Konecranes Plc (KCR) Earnings Call Transcript & Summary

Okay. I think we are already a couple of minutes late. So let's start. Welcome, everyone, to Q1 pre-silent call. We have here today our CFO, Teo Ottola; and then also Ruusa Vallin from the IR team in addition to myself. And I would again kindly ask you not to record this call. So we will provide a full recording available on our website then afterwards. [Operator Instructions] And then there will be a recording available for everyone to see afterwards, if that's okay. So let's start now. First, the usual list of activities or releases, announcements. During the quarter, we've had quite a few stock exchange releases mostly related to the end of year reporting and things. And then yesterday, we also arranged the AGM at Hyvinkää, so release is related to that. And then we have also announced a few orders and other, let's say, business-related announcements during this quarter. With that, I will hand over to Teo. So we will discuss through the usual demand outlook and then financial guidance. And then there will be a Q&A. And we have a, let's say, hard close at 2:30 pm finish time. So that's then when we need to stop taking the questions. But let's start with that. So Teo, please, stage is yours.

Thank you, Kiira, and hello to everybody on my behalf as well. So a couple of slides probably to kick off the discussion. First, the demand outlook. As Kiira pointed out, this is the one that we had in connection with the Q4 results, and it, of course, continues to be valid. So for industrial customers, the demand has remained good and continues on a healthy level. And then for both customers, long-term prospects related to global container-handling remain good overall. And maybe we can a little bit discuss and repeat the additional color that we gave already a little bit earlier already on this one. First on the Industrial segment side and geographically. So the U.S. having been a very strong market or the Americas, but particularly the U.S. within the Americas, having been a very strong market for us. So we communicated already earlier that we have started seeing some signs of, let's say, flattening out. So a little bit more, let's say, not as buoyant as it maybe has been as it was very good over the past couple of years. And then on the other hand, the EMEA situation has looked a little bit, let's say, better, signs of improvement, at least slightly visible there. APAC having been more or less stable. And of course, now the additional topics in relation to this one is obviously the tariff discussion, which we have in relation to Americas, of course, also impacting other areas, but Americas in particular. And then, of course, also the potential that is, for example, [indiscernible] has we discussed, EUR 5 billion on the infrastructure and on defense as well. I have a background noise.

Yes. I think that Rachel is actually recording this call. So that's creating a bit of background noise. And now I have to apologize that we didn't put the recording on time. So it only started at the demand outlook, so.

Okay. But now at least the background noise has disappeared. So from that point of view, let's continue. And then when we take a look at the demand still and the funnel, so when we take a look at the overall sales funnels, the opportunities, so they continue to be good. And of course, we usually refer to the standard Crane business because that is where it maybe adds most value to take a look at the sales funnel. It continues to be on a high level. When we take a look at the new cases coming into the funnel, so the amount of those is rather down than up, but there is nothing dramatic in it. So it is maybe slightly down, but still on a fairly good level. And like I said, the funnel overall continues to be in good shape. So I guess that the question more is that the uncertainty created, for example, by the tariffs, so how will it impact the decision-making going forward, if in any way, and of course, not only in the Americas, but in the other areas as well. Then I guess, that we could go to the next page, which is then the financial guidance. Yes. And there, obviously, no changes in this one. Net sales expected to remain approximately on the same level in '25 in comparison to the previous year and then the EBIT margin on the same level or to improve in '25 in comparison to '24. Maybe good to remember here that when we take a look at the overall seasonality, so the last couple of years, '23 and '24 have been maybe a little bit different from the seasonality pattern point of view than the earlier years, meaning that the beginning of the year has also been quite good. It is maybe something to consider, maybe this is -- the normal seasonality pattern will probably return sooner or later. And maybe it is also regarding '25, a good idea to think about, maybe a little bit more normal seasonality pattern than what we have been having, for example, '24 when the Q1 and Q2 were maybe exceptionally strong in comparison to the full year numbers. But no other comments basically in relation to the financial guidance. And then I guess we would be ready to go into the Q&A.

Yes, let's do so. Thank you. Thank you, Teo. And as previously, you can kind of tell that you are interested in asking questions just by raising your hands. And I think we already have 3 hands raised here, and Daniela was first. So Daniela, please go ahead with your question.

I have just 3 questions. First one is, can you -- I guess, backhand of last year, Biden was talking about that ports upgrades and to offset Chinese cranes, I guess. And we haven't heard much about that from Trump. So maybe what have you heard regarding that? Is that moving ahead or not? That's my first question.

