Cavotec Group AB (CCC) Earnings Call Transcript & Summary

Welcome to Cavotec Q3 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 third quarter presentation. I am David Pagels, the CEO of Cavotec. And together with me today, I have, as usual, Joakim Wahlquist, Cavotec's CFO. I would like to start with a short introduction of Cavotec for those of you who are not familiar with us. Cavotec was founded 50 years ago by 3 entrepreneurs in Sweden. Since the foundation, Cavotec has focused on developing technical solutions to improve efficiency and electrify processes in areas such as ports and other industrial -- and other industries where our electrical cable reels and -- or radio remote controls are needed. As part of this global expansion, Cavotec moved to Switzerland in 2007. This year, however, we have taken an important step by returning back to our roots in Sweden. These moves brings us closer to our shareholders base, which is in Sweden and also enable us to become more efficient and agile. We're very excited about that. As you know, we report 2 business segments. Our service offering is reported into those 2 segments. Ports & Maritime provides world-leading solutions for ports, ships and other marine applications. We have a unique systems, for example, automated mooring, MoorMaster, like shore power, crane electrification and connections and charging systems. All these solutions contribute significantly to improved environments and working conditions in ports worldwide. Our customer includes shipowners and operators, ports and terminals, port equipment manufacturers and shipyards. Ports & Maritime is our largest segment and represents the majority of the group's sales and EBITDA. The Industry segment is the other one. In its unique selling point here, it's our ability to drive productivity and contribute to the customers' operations efficiency, electrification as well as occupational health and safety. The products include motorized cable and hose reels, radio remote controls, power connectors, spring-driven cable and hose reels. We have customers in a wide variety of industrial sectors such as cranes, energy, processing and transportation, surface and underground mining and tunneling. And service, as I mentioned, is an integrated part of our business segments, and we have services engineered across the globe. They work either from our service centers or are based at our customers' premises. The service offering includes: system integration, maintenance, sales of spare parts, of course, inspections, refurbishments as well as round-the-clock service agreements. As you have seen in the report, we have also this quarter been impacted by the continued uncertainty among our customers and the project-driven nature of our business with long delivery times or lead times. However, our underlying markets remain strong, driven by the need to reduce greenhouse gas emissions, improve ports environments and increased customer efficiency. This, in turn, is driven by the strong megatrend to electrify society, which we all are aware of. At the same time, we have seen an increasing awareness globally to reduce noise levels in, for example, ports. The need to electrify society and improve environments, for example, in ports also manifests in regulations and governmental requirements that affect our customers and drive their demand. Over our 50 years, we have built a strong expertise and experience in these areas and have a strong and attractive offering based on leading technologies. This gives us the ability to grow in both new and existing customers, thereby expanding our installed base. The installed base, of course, is important because it provides us an opportunity to offer our comprehensive range of services activities. Looking into some of the figures before I hand over a little bit later on to Joakim to explain a little bit more detail. Order intake increased 0.5% to EUR 36.3 million in the quarter, driven by the demand for shore power and MoorMaster systems. Our order backlog increased 14% to EUR 126 million, which is reflecting the order intake in Ports & Maritime where we have very long lead times in the project business. We have communicated a range of significant orders in the past 10 months in Ports & Maritime. However, this is a project-driven business and most of the deliveries will not start until next year. Revenue decreased slightly to with 18.8% to EUR 35.8 million due to the certain delays in planned deliveries of shore power systems, a shift in delivery plans from the customers. Lower volumes due to the Ports & Maritime, long lead times and continuing caution among certain customers have led to us reporting a slightly negative EBIT this quarter. Before moving on, I would like to point out the improved profitability in the Industry segment. Our work within Industry to increase our market presence, attract new customers has led to more opportunities for us that we are very hopeful about going forward. In Industry, the business consists of many smaller but recurring orders, which balances the Ports & Maritime project-driven business. We have recently communicated several significant orders for shore power systems. 2 orders with a total value of EUR 9.35 million include shore power for new build and existing container vessels. The customer is a leading global container shipping company that earlier this year signed an order -- that we earlier signed an order for EUR 8.1 million for shore power. This is a good mark of our delivery and product quality with a leading player in the industry gives us this increased confidence. A large part of the latest orders involve retrofitting of shore power systems on existing vessels. This means that we will install our solutions on the vessels when they are in operations between Asia, America and Europe. They could either be in dry dock or we can do it during the sale. These are, without doubt, challenging projects that require a lot of logistics and technical know-how. We are proud to have the confidence and experience to be able to do so. Deliveries will continue throughout 2026. The second agreement we have communicated involves delivery of first shore power systems in Maldives. We expect the system to become important reference in the regions and may create opportunities for more projects in the nearby areas in South Asia. We will begin deliveries of those equipment in the first quarter of 2026. We have also recently announced an order with construction and engineering company, Civmec for motorized cable reels for installations in Port Hedland in Western Australia, which is one of the world's largest iron ore export ports. This is a significant agreement, and it's our first major collaboration with Civmec and strengthened our presence in Australia mining and bulk handling sector. Delivery is scheduled for the third quarter in 2026. By this, I will hand over to you, Joakim, for a little bit more deep dive into the financial figures.

