Earnings call transcript: Cargotec Q4 2024 shows robust growth, record profits

Cargotec Oyj (CGCBV) reported its earnings for Q4 2024, showcasing a solid performance with a 3% increase in full-year revenue to €1,509 million and a record comparable operating profit margin of 14.9%. According to InvestingPro analysis, the company appears undervalued based on its Fair Value metrics, with the stock trading at an attractive P/E ratio of 2.53x. Despite challenges in the construction sector and geopolitical uncertainties, the company maintained a strong balance sheet and cash position, holding more cash than debt. The stock showed a slight decline of 0.1% pre-market following the announcement.

Key Takeaways

• Full-year revenue rose by 3% to €1,509 million.
• Achieved a record operating profit margin of 14.9%.
• Cash flow reached €582 million, with a significant reduction in net working capital.
• The company proposed a total dividend of €177 million, reflecting a 150% payout ratio.
• Cautious market outlook due to geopolitical and sector-specific challenges.

Company Performance

Cargotec’s performance in Q4 2024 was marked by resilience and strategic execution. The company managed to grow its revenue by 3% compared to the previous year, driven by strong performance in North America. The record operating profit margin of 14.9% underscores the effectiveness of its cost-efficiency programs and strategic investments. However, the construction segment remained soft, and geopolitical uncertainties continued to affect market dynamics.

Financial Highlights

• Revenue: €1,509 million, up 3% year-over-year.
• Comparable operating profit margin: 14.9%, an all-time high.
• Cash flow: €582 million.
• Net working capital reduction: Over €200 million.
• Proposed dividend: €177 million, 150% payout ratio.

Outlook & Guidance

Cargotec anticipates maintaining a comparable operating profit margin above 12% in 2025. The company aims for a 7% growth over the cycle, with a focus on service revenue growth and maintaining a dividend payout ratio between 30-50%. The sale of MacGregor is expected to bolster the company’s cash position, further supporting its strategic initiatives.

Executive Commentary

Kasimir Lindholm, CEO, highlighted the strategic milestones achieved during the quarter, stating, "It’s the last one for Cargotec. It’s the 79th quarter reporting Cargotec figure since 02/2005." Mikko Pulak, CFO, added, "We have been adjusting the capacity as we have been consuming the order book," indicating a proactive approach to managing demand and capacity.

Risks and Challenges

• Continued geopolitical uncertainties could impact market stability.
• Interest rates remain a concern for small to mid-sized customers.
• The construction segment’s softness may affect future growth.
• Potential supply chain disruptions could hinder operations.
• Market saturation in certain regions may limit expansion opportunities.

Q&A

During the earnings call, analysts focused on the company’s conservative margin guidance and the strategic implications of the MacGregor sale. The management expressed optimism about merger and acquisition opportunities, given the strong balance sheet, and assured that no major restructuring costs are expected in 2025.

Full transcript - Cargotec Oyj (CGCBV) Q4 2024:

Aki Vesikalje, Investor Relations, Cargotec: Welcome to Cargotec’s Full Year twenty twenty four Results Call. My name is Aki Vesikalje. I’m from Cargotec’s Investor Relations. Today’s results and the final results for Cargotec will be presented by Cargotec’s CEO, Kasimir Lindholm, Kargotec’s and Hayab’s CFO, Mikko Pulak and Hayab’s President, Scott Phillips. Please also pay attention to the disclaimer in the presentation as we will be making forward looking statements.

With that, over to you, Kasimir.

Kasimir Lindholm, CEO, Cargotec: Thank you, Aki. And also welcome on my behalf to this webcast. It’s a historic one. It’s the last one for Cargotech. It’s the seventy ninth quarter reporting Cargotech figure since 02/2005.

All in all, the Q4 and 2024 were strong. Orders were really good in Haiab, and Scott will come back to that a bit later. Book to bill was positive in Q4 and a really strong full year profitability and cash flow. And this goes for both Hayab and MacGregor. I think that Hayab did the best result ever keeping in mind that we have a roughly 8% drop on the top line.

And also MacGregor performed on a very good level. It’s the best year for MacGregor since 2014. So really good and strong performance continued. And this is the eighth quarter in a row when we have strong and stable profitability in the company. We also managed to sell MacGregor during the fourth quarter.

That was signed in November and I will shortly come back to what we are doing now to go from signing to closing of MacGregor. We had three main focus areas in 2024, and we delivered on all of these areas. We continued the strong business performance in a not very favorable market. So that is again a strength that has been shown by both Raheb and MacGregor performing in a softer market. And we also completed the separation of Gallamar.

So fourteen months after the announcement of the demerger that was then on the April 27 in 2023, ’14 months after that, we separated and listed Galmar on the July 1 ’20 ’20 ’4. And sixteen months from the announcement, Galmar was already operationally operating a total separate company, also from an I’m IT perspective. Then the story around MacGregor, of course, a lot of work to turn the company around and then start the sales process. And again, we signed the agreement with Triton on the November 14. And I will shortly come back to where we are in that process.

