Hiab Oyj (HIAB) Earnings Call Transcript & Summary

Welcome to Cargotec's Capital Market Day 2024. My name is Aki Vesikallio, I'm from Investor Relations. I'm delighted to see so many of you attending the event in-person. I also want to warmly welcome everybody who is following this session online. A lot has happened in Cargotec since our previous CMD in 2022. And this time, we will actually host 2 events. Today, the focus will be on Hiab and tomorrow on Kalmar. Both are planned to be stand-alone businesses in the future. Before we start the event, I would like to walk you through a couple of practicalities. Safety is our top priority. In the case of an emergency, you can find the nearest exits there and there behind the curtain. Please also pay attention to the disclaimers in the presentation as we will be making forward-looking statements. Then to the agenda. We will start brief introduction with Cargotec's CEO, Casimir Lindholm. We will then give the stage the President of Hiab, Scott Phillips. Scott will present to you how Hiab is lifting the productivity for essential industries. After that, there will be 3 deep dive sessions, a summary and a joint Hiab Q&A session. The online audience can post questions already during the presentations. And for the physical audience, we have microphones here. There will be also a short separate Q&A after Casimir's presentation. But now it's time to give the stage to Casimir. With that, over to you.

Thank you, Aki. Thanks for the introduction. And also very welcome from my behalf to the audience here in Helsinki and those who are joining us virtually. So I will shortly present where we are regarding the partial demerger, what we have done since the announcement, 27th of April last year. I joined as CEO 1st of April last year, and then 3 weeks, 4 weeks later, we announced the partial demerger. And since then, of course, a lot has happened, and I will shortly go through what we have been focusing on and what kind of results it has given. So all in all, in 2023, we are focusing on business performance. Of course, that is the key and the foundation for any company. And really happy to see in 2023, both Hiab, Kalmar and MacGregor were all performing on a good level. So that was, of course, key for the whole change to give the confidence into the market that all 3 businesses can perform at the same time. Another focus area was, of course, the turnaround at MacGregor. And MacGregor has now performed 4 quarters in a row on a good level. And we can clearly see that the main business is Merchant and Service is already now on a roughly 10% OP level. We have been focusing a lot in turning around the offshore. And also there, we have seen progress, and I will come back to that a bit later on. Then we started internally the project early May last year, preparing the separation of Kalmar and Hiab and then, of course, focusing first on Kalmar. Roughly 200 people have been working since then every day in securing the transformation of Cargotec and gradually moving towards the partial demerger of Kalmar that is now planned for the 1st of July. The main focus areas in the separation has been [indiscernible] stream, roughly 100 people working there. And of course, the listing readiness for Kalmar has also consumed its part of our attention. So now we have gone quite a long way and we are some weeks ahead of the Kalmar listing and separation. And we focused also on delivering the strong order backlog that we had from '21 and '22. And we have been successful doing so, both in Hiab and Kalmar. We are also continuing to invest in the future. For example, in the electrified versions of our products in Kalmar or in many new entries to the market with new solutions in Hiab. At the same time, we are bringing down the cost structure. We announced as part of Q3 last year, we're going to take down the cost structure by roughly EUR 50 million, plus another EUR 10 million in MacGregor. And then as part of Q1, we announced that we are increasing the bar, and we actually give in EUR 60 million, plus EUR 10 million in MacGregor. So that has been also part of the transition. That includes, of course, bringing down Cargotec from a conglomerate structure into a holding company mode. We have also been successful in delivering increasing order backlog in MacGregor, then mainly in the Merchant and Service segments, the market is supporting MacGregor at the time being and that's, of course, helped also in the turnaround as such. The most challenging area has been MacGregor offshore restructuring. So we have restructured that business to a minimum. We have today in offshore below EUR 90 million left of order backlog. That is less than 10% of the order backlog all in all in MacGregor. And out of that EUR 50 million is healthy business. We have some tens of millions still in old projects that are of the character of pilot projects. Then again, like mentioned here in the early stages, we have been focusing very hard on preparing the partial demerger. And I think we have been successful internally here. And of course, at the end, we can see the results when Kalmar goes on its own. All in all, all these efforts done internally resulted in '23 in a record comparable operating profit and cash flow for Cargotec, a very strong signal to the market. Of course, the turnaround of MacGregor is we have clear evidence of that, and we have a positive outlook for MacGregor. And again, last but not least, the whole demerger project internally has been delivering. This can also then be seen in the external world, and the share price is up 80% since 1st of April last year. So we have gradually now for 5 quarters in a row performed on a good and healthy level, and I think that has given the market confidence that also Cargotec can be a double-digit OP company even in a slower market. So that's a very good and clear message, the remark. On top of that, the Board has proposed a record high dividend to the AGM. We have the AGM on Thursday of EUR 2.15 a share. The announcement back in April '23 that we're going to investigate and initiate the process to potentially separate its core Kalmar and Hiab. Now we are quite far into that process. And the way we had planned it now is that Kalmar goes on its own on 1st of July. And we are actually -- and have today announced that we're going to start the sales process of MacGregor. At the same time, Cargotec is now in a holding company mode and then during the latter part of '24 and early '25 we'll bring down Cargotec to an absolute minimum. And at the end of the day, we have a Cargotec closing of the books in February '25. And then if everything goes according to plan, we have a final AGM for Cargotec in March '25. And the announcement of the name change that came last night is, of course, then planned in a stage, where all these 3 things have happened and then Hiab takes Cargotec's place as a stock-listed company in Helsinki. So all this needs to materialize before that happens. So what was the rationale when the Board decided to go on this path. I think there are a lot of logical also next steps to be taken by Kalmar and Hiab going forward. We clearly saw that there was a shareholder potential that wasn't shown in the conglomerate. And I think we have shown that the decision to separate the companies has been the right one. Of course, there's already now an increased attractiveness towards Kalmar and Hiab, when they go standalone companies, both if you're looking for talent and recruitment processes today, we can clearly see that Hiab and Kalmar is attracting talent in another way compared to when they are and were separate divisions under the Cargotec umbrella. It also allows for faster growth. The companies will in the future not compete about the same resources being financial resources or attention from Board, management and so forth. And at the same time, I think there is clear potential in Kalmar and Hiab going forward to simplify processes, systems and to specialize everything around one business and become more faster, more agile in the future. At the end of the day, it also simplifies a lot of the governance that we have today in Cargotec. As you have seen, Kalmar as a standalone company, will have a nomination Board, a normal Board of Directors and so forth. So that is a simplified governance structure and of course, a Board that focuses fully on one business, and similarly then for Hiab in the future. At the end of the day, as announced more than a year ago, we'll have 2 separate stock-listed companies in Helsinki in Kalmar and Hiab. And today, we announced that we're going to start the sales process of MacGregor and finding a solution for MacGregor. So no changes here. So in '24, what are we now focusing on? Well, continue the strong business performance that we have shown over the last 5 quarters. That is, of course, key. It is, of course, a bit softer market than compared to '21 and '22, that is clear. But we have actions to balance that out, and we have shown that also in the first quarter. Of course, completion of separation of Kalmar 1st of July, and that's an item on the agenda on the AGM on Thursday. But internally, of course, we are preparing the last things to have the separation in place 1st of July. And then in the second half of '24, as said before, focusing on finding a solution for MacGregor. These are the top priorities for 2024. And the efforts and the results in '23 and then in the first quarter '24 has given Cargotec a very strong financial position. Cash of EUR 458 million, we have a very low net debt gearing of 3%. So both companies, when they go on their own, will have a very strong balance sheet. So that is, of course, clearly also a very strong message to the market. You will today then hear a lot more about Hiab and tomorrow, a lot more about Kalmar. And of course, opening it up like this, the way we do it today and tomorrow gives totally different transparency to investors, owners, analysts when we go into the deep dives into the divisions within Hiab and Kalmar. And that is also one of the strong points on the agenda here that increasing the transparency of what is the business that these companies are in, what is the market position, what are the activities for the next strategy period, and how is Hiab and Kalmar going to deliver on the targets that we have announced, well, last night for Hiab and last week for Kalmar. And then last but not least, we announced last night that keeping in mind that we have finding a solution for MacGregor here, we need to bring Cargotec down from a holding company model even to a minimum. And then at the end, Hiab would take Cargotec's role as a stock-listed company in Helsinki. All these things in place happening according to plan, then I'm really happy to present that if and when that happens, Scott Phillips, today, President of Hiab, and been running Hiab in a very successful way over the last years, will continue in that role and is the CEO to be of Hiab. And similarly, Mikko Puolakka, CFO of Cargotec today, really happy to see that Mikko will continue in his role, actually, legally its the same company that continues. So Mikko is just continuing his current role, but the brand and the company changes to Hiab from Cargotec. And of course, that's also a really strong message to the market that we have very experienced CFO in place in Mikko Puolakka for Hiab going forward. And also, of course, internally strong message that we have leadership in place for Hiab. That was a short introduction, and then we open up for any questions that you might have.

