Konecranes Q4 earnings – Q&A
It’s been a while (almost a month!) since our Q4/21 earnings were published. We apologize for the delayed blog post. Recent weeks have been busy IR with several investor meetings and roadshows, and we have also focused in finalising our Annual Report materials, as well as taken some time off after the hectic Q4 reporting period.
Here are the key discussion topics and questions so far.
Q: How do you expect your order intake to develop in Q1 and beyond by each Business Area?
Within industrial segments, in Europe and in North America, our demand environment is healthy, while APAC remains behind the two. There’s volatility on the market but we are not expecting any major changes in our market environment in Q1/22 vs. Q4/21. In Q4, our short cycle product orders stabilized, and component orders declined sequentially after three strong quarters which most likely had some pent-up element.
Container throughput continues high, and our long-term prospects related to container handling are good. Port Solutions orders tend to be somewhat lumpy by nature, and timing of customer decision-making is hard to estimate. The long-term sales funnel looks good and includes also larger projects. In Q3 and Q4, our Lift Trucks orders stabilized on a high level (sequential decline, but order intake remains high). We are not expecting sequential order growth for Lift Trucks in Q1.
Q: How did the component shortages, logistics delays and other supply chain issues impact your sales in Q4 and in full-year 2021?
In Q4, our late backlog remained on roughly the same level as in the end of Q3, so the net impact was approximately flat. However, this does not mean that the component shortages or other supply chain issues would be over.
Cumulatively, in full-year 2021, the impact of component shortages and other supply chain issues (including COVID-19 impact in Q1 and Q2) was some €110-120m. The impact has been approximately €50-55m in Service, €45m in Industrial Equipment and €20m in Port Solutions.
Q: How do you expect component shortages and logistics availability issues to impact your sales and profitability in Q1 and beyond? How about the inflation?
It is difficult to estimate how long and how much the component availability and other supply chain issues will impact our net sales. We do not expect the situation to ease in near future, and based on latest estimations, the situation may even get somewhat worse particularly in Industrial Equipment during the first half of 2022. Especially electric components have availability issues.
As for the inflation, so far, we have been able limit its impact on our performance with our own actions, both pricing and internal efficiency improvement related, and will continue to follow the situation carefully, and take actions, when needed. We expect the input cost volatility to continue, and we also expect higher salary inflation in 2022 compared to the previous year.
Q: In Q4 you posted an all-time high adjusted EBITA margin in Service. What drove the positive development? How sustainable are these margin levels?
Year-on-year Service profitability growth was driven by sales growth and positive sales mix. We have also continued to focus on our continuous improvement and productivity gains, driven by for example digitalization as well as tight cost control, including centralization of back-office operations. Many of these activities have been ongoing already for some years and the work continues. We believe we have further margin improvement potential in all our three Business Areas, including Service, although component shortages continue to be one of the biggest risks for our delivery capability in 2022. We note that there is clear seasonality also in our Service margins and the beginning of the year tends to be lower compared to the end of the year.
Q: How did your sales mix develop in Q4 and what shall we expect in full-year 2022?
Our sales mix on group level improved year-on-year. Mix improved in all three Business Areas. Based on our orderbook, we expect no major change in the mix for 2022, no major change in Service, slight improvement in Industrial Equipment and no major change in Port Solutions.
Q: In Q4 you booked €19m of adjustments. What do they include? What kind of restructuring programs do you have in place?
More than half (€15.2m) of these costs were transaction and integration planning costs related to the merger with Cargotec. The remainder was restructuring costs. Currently, we have a voluntary retirement scheme in place in India targeting at reducing our process crane related headcount there. Not all the restructuring costs were India related though.
Q: Your tax rate was only 23.4% in 2021, which seems very low in comparison to the previous year. What is the reason for the low tax rate? What should we expect going forward?
In full-year 2021, the Group’s effective tax rate was 23.4% (down from 27.9% in 2020). Our tax rate was unusually low compared to recent years due to high restructuring costs in countries where we were not able to utilize related losses in taxation. In 2021, we were able to utilize some of these previous losses for which we had not booked deferred tax assets. We do not have explicit guidance for tax rate, but we expect a higher rate in 2022 compared to 2021, when taking into account our historical level of non-deductible items.
Q: How much capex do you expect in 2022? Your capex has been lower than your depreciations and amortizations already for years, why?
In 2021, our capex was EUR 49.8 million (2020: 42.8) excl. acquisitions. Capex continued to be clearly lower than our depreciations, as we continue to be in an integration mode. In recent years, we have focused on cutting excess capacity instead of making new investments. In 2022, capex will most likely be on a similar level compared to the previous year.
Q: You gave new financial guidance for full-year 2022 (sales higher than in 2021, adjusted EBITA margin higher than in 2021). What makes you confident in reaching your guidance? What is the biggest risk for not reaching it?
Our record-high orderbook at the end of 2021 and continued healthy demand environment together with our performance focus and track record give us confidence for the full-year 2022 guidance. The biggest risks in 2022 as in 2021 continue to be related to the component availability and other supply chain issues.
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We will continue with virtual roadshows again next week and will also attend Carnegie’s Nordic Capital Goods Seminar virtually on the following week.
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.
Best wishes,
Kiira and Tomi
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