Cavotec Group AB (CCC) Earnings Call Transcript & Summary

Cavotec Q1 Report 2025. [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 first quarter presentation. I'm David Pagels. I'm the CEO of Cavotec. And together with me today, I have, as usual, Joakim Wahlquist, Cavotec's CFO. Let me, as usual, start with a short introduction of Cavotec. This year, we are celebrating our 50 years anniversary. I think that the key takeaway from our long history is our ability to innovate and to adapt to changing market conditions. Not least in these times when we are living in an uncertain world with many rumors, speculations and changes and unclear messages, this is an important ability. Cavotec is specialized in developing, designing and delivering electrification and automation solutions to different industrial applications. With our offering, we target a number of industries. And over the past years, the Ports & Maritime sector has developed our strongest customer segment. We contribute to reducing emissions in and among other places, ports, while our solutions also help to lower noise levels. As you know, we report 2 business segments. Our service offering is reported into those 2 business segments, Ports and Maritime as well as Industry. Ports & Maritime provides world-leading solutions for ports, ships and other marine applications. We have a unique system, for example, automated mooring, shore power, crane electrification and connection as well as charging systems. All these solutions contribute significantly to improved environmental and efficiency in ports worldwide. Our customers include shipowners and operators, ports and terminals, port equipment manufacturers as well as shipyards. Ports & Maritime is our largest segment and represents a majority of our group's sales and EBITDA. However, we also have the industry segment with its unique selling points and its ability to drive productivity and contribute to the customers' operational efficiency, electrification as well as occupational health and safety. The products on the industrial segment includes motorized cable reels, host reels, radio remote controls, power connectors and spring-driven cable reels. We have customers in a wide variety of industry sectors such as cranes, energy, processing and transportation, surface and underground mining and tunneling. It's a big growth potential in this huge segment, as you all can understand. Services, as mentioned before, is already an integrated part of our business segments. We have service engineers across the globe. They work either from our service centers or are based at our customers' premises. The service offering encompasses system integration, maintenance, sale of spare parts, inspections, refurbishment as well as round-the-clock service agreements. As also mentioned before, we have agreements with customers where we operate our delivered machines on their behalf 24/7. The megatrends that drive our market are the huge need -- urgent need to reduce greenhouse gases and also noise in critical infrastructure such as port, container terminals and onboard vessels. Noise as an environmental problem is maybe not in everyone's focus, but it's actually a growing area of interest as many cruise terminals are located very central in cities and therefore, an issue that needs to be taken care of. Research shows that noise has a negative impact on health, and it's therefore becoming more and more of a driver to our business since our solutions are silent and also reduce the noise in different industrial applications as well as heavy-duty vehicles. A key driver for our business is the fact that these megatrends are supported by international local regulations that enforces operators of ports, terminals and vessels and other industrial operations to reduce emissions and noise. We operate within market segments that are critical to society and where our solutions are needed to lower emissions and to create a better environment. Cavotec plays a significant role here with our solutions and leading technologies that are proven, reliable, efficient and safe and therefore, perfectly suited to meet our customers' requirements. Regardless who is empowering in certain countries in certain mandate period, the long-term trend is clear. Everyone wants to be seen and need to be as green as possible going forward. Our business is characterized by long-term customer relationship. And over our 50 years, we have built a large installed base worldwide, which is also growing year-by-year. This large installed base gives us a good opportunity to grow our service business going forward. In the Service segment, we have a broad offering, covering everything from service installation, maintenance and system integration as well, as I mentioned before, even operating our machines for our customers. Service is, of course, increasingly important if customer wants -- should be more hesitant with the investments. Should we see that, we know that the demand for service like spare parts, maintenance will have a balancing effect. This quarter reflects -- it's a typical first quarter for Cavotec, but it really reflects that we have a project-driven business where the revenue and earnings may fluctuate between the quarters, depending on which project we invoice and when. As you may recall, we began 2025 by announcing several large European shore power orders signed at the end of 2024. These orders had a total value of [ EUR 7.5 million ] and include deliveries to ports in the Mediterranean and global shipping companies. When evaluating the order intake in the first quarter, I think it's fair to view the strong order intake that we also had in Q4 last year. The revenue development is related to Ports & Maritime in the same quarter in '24 recorded significant revenue from deliveries to offshore power system, which we do not really see at the same time in this quarter. But again, it's a normal first quarter for Cavotec. It is, of course, encouraging to see that the cash flow development and the strengthening of our financial position. We have a strong focus throughout the organization on cash flow and working capital, which is now showing clearly in the numbers. Joakim will give you more details about the financials in a few minutes, but I want to mention a couple of other things first. So before hand over to Joakim, I would like to say a few words about our new products that we launched in the quarter. They were both launched at the big trade fair -- industry fair, Bauma in Munich early in April, and I'm thrilled to see the interest that the customers showed during this event. First of all, a new generation of radio remotes in a modular housing, which makes it easy to customize in a flexible way to adapt into customer-specific needs. This will also come in an explosion EX version -- explosion safe version very soon. And this is really something that was well received in the market during the exhibition. In addition to that one, we also have the MCS manual dispenser for up to 4.5 megawatts, also shown at the Bauma in Munich. This dispenser with including cooling units because it needs to be cooled cables and connector due to the power will, serve customers for both Ports & Maritime as well as within the industry segment. So now over to a little bit of what's going on in the world right now and our situation versus potential trade tariffs. We operate across the world and last year, about 50% of our revenue was generated by European customers and 40% from the Asia Pacific region. Approximately 10% of our revenue is generated in North America, of which the majority is in U.S. So less than 10% of our revenue is generated by business in the U.S. However, most of those revenues relate to service offering, which is local offering provided by a local guy in a local service organization. As I mentioned before, we have people operating the machines on the behalf of our customers. And of course, there are local guys in U.S. who is doing that. So our exposure to potential trade tariffs in the U.S. versus Europe is quite low. And since we run in an operation where we assemble our products, we can quickly and relatively easy start production in the U.S. of volumes if needed. As you know, we have started production in India last year, which was a quick and cost-efficient action. And therefore, I see no problem if we should repeat the same thing also for U.S. So now I hand over to Joakim to comment the financials a little bit more in detail.