Thank you, Casimir. So let's open up for a short, brief 5-minute Q&A focusing on Casimir's presentation. So as a reminder, we will then have a joint Hiab Q&A after Hiab presentations. So we will hand over the microphone for those who are ready for the questions. So there we have Erkki, please go ahead. .

It's Erkki from Inderes. Just regarding MacGregor, could you give us any kind of or shed some light on where we stand in the process? Do you already have kind of a short list of potential buyers? And what are the next steps?

Well, we announced today that we're starting the sales process and we have communicated earlier that during this second quarter we'll start. We have now 4 quarters in a row with stable and good results. So of course, there has been interest in the market when the market has seen that there's a turnaround happening. And last year, Merchant and Service together were 10% OP level and still losses in offshore, taking out roughly half of the profits. And we ended up on a plus EUR 30 million level. And then the first quarter, again strong message, 11% OP in Service and Merchant, which is the core business. And then we're gradually delivering on the order backlog in offshore in these pilot projects that have been loss-making. So yes, there is a long list in place, and we start the marketing and the activities next year -- next week. And the second half of '24 is what we're targeting for having a solution in place for MacGregor.

And the schedule looks a little bit tight. So you don't deem that there could be any differences in terms of valuing MacGregor between the seller and buyer?

I think a year ago, we had a different gap compared to where we are today. I mean, analysts' view on the value of MacGregor more than a year ago was anything between 0 and 200. Now I think it's up somewhere between 300 and 500. Looking at the analyst point of view, and some even higher. So let's see what the real market value is. But the target still have a signing in place during '24.

Next question, please.

Yes. This is Tomas Skogman from Carnegie. I just wonder about this internal costs in Cargotec and also, with this in relation to the new margin targets. When you talk about higher margin targets, I assume that will include their own kind of internal cost pool. So we don't avoid mistakes in understanding the target.

Yes. Last week, I mean, the Kalmar long-term targets are 15% OP, and that includes the standalone costs. For Hiab announced last night, the 18 is still, as a division, those targets, the 18. So then when Hiab goes on its own, that's, of course, the next time when it makes sense to update those targets if relevant.

And the numbers we should expect for '25 and '26 in these overhead costs for Kalmar and Hiab?

Well, we have said that anything between 1% and 2% overhead as standalone companies, and that's pretty typical for any stock-listed company. Most of the companies are hovering between 1% and 2% on standalone cost as stock-listed companies. So again, in Kalmar, that is included in the 15% target.

Final question. Seems quiet. So I thank Casimir for his presentation and for the questions.

Thank you.

Now it's time to switch focus on Hiab. Hiab has been one of the fastest-growing Nordic industrials in the past decade. And today, we have a great opportunity to learn more about this business. I would like next to welcome on the stage President of Hiab, Scott Phillips.

Thank you, Aki, and welcome, everyone, both here in Helsinki and those of you that are joining via the global webcast. I'm Scott Phillips, Hiab President, and I'm delighted today to put the spotlight on Hiab. And I'm delighted to be able to share with you the essence of our business, and it starts with we have an 80-year heritage as of this year. And that's based on always being a first mover innovator in the industry, building a reputation for our products,and our customer service that's second to none, but it's a lot more than that. We serve marks with attractive structural characteristics, essential industries and applications with no great level of cyclicality. We target niche markets yet at scale, anywhere from EUR 0.5 billion to EUR 5 billion in addressable market. Yet they require a high level of technology as well as life cycle support. And what's unique about us, it's our positions in the market with our direct proximity to customers. And that enables us to have deep understanding of their application and operations and their key challenges. And it's our ability to translate those into innovations that we tend to bring to the market first and that's at the heart of our reputation, and all of which is enabled by our true differentiator, and that's our people. With their passion for each other and for the customers, early to make it happen. And that explains this unique attachment between our customers and our products. So I want to open with a few highlights of the key messages that I aim for you all to take away today. Our results are good. We've been growing our profitability, but we can be so much better. And the potential is very exciting. We are positioned to grow faster than the market, as you'll hear, and highlighted in our 6 investment highlights. Based on, at least 3 factors, we know how to grow in global market segments, and we'll highlight some of those for you today. We know we can expand our leading position in North America, and we also know that we can accelerate our services growth through our installed base. Moreover, you will also hear today how we plan to drive productivity gains every year through our operating model and through our business excellence or operational excellence. And it all adds up to an attractive financial profile and the potential to outperform. And that's the essence of Hiab, and that's what we want to get across to you all today. But today is a lot more than that. It's also about seeing more of our senior team. So for me, I've been President of Hiab for the last 5.5 years. And as I think about it, what I really love about this position that I've held in the business is, first and foremost, I'm really proud of the team that I lead. They're talented, passionate leaders that manage the balance between making fact-based decisions, but leading from the heart, that truly inspires people and our customers. I'm proud of the step change that we've made in bringing new innovations to the market, all the while being remarkably resilient and delivering good results, especially during these times of hyper uncertainty with our focus on operational excellence. And finally, I remain energized and motivated by the fact that we can be so much better. So speaking of the team that you're going to hear from today. First, you'll hear from Barry McGrane, who came to us as a result of an acquisition of the MOFFETT business as an engineering manager. Post acquisition, he played a key role in exponentially growing the world's leading truck-mounted forklift offering. And after he did all that, we decided to send Barry to the U.S., to lead our North American commercial support center, our customer support center, where he led a remarkable turnaround of the business and helped us to deliver the scope that we enjoy today, but also create a step change improvement in safety. And most recently, he's done a brilliant job in leading the light medium loader crane business to be one of our real star performers in the portfolio. And after Barry, you'll hear from Michaël Bruninx. And Michaël has been a real transformative leader of services business as well as other businesses in companies like Atlas Copco, Sandvik, and then fortunately, for the last 4 years, here in Hiab. And he's one of the real thought leaders in any industry with regard to aftermarket services. So really pleased that you'll hear from him as well. And then Magdalena Wojtowicz, she'll wrap up our investment highlights. And she has been one of the most impactful leaders in Cargotec her entire career. She helped us to transform how we manage supply chain, sourcing, services in Kalmar. And fortunately, for the past couple of years, she has brilliantly led a turnaround in our Tail Lift business, which she'll tell you more about in details in her section. And each of them will give you more details about their background. So now please allow me to more thoroughly introduce you to Hiab. Now as you can tell, I'm really proud to lead this great organization and our team, proud to represent our total stakeholder group and in guiding you through the first section to help everyone understand why we think were a great investment choice now with significant upside potential. So first, let's give you a snapshot of our business by showing you a video that will help explain how Hiab helps to keep everyday life moving to build a better tomorrow. [Presentation]

