Konecranes Plc

Good morning, everyone, and welcome to Konecrane's Q4 earnings conference. My name is Kiira Froberg, and I'm the Head of Investor Relations at Konecranes.

Here with me, I have today our President and CEO, Rob Smith; and our CFO, Teo Ottola. Before we start, I would kindly remind you about our disclaimer.

This conference is to discuss Konecrane's Q4 results. The securities laws in the United States and in some other jurisdictions restrict us from discussing or disclosing merger-related information.

Information regarding the merger can be found at www.sustainablematerialflow.com. Until the completion of the merger, both Konecranes and Cargotec will operate as separate and independent companies.

As for our today's agenda, Rob will start by reviewing our Q4 highlights and the group level performance, after which Teo will continue with a more detailed walk-through of the 3 businesses. The presentation is followed by Q&A, as always.

With that, Rob, the stage is yours.

Thank you, Kiira. Good morning.

On behalf of Konecranes' employees worldwide, Teo and I welcome you our fourth quarter earnings webcast. Konecranes released a strong earnings release this morning, capping an extraordinary year of 2020 that laid a very solid foundation for growth and for continued success going forward.

We announced record quarterly sales and our second consecutive quarter of record profitability, as measured in our adjusted EBITA margin. This was driven by great sales execution, by continued high performance and cost management and very good progress on our strategic initiatives.

I'd like to thank our employees and our customers all across the world for the safe and timely installation, commissioning and service operations in a very challenging COVID environment. Overall, our market sentiment improved in the fourth quarter and COVID still remains an important factor of volatility and uncertainty in the market.

Order intake for the group grew 11% in the fourth quarter year-on-year with comparable currencies, and sales were up 3% on comparable currencies year-on-year. Port Solutions booked both record order intake and record sales in the fourth quarter.

And both our Industrial Equipment and our Service business also had an increasing sales on a sequential basis. Fourth quarter was successful also beyond the financials.

I'll talk about sustainability and the important role that plays in Konecranes later in the presentation. And I highlight the fourth quarter 1st of October announcement, we announced the merger with Cargotec to create a global leader in sustainable material flow.

During the fourth quarter, both EGMs approved the merger. And we're excited about the 1st of January next year when we intend to start after completing the necessary merger control actions in each of the jurisdictions where it's required.

Today, we'll be updating our financial guidance for '21 and our demand outlook for the first quarter. And our Board of Directors is proposing an €0.88 per share dividend for 2020 to our AGM, in line with the merger, with the combination agreement and, as we announced on our merger announcement on the 1st of October, is the maximum dividend possible for the year.

Touching on the key figures for orders, for the income statement, for cash flow and for the balance sheet. I'd highlight that each of those metrics in the fourth quarter this year compare favorably to the fourth quarter of last year.

And I highlight a couple here that I'm sure you may want to be discussing with Teo in the Q&A. Good work on our net working capital management drove free cash flow in the fourth quarter of €177 million versus €33 last year.

And our €366 million of free cash flow in the full year versus €150 million last year left us with about €600 million of free cash at the end of the year. Our net debt reduced by €80 million during the year and ended at €577 million, and gearing went down by over 600 basis points to finish at 46%.

Before I go to the first quarter demand outlook and our financial guidance for 2020, I'd like to highlight a couple of the external publicly available metrics that talk about the improving market environment, where our Service, Industrial and Ports businesses play. For our Service and Industrial business, both the PMI and the capacity utilization indexes in Europe and America show improvement, not yet to pre-COVID levels, but clearly a good trend.

And 3 out of the 4 BRIC countries were primarily in expansion territory during the second half of last year. And Russia is working to get into expansion territory towards the end of the year.

The Port Solutions market environment is measured externally by our container throughput index, which you see in the second half made a very good recovery versus the first half of last year, and finished 5% up at the end of December versus December of last year. So moving to our first quarter demand outlook for the year.

The worldwide demand picture remains subject to volatility from COVID-19. In Europe, in North America, the current environment within the industrial customer segment is showing signs of improvement but remains below 2019 levels.

And at the moment, the demand environment in Europe is less volatile than it is in America. In Asia Pacific, the demand environment also now, outside of China, is showing improvement, but remains below the 2019 levels.

And the global container throughput has now come back to '19 levels and shows long-term very good prospects in the industry. Our 2021 financial guidance.

In 2021, we expect our net sales to increase on a full year basis compared to 2020. And we expect our full year '21 adjusted EBITA margin to improve from 2020 as well.

