Cavotec Group AB (CCC) Earnings Call Transcript & Summary

Welcome to Cavotec Q2 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 second quarter presentation. I am David Pagels, CEO of Cavotec. And together with me today, I have, as usual, Joakim Wahlquist, Cavotec's CFO. Since we presented the report for the first quarter, we have carried out a significant change. We have successfully completed the project of relocating our headquarter and registered office from Switzerland back to Sweden. It has been an extensive project involving efforts from both banks, legal advisers and of course, a great job for our internal resources. Cavotec have had its headquarter in Switzerland since 2007 and was listed on Nasdaq in Stockholm 2011. With the move, we relisted the shares of our new parent company on Nasdaq Stockholm, which took place on July 9. As mentioned, Cavotec has -- was founded 50 years ago in Sweden. And over these 5 decades, we have built a leading global position in electrification and automation. In addition to helping our customers to improve efficiency, we also contribute to reducing emissions in, for example, ports, mines and other industrial applications as well as the safe conditions. As you know, we report our 2 business segments. Our service offering is reported into the 2 business segments. So for the 2 segments, Ports & Maritime and Industry -- starting with Ports & Maritime, we are providing 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 and charging systems. All these solutions contribute significantly to improved environments and working conditions in ports worldwide. Our customer include shipowners, operators, ports, terminals, port equipment, manufacturers and shipyards. Ports & Maritime is our largest segments and represents the majority of the group's sales and EBITDA. The industry portion, the selling -- unique selling points for our Industry division is its ability to drive productivity and contribute to the customers' operational efficiency, electrifications as well as occupational health and safety. The products include motorized cable and hose reels, radio remote systems, power connectors, spring-driven and hose-driven reels. We have customers in a wide variety of industrial sectors such as cranes, energy, processing, transportation, surface, and underground mining and tunneling. Service is, as I've already mentioned, an integrated part of our business segments. We have service engineers across the globe. They work either from our service centers or are based close to our customers' premises. The service offering encompasses system integration, maintenance, sale of spare parts, inspections, refurbishments as well as around-the-clock service level agreements. As you have seen in the report, we have been affected in the quarter by the increased uncertainty in the global environment that has led to a greater caution among our customer and it's taking longer for them to take the decision. However, we have a strong order intake in the quarter, which is reflecting the strong underlying markets. I would also like to stress that we have seen no changes at all in the underlying business drivers. We see the same megatrend with the need to electrify society, at the same time, which I think is many people neglect, there is an increasing need globally to reduce noise levels in, for example, ports. These needs also manifest regulations and governmental requirements that affect our customers. Our offering is, of course, a perfect fit to those -- to meet those trends. We have a strong market position and a leading technology, which explained our strong order intakes during the quarter. We are growing both with new and existing customers and thereby expanding our installed base. The installed base is important to us because it provides an aftermarket opportunities to offer our comprehensive range of service activities. Our increased -- our order intake increased 10.1% to EUR 44.4 million, driven by good demand for Ports & Maritime products and service offerings. The order intake was largely driven by the demand for shore power in Europe. However, as I said earlier, and as you can see in the report, the increased global uncertainty has led to greater caution among our customers, which has affected our sales and -- of goods and services with the shorter delivery terms. This naturally impacted both revenue and profitability in the quarter. Profitability was also hit by the ramp up in the preparations for the upcoming major deliveries that we will see in the second half of the year for Ports & Maritime. As you might recall, we signed significant orders in the Ports & Maritime segment late in 2024 and we will start delivering on these orders in the second half of 2025. In short while, Joakim will dive deeper into the numbers, but I'll keep them out for another minute here. Key events in the quarter, I began the presentation by stating that successful change of domicile to Sweden was a major event in the quarter and a historical step for Cavotec. We have now returned to Sweden, where a vast majority of our investors are based. Not only are we getting closer to our investors, but we also expect that the move will allow us to make faster decisions, streamline our processes and overall become more agile. In short, it will enable us to operate more efficient -- efficiently and by that, also reducing cost. Well, beside the significant event, we also announced a couple of important orders. Among those orders is an order, for example, to complete shore power systems for newly built container vessels signed with a leading global container shipping company. This order has a value of EUR 8.1 million and delivers a scale to begin in the second half of 2026. We also signed a shore power order for Equans for the Port of Antwerp-Bruges in Belgium with a total value of approximately EUR 1.5 million. I would also like to say a few words about the new products that we launched in the big -- during the big trade fair in bauma, for instance, in Munich early in April. The product has received a lot of attention from customers. And when it comes to the radio remote control system, as you see on the screen, we expect to reach customers in testing for the second half of the year. I'm also excited about the new products we are about to launch in the fall. We should have more details to present in the third quarter report about those coming launches. Now finally it's time for me to hand over for Joakim to dive deeper into the figures.