Hopefully, that shed a little bit of light in the role we play and why we refer to our industries as essential. So moving into guiding you through where are we today. So Hiab ended last year in a strong financial position, ahead of all 10-year averages with the exception of cash conversion. We had a record year of revenues, as Casimir alluded to earlier, resulting in a 14.1% return, and those good earnings resulted in a return on capital employed over 30%, so well within our target range. And it's important to note that our sales mix was 53% Europe, 39% North America or the Americas. North America was up, South America down slightly, 8% Asia Pacific. Services accounted for 25% of the sales as a result of the nice execution in converting the equipment backlog. So we start 2024 with strong foundation of performance, supported by top positions in all our market segments. So let's take a closer look at those market segments. During COVID, we learned just how essential our customers' businesses are to everyday life for all of us. As you got a short glimpse of in the video in each of these 10 segments that are on the slide in front of you, play a critical role in how we live our everyday life. And in fact, if you look around you, no matter if you're joining online or here in Helsinki, nearly everything you can see, feel and touch was delivered by a Hiab solution or some other method. Some key points I'd like for you to take away relative to our segment exposure are the following: the diversity in our segment exposures that we serve enables us to be resilient through the economic cycles. Secondly, each segment or load handling application does have its own unique challenges and key problem statements, opportunity be a differentiator. Three, at the same time, however, they all have a common element of challenges around safety, efficiency improvements and life cycle services that are necessary and why. That's to ensure uptime. And then that finally represents further opportunities for us to grow into new segments, leveraging our capabilities, which I'll come back to in the summary section. So the need of our customers to find solutions that saves them time safely, while receiving service support that secures uptime of the equipment, that's the common thread that binds us to our customers. So let's take a closer look at our customer segments that we serve or the customers we serve. Now as I mentioned earlier, we do have the special connection to our customers. And it's a consequence of our people and the passion that they show and demonstrate for the business and for our customers' businesses, which we seek to amplify through our direct sales as well as through our global network of dealers and distributors. As you look through the 2 graphs, about 2/3 of our sales, you add up the construction, infrastructure, other logistics, that makes up 2/3 of our sales, adding rental, waste and recycling and resources takes us to about 80% of our sales. And as we communicated in the 2022 Capital Markets Day, roughly half of the construction exposure is a consequence of repair and renovation on the installed base. So we quite like this exposure. And it is important, as you can see the diversity in our customer base that we have the correct service offering for all customer types as we have the low concentration of sales with our top customers and thousands of customers that follow that we serve. Michael will come back and elaborate on how we're set up from the service side to support that diverse customer base. So in order to continue to grow and improve on our customer satisfaction, which has gone up by 75% in the last 5 years, we know we must continue to be innovative in developing the offering of the future and stay true to our heritage being a first mover innovator. So let's take a more detailed look into the offering that we proudly provide to the various industries and customers that we serve. Broadly, we offer 3 categories of solutions, all of which are part of an integrated truck, chassis and cabin arrangement. That's important to note when thinking about our supply chain, and these are highlighted and read in the Hiab solutions. So the first category, our lifting solutions covers the full spectrum of our loader crane offering serving various industries. Our delivery solutions make up the second category that covers our truck mounted forklifts, our demountables as well as our tail lift brands. And then, of course, finally, our services offering, including our digital solutions, which we'll elaborate more details later, is under the high perform brand. So speaking of brands, we have a few that have carved out a permanent place in the history of on-road load handling. So let's take a close look into that. Now one of the most remarkable aspects of our company, and that's truly unique from a personal perspective, is the fact that we have in our heritage been built to perform through a number of industry first, which have defined the equipment utilized for that industry. So what do I mean by that? So often, when customers order a loader crane or a truck mounted forklift or a LOGLIFT loader crane, they will often refer to ordering a Hiab, a MOFFETT or a LOGLIFT agnostic of the brand that they are intending to purchase. And that's a compelling advantage, which has enabled us to carve out a unique place in leading the industry as first mover innovator. And proudly, we have continued to stay true to our propensity to innovate first into our ECO portfolio as we are clearly at the forefront of helping our customers manage the energy transition. Hiab has established a number of first in the industry with regards to our ECO portfolio. We are the first with a fully battery electric truck-mounted forklift offering. We're years ahead. We are the first with electric power takeoff for loader cranes. We're on third generation. We're the first in the industry with solar charging with tail lifts and the first to have a fully carbon-free method of training and certifying operators with our high skilled virtual reality training and operating solutions. So yes, we're proud of the impact our solutions have had in reducing the overall carbon footprint. In terms of numbers, last year, 30% of our sales were from this ECO portfolio, which resulted in a 15% reduction in the CO2 footprint or intensity year-over-year. So taking a deeper look into the operations that provide these solutions. We believe the way that we have designed our global network and footprint provides a competitive advantage for Hiab and secures a sustainable advantage for our customers and our shareholders, and this is why. Our global network of direct and indirect sales and services, it enables 2 important factors that our customers experience. One, it enables global leverage of knowledge and capability, whilst at the same time, it also enables local service excellence. That's critical. Secondarily, our asset-light footprint co-located in many of the countries in which we sell in across all 3 major regions, enables us to be flexible and resilient in both our cost as well as our capacity, which played to our advantage over the past 3 years. Together, these attributes secures our ability to invest in continuous improvement in all cycles. And on the graph, the slide on the graph, the country is highlighted in red, denote our own operations. Those in peach, at least that's color I'm calling it, denote our partners' footprint. And then those that are in gray represents opportunities for us in the future to consider to cover those territories as well. So we are both geared to grow profitably with our asset-light global network and at the same time, we have prudent downside risk due to the asset-light approach we have taken to design this network. So let's take a bit closer look at how we performed over the past decade as we did come from a period that many of you remember of underperformance following the global financial crisis up until 2012, 2013. As Casimir stated, we are proud now that we have one of the strongest profiles of growth and earnings amongst all Nordic industrial companies over the past 9 years. Our 10-year CAGR has been more than 7%, which has allowed us to nearly double the revenues. Now with the structural changes that we made to address the underperformance between 2013 and 2016, combined with the focus on building up operational excellence capability in the last 5 years, we've been able to maintain solid double-digit operating profit even during these tough COVID years. So this track record of consistency, it does give us confidence that we can continue to deliver incremental improvements on this profile over the next 5 years. We have to make some changes, which we will share with you later today in our investment highlights from Barry, Michael and Magdalena. So allow me to set this up for you first by turning your attention to the markets and the business factors that have enabled this past performance and sets us up quite nicely for our future performance. Here we go. So we have attractive end markets with solid underlying drivers. Combined with Hiab's winning formula, it will enable us to help our customers to both grow and win in the future. And that will enable Hiab to grow profitably. Now when looking at the markets, our macroeconomic factors that drive our markets, our growth and output and consumer behavior, those are really the 2 key factors linked very much to GDP. And looking more broadly, climate change and this necessary energy transformation will also drive incremental demand. And then looking deeper into the businesses, there are critical microeconomic factors that makes innovation and differentiation a must or an opportunity. And they are safety, the need for increased productivity in terms of reduced time to deliver at a lower cost point. Our customers, both in Europe and North America, and Barry will elaborate on this point a bit more, have the challenge of 2 few qualified operators. So that's a golden opportunity for us to help them solve that. And there's, of course, the need and challenge to reduce the overall CO2 footprint. So while it is important to note the market drivers, that isn't the whole story. And so I want to draw your attention into the far, I think, left-hand of the slide -- right-hand side of the slide for all of you viewing. We believe our ability to translate insights into solutions as part of our winning formula provides a strong case for why we believe we can continue to grow faster than the market. And let's take a deeper look into that statement. Now often, when asked what makes Hiab successful or what do you need to do to be successful, I often respond by saying it's largely a consequence of the partnership and relationships between our people and our customers that has over time led to what we call our winning formula for lifting the safety and productivity of our customers. Now the first variable is basic, but critical, and it starts with a necessity to have deep understanding of the key problems and challenges faced by our customers as well as the operators of the equipment. As I mentioned before, there are common factors both around safe operations and productivity, but also just how to solve this challenge of moving complex heavy loads often under difficult load conditions and at a lower cost to enable our customers grow and be successful as well as enabling the operators to do it successfully, easily and safely. But then you also must have the physics based outcomes and this is the essence of what our equipment does in order to move heavy, asymmetrical loads, often over variable rough terrain. In order to do so, our engineer designs, they lead to faster, easier movements under high load conditions. And this is the magic in our control system that you will hear from our customers later today, and it leads to more tons moved over less time, which lowers cost, which leads to better productivity and efficiency. But then you also have to be able to provide excellent service for the equipment to maintain our customer satisfaction as well as their competitiveness. And why that is, as I said earlier, it's because our customers require maximum uptime. Every second, every load move counts. And they're willing to invest in better equipment utilization through data-driven insights, but they also need a supplier that can grow their service network, commensurate with their own ambitions to grow the top line through organic growth as well as geographic expansion. So these capability variables aren't the whole story. They are, in our case, exponentially impacted by 2 key factors that are unique to us at this point in time: always one, our people, and the passion for which they have that you'll hear about from our leaders and through our customers as well as the data-driven insights from our connected fleet that Barry and Michael will expand upon later. In this winning formula, it really is inherent to the DNA of Hiab, and it's what sets us apart, and it is what will enable us to help our customers to win the future. So let me wrap up this introduction section by telling you or expanding more broadly on what this will mean in terms of business outcomes. So we have a real chance in this strategy period to go from a good performing company to a great performing business as we can improve upon how we run the business. So in the next section of investment highlights, we will tell you how we intend to continue to outperform the market. So we target to continue on a 7% growth over the cycle, improving on our relative profitability from last year from 14.1% to 18%, whilst maintaining a greater than 25% return on capital employed. And we are passionate about remaining a science-based target initiative company with regards to sustainability. And we believe this profile puts Hiab in a category of being an excellent performing company amongst all industrials. That's what we target. So thank you all for your attention, and now we turn our attention to the future, and I'll turn it back over to you, Aki.

Thank you, Scott. Scott will come back later to the stage and summarize our future growth strategy. But now, as Scott said, it's time for the deep dives that focus on our investment highlights. Our next speaker, Barry McGrane, will guide you through our growth strategy in selected key segments, in North America and how we will continue to innovate to shape the essential industries we serve. Barry, please go ahead.

