Hiab Oyj (HIAB) Earnings Call Transcript & Summary

Welcome to Cargotec's pre-silent call today. My name is Aki Vesikallio, Head of IR at Cargotec. Also with me today I have our IR Manager, Oscar Törnwall; and CFO, Mikko Puolakka, who will first go through a short introduction presentation, and then we will open up for Q&A. [Operator Instructions] But with that, over to you, Mikko.

Thank you, Aki. And also Happy New Year also from my side to all participants in this call. Hopefully, you can see my screen. And let's get started. So I will cover today the key parameters related to MacGregor sale and the planned steps thereafter. And then also changes in our financial reporting due to the MacGregor sale. As you have noticed, we have announced on 7th of January, the discontinued operations financials and continuing operations financials. So a bit more about that today. And then a quick recap about our quarter 3. And then last but not least, the financial reporting schedule for 2025. And then like Aki said, we have reserved some time for Q&A. We signed the agreement with Triton for the full sale of MacGregor on November 14 last year. And this basically set in motion the next steps for the standalone Hiab. First of all, we are planning to propose for the AGM to change Cargotec's name to Hiab. So the AGM is scheduled for March 26, 2025. And then the Cargotec's name change to Hiab would become effective 1st of April 2025. And then basically on the same day, Scott Phillips, the Hiab President, would become the CEO of standalone Hiab. And then our current CEO, Cargotec CEO, Casimir Lindholm, would then step down from the Cargotec CEO role. And as a result of these events, the standalone Hiab would start with very strong balance sheet. You recall already from last year that we have had a negative gearing. And this strong balance sheet would provide an excellent foundation for organic and inorganic growth. And as a result of the MacGregor sale and then backed up by our strong balance sheet, also the Board of Directors is evaluating an extra dividend for 2025, which would be then payable after the MacGregor sale has taken place. Then a couple of notes about the MacGregor transaction detail. So MacGregor will be sold with an enterprise value of EUR 480 million. We expect to book approximately EUR 200 million goodwill impairment related to the sale; and the cost to separate MacGregor is approximately EUR 25 million. Part of that has become in 2024 in our financials. Part of that will come still in 2025. And the biggest part of this is related to the IT separation. We expect to close the MacGregor sale latest by July 1, 2025. If all the competition authority processes are completed earlier than that, then we close earlier. And then as a result of now this sale to be firm, MacGregor is reported as discontinued operations. And like mentioned, therefore, we have published then on January 7, the Cargotec's restated financials for 2023 and year-to-date September '24. So MacGregor will be part of Cargotec's discontinued operations reporting, like we did also for Kalmar earlier in 2024. And Cargotec's continuing operations will include now only Hiab and the Hiab related revenues and costs also what comes to the group overheads. And I would say that it gives already now a fairly good visibility to the standalone Hiab profitability. We will also remove MacGregor from Cargotec's segment reporting, like we did for Kalmar earlier in 2024. So that will be visible in the full year reporting. And Hiab, when Hiab starts to report its standalone results, Hiab will have, in the future, 2 segments, Equipment and Services. And these will be the reporting segments basically starting from the quarter 1 '25 interim reporting, so in April this year. We will also provide Hiab's historical segment financials before the quarter 1 interim reporting, so early April as well. And let me then elaborate a bit the difference between the business area or Hiab segment reporting and the standalone Hiab reporting. So the business area Hiab year-to-date September comparable operating profit was EUR 197 million or 15.9%. These are the numbers what we reported in our quarter 3 interim reporting. This business area result includes certain Hiab business area overheads, which will be part of the future Hiab standalone group costs. And in addition to those business area overheads, we will then add on top of that part of the Cargotec group costs like the treasury or tax function or certain IT functions, which have been residing on Cargotec level and earlier have not been allocated to the business area. That will be part of the standalone Hiab group costs. And these costs will facilitate the standalone Hiab's operations as a listed company. During January, September, these costs were about EUR 21 million or 1.7% of Hiab's comparable operating profit. So when adding