Thank you, David. We start with the order intake, and David has already said a few words about it. But when looking at the order intake, we need to have in mind that we really are in a project-oriented business. And also, which David mentioned shortly, we had a very hectic Q4. We had -- we announced early '25 that we late in 2024 closed shore power orders worth EUR 17.5 million for a number of Mediterranean ports and a global shipping company. But also in addition to that, we signed late in '24 and announced early '25 an order for an automated mooring system for Port of Dublin and an order for Qwello for 1,000 spring cable wheels for electric vehicle charging stations across Europe. That was orders amounting to almost EUR 5 million. So we had a very hectic Q4. And when it comes now to order intake in Q1, that's a little bit slower because some of the orders shifted between the quarters. We continue to have, though, a very solid backlog of EUR 116 million as of now. And we also feel very comfortable with the profitability -- that we have control of the profitability in that order backlog. We continue to revenue. Revenue decreased with 9.8% in the quarter versus last year. And this decrease in revenue relates mostly to Ports & Maritime as we are comparing with a quarter in '24 where we were -- had some significant deliveries of Shore Power Solutions. And we still feel though that the business here is fundamentally strong, and there's a solid demand and the development is mainly reflecting how the business is project-driven and fluctuates between the quarters. Let's go to EBIT. And as a consequence then of the lower revenues in Ports and Maritime in the quarter, we also saw a decrease in the EBIT. On a positive note, though, the industry contributed to -- positively to the development, thanks to the margin-enhancing measures we implemented all during last year, and that's very nice to see. In the previous quarter also, we started to adjust for the nonrecurring costs related to the investigation of a potential relocation of the registered office from Switzerland to Sweden. Then we move over to net profit. It's, of course, not satisfying to see how our nice and smooth development was a bit broken this quarter. Having said that, we still had a positive net profit in the quarter for the seventh quarter in a row, and we continue to strengthen our financial position. And I just want to stress again that this really do reflects the character of our business. As you understand, I'm much happier to show you this graph. We had a strong operating cash flow in the quarter, EUR 5.4 million, which is significantly better than the same quarter last year, but also can be compared to the operating cash flow for the full year of '24, which was EUR 6.2 million. So very good development or a very good start of the year cash flow-wise. And this is really a result of the increased focus on cash flow and working capital throughout the organization. And consequently, also our financial position has been further strengthened, and we continue to reduce the net debt in the quarter and also improve the leverage ratio. So moving over to Ports & Maritime. The Ports & Maritime segment had a slow quarter, especially compared to Q1 last year. We have said it a couple of times now already, but with the risk of repeating myself, Ports & Maritime is especially a project-driven business, and we have an installed capacity also for a higher volume. So this impacts the profitability in a low quarter like this. But we still have a fundamentally strong business here with a solid demand and the customers are still very active in the Ports & Maritime segment. So Nicklas Vedin and his team, they are still very busy catering to the requests from customers. So moving over to industry. I'm also pleased to show you this graph. We have been talking about the efforts we've been putting into industry now for some time. And last year, we had a number of profitability enhancing or margin-enhancing measures that we implemented during the year. And it's now really satisfying to see that these measures are starting to take effect. And I feel that Jonathan Eriksson and his team in the industry segment here is having a very good momentum. So very nice to see the development in the industry. And this is an area also that, as David said earlier on here, there's a lot of potential in the industry segment for Cavotec. Industry also has a more stable revenue development, which is reflecting the character of this business with a bit smaller and more recurring orders. And with those few words, I want to continue to hand back to David to sum up a bit our presentation before we take the Q&A.

