which are tailored to the white spot that you see on this chart. So we are in a journey. We are on a journey to move up the value chain and thereby increasing the importance of Services to the group in twofold. First, by growing our share of the group's revenue; and secondly, by providing a higher share of recurring revenues, such as service agreements. We are doing this by moving from in the past, only having provided simple repairs and spare parts to in the future, offering complete, proactive, fully connected solutions. To give you an example, we have recently introduced an entry-level inspection program. This acts as a door opener to enable us to sell our extensive range of service products. I know this works. In Malaysia, for example, crane delivered 10 years ago were inspected under this program, resulting into an order for a multiyear service agreement. Another example is how we are interconnecting assets now around the world to develop predictive maintenance offering. This is going to be the enabler to start offering product as a service. We see another example of building recurring revenue is the recent renewal of a multiyear service agreement with the port of Salalah, same port we saw in the video before. Here, we have service engineers on a full-time basis at the port to carry out all the preventive and corrective maintenance of their MoorMaster system. As you can see here, availability is really critical for the customer. Another good example I like is, on the airport side, is the multiyear service agreement we have with the airport in Miami for our installed base of equipment to cool and power aircraft. Here, you can send a quote how critical that is for the customer to be able to provide a great passenger experience. Right. So to summarize, we still have a large untapped potential from our installed base. This is clear. By moving up the value chain, we will generate a recurring revenue and continue to increase our share of the group revenue. We offer profitable sustainability for our customers by maximizing their availability and extending the lifetime of their assets. This is the future today that we have made possible. Thank you. With that, I hand over to Glenn.

Thanks, Patrick. Okay. I will summarize where we've come from and where we are now, especially from a business performance standpoint. And first, I'll start with where we came from, and a number of you know this already, but we've been on a 3-phase transformation journey. We completed 2 of the phases already, the first in '18 and then the second in '19. And I'll talk about the third phase soon, but before I do, I'll just recap the second phase. The second phase was about locking in the benefits of the transformation and establishing a performance culture in Cavotec, that was our key aim in 2019. And just to summarize our achievements on that objective: Firstly, we're committed to hold the line on revenue, and that's despite an intense transformation, which had involved changing almost everything and also included a significant reduction in headcount. That was our first objective, and we did achieve that. Secondly, we wanted to establish a business that was more consistent in delivering profits and generating cash. In fact, in 2019, we delivered 4 consecutive quarters of improving financial performance. Thirdly, we invested in commercial and operational improvements. The aim of these improvements was to have the right momentum in sales to generate growth and to strengthen our operations in customer support centers to deliver on that growth. The summary of all that is, we exited 2019, ready to capitalize on all the hard work that we have done up until that point. We've established a strong performance culture, and we're ready to grow. So now I move to now. We entered 2020 with a good deal of confidence that we would deliver on the third phase of the transformation journey to start our growth. It will not come as a surprise to any of you that the world had something different in store for us. So when the COVID-19 pandemic hit, firstly, our factory in northern Italy was closed for more than a month. That, together with a complete shutdown of our ability to service our customers due to travel restrictions, contributed to a 20% decline in our revenues in the first half of this year. However, because of the performance culture that we'd established, we were quick to react and adapt to this new reality. It's also true that our people already knew how to proactively manage cost. And this meant that despite the impact to our topline, we're able to deliver profits and cash even from the lower volume that I just talked about. In fact, we're able to improve our profit margin and generate more cash when compared to the same period in the prior year. A further sign of strength is that we, in the midst of all that financial turbulence caused by the pandemic, were able to secure a new long-term financing agreement as scheduled for Cavotec. Finally, talking about our published financial targets. These are underpinned by our ambition to grow organically 5% per year. Today, you've heard from each of our business leaders about the key opportunities in their respective business units, and why we remain confident about our future ability to grow. To summarize that, in Ports & Maritime, Patrick highlighted the great opportunities that we have in Shore Power and automated mooring. Either one of these opportunities individually has more than enough potential to deliver the required growth in our targets. In Airports & Industry, Juergen highlighted the current shift in the airports market towards projects that will improve existing infrastructure, and the customers want more flexible gate configurations to accommodate a wider variety of aircraft at the same gate. We are in a great position to capitalize on that shift with our integrated in-ground solutions and therefore, also to live on our growth aspirations in that market. And finally, looking at Services, Patrick highlighted the journey that we're on. We will increase the proportion of group revenue coming from Services. And because of all the white spots that Patrick showed you on the chart that he had up earlier, a chart that talks about our large installed base, we know our Services business is primed for growth. Because of that, the conclusion is that each of the 3 businesses are in a good position to capitalize on the global trends that are currently driving those markets. And with that, I hand back to you, Mikael.