Thank you very much, David. David has already addressed that the order intake was up with 10% versus the same quarter last year. I want to also say that the backlog grew by 5.5% versus the same quarter last year, reaching EUR 124.9 million. This also represents a 7.4% increase compared to the previous quarter. And this positive development clearly reflects both the continued strength of our market -- of the market demand and the attractiveness of our offerings. Going over to revenue. Although the underlying markets remain strong, we've really been impacted by the increased caution among our customers, many of whom have -- are affected by ongoing global economic uncertainty. This has led to postponed purchasing decisions, particularly for goods and services with shorter delivery time and time lines to be delivered within the year and in the quarter. This has, in turn, had a negative effect on our revenue development this quarter, which you can see here in the graph. Revenue declined by 16.2% to EUR 35.7 million due to weaker sales in both Ports & Maritime and the Industry segments. We were also impacted slightly by currency fluctuations that had a negative impact of 0.3% during the quarter. On top of all of this, it's still important to keep in mind, as a project-oriented business, our revenue can fluctuate from quarter-to-quarter. And additionally, a significant factor in this is that we will not begin delivering on the large Port & Maritime orders that we signed at the end of 2024 until the second half of 2025 at the earliest. Let's move on to EBIT. And as a result then of the lower revenue this quarter, EBIT also declined. Profitability was further impacted by reduced volumes and the ongoing ramp-up efforts in preparation for the larger scale deliveries that we have planned for the second half of the year, the Ports & Maritime projects that David mentioned earlier here. In addition, also, EBIT for both Q1 and Q2 2025 includes some adjustments related to the change of domicile to Sweden. We move over to net profit and the net profit declined, and we showed a loss of EUR 1.7 million versus…

EUR 1.5 million.

EUR 1.5 million versus EUR 0.7 million that we had positive in the same quarter last year, reflecting then the lower revenue. This is, of course, not satisfactory to see the break in the good trends, but we did have a plan of a weaker H1 and a stronger H2. We now hope that the economy will not impact us further in H2, but we are prepared to handle further macroeconomic uncertainty if that will be the case. Cash flow was negatively impacted also in this quarter, primarily due to the overall performance and the ongoing ramp-up activities for the upcoming bigger deliveries at the second half of the year. We still though have better cash flow year-to-date June than the same period last year. And our cash position is still good and we still have plenty of headroom in our credit facilities. So still feel comfortable here. Let's move over and say some more details about the Ports & Maritime segment. We recorded a strong order intake in this quarter. Order intake increased by 19.6% to EUR 29.3 million and the order backlog grew by 5%, exceeding EUR 100 million. This reflects the strength of the underlying megatrends like David spoke about earlier and the demands in this sector. However, we are also seeing increased caution among the customers. Decision-making processes are taking longer time, especially for goods and services with the shorter delivery times. This has impacted both revenue and profitability for this segment. As mentioned earlier, we're also seeing the effects of the ramp-up efforts related to the larger orders scheduled for delivery starting later this year and continuing into 2026. We move over to Industry then. And in the Industry segment, order intake declined slightly by 4.6%, reflecting the increased caution among customers. As in other areas, more cautious market environment also weighing on revenue and profitability in the quarter. As David mentioned earlier, we've launched several new products this year, though, and we have been -- been received very positively from the customers. However, due to our typically long sales cycles, we do not anticipate significant revenue contribution this year from these products. With that, I will hand back to David for some final remarks.