What is now going to happen, at least based on our understanding is that the tariffs that the Biden administration already decided to put on the Chinese STS cranes. So they will come into force in May, and that would be 25% on STSCs from China. Now at the same time, we also know that customers have been placing orders, at least some orders, despite this tariff. And also otherwise, we have been saying that maybe this 25% is not enough to, in a way, make a major change in the supply chains so that all of a sudden, STS claims would be coming from somewhere else in China, so that the cost efficiency that China provides in relation to this one is better or higher than the 25%. When it comes to the other part of the incentive from the government, so the subsidy packages, Buy America, Build America cases, so that is -- as you may remember, so that is a structure where the customer applies for a subsidy. And then based on, for example, domestic content, either receives the subsidy or not. And we have been having these kind of cases -- we have and have been having these kind of cases in the sales funnel. There are no direct decisions based on this one. So the situation from that point of view is more or less unchanged. And then, of course, going forward, what is going to happen with the subsidies. So at least I do not have information that the subsidies would have been taken away, but it has been, to my understanding, relatively silent in relation to the subsidy. So the situation is not much changed in comparison to the end of last year.

Great. And then I guess the other big news this quarter has been sort of the German funds. And so my 2 next questions are kind of like I'm going to ask, I mean, one, related to, do you have much of exposure in defense? Could you get sort of any exposure there? And then second thing, on what we have seen so far of the infrastructure, what would you say sort of like is your exposure? Maybe you can give us an overview of what you have in Germany and how much of that would be directly infrastructure related?

Germany, obviously, is an important market for us. It is somewhat less than 10% of our total annual sales if we take a look at it as a country, including obviously everything. Maybe starting with the infrastructure, and of course, it depends a little bit what the government there means with the infrastructure. But in principle, we do not have a huge direct exposure to infrastructure roads and those kind of things. At the same time, of course, companies that would be providing help to the governments in building infrastructure would be needing equipment. And then we would be -- we would obviously be a potential beneficiary there. So we could be delivering equipment to the companies that are providing the actual work to improve infrastructure. So definitely an indirect impact at least in this case. What would be the time line then from decision to actual materialization in the orders and sales, that's a much more complex question. But any economic activity in Germany definitely would be a potential lever for us as well. Defense is maybe a little bit different there from the point of view that there obviously can be direct link as well. If customers start to build military equipment, for example, that typically requires lifting capacity, including cranes. These are heavy objects in many cases, be it tanks or jet fighters or whatever. So of course, there, the impact can be direct. We are supplying to defense companies, both in Europe as well as in the U.S. And for example, this U.S. Navy is a big customer of ours. But when we take a look at the whole defense sector as we have defined it, so we are only talking about a couple of percentage -- percentages of our annual sales. But it is quite a lot project related, like the U.S. Navy, for example, where we had a big order now in the fourth quarter. So of course, it is impacting the industrial equipment deliveries that way. But the direct exposure to defense is not very high or has not been very high. It is definitely a potential for us going forward. And then, of course, a couple of percentage points, one has to also remember that this defense definition is basically based on how we categorize customers. So in case there are customers that are primarily doing something else, but also defense activities. So they may be in our general manufacturing as well.

And then I think that Antti Kansanen, you are the next in line. So please go ahead with your question.

A couple of questions from me. First is on the industrial side. I mean, Q4, really strong on orders. I know you had one big order there as well. But aside from that as well, was there any kind of a timing-related stuff in terms of turn of the year price increases or something like that, that would have kind of resulted on clients ordering ahead of time comparison to, let's say, if Q1 continues with a similar type of demand, are we going to see a slowdown? Any this type of impact?

I don't think that there was a pricing related, let's say, discontinue at the year-end. Typically, those are in relation to Q1. So -- but there was obviously a big deal there and then also the standard order intake continued to be good, but nothing very specific.

Okay. And the second question was on the U.S. demand and there, you mentioned that it's starting to flatten out. So could you -- kind of a clarification, is it kind of stable on a good level, so the growth rate is flattening out? Or are you seeing already kind of the tariff impacts and others kind of leading to a lower demand?

We have seen, let's say, sentiment maybe changing a little bit to the worse. Now that we discussed the sentiment regarding Europe being maybe a little bit more to the better as a result of, for example, the German stuff that we just discussed. So in the U.S., it may be the other way around. So that the sentiment is maybe a little bit to either stable or to the worse. But it is -- it has been on an excellent level. So this is not a major change from that point of view. And this was visible already before the tariffs because this was visible basically in January already. So it's most likely at least partially in relation to things just having been on a very good level so that this kind of a flattening/slight slowdown in a way would be there anyways. The tariff impacts we probably will be seeing a little bit later in the order intake. So now what has been happening is that, for example, our crane spare parts are, to a large extent, subject to tariffs. And we have increased prices already now in the U.S. based on these tariffs. So this is something that the customers can actually...

