Konecranes Plc (KCR) Earnings Call Transcript & Summary

Welcome, everyone. Nice to see you all here. We still have some joiners coming in. So let's wait for a minute or so. Okay. Maybe we can start bit by bit. So I will again turn on the recording from our side, and the call will be recorded and a full record will be made available on our IR website after the call. So I would kindly ask now that no separate recordings are needed or transcripts or something like that. So we will make sure that the webcast is or the Teams event is being recorded and will be made available to everyone. And now I think that the recording should have been started. We have a short -- so welcome, everyone, to the Konecranes Pre-Silent call. We have some 30 minutes time for a Q&A. We have also prepared a short presentation. So I will just share it here in a bit, kind of summarizing the key events or happenings during the quarter. We have had several investor roadshows and attended also in several investor conferences. Here, we have listed some of the most, let's say, frequently discussed topics during the quarter. It's very much around market environment, order book, group and segment margin development, margin improvement drivers going forward, capital allocation, then a lot of discussion around the port cranes market in the U.S. and also now after the U.S. election. So talk around the potential impact of potential U.S. tariffs as well as then M&A opportunity. And during the quarter, we also hosted an open to everyone investor site visit, investor and analyst site visit in the U.S. at Georgia Port Authority in Savannah. So that was a great event. We have gathered here all the stock exchange releases and corporate press releases published during the quarter and we have marked with an asterisk now those order releases that are linked to Q4. So there are also then some other order announcements, but they have been -- they have taken place already earlier. I will just let some people in here in while. And as a normal disclaimer here, so we don't publish all the orders we received in a quarter. So sometimes they come out later and sometimes we don't get a consent from the customers. So one should not read too much into the order announcements during the quarter. But here they are in any case and marked with the asterisk, those ones that have been booked now in Q4. With that, I think I will hand over to Teo, who will then discuss our demand outlook and financial guidance. And overall, before Teo starts, so we have not made any major changes in our messaging during the quarter and are not planning to make any changes in this call either. So this is more of a summary call and a Q&A opportunity for all of you. But with that, Teo, please go ahead.

Thank you, Kiira, and welcome also on my behalf. I think Kiira more or less pointed the key point here already. So it may be a little bit boring message regarding this call as such. We do not have any particular reason to change the messaging or the storyline from what it was about 2 months ago in connection to the third quarter results. And the demand outlook that we can see on this slide is obviously the one that we showed at that time. And of course, the main point regarding industrial customer segment was that we are expecting the demand to continue on a healthy level. And then the additional color regarding the regions that we have been discussing, Americas being strong. EMEA, a little bit depending on which country we are talking about somewhat stronger and somewhat weaker. And then Asia Pacific could be clearly better. China is a little bit, let's say, on a lower level. And the competitive situation in China continues to be tight as we have been discussing also earlier. And then when we take a look at the port customers, so there, the long-term prospects related to global container handling remain good overall. So that is, of course, the basic commentary that we have been having. And then if you flip to the next page, so we have the financial guidance. And obviously, no changes in this one either. So net sales expected to increase and EBITA margin -- comparable EBITA margin is expected to improve in '24 in comparison to '23.

Just a small comment here. There's some background noise. So if you could mute yourself if you are listening to music or having side conversations, that would be great.

But I think that these were basically the comments that we wanted to give to begin with, and I think we would be ready for the Q&A.

Yes. And I think I can now stop sharing. Sorry for the change of the view. Johan, please go ahead.

No music from this side. But I was just wondering a little bit, you highlighted these bigger orders here, and you talked about you have big orders in the pipeline for the port business. But these overhead cranes, were they for the industrial crane business or to Indonesia?

So the U.S. case is for process cranes, basically.

Yes. Process cranes. Yes. Okay. Okay. Good. And the order you highlight with the value, is that sort of the only sizable order in that announcement?

The chip order that we have given -- there we have given the amount and that is, of course, a sizable order for industrial cranes and also for process cranes. And this is part of the program that we were discussing also already earlier, but let's say, one part of the bigger program that we have been having with the customer.

Yes. So I think this was now a fifth order -- recurring order. So we have booked this every now and then. I think the last time around was in Q1 last year, if I now remember correctly. And the reason for why we are disclosing the amount for this order is that it's a public information and the government themselves have come out with that information in the U.S. So it would be then very kind of odd if we did not disclose the number. But overall, when it comes to the process crane orders, so this is a very sizable one. So usually, the process crane orders, they are not this big. So some of you might remember that in the past, we have every now and then highlighted in the interim reports that the higher orders in the quarter or in the comparison quarter were due to a single large process crane order. So those single large process crane orders, they have been these kinds of U.S. Navy like orders. So generally, the process crane orders are lower in value.