So I'll take you through some of the top-level statistics. For orders and intakes, both in the fourth quarter increased versus the fourth quarter of last year and increased sequentially from the third quarter.

On comparable currencies, order intake is up 11% and sales were up 3%. And on a rolling 12-month basis, you see the sales by region and by business area.

And these are similar to where they've been in previous announcements. Although I would point out a larger - I'd point out the larger percentage in Port Solutions based on the very, very strong sales in the fourth quarter, record sales in the fourth quarter.

And I'd point out some growth in Asia Pacific, which is the net effect of having brought in the MHE-Demag and the COVID environment in the region. Our group order book remained above €1.7 billion in the fourth quarter.

It declined by €30 million from the third quarter and decreased about 6% in constant currencies. On a comparable currency basis, the order book decreased 2.9%.

This is primarily from Port Solutions and our Industrial Equipment basis. Our group adjusted EBITA of €102 million and 10.9% profitability is the second consecutive quarter of EBITA profitability and the first time we've been over €100 million in EBITA.

That increase was primarily driven by very good progress on our strategic initiatives, strong execution and good cost management, and our gross margins increased on a year-on-year basis as well. I talk about 1 point is a point and 2 points make a line and 3 points make a trend.

And in '21, we will continue this strategic focus, and we'll continue our commitment to business excellence, high performance, continuous improvement and sustainability, and believe strongly, this lays a very solid foundation for future success. So let me unpack now the importance of sustainability to Konecranes.

And I talk about it in the context of the 5 cornerstone foundations that we have laid in our business, and we measure in our business. I start with sustainable offering and circularity.

This applies not just to our products, it applies to our services and our technologies. It's about being able to be resourceful or being very conservative in use of resources.

It's about minimizing our environmental footprint. We design our products for the full life cycle.

We design our services for the full cycle. And our digital telemetry capabilities give us the ability to monitor those products in operation at our customers and further reduce consumption by identifying the right time and the right moment for service maintenance, for repair and upgrade operations.

Climate action and resource efficiency. We've been measuring this internally, and we will continue to do so.

As we signed the Science Based initiative, the Science Based measurements. We are very clear that we're taking this focus on climate action and resource efficiency, not just within Konecranes but within our entire value chain.

This is about minimizing the environmental footprint of ourselves, our products and our value chain, not just as we're producing but throughout the life cycle of our products. A safe working place and a safe working environment is at the core of our DNA, especially in a COVID environment.

And I would highlight just our focus on bringing everyone home safely every single day. This is not just Konecranes employees, it's our customers, it's everyone operating with Konecranes, within Konecranes, subcontractors as well.

We take this very seriously, and it's a very important part of our DNA. As is diversity and inclusion and an engaging work environment.

Konecranes puts great value on having a diverse and inclusive environment. We're working to increase that and we're working to set a standard in the manufacturing industry for having a workplace where our employees feel trusted and valued and comfortable in the work environment and where employees are able to, with a broad diversity of backgrounds and a broad diversity of talents, all contribute to our success and feel good about that.

And finally, on the business conduct and responsibly doing so. We hold ourselves to the highest ethical, compliant and legal standards.

And we expect that of ourselves and we expect that of all the partners with whom we do business. We've set ambitious targets for each of these 5 focus areas, and we regularly monitor our performance and our progress against them.

And against that backdrop, let me highlight 3 exciting developments in the sustainability front that we announced in the fourth quarter. Our commitment to Science Based Targets, we signed the commitment letter in the fourth quarter.

And during the first part of this year, we'll be setting targets for ourselves and for our entire value chain, for our products and how they operate, and for the environmental footprint that we and our business partners have as we produce and as our products are in the field. The picture here on the left-hand side is of the E-VER, a fully electric Konecranes' forklift.

And this lift truck is a very exciting - it has 0 emissions, 0 direct emissions and is a very exciting complement to our product lineup, which, by the way, the majority of our product portfolio is already fully electrical. In the center picture, you see the Ocean Cleanup Interceptor.

We announced an exciting partnership with the Ocean Cleanup to design, manufacture and service the Ocean Cleanup's Interceptor. This vessel operates in rivers and collects plastic in the world's rivers prior to it entering the world's oceans.

We're proud of this - we're proud to be partnered with and to support the Ocean Cleanup effort to address the 1,000 most polluting rivers in the world. And finally, the CDP, a nonprofit organization that measures and announces and encourages environmental and sustainability progress for countries and for companies all over the world, gave us an A-minus rating in the fourth quarter for our 2020 efforts on sustainability and the very good progress we're making in this front.