the standalone costs to Hiab's P&L in the continuing operations income statement, the comparable operating profit margin is 14.3% for the first 9 months. And as said, this gives a fairly good estimation already about the standalone Hiab profitability. And as mentioned earlier, starting from quarter 1 '25 onwards, you will see the standalone Hiab reporting with 2 reporting segments, Equipment and Services. And on top of these segments, you will also see the Hiab group costs, which are not then allocated to these segments, very similarly what we had earlier in Cargotec when we used to have 3 segments, Kalmar, Hiab and MacGregor, and then the group costs. So more information about the reclassified Hiab segment financials will then follow later in April. Then a very quick recap on Hiab's quarter 3 financial performance. So first, starting from the order intake, EUR 361 million, 16% increase from the previous year. The positive deviation can be mostly attributed to a few key accounts, U.S. key account and defense logistics orders, which were basically postponed from quarter 2 to quarter 3. So if you calculate a couple of last quarters average, we are on the EUR 360 million, EUR 370 million level. Ordering activity was strong in Americas, especially in the Northern America. Europe, on the other hand, fairly weak, or at least weaker than the Americas area. And in Europe, especially Germany continues to be a challenging market. I would say that the order book is now on a normal level. So most of that kind of COVID excess order book has been now delivered and our order book represents about 4 -- sorry, 5 months of sales. So this is the level where it has been before the COVID time. In 2023 -- and if we look at our revenues, so in 2023, and even in the beginning of 2024, we were still delivering orders from the exceptionally high order book, which we have been collecting during the COVID time. You have seen the year-on-year decline in sales, and this comes from the fact that we have had quite exceptional order book still in '23. I would say that by quarter 3, this excess order book has been mostly consumed. And as mentioned already earlier, now our order book corresponds roughly 5 months of sales, which used to be the pre-COVID situation. Despite the 12% decline in sales, we were able to protect our profitability well. And actually, the comparable operating profit margin improved by 60 basis points despite the sales decline. So the main reasons for this is that we have had a good momentum in our sourcing and procurement activities to optimize the component cost, and also the commercial actions to protect sales prices have succeeded well. And basically, these 2 elements have enabled us basically to protect the sales margins and as a consequence, also to protect the comparable operating profit margin despite lower sales. Due to the declining volumes, we have been able to also release cash from the net working capital like inventories and accounts receivables, and that had resulted in quarter 3 to EUR 100 million business area operative cash flow. You remember that we communicated Hiab's updated strategy in May 2024. And one element in this strategy was to grow organically in North America, where we already now have EUR 650 million revenues. We have been mostly covering the U.S. market today with direct sales, and part of this growth ambition is to boost the growth by introducing new dealers. And now we have been successful in the latter part of the year, introducing a number of dealers, of which we have here a couple of examples. So we have signed an agreement with Ring Power Corporation, that's a company headquartered in Florida, and the agreement covers basically loader cranes distribution and the related services as well as the truck-mounted equipment related sales and services. So I would say that this is a very important milestone in the U.S. for our growth, and we will also continue introducing additional new dealers in the coming quarters. So the work does not end here, but continues also in the other states. And then our outlook for 2024. As a reminder, as MacGregor is now discontinued operations, Cargotec's 2024 outlook includes only Hiab. And for the full year, we estimate that comparable operating profit margin as a business area to exceed 14%. And last but not least, our financial calendar for 2025. So our full year results will be published on February 12. Our annual report will be published on the last week of February. And basically, the first Hiab standalone interim report, the quarter 1 report, will be published on 30th of April. Quarter 2 reporting will be quite normally as in the previous years, July 23, and quarter 3 on October 24. And then as a reminder, our AGM will be held on 26th of March. So that was more or less the short summary from my side, and then I believe we can move to the Q&A.