Thank you very much, Glenn. You have heard us today to talk repeatedly about the mega trends that we see in the market around automation, safety and the environment, and how we are building on those to help customers manage these often competing priorities. Our solutions help and do more with less, while at the same time, protecting their people and equipment and reducing the environmental impact. And this is what we call profitable sustainability. Now being well positioned today does not mean that we are resting on our laurels. We want to invest further in accelerating our organic growth. 2020 is an exceptional year. We all know that. There is a choice for industries to take and businesses to take. You can either scale back and wait and be afraid about what's going to happen or you can go into offensive and say, if this is a year of one step back, then the next years are going to be of many steps forward. And that is the approach that we are taking to invest now to be able to more than overcome and far away from our competitors and will be well positioned in the future. Let me give you a few examples. I am very pleased to announce today that we will open a new innovation center in the beginning of 2021, focusing on profitable sustainability solutions for maritime customers, building on the momentum that we see in the market. This new center will be in charge of research and development activities to bring to maturity breakthrough solutions to help them increase efficiency and productivity while also reducing environmental impact. We're going to gather in one place our capabilities in areas, such as artificial intelligence, remote connectivity, high-speed, high-power charging and battery technology. That's the future. And this innovation center, we decided to locate it in the Netherlands, and the reason for that is that it gives us access to a big maritime cluster, home to many leading shipping lines and port terminal operators. There is also a huge pool of talent there that we want to tap into. In addition to that, in the same location, we are also going to build up a new center of excellence for turnkey solutions with subject matter experts within fields, such as product management, civil engineering, project finance and so on. This is going to strengthen our ability to meet the increasing demand from our customers to deliver complete turnkey solutions, but it will also form the base for a future being able to offer product as a service, which is again a trend that we see in the market. Now we're not going to sit around and wait for an innovation center to innovate and come up with new exciting products. In fact, we have a major product launch coming up in a few weeks' time. So stay tuned for that. Now we're at the end of our presentation, and let me wrap up with a few conclusions. Again, we are well positioned when it comes to global market strengths. We offer profitable sustainability solutions to our customers that will meet these competing challenges that they face of increasing productivity without impacting their environmental footprint, actually trying to reduce that at the same time. We have gone on the offensive. We are investing on our capabilities and products. And finally, we have built a performance culture in this organization where we are able to capitalize on these opportunities. With that, huge thank you for your attention so far today. We have Q&A coming up. I'm going to hand back to you, Johan.

Thank you, Mikael. Okay, that's it. Not really. I think I should look at the notes here. But basically, we are done with the presentation. So this is what we're presenting today. So now we start the Q&A session. And Anna, we have a microphone here in the room. So for anyone who wants to ask the question, please just ask Anna for the microphone. We do also have more than 50 audience online. So for you who are online, we asked you to you -- who are on phone, you can just connect with the operator. And you, who are online with the computer, watching this, please send an e-mail to the address that you will find at the bottom of the page. And I will receive that e-mail here so I can read your questions. So with that, I open up for questions here first in the room.