Thank you very much, Joakim, for that. So let me just quickly summarize some key points before we open up for questions. First of all, we target markets which are driven by the need to electrify the society and to reduce noise levels in environment such as ports. This is also reinforced by the fact that our customers are facing regulations that require them to reduce the emissions and to electrify their applications. For us, this creates a good opportunity since we're offering leading technology and have built a strong market reputation and a position over our 50 years as a key supplier to our customers. Another important business driver is, of course, the large installed base worldwide, which continues to grow and provides us with an untapped potential for service offering. Secondly, we have an attractive offering, and we are further strengthening. We're putting more efforts into new product launches. We have done that last year. We continue this year. And we have recently launched the next generation of the radio remotes as well as the MCS manual dispense as I showed you earlier. And we have more products in the pipeline to be launched during 2025. And finally, in January, we appointed the new heads for Ports & Maritime, Industry and also product development. By this, we have now a new organization in place, which makes us more agile and makes it easier for us to find synergies and efficient way of driving our business. When I meet with colleagues in the organization, I'm thrilled by the energy and enthusiasm along with a strong customer focus and goal and mindset of exceeding our expectations and goals. By this, we have come to the end of our presentation, and we open up for questions over the phone or by mail through the webcast.

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

Lara here from ABG. Just a couple of questions from my end. My first one is a little on the Ports & Maritime segment, which reported lower-than-expected results. But beyond the project timing, which you just stressed in your presentation, would you say that there are any shifts in the underlying market demand or competitive pressures impacting this segment?

First of all. And we -- the long-term trends, we don't see any change in demand. And we -- it's a very active market at the moment. So our sales guys in the Ports & Maritime segment are having their hands full with handling our customer requests. But of course, it is a bit of a turbulence in the markets now. So some investment decisions might take a little bit longer time. And that on top of the fact that we are a project-driven business is something that we're seeing a result of here in Q1.

Very clear. And -- you obviously touched a little bit on the order intake in the presentation. But if you could just elaborate a little more on the trends you're seeing in the pipeline for the rest of the year for both Ports & Maritime and Industry?

Yes. We have no -- we have not revised any of our projections for the year. So we are still looking forward in a positive manner. Then, of course, we need to keep an eye on the economic development in general. But all in all, we're looking forward to 2025 with positive view on the order intake.

Great. And it was promising to see that the Industry segment showed some improved results in both in terms of revenue and margins. Could you just please elaborate a little on the specific margin-enhancing measures that have been implemented and their expected continued impact throughout the year?

I'll leave that one to David.