Thank you, David, and good morning, everyone. I'll start with the order intake, and the order intake was in line with the same period last year. However, we report an increase in order intake for Ports & Maritime of 4%, while we see a small decline in Industry. Thanks to the order intake in Ports & Maritime, our order backlog grew with 14% to over -- to almost EUR 126 million. As David said, we have had significant orders over the past 10 months in Ports & Maritime. However, a large portion of them is up for delivery in 2026 and forward. If we look at the revenue, so although the underlying markets remain strong, we can see a decline in revenue with almost 19% compared to the same period last year. This has mainly 3 explanations. Number one, is the continued macroeconomic uncertainty that results in postponed decision-making with our customers, especially for deals with shorter lead times that would generate revenue within the year. We also had a Q3 last year that was not that strong on the Ports & Maritime side, and that has impacted also the revenue in 2025 as lead times are about a year before they turn into revenue in that business segment. On top of this, you might remember that we had a very big Q4 2024, and part of that was planned to be delivered now in Q3 this year, but we have experienced, as David mentioned earlier, certain delays, and this further impacts the revenue in the quarter. On top of this, we had some slight negative impact from currency of minus 1%. And with that, I will move over to our EBIT. As you can see, profitability was impacted and mainly by our lower volumes, but also partly by the ramp-up in preparations for upcoming deliveries in the Ports & Maritime segment. As a consequence of this, we are showing a slightly negative EBIT in the quarter with minus EUR 0.2 million. Having said that, we still continue to see improving margins on an aggregated level in the business, and we do deliver a result -- and this is a result from continuous efforts on both our cost-out work in our -- from our engineering team, productivity improvements in our factories and also from procurement savings. EBIT has been adjusted in the third quarter for nonrecurring costs of EUR 0.3 million related to the relocation of the registered office to Sweden. And I'm very pleased to have completed this move. And this is the first quarterly report that we are publishing in both English and Swedish and fully based then on Swedish reporting standards. Moving to the net result. Net profit declined to a loss of minus EUR 1.7 million compared to EUR 1 million last year, and earnings per share fell to slightly. Again, this is mainly a result then of the lower revenues in the quarter. Cash flow. Our operating cash flow increased to EUR 2.8 million in the quarter due to mainly advanced payments from shore power orders. At the same time, we are a bit affected by these delays that we have talked about on our working capital, and we're tying a bit more capital in work in progress for the upcoming shore power deliveries. Net debt continues to improve, though from EUR 13.3 million -- down to EUR 13.3 million from EUR 15.3 million. Leverage ratios still quite okay at 1.44x compared to last year where we had 0.85x, which was very -- still very good. All of this together, though, means that we still have a solid financial position despite 2 softer quarters this year. And let us now look in a bit more to the 2 different segments to understand the financials there. Starting with Ports & Maritime, which is the largest segment. As I said earlier, order intake increased over 4% to EUR 21.9 million, and the order backlog grew by 16.4%, exceeding EUR 103 million. This is reflecting the continued demand for shore power solutions and also our MoorMaster systems. Ports & Maritime's project-driven nature with long lead times impact our performance this year, as we last year had a weaker first 3 months -- 3 quarters of the year, as you might remember, and a very strong Q4 2024. As earlier said, there has also been certain delays in planned deliveries of shore power systems in Q3. Moving on to the Industry segment. In the Industry segment, the order intake declined slightly by 4.7%, reflecting the increased caution among customers. That said, the order backlog grew by 4% versus the same period last year. Revenue improved slightly also from the same period last year. And it's really good to see that the sales push, cost savings and efficiency measures that have been going on for the last 1.5 years are really improving the EBITDA margin that we can see here is close to doubling versus the same quarter last year. We still have more work to do to be done here in the Industry segment, but we are very pleased with this development, and we continue to see a big market potential in this segment. With that, I will hand over to David for some final remarks.

Thank you, Joakim. So let me quickly summarize some key points before we open up for questions here. In the quarter, we have seen continued uncertainty among certain of our customers, which has affected our sales of goods and service with some of the shorter lead times. We are closely monitoring the development of this, of course, and prepared to take action if necessary, but we have a couple of busy quarters to come. Our underlying market remains strong, driven by the need of electrifying society and reduced noise levels and environments such as ports. This is also reinforced by the fact that our customers are facing regulations that require them to reduce the emissions and electrify their applications. For us, this continues to create good opportunities for us since we are offering leading technologies in this area and have built a strong market position during our 50 years in business. Another important business driver is, of course, our large installed base worldwide, which provides us with a great opportunity to generate service business. We have conducted thorough reviews of our markets, our operations and future opportunities. This has resulted in a new strategy or a clear strategy with a clear direction, providing us with a good basis for our priorities and giving us a better view of where our opportunities lie. This is important, of course, when we are allocating our resources and making decisions about future investments in, for example, new product offerings, et cetera. Already last year, we initiated increased investments in product development, and we have launched all-time high new products this year, which has led to a good pipeline of new products to offer to the market. By this, we have come to the end of our presentation here, and we'll now open up for questions over the phone or by mail through the webcast.