Can I still take one question, which was on kind of the seasonality impacts that you've mentioned that perhaps last year was a little bit different? Could you remind why last year was different? And where did we see kind of extraordinary strength that we should be aware of on the year-on-year comparisons now in '25?

I think that the main reason why the previous years have been a little bit different from the -- maybe from the seasonality point of view is the order book. So that as a result of the '22 delivery issues and then the very good order intake also in '23 as well as in '24 also. So we have been having a little bit, let's say, a bent up in a way, sales in the order book so that we have been able to utilize the situation in the first quarter as well, maybe better than during the previous years on average. And I don't think that there is necessarily anything more significant difference. Now of course, we have a lower order book for '25 than what we had for '24, even if this is mostly imports, but it is still not as good as sole situation as it has been in the previous years in the other businesses as well.

And then Johan Eliason, you would be the next one. Please go ahead with your questions.

I was just wondering about Germany coming back to that again. When you acquired the Demag brand, you sold the STAHL brand. How has your German market shares developed since? Is it sort of stable at the combination of Demag or Konecranes? Or have you lost to the STAHL buyer?

I think that overall in -- let's say, so that overall in Germany, it is a little bit difficult to figure out the market shares because there are quite many small and midsized players. But the overall impression is that in Germany, we would have been roughly able to maintain the market share and we have not lost market share. But I wouldn't dare to say that we would have gained either. We know that we have gained in U.S., but I wouldn't be as bold regarding Germany, but we have maintained. In Germany, there are also players that are quite, let's say, price sensitive. So there are players who are actually increasing and reducing a little bit the price in line with their own capacity, and we typically would be maybe more reluctant to do that than maybe some other players. So it may create a little bit more volatility into the markets. But overall, I think that we have maintained, that would be the most likely outcome.

And the recent decision to take the Demag Cranes as a distributor brand, so it hasn't changed that?

It has changed it from the point of view that end customer contacts. End customer cranes are, to some extent, on a lower level, but we have been able to compensate that in the component business so that when you take a look at the overall situation, it actually is quite okay. And when we take a look at the global situation overall, so it is maybe so that from the crane point of view, replacing the cranes with components only, we may have lost some customers in a global scheme of things. But let's say, less than what we actually anticipated. So that customers have taken this shift in a very good way. But of course, it means that in some cases, instead of delivering the hoist and the crane, we are actually delivering the hoist to somebody else and then the crane part is built by another company.

But that should obviously improve your margin profile, I would assume?

That is improving our margin profile and has improved our margin profile in addition to being able to be more efficient, obviously, but also that has impacted.

Excellent. And then finally, any update on the CEO search?

The CEO search is ongoing. The Board is working on the topic, looking for both internal and external candidates, but no insight into the time schedule as such.

Pasi Laine, our Board Chair, commented this briefly at yesterday's AGM and said that the search has progressed well and then the appointment will be made in due course. So whatever that then means. Yes, that was the comment yesterday. And now Mikael Doepel, it's your turn to ask questions. Please go ahead.

Yes. Actually just had a couple of clarification questions. So firstly, on the seasonality comment. So if I read it correctly, I mean, what you're referring to is basically your revenue recognition, right, because you talk about the order book. You are not talking about the order intake seasonality. Am I correct there?

I am mostly talking about the sales revenue volume, correct? Not order intake. And order intake seasonality has never been as strong as it has been in the sales. So your conclusion is correct.

Okay. And then another clarification. So in your opening remarks, you talked about the sales funnel and you mentioned standard cranes there. And as I understand, you mainly referred to industrial business, but did that -- did those comments also refer to the Ports business or would you like to talk about a bit more about the situation there?

That's a good clarification. That comment was on the Industrial businesses. So this was mostly on standard cranes within Industrial businesses. And that is where the sales funnel is the most relevant because it is consisting of smaller deals. In the Ports business, the funnel is good there as well. So the comment is similar from that point of view. The difficulty in the Ports business is that the link between the funnel and the order intake is much more difficult to do because these are bigger individual deals and the customers' decision-making timing varies a lot. But from the Ports business point of view, the overall underlying sales funnel and the movement within there, it is -- the activity continues to be on a very good level. So there is nothing -- no major change one way or the other in comparison to the situation a couple of months ago.