But all in all, a very strong year, both from the business performance perspective and also delivering on all the items that were set two years ago by the board regarding the demerger and separation of the three companies. So regarding MacGregor, the deal was signed in November. We are now working on ongoing from signing to closing. The closing expected in latest July 1, I’m a bit more positive here in this area that we will be able to do it sooner than that. But that’s the, let’s say, the target that we have.

There are a lot of technicalities and legal aspects in this process going from signing to closing, but everything has worked according to plan so far. And of course, MacGregor’s report that discontinued operations and we will not go through MacGregor results today in any detail, but as mentioned before, a very strong year for MacGregor in 2024. Then the last mile in the transformation and on the transformation journey is, of course, to have Hayab as a stand alone company as planned on the April 1. The AGM, in white, is now out and it’s the name change is on the agenda there. And then of course, also part of that, Scott will then later introduce the management team for High Eb and at the same time the management team for Cargotech is stepping down on the March.

And on top of these changes, we also are then implementing, of course, subject to AGM approval, a governance model change for Hyab, a similar one that we introduced for Kalmar then last spring, where Hayeb will have a nomination board as in a normal stock listed company. So the journey is on the last mile and I’m confident that we can close the matters that we have left on the table, most of them as part of the AGM and then the closing of MacGregor. And again, I’m a bit more positive that we can be faster than what we have anticipated here as the last date. With that, thank you all for the journey. This is my last quarter report as CEO of Cargotech.

And with that, I will give the word to Scott, who will now go through then Hayab and later on Mikko Polakka, the numbers of Hayab for the fourth quarter in 2024. Over to you, Scott.

Scott Phillips, Hayab President, Cargotec: Thank you, Casimir. And good morning, everyone. From my side, I look forward to guiding you through the fourth quarter and the full year financial results for Hyatt as a business area. We’ll provide a bit more color on the financials later in Mekko’s presentation as a standalone entity. And in many respects, as Casimir mentioned earlier, ’24 was an excellent year for Hyab despite the continuing rough demand environment and the high level of uncertainty that we face.

In addition to improving on our relative earnings, we were able to improve on all key business area level one KPIs for the year. As order intake improved by 3% as well, our cash flow improved by more than $100,000,000 and this has enabled us to continue investing in creating incremental profitable growth and improving upon our business resiliency, which I’ll come back to in later detail. So looking further into the order intake, on a full year basis, the business area improved year over year from $1,466,000,000 to $1,509,000,000 driven primarily by The Americas as geography, our larger key account customers and our Defense Logistics segment. For the quarter, we also had a 3% positive variance, but the demand situation I would characterize as the ninth straight quarter quite on a stable level, still driven by the factors that we’ve shared earlier, high cost of financing, our construction segment still remains soft and we have overall low level of demand still in some key geographies in Europe and increasingly in South Korea. However, our order book grew sequentially, which is good news.

Now turning our attention to revenues. As Casimir mentioned, we had an 8% decline year on year as well as quarter on quarter. As our order book continues to normalize, the decline came primarily from Europe as Americas region was up versus prior year and APAC was relatively flat year over year. Our service sales continue to develop nicely as we had an all time high in revenue for both the quarter and the full year. So our long term targets for the service revenue remain valid.

Of course, a lot of this will depend upon the development of the market demand and how the new equipment deliveries go over the next two to three years. Now we’re really proud about the fact that despite the 8% decline in sales, profitability improved year on year from 14.1% to 14.9% as a business area, which is an all time high as we had on headline and Casimir mentioned. The result came as a consequence of executing our plans to improve operational efficiency and our product cost base. For the quarter, our profit was flat year on year despite the decline in sales and was affected by approximately EUR 15,000,000 in non repeating costs. And as we highlight here, if you look at the underlying profitability level, we highlight that as well as the reported profitability level.

Of the EUR 15,000,000 non repeating costs, they were associated with primarily with four different cost buckets. The bulk of the costs, and I’ll highlight this in just a a second on another slide, we had $11,000,000 that was a consequence of shrinking our footprint in Italy from $3,000,000 to $2,000,000 and that’s going to help secure a much better long term profitability, which we should already see the impact within this year. The second area was two other restructuring exercises that we did, all of which is related to the million of cost savings that we announced prior quarter. Those added up to million each in both areas, so that’s another $2,000,000 And then finally, the last $2,000,000 came from investment that we made to increase our management bandwidth so that we could execute simultaneously on several exercises that would help us improve our product cost. And that comprises the bulk of or comprises the $15,000,000 in the one off cost.

So on a relative basis, our profitability improved by 100 basis points versus comparable period last year, which is a strong result. Our return on capital employed remained above our target of 30.5% and the profitability combined with reductions in our net working capital resulted in million of operative cash flow for the year. So overall, I’m really pleased with the results our team delivered in executing on our strategy and building a business that’s much more resilient than at any other time. So I would like to highlight three investments that we were able to make in the quarter that will result in incremental cash flows from operations in the future. I talked a bit about this when I was taking you through the profitability bridge that we invested as a result of being able to optimize our supply chain in our heavy and super heavy business in Italy.

