Hiab Oyj (HIAB) Earnings Call Transcript & Summary

Okay. It's 1 p.m. here in Helsinki and we are ready to start our third quarter 2023 pre-silent call hosted by our CFO, Mikko Puolakka. So my name is Aki Vesikallio. I'm from Cargotec's IR. First, Mikko will give a short introduction and then it will be a possibility to [indiscernible] to Mikko. [Operator Instructions]. Okay. With that, I think we are ready to start.

Thank you, Aki, and good afternoon also from my side. First, a short recap about our quarter 2 financial performance. Our orders were EUR 999 million, down by 28% from an all-time comparison period. You might remember that we got year ago in quarter 2, 2022, a couple of very large orders. For example, in Kalmar's case, we got an order for 85 straddle carriers worth of EUR 115 million. So that drove our orders to all-time high level in last year's quarter 2. Where EUR 1.2 billion a growth of 25%. And this is very much, of course, boosted by the order book, very high order book [indiscernible] improving supply situation, especially in Kalmar. The high equipment utilization is reflected also in our service sales. Service sales increased by [ 14% ]. We saw a nice development in all 3 business areas. And boosted by the strong sales, we had an all-time high comparable operating profit, EUR 158 million, 13.2% the for the total Cargotec. Biggest impact came from high sales in Kalmar and Hiab. Also the gradually improving sales margins contributed to the profitability. So we have been increasing, especially in Kalmar and in Hiab prices during the last couple of years by more than 20%, and this starts to be more and more visible also in our sales margins. And then MacGregor delivered a EUR 10 million comparable operating profit in quarter 2. This was very much coming from the merchant and services divisions. We are still struggling with the performance of certain offshore wind projects, which are last [ May ]. When we look at our order intake after 2 very exceptional years, our quarter 2 orders were now back on the kind of pre-COVID level. And the quarter 2 order intake characterized is actually quite well also to today's market situation. Overall, I would say that our sales pipeline in our 3 business is on a solid level. However, the customer decisions, especially for larger investments continue to take quite a long time as we have seen throughout the year. Also in Hiab's case, customers, investment decisions are impacted by long truck chassis delivery times. For example, here in Europe, customers typically have to wait 12 months to get the truck chassis after ordering it from the truck manufacturers. And as all Hiab products are installed on a truck chassis this is a factor which is impacting our customers' decision-making as well. In MacGregor, the good activity has [indiscernible] in merchant and services. So there are -- we have also announced some orders -- large orders in MacGregor, and I will come back to those later in this presentation. Perhaps 1 note also that as you can see also from this longer-term history, typically, the quarter 3 order intake is somewhat lower than the previous quarter's order intake due to the holiday season in the Northern Hemisphere. Our order book is still exceptionally high, EUR 3.2 billion. We are currently talking in Kalmar's case, roughly 9 months of order book recurrent sales level. Earlier, it has been even 12 months. So thanks to the improving supply situation, the order books and order book lead times are getting at least a bit more normal. In Hiab's case, we are talking currently about 6 to 7 months' worth of sales of order book earlier, this has been as high as 9 months. The sales margins in our backlog are improving. And this is because of the bigger and bigger portion of the backlog projects or deliveries are with the higher full 20-plus percent price increases. And this order book, of course, provides us a good visibility to remaining year and also to the next year's revenues. However, I would still say that due to the some limited component availability issues, especially in Kalmar as well as the Hiab truck chassis availability, the forecasting of -- exact forecasting of deliveries is still quite difficult, at least in quarters or a couple of quarters' time horizon. I mentioned that we have announced a couple of bigger orders during quarter 3. As you can see here, we have won a couple of straddle carrier deals for container ports in Australia and in the Netherlands. And then also good market activity has continued in MacGregor, especially in the merchant vessel segment where we have been winning deals, for example, for bulk vessels for cranes and then RoRo vessels, for example, RoRo equipment like ramps. Of course, these are large orders. We don't announce smaller equipment orders, and there has been also a solid inflow of smaller equipment orders, both in Kalmar and in Hiab. We have also made another move in the area of sustainability by acquiring the terminal tractor product line from Lonestar specialty vehicles in the U.S. The transaction was closed on first of September. And basically, we are selling, as we speak, this equipment focusing mainly on the U.S. market. We don't anticipate that this transaction has a significant impact on Kalmar's this year's revenue. But it's a very good addition to our sustainable solutions offering. Our outlook for this year is unchanged. So we have two-folded guidance for the core businesses, meaning Kalmar and Hiab, we expect the profitability to improve from last year's EUR 384 million. And then for MacGregor, we expect that MacGregor's comparable operating profit is positive in 2023. As we have announced earlier this year the separation of Kalmar and Hiab. I'm happy to say that we are well progressing on that journey. Just to remind the reason why we are doing this. So ultimately, of course, we do this separation to increase the shareholder value. So in the future, we will offer for the investors the possibility to invest in 2 separate listed companies, Kalmar and Hiab who are leaders in their own distinctive segments, have their own strategies, own customer base and offerings. During quarter 3, we have been focusing on designing the stand-alone operations model for Kalmar and Hiab. And then we have been also working on the IT and legal entity separation to ultimately targeting to enable the Kalmar listing in 2024. This year and also was probably at least the beginning part of next year, we will be focusing on MacGregor turnaround with an ultimate objective to find a solution for MacGregor also during 2024. The Kalmar demerger and the MacGregor exit are independent from each other. One does not have to happen before the other one. So from that point of view, we are not dependent, for example, in Kalmar's listing with -- from the MacGregor exit. Ultimately, after MacGregor exit, there will be then 2 separately listed companies, Kalmar and Hiab. Next year, Kalmar would go separate by the partial meaning that we would be separating from the existing Cargotec, all Kalmar related assets and liabilities to a stand-alone Kalmar listed Kalmar. We are not seeking any additional capital with this demerger. And then during the interim period until we have found a solution for MacGregor Cargotec would but still consists of Hiab and MacGregor. And then after MacGregor would have been divested or other solutions for MacGregor and basically the remaining Cargotec would consist only of Hiab plant would become basically Hiab. A concrete sign of the progress in the demerger, we have also made some personnel appointments for the future stand-alone Kalmar. Sakari Ahdekivi started on first of July as CFO of Kalmar. And then we have established Kalmar demerger committee, the Kalmar demerger committee, supervises the separation and the demerger of Kalmar and Pekka Ala-Pietilä is leading that demerger committee. And then we have appointed Tapio Kolunsarka and Teresa Kemppi-Vasama, current Cargotec Board members also to the demerger Committee. So that concludes my part of the introduction and then we can move to Q&A.

