Cavotec Group AB (CCC) Earnings Call Transcript & Summary

Welcome to Cavotec Q4 Report 2024. [Operator Instructions] Now I will hand the conference over to CEO, David Pagels; and CFO, Joakim Wahlquist. Please go ahead.

Good morning, and welcome to Cavotec's fourth quarter presentation. I'm David Pagels, the CEO of Cavotec, and I'm here together today as normal together with my CFO, Joakim Wahlquist. Let me start with a short introduction to Cavotec. This year, we are celebrating an important milestone. It is now 50 years since Cavotec was founded, and these years has been characterized by innovation and building long-term customer relationship worldwide. We are specialized in developing, designing and delivering electrification and automation solutions to different industrial solutions. We are offering, we are target -- with our offering, we are targeting a number of industries, and the ports and maritime sector has developed as the largest customer segment today. Our business is characterized by long customer relationship, and over the years we have built a large installed base worldwide. This large installed base today gives us great opportunity to grow our service business going forward. In the service segment, we have a broad offering covering everything from service, installations, maintenance and system integration. During 2024, we have increased our resources in services -- in service field by recruiting new skilled service engineers across the globe. With more resources, we build a solid ground for further expansion in this field. We operate across the world. And last year, 50% of our revenue was generated by European customers, 40% from the Asian -- Asia Pacific region. America represents the rest, approximately 10%. In 2024, we made our first installation of automated mooring systems in Chile in South America. So there is a clear potential for us also to grow in that region. Let's turn to the next slide and remind you about our megatrends that drives our exciting market. The megatrend that drive our markets are the urgent need to reduce greenhouse gases and also noise in critical infrastructures such as ports, container terminals and onboard vessels. Noise as an environmental problem is not maybe the -- maybe in everyone's focus, but it's actually a growing area of interest and concerns for ports and other areas such as the heavy-duty vehicles. Research show that noise has a negative impact on health and therefore becoming more and more a driver of our business since our solutions also support the reduction of noise in different industrial applications and heavy-duty vehicles. A key driver for our business is the fact that these megatrends are supported by international and local regulation that enforces operators of ports, terminals, vessels and other industrial operators to reduce emissions, pollution and noise. We operate within market segments that are critical to society and there -- and where our solutions are needed to lower emissions and create a better environment. Cavotec plays a significant role with our solutions and leading technologies that are proven, reliable, efficient and safe and, therefore, perfectly suited to meet our customer requirements. Let me short you -- shortly present our 2 business segments. First, Ports & Maritime has a world-leading solution for ports, ships and other marine applications. We have unique systems, for example, automatic mooring, shore power, crane electrification and connection and charging system, significantly improving our -- the environment in ports worldwide. Customers include, of course, in this case, shipowners, operators, ports and terminals, port equipment manufacturer and shipyards. Ports & Maritime is our largest segment and stand for the majority of the group sales and EBIT as of today. However, we also have the industrial solutions that drive productivity and contribute to customers' operational efficiency, electrification as well as occupational health and safety. The products for the industry segments include motorized cable and host reels, radio remote controls, power connectors, spring driven cable and hose reels. Customers in a wide variety of industrial sectors such as cranes, energy, processing, transportation, surface and underground mining and tunneling. Service is, as I already mentioned, an integrated part of our business segment. So over to some recent business wins. As you've probably already seen, we reported a strong order intake of 51% up in the quarter. This development is, to a large extent, driven by strong demand for shore power solutions in Europe and the need to reduce the negative climate impact of shipping. As you probably also noticed, we have recently announced a shore power contract with a total value of EUR 17.5 million. You should, however, note that this contract was signed at the end of 2024 and is included in our order intake for the fourth quarter, even though we announced the contract in early 2025. These contracts include 5 Mediterranean ports, of which where -- which 3 in Italy, with a combined order value of EUR 13.5 million and a global shipping company with a contract worth EUR 4 million. All these orders are to be delivered over the next 2 years. The order we signed for automated mooring system in Port of Dublin is also a milestone to us since it's the first installation in Ireland and will serve as a benchmark for suitable port operations in the region. For the Industry sector, we also announced an order with Qwello who is managing charging solution for electrical vehicles across Europe. The order encompasses 1,000 spring cable reels for Qwello charging stations. This is yet another sign of our business is driven with the need to reduce emissions and increase the electrification. I must say I'm quite happy to show you this graph. As you can see, we have succeeded in our transformation of Cavotec, and we are steadily improving our performance. Having that said, we are not done with our change programs. It's an ongoing story. We still have a lot to do in order to improve our processes and performances. The change programs we implemented 2 years ago are still ongoing across the group. Ports & Maritime was the first out with the implementation of this, and there we see now the result. And now Industry segment followed just recently in 2024. Thanks to our improved profitability, we have been able to focus a lot more on product development in 2024. We have open and close cooperation with customer developed new products that are in the pipeline to be launched this year. I'm excited about the products we will present and launch during the coming year. As you have seen, we have appointed 2 new members in the Cavotec management team: Nicklas Vedin as the Head of Port & Maritime; and Jonathan Eriksson as the Head of the Industry Division. Full focus on sales for those 2 guys. Patrick Mares, previously Head of Ports & Maritime, has been appointed as the new CTO and Head of Product Development. Already a year ago, Jorgen Ohlsson was appointed as Head of Global Operations, and Patrick Baudin will continue his good work on the service field. With these changes, we have an organization with clear responsibilities across the group, which will improve our efficiency and resource allocation and make it possible for us to take advantages of the synergy effects. I'm convinced that with the new structure and responsibility together with high energy in the management team, we have a solid foundation to continue the growth. Just some numbers before I hand over to you, Joakim, to give you a little bit more detail in the figures. As already said, we had a strong order intake in the quarter of 51%. And as you know, we have started to review the order backlog in 2023 to secure a high profitability going forward. This work completed, and it's good to see that we have a quarter now with an increased order backlog again. Done with the cleaning, and we can now move on with a healthier order backlog. The adjusted EBIT margin continued stable improvement, and the bottom line really reported a quite substantial improvement from EUR 0.2 million to EUR 3.8 million. So with this short introduction, I hand over to Joakim to walk us through the numbers a little bit more in detail.