This is going to help significantly improve our gross margins that we should start to see towards the second half of the year. The second investment is related to our truck mounted forklift business, which has grown substantially over the past several years in which we will create a purpose built facility in Dundalk. This will allow us to grow the business more efficiently and provide a better experience for our customers and our colleagues. The third investment is in The UK related to a new service and installation center in Wrexham, replacing the existing facility that does not allow us for growth. And again, we can give more color with regards to the details around the financials.

In total, between the factory and our customer support center investments will require approximately EUR25 million of CapEx within this year. And as I mentioned earlier, I’m proud of our global team successfully executing on our strategy that we shared with you last May. We have signed, relative to our North American piece, we’ve signed seven new distributor agreements and that will enable us to better service our customers in more geographies where we are currently subscale, two of which we’ve highlighted on the page. So we agreed a distribution agreement with Ring Power in two parts, both one covering our loader crane business, the other covering truck mounted forklifts. We’re really excited about this as they’re an outstanding full service provider for sales and service with scale in parts of The U.

S. Where we are currently subscale. In addition to the distribution agreements that we’ve signed, I’m proud to represent the team in telling you that we introduced 45 new solutions last year of which 41 are relative to our equipment business, four relative to our service business. So it sets us up quite nicely to deliver on our long term strategic targets. So just taking guiding you through those, the 7% growth over the cycle remains the same as well as our return on capital employed as well as our sustainability ambitions.

What did change with the technical adjustment and now that we have a good view in terms of the additional cost as a standalone entity, Our long term comparable operating profit target is at 16% and I’ll take you through the details of that in the next slide. Additionally, we’ve added the gearing ambition, which we aim to stay on a long term basis under 50%. There may be periods that could go above, but our ambition will be much as it has been with Cargotech. And similarly, we have an ambition to grow our dividend. We aim to stay in a range of 30% to 50% of our

: earnings per share. So looking into a

Scott Phillips, Hayab President, Cargotec: bit more detail in terms of the long range targets relative to our profitability bridge, if you think about where we ended at 2024 at 14.9%, the three elements that got us as a business area to 18% still remain the same. So we have growth that we seek in geographies and segments. We have incremental profitability that we may aim to drive through our business excellence platform and we aim to have a better business mix or sales mix with ambition to grow our services business slightly higher than our equipment business that got us to 18%. Doing the technical adjustment which amounted to 1.7% of sales in 2024 that takes the starting point to 13.2% and our targeted endpoint at this time at 16%. So as Kazimir mentioned, we I would like to take you through briefly an introduction to the team.

I’m highly privileged to lead such an international and capable team representing eight different countries, many of which you know from prior capital markets events and other investor touch points. And so this is the team that has delivered the excellent results and quite confident that this team will continue to do so. We got Mikael Bernix leading our services business, Harmony (JO:HARJ) Luski who’s leading our demountables and defense business, Barry McGrane is leading our truck mounted forklift business, Martin Saint is leading our tail lift business. Magdalena Voitovich is leading our light and medium loader crane. And as an interim leader that we go into the next time period with we have Marcel Buxton, who’s been leading our heavy and super heavy business.

You know Mikko quite well as our CFO. Sana Ahonen is leading our sustainability strategy and business excellence function. Geeta Janssen is leading our HR. Birgitte Skal is leading our communications and marketing, and Taina Torkemann is head of legal. We have an open position that I currently fill on an interim basis for business operations development.

So really excited and privileged to lead such great team. So with that, I’ll turn it over to Mikko.

Mikko Pulak, CFO, Cargotec: Thank you, Scott. And also good morning from my side. Let’s have a look on Carcoteq’s financials for 2024. And most of the numbers what I will be showing today are based on Carcoteq’s continuing operations finance sales. So in practice, it means that the continuing operations consists of the previously presented higher business area results and then also that part of the higher related Carcotext group overheads.

So here are the Carcotext continuing operations, financials. And as a note, basically the orders, sales and gross profit on this page are actually the same as for the Hyap. The difference comes in comparable operating profit where there is, in addition to Hyap’s business area result, the Carcoteq’s continuing operations group overheads, which are related to Hayab. Last year, those were EUR 28,000,000. Eko portfolio sales was 29 percent of total sales.

Cross profit margin improved by 2.2% units, driven by successful commercial and sourcing actions. And actually, the cross profit improvement was the biggest contributor to the overall profitability improvement in full year 2024 results. All in all, the full year comparable operating profit margin improved by 0.9% units despite 8% decline in sales. The twelve months return on capital employed number on the bottom of this page is the only KPI where I would say that where Kalmar and MacGregor balance sheet items and P and L items are impacting still the KPI calculation. As this is a kind of rolling twelve months KPI and we have not separated Kalmar and MacGregor from Carcotext continuing operations balance sheet for the historical periods.

The ROCE was impacted by EUR 200,000,000 goodwill impairment in quarter four related to MacGregor sale. Without that booking, this ROCE would have been actually 16.2%. So as Kalmar and MacGregor will still impact our ROCE calculation also throughout 2025, I would say that it’s better to follow Hayab’s operative ROCE, what Scott highlighted earlier, and that was 30.5% in 2024. Cash flow was very good throughout the year, ending at EUR $582,000,000 for the full year. It’s also good to note that the cash flow statement still includes cash flow from Kalmar until June and from MacRecker for the full year 2024.

