Konecranes Plc (KCR) Earnings Call Transcript & Summary

Good afternoon, and welcome to Konecranes' Q3 Interim Results Webcast. My name is Ruusa Vallin, and I'm the interim Head of Investor Relations at Konecranes. Before we go into today's agenda, I would like to remind you about the disclaimer. We might be making forward-looking statements. And as our agenda today, our CEO and President, Marko Tulokas, will start the presentation, and Teo Ottola, CFO, will continue. After the presentations, it's possible to ask questions. And today, our webcast is a bit shorter, 30 minutes as later on, we will be continuing with Konecranes' Capital Markets Day 2026. The stage is yours, Marko.

Thank you, Ruusa, and good afternoon, everybody. As Ruusa was already saying, today, we are going to be a bit shorter than usual. But I will also start, as usual, by focusing on the key points of the quarter for Konecranes. So of course, a very significant milestones that we updated our financial targets in the quarter. That includes our dividend policy as well as our capital allocation and long-term climate ambitions. If looking at the quarter, I would categorize it as a great quarter for Konecranes. Our demand activity continued strong particularly within the Ports business. And on the Industrial side, this particular quarter, the way it was specifically on General Manufacturing, Power & Mining segments. However, as it is particularly in the Ports business, the order intake is -- has some volatility and it's somewhat difficult to predict the order intake timing and that also happened in quarter 3. So, even though we have a lot of activity in the funnel, our order intake in the Port Solutions was somewhat muted, and that meant that we also fell short of last year's quarter 3 in terms of order intake. But I'm very happy about the quarter, particularly when it comes to the delivery performance, and that is also thanks mainly to Port Solutions where we caught up very nicely after a somewhat slow half of the year. And that was -- as we discussed in the quarter 2 report, that was very much as planned, and that was what we saw already in the [indiscernible]. That is just the timing of the the post deliveries for this year. So a very good delivery performance on the third quarter of the year. And that also meant that we had an excellent result, and that was driven by volume as well as tender solid performance. And I'll move on to the actual numbers now. So orders were really down due to Port Solutions, but we had some growth in Industrial Equipment and Industrial Service and particularly, we had a very good mix on all three business areas when it comes to the order intake. Our sales grew 10% in comparable currencies compared to the last year's quarter 3. So, we caught up very well as planned. And also the Service business started to improve the delivery performance on the third quarter. That also meant that our order book continued to strengthen. Our profitability was very good. Although not quite as nice as the record-breaking 2025, so we had 15.6% margin on the third quarter of this year, which we consider to be a very good achievement from the team. The decrease in relative terms of the margin was mainly driven by higher positive one-offs in the comparison period. Our underlying performance generally speaking, was strong. As already said, order intake not really as strong as previous year quarter, particularly because of Ports timing of orders, we saw increase in Industrial Service and increase in Industrial Equipment and increase in the EMEA region, but decreased in the Americas and APAC and again, in Americas, particularly driven by the Port Solutions timing of orders. Our deliveries improved in all regions. And our Port Solutions and Industrial Equipment factories performed very well. So we have no major supply issues. The only remaining issue, particularly in Industrial Equipment side that the customer acceptance issue still exist, although we do see some improvement in those also. Now I will move on to the Konecranes updated financial targets, which do reflect our increased ambitions. And this is for those who are not maybe listening later to our Capital Markets Day presentation today. So we revised our strategic ambition as well as our targets and has increased our targets. This reflects our confidence into our operating model, the performance that we've seen in the last years as well as our mid- to long-term opportunities that we see in the marketplace. So our absolute -- we set an absolute growth target that 7% for the Konecranes Group, as well as 7% for Industrial Service and Port Solutions. Industrial Equipment, 6%. The main reason for that is that in that particular business, we have some areas where we are or some business lines where we are somewhat more selective still than maybe in the others, and that is why the Industrial Equipment is slightly lower target. The same we did for the profitability target. So we have had good progress in our efficiency, in our margin development in general. We were well in the range of the previously set targets. And although we have not really seen a downturn yet. We are also confident that our ability to grow, efficiencies that we have built into our model, our renewed product offering and efficiency of that as well as the runway of improvement potential is all there. And therefore, we are confident to say that apart from a global unforeseen shock or crisis, we believe that we can perform in a normal downturn, so that by 2030, we are in that range of 15% to 17% on a group level. I'm very happy personally as well as committed as is the whole Konecranes team to these new targets that is very inspiring and an important thing for all of us. So now we're going to move on to the financial. So Teo will join me on the stage for that.