Thank you, Mikko. [Operator Instructions] Okay. Tomi was the first one. So please go ahead.

Tomi from DNB here. A couple of questions, but I'm starting with the Hiab and if you can comment a little bit the market activity and maybe by sort of end customer segments, what you see in construction building related activities, maybe logistics, warehouses and so on? And then maybe also on regions, North America, Europe and so on?

Thanks, Tomi. Yes. I would say that similarly like in Kalmar, in Hiab's case, the decisions for larger investments tend to take longer time. And these are often, also to a certain extent, mostly impacted by the long truck lead times. The larger investments or the larger equipment are typically used in Construction segment and we all have been reading in the newspapers that the Construction segment is suffering at the moment. On the other hand, it's good to remember that in Hiab's case, the Construction segment accounts for roughly 25% of total Hiab revenues. And out of that 25%, roughly half is related to new building construction and the other half is related to building refurbishment activities. So good to remember that Hiab is not construction only type of segments. I would say that the last mile logistics type of solutions like [ day lift ] as an example, have been actually doing very nicely. And then from the market point of view, for Hiab, U.S. has been somewhat more stronger than the European region. It's good to also remember in general that Hiab is -- the solutions, what Hiab is providing are really essential for our daily lives things what we have on our breakfast table or things that we consume on daily basis, for example, at home need to be delivered somehow to the store near you and often, these are delivered using Hiab solutions. So Hiab's competitor solutions.

Just a follow-up, is North America growing? Or is it just relatively better than Europe? And then maybe that just have you seen a any dramatic or sudden drops in customer demand or customers calling in and saying that, okay, now it's over. We are not willing to place any orders at this stage.

Yes, I would, in general, I would say that U.S. is performing better than the Europe. So it's the relative performance. As you have seen, during the last 3 quarters, Hiab orders have been very fairly flat. Within that environment, U.S. has been performing better than Europe. What comes to customers' activity, we have not seen any abrupt changes in customers' behavior, like I said in -- especially in larger investment decisions, for example, heavier cranes, which can be more expensive. It just simply takes a longer time for customers to make the decision. When we are looking at our sales pipeline, the pipeline size is not getting smaller, but things in the pipeline are not in this -- especially in these larger investment cases, they are not moving forward as fast as it would perhaps in a more normal situation.

[Operator Instructions]. Johan Eliason, please go ahead. We cannot hear you, Johan. There you go.

Yes, there we go. Perfect. Sorry for that. So I missed the beginning of your presentation, but can you just remind me in your different divisions? Are there any big specific orders that will impact this quarter or impacted the same quarter last year in Kalmar and MacGregor?

Yes. If I recall correctly, we did not have in quarter 3, last year in the -- that size of -- any of that magnitude, one-off orders what we used to have in quarter 2 of last year.

And have you sort of announced any or are you likely to announce any big orders this -- I mean what you said on decision-making sounds like there is no big orders, but I think you sent out something on MacGregor?

Yes. I mean, these are what you can see here on the screen, these are the large orders that we have announced during quarter 3. So couple of straddle carrier deals in Kalmar and then a couple of larger deals in MacGregor Merchant division.

Thank you, Johan. Antti Kansanen, please go ahead.

Mikko, maybe a first question on pricing. Could you remind us how much kind of a cost plus pricing do you have mainly regarding the larger projects where you would automatically see kind of your sales prices coming down with the inputs. And I understand that this is not happening right now, but maybe what's your views going forward? What do you see regarding kind of input costs? And how is the customer appetite for your not perhaps price increases but holding up with the 20% increase you've achieved in the past couple of years?