The strong cash flow comes from good profitability and in total over EUR 200,000,000 reduction in net working capital. And the net working capital reduction is stemming mainly from accounts receivables. Those declined EUR 116,000,000 last year, thanks to really good work from the organization to collect the cash. And then inventories, which declined EUR 92,000,000. High up will start with the very strong balance sheet after the Macri core divestment.

First of all, the continuing operations gearing, I. E, excluding the macro core related cash items, that was minus 7% at the end of the year. Continuing operations had EUR $439,000,000 of cash at the end of the year. And on top of that, there will come the cash impact from MacGregor sale approximately EUR $220,000,000 when the deal is closed. So if the macro core sale would have taken place at the end of twenty twenty four, the continuing operations net debt would have been minus €290,000,000 So in gearing, it would have been actually minus 28%.

So very strong balance sheet. On the right hand side, you can see also that there are no major debt repayments upcoming in this year or in the following years. And actually, we have already repaid EUR 100,000,000 bond, which matured in January 2025. Based on the good financials, the Board of Directors is proposing a total dividend payment of per Bshare. This dividend would be paid in two parts.

The ordinary dividend of would be paid on 04/04/2025. And then there would be an additional dividend of per B share. And this dividend would be conditional to macro core divestment, and then the board would make the decision on this dividend payment in quarter three. All in all, this dividend payment would payments would be €177,000,000 In the previous year, the dividend payment was €138,000,000 And the EUR 177,000,000 dividend payment represents a 150% payout ratio. Next (LON:NXT), I would like to illustrate Hayab’s transition from a business area to a stand alone operations from a profitability point of view.

As a business area, Hayab delivered last year EUR $245,000,000 or 14.9% comparable operating profit. There are certain Hayab business area central costs illustrated here in the orange bar. These costs have existed already in high up also in the past. And in the future, these costs will be part of the stand alone high up group costs. So when we dismantle the Carcotec group, EUR twenty eight million of the group costs are related to high up in 2024.

This is 1.7% units in the comparable operating profit margin. So when we look to continuing operations 2024 profitability, including the higher business area results and then the stand alone costs of EUR 28,000,000, it was 13.2%. And this continuing operations results gives already a fairly good approximation what the stand alone high up results would have been in 2024. Well before the quarter one twenty twenty five results, we will also publish the restated high up segment information for 2024. And then we will be laying out basically the equipment and service segments’ sales and profitability in that restated segment information.

Please note also that the equipment and services in this chart are not in scale, so it’s just for the illustration purposes. And then on top of those two reporting segments, there will be the so called higher group costs, which will consist of the previously mentioned higher business area overheads and then those Cargotech group costs, which will continue with higher going forward. As a last item, our outlook for 2025, this is defined for the continuing operations in practice for the stand alone high up. And when we have been defining the outlook for 2025, we have taken into consideration the current order book, the demand environment and then also our internal development plans, be that for the operational development or commercial excellence related activities. And based on those underlying factors, we estimate that the continuing operations 2025 comparable operating profit margin is above 12%.

And as you saw from the previous page, the corresponding profit margin was 13.2% for 2024. And if you look, this outlook is actually on the same level what we guided for Hayab as a business area in 2024 if we would convert this to the kind of older business area results. And with that, then I would hand the microphone back to Aki.

Aki Vesikalje, Investor Relations, Cargotec: Thank you, Mikko. I would like to invite Kasimir and Scott back to The States. And when the guys are ready, we are ready to take the first questions from the Q and A. Operator, please go ahead.

Operator: To enter the queue. If you wish to withdraw your question, please dial 6 on your telephone keypad. The next question comes from Antti Kansanen from SEB. Please go ahead.

Antti Kansanen, Analyst, SEB: Good morning, gentlemen, and thank you for taking my questions. I have two. First is on the 25 margin guidance. And I wanted to better understand what type of moving parts do you have from, let’s say, self help restructuring actions year over year, both on a positive and a negative side as we’ve seen now in the past two years that you kind of book a one off type of course as well on the comparable operating side. So should we expect more of these negative items?

And also what is kind of the positive contribution year over year terms?

Mikko Pulak, CFO, Cargotec: Perhaps I can start. So of course, we started, as mentioned, from the order book starting order book for for this year. Our rolling twelve months order intake has been on the level of EUR 1,500,000,000.0. We have done last year or implemented last year the EUR 20,000,000 cost savings or cost efficiency program, which will yield results this year. Like Scott also said in his presentation, we expect to have a positive impact from those actions, especially in the second half of this year.

And then, of course, we don’t have the crystal ball for the especially for the, let’s say, next quarter’s order intake. That’s very much a kind of open factor, which will define then, to a certain extent, our full year revenues this year. Our order book covers roughly five months of sales, so there is still quite a lot sales to be done, especially in the next two to three quarters, which will then materialize as revenues for this year. Anything, Scott? Yes.