Thank you, David. We start with the revenue, and we have seen a stable improvement during the year of 2024, even though we -- in the quarter is down 15% versus a very exceptional strong quarter in Q4 2023. Revenue for the full year was down some 3.2%, which is largely a result of our more stringent order intake process where we have focused much more on profitable orders. When looking at this graph, I want to stress, which I've done many times before, that we are to a large extent a project-driven company, which means that we cannot rule out that fluctuations between the quarter will happen on our revenue. So move on to the order intake. The graph at the top of the slide really shows a good order intake. We reported here in Q4 an order intake up more than 50% from the same period last year. It's a very busy quarter. We also see here, the order intake is up 13% during 2024 compared to 2023, which is also good news. This is driven by a very good demand for our shore power solutions, but also an increased demand for our service offerings. The graph at the bottom of the slide also demonstrates that this higher order intake have generated an increase in the order backlog. I would say now that we are mostly done with what maybe here called the cleanup exercise of the backlog, and we now feel comfortable with the margins that we have in the order backlog. And we are now ready to slowly, but surely press the gas pedal little bit more on the order intake. So let us move on to profitability. As David has said, we have over the past 2 years made significant progress in improving our profitability. I think this development is a clear result of the change programs that we have executed throughout the company. EBIT did slightly decrease in the quarter versus 2023, but I think the big story here is really 2024 versus 2023 where we have done an improvement of over 50% in EBIT. We have chosen also to prove -- to show the cost of our investigation of a potential move of our registered office from Switzerland to Sweden as a nonrecurring cost. We will also continue to report these costs separately as nonrecurring. I also want to underline one more time that we are happy, but not satisfied with our profitability, and we are in no way finished with the transformation of Cavotec. We have a lot more initiatives and improvement activities on our to-do list, which will continue to further improve the value creation. Let's move on to net profit and earnings per share. As you can see also the net profit improved in the quarter compared to the previous quarter in 2024. We can see that for 2024, we have made a significant improvement in both net profits and earning per share from a very small net profit in 2023 of EUR 0.2 million to EUR 3.8 million now in 2024. Let us have a look also on the cash flow. As you can see from the chart, we had quite substantial fluctuation in operating cash flow over the year. This is really due to the project nature of our business and the completions of our projects and customer payments. If we look at the full year, the cash flow has improved quite significantly to EUR 6.2 million from the EUR 1.9 million in 2023. This is of course satisfying, and we're beginning to really see the effects of all the work that is being done, but we will continue to focus of course on the cash flow and working capital also in 2025. Now we turn to the P&M, Ports & Maritime, segment. And as you can see, Ports & Maritime have demonstrated a very stable improved performance over the past quarters. One should remember though that especially the Ports & Maritime business is, to a large extent, a project business and it can fluctuate quite a bit between the quarters. Profitability has improved nicely since we initiated the change programs and should be looked at really over the full year 2024 to get a better picture. The good order intake in the fourth quarter, as David has mentioned earlier, shows that we have a continued strong demand for our solution, and it's also a testament of our continued competitiveness in the Ports & Maritime segment. So let us move over to the Industry segment. The acceleration of the change programs in the Industry segment started in 2024 when David and Jonathan Eriksson took over the division, and there's now a number of activities ongoing on improving internal processes, enhancing the products and our service offering and strengthening the sales force. Our target is of course to do the same journey as we have done with the Ports & Maritime segment, and I feel confident now that we are on the right track with this work. By this, I want to hand the presentation back to David.