We're excited about this and we're proud of that achievement. This marks - this week, actually, marks my first year at Konecranes.

It's been an exciting year. It's been a rewarding year.

And we're very excited about the foundation we've laid together. I'd like to thank our employees.

I'd like to thank our business partners. I'd like to thank all of our stakeholders and shareholders for the great support and the great teamwork and the exciting journey we've been on in 2020, and look very forward to '21 and going forward together.

And now I turn over to Teo to take you through the financials of our different businesses, and we'll get to the Q&A. Thank you very much.

Teo?

Thank you. Thank you, Rob.

And as usual, so let's start the review with the Service business. So when we take a look at the fourth quarter of 2020, so the - actually, the order intake was €234 million in the fourth quarter.

That is a decline of 6.5% in a year-on-year comparison. We had quite significant currency headwind actually in the fourth quarter.

And with comparable currencies, the order decline was only 2%. When we take a look at the order intake by regions, so the order intake decreased in the Americas and EMEA, but increased in Asia Pacific.

And that one, of course, mostly due to the acquisition of MHE-Demag. Then when we take a look at it, the order intake again, by businesses or business units within Service, so field service, orders stayed approximately flat in a year-on-year comparison, whereas parts orders decreased.

And then in a sequential comparison, we can see that the order intake increased actually from the third quarter and the increase came from EMEA as well as from Asia Pacific. Whereas in the relative terms, the Americas was not as strong in the fourth quarter.

Then the service agreement base, €276 million. That is an increase of 8% with comparable currencies on a year-on-year basis, obviously, including the MHE impact as well.

We had a small decline sequentially in the agreement base, 0.3%, not much but a decline anyways. This came basically from the Americas.

And we are actually expecting this to be a temporary one. So we believe we will be back to the growth as on the agreement base growth in Q1 already.

Service sales and order book. Service sales, €315 million.

That is a decrease of 3.3% in a year-on-year comparison with comparable currencies. Both field service sales and parts sales decreased in a year-on-year comparison.

And there was a decrease in the Americas and EMEA, whereas an increase in Asia Pacific as a result of the MHE acquisition. The service order book ended at €213 million.

That is 5% higher than a year ago due to the acquisition. And then as we can see, sequentially, the order book has been going slightly down as a result of the relation between sales and orders that we have been having during 2020.

When taking a look at the profitability, so excellent profitability in the fourth quarter, €60.6 million adjusted EBITA, which is as high as 19.2%. The improvement and the good level of the profitability is as during the previous quarters as well, partially as a result of the savings, both in variable and fixed costs, but also in relation to the continuous improvement that we have been doing in the field service business over the past couple of years, implementing systems, implementing templates, getting continuous improvement on the way.

And the gross margin improved on a year-on-year basis as well. Then when we jump into the Industrial Equipment and take a look at the Industrial Equipment order intake, that was €241 million.

And then when we take a look at the - again, the external orders with comparable currencies, which is probably the best indicator for the market demand. So that actually declined about 20% on a comparable - or in a year-on-year comparison.

The order intake decreased in standard cranes, components as well as in process cranes in a year-on-year comparison. The orders stayed approximately flat in EMEA but decreased in the Americas and Asia Pacific.

And then again, when we take a look at the situation in a sequential comparison, so we can see that the order intake improved from the third quarter. And now if there was a year-on-year decline in basically all of the major business units, so there was a sequential improvement in basically all of the business units.

So order intake in components, standard cranes as well as process cranes improved in a sequential comparison from the third quarter. Sales, €313 million, a decline of 6.7%.

However, again, if we take a look at the external sales with comparable currencies, so we actually are in a - on a very similar level as we were 1 year ago. So the delivery is towards the end of the year in Industrial Equipment went very well.

Sales decreased in standard cranes and components, potentially improved in a year-on-year comparison in process screens as a result of the order book timing that we have been having within the business. And then decrease in the Americas and EMEA, but an increase in Asia Pacific.

And again, due to the MHE acquisition. When we take a look at the adjusted EBITA, so good story here as well, €18 million, 5.8% is the adjusted EBITA.

The increase in both euros and margin is as a result of the progress that we have made with the strategic initiatives as well as rigorous cost management. Obviously, of course, as we can see from the graph, so the fourth quarter of 2019 was a weak one as a result of onetime-related topics particularly in the process crane industry.