Okay. Thank you very much, Joakim. Let me just quickly summarize some key points before we open up for the questions here. We have successfully completed the relocation of our headquarter from Switzerland back to Sweden, where Cavotec was founded 50 years ago and our investor base is located. This move will allow us to operate more efficiently and reduce costs. In the quarter, we have seen an increased global uncertainty has led to greater caution among our customers, which has affected our sales of goods and services with a shorter delivery times. This has affected our sales volume and profitability in the quarter. We're are closely monitoring and developing and are prepared to take action if needed. Once again, I want to stress that we have a solid underlying markets in our business. Our underlying market remains strong, driven by the need to electrify the society and reduce noise levels in environments such as ports. This is also reinforced by the fact that our customers are facing regulations that require them to reduce their emissions and electrify their applications. For us, this creates a good opportunity since we are offering technology and have built a strong market position during our 50 years as a key supplier. Another important driver is, of course, our large installed base worldwide, which provides us with an untapped potential for service offering. We have an attractive offering and our investments in product development has further strengthened it with new product launches. We have recently launched the next generation of radio remotes and also the MCS Manual Dispenser that has been well received in the market. And we have more projects in the pipeline that will be launched during the second half of the year. As I mentioned in the last quarter, we have made several important appointments to the management team, a new organization in place, which makes us more agile and makes us -- make it easier for us to find synergies and efficiency ways -- and efficient ways of working. With our strong customer relationship, attractive offering, dedicated employees, I remain confident in our ability to grow profitably and create value. By this, we hand over to the -- we've come to the end of the presentation and we will hand over to -- step over to questions over the phone or by mail through the webcast.

[Operator Instructions] Next question comes from Albin Barnevik from ABG Sundal Collier.

Yes. This is Albin Barnevik from ABG, standing in for Lara Mohtadi. So I have a couple of questions. So firstly, given the global economic uncertainty and caution among customers for short-cycle products, how has your visibility on the customer demand changed? And do you expect further pushouts or cancellations in the coming quarters?

First of all, we have not seen any cancellations of orders. I think that's important to underline. And there's still a very solid pipeline of deals that we're working with. So we're not expecting that to be a big impact during the second half of the year. But we're still -- it's still a lot of uncertainty, obviously, and we're monitoring that very carefully. And we're working very hard on the back end, obviously, to make sure also that we can cover for potential downturn -- further downturns in the economy. We've seen that we have actually managed to get a bit more flexibility in our production cost, which has helped us to keep good margins on the business that we have delivered. And we've also already now started to be -- to strengthen our efforts on the SG&A and cost control. So we're ready if the economy will continue to be uncertain, but we have not yet seen any cancellation of deals.

I see. And if I may, as you mentioned in the report, there's a strong order intake, particularly within Ports & Maritime. So if you can elaborate a bit on when you expect these orders to start converting into sales, especially given the delays within the mentioned short lead time orders?

Yes, I can take that one. What we normally have when we talk about, as Joakim mentioned before, it's a project-driven business, meaning we received orders and then we engineer them and then we need to manufacture and we need to ship out to customers. For Ports & Maritime applications, the lead time of our systems could be everything from shorter, of course, but could typically be 9 to 15 months delivery time. And as we mentioned before, we received a lot of orders towards the end in Q4 '24. And therefore, they will be delivered out then from Q3 and then some of them even into 2026. So there is a long lead time in the product by the nature of the products because this is fairly big systems. So I -- so that's where we are.

Timing-wise. Yes.

Timing-wise, it is, and we are -- we're not really worried about that.

I see. And if I may, just a final question. So the EBIT margins came in significantly below expectations. And beyond the one-off relocation costs, what actions are you taking to protect the margins in the short term while preparing for the ramp-up in H2 and 2026 deliveries?

Yes. I think I mentioned a few of them, obviously, in -- previously here in my answer, but we have a number of programs ongoing and these programs have been ramping up slowly over the last couple of years with David and I came on board here, everything from cost-out activities in our engineering that are starting to take effect now. We have huge activities on the procurement side and of course, the general cost control programs across both the divisions. So -- and I'm quite pleased also to see that the volume flexibility in our production that we worked hard with is starting to show also that we managed to guard our margins even with lower volumes.

[Operator Instructions]