Karl Bokvist, ABG. So my first question is on the Ports & Maritime, and thank you for the presentation, first of all. But your assessment there on the total potential size of ports that would require Shore Power, what sort of segmentation do you think is needed here in? How you get to the 400? And how many do you think will be in the U.S., in Europe and in Asia, for example?

I think what's -- in terms of segmentation, there are different sizes of ports. Looking at the European regulation coming out about 3,000 ports in Europe that needs to be electrified. Obviously, they range from large cargo ports like the one in Rotterdam to a small regional port in Greece, right? Now what is unique, and Patrick showed you is the wide range of products that we have that can actually provide solutions to all of those markets. We are segmenting the market to where it is -- where we get the most bang for the buck in terms of the sales resources that we put in. Obviously, looking at markets that are driven heavily by regulation right now. We're talking about Europe. Patrick said, we're talking about California, U.S., West Coast rather than the East Coast and so on. That's something that we do with our sales organization.

Yes. That was my follow-up actually because I think, as you mentioned, there are over 1,000 ports in Europe alone. So when you say that sort of bang for buck, is it that some ports are simply not feasible enough for, perhaps, your product strategy in terms of electrifying it?

No, I think it's more about the go-to-market strategy and the cost for go-to-market, the cost for touching all of those opportunities. And that's where we are -- have been, and we are developing a strategy. Anything from cold calling, smaller ports, obviously, personal visits to a large port from the beginning and thereby, seeing where we find interest.

And final question on the ship side of Shore Power. And does the ship required to be dry docked in order for the solution to be installed?

Not with our containerized solution, the one that you saw. Also, if you remember the big green, that's the plug-and-play kind of system. It does not need to be dried out. Obviously, it needs to be import, it helps, so that we can get access to it. But -- and it can take up to a couple of days to do that, but it does not need to be dried dock.

Then I think we should move online. Do we have any questions online from that the operator has received? No? Okay. So no questions online either. So it seems to be a very crystal clear presentation that has to give very few questions. No, we have. Okay.

My name is [indiscernible]. The question relates to your Service business. You talked about the potential in broader terms. My question is, how larger share of your business today is Service business? And what do you think is the potential share of your total? And as a follow-up on that, what would that imply to your profitability?

Do you want to answer that, Patrick, being responsible for the business?

Thank you for that question. So as we have mentioned, the Service business is globally today 20% of the group revenue. And as I showed you on the slide, we are on a journey. So we started really on the pure corrective phase, and we're moving now into a preventive, predictive and proactive phase. So it's a journey. So we expect we can get more, obviously, in group shares, but it's just a matter of time. And it's getting the right strategy and the right actions in place to make sure we can grow.

So a follow-up there on the Service side. I think you mentioned this before, but all of your hardware offering today is that connected or ready to be connected?

Yes. Very, very pleased to say that we're starting to gather data from our equipment. The next step, as I mentioned, is to move towards predictive maintenance, so meaning getting analysis of this data to be able to take actions, concrete maintenance actions towards our equipment. But we are moving forward in connecting our equipment, clearly, and we already have quite a bit of equipment.

Okay, and then a follow-up for me on both port side and the airport side, actually. I think your view on how these markets will develop are, of course, very clear. That's what sort of hurdles do you still see that customers are not yet -- well, passing through or passing by, so to say, in order for the market really to accelerate?

Well, I think as mentioned by Juergen in the Airport side, what is interesting is that we're actually tracking more project opportunities now for decision in the near future than we were at the beginning of the year, which has to do how the market dynamics have changed. Now we should also say to track a project does not mean that it has gone to decision, right. And that is the uncertainty in the market right now around decision time horizon definitely. So we'll see that. But there is a lot of interest. And what we've seen is the market dynamics changing towards, okay, probably not gigantic greenfield projects in the future, how can we adapt what we have to more flexibility, more productivity by increasing the gate efficiency and so on. That's a lot of the conversations that have started up now for us.

So -- okay. It's good. Continue here and then we move online.