I can say, I think if you look historically on Cavotec, we've been quite a lot of Port Maritime and then before we divested the Airport business, it was Airport and Industry. Now when Airport business is successfully out from Cavotec. We have more focus on the Industry segment, and we have a lot of a big wide range of products inside the industry sector, which we have really, really optimistic opinions about where we can grow the market. It's a huge market with a wide range of products, et cetera. And therefore, I'm very, very optimistic about what we can achieve there. And especially Bauma, as I mentioned 2 weeks ago, it was a massive exhibition, and there is so much potential everywhere and so much interest there. So definitely, I'm optimistic there. What we have done on the Industry segment is, of course, though, as a result on focus on bringing down the cost of our equipment to make our equipment more cost effective, to make them more competitive. At the same time, also working in cooperation with the customers to see what -- to early discuss what are their needs. in order to really achieve a win-win-win, win for us, win for them and win for their end customers. And that is now what we see starting to generate results. And especially if you look at the radio that I just mentioned that we launched, that was prelaunched and was pre-discussed with customer. So we have some 3D printed versions earlier to discuss with customers in order to get their feedback and inputs in what do they need, what are the features that they would like to see in our equipment. And then we use that. So we have more or less worked and developed that together with the customers. And that is really the way I see Cavotec being even -- to make even more going forward because it's really when we are creating something for the future together with our customers, then we will create this successful win-win-win as we all want to have, of course. So it's a long list of various activities that leads to that we are able to improve the margins across the Industry segment in general.

Now we have also, during the year and continued in this year, strengthen -- further strengthened the sales organization, which I think is also a success factor in the Industry segment.

Great. Very clear. And you just talked about your next-generation radio remote controls. What would you say your initial customer feedback has been? And what is the expected time line for these new products to materially contribute to your earnings and revenue? And you also mentioned that you are going to launch additional products in 2025. how do you see this contributing to your demand?

We'll come first to the radio there. First of all, very positive feedback from customers. We have had one of our more sophisticated radio remotes with the joystick solutions that has been with customers for many, many years. And this new version is built in a modular way, meaning we can easily adapt it and customize it to the customer needs, meaning for certain category we'll even branded with their logos on it in addition to our own logo and therefore, also with their needs, what do they want to see in their screens and so on and so forth on the radio remotes. But again, built up in a modular way, so we have a standard housing and then you can easily adapt the layout of whatever buttons and joysticks and screens that you want to have there. Very well received by customers. And as I said, discuss with customers what do they want to see. So of course, it's not a big surprise to them when all of a sudden they see in reality what they have asked for and then that could be shown there. So very positive, very optimistic there. And again, it will also be then in an EX version later this year, which is then explosion safe for those environments, which is also something that is a strong demand in the market. In addition to that, we are also launching more products as you indicated there. For Maritime sector, they will launch throughout the year. And even with those, we have done in a similar way, we have listened to the customer. We work together with the customer in order to see their needs and built in their requirements into what we are offering here. And of course, when we launch a product, it's going to take a few -- some time before we have them up and running. But so far, very well received, and I'm sure they will be -- play a big portion of our future business and revenue going forward. When the timing between launching something and actually turns up in revenue, of course, it's a lead time and getting it launched and it needs to be sold to the customer. So it's a natural lead time there, of course. But we will see effects of that throughout beginning of -- towards the end of '25.

Okay. We have some questions here in the chat. We start with the first one here. Can you please give us some color on the trends in the business in Cavotec in Q2? And I can start with that we -- for both Ports & Maritime Industry. We're not going to do a prediction here for a specific quarter in this call. But what we can say, which we repeat what I said here during our earlier questions from Lara, is that we have not changed our outlook for the full year of 2025. We have a next one here also that how is the service business developing in Europe, Asia and U.S., respectively? And David, maybe you can take that one.