No, I

Scott Phillips, Hayab President, Cargotec: was going to say the same tagging on to the end of your comment, Mikko. And good morning, Antti. As we have visibility out five months with regards to the order book coverage, just to plan for what’s going to happen beyond that five month period. We’re just operating under the assumption it stays flat to even be prepared if it were to go down because of the level of uncertainty. So that really is the case here.

So no real visibility in terms of the downside risk at this point in time. But certainly, there is room for upside in the event that it develops a bit more positive than the way it is or the way it has in the prior nine quarters, if you will.

Antti Kansanen, Analyst, SEB: Yes. Maybe just better understanding the fact that you are obviously targeting much higher margin in four years’ time. So could you maybe talk about the cadence of that? Is it reasonable to assume that we’re going to see some type of adjustment items kind of burdening the margin first and then the expansion will then be more tail end heavy or how should we think about that?

Scott Phillips, Hayab President, Cargotec: Yes, I think that probably the first thing to note is that we’re as we did last year, very much establishing what we think is a floor, if you will, with regard to the margin. And as Mikko elaborated in his presentation, the guidance adjusted for the additional costs as a standalone basis is roughly in line with where we guided at the end of last year. But in terms of the recovery, there it’s obviously has dependency upon those three elements that that we had highlighted in the profit bridge. So when will the recovery on the demand side happen? And so far, it’s developed out very much as we’ve modeled it.

So we do anticipate recovery at some point in time. Number two, we are building up our business excellence capability where we’re getting better and better at unlocking incremental cash flows with improving our processes and our efficiency. So we’ve accounted for some of that and it all depends on the type of demand environment as I’ve mentioned I think in a prior call where more robust demand environment will be able to invest more of those incremental cash flows. If demand stays muted as it’s been then we would use that as helping to increase our profitability. Then the third element, of course, is our business mix.

And then as I alluded to in my presentation, on the services side of the business, we anticipate being able to hit our targets that we had shared during the Capital Markets Day. So there was an improvement in capture rate going from 47 to 52. There was an improvement in our overall ProCare contract coverage reaching a higher level than what we’ve ended last year on. And at the same time, number three, there was then the ambition to get to roughly 90,000 connected units and we know that’s going to provide a catalyst to being able to better and better exploit the installed base over time. The variable factor there will be how quickly and how robustly the market recovers in terms of allowing us to seed the market with new equipment.

Antti Kansanen, Analyst, SEB: All right, very clear. And then the second question was on cash flows and cash conversion. What kind of for Mikko, I guess, what should we assume for, let’s say, working capital to sales levels compared to where you stand now end of ’twenty four? And also kind of CapEx outlook that you look for ’twenty five, ’twenty six?

Mikko Pulak, CFO, Cargotec: Yes. I would say that if the revenues remain on a flat level like they have been now during the last quarters last quarter. So the cash conversion, traditionally, in high up’s case, has been around 100%. Like Scott said, we have operational excellence initiatives, which, of course, aim at improving the overall, let’s say, lead times and throughput from order to sales, but those will not yield immediately benefits. Those are long term developments.

What comes to CapEx, I would say that in general, our CapEx has been more or less matching the depreciation. But like Scott said earlier, this year we are anticipating that due to the factory expansion in Ireland and in the service operations expansion in U. K, we will incur roughly million higher CapEx than traditionally.

Antti Kansanen, Analyst, SEB: All right. That’s very clear. That’s all from me. Obviously, best of luck to Casimir for any future challenges. And thank you for the past couple of years.

Kasimir Lindholm, CEO, Cargotec: Thank you, Antti. Likewise, thank you.

Operator: The next question comes from Ponu Leighton Markey from Danske Bank (CSE:DANSKE). Please go ahead.

Panu Leighton Markey, Analyst, Danske Bank: Hi, thank you. I have two questions. Firstly, on the Mac record divestment and the cash flow from that. So can you just clarify, did you comment that it would be SEK $220,000,000 when it’s closed? And if so, why is that if the enterprise value is SEK $480,000,000?

Mikko Pulak, CFO, Cargotec: Yes, that’s correct. We anticipate that roughly SEK $220,000,000 would be the cash inflow at closing. The difference there comes basically due to the fact that how the advance payments in Makkalikor’s balance sheet are treated, whether it’s net working capital or whether it’s debt. And in this case, it’s treated as debt and it’s causing the difference between the EV and the EUR $220,000,000 cash inflow.

Panu Leighton Markey, Analyst, Danske Bank: Okay. Thank you. Then the second question is on demand. So could you talk a bit about the different markets and what are you seeing and what are we expecting? So, when I read your market commentary, it sounds that you are cautiously optimistic, but sounds that there is not a big change yet?

Scott Phillips, Hayab President, Cargotec: Yes, I’ll get started here. On the demand environment, you’re exactly right, Panu. It’s due to the level of uncertainty, and I think that we see a bit more geopolitical unrest now than before. The same factors, however, are still at play where we still have above the ten to twenty five year interest rates. So the cost financing is still high.