Thank you, Aki, and hello, everyone, and a very warm welcome from my side also, and I'm delighted to be with you all here this afternoon. My name is Barry McGrane. And for the past 3.5 years now, I have headed up our Loader Crane Light & Medium division. And I also lead our innovation excellence and technology platform programs for Hiab. I've been with the company now for over 20 years with a range of experience and starting off with our truck mounted forklift business, initially holding various roles in engineering and R&D. And then I moved across to the commercial side of the business, where I had responsibility for global sales and product management. In this role, I was part of the leadership team, where we doubled the size of the business in a 4-year period. After that then, I went to the U.S. for 3 years, where I had responsibility for sales and frontline service operations. And during that era, we successfully grew the business and increased our EBIT by over 50%. So quite often, people ask me, so what is it that keeps you at Hiab all of these years? But for me, it's being part of the best and most innovative products in this industry. But also the opportunity to work alongside some really great people who make all of this happen for Hiab. So I'm really proud to be part of this organization. Today, I'm here to talk to you about how we are the leader in the markets where we choose to operate, that we have a clear strategy now to continue to grow over 7% over the cycle. And we will do this by focusing on key segments globally. We'll also be expanding our leading position in North America, and I'll also talk to you around how we will double our R&D investments to continue to shape this industry. But before I go into that, I want to start off with some background and explanation on the size of the market and how we are positioned today. The equipment market that we choose to play in is approximately EUR 4.5 billion. And this same market has grown by approximately EUR 1 billion in the past 5 years. As Scott mentioned earlier, we specifically select niche markets to operate in, which are chosen based on what we feel provide prime opportunities for us to leverage our customer requirements for safety, productivity, sustainability, along with the high need for life cycle services. This means we are selective about what markets we enter, and that they provide the profitable growth that we seek for. In those same markets, we have a strong position, where we are either #1 or #2. And it's important to note to be successful in this particular space, the customer requirements that I just mentioned require advanced solutions, combined with a broad portfolio of products, both of which we have today. So what you can see here is a very attractive market with a high barrier for entry. So Hiab has provided itself with a great platform to grow even further. If you look at the previous number of years and how our customers see us. We are seen as the brand leader. We are also seen as the innovation leader. We have a high Net Promoter Score with our customers, and we have a very strong global service footprint. In the past 10 years, we have delivered over 350,000 pieces of equipment. And as the replacement cycle is somewhere between 8 and 10 years, the majority of that will become prime for replacement in the coming years. So we have all of the key ingredients to continue to grow in line with the market. Therefore, we have established this very strong platform to grow from. And then when you look at our next strategy phase, we will place additional investments to grow at a minimum of 7% over the cycle with 3 key growth levers. So as I mentioned, we will be focusing on specific segments globally, expanding into the North American market, accelerating our growth services, which Michael will talk to you in a little. But we have also one key enabler, which supports all 3 of these. And that is innovation and sustainability, and I will talk you through what our plans are with regard to increasing our R&D investments. So now we have a clear plan on how we will focus on selected segments globally. Overall, we will be targeting a wide range of segments, but we have selected 4 where we have put specific invents in place to increase our penetration into each one. The 4 that we have selected are Waste & Recycling, Defense Logistics, Retail & Last Mile and Construction. And the rationale for selecting these particular 4 segments is that, they all offer significant growth potential. Most of them, especially Waste & Recycling and Retail & Last Mile are fast growing with CAGRs well above 7%, and we have proven success in each of these segments. All 4 have industry challenges that will drive the demand. And some of these are the global transition towards urbanization, where the drive to dense locations lend itself very well to our types of solutions, operator shortage and here, we know of a shortage of at least 1 million truck drivers between the North American and the European markets. So our customers are in turn coming to us looking for help for training, on-boarding and ease-of-use solutions. Productivity requirements are becoming more important. The cost of fleets are increasing. And again, our customers are coming to us for help. Safety awareness was once typically only highlighted by our fleet customers, but now it's across our entire customer base. Sustainability challenges, we now know of at least 100 cities are moving to zero emission zones by the end of next year. And e-commerce, e-commerce continues to grow at a fast pace. Today, we currently have a deep understanding of those challenges and how they in turn impacted our customers and what we need to do to help solve for those challenges. So there are 2 key enablers to drive this initiative. The first one will be on new product development. We will be focusing on segment-specific innovations. For example, some features we will launch a whole new range of recycling cranes in the next 12 to 18 months. With our new control systems it provides a platform to continue to further develop features focusing on safety and productivity. And we will also continue expanding on our ECO portfolio. The second one then is on value selling. So here at that 2 year ago, we started to build our commercial excellence capabilities. And Magdalena will talk more to this one later on. But within that, we established our value selling program, and this is extremely important for us now, especially in this next phase. Value selling is a different way of selling and engaging with our customers. It's about helping our customers to better understand what is the right product in order for them to realize the outcomes that they are seeking for. And then it also in turn, informs us how to better link the pricing to the value for our customers. But we will do this with using specific techniques and tools. And I have one very good example for you. We have developed value calculators for both of our electrified truck mounted forklifts and our electrified loader crane rangers, where here, we developed an online portal that the customer themselves can use. In there, they can, for example, enter in what their fuel cost per liter are, the electricity cost per kilowatt, the number of lifts they do per day, the number of deliveries they do per day, and then also the truck make and model and so on. There, they can calculate the exact running cost comparison between the conventional solution and the electrified solution. They can see what the exact payback period looks like. And importantly, that is all based on our own data. They can also see what the CO2 reduction will look like. So here, we are turning features to benefits and benefits to the exact euro savings for our customers. So we've got the right products. We've got the right know-how, and we've got the tools to succeed in these 4 segments. So our second growth lever is expanding our position in the North American region. And this is a market I personally know very well from my time based in the U.S. Today, this is currently EUR 650 million of sales for us, and we are very excited about the additional potential in this region. This is also a market that has seen strong development in recent years, and is both robust and attractive. So whilst the adoption of [ our ] type of advanced load handling products is already at a good level, we would say, in North America, it is still perhaps a step behind the penetration that we have typically seen in our European markets. But the North American market is evolving, and so too are the industry challenges that [ our ] customers face. Their requirements for increased productivity, improved safety and solving for those operator shortages is increasing now all the time. So we have a number of initiatives now that will focus on to expand our position here. The segment's drive that I mentioned a moment ago will also apply for North America, but particularly on the defense logistics, the retail and last mile and also construction. But beyond that, we have 3 additional enablers to drive the our growth plans. The first one will be involving leveraging our commercial excellence capabilities. We have identified a significant opportunity to increase our share of wallet with our key accounts. In a minute, I will show you a really great example of one of our U.S. customers and how we built a partnership based on being a full end-to-end solution provider for all of their needs, with a full portfolio of products, total care services and digitalized solutions. And so our plan now is to leverage this across both current and new customers to increase market share. Traditional lifting methods such as stiff boom cranes and mobile cranes are still prominent in North America, where they are often recognized as being lower cost and easier to operate. We will target this segment to convert that customer base towards the knuckle-boom crane solution, where versatility, productivity and ease of use are in fact, a better solution. And we have the data to prove that. Secondly is getting closer to our customers. But here, we've identified a number of white spots in both our distribution and service coverage, but especially on the West Coast of the U.S. We have a twofold approach to improving this. We will be expanding our direct sales and service network. And secondly, we will be recruiting and developing a full new dealer and partner network. And this will vastly improve our proximity to our customer base. Number three then is leveraging on our local footprint. So here in recent years, we have increased our local manufacturing footprint with the acquisition of Galfab has been one example but more recently then with the setting up of the manufacturing of our truck mounted forklift products in Ohio. This means we have local production of nearly our entire portfolio for the North American market. This, in turn, allows us to have and provide faster reaction times for our customers and best-in-class delivery times. We are also uniquely positioned by having local R&D centers serving the local market, which is particularly important for the U.S. customer base. So as you can see here, we've got clear and comprehensive plans in place to significantly expand our position in this region. I mentioned a minute ago that we will be expanding our presence into key accounts. But I'd like to show you now a bit more about a U.S. customer called ABC Supply. ABC Supply are the world's largest supplier of roofing and drywall products and are one of our largest key account customers. This, for me, is one of the most impressive companies that I have come across in my career. You will hear from the gentleman called Mike Bruninx, where he has got the overall responsibility of their entire fleet. For me, ABC Supply is a true essence of a partnership between 2 businesses that we strive to build every day. But let's hear what they have to say. [Presentation]

