Q3 earnings - Q&A
Our Q3 earnings were published on Friday October 25, 2024. Here are the key discussion topics and questions so far.
1. You state that your demand environment within industrial segments continues on a healthy level. How should I interpret this? Has there been any changes in the demand environment? What should I think about Q4 orders by each segment?
Our demand environment has remained good/healthy throughout 2023 and YTD24, despite macro indicators signaling weakening market conditions. We expect the demand environment within our industrial customers to remain healthy. This does not mean that we would not see some signs of uncertainty on the market, yet in our view, the market in our industrial side is somewhat stable. In larger industrial projects, customer-decision making takes somewhat longer, but we still see new sales cases coming in our sales funnel.
2. How does your Port Solutions order pipeline look like? How do you expect your order intake to develop in Q4? Are you still of the opinion that Q3/23 was your order trough? You mentioned that you are expecting to book a large order during H2/24 – have you already done that?
We have a good order pipeline consisting of projects of different sizes, but we do not expect any major changes in our market environment in the coming quarters due to timing of customer decisions. In Port Solutions, fluctuating order intake is business as usual due to the timing of customer decision-making. Due to the same reason, it is not easy to estimate the exact timing of order bookings. We continue to believe that last year’s Q3 was the trough. We booked one large Automated Guided Vehicle deal in Q3 (above €80m).
3. If you have booked a larger deal in Q3, it means that the underlying demand was very low. How would you comment it?
Lumpy order intake is part of our business in Port Solutions. Most of Port Solutions orders are projects every quarter, and the project sizes vary a lot. In Q3, mobile harbor cranes, straddle carriers and port services demand continued strong, and we booked a large automated guided vehicle order. Lift trucks continue on the softer side. The remaining products are project business, and the timing of projects depend on customers’ decision-making timing. Our sales pipeline continues to be good, but we do not expect any major changes in our market environment in the coming quarters. We are not worried about the order situation, but we naturally continue to focus on cost efficiency.
4. How was your order intake in the so called short-cyclical and early cyclical products? How does their demand outlook look like in Q4?
Component orders increased Y/Y and remained approximately flat sequentially. Standard crane orders increased year-on-year but decreased sequentially. Lift trucks orders remained approximately flat both Y/Y and sequentially. We do not give product level demand outlook comments. Overall, we consider that our industrial demand environment is healthy/good at the moment.
5. Your comparable EBITA margin improved Y/Y but declined Q/Q. What is behind the development? What should we think about Q4?
Comparable EBITA margin improved year-on-year and was 13.4%, mainly driven by pricing and higher volumes, as well as strategy execution. Profitability improved year-on-year in all Business Segments.
Sequentially, comparable EBITA margin decreased from 14.3%. This was mainly driven by Service and Port Solutions. Q2 was a very strong quarter, and we stated already in connection with our Q2 interim report that we do not expect sequential comp. EBITA-% growth in Q3.
On a full-year basis, we expect our comparable EBITA margin to improve in FY24 versus last year, and this comment is also valid for Q4, so we expect Y/Y EBITA margin improvement also in Q4. Sequential development depends on delivery timing, volume and mix.
6. Service’s comparable EBITA margin increased Y/Y but declined Q/Q. What is behind the development? Should we expect Y/Y improvement in Q4? How about sequential improvement?
The Y/Y improvement resulted mainly from higher volumes and pricing. The sequential decline resulted from lower sales volumes, Q2 was exceptionally good. We do not guide on a quarterly basis, nor give Business Segment level guidance. Naturally, our aim is to improve our performance and profitability continuously in all segments.
7. Industrial Equipment’s profitability was record-high. What was driving the Y/Y improvement? How much was due to the ISE optimization program? Based on my financial model, if I exclude the €4m benefit you had in Q2, your profitability improved sequentially, what is driving this? Do you consider the current level sustainable?
Industrial Equipment’s comparable EBITA-% improvement was driven by volume growth and pricing. The ISE optimization program continued to contribute to our performance, less than in Q1 and Q2, but our full-year estimate €11m is still valid. We do not give Business Segment level guidance. Naturally, our aim is to improve our performance and profitability continuously in all segments.
The sequential improvement, excluding the €4m positive impact in Q2, was mainly due to good cost management (incl. positive tailwind from lower raw material costs) and the use of holiday pay accruals (Q3 is the holiday season especially in Europe, where we have most Industrial Equipment personnel).
8. Port Solutions profitability improved Y/Y but declined Q/Q. What is behind the development? What do you expect in Q4?
The Y/Y improvement in Port Solutions’ comp. EBITA margin was mainly driven by pricing. The Q/Q decline was mainly driven by mix, we also gained €0.5m from a sale of a real estate in Q2. Port Solutions’ performance and execution was overall very good in Q2, but Q3 was not bad either. We do not give Business Segment level guidance. Naturally, our aim is to improve our performance and profitability continuously in all segments.