That seems to especially be hitting our small to mid sized customers where we see the activity or at least the purchase decisions on a lower level relative to the larger key account customers. So therefore, more of the demand has been driven from the larger key account customers. As Anna mentioned previously, the demand environment in North America has still continued to be stronger relative to Europe and as well as APAC for us. So we actually had an increase in sales year over year and then a nice increase year over year on the order side. Having said that though, then with the inflationary environment and the expectation that reduction of interest rates could potentially be lower, I think it’s still an environment where there’s a level of caution.

Then in Europe, we see still nice demand on the retail last mile side. Waste and recycling is still holding quite well. Construction is still at a low level. And so repeating the same thing I’ve said in prior quarters as well, we see that in The Nordics, especially acute in Germany, still on a low level in France. And then of course, we have the additional piece of the geopolitical unrest in South Korea that impacted our demand in the last quarter there.

Panu Leighton Markey, Analyst, Danske Bank: Thank you. Can I just ask a follow-up on Europe? Your main competitor on Friday said that orders in Europe are recovering and they were expecting a bit better second half. So are you seeing any kind of uptick in European demand?

Scott Phillips, Hayab President, Cargotec: Yes. At least on our side, it’s the same story. The upfront leading indicators are going in the right direction. The team, I think, is more optimistic. But the reality is we’re still seeing a similar demand environment.

So, hence, my comment to you would be it’s we still see a stable level of demand in terms of actually getting the orders.

Operator: The next question comes from Andreas Koski from BNP Paribas (OTC:BNPQY) Exane. Please go ahead.

: Thank you very much and good morning. I was also going to ask about the European market, but I got that question answered already. So I would like to ask about the one off items that you had in the fourth quarter this year. You also had one off items in Q4 last year or 2023. So I wonder if we should expect one off items to come more or less every year and will they come mainly in the fourth quarter and is this the reason why you’re not excluding them from comparable operating profit?

Thank you.

Scott Phillips, Hayab President, Cargotec: Yes. I can start with that. So actually, it’s both in the last two years coincidental. And then if you look back at our results in ’twenty one as well as the business area, we had a similar situation. All three cases are their own case.

The last two of which were if you go back to ’23 and we announced a 50,000,000 cost savings program as a group and of which we had a contribution of $20,000,000 So the bulk of our one offs there just happened to follow the decision taking to execute on the $20,000,000 in cost savings. So then that’s why that happened to hit in quarter four And so a consequence of the Q3 announcement. Similar story this year when we announced the additional $20,000,000 on the basis of looking at our trailing order intake as Mikko articulated earlier, then the bulk of the one offs in this current or in the prior quarter was the consequence of the decisions we take in order to adjust our cost basis and deliver on the $20,000,000 And then the remaining $2,000,000 of that, of course, a little bit similar to last year as well, where we went and sought additional management bandwidth with temporary support. Last year was more related to crystallizing our strategy. This year was much more focused or was fully focused on helping us to reduce our product cost.

We ran a number of events that we did simultaneously in order to be able to execute covering a broader section of our overall direct and indirect spend. So therefore, we needed the temporary help and that was the remaining EUR 2,000,000.

Mikko Pulak, CFO, Cargotec: And if yes, and if we would put things into bigger perspective, in December 2022, high absorbable was over EUR 1,200,000,000.0. End of last year, it was roughly EUR $650,000,000. So we have been adjusting the capacity as we have been kind of consuming the order book like Scott illustrated.

Kasimir Lindholm, CEO, Cargotec: And maybe on a positive note, I think SEK 11 out of those SEK 15,000,000 that Scott referred to, I would look at as an investment because the target is that the vision involved there, the target is that in the second half of twenty twenty five that division would come up to the same high standards of operating profit like in the other divisions. So it’s maybe not a classic write down as such as more as an investment to bring up the profitability to the right level in that division.

: Yes. Okay. And on the margin outlook for 2025, is it fair to say that you expect a margin between 1213%? Otherwise, you would have said a margin above 13% if you expected a higher margin. And have you presumed any one off in this margin outlook?

Thank you.

Mikko Pulak, CFO, Cargotec: Well, this margin outlook of 12%, that’s the floor. So of course, we aim at higher. But like you have also seen in the past, we started last year with 12% and then we specified our outlook when we knew a bit better how the full year will be turning out to from 12% to 14%. So we typically leave certain headroom in the outlook. So this is the, let’s say, the floor level.

And then as the year progresses, then we may revise it if we have a better information for the full year.

: And on the one offs, any one offs assumed in the margin floor?

Mikko Pulak, CFO, Cargotec: At the moment, we don’t have any this kind of restructuring programs ongoing what we announced last year. So not at the moment any that kind of outlook at least.

Kasimir Lindholm, CEO, Cargotec: And maybe referring to the history, I mean, we have announced on the Cargo Tech level twice cost saving programs. And already back in ’twenty three, we said that we believe that the market is developing on this level. And like Scott referred to, I mean, this is the ninth quarter in a row when we are on a roughly SEK $370,000,000 level. So now the actions have taken and been implemented based on the communication both in 2023 and 2024. And then of course, if the market changes, then we either are in a positive situation that we need to ramp up and that’s then a positive challenge if that’s the case.

: Perfect. Thank you very much.

Operator: The next question comes from Erki Vesela from Indeos. Please go ahead.