Yes. So the video that you have just seen from ABC Supply is just one example. So we now plan to extend this right across our customer base. So this last section from me is to highlight a significant enabler, which is heavy linked to all 3 of our growth levers. In the next 4 to 5 years, we will double our R&D investment. And we will do this by redirecting cost from admin and other overheads towards both sales and marketing, but also towards R&D, by improving and applying lean principles across our global processes and operations. Today, Hiab is well recognized as an innovation first mover in this industry. And a key part of that success has been our outside-in approach and how we engage with our customers, keeping them at the center of the innovation process. In the past few years, we've accelerated our product development initiatives. And if you look back at the previous 24 months, we have launched over 170 new models. And this year, we will launch 70 more. But we need to go a step further now in order to capture the large opportunity that our future growth levers present to us. Linking back to our customer challenges of the productivity, the safety, operator shortage and sustainability, we will also now change how we invest within the different elements in R&D. Therefore, we will significantly increase our spending in 3 particular areas. Firstly will be in our control systems. And with our New SPACE Evo platform, we will develop more advanced features aimed towards improving safety. And we will also continue to develop semi-automated motion of the equipment with machine learning, which further improves productivity and ease of use. Secondly is on digitalization. So we were the first to market with, for example, our HiSkill VR technology, and you'll hear more from Michael later on about this one and how we significantly reduced the cost of operator training for our customer, and we will do more in this area. And finally, sustainability. The shift here is clear, and it is accelerating. Customer challenges, for example, where 100 European cities will be zero emission zones by the end of next year. Customers have also set themselves CO2 reduction targets, and they in turn, turn to us to help them achieve that. We are also working alongside our truck OEM partners, and they are targeting a minimum of 35% of their trucks to be battery electrical vehicles by 2030. We have, by far, the most advanced sustainability solutions portfolio in this industry, and now we can go even further. So let's take a look now at some of our current solutions and what our customers have to say. So you will hear from 3 of our customers, and each of them have got a different challenge. You will hear firstly from Pets at Home in the U.K., who moved their logistics to nighttime deliveries for their 450 stores in order to improve transport efficiency. This, in turn, enables them to reduce their truck fleet by almost 40%. But that brought a new challenge with nighttime deliveries, and that was noise pollution with local residents. But here with our electrified truck-mounted forklift, we solve that issue for them. You will also hear from Omrin, who are in the underground waste collection industry. And here, our control systems with automated motion was key to increasing efficiency and also improving ease of use for their operators. And then lastly, you will hear from Vlot who needed electrified solutions to win tenders in these zero emission zones in the Netherlands. No one in this industry can offer these solutions, only Hiab. But let's have a listen to what these customers have to say. [Presentation]

Yes. So as you can see with these innovative solutions that we have today, we were really able to be a game changer for these customers. So to summarize on my section. We are the leader in the markets where we choose to operate. We now have a clear strategy to continue to grow at 7% over the cycle, and we will do that by enhancing our focus in key accounts through new product development and value selling. We will be expanding our position in North America through commercial excellence, improving our proximity to our customers and also leveraging our local manufacturing. And then the key enabler that I just discussed with doubling our R&D investments to continue to shape this industry. So that's all from my side. I hope you found it informative. And with that, I thank you for your attention, and I'll hand it back to Aki.

Thank you, Barry. Now it's time to turn our focus to services. Our next speaker is quite a familiar face to many of you who have been following our past events in 2022 and '21. Next up, we have Senior Vice President of Services in Hiab, we have Bruninx. Please go ahead.

Thank you. Thank you, Aki. Welcome, and I'm delighted to meet you. My name is Michaël Bruninx, and I'm the Senior Vice President, Services, and I'm responsible for managing our important aftermarket business and leading its digital transformation. And today, I will present you how we drive scalable service growth and enhance customer engagement. So a quick overview of my background. I've held some key roles in large industrial companies, both from a capital equipment point of view as well as aftermarket. And those latest experiences were connected to the creation of [ decentralized ] operating models and the acceleration of service-oriented businesses. And I've had a distinct privilege to lead some of the transformation programs that have resulted in lasting successes. And these initiatives, they have scaled businesses, enhanced customer experiences, fostered data-driven decision-making and generated profitable, sustainable business. Now I joined Hiab 4 years ago, and I love this business because of its brand leadership, the loyalty of the customers, the passionate people and remarkable business potential. So today, I want to discuss several key points. So firstly, it's the robustness of our aftermarket. Secondly, our installed base, which is not only resilient and sizable, but also continues to grow. Thirdly, the strong leverage of the underlying operating profit, and the fourth point is a very solid cash flow. And today, I will outline a plan to improve our customer experience and to increase our services, aftermarket revenue to EUR 700 million in the following 5 years. So let's begin with our revenue profile and the growth drivers. So over the past decade, we have significantly grown our business from EUR 231 million to EUR 452 million, and our goal is to reach EUR 700 million within the next 5 years. Hiab has been strategically harnessing its sizable installed base to drive growth and to create added value in the capital market. And what you can see on the left-hand side have 3 defined initiatives over this period. So the first initiative was the Cargotec services focus, which led them to the service foundation across the whole organization. And that was followed by the implementation of the decentralized operating model, which led to the implementation of the services organizations and leadership across all the different markets. Why is this important? It led immediately to increased transparency, more accountability and it led to faster decision-making closer to the customers. Now what is also remarkable is during the COVID-19 period, we sustained recurring services revenue as we swiftly organized ourselves to keep our customers in those essential industries in operation. We demonstrated the resilience and fast recovery during that period with revenue growth rates with a CAGR of 12%. Now we are in the period of the digitalization and this is part of our '28 strategy. We are investing several millions to enable more scale, to continue our cost [ base ] and to further uplift our customer experience. And I will cover this specifically later in this presentation. You can see on the right-hand side 3 clear growth levers. So the first one is the large installed base, which offers us a great potential for growth, but also customer retention. The second is the customer-centric innovation with a clear objective to create customer value for our customers. And thirdly, key in our value proposition is our services network. Now we keep on strengthening our presence close to customers to ensure we can deliver a higher promise. So you can clearly observe here a positive momentum driven by structural improvements and our aftermarket is appealing and expanding. I want to talk to you in the next few slides about these clear growth levers. So Hiab is in a prime position to leverage the expanding opportunities presented by the growing installed base. And as you can see on the left, our customers have bought more than 350,000 products over the last 10 years from the variety of [ Hiab ] brands. Now what is interesting is that the product mix has favorably shifted the units that require more life cycle services. And that's a direct consequence of our focus on value selling and are focused towards specific segments and applications. And that has led to the fact that we now see more high service potential equipment, and that high service potential equipment offers up to 25x more life cycle services compared to a low potential equipment. And as you can see, the mix from 2020 to 2023 has shifted to a more favorable aftermarket growth potential. So while investing in those capabilities, we have grown our parts capture from 43% to 47%. Now we have demonstrated our commercial enhancements by increasing our service contracts from 8,200 to 16,500 active Procare contracts, and our customers are very positive about that. We invested in the connectivity platform and the infrastructure to connect Hiab equipment, which supports us to develop remote and diagnostic services, how we increase the number of connected units up to 39,000. So our breakthrough objectives for '28 are to further increase our capture rate above 53%, to market 50,000 service contracts and to connect more than 90,000 units. So you've seen clear improvements in the parts capture rate, the Procare contracts and the connected units, which makes us very well positioned for the future growth. And because of our established decentralized operating model, our enhanced commercial, operational and data capabilities, we can confidently and clearly focus on the installed base as a promising source of expansion. And here is a compelling illustration of the untapped potential that resides within the installed base. So Hiab contracts, well known as ProCare are essential for enhancing the customer satisfaction and can potentially double the parts revenue. So you see here one of our key customers, Knettenbrech in Germany, and they have successfully experienced fast growth. And they are very active in the waste and recycling business. And while they increased their fleet significantly, they continue to serve a very satisfied customer base. Now initially, they self-maintain the fleet. We demonstrated after a collaborative pilot that we could have a positive impact on their cost of ownership as well as their uptime. And this made them to decide to change their maintenance strategy and contracted the maintenance of the fleet towards Hiab. Now you will see on the right-hand side that typically, you will see some fleet owners, they decide on ad hoc maintenance or the outsourced services. And this typically leads to a lower parts capture rate for Hiab. Now Hiab customers with a contract, they typically benefit from a lower cost of ownership, higher uptime and the benefit for Hiab is of course, that we can participate in the full parts potential. And what you can see here is that if we sell service contracts through our partners, they typically sell the service, the parts and the connectivity. And if we sell it directly, then Hiab will also recognize the labor revenue. So you can see it is a very relevant business opportunity to drive the service commercialization. And this will allow us to deliver substantial customer value, while also providing a chance to double the parts revenue. We are confident to exploit the commercial opportunities because we already made significant investments and the customers, they like it. We offer a comprehensive portfolio designed to engage and support our customers. addressing their needs and simplifying the management of their business. And this supports us to grow the capture rate and the service contract coverage. And this slide here illustrates this approach. We have involved key customers in the development process. And innovation in our services is an important driver for profitable sustainable growth. And if you look at our offerings such as ProCare, HiSkill, HiConnect, they provide comprehensive solutions that will lower the life cycle cost, but also maximize the uptime for our customers. Now what is remarkable is that if you take a look at our parts availability, we offer the highest availability of 98% for the stock assortment. And this means that all customer segments benefit from this. Next to that, we have an industry-leading platform that makes it easy to do business with us for our partners, 24/7, a very solid foundation for our aftermarket business. Now this year, we launched Red Parts. Red Part offer a cost-effective solution for units with a limited remaining life span. And next to that, we developed high-performance smart solutions, which is basically a data-driven portfolio. And this is very valid for customers with more demanding expectations in functions of uptime and cost of ownership. And this high performance portfolio goes from scheduled essential business to inspection plans to full responsibility contracts. And what some of you have experienced or you entered is that we also launched our famous HiSkill. And our HiSkill is a virtual training solution, which has been warmly welcomed by our customers. And why? This solution offers to reduce the training cost up to 50% and helps them to resolve one of their biggest challenges they have. It facilitates to onboard and train skilled operators for their business. And latest product introduction is Uptime, which is a remote monitoring and diagnostic solution for the connected fleet, which will be sold in combination with a contract. So what does it mean? So this means that we have a relevant and attractive portfolio to support and simplify the business for all our customers, allowing us to both scale and grow. And I believe we can do even better leading the customer experience. So digitalization and business intelligence, they are no longer future concepts. They are imperative today. And investments in these areas have provided extensive feasibility into our installed base. And this digital transformation present significant growth opportunities and we are at the forefront of the industry. And allow me to elaborate. So what you can see typically on the left-hand side, is that the traditional interaction represents customers and OEMs, where you will see that the OEMs typically have limited visibility into the fleets. And the interactions are often very reactive and often initiated by the fleet owner. And fleet owners, typically, they seek help in case of unexpected downtime are most often plan the service interventions themselves, which leads to more downtime but also loss of revenue for their business. On the right-hand side, you see our Hiab Digital Ecosystem. Our digitalization program enhances both the customer experience while it provides us with direct access to those business opportunities. And our intelligence platform supports fleet management by planning interventions, remotely monitoring connected fleet and allows us to advance towards predictive maintenance. Now we foresee to manage all kinds of interventions, planned, scheduled, unscheduled, preventive and even predictive to get those well managed and planned across the whole service network. And recently, we launched the My Hiab app to make it easier for our operators to connect with our service network and our service network with them. So this indicates we are pioneering the shift from conventional interactions to more interaction and forward thinking, enhancing customer satisfaction while harnessing the full potential of our existing customer base. So let's listen to our customers to discover what truly matters to them. [Presentation]