Okay. That's clear. And then just finally, on the aftermarket business, I'm not sure if you want to comment separately on Industrial and on the Ports. But I mean, just looking at utilization rates in the industries overall, I mean, they have been coming down in Europe and U.S., you'll be able to grow that business. So just wondering how do you see that part of your business progressing into '25? I mean, do you continue to see growth or has the increased uncertainty had an impact on that business in terms of volumes?

The increasing uncertainty in theory at least should not be impacting Service business as much because the service business should be driven by the utilization rate of the cranes. And this is, of course, valid both for Industrial as well as Ports. Then regarding modernizations, maybe that kind of an impact could be. I think that regarding the Service business, the question and the sort of source of potential uncertainty is more in relation to what you also said is the decline in utilization rates. So they have been going down both in EU as well as in the U.S., particularly in EU, and our business has been holding well. So probably we have been taking market share there. And of course, the long-term question for us is that if this kind of macro environment should continue, so what would be the order intake then because if cranes are being used less, so how would it be impacting us? And we haven't been communicating anything specific on that one, but I think that, that would be the question. And now, of course, we are -- when we are talking about -- in the demand outlook, we are talking about the Industrial segment. So of course, we are referring to the service as well. So this comment doesn't change anything what we have in the demand outlook. But it is a longer-term question, of course, regarding the Service business.

Thanks, Teo. You need to be a little bit shorter with your answers, Teo, so we can take all the questions.

I was already thinking that when you say that, yes.

So now given the time restrictions, so Tom, let's take one last question from you. Please go ahead.

In spare part, of course, it's very, very important that you don't start losing market share to [indiscernible] parts in the U.S. when you are forced to hike prices. I would just like to hear what risks you see about this? And then secondly, let's forget about this 6-month uncertainty and Trump is going crazy. But what do you -- I mean, what do you really believe? I mean, do you hear that a lot of companies in the auto industry, other industries are now kind of asking plans to build the U.S. factories? Or do you see some concrete action? I mean, will we see what Trump wants to happen?

Yes. So first, on the first part of the question. So you are completely right that we should avoid kind of a situation that customers have incentive to look for spare parts or third-party parts. I think that we are fairly well secured from that one because of the technology that we possess, because of the IPRs that we have and obviously also because of the relatively short series of spare parts. So it's not necessarily very, let's say, financially viable for just anybody to start, let's say, producing spare parts for Konecranes equipment, for instance. But of course, at the same time it means that we will need to play with the market rules so that we cannot excessively increase the prices unless we can provide the value added to the customer. The tariffs are a different thing so that we will need to increase, of course, in line with the tariffs, but so will most other people as well. So it doesn't necessarily -- on a short-term basis, it doesn't necessarily change the competitive situation that much. To the question of the, let's say, overall market sentiment regarding the U.S., so it may very well be that part of the good, I would say, good order intake, at least in comparison to the macro data. So it may be as a result of some of the customers maybe accepting a little bit, let's say, lower utilization rate for their assets in general because they want to make sure that they have capacities in the places where capacity is needed. And this could be, for example, in the U.S. as well because even though we say that we have taken market share, so there may be other reasons as well why our order intake has fared better than the overall macro data and this accepting lower utilization rate than in the history. So I have to emphasize that this is speculation. So we don't really know. I mean, it's very, very difficult to find factual data on this one. But this may be one example -- one sort of reason in addition to taking market share, why order intake has been doing well in equipment despite macro. This, of course, doesn't work very well regarding the service because there the demand would be more, let's say, utilization related. So there market -- having taken market share is probably a valid sort of reason there.

What I'm really thinking is, let's take Volkswagen as an example. I don't expect you to comment single customers. But I mean, Trump really will force them to open production in the U.S. Do you see any kind of signals of this kind of things being planned that you get quotations for unusually large projects in the U.S. or so? Or is it just that everyone has just been waiting and sitting so far in hope that all these tariffs will be canceled?

We have been seeing -- let's say, over a longer period of time, we have been seeing some kind of reindustrialization of the U.S. in the way that, let's say, segments that have not maybe been too active over the recent past have started to become active again. So this may be as a result of, let's say, nearshoring or friendshoring or whatever. But when it comes to the tariff discussion in particular, so I think that, that is so such -- let's say, recent past that we would not see concrete examples of that one yet in our quotations because we would not be the first guys to whom the quotations would come. That would come later if it comes.

Thank you. So we are already 3 minutes over time, but thank you for the active participation. And just so you remember, our silent period starts on Monday, and then we will report our Q1 earnings on April 24. So that's then the next time when we will be hosting a call with you. So hopefully, many of you will be present to ask questions. Now I wish you all a great weekend and enjoy the hopefully nice spring weather. Thanks. Bye.

Thank you very much for participating. Bye-bye.