Thank you. Thank you, Marko. And let's continue to the profitability side. more in detail. So like Marko already pointed out, so the EBITDA margin for the quarter was very good, 15.6%, but still about 1.1 percentage points lower than in the exceptional good Q3 of '25. We did improve in Port Solutions as well as in Service, but there was a decline in Industrial Equipment. And when we take a look at it from the group perspective, so like Marko pointed out regarding the one-off. So we actually had positive one-offs in this quarter, roughly in the amount of EUR 8 million as a result of tariff refunds in the U.S. but we actually had maybe EUR 10 million to EUR 15 million one-offs in the third quarter of last year, so a larger number. And those were positive as well. And if we back out both of these from Q3 this year and Q3 last year, so we are looking at a negative margin difference of roughly 0.5 percentage point. So excluding the one-offs, the difference is not as big, but it is still a negative in Q3 this year versus the year before. And this negative 0.5 percentage point roughly comes from the mix and then also to some extent from, let's say, operational issues in comparison to the situation a year ago. And maybe we can take a look at that more in detail with the help of the bridge on the right-hand side. So despite the decline in the EBITDA margin, the euros, EBIT euros actually rose to EUR 172 million. When we take a look at pricing, so that was maybe 2.5%, maybe a little bit more in a year-on-year comparison, which leaves us about 7%, 7.5% underlying volume improvement. And this obviously creates a very nice operating leverage, positive contribution to the result. Net of inflation pricing was on the positive, but very little. So no meaningful impact there. And then like I said, the mix was negative. And then also the performance was negative, partially as a result of lower positive one-offs and partially as a result of operational issues, particularly in the Industrial Equipment. Fixed cost actually rose by EUR 5 million, but that -- this is basically inflation, not much more, not really anything else. And then, for a change, we have an FX translation impact slightly on the positive side. So very good underlying volume, no meaningful impact from the net of inflation pricing, negative mix, negative performance as a result of one-offs and operational topics and those basically explain the profit difference between these two quarters. So just couple of comments, few comments for each BA, starting with Service. So here, order intake 1.2% higher than a year ago with comparable currencies. It's a bit unfair comparison this time as we had a very good number of modernizations in the third quarter of '25. If we excluded those, so we are looking at 5% plus growth actually within the field service and spare parts, which is on a good level. Then regarding sales, 2.4% growth in a year-on-year comparison. There is a small technical topic here as well. We have moved one unit from Service to Port Solutions as a result of which Service is selling less internally. And if we were to exclude this one, we would be taking a look at roughly 4% growth in sales year-on-year. So a pickup in the sales like Marko already explained. You can, by the way, see the other end of this internal sales as lower group internal sales in Q3 this year versus Q3 last year. Then taking a look at the Industrial Equipment. So there may be focusing on the sales. We have a decline in sales by roughly 1 percentage point in comparable currencies. We have had a little bit, let's say, delivery delays. These have been primarily as a result of the customer delays, but there also have been issues that are, let's say, originating from our own business and own doing. And these then have been visible also in the margin. So as a result of lower volumes, obviously, the fixed cost absorption has been on a lower level than what it was a year ago. We have had a little bit cost overruns as well there. And then on top of that, are also the lower positive one-offs this year versus last year is visible in the Industrial Equipment margin as well. Of course, 10.9% is by no means a weak margin. But of course, again, when you take a look at the more than 14%, one year ago, so it was exceptionally good. Then Port Solutions. And there, we obviously have a decline in the order intake as a result of the timing. Taking a look at the underlying activity in the Ports business, that continues to be good. We had good orders in Port Service, lift trucks as well. But of course, the timing of the bigger orders is something that is impacting the number quite a bit. On the other hand, timing was now better for sales. We have almost 30% growth in sales in a year-on-year comparison which is then, of course, also visible in the EBITA margin. Margin is improving but only by 0.2 percentage points. So with this high volume that may be considered, let's say, not a very big improvement. But at the same time, we need to remember that the mix is, of course, now much weaker from the margin point of view than what it was a year ago. And then also within Ports, the quarter last year was operationally very clean, solid and good. Then finally, from my point of view, a couple of comments on the balance sheet. Net working capital to start with that one. Net working capital did not really increase from the level of Q2, but it didn't really decrease either. So the work in progress continues to be on a high level. There is nothing extraordinary. So there are no deviations in the commercial terms or anything. So this is probably mostly a timing topic. But it is, of course, true that we are slightly on the wrong side of the target of 10%, of rolling 12 month sales. But like I said, nothing extraordinarily -- extraordinary in this or behind this number. From the cash flow point of view, the third quarter was better than the previous quarters as a result of the net working capital development. And we have now, at the end of the third quarter, we have a net cash position of roughly EUR 100 million total. And then with these comments, I will hand over back to Marko.