Erki Vesela, Analyst, Indeos: Hi, guys. It’s Erki from Indeos. Couple of questions from me. First, coming back to the margin guidance. I mean, is the guidance kind of an indication or as this a sign of preparation of sales decline in 2025 versus 2024, if that’s the kind of flow level?

I mean, do you expect that the guidance can withstand a small sales decline?

Mikko Pulak, CFO, Cargotec: Yes. I mean, like I said earlier, if we would be looking our last six months or twelve months order intake, our order intake has been roughly on the level of €1,500,000,000 So if the markets would not improve, that would be the level more or less what we would anticipate. And for that level, we have been also looking this million cost efficiency program, which we started last year. So that’s the basis for our 2025 outlook.

Erki Vesela, Analyst, Indeos: Okay. And then what’s your visibility on your current order book margins, I mean, vis a vis six months ago? And what are the first half of 20 five drivers regarding both pricing and COGS?

Scott Phillips, Hayab President, Cargotec: Yes. We’ve got roughly five months of visibility from the order book. That has roughly been the case for most of the past six months. I’m suspecting two quarters ago was a bit higher, but nevertheless, it’s been in the six, seven five, six, seven month timeframe. So we have good visibility to the margins relative to the order book coverage.

And then we see a similar environment on pricing this year as we did last year. So due to the level of uncertainty and all the cost factors I talked about, still challenging, but well got well included in the plans in which we provided guidance for.

Erki Vesela, Analyst, Indeos: Okay. So your current order book margins could are comparable to what they were where they were six months ago?

: Yes.

Erki Vesela, Analyst, Indeos: No big change there.

: Yes.

Tommy, Analyst, DNB: Okay. Thanks.

Operator: The next question comes from Johan Eliassen from Kepler Cheuvreux. Please go ahead.

Kasimir Lindholm, CEO, Cargotec0: This is Johan at Kepler Cheuvreux. Just a question on your sort of long term targets, specifically the return on capital employed. You mentioned this is sort of operating profit over operative capital goodwill included considering that M and A is supposed to be part of your growth strategy going forward and you obviously have a decent balance sheet to use for M and A.

Mikko Pulak, CFO, Cargotec: That’s correct. That’s correct. So that’s why we have I mean, if you remember, last end of last year, High Ap’s operative return on capital employed was 30.5%. The year before, it was 30.7%. And the target is above 25%.

So we have counted certain dilutive effect coming from the potential M and A for the return on capital employed.

Kasimir Lindholm, CEO, Cargotec0: That’s excellent because it sort of limits a little bit what you can pay. That was the question I have. Thank you.

Operator: The next question comes from Tom Skogman from Carnegie. Please go ahead.

Kasimir Lindholm, CEO, Cargotec1: This is Tom Skogman from Carnegie. I have a couple of questions. First of all, about incentive schemes when you change management, have they been decided and what the criteria are?

Kasimir Lindholm, CEO, Cargotec: We have used in a big picture the same incentive schemes that we implemented for Kalmar as well and they are very much in line with the ones that have been used in Carbotech as well. So both the STI and the LTI elements are very much in line with what has been used before in Carbotech.

Kasimir Lindholm, CEO, Cargotec1: But is it aligned with the twenty twenty eight targets somehow?

Kasimir Lindholm, CEO, Cargotec: Yes, they are, of course, linked to that. And so the drivers are the same as you have seen previously in Carbotech.

Kasimir Lindholm, CEO, Cargotec1: Okay. And acquisitions, are you prepared to do acquisitions now or do you want to wait until Magregor has been fully closed? And is there even a need to prepare the organization after that so we will not see any acquisitions before at the earliest late this year?

Kasimir Lindholm, CEO, Cargotec: Maybe I can comment and Scott can continue. I think, of course, now a journey here ends, but then a new one starts. And of course, one of the elements in the whole transformation of Cargotec has been to achieve a very strong balance sheet for Haiab to support the M and A journey. And that is now delivered. So as you saw and Mikko explained that it’s a super strong balance sheet with quite a lot of room to go on the M and A journey.

And regarding, of course, the transition as such has taken almost two years and we have, of course, invested a lot of IT resources in the carve out of First Kalmar and the carve out now of MacGregor. But as mentioned before, we are in the last mile and I’m quite positive and confident that we can have a closing of MacGregor earlier than the July 1 that we have said as a backstopper. And that would mean that then resources can be used on the efficiency journey of High Ebb, but also on the M and A journey of High Ebb going forward. And we are getting there in a couple of months that is then possible. And of course, on top of that, Haiab has worked even during the transition work actively on the M and A side on the division level.

So there’s a lot of interesting targets that Hayab has been working on even in this transition and during this transition period.

Kasimir Lindholm, CEO, Cargotec1: I can see that basically almost none of the old cargo tech managers are part of Hayab’s management board. Is it true that they are leaving the group also? Are they getting some other positions?