So of course, the comparables from that point of view were easier than what they normally would be. But nevertheless, a very good performance by Industrial Equipment business as well.

And gross margin, of course, improved on a year-on-year basis as well. Industrial Equipment order book, about €600 million order book, decreased 2% with comparable currencies in a year-on-year comparison.

And then still, the Port Solutions and the Port Solutions order intake, obviously, a very high column for the fourth quarter of 2020, €404 million order intake. It's more than 50% increase in a year-on-year comparison.

Obviously, a significant increase sequentially as well. We had 2 relatively big deals in the fourth quarter.

One of them has been announced, the other one has not - we have not been able to announce that yet. But in addition to those 2 big deals, so also, otherwise, the order intake was good.

And when we take a look at the, for example, lift truck orders that I usually deem to be the early indicator, so the lift truck orders continue to do well or the trend was upwards during the fourth quarter of 2020 in a sequential comparison. Year-on-year, it was still down, but in a sequential comparison, there was improvement.

And in a year-on-year comparison, orders received also increased in all 3 regions. Then when we take a look at the sales, €355 million.

So as in Industrial Equipment, so also in Ports, and maybe even particularly in Ports, we had an excellent finish to the year from the deliveries point of view. Sales increased by 11% with comparable currencies in a year-on-year comparison, an excellent achievement in this challenging conditions where we have been living.

And the adjusted EBITA, €29 million or €28.7 million and 8.1%. We are slightly behind both in euros as well as in margin in comparison to the situation a year ago.

The main reason for that one is the product mix. So obviously, we had known that the product mix for 2020 would be slightly or somewhat weaker than what it was for '19, and that has been the case throughout the year.

And in connection or in comparison, taking that into consideration to profitability, is quite good for the Ports business as well. Gross margin decreased, unlike in the other 2 businesses, but that decrease is exactly as a result of the product mix.

And then finally, regarding the Port Solutions, the order book, that is about €900 million and a decrease of 5% or so in comparable currencies in a year-on-year situation. Then before going into the Q&A, a couple of comments on the cash flow and balance sheet.

And this one is a good story as well, like Rob already mentioned. Net working capital, we have usually started with this one.

Net working capital has decreased to €337 million at the end of the year. This is in relation to rolling 12-month sales, 10.6%.

The business model works as it is basically supposed to work. So when the volume - sales volume declines, so the cash flow improves as the cash continues to come in.

Also in this crisis, in this COVID crisis, customers have continued to pay the invoices. We have been successful with collections and also the inventory management has been on a good level towards the end of the year.

Actually, all of the businesses have been doing great work in net working capital activities towards the end of 2020. And then when we take a look at the free cash flow, that obviously reflects partially the net working capital situation, €177 million for the fourth quarter and €366 million for the full year, like Rob already also mentioned.

And all of that is then obviously also reflected in net debt, which has declined. Like Rob mentioned, gearing at 46%.

We are on good level there. And then finally, capital employed and return on capital employed, that is on the level of 11% on a rolling - or on an average measurement basis.

And this slide actually concludes the presentation, and then we can start moving to the Q&A.

Thank you, Teo and Rob. Before we go into the Q&A, a kind a short reminder.

Due to the securities laws in the U.S. and in other jurisdictions, we cannot take any merger-related questions.

So in case you have any questions regarding the merger, please visit www.sustainablematerialflow.com. Let's now open the line for questions.

Operator, please go ahead.

That's Artem Tokarenko from Crédit Suisse. My first question is around margins.

Could you maybe help us how should we think about sustainability of margins from the strong H2 levels into 2021? And also, maybe it will be helpful to have some details or moving parts of the EBIT bridge for 2021, such as mix and how much of a headwind could reversal of temporary costs be this year.

Let's tag team on that, Teo. We just put out our guidance, Artem, that we expect to improve our margins in 2021 versus 2020.

Clearly, there is some seasonality in the fourth quarter. And we expect the macroeconomics to be stronger in the second half than in the first half.

Do you want to unpack some of that further, Teo?

Maybe if we take a couple of points that you raised. First of all, the product mix, which is obviously always important.

We are not expecting a significant mix change within the Service business. That has - that is obviously usually the case.

Now what we have seen towards the end of 2020 is that actually the spare parts have been doing a little bit worse than the field service, which is maybe natural in these kind of circumstances. But we are not expecting any major change one way or the other there.