And in terms of big orders, typically, that's more related to the port side. Have you sort of seen any -- I mean, you haven't announced anything, but in our numbers, should we pencil in EUR 50 million or EUR 100 million type of single big order there as well? Or how has it developed?

Well, we have been saying that we have in the sales funnel, we have basically potentials of all sizes, smaller ones, midsized ones and some bigger ones as well. And then, of course, the decision-making timing is always a question. And I guess that to add there, so we have also said that, I mean, the process crane order intake in general probably will continue on the same level where it approximately has been over the past couple of quarters. And then there can be, let's say, deviations up or down depending on the timing. But the funnel is healthy from the point of view that there are, let's say, potential deals of all sizes basically.

Now I was referring to Port Solutions. You mentioned process crane, but is Port Solution you're talking about?

In Port -- yes, sorry, if I said process cranes. I meant Port Solutions. So Port Solutions...

He was talking about Port Solutions.

That's good. Well, that was basically my question.

Okay. Thank you, Johan. And then I think Erkki's hand is raised. So Erkki, please go ahead.

You said after Q3 that customers, especially in process cranes, they are kind of holding back their decisions while they await interest rates to decline. Could you provide us any update on that?

The situation is probably more or less the same as it was. So we are still seeing slowness in decision-making regarding the process cranes. Obviously, now we have one big order there that we have announced. So this slowness doesn't mean that customers would not do decisions eventually. And this is maybe one indication of that as well, so that actually the decisions do take place. But the overall view is that even though the funnel as such is healthy and on a good level, so the movement within the funnel has slowed down. So there are new cases coming in and the existing ones are moving ahead in the funnel, but that is happening slower than maybe in so-called normal situations or slower than what we would hope it to be. But there is no significant change in -- currently in comparison to what it has been already several months back.

So the kind of the size of the funnel is increasing all the time.

The size of the funnel is, let's say, stable. And in some cases, it has even increased because of the slowness. I don't know if one can think that, that would be a good sign as such because if it got the slowness, I think that the conclusion can be that it is relatively stable. And that actually now we're talking about process cranes, but of course, important is also what happens in the standard cranes. And there the same commentary as we have been having earlier as well. So the funnel is -- the funnel size is surprisingly stable in comparison to what we can think is happening all around in the world. So that one maybe could expect a little bit more movement, but it has been surprisingly stable.

Okay. And a final one regarding this. So you have not seen any project cancellations or clear postponements?

We have seen -- let's say, we have not seen cancellations out of the ordinary. We have seen some postponements from the point of view that the customers have been late in their own projects. And then I think that I wouldn't be able to say that we wouldn't have seen any postponements as a result of the, let's say, overall geopolitical or economical situation for that matter. And I guess that the slowness in the decision-making when we talk about the process crane may partially be as a result of that. But there hasn't been any dramatic change since, let's say, a couple of months ago. And regarding cancellations, that would definitely be a clear signal to the worst. So in cancellations, we haven't seen any significant movement in the recent past.

Then I can see that Antti has raised his hand. So please, Antti, go ahead with your question.

I wanted to come back to something that I guess we discussed on the Q3 results as well, which is kind of the ports business backlog and kind of the timing of that going into next year. Just trying to kind of scope the level of volumes you have kind of booked already for next year versus where we were, let's say, a year ago regarding '24. I think you mentioned that it's perhaps not as dramatic as the year-over-year decline on the backlog would indicate.

No, the numbers are what they are. So one can think if it is dramatic or not. But I mean, maybe the commentary what you are referring to was more in relation to the overall size of the order book. So it is clearly down. So if we take a look at the situation at the end of Q3. So there is no denying that. I mean, if you take a look at the group order book, so it's maybe EUR 400 million, EUR 430 million down year-on-year and Port Solutions is maybe EUR 250 million out of that or something like that. I think that the overall picture, if we now go back to the third quarter situation is that when we take a look at the decline in the Port Solutions order book, in particular, so the decline is not for the current year. So when we take a look at the fourth quarter of '24, so the order book is not lower than what it was a year ago for the current year. So the delta that we have in the order book is in '25 or beyond. And unfortunately, we haven't been giving quarterly basis the exact timing per year regarding the order book. You will then be able to see that in the annual report. But we have stated that the majority of that delta decline is for '25. So the year 1 plus, which is then not the current one, but the next one, which in this case is '25 in comparison to what it was a year ago for '24. So of course, it is clear that it is in a way lower. And then when we compare it to what it has historically been, so it's not that bad in a way. But of course, I mean, in a year-on-year comparison, there is a clear decline in the order book, and that cannot be denied.