[Operator Instructions]

Lara here from ABG. Just a couple of questions from my side. Firstly, you said that you've noted ongoing customer uncertainty and long project delivery cycles in European Ports & Maritime segment. Would you say that you're seeing any improvement in the customer decision-making since maybe the quarter end? Or do you expect these delays to persist into 2026?

Okay. Joakim, I can start with this one, and you can fill in. I think it's clear to everyone that the geopolitical situation right now with tariffs coming and going more or less on a half of a daily basis here, creates the uncertainty and we don't really know the customers are hesitating. They don't really give -- place the orders if they don't have to wait a little bit to see what the future is going to look like. However, the underlying business that we have with the Ports & Maritime, with a need to electrify with a need to reduce the emissions. Once as we said, with the regulations, but also with the megatrends. And also they must be seen as doing whatever they can to be green. That is there, and it's still there and it's robust, and that's -- we're not really worried about that at all. Same thing goes with the mining sector, where we're also strong and it's an important part for us. And I was -- this Port Hedland order that we won the other day, I was visiting them 2 weeks ago. And it's impressive to see how they are now improving and they are really doing big investments in order to just secure that they can export and bring out all the iron ore from the mines. So the mining sector is also strong, but we see just a little bit of -- they don't need to place something, they hesitate a little bit to do it, but the underlying business is solid and robust.

Great. And you've reported a strong increase in your backlog. And you wrote that most of these deliveries won't be taking place until next year. Could you maybe provide some specific phasing for this conversion and when will it translate into sales?

Joakim, can you take that?

I can take that one. And it's -- I mean, first of all, part of the increase in the backlog also is due to delays in deliveries, which was planned for Q3 and Q4 this year. And so we -- part of that will be postponed a little bit forward. I don't say an exact timing on that. But in general, it's spread quite evenly over the year. But you could -- as always, when we're discussing the Ports & Maritime business, it is a bit longer lead time. So there, you can calculate more with 12 to 18 months from order intake to actual delivery, compared to the industry part where we had shorter lead times 3 to 9 months.

Very clear. And you also stated that the lower volumes were partly due to postponed decision-making, as you just mentioned, especially for deals with shorter lead times. Is your services business included in this category of shorter lead time orders?

No. I think our services business there is still strong, and we're not expecting -- we're not experiencing any downturn in the services business. It's more on the shorter equipment orders that we're seeing the downturn.

Just to add there, Joakim. What you could say is, to some degree, it's even a little bit of the opposite because if they wait to replace equipment or they hesitate a little bit and push it a quarter or a year or whatever, then they need to do overhauls and they need to do maintenance and even buy more spares. So it could even be a positive effect on the service business. But of course, we want both of them to be progressing well.

Yes. Very clear. And then a bit on the cost side. EBIT was a bit lower this quarter, and you said it was partly because you're increasing costs to prepare for your upcoming deliveries in Ports & Maritime. Can we expect these elevated costs to persist into the following quarters?

I would say that the Q4 2024 was a big quarter for Ports & Maritime when it comes to especially shore power order intake. That is planned to be delivered this the last quarter, Q3, this quarter and into the beginning of 2026.

[Operator Instructions]

So we will move on if we don't have any more questions on the phone here. We will move on to the questions from the feed. And I will start with one question here. You signed many large orders late 2024. Should we expect a strong fourth quarter and ending of the year, David?

Yes. I think that's exactly what it's all about. We said we had a lot of orders coming in, in Q4 '24 and with a lead time of, as you just mentioned, Joakim mentioned before, 18 -- 12 to 18 months, that means there will be a busy quarters to come. So yes, that's we're not speculating too much on the forecast in the future, but that's the conclusion you can draw of course.

Next question on a totally different area. Do you have any plans to increase the volumes that the shares are trading at the stock market? I think we can start with the fact that we're moving the registered head office back here to Sweden. We believe that, that's something that makes Cavotec more easy to understand. This is also to get closer to the owners. We have more than 80% of owners are Swedish in Cavotec. And we are with this also -- and our strategy work that we have been doing, have a plan to continue to be more present and more visible for the markets here in Sweden so that we will most likely be able to make an impact on the volumes there. But David, do you want to add anything there?

I can add there. What we have said, and this is a decision we have taken as well, especially if you look back a couple of years ago, we wanted to, should we say, fix the business a little bit. We had some problems with some unhealthy business in our portfolio then that's now been worked out, shipped out and delivered and at the same time also improved. We have healthy margins in the deals that we take now. So we are more proud of the company than what we were maybe 3 years ago. However, we have purposely not been talking about the company too much. However, of course, now when we are moving home, I think it's everyone to understand we are a Swedish company on the mid-cap, but we are quite unknown to people. So yes, we're going to talk a little bit more about the company and explain and make us a little more visible and known to the investment community. That's a program where we're going to do me and working more of now when we have the strategy ready and we are lined up for the future. And then we're going to present a little bit what we are capable of because we are a little bit too unknown to the wider investment community still.

Okay. We have a few other -- questions here. Where do you see the clearest signs of uncertainty in decision-making in terms of segments and geography? David maybe that's for you.