I'm really proud of the impact we can have on the daily operations of our customers. Another crucial aspect of our customer commitment and value proposition is our extensive service network, featuring more than 3,000 qualified service locations. We are close to our customers, which is a significant strength of Hiab within the industry. We continue to invest in strengthening our presence near customers, both through our value partner channels as well through direct service. And for example, we have recently invested in a new facility in France. We are investing in a new location in the United Kingdom. And as Barry referenced, we are expanding our service network in the U.S.A., which will increase our already more than 800 service locations. And this will also strengthen our presence in the West region. And we continuously assess our connected fleet, and we benchmark that carefully versus the location of the operations of our customers. And we further enhance our service quality by training programs and enhancing our customer support. Going forward, we plan to invest even more in technology for the partner network to support them with the data insights and tools so they can grow their business as well. So our footprint covers the globe with thousands of service locations and our direct and partner network ensures that we are close to our customers, providing both reach and flexibility. And continuous investments in the service execution and partner network will further fortify our ability to attend to the business opportunities, enhance customer satisfaction and secure repeat business. So let's take a look at the financial profile of the aftermarket business. The financial profile reflects the effectiveness of a customer-focused strategy. And in the last 10 years, revenues have grown at a CAGR of 7% to EUR 452 million. And in the recent years, the CAGR was 12%. Simultaneously, the aftermarket has an attractive operating profit, contributing significantly to the overall profits. And additionally, it is a very solid cash generator, achieving approximately 100% cash conversion. Further, we have an operating profit leverage exceeding 30%. So our future prospects are attractive. And another reason that we are confident about our future is the improvement of our Net Promoter Score from 20 to 35. So in summary, we have an attractive and resilient aftermarket business. And this is a result of strategic investments and innovation, and we are well positioned to further develop the business with clear growth levers. Our unique access to the valuable and extensive installed base, our innovative approach to deliver the customer value and our exceptional service network. We will continue to invest in scalable solutions and enhance customer experiences. We have demonstrated that the aftermarket business has a robust financial profile. Looking ahead, we aim to grow the service sales to EUR 700 million in the next 5 years. The focus on customer value and customer experience will continue. Thank you. And I'll hand over now to Aki.

Thank you, Michael. We will now take a 15-minute break and come back you can enjoy the light refreshments, we have over there or then familiarize with the high skill and high connect that we have in the lobby. So we'll be back in 16:23. So 15-minute break. Thank you. [Break]

Welcome back, everyone. We have now heard 3 excellent Hiab presentations, and we have 2 more to come. In the next presentation, Magdalena Wojtowicz will tell you more about how Hiab is planning to unlock productivity gains through business excellence. Welcome to the stage. Magdalena.

Good afternoon, everyone. My name is Magdalena Wojtowicz. And I have been with the Cargotec for the last 15 years with the experience of multiple successful business transformations including a major turnaround in Kalmar Automation Solutions Services. And now at Hiab, I have 2 key responsibilities. First, I'm Senior Vice President for the Tail Lifts division, holding accountability for Tail Lifts profit and loss. And I have been in this role for the last 2 years and what I'm extremely passionate about is my division's business area. And especially a significant profitability transformation that we have achieved in the last 2 years. My second responsibility is hosting a sourcing function across all of Hiab. And in essence, it means ensuring direct material cost competitiveness for the company. What I want to cover today is how we use business excellence to unlock significant productivity gains, how we do it consistently year in, year out, targeting 1.5% per year. That's helpful for our margins, means we can invest as well as we can manage the inflation pressures and how we have a proven track record on delivering on this target. I want to show you some great examples of what we have achieved, and that is what we are going to replicate across the entire business. Let me first explain our model to you. It's proven, it drives consistent and meaningful results. Hiab operating model is based on the centralization principles, which essentially means that the decisions are made as close to the customers as possible, and where each and every division holds profit and loss accountability. And at the same time, business excellences strives for the best methods, data-driven decisions and process standardization. So from one side, we have a full transparency across each and every divisional performance. And on the other side, we are equipped with 3 business excellences. Sourcing, commercial and manufacturing. Let me explain each of the key components. Let's start with the -- firstly, commercial excellence, which aims to maximize customer benefits by understanding the customer pain points and translating those requirements to product configuration. Secondly, sourcing excellence aims to deliver on consistent cost improvements through commercial negotiations and design to cost initiatives. And lastly, manufacturing excellence aims to standardize and improve the way we manufacture our products to be delivered faster, more flexibly and more efficiently. As you can see, we have 2 proof cases. The first one is a Tail Lifts. And the second one is a truck-mounted forklifts, where we have made a major improvements in the business by using specific methods. So this framework serves the entire business. and it's proven and very effective. I'll show you now how each and every of those key elements drives value and delivers annual productivity gains. So the first one is commercial excellence. Our systematic investments in commercial excellence has been a key driver to significant revenue growth. And Hiab has made a decision to invest in the commercial excellence by building competencies, tools and processes. We established a foundation with a systematic use of data analytics and best-in-class sales competencies. Our journey began with shifting the skill base of our sales force and aiming to sell smarter by addressing specific customer needs. We have trained 70% of our sales team and embraced the winning culture. And our people now have a regular meeting cadences where they can share specific sales cases and best practices. Such a deep understanding of market conditions and customer pain points has been instrumental, not just for our sales team, but for the entire company to offer solutions better suited for the customer needs and truly focusing on improving customer experience and delivering the value gains they are looking for. A great example is my own division, where we have achieved a substantial sales growth between 2022 and '23. Here, the sales team help one of the major accounts in the United States to convert a huge backlog to revenue by providing operational flexibility and short product lead times. That effort together with multiple product trainings, product improvements, active listening and simple humbleness, meant that we became our customer supplier of choice, which then resulted us being awarded Best Performing Supplier of the Year. I'm giving you all this background for 2 key reasons. This approach has led to significant revenue growth in the Tail Lifts business. And just as importantly to me is loyalty we have built with the customer, that goes beyond the price. Now let's move to the second field of excellence, which is sourcing. I have been leading various sourcing organizations for more than 15 years. And for me, personally, it's not only being a subject matter expert. It means being truly excited about the impact that sourcing can make on the business. It is a critical area because it manages 70% of our cost of goods sold. Our key priority has been to uplift sourcing capabilities from just base capacity assurance into positioning our supplier network to be a true growth enabler. And our transformation journey started in a post pandemic market when back in 2022, most companies focus was to bring back the stability to the business and to the supply chain, plus mitigate inflation challenges. Moving forward towards higher stability, our goal has been to manage the performance of our suppliers by establishing supplier balance scorecard and diligently following quality, delivery and cost performance. That helped us to obtain necessary predictability of indeed supply chain and delivery times to ensure product and ensure product quality. But our cost situation was still a challenge and seeing the impact of a cost evolution to our gross margins, we have started a multiple design-to-cost programs. And furthermore, we opened a commercial negotiations to ensure our products remain competitive to the market. As I said, our direct material cost contributes to 70% of the cost of goods sold. And our ambition is to secure our gross margin by executing on the product cost reductions, including product rationalization and design to cost. Going forward, we are looking into a full supply chain integration by providing to our suppliers a visibility of demand shifts, so they are able to adjust their planning and manage the expectations more dynamically. While sourcing remains an essential part of the supply chain, the other part is manufacturing. Our footprint is located in 13 sites, and those sites represent various levels of maturity in manufacturing and process excellence. Back in 2019, we made a number of investments in our operations, and those investments serve the business when markets started to open, and that created a lot of increased demand. Even though our business opened first, an order intake rose significantly, we met the demand better than anyone else in the industry. We are operating in a dynamic market where our customers in order to be successful need availability, flexibility and competitive lead times. We have decided to take steps to significantly improve our customer experience. We are aiming to be faster to respond to the customers with the delivery fulfillment regardless of their expectations are changing. Secondly, we have been building the necessary flexibility in our factories to accommodate additional demand and using our manufacturing locations for multiple product assemblies in order to increase the proximity of our operations in the market. And lastly, we aim to maintain competitive cost of productions by increasing our assembly efficiencies through multiple Lean Sigma initiatives. Those additional productivity gains will then serve business reinvestments. And in the future, the new strength of predictability and flexibility will become an essential competitive advantage. I want to now show you 2 examples where improvements in the production helped us to grow our sales significantly, and we made a clear difference to our customers. First, in Tail Lifts. We increased the productivity and efficiency of our manufacturing processes. We reduced the production lead times of our products. and that helped our customers win more business, which then led to increase our market shares. Let me tell you how we did this. Back in 2022, when I took over running this business, we identified a few key priorities. We needed to raise our financial performance to deliver much improved profitability and growth. We also needed to raise the internal teamwork to deliver best for the customer. So we initiated the turnaround, which involved firstly, commercial activities with a proactive sales and thorough understanding of customer needs in terms of product mix and offering variations. Secondly, product efficiencies with the design to cost that involved a major SKU rationalization. And lastly, we managed to shift our organizational accountability by using common Hiab employee-first principles: empowerment, easiness and excellence. And all that resulted in increased accountability and execution. It requires patience and determination for over 12 to 18 months, but we transformed the business and its performance. And our financial performance has made the major leap and continues to be very solid. We grew our sales by over 40% and improved our gross margin by 980 bps. And these are accomplishments we are very proud of. Now that I would like to show you a short video with the feedback from some of our customers. [Presentation]