Yes. Thank you. I would say that if we look to input costs, we have not seen a dramatic change in the input costs. For example, equity in steel. Yes, certain steel grade prices have declined, but we are using typically in our solutions, quite high-grade steel, where we have not seen a significant price decline, at least yet. So from that point of view, the input cost is on a fairly high level. When it comes to, for example, labor cost, we still anticipate that also for next year, there is certain labor inflation, which we need to take into account. And for that purposes, we have also -- during this year, we have done some single-digit price increases, for example, in the service -- in our service area. What I said also earlier is that now we start to see bigger and bigger portion of our order book deliveries coming from those kind of all 20-plus type of price increases. While, for example, last year, we had still in our deliveries. And also early part of this year, we had steel deliveries, which were stemming -- or orders deliveries stemming from orders, which we got back in 2021, where we did not have yet the full 20%, that's only 10% price increase. We are not intending to reduce prices. I mean our view at the moment is even with price increases, we don't believe that price decreases customers would not order more.

Okay. Then I didn't -- I think you mentioned this before regarding Kalmar and the lead times, but I didn't get the numbers. So could you perhaps repeat it? And then I'll follow up on that one.

Yes. In Kalmar's case, we are talking about 9 months at the moment. Earlier, it has been 12 months. Perhaps in a more normal situation, I would say, Kalmar could be at 6 months. We are still -- even though the component availability situation is improving. We are still having a couple of articles, which are causing gray hairs. One is steering axles, and the other 1 is the engines. And even though also the supply situation for these components has improved, there are, every now and then shortages, which has been also during this quarter has been preventing us or delaying our deliveries to customers.

Okay. And kind of based on your comments, it appears that kind of the order inflow is fairly similar as in previous quarter, taking into account the seasonality, and that's the pre-COVID levels. But on volume terms, that's 20% lower and your backlog is kind of stretching early next year. So how do we think about what do you need to do for next year? I mean, if your workload on your factories drop quite substantially when you get rid of the excess backlog. What are the actions that you are kind of planning for next year if we see a weaker situation from that side?

We would be, of course, looking, for example, changing the [indiscernible]. In fact, we have also already during this quarter, we have reduced, for example, temporary workforce in certain areas just to adjust the capacity according to the needs, not necessarily because of the order book, but because of, for example, just some deliveries have been delayed due to the fact that trucks have not arrived in time. So the first area for us would be to reduce the number of shifts and then also temporary workforce. And like we have said also in the Capital Markets Day, we continue to maintain our so-called plan Bs or the scenarios actions for different kind of scenarios and then would be prepared to deploy that kind of actions if the situation would show demand.

And was it 10% kind of EBIT margin that you're seeing something that you can defend even in a weaker cycle for the core of Cargotec?

Yes. Basically, those scenarios have been built so that we can maintain our profitability at or above 10%.

Thank you, Ant. Tom, please go ahead.

This is Tomas Skogman from Carnegie. I wonder whether you have seen any cancellations so far or any problems with payments from customers, for instance, in the Construction segment?

We have not seen cancellations in abnormal magnitude. I mean in our normal business, we every now and then see cancellations, but nothing beyond that. We have not seen customers delaying unnecessarily their payments. And we are keeping a very close eye on the customer payment behavior. Actually, we have seen quite nice cash inflow from accounts receivables collection during the quarter.

Okay. And then the big surprise, I guess, in the second quarter was that sales really took a step up. And now you should know what you have delivered in the third quarter. So I mean, you have a great order book. So sales more or less on the second quarter level despite holiday season? Or are they kind of between Q1 and Q2?

Basically, even with a strong order book, we typically see in this quarter 3 somewhat lower sales due to the holiday season in the Northern Hemisphere in the Nordics and Central Europe, July, August are typically months when we don't deliver as much even though we will have the order book.

So we should expect sales between the second and the first quarter basically? I mean that's how it sounds like.

Yes, we don't specify the quarterly. But typically, I mean, if you look at Hiab as an example, if you look Hiab also historically, the revenues have been 10%, 15% lower in quarter 3 compared to quarter 2.

And then I wonder about Hiab's total construction exposure. I know that pie chart that you show, but then you have a lot of retail and logistics. And I mean, I would just assume that Bauhaus and other DIY stores are part of the retail segment there. So could you open up a bit about the total exposure to construction and also from a perspective and how large share of the Hiab grades are used in infrastructure construction applications?

I don't have those details. But I mean, with this 25%, we have been trying to be as through from the kind of end segment irrespective of Hiab product or solution. We have been trying to associate that as much as possible to the end segment. So the 25% is -- of course, every now and then some customer who is using loader cranes for some other transportation, they might transport also construction goods or windows or whatever it might be. So it's not Hiab products are quite versatile from the end user point of view.

And I assume there is more construction exposure than you show in the pie chart because construction, retail -- retailers selling stuff for construction activity is part of the construction charters.