When we take a look at the Port Solutions where the mix is probably most important, so actually there are both positive and negative things happening from the margin point of view in the mix based on the order book that we have today and based on the forecast that we have for order intake going forward. But these are netting each other out quite nicely, so that the overall mix impact in '21 in comparison to '20 is not significant.

In the Industrial Equipment, the - as it is, let's say, likely that when the overall economic environment improves, so the component order intake will be doing maybe slightly better or recovering quicker than some of the other businesses. So the mix impact might be slightly positive.

But that's a very, very, let's say, small difference there as well. Then when we take a look at the other topics that are maybe, let's say, easier to comment.

So currencies, of course, is one thing. We are - we said about the currency headwind now in the fourth quarter, if the currency rates stay on the level where they are today, so in comparison to 2020, we are going to have a headwind for the whole of '21, even if nobody obviously knows that one.

And then I guess that one of the key points behind your question is then that how well can we actually maintain the cost adjustments that we have now done. And we can maybe conclude so that when we take a look at the Q4 situation, in particular, so most of the cost adjustments that we have done, for example, on the personnel area, so they are permanent.

So there are not a significant amount of those kind of temporary, short-time work or those kind of things that would automatically return to old normal. There is some of that, but it's a relatively limited amount.

So that is something that maybe will help us going forward, a little bit in managing this one, even though, of course, bar of the discretionary spending, will probably come back on the SG&A level when things get more normalized. Traveling we have been discussing in the previous quarterly calls, et cetera.

And then I think that those kind of government subsidies that we have received during 2020, so they will not be repeating themselves in '21. So this is a small headwind when we take a look at the profitability development as well.

I'd point out to you as well, Artem, that our strategic initiatives are getting very good traction. And there's a - have a lot of further progress to go and are driving the profitability improvements that we saw in H2.

And we expect to take those strategic initiatives forward, and we expect continued traction out of those. And that's what's underpinning our guidance for 2021 is the factors that Teo talked about and the strategic initiative traction on a go-forward basis.

And my second and last question is around Ports - demand in the Ports Equipment business. Can you maybe help us with the exact size of large or maybe one-off orders which you booked in Q4 and maybe talk a little bit about sustainability of these demand levels into 2021?

And how much of a pent-up demand from low Q2, Q3 levels you've seen in Q4?

Sure. Big Port Solutions orders are double-digit millions and very big ones are triple-digit millions.

And one of the ones that we're talking about was over €100 million. What we're excited about it - and we talked about and we expected that our Port Solutions customers, we've been in very close contact all through last year.

However, some of - many, many of those decisions were postponed in terms of very big orders. And we expected them to come back into decision-making mode between the fourth quarter and the second quarter of next year.

And indeed are excited, and we showed you the market sentiment and the market - the improved environment underpinning, a couple of our customers have come back into decision-making mode, did come back in the fourth quarter. And we expect that - that was a very good news in the fourth quarter, and we expect the funnel has still got many orders in it.

Magnus here with UBS, a couple of questions from me as well. So first on the two industrial businesses.

Could you help us a bit with some comments on how the demand progressed through the quarter and how January has started compared to Q4?

So there's a natural crescendo in the Equipment businesses towards the end of the year in our line of work. And they were - a very strong finish in both of our Equipment businesses.

I would tell you that in each - all 3 of our businesses and across all the regions, there was very, very good work, our personnel and our customers to be able to do deliveries, to do installations and commissionings and also maintain service appointments in a very challenging environment. So that was a very strong finish.

And Teo talked about a good start to this year, too. We've had a - we had a good start and we're on a good way for the first quarter.

Do you want to highlight a little bit more, Teo?

Maybe we can slightly touch on the component story there because that is, as we have been discussing, an early indicator within the Industrial Equipment. So you may remember that we commented the component business being, in the third quarter, the order intake flattish in comparison to the second quarter, maybe a little bit downwards.

But in big picture, it was flat. And now when we take a look at the fourth quarter, so we are seeing the sequential improvement in the component business from the third quarter, which is encouraging.

We see that also in the standard crane business, but maybe the forecasting value is more if one sees it in the component business. And then when we take a look at the beginning of the year, January in this case, so it has started quite well in the component business as well.

So there is - there are some indications that things would be moving in the right direction. But obviously, I mean, 1 quarter or 1 month for that matter, they are all too short periods to draw final conclusions.

But this is what we know so far based on the Industrial Equipment area.