Customers appreciate and value us. Another good example for successful business transformation is Truck Mounted Forklifts. And here, the game changer that we successfully achieved was solving our supply chain challenges. When we started the journey, our order intake was almost double than the sales value, and the division was able to convert only 58% of the order pool to sales. Our agent priority was to reduce the lead times and increase the conversion of our orders to sales. So we made a plan and we successfully executed. Our priorities were to significantly improve the capacity utilization of our factories. Secondly, to resolve supply chain constraints by managing the performance of our suppliers. And lastly, by mapping the value streams in our operations, we made the changes into the layout, which resulted in the reduction in cycle times and optimized assembly flows. Put simply, we have achieved pivotal results. We grew our sales by over 70%. We slashed the cycle time from 60 to 15 weeks, and we achieved the major productivity improvements. So let me recap what I have been presenting to you today. We use business excellence to unlock significant productivity gains. We do it consistently year-over-year, targeting 1.5% of the revenue per year. Those productivity gains can be then used for investments, profitability improvement or managing the inflation pressures. We have a scalable business model built on accountability and transparency. We have proven our ability to translate business excellence initiatives into a clear financial benefit. I have shown you 2 examples in detail in the case of Tails Lifts and Truck Mounted Forklifts. And our aim is to repeat all of these success stories. Thank you. And I hand back to Aki.

Thank you, Magda. Hiab has best-in-class financial profile, with further value creation potential. And Scott will be soon back on the stage to tell you more about it. So welcome back, Scott Phillips.

Thank you, Aki, and thank you to the team for terrific presentations. And I trust that you find that we make some compelling arguments as soon as I advance the slide forward for you, that we make compelling arguments for why we believe we can continue to deliver industry-leading results. So I aim to accomplish a couple of things in the summary section. Hopefully, we'll go no more than 10, 15 minutes. So I'll try and summarize the key messages that we really want you to walk away with today. And then secondarily, highlighting why we also believe that we have opportunities to grow inorganically through M&A. It is after all, we enter the strategy period in our strongest position yet, both financially as well as operationally. So briefly recapping on how our results have compared last year to our 10-year historical averages. 2023 was a good year in historical context, but by no means a peak. Yes, sales were at a record level, so above 10-year average. Profit and return on capital also above our 10-year average, but cash flow was below as we were still working our way through the equipment backlog. So our working capital remains higher than our target. But we remain on the journey to get better each day and have a solid foundation of good performance to build upon. So let's review in more details the target profile that we aim to deliver in the next 5 years. So you've heard from the team why we believe we can continue to grow revenues as well as improve on our profitability. As a result, we aim to keep in line with our 10-year average of more than 7% growth over the cycle. We target an operating -- comparable operating profit as a business area within Cargotec of 18%, maintained greater than 25% return on capital employed. As I stated earlier, passionately committed to remaining a science-based target initiative company. And as you can see from this profile, we do believe there is significant upside potential and higher and we'll look more closely into those details. But first, let's start with the revenue bridge. Now you've heard from both Barry and Michael, how we intend to grow through segments globally. Through expanding our positions in North America and growing globally through our installed base. Now while we expect to grow in all our segments, we highlighted in particular for you today. And we made investments last year in order to understand more deeply how we can grow into the most attractive segments, and those represent 4 of those. Now while we have a significant leading position currently in North America, as Barry has highlighted for you earlier, we believe we can grow through selling more of our portfolio effectively and expanding our network coverage. And then third, as Michael pointed out and has guided you through, we believe our services business can grow faster through servicing our installed base, through investments in innovation and increasing our network coverage. And you've also heard from Magdalena how we have room for improvement to unlock better potential for returns, which can unlock potential to increase our investments to enable Hiab to grow. So let's take a closer look at that. Now over the past 5 years, I'm proud of the sustainability we have built in our ability to deliver, but there are clear areas for us to improve. Some specific areas to note, we can improve on our gross margins as we've been higher in that regard in our past. And we have an opportunity to pull at least 3 levers in order to get there that Magdalena just took you through. We know that we have opportunities to design more standardization into our portfolio. We know through portfolio management, we have an opportunity to focus on the vital few offering that delivers truly compelling and competitive advantage for our customers and through better collaboration with our suppliers, we know we can create sustainably better product cost. And we've demonstrated that in parts of our business, we aim to scale that more broadly across the business area. We also aim to reduce the need to invest in the level of resources that we have as we do have a number of inefficient BA-level processes that support our businesses through utilizing lean to design those processes, eliminating the waste as well as utilizing Six Sigma to continuously improve. And we'll come back and talk about that in more details in future touch points. That all will enable us to create a shift in our cost base, so that we can invest more in sales and marketing and R&D, which will catalyze growth. Now important to note, over the last 2, 3 years, we have managed well within our target profile of total fixed costs relative to revenues, but we know we have a chance by improving in how we run the business, making improvements in our global processes, that we can afford to keep the same level whilst investing in opportunities to create growth in the future as well as investing in opportunities to improve the customer experience. So looking more details into our margin bridge, through scaling that operational excellence capability through unlocking the growth potential that has been outlined today. We aim to deliver 18% operating profit and it's pretty straightforward coming from 3 sources. There's one, being operating leverage or volume. There's two, it's -- Magdalena just took you through utilizing operational excellence more broadly across the business, our business excellence. And of course, three, in terms of mix, most notably the sales level of services business relative to the overall revenue profile. And it's important to note that we do intend to create and hold ourselves accountable to deliver 1.5% productivity gains per year. That will enable us to, yes, helps our margins, but also means we can invest as well as manage inflationary pressures. So speaking of investments, we have a very nonnegotiable principle and that is that we aim to be a good business that generates incremental cash flow. So therefore, we can afford to invest in growth. And so let's take a look at that in more detail. So through scaling operational excellence, the operating leverage that should be created through our growth plays, this will allow us to invest in both organic as well as inorganic growth. Our priorities are fairly straightforward. Our #1 focus is organic growth of our services business. Secondarily, our investments in innovation that will unlock potential to grow through our segments. And then third, our focus is then also to put ourselves in a position to grow inorganically through M&A. And so I'll take you through that in a bit more detail. But first, to set the scene, the entire Hiab portfolio has been built through a series of bolt-on acquisitions. So we aim to continue to grow our platform with bolt-on acquisitions primarily with a focus on expanding our offering as well as expanding geographically. So if you look in our past history, we have grown first with acquisition in 2017 of our Argos business in Latin America. And this is a crane business that has allowed us to expand our position in Brazil, but then also more broadly, we've catalyzed growth in adjacent countries, Peru, Chile and Argentina. And over the course of the last 7 years, we've, together with a great team that we have in place, managed to turn this business into a real source of profitable growth with opportunities to grow further. In 2018, Effer was acquired expanding our offering into a super heavy range of loader cranes and really having the best 85 ton/meter and above offering globally. In 2021, we expanded our position in U.S. waste and recycling through the acquisition of Galfab gives us a great opportunity to expand into an attractive segment, as we discussed earlier. And in 2022, we brought Olsbergs into the portfolio as a technology investment, which has enabled us to fast-track the further uptake of Olsbergs technology and our control systems more broadly across our portfolio, and we're seeing the benefits of that each and every day. Looking forward, we have a clear view of how we can expand through M&A. We have a proven track record of effective post-acquisition integration capabilities. We know our core capabilities and winning formula can also apply in closely related adjacencies and new geographies. But evaluating our opportunities, we'll stick with 3 key principles. We will continue to seek for niche markets where we can create leading positions and truly make a difference in the important outcomes for the customer base served. We'll seek out segments that do require a high-touch life cycle services support as what we call productivity partners. And we will seek high-quality assets that will be accretive to earnings in a reasonable period of time. So I'm excited about the possibilities for M&A given our strong track record and balance sheet as well as the high-quality team that we have in place to lead Hiab into the future. So let's take a closer look at the leadership team that will be in place to complete the remainder of the journey of the demerger process and lead Hiab into the future. And we have a diverse and international team with a good combination of stock-listed company experience, and a proven ability and leadership to lead business transformation, and you've heard a little bit about that today. We're a team of 8 different nationalities located in 8 different countries. And in addition to the 4 colleagues that have joined me today, you can see the wider team on the slide in front of you. And it is my hope that in the coming months, you'll be able to meet the full team. So let's wrap up with a few key takeaways. So we believe Hiab represents a great investment opportunity now, but an even better one in the future. And supported by our key investment highlights, we have strong market positions that do enable us to shape the future of the industry. together with our customers. We have focused and clear plans on how we can grow in segments in key geographies, North America and through our services business. We have proven our ability to turn around Hiab more than 10 years ago and then most recently, a few of our divisions, into stable double-digit profit generators and we believe, we can scale that more broadly. So through our operational excellence capability, we're confident that we can improve more broadly our global processes, so we can be a more scalable, efficient business, one that's easier to do business with, both for our internal employees as well as our customers. And we have a solid plan to generate incremental cash flows that will be used for catalyzing growth, both organically as well as inorganically through M&A. So I hope that we've better enabled you to understand why I'm so thrilled to be part of Hiab and all of our team is. And with the unique passion of our people and customers, combined with how we have chosen to run the business, Hiab represents such a good company with great upside potential as we have clear opportunities to improve on the strong positions that we have today. So I thank everyone. Thank everyone for the presentations, and I turn it over to you, Aki.