Thank you, Teo. I'll use a couple of slides again to iterate the demand outlook and our demand outlook and it's obviously unchanged. So we -- within the Industrial Customer segment, we expect the demand environment to remain on a healthy level. As you saw from my first -- or heard from my first slide comments about the quarter highlights. This time, we had quite a lot of activity in general manufacturing and mining on top of the Power and Aviation, Defense earlier, that is just the sign that in that -- what is part of the Konecranes, model strength is we cater to so many Industrial Customer segments that we see. Also positive signs and rotation that helps us to naturally hedge the demand environment. At this time, we also saw improvement into other segments compared to the previous one. So this is a good thing, generally speak. For our Port customers, the container throughput continues to be in a very high level. And as we've several times already said today, the -- besides the longer-term respect remaining could we also have good customer funnel activity. But as it is always the uncertainty to the -- whether it's related to your politics, trade policy tensions or to the nature of the Port Solutions business volatility in order intake that still remains. And of course, that creates the -- usually, if not even more challenges today in terms of the timing and predicting the order intake. But the outlook in general remains unchanged. And then as it comes to our guidance, financial guidance, we iterate our financial guidance and our sales to remain at the same level to increase and our EBITDA to remain at the same level. So we remain confident, thanks to our good order book and stable profitability development. But of course, as I said earlier also, that is realistic to say that there is uncertainty in the environment, but we remain confident nevertheless. With that, I'd like to thank you all for this shortened quarter 3 webcast. And I welcome also Ruusa, back on stage for the question and answer.

Yes. Thank you, Marko and the for the presentations. It is time for the Q&A, and I would like to remind everyone that let's now focus on Q3 in this webcast and continue with the strategy topics later on this afternoon. So operator, please open the lines.

[Operator Instructions] The next question comes from Daniela Costa from Goldman Sachs.

I have two questions and they both relate to Service. So I will ask in one go. First, I guess, the margin today is sort of quite record high compared to past. Can you sort of separate from this? Is it or you would say, is any of a concentration of the one-off, maybe tariffs in there or something else that you would say it's not sustainable, we shouldn't think about this as [indiscernible] level of margins going forward on a more continuous basis? And then second, also on Service. I believe in last couple of quarters, you were running a little bit ahead of your desired levels in terms of churn on the Service installed base. Just wondering how that's been progressing?

Maybe since we had that margin question. Teo, you forecast, by the way, mentioned about the good service margin in your presentation, now is your chance to iterate.

Now is the chance and the margin indeed is a good one. [indiscernible], the question is a good one as well because there is, to some extent, one-off impact there as well. So part of the tariff refunds is in Service, a small part, something probably between EUR 1 million and EUR 1.5 million, is allocated or is within Service. Other than that, there are no major one-offs, one way or the other in the Service profitability.

And again, Daniel, your second question, what about the churn, right? And by that, you mean the attrition rate in the Service?

Yes.

I mean our target is -- we normally -- target roughly 90% level. We are well on our way. We've actually improved in the agreement-based attrition. There's nothing unusual that in that we see today. So it is as...

You're in that level now because I believe you were sort of a bit ahead of that in the last quarter?

No. I mean we are actually, if I may recall correctly, I don't have the number 88% level, 87%, very close to that. So not really a big change there.

So we have been saying that the targeted level would be to be above 90% or 90% or above. Now for the past quarters, we have been on a little bit weaker. Well, there may be somewhere 86%, 88% like Marko noted. No significant change now in the third quarter in comparison to the second.

The next question comes from Panu Laitinmaki from Danske Bank.

I have three questions. Continuing on the Service topic, so the growth picked up from previous quarters. So what are your expectations going forward? Is this kind of churn to better growth? Or was it 1 quarter? Or what do you expect?

As there was already kind of dissecting the Service growth, of course, just to iterate that for everybody, particularly last year, we had maybe unusual high number of modernizations for the quarter, which was not the case. This month the underlying field Service and Parts order intake was good and the order intake side sales is, of course, in Services, it follows quite closely. And of course, that is an encouraging development. And what we said about the market environment, it has been somewhat challenging in Service [indiscernible] when it comes to customers' willingness and ability to take on service work. There are some closer signs of improvement there. And therefore, there is reason to be cautiously optimistic about the Service development going forward. But as you know, we don't really guide on individual BA order intake for as such.