I can say there that the service business is developing well, and it's a little bit of a boring answer and maybe say that it's growing equally well in all regions. There is more potential. We have our installed base, which is growing in all regions. And I can maybe then say there when it comes to the service business in U.S., which is also growing. But in U.S., it's growing more that we have our guys, our people, our field service technicians on the ground working there. So it's more of a labor concept rather than actually exporting in things to them. So that takes away a little bit of the concern around the trading terms, potentially what's going to happen there. But apart from that, I think the service offering in Europe is growing. The service offering in APAC is also growing. And there, we are also working on, as I mentioned before, on our ports maritime applications, we have equipment for new vessels, but we have also equipment that is equipped on the already existing vessels where we are installing our equipment on existing ships and upgrading them to the shore power solutions as well. It's more complex. Sometimes we can do it while doing sailing and sometimes we do them during dry dock. But it's a big fleet of vessels in the market, which needs upgrading to this shore power solutions. And that is, of course, a very interesting and attractive market for us.

Okay. We move on to the next question here. The new remote control and the new CMS dispenser, what do you feel the market size are for these products? And when will you be able to start to log sales in these 2 new products?

I think start logging sales on the radio mode with go quicker. It's not such a -- it's an easy product because it replaces something that we have or add something in addition to what we have already offering. The manual dispenser is a little bit more of a -- it's a new market with the whole electrification with a Level 3 charging is new for everyone. There's a strong interest from a lot of the mining companies, from a lot of the mining equipment manufacturers. But of course, the whole electrification takes some time, and it goes -- it's quite -- it takes some time before we're actually seeing bigger volumes. But that is natural that the whole electrification in this area since it is very high power charging levels, it takes some time before we have the equipment. They don't really want to buy manual dispenses before they even have electric trucks. So it goes a little bit hand-in-hand with the overall market trend development. But there is a clear interest and a strong interest in these markets.

Okay. Good. We have another question here. The financial position continues to improve. How does that affect your financing costs and your ability to invest in growth initiatives as new products? I mean this is a question for both David and I here. Starting with the financial position and how that affects our financing costs. We have, as you can have seen during 2024, reduced our financing costs significantly versus the year before as our financial position has improved, and we continue to see that trend also in 2025. So -- and of course, like David said also is that we this gives us an opportunity to invest more in our R&D. We had a number of new product launches and improvement of all products during 2024, and we have a very hectic schedule of new product launches this year. So it's very exciting times for Cavotec when it comes to launching new and exciting products with good market potential. Okay. We have also another question here. I think that the cash flow was very strong. Why was that? And do we expect continued improvement in cash flow? I think you shouldn't extrapolate any one quarter in Cavotec when it comes to cash flow because we are a project-driven business. So big deals closed with big prepayments or big part of projects finished where we get big payments for a specific percentage of completion invoice can affect one quarter up or down. And also the same thing with our -- if we are prepping for a specific big project with big equipment, we can have build up a bit of inventory short term. So we feel that we have a good control over our cash flow. We feel positive about the cash flow development. We're working really hard on improving inventory turnover ratios, our accounts receivable position, we have done big improvements there and also working towards our suppliers on the accounts payable side. And of course, towards our customers also with payment terms. So we're doing a lot of work on all fronts when it comes to our cash flow and feel comfortable about the development and also feel comfortable that the work that has been done internally with educating our personnel regarding working capital and the balance sheet and cash flow has starting to really pay off. Okay. We have one more. The industry segment was in your -- Okay. You have appointed a partly new management team. Could you elaborate on these appointments and what you hope to achieve with the new management team?

Yes, I can do that because I'm really pleased with what we have in place right now. We have, as you know, before, we had the operations under the 2 divisions. That was lifted out and is now managed by an operations team led by Jörgen Ohlsson and his team there, focusing on making sure that they improve efficiency, productivity, inventory turn ratio and so on and so forth, purely whatever we need, they are able to produce and they do with the mindset of whatever they do today, they need to do it better and more efficient tomorrow. as they should work. The next step, what we've done now, we still had the engineering and product management under the division that is now also lifted out and is led by Patrick Mares, who's been with the company for many years and a big experience here. He is driving that in order to make sure that in a similar way as operations, we will drive engineering and we will drive new product development and product management in a similar way, serving the other 2 divisions and of course, the service business. So that was a natural step to lift them out. And by doing that, we have now 2 remaining segments on the Ports & Maritime under Nicklas Vedin and with the industry sector under Jonathan Eriksson purely focusing on customers, selling things, working on request for quotations, visiting customers with a strong focus to have more face time in front of customers and really be as efficient there without having to think about the engineering or having to think about operations. It's a natural step to do, and I think I'm really pleased -- I don't only think, I know and I feel I'm really pleased with how that momentum is now built up there. And as Joakim mentioned before, we already see now a much more focus, at the same time, also a thinner or leaner organization structure where we are closer to the customers as well as we have also reduced the steps in the organization there, which I'm absolutely convinced will pay off in a positive way.

