Konecranes Q2 earnings – Q&A
Our Q2 earnings were published this Wednesday, July 26, 2023. Here are the key discussion topics and questions so far.
Q: How do you expect your order intake to develop in Q3 and beyond by each Business Segment?
We gave the following demand outlook for Q3 in connection with our Q2 report: Our demand environment within industrial customer segments has remained good and continues on a healthy level, despite the weakened global macro indicators and some signs of weakening in all three regions. Global container throughput continues on a high level, and long-term prospects related to global container handling remain good overall. That said, we have started to see hesitation in decision-making in the short term among some port customers.
In Q2, component orders declined both year-on-year and sequentially, but they remained on a healthy level. The comparison periods were tough as component order intake was strong both in Q1/23 and Q2/22, supported by order peaks due to price increases. Standard crane orders continued on a good level in Q2 with year-on-year growth.
Also the activity in Ports continued good. Exact timing of customer decision-making remains always a bit of a question mark, and it can be hard to predict in which quarter customers decide on projects. Thus, our quarterly order intake has been rather lumpy from the historical perspective. Port Solutions order intake has been unusually high already for quarters. The long-term funnel looks good and continues to include also larger projects, but we are not expecting any mega orders in the short term mainly due to timing of the customers’ plans.
Q: Your Q2 comparable EBITA margin improved to 10.8%. What are your expectations for the remainder of the year? Is this level sustainable on a long-term basis?
We have guided for growing sales and increasing comparable EBITA margin vs. 2022. We do not give guidance on Business Segment level. Our Q2 was strong – sales increased mainly thanks to volumes and pricing. Profitability development was also driven by volumes and pricing. Both Service and Industrial Equipment businesses are volume businesses, which is reflected in our Q1 and Q2 profitability. Port Solutions’ profitability was a little bit behind last year’s level mainly due to sales mix.
At our Capital Markets Day in May, we introduced new financial targets for Konecranes, and we aim to grow our sales faster than the market and reach a comparable EBITA margin of 12-15% as soon as possible but no later than in 2027.
Q: Your Service profitability (19.5%) improved again in Q2. What was driving the improvement? What are your expectations going forward – is this is a sustainable level?
The increase in the comparable EBITA margin was mainly due to higher sales volumes and pricing. In Q2, there were no positive one-time like items. Service is volume business: in case of lower volumes, productivity is also lower, impacting profitability level. This is what led to a lower profitability in Q2 last year.
Our orderbook remains high and we have not had pricing issues in Service. We continue to work towards reaching our profitability target of comp. EBITA margin of 20-24 % no later than in 2027.
Q: Your Industrial Equipment comparable EBITA margin was 5.4%. What drove the improvement? Why were you behind of Q1’s comp. EBITA of 6.8%? How sustainable is this “new” level? How was your process crane business’ profitability in Q2?
Industrial Equipment profitability improved mainly due to higher sales volumes and pricing. Industrial Equipment is volume business, and much of the improvement was sales leverage. The big price increases implemented in H1/22 are now coming through and are reflected in the margin. Process crane business margins improved versus last year but were still on minus. The sequential decline in comp. EBITA-% was mainly due to lower volumes but also due to higher fixed costs.
We believe there is more room for profitability improvement and continue to work towards our profitability target of 8-10% comp. EBITA margin by latest in 2027.
Q: Your Port Solutions comparable EBITA margin declined slightly Y/Y to 6.6% (from 6.7%). Why is this?
Port Solutions profitability declined slightly mainly due to sales mix.
Q: How did your sales mix develop in Q2?
Our sales mix on group level weakened year-on-year. Mix remained approximately flat in Service and Industrial Equipment, but weakened in Port Solutions. On full-year basis, we expect sales mix to deteriorate in 2023 versus last year.
Q: How resistant are you to macro environment changes? How cyclical are your Service and equipment orders/sales?
More than 40% of our business is service which is resistant to macro environment changes. In the financial crisis back in 2008-2009, Service sales declined by 10-15% on an annual basis. Equipment businesses have been significantly more volatile historically, and during the financial crisis, order intake of our then equipment businesses declined by 40-50% on an annual basis. Currently, we have a record-high orderbook which will help us navigate better in a downturn compared to the past.
Q: Have you seen any customer cancellations? In the past downturns, how many orders have the customers cancelled? How large prepayments do you usually receive?
We haven’t seen any major customer cancellations in Q2 or before. In previous downturns, cancellations have been rather limited, as for larger products (standard cranes) and projects (process cranes and ports projects), customers pay down payments. For large projects, payments are made in milestones throughout the project. List price products (most of Service, components, lift trucks) don’t have prepayments but in case of cancellations, we can deliver the products to other customers.
Q: Your finance expenses were unusually high in Q2. Why?
The higher expenses result from SEK (hedging). Our lift truck order book is mainly in SEK.
Q: Please remind me of your full-year guidance. What should we think about your sales and profitability development during the second half of the year?
Our guidance is as follows: Konecranes expects net sales to increase in full-year 2023 compared to 2022. Konecranes expects the full-year 2023 comparable EBITA margin to improve from 2022.
We do not expect as clear seasonality in 2023 as we normally have had. This year, we expect the year-on-year sales and profitability improvement to be less in the second half compared to the first half, as the last year’s H1 comparables were rather low. Last year, our delivery capability and sales execution improved towards the end of the year. This year again, our H1 was clearly stronger than last year. We also expect that pricing impact will start to stabilize from now on.
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In case you have any questions or would like to discuss with us, please do not hesitate to contact us – we are here to help you! You can find our contact details on IR contacts webpage. But please, kindly note that in August, there may be some delay in our answers due to holidays :)
We wish you all a great summer!
Best,
Kiira and Tomi
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