9. How did your sales mix develop in Q3? How do you expect it to develop going forward?
In Q3, the sales mix was approximately flat at the Group level: the changes were also very small in each Business segment. On an annual basis, we expect the mix to slightly improve in 2024: Service to remain approximately flat, Industrial Equipment to weaken and Port Solutions to improve (due to our good performance in Port Service).
10. Regarding your profitability target range of 12-15 % of comparable EBITA margin, you were at 13.4% in Q3 and at 14.3% in Q2 (R12m at 12.6% in Q3, 12.3% in Q2). Where do you see yourself at the moment – downturn or upturn? What actions are needed for you to reach the upper target of your profitability range? Was Q2 your profitability peak?
When it comes to our sales, we are not in a downturn. There is still room for improvement and activities on our action list, which were discussed in our CMD last year. Reaching the upper range of our profitability target requires both sales leverage and executing our action list. We do not consider Q2 our profitability peak.
11. What kind of sales and profitability expectations do you have regarding next year? Your orderbook is lower than last year, should we expect lower sales for 2025 vs. 2024?
We usually give financial guidance only in connection with our Q4 results. It is true that our orderbook is on a lower level versus last year. That said, last year, our orderbook included more longer-term projects than this year’s orderbook. We will of course continue to aim for continuous improvement, but when it comes to FY25 financial guidance, let’s revisit the topic in the beginning of February, when we report our Q4 numbers.
12. Could you please share an annual split of the positive P&L impact of your ISE optimization program? How much do you expect to book in 2024?
We have communicated that we expect a positive P&L impact of €40-50m by the end of 2025 on a run-rate basis. This impact includes both cost savings and dynamic synergies. Expected restructuring costs total €40-50m.
Most of the positive impact (and restructuring costs) is in Industrial Equipment. In 2023, the positive P&L impact of the program in IE was €11m. In 2024, we expect another €11m. In 2022, the positive impact was some €1.5m. In addition, Service has had some positive impact in 2023 but it was dynamic and pricing structure related by nature. We have booked a little over €40m of restructuring costs related to the ISE program by the end of Q3/24.
13. How much of the profitability improvement (as a percentage point) was due to pricing in Q3? How much was the pricing impact on your Q3 orders vs. a year ago? How do you expect your prices to behave in the coming quarters? Is there still room for more price increases?
We aim to tackle inflation by pricing. It takes usually some 6 months before price increases are visible in our result.
In Q3, the pricing impact on EBITA was around 5%, and thus on the same level as in Q2, mainly driven by Port Solutions. For the orders booked in Q3 as well as the orderbook at the end of Q3, pricing impact should be approximately the same or lower.
Our aim is to push any inflation to pricing also going forward, and we for example raised our component prices in Q1. We expect salary and wage inflation to remain roughly on the same level or slightly below the previous year’s level.
14. Should I interpret this so that you are benefitting from the lower raw material prices vs. a year ago?
In Q3, as well as in Q2, probably to some extent, yes. However, we would not model any major future tailwind based on this, as the situation usually evens out.
15. You seem to be saving cash for something. What kind of M&A are you targeting?
As we have communicated earlier, we have activated ourselves in the M&A front and look for suitable bolt-on acquisitions to expand our geographical presence or product portfolio. We are also considering other options, eg. share buybacks and extra dividends. Repaying debt is also always an option, although in the current interest rate environment retaining cash is not a bad option either.
16. What do you expect in terms of cash flow and net working capital in 2024? What about capex?
We don’t expect any major changes in capex, the current €50-60m is a good level. Net working capital turn is on a good level currently, we are well below our target. We do not expect any major change unless the market drastically changes.
17. You had strong cashflow in Q3. What do you expect in Q4?
We do not guide on cashflow. Q3 was exceptionally good quarter, so this is not the new normal going forward. Our cashflow is driven by deliveries and prepayments for larger projects especially in Port Solutions. In Q3, the good free cash flow was mainly driven by deliveries.
18. In September you announced that you will acquire Peinemann Port Services and Container Handling. Could you share some more information about the acquisition?
We will strengthen our Port Solutions presence at the core of Europe's largest port by acquiring Rotterdam-based Peinemann Port Services BV and Peinemann Container Handling BV. The acquisition requires approval from the Dutch competition authority and is expected to close in Q4/2024. The value of the acquisition is not being disclosed.
Peinemann is a significant port services provider in the Netherlands with a wide customer base, and it has long-term maintenance relationships with several of Konecranes' key customers. The turnover of the businesses being acquired was over €40 million in 2023 (appr. 20-25 % of the sales will be eliminated, when consolidated to Konecranes figures due to internal sales). Some 100 employees are expected to join Konecranes once the deal is closed.
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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.
We wish you all a great end of October!
Best,
Kiira and Ruusa