Okay. Just as a follow-up on Mikael. You talked about, well, relatively fewer greenfield and more sort of investing in current sort of ports and airports. Do you see this happening sort of on the long horizon? Or is this sort of the COVID situation, just having spook the market or sort of what are...

No. I think, the -- you mean if this change in market dynamics, if that's permanent. Is that your question?

Exactly.

Absolutely, I do think so. And that is natural, actually that there is a harder look at how can we do more with less. How can we do more with what we have, even in area as such because in many parts of the world, airport infrastructure is government owned. It's publicly owned. So they may not have had that kind of productivity pressure before, but that's what we see is changing.

And Johan, if I may, just a quick follow-up on that. Do you see you need to change your overall sort of portfolio being in regards to perhaps smaller, more customized solution rather than the sort of big installations that you've sort of done previously that you need more flexible portfolio?

No, I think what we're seeing is that we actually in a more a better position because of that because you really need to have one, someone who can deliver a system, a system integration and in-ground solution, which has not been the standard in the past. And that's what we've been able to deliver now which can provide that flexibility as you saw on the quote from Frankfurt airport, for example. So better positioned than ever, I would say. Now again, when decisions will happen, we can debate, with the COVID situation, but incredibly well positioned for that change in the market.

Okay, very good. I have a question from Chris Wright from H.C. Capital Advisors. Actually few. So I would read them loud, and then we distribute them. So do you think now that corona has mostly passed with respect to lockdowns -- now that it has passed mostly with respect to lockdowns that you will see your order book rebuild back to the Q4 level of 2019?

It's very hard for me to speculate in how markets are going to open up and when corona will really have been passing and so on. Eventually, as you saw from our presentation, we strongly believe that we are positioned for a growth journey again. If I knew more about how corona would play out, I guess I would be a very rich man or become one.

Yes. And I think you'll answer -- respond yesterday. Do you think it's possible to recreate Q4 '19 profitability with the business? Or was this a one-off?

No. That we have actually announced as a target that we're going to go to that kind of profitability level. We are committed that we're going to come back to that.

And then a question for, I guess, for you, Glenn. Do you expect cash conversion of EBITDA to improve during the second half of this year and during 2021? Of course, that's not a very easy answer to that, but at least, I think it's worth commenting on it.

Okay. There are 2 questions, I think, and that were cash flow this year, rest of this year, cash flow early next year. Actually, the answer to that is a little bit similar to Mikael's. I don't have a looking glass into when recovery comes. But what I can say is that if you look at our first half performance, and also in a few days' time, end of this month, we'll be talking about Q3 performance, but first half performance, we were able to generate profitability, decent margin for the circumstances, down 20% in revenue and cash flow. And the reason for that, I believe, is because we were very well prepared coming into COVID, not because we saw COVID coming, but because we prepared our business and the platform after a long transformation, ready to deliver growth in a sustainable way, meaning that in a consistent and sustainable performance on a quarterly basis. So I think all of those things mean we're in as good a shape as we were pre-COVID to deliver on profit and cash as we were before. So that's my response about the cash flow. I can't say the exact predictions around, again, how the market will perform in the short term, but we're in great shape the way we came into this.

I could ask this last question from online to you, Patrick, but I think we will also look at our CEO, see who answers it. Where do you see aftermarket being as a percentage of total sales by end of 2021, '22? I look at both of you.

I mean, yes, if I may -- if I give you just a start to the answer. Like Patrick pointed out, we are on a journey. We are on a journey with definitely the ambition to grow the Service business because it makes so much sense. We all know that inherently, a Service business if run well is a very profitable business. So that's one of the reasons that it is in our interest to grow it. Secondly, we know that well round Service business drives new business also, new sales, new systems where customers feel that they are supported through the whole life cycle. And also, of course, it is in our interest because it also provides stability in terms of recurring revenue, service contracts and so on. So -- and we are on that journey, and our ambition is to grow that as much as we can as fast as we can. But of course, that it takes also hard work to build out that journey. Would you like to add something?