Thank you, Mikko. As a reminder, the presentation is also available on our website for those who have dialed in. And I see first hand up. So let's start with Erkki Vesola. Please go ahead with your question.

First, starting from the balance sheet figures. What will the end '24 balance sheet look like in terms of discontinued operations, assets and liabilities? You have not disclosed this yet.

Yes. We will report basically the discontinued operations related balance sheet items as one separate line in assets as well as in liabilities. So not separating it line by line, but as a one line item when we publish our full year results in early February.

But the comparables will not be disclosed before that. Am I right?

That's correct, yes, not before that.

Okay. And then just a couple of housekeeping questions. Were there any postponed deliveries from Q3 to Q4? You indicated that there were not much...

You mean from...

Okay. There were postponed deliveries from Q2 to Q3 last year, but were there any from Q3 to Q4?

At least to my knowledge, no major delays. Like I was referring earlier, we had some order delays from quarter 2 to quarter 3, but in my understanding, we have not had necessarily that kind of pattern in quarter 4.

Okay. And then finally, could you describe the pricing impact in Q4, both in terms of orders and revenue?

Like discussed earlier, I mean, we have had good success already in quarter 3 in commercial actions and also in the sourcing procurement actions, very similar pattern, I would say, has been also in quarter 4.

Yes, I was referring to your own pricing, your own product pricing.

Yes, we have not -- I mean, in general, we are continuously reviewing pricing. Like also in quarter 3, we have had some price reductions, but also price increases. So if we look at our product portfolio as a total, we still see a positive net price development, both in quarter 3 and also have seen in quarter 4.

Next, we have a hand up from Johan Eliason. Please go ahead.

I was just wondering, closing on MacGregor, your target before 1st of July. When I remember, when you bought TTS, I think the Chinese authorities took almost 2 years. Are these guys involved at all this time around? And if so, why do you think it will close faster?

Yes, we need to seek approval from certain jurisdictions like EU, China, as an example. It's good to remember that now the buyer does not have the same kind of business in their portfolio. So Triton is not the kind of competitor in the market before this transaction. So from that point of view, we consider that this is a more kind of a formality rather than a topic where the competition authorities need to review a lot the market sizes.

Okay. Good. And then on the U.S., I mean, even though you have highlighted there's a potential extra dividend coming, you've also highlighted you want to do M&A. What type of sizes of acquisition potentials are there, I guess, mainly in the U.S., where you are targeting the growth?

I mean overall, the M&A opportunities, what we have been building the pipeline, those are kind of bolt-on type of acquisitions ranging from what would I say -- I mean, Effer has been one of our largest acquisition in the past, and that was a bit north of EUR 100 million. So we have targets which are, I would say, from EUR 50 million to EUR 200 million, the kind of typical size.

And are there also targets outside of North America that you're looking at?

I would say that Europe, both Americas, South and North, are the main kind of markets to look at M&A from our side.

Do we have any questions from the telephone lines at this stage? Quite silent. So I don't see any hands up. So we have still an opportunity to take questions. And now I see that Tomi Railo has raised his hand. So Tomi, please go ahead.

It's Tomi from DNB. A couple of questions. Firstly, maybe just to recap, or in terms of demand conditions in the fourth quarter compared to third quarter. Is it kind of stable levels what you see, or any improvement, any worsening? What's the best indication?

I would say that the customer behavior has been in quarter 4 very similar to quarter 3, and also the geographical market patterns have been very similar. So we have really not seen any change in the customer behavior. There are still, especially amongst the smaller customers, expectations about interest rates coming down. And we see that perhaps it's easier for the bigger customers with more financing power to make investment decisions rather than for smaller ones, which might be still kind of looking at the optimization of the monthly leasing fee and hoping a bit lower interest rates. But very similar pattern in quarter 4 compared to quarter 3.

And what's the sentiment out there for '25? Do you see that the customers are starting to make decisions, U.S. elections done, et cetera? Or are you feeling optimistic, cautious?

Well, we are, at the moment, still cautious, and that's why we have implemented the EUR 20 million cost savings program to make sure that if the markets are not improving, we can deliver also steady profitability in 2025. If the markets turn up, then, of course, it's a positive challenge. But at the moment it's not yet at least visible that the first half would be very different compared to 2024.

And while we are on '25 in terms of guidance, would you say that you continue to guide profitability and not sales for '25 or...

We do not anticipate to dramatically change the kind of way how we have been guiding the outlook. We will come, of course, with the outlook then in early February when we announce the full year results.

And if I may continue, last year's fourth quarter clean EBIT included items for the cost actions and also investments -- growth investments. Can you confirm just that kind of the comparison as such is looking relatively low because clean EBIT included those costs. But based on my notes, those were EUR 16 million together. Is that the correct assumption?

That's a correct assumption. We will have some one-off costs related to this EUR 20 million cost savings program also in 2024, but we will disclose those also separately in our full year results.

And you mentioned that part of the EUR 25 million MacGregor discontinuation is booked already '24. Is it low single-digit millions? Or what should we expect for the fourth quarter?

Maybe there it's also good to remember that it will be part of the discontinued.