Thank you, Scott. We will be soon ready for our Q&A session. I will then invite all the Hiab speakers back to the stage, accompanied by Mikko Puolakka, who is the CFO of Cargotec and as you have heard, the future CFO of Hiab. And as a reminder, the virtual audience can post the questions via the chat function. We will next get our stage organized for the Q&A. And while we are waiting for that, we will once again take a look at the Hiab video with a brand-new Hiab song. So let's take a look at the video. [Presentation]

Thank you. Now we have a great opportunity to state questions for all of the Hiab presenters. But let's start with the first question from the virtual audience. There was a map presented on the geographical split of the business and also the revenue split. And the significance of Asia is quite small. So what are your plans regarding Asia?

Yes. How about I start with that at least? Yes, it's an important geography for us and has always been an important geography in our history. We have continuously seek for opportunities to further penetrate other regions within the Asia Pacific market. We feel good about our strong positions that we have in markets such as Korea, Japan, especially strong in Japan in our forestry business. We're proud of our positions in Australia, Southeast Asia, and we remain a competitive player in targeted segments even within China with the help of contract manufacturing partners that we have there for one of our divisions. But there's no question that, that represents a further opportunity for us to grow our business in the future and one of the many reasons I'm really excited for the future this business has.

Thank you, Scott. And then we have another question from the online audience, and that is related to the segments you have selected. Could you still elaborate a little bit more why you have selected those 4 and especially constructs and that has been one of the segments that has been suffering in past quarters?

Yes, certainly. We spent quite a lot of time to carefully select these 4. The rationale, again, as I mentioned earlier on, was that each of these 4 have got significant growth potential in them. And as I mentioned, at least 2 of them are growing at a very, very fast rate. But to answer the question on construction, and what we feel here is that the profit pool coming from construction at an absolute level is significant. It's a big portion of what we do. And what's quite attractive for construction for us is that you have to remember that 50% of the construction comes from new build, but also 50% comes from refurbishment as well and home improvement. So that's why we feel that construction is a very important part of our future from -- especially in the next phase.

Thank you. Then we have another question from the online, and it is related more on the current market environment at the pricing level. So are you planning to reduce the current prices on the products and the current pricing. As we have stated in the past, in 2021 and 2022, there has been quite significant pricing increases in Hiab.

Yes. Yes. How about I try to take a stab at that first, and you all chip in if I either stumble or there is another relevant point to make. So with regards to pricing, it's important to understand that we do compete on a market-based price. And so therefore, as the markets dictate pricing can go up and it can go down and that will continue into the future. And so we always, on a constant basis, are experimenting where that right price point is as a catalyst to keep the targeted business that we want to go after and we aim to. And so we do that each and every day.

And I guess one could say also that those excellent initiatives which Magda presented concerning, for example, the sourcing excellence are extremely important because as prices might go up or down. It's always important for us to manage the gross margin so that we can keep a healthy profitability line.

And Mikko, if you may add a couple of comments to that. Our strategy going forward is based on the value selling which means that we are able to translate the customer requirements into the product configuration and that will drive the certain and clear benefits for our customers. So that is the shift of the logic rather than the price focus going into the value selling abilities.

Thank you. Let's now take some questions from the live audience, let's take first one Kansanen from SEB.

It's Antti from SEB. First question would be on your financial targets and the return on capital, especially, I mean, given where you are today and your margin ambitions, I would perhaps had expected a bit higher ROCE target. So -- and Scott, you mentioned investments. So could you elaborate? Is there a need to tie up more capital into the business in order to achieve those 18% EBIT margin? Or are you more looking at margin expansion, which you are then investing into a growth?

Yes. I can start with that, definitely more of the latter. So looking for margin expansion that we can invest in growth. But at the same time, we recognize that over the cycle, we may have a different mix of capital that we have tied up. But on balance, we're pretty comfortable with that level of target or above.

And I would add there that, of course, like Scott elaborated, there might be some bolt-on M&A. So at least initially, those bolt-on M&As might have some tied up capital impact before they are completely up and running and they're fully integrated into the business.

But the growth ambitions in North America or the demerger don't kind of equate into any higher CapEx needs in the short term?

Not in what you have seen in the past in here. So it's a very similar kind of structure.

And then the second question, and this might be a bit too early, given that you are not a Hiab company yet, but shareholder returns. And I mean, you will have a really strong balance sheet. And when and if you sell MacGregor, you will have an extremely strong balance sheet. So do you really have the compared to your shareholders, do you have enough for universe to invest that cash in? I mean, does the business really need such a strong balance sheet to be run even if the bolt-on acquisition opportunities are there?

Well, look, there's no question that we'll have a great opportunity to invest in growth in the business given our balance sheet and given our track record. So as we tried to lay out, and that's clearly our intentions to be able to do so. And we absolutely see more than enough opportunities like in any case, one of the things that we've had to build up which we've worked diligently on over the last 3 years, our deal sourcing capability. We've invested in the ability to scan multiple other market segments. So we have a pretty good view, both in what's related and bolt-on versus unrelated. And so we've looked at literally thousands of opportunities.

And maybe a follow-up to Mikko on the same thing. As a CFO, what type of balance sheet you would be comfortable to run Hiab [ board ].

Yes, we have -- currently, as a Cargotec, we have the gearing target to be below 50% and most probably also going forward, that would be the guiding -- one of the guiding principles. So let's see, then after the M&A activities at what kind of, let's say, excess cash positions the company might have then that the Board of Directors would need to have a look on extra dividends or if we don't find enough bolt-on M&As.

But I mean, the cash flow profile of him should be pretty attractive even, I mean, to fund those bolt-on acquisitions that you need, Am I correct in that?

Yes, it depends on the size of the bolt-on acquisitions we have done. I think in FS case, we were talking about EUR 100 million plus type of -- that's a bolt-on acquisition. So there are -- like Scott said, there are quite many opportunities available sometimes this just might take longer time due to the ownership structure, typically being privately held family companies. So getting those warmed up might take longer time. But yes, definitely, there are opportunities.

And coming back to your timing question, obviously, in the future, whenever the series of events that Casimir laid out at the beginning of the day occur, then we'll come back with bit more clarity on that target profile.