Yes. I -- Maybe I could also talk about the benefits we bring to our customers. We're focusing on bringing our availability and also extending lifetime of assets. As we mentioned today, a lot of customers are looking at extending some of their asset's life. So I think this is also a very good positioning for this Service division in the coming days.

I think Carl maybe has a question. Yes.

First of all, I think your long-term margin target now is that you would like to reach or exceed 12% in a few years?

Correct.

Well, I think the initial question is, has anything changed recently that will make you more or less optimistic about that target?

If we disregard corona which is but... so no, on the long term -- on medium- to long term, we remain committed to those targets. Now as I said, 21 step back year, right, but we want to get back to that journey towards those targets. Absolutely we're committed to that as a business.

And my second one is also on partnerships because I think when you highlighted the terminal tractors there, for example, there was a lot of -- beyond your dream trucks. How dependent are you on partnerships with one single manufacturer. So for example, do you -- are your technologies somewhat agnostic that you can also connect with Kalmar trucks and PMC cranes?

Yes. This technology developed for this application to port a long bridge was not developed towards a certain manufacturer of a truck. It was a commercial truck that was converted to battery operation, and we believe that, that is going to be a huge part of the market. It would be an enormous cost for port terminals around the world to replace these 40,000. And of course, it's going to happen tomorrow, but even over time. So converting existing port tractor is going to be a huge market for us. And part of also, I want to link this to the Innovation Center and the Center of Excellence in the Netherlands, which is all so about exactly that. About developing this type of plug-and-play approach solutions in the same way that we did for retrofitting ships to be able to take Shore Power. So we have an offering where we can go to these ports and say, leave it to us, we will, together with the right partners, rebuild these trucks for you and convert them.

And final for me is, with your balance sheet, which has improved quite a lot recently. So if you -- you will, of course, invest in that Innovation Center, but are there other options when it comes to capital allocation either to shareholders or inorganic opportunities for growth?

What I can say in terms of access to capital, I'd just like to look at our -- many of our main shareholders represented here today and look at the Board. We've had a very supportive Board in terms of the plans that we have. I don't feel that there is a restriction there if we come with the right business case in terms of what is the best way to raise the capital for that.

So I jump online again and read a question from [indiscernible] from the Fourth AP Fund. His question is, where are you on the productification journey of the MoorMaster? Is it fully modularized? Or do you have to do a whole lot of engineering on every installation? So it's about standardization, basically, how far have we come here? I think this question refers to the history, and I think it's a really crucial question. So maybe if you...

Should I give it a shot? I understand where the question is coming from. Since, I would say, well, it's 3 years now, we have a standard product range within MoorMaster. So it is not a tailored solution every time, which -- that was in the past. And I think that, again, has contributing to us going into that next phase of the adaptation curve that you saw in the presentation with a wider adaptation of automatic mooring because there is a standard offering of units. So yes, we've come a long, long, long way there.

Okay. Do we have more questions in the room? Nothing on the telephone and no more e-mails to me here. So I think that we will with that conclude this day, would you like to say any -- final words, not last words, I hope, but final words.

I hope it's not last word, definitely. No, what I would like to say, first again, thank you for giving us your attention today. I would really encourage everyone in the room and on the web to keep following us. I hope that we gave you some exciting news and insights today. They will keep coming. So stay tuned. There is a lot of exciting stuff happening. As I said, we're going on the offensive. We've decided we are not going to hold back and be afraid about what's to happen. We're going on the offensive. We have a window now to really capitalize on the momentum and the position that we have and get in front of the competition, get in front of this market and be ready when it turns. Because turn, it will. And when it turns, it will turn even more towards what we talked about here. Solutions that provide increased productivity and reduced environmental footprint at the same time. Profitable sustainability, it's what we're all about. So stay tuned. Thank you.