Thank you, Joakim. Let me briefly summarize our key strategic priorities. We are -- as Joakim said, we're not done with the execution of the change program, but we are well way on the journey. We have continuous group-wide initiatives going on. And in addition, we have a strong focus on the Industry segment where we clearly want to see the same development as we have done on Ports & Maritime. Among the group-wide initiatives are improvements of sourcing and supply chain where we identified a number of areas where we have taken action or intend to take action short term. We have an exciting pipeline of new products that will be presented and launched during the year, which we believe will be -- will strengthen our competitiveness. And we have started during 2024 with our extended service offering, which has proven to be a rewarding strategic decision, and we see that there is a good potential for us to managing our installed base globally and harvest on that. The good thing with the installed base is also that it's growing every month, every quarter, every year. And finally, as Joakim said, cash flow and working capital continue to be the key focus for us also in 2025. So let me just quickly summarize some of the key points about Cavotec before we open up to questions. We see a good robust underlying market demand, which our recent announced orders clearly demonstrate. We have, by the latest changes in the Cavotec management team, created an energetic experienced team and an efficient organization, which is the foundation for our continued success. Our steadily improved profitability shows that we have made the right strategic priorities, and the company is now set and ready for an exciting journey ahead of us. And finally, we have an attractive offering, which perfectly match the needs for the society to transition to zero emissions and a more sustainable world. By this, we have come to an end of our presentation, and we welcome questions over the phone or by mail or through the webcast.

[Operator Instructions] The next question comes from Lara Mohtadi from ABG Sundal Collier.

Lara here from ABG. Firstly, it's very promising to see that you had a strong order intake in the quarter. And as you mentioned, Q4 is usually a stronger quarter for Cavotec and that Cavotec is also an order-driven business. So we should see some variations between quarters basically. But what can we expect in terms of orders going forward? And my question is, how should we look at this high order intake level from here?

Thank you, Lara, for the question there. What I see is that we had a 2024 which finished very strong in the quarter and, as you say, normal for us, but at the same time a little bit abnormal because it was really a good uptick there. At the same time, there is a lot of those trends that is supported by regulations. And in many cases, customers want to be seen as green, they want to do the right things. And therefore, they really want to rapidly move over to shore power solutions, et cetera, in order to do their part of the journey that the global world has ahead of it. We see -- we had a strong order intake for the power moves and the shore applications in Italy in the quarter. We see now the same trend continues in Italy and then also going to be spreading out along the coast of Europe and also see other countries to follow in the same pattern there. So we believe that the high intensity on the market and the high demand for our product and our solutions in the market will continue over the quarters and years to come.

Okay. Very clear. And you just mentioned that you've seen a good momentum in the power -- in the shore power side. But what can we expect in terms of order momentum in the industry side? Although the Industry orders were up year-on-year, they were sort of flattish sequentially. So could you maybe talk a little bit about what you're seeing on the demand side on the Industry segment.

On the Industry segment, as Joakim mentioned before, I took over -- together with Jonathan Eriksson, we took over the Industry segment during 2024. We have done a lot of activities there in order to engage the team and make sure we have the right people in front of the customers, that we have the right sales tools, that we have the right tools in the toolbox, so to say. And therefore, we see a completely upgraded momentum in the sales activities also on the Industry side. In addition to that, we're also launching a number of new products. Some will be launched in Bauma exhibition in April, and some others to follow through the year, which will then also complement and broaden our offering for the solutions for our customers there. So I'm positive to the Industry segment development. I'm very excited to see what we can do with it with efforts. Again, you don't change things overnight, but I think we have had a good part of 2024 to mobilize. And we are ready, though, and I'm confident 2025 will be the year when we do the same trend change as we've done -- as we've seen on Ports & Maritime. That's going to happen on the Industry side.

Yes. That was great. Very clear. And I just had one on your geographical sales split. The majority of your sales is currently in Europe and Asia, but you have some 10% in the U.S., too. How do you see the growth potential in the U.S.? And what are you seeing on the demand side, particularly in the U.S.?