Okay. And then another question was more on the Industrial Equipment profitability. I mean, let's assume that next year would be similar in terms of volumes. Do you still have a, let's say, the self-help actions that are addressing more on the cost side, which are kind of independent on volumes left for next year? Are there still kind of a potential to do stronger margins what you have done, let's say, now on a rolling basis, assuming you don't get any kind of more volume into the production side?

We have still part of the optimization program benefits to be reaped in '25. So as we have now been talking about '23 and '24, so we are EUR 10 million plus and then we have '22, a couple of millions plus the service benefits. So we still have room to improve and the plan is to be able to get that in '25 as well. So the benefit or the expectation of benefit is there. And this is maybe now when we take a look at the activities that we are doing, maybe more process crane related than standard or component related because those decisions and activities have, to a large extent, been at least decided and they are also being implemented. And we are ramping up new product platforms, as you probably have noticed as well, which is, of course, sort of a lever as well going forward. But of course, I mean, we haven't given guidance for '25. And like Kiira pointed out, the idea is not to give it in this call either. So we cannot really go into too many details regarding that.

And then, Tom, I think you are the next one. So please go ahead with your question.

Given what is happening with interest rates and the dollar, I would like to get an update on the dollar exposure after all these kind of changes in the -- what products and components you make where. So this also relates to the tariff discussion on industrial equipment. So how big is the kind of import of components from European factories to the U.S., i.e., the transactional dollar exposure?

There haven't been maybe major changes structurally from the, let's say, in comparison between different currency areas. And in this case, of course, Euro, USD in particular. So the, let's say, exposure is in the big picture, more or less the same. The structure that we have is that many of the, let's say, technology parts, technology content that we are using in hoists that are being sold in the U.S. So the technology part is imported from Europe, and that would be then basically Finland or Germany. And as a result of that, basically potential tariffs between EU and U.S. would play a role. The question is then, of course, that if those kind of tariffs would be in place, so how much would our situation be different from the competitors' situation. And that difference might not be huge. But if we just take a look at the cost structure for our company, so tariff between Europe and U.S. would increase the costs in the U.S. because part of the key technology is imported from Europe.

But this import of components, it's like EUR 20 million annually or something...

Yes, we haven't unfortunately given the exact volume of that. But it is primarily in relation to standard lifting, let's say, hoist part, which is the hoist -- the core hoist technology, which is largely manufactured in Europe or in China, but there are tariffs between China and U.S. as well.

And how will you describe the dollar exposure? So in the Euro-Dollar, how big is the impact on EBITA? Or how do you want to define it?

The transaction impact is roughly -- so it is -- now I don't recall if we have changed it. So this is maybe something that we will need to come back to regarding the transaction impact.

I don't think we have actually changed what we have said during the past years related to that. And I think that overall, we have said regarding the translation and transaction impact that you know -- I mean, overall when it comes to FX, so more than 40% of our sales is in euros and more than 20% in U.S. dollars and then all the rest represent less than 10% each. And the Swedish krona is one of the biggest, obviously, since we have lift trucks business in Sweden. And then the translation impact on profit is roughly the same percentage as for sales. And the transaction impact, so there, we have then used this kind of rule of thumb that it's approximately EUR 10 million on EBIT or EBITA if there is a 10% change in euro or U.S. dollar. And that excludes then, of course, the project business, which is hedged separately and the project business is quite big. So I don't know -- is there reason to update this, this is what we have said.

Yes, I think you're right. So there's probably no reason to update this. I mean the volumes haven't changed so much that there would be any particular need to change that.

Was the exposure, both translational and transactional or only translational...

Transaction was the EUR 10 million and then.

Transaction.

Transaction -- and translation is kind of the same for sales, same percentage for sales and for profitability.

Exactly. If the currencies are impacting sales with a certain percentage, so then one should maybe assume that it's roughly the same for the EBIT. But regarding that, of course, no impact to the EBITA margin.

What has happened to the [indiscernible] factory in Germany that you announced now 5 months ago that you are kind of investing or considering to sell and so on?

Well, let's say so that the consideration is still ongoing. So there hasn't been any major impact one way or the other regarding that one. So the scope of doing things is similar to what it has been. So no major changes so far.

No decisions have been taken.

And then on this modularization of your industrial crane product. So I understand you will not get any exact feeling, but if you just think about some kind of an S curve about the EBIT benefits from modularization, what are the big years? Is it the savings larger '25 than '24, is '26 smaller? Or I mean, can you give some kind of feeling for when the big savings from modularization helps?