We have another question here that is the industry segment was strong. Is this an effect of the strategy to improve profitability?

I can say it's a good question, and I could agree that it is an effect. At the same time, it's also effect of what I mentioned earlier that we had before, 3 years ago, we had Airport and Industry. Now when Airport is gone, it is much more focused on the Industry and the Industry segment itself is massive. The potential is huge. And by being more focused on that segment without being distracted by some other business there, we have more focus on it, and we see clearly the potential. And therefore, also, I see, as I mentioned earlier, the radio business is also something where we definitely see a potential because it's more visible now it's more important portion of industry there. But it's -- and therefore, the job that Jonathan and his team is doing in cooperation with Jörgen Ohlsson and his team on the sites and also on the sourcing side is now what yield results.

I think the next question somehow ties into that question. We got a question regarding the industry segment again here, which industry sectors are going to be the most active in the next 1 to 2 years? And are there any specific products you see specifically contributing to future sales?

Yes. I think, again, without putting all the efforts into that industry is only growing sector. Both of them are very interesting and both of them are very, very growing and with a big potential. Electrification is needed regardless if you go into Ports & Maritime sector or if you go into the Industry sector. I think we have probably had a little bit less focus on the Industry sector in the past, and therefore, we see maybe a little bit more rapid opportunity to grow up there. However, there is a solid and robust pipeline also in the Ports & Maritime sector. So we should see that as good. I don't really want to compare the 2 between each other because I see a great focus -- great potential in both, and we're going to continue to grow both with full attention and full speed from our side. And so I'm not comparing those 2. I see we're having a good opportunity on both, and we're going to have full focus on both. And then within the specific products within the Industry sector that is I see a big potential on the radio business, as mentioned before. I also see a big potential on the multi-cable reels for open mine applications as well as underground applications. It was a clear trend during the exhibition in Bauma 2 weeks ago that there is nothing going to stop the electrification trend. It's there. It's there and it's growing and it's the future for sure. So I'm optimistic about both, I must admit.

Do we have more questions here? Yes, we have. Yes. Interesting comment on noise in, for example, ports as a market driver. Do you see this as a good growth opportunity?

Yes, I do. I see both noise and as well as, of course, reducing the fossil fuel for emission reasons as well as for emissions if you are an underground mine. That's clear. That's how we started really. But I see noise more and more as a factor that is playing a more and more significant role. And again, if you look at those cruise terminals, which are located in very nice close to the city center ports, we have them in the Port of Miami. We have them also around the Italian coast. You don't really want -- you want to have the tourist. You want to have the possibility to show the cities for tourists coming there. At the same time, you don't really want a big cruising ship to lie there, even if it's for 1 or 2 days with the engines on polluting and creating a big noise. So it's a requirement from the cities in order to have -- to attract the customers to have the visitors to come there. Of course, they also want to have the ships as silent as possible and as environmentally friendly as possible. So it's a clear request from the market and probably a growing request.

I think that, that concluded the question part. We have no further questions here as of now. No further questions.

If no further questions, we close here. We are -- again, we're repeating ourselves here like a broken record. We are in the product business. Quarter 1 is normally a little bit of a lower quarter for us. We are optimistic for the -- for what we have set as targets for the 2025 as a year. We are not as vulnerable or exposed to the trade tariffs, even if, of course, the trade tariffs could lead to a little bit of an overall economic wet blanket here. I think we are in an industry which the underlying business is there, and it's there and it's solid, and we are not really worried about that. What we are working on is, of course, to capture as much as possible of that business. So we are confident, we are eager and we are in a good mood. Yes?

Okay. Thanks to all the listeners. I think that concludes the call.