We see the U.S. market, and we all -- I think we all little bit reading the news day by day in terms of tariffs and tolls, and it's a little bit changing in -- the scene is changing a little bit around the world. That's clear. We still think that U.S. has good underlying strong market demand. We are of course looking into how can we solve them, how can we serve the U.S. market also by being local in order to avoid potential things that might be set up. So I see a positive trend also in U.S., and we are already well set up to meet that. On the radio side, we have a lot of activities going on also in the U.S. where we see that. And also on the Ports & Maritime side, we have also interesting prospects in the order intake pipeline that gives us a good and positive outlook to U.S. over 2025.

[Operator Instructions] There are no more phone questions at this time, so I hand the conference back to the speakers for any written questions and closing comments.

Okay. I was a little bit quicker than the moderator there. Sorry for that. We have a question here on the written questions from [ Johan Ambler ]. Congratulations to the results and the way forward. Did any business orders get rolled out -- rolled over from Q4 to 2025? Yes. We have to some degree, not the majority or anything. But of course, we have always, as Joakim explained before, we are in the project business, and sometimes orders are slipping in from 1 quarter to -- over to another quarter and from 1 year to another year. But we didn't have any extraordinary. We had just a normal pattern that we normally see, and that is also what we are planning for. With the cash flow and debt levels through our transformation work much improved, does the company consider needing an acquisition to complement the portfolio to further grow top line and profitability and to a further improved role as a system integrator? What we have done there, and that is not a secret, but we have used the last 2 years in order to do the change programs, to shape up things, to clean up so that we have now a healthier order backlog. And we have -- and also as you can see as a result of that, we have completely different degrees of freedom when it comes to our financial figures. And of course, we have -- we will look into mergers and acquisition opportunities. We haven't really had the bandwidth before, and we didn't really have the freedom due to our performance if you look back to 2022. But definitely in 2025 and onwards, we have now dedicated resources, which is looking into strategy and M&A. And of course, this is something which we are looking into, and I see there is the possibilities. There is a lot of possibilities for us as a company to grow both organically, but also then through acquisitions. So clearly, it's something which we are now paying much more attention to and are involved in. Are you disclosing or setting targets for service port -- service portion as a part of the business internally going forward? We -- as many companies, we see service as an integrated part of our maritime as well as the industry, and we want to keep it that way because it's the same customer and it's the same products that we are then servicing in the field. So we will continue to report the service business into the 2 divisions. We see a growing opportunity to intensify that within especially Industry. And as I mentioned before, the more we grow our installed base, the more room we have to also harvest on the service field. But it will be a part -- it will be an integrated part of the -- with all the 2 main divisions. And here comes a question for you, Joakim. Are the total cost for the company move to Sweden estimated to exceed EUR 0.2 million reported? And will those go -- and will those then be taken in Q1?

Right now, we're still in the evaluation phase. So of course, there will be some cost connected with a positive decision. But right now, we're not disclosing any specific numbers around this. We're still evaluating the situation. And -- but we will continue to report it as recurring -- nonrecurring given the fact that we would take a positive decision around this and actually go ahead with the move.

Okay. And then we have another question here from Johan. Then finally, given the relative growth and the momentum in the U.S., has Cavotec increased its personnel and sales service staff levels to increase the large potential to exceed the 10% in the U.S.? And the answer is clearly yes. We see U.S. as a market where we can grow significantly, and we have added salespeople. We have added people -- sales support engineers, et cetera, in U.S., and that we will continue to do in U.S. as in all other areas where we see the opportunity to grow the business.

We have 1 last question here also. Port of Dublin signed an order for automated mooring. What development do you foresee in this part of Europe? Can we expect other ports to follow?

Port of -- as you know, in the -- when it comes to the automated mooring system, our MoorMaster is the market-leading solution there. And therefore, of course, we -- as was mentioned, last year, we integrated that the -- in San Antonio and Chile. And now we have this, again, a big installation going on -- coming up now for Port of Dublin. Port of Dublin is an important customer, and we have seen when we have those MoorMaster installation, it drives a lot of attention from other customers to come and visit. And we have had a lot of customer visits to our existing MoorMaster installation. But the closer we can show how well this technology really works and how satisfied the customers are, of course, the easier it will be to also convince other customers. It's a little bit of a conservative business. But at the same time, it's -- with so many installations we have now worldwide, I'm confident that also the Port of Dublin will be a good reference. And also it will be a good marketing potential for our MoorMaster solutions.

I think that was the final question that we had here in the feed. If no other questions, then I believe we are ready for today.

We want to thank you all for listening in, and I'm really excited to take Cavotec during 2025 to the next level. I think we are in a good position for it. It will be a lot focus on what we can do in order to satisfy customers and increase our offering. And then we have really an exciting year ahead of us, Joakim, that's much clear.

Yes, I'm looking forward to it.

Thank you very much for listening.