Modularization is basically embedded into the changes that we are doing within the optimization. And this modularization is primarily, of course, well, maybe mostly impacting the process crane area because that's where the, let's say, multitude of platforms and different kind of solutions has maybe been the biggest. And there, of course, the idea like already now discussed is that quite a big part of those also process crane-related decisions would be done by the end of next year. So that -- and then, of course, the tail impact can be a little bit longer as well. But it's not -- modularization is not a separate program from the optimization. So it's included, embedded into the program.

Yes. But you have just said that the rollout first in some countries and then in other countries and -- so -- but it's just hard for us to understand the savings is '24 incremental or bigger savings year or '25, the biggest year? Or how do you see just what year is kind of the biggest in terms of savings on this?

We have actually commented that regarding the optimization program, the positive impact was EUR 11 million last year and that we expect similar kind of EUR 11 million this year. And we have not commented '25 yet. So we will need to come back to that. And this positive impact is now related to the whole project, the optimization project, not only to the modularization of process cranes. And the modularization of process cranes, so that's kind of if we compare now electric chain hoist, wire rope hoists, which are more like standard equipment and then the process cranes. So the standard equipment product platform harmonization is further compared to the process crane. And that is also natural because there are longer delivery times in the process crane business. So basically, decisions have been made, but there remains still work to be done in the modularization of process cranes. Let's put it that way. We have only a couple of minutes to go. So -- and we have 4 people now who have raised their hands. So I maybe suggest that we now take a question from Tomi Railo. And Tomi, if you are really quick, so then we also have time to take a question from Mikael still during this call.

Sorry, Tomi, before you ask your question, I maybe still answer continuing to Tom's question regarding the modularization. So if you were referring to the standard side, let's say, ramp-up plan, so that's maybe not that much modularization because that is a new platform that we are ramping up. So it's part of the optimization, but maybe modularization is not exactly the right -- modularization is more for the process cranes, and this is like ramping up new product generation, which then will be hopefully benefiting us later on.

Quickly. Any comments on the services? I get the overall comments, but services demand utilization among customers, any decision-making or choices whether they want to save or spend? And secondly, anything in terms of mix impacts in the fourth quarter, industrial or ports deliveries you would want to comment on?

I don't know -- I don't think that there are major changes regarding the service customers' views or, let's say, topics there. Maybe regarding the product mix for the fourth quarter, it is, of course, good to remember that the product mix always -- well, usually, and I guess that this time as well is weaker towards the end of the year than during the other quarters. And of course, the seasonality has not been similar now in the, for example, last year than what it has been previously. And mix is, of course, part of that. So that's maybe the only, let's say, additional comment on to the mix thing that Q4 mix usually is weakish in comparison to the other quarters.

And then please, Mikael you can go ahead with your question.

Yes, very briefly. So first question is really on the guidance you're going to give a guidance, but any plans to change the way you guide? Or are you going to go with a similar way that you have done in the past years? And the second question is related to the tariffs. So I guess, Columbus McKinnon is a big competitor to you in the U.S. How do you see yourself positioned, I mean, in terms of various products compared to them? Just wondering if they can get a big benefit if there would be a big tariff on Europe.

Not knowing exactly what kind of a supply chain Columbus McKinnon, for example, would be having. But our understanding is that quite many of our competitors are also getting componentry from Europe. And it may be that Columbus McKinnon is not an exception in that case even because they obviously bought one asset from us in connection to our MHPS acquisition, and that asset happens to be in Europe. So there is -- there may be some Europe, U.S. sort of transactions there as well. So I'm not saying that it wouldn't create differences between different companies, but I would not necessarily exaggerate the impact of those ones. Then of course, there are product categories like in the ports for lift trucks, for example, that are -- where we have U.S.-based competitors. So -- and not knowing their supply chains, but it might be more American than ours where the manufacturing is happening in Europe and APAC. The guidance topic. I guess that the guidance -- the method of giving guidance will be decided when the time is due for that. We are relatively happy with the way that we have been guiding so far. I don't know how you feel it. But from our point of view, at least now, no immediate reasons why everything should be changed come to mind.

We are already on over time, unfortunately. So need to wrap up here. But if you have any additional questions or something, so our IR team will be still in the office today and tomorrow. So please feel free to reach out either by e-mail or by telephone call. And I think that now is the right time to thank you all for a great and good cooperation this year, active participation in all our events and so on. And wish you all happy holidays. And we will talk then next year at the latest. So Happy New Year also to everyone.

Happy Holidays. Thank you so much.