Kasimir Lindholm, CEO, Cargotec: No, you’re correct. So Mikko and Scott, of course, continuing in Haiab and Leif Vistrom is continuing as Head of MacGregor. But regarding the Cargotec management team, both Mikko Pelkonen, Soly Makinen, Ote Altonen and Mikael Leine and myself, we are stepping down on the March 31 according to the plan that was set two years ago. So the old Cargotec leadership team is stepping down and not continuing in Karlmar nor in IAB nor in MacGregor except for the gentlemen here and plus then Leifbuest.

Kasimir Lindholm, CEO, Cargotec1: And then on the price you get for MacGregor, is it right? I have estimated that MacGregor will have like EBITDA close to EUR 100,000,000 in 2025 given the strong order backlog. If that is correct, the price seems to be very, very low. I mean, shouldn’t you have considered a listing on that instead? I guess, this is too late to consider now, but it just strikes me that the price is very low.

Kasimir Lindholm, CEO, Cargotec: Well, first of all, I think one needs to keep in mind the history of MacGregor had quite challenging almost ten years. And then the attractiveness of the asset, of course, gets a hit from that history. That is one part of it. The other part is financing such a deal is, of course, a topic as well because of the history. MacGregor has been part of Cargotec for many years.

And then in that sense, from a financing perspective, Cargotec has covered those risks. And now as a stand alone company environment is totally different ballgame. Then on top of that, of course, the list of companies that could buy MacGregor, we had to exclude both Chinese money and U. S. Potential buyers.

Because of the geopolitical situation that we’re living in, the filing and approval from certain countries would have not gone through with those type of buyers. So then the buyer pool was clearly limited compared to what it maybe would have been some years ago. Then of course, looking at the starting point of the whole transition of and transformation of Cargotec, keeping in mind that we have a market cap increase of roughly billion over the last two years. And the timing is, of course, important. And it’s very difficult to keep such a project live for more than two years.

You tend to lose people and critical resources during the journey. And if you compare that to, let’s say, that we would have gotten a better price in a year’s time for MacGregor than we got now, yes, that is probably correct. But the timing is critical for us. And also from, let’s say, only from an IT perspective, it’s more valuable for the owners of Cargo Tech and then now Haier, Benkalmar, to close the transaction and go and support fully the M and A journey of Hayab. So this was from the starting point the most tricky part to turn MacGregor around and find a buyer and a solution for MacGregor.

And that was the way I saw it two point five years ago when I was at the Board of Cargo that this would be the most tricky part and it was. But you’re correct, Tom, that in a year’s time, yes, the price would have been higher. But let’s put it that way, we could not wait for that. And we went out in the market when we had the turnaround in place and a favorable market where MacGregor is operating in now. And we all know it’s a cyclical business.

So that’s maybe a bit of background why the transaction happened. And again, you can always have an opinion on assets price, but the real price is what you get in the market when you sell the asset.

Kasimir Lindholm, CEO, Cargotec1: But that’s why I kind of proposed an IPO instead because I mean, then the stock market will forget about these advanced payments. You would likely have a higher multiple than 2.5 times EBITA or so, I guess, in the stock market.

Kasimir Lindholm, CEO, Cargotec: But then you need to put into the equation that then we would have invested some hundreds of millions in financing MacGregor as an independent company on the stock market. And again, we feel that, that money is better placed on the higher M and A journey than supporting an IPO of MacGregor.

Operator: The next question comes from Tommy Raelo from DNB. Please go ahead.

Tommy, Analyst, DNB: Hi, it’s Tommy from DNB. Thank you for providing some commentary on the profitability of equipment and services that just to check some math here. Is it fair to assume that services profitability improved slightly in ’twenty four compared to ’twenty three, whereas profitability in equipment declined somewhat year on year?

Mikko Pulak, CFO, Cargotec: I would say, broadly speaking, that’s the situation. Like Scott elaborated, service revenues growth that has been supporting service profitability, While in equipment, the top line has declined due to lower order intake. And then, of course, we had this million restructuring costs, which were in quarter four. Those were related to the equipment business.

Tommy, Analyst, DNB: Perfect. And then a follow-up, looking at the target setting. Is it also fair to assume that the main profitability improvement element is relating to the equipment as services profitability is already fairly high at around 23% levels.

Scott Phillips, Hayab President, Cargotec: You want me to

Aki Vesikalje, Investor Relations, Cargotec: take it? Yes,

Scott Phillips, Hayab President, Cargotec: no. For sure, we see the equipment profitability improving exactly following on what Mikko just alluded to Tommy on the operating leverage on the growth. So if you think about the overall volume with the market recovery, then the segment growth that we were targeting with our four target segments, then we certainly expect a bit of improvement on the equipment side. At the same time, I would say there’s also room to improve on the services business as well.

Tommy, Analyst, DNB: Great. And the final question, was there already some benefits in the earnings from the NOK20 million savings program in the fourth quarter? Or is it coming fully to NOK25 million?

Mikko Pulak, CFO, Cargotec: I would say it’s mainly coming in NOK25 million. So no major impacts other than this negative cost impact in 2024.

Operator: There are no more questions at this time, so I hand the conference back to the speakers.

Aki Vesikalje, Investor Relations, Cargotec: Thank you very much for the questions and for the presentation and answers. So we will come back on April 13 and at that time it will be the first high up standalone result call. So stay tuned.

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