I think in - for a group view, I'd point out several elements. I'd point out the one Teo just did, leading indicator.

Good news on the component side in Industrial Equipment. I think it's also strong that we've had a very good fork or mobile equipment sales in the Port Solutions.

And very excitingly, our Service business has fully caught up its agreement base in January and is back below - or is back above now third quarter levels. So that was a temporary dip in the fourth quarter, and it's back on a growth track already in January.

Excellent. That's very good color.

And my second question would be, what's the status of your supply chain at the moment? Have you seen any emerging signs of component shortages?

Or - and how do you see input cost inflation develop in '21? Are you confident you can offset this?

Or should we see some headwinds from that?

Let's recognize that one of our important strategic initiatives is clearly along the - is in procurement, both direct and indirect. And when Teo and - when we unpack bridges, et cetera, there was a very, very strong performance in procurement last year, overcoming inflation.

We expect to do so this year. Our suppliers and our procurement team, our supply chain team have been working very closely together to continue continuity of supply.

And we've not had to shut down during the entire crisis based on any supply in continuity. So thanks to our business partners and thanks to a very strong supply chain performance, we've been able to keep our operations running and expect to continue to do so.

Yes, I think that maybe building a little bit on that one. So the - like Rob said, we have been able to manage things pretty well and we haven't been having significant component shortages.

Maybe when Artem was asking about the headwinds and tailwinds regarding '21, so maybe one could say that the - it is likely that the inflation will accelerate. And now in 2020, we have been having very low material inflation.

And now that we take a look at steel prices and we take a look at the cost of logistics, for example, which is - which has been going up. So there is accelerating inflation.

We feel that we will be able to price that into the customer products. But it is maybe a slight change that we will be seeing anyways in '21 in comparison to '20, particularly if the overall economic environment will continue to develop favorably or will develop favorably in '21.

If I can just squeeze one quick one in. Could you help us with what organic order intake growth was, if this does also adjust for MHE and as well on the Service space, that will be very helpful?

Well, yes. Good question and a more complicated answer.

We have started to integrate MHE businesses into the Konecranes businesses in the way that we do not any more accurately see that what is - what growth or lack of growth for that matter is coming from which businesses. However, in the big picture, one can say so that the MHE sales and orders in 2020 were about 4% of the group sales and orders.

And when you take a look at the businesses where it impacts, so Industrial Equipment and Service, so the impact has been about 6%. So that - this is the ballpark number that you can use.

And then regarding the agreement-based growth. So they're actually the same applies so that - and also the starting agreement base is a little bit, let's say - it's not scientifically accurate number.

But when you take a look at the organic agreement-based growth, excluding the MHE, we are somewhere, let's say, 3.5% or so with comparable currencies, excluding MHE agreement base. But these 4% and 6% are the ones that when you do the modeling, so those are maybe percentages to be used.

It's Antti Kansanen from SEB. First question would be on the Ports still.

I mean even if we exclude for the large orders and look at the delivery volumes, they were quite robust. So is this a function of just improved activity?

Or have you seen kind of the restrictions easing, site access improving or that that you yourself and customers have kind of learned how to deal with the restrictions? So could you comment - especially on the sales and deliveries, could you provide a bit color on those?

That was a very good performance, and it takes 2 parties each time. We've got to be able to deliver and our customers need to make it possible to receive and construct and commission the big deliveries.

And it was a very, very good teamwork on both sides. And I think that each of the elements you talked about had a factor.

First, very strong performance by the Ports team, I think the whole world is getting better and better at dealing with COVID and a very strong commitment by our customers to enable that access. It's not been without hardship.

We've had personnel working very, very hard with quite a bit of isolation and separation in order to make the delivery and commissioning in a COVID-conformed fashion. So a lot of effort.

In addition, I'd point to the trend we just described in terms of the increasing market environment or an increasingly positive market environment. I think all those factors play a role clearly in the sales delivery.

And that market environment clearly plays an important factor in the decisions - the order decisions in the fourth quarter and the expectation for further positive decisions in the first and second.

And the second question would be on the sales guidance, sales guidance that you are expecting growth for '21. And if we look at the backlogs in both Ports and Industrial, they are a bit down year-over-year.

So could you comment on kind of the length of the backlog or the delivery schedules? Or are you just factoring in kind of improvement in the more cyclical - short cyclical demand during '21?

What are the building blocks behind the '21 sales growth?

Well, there are quite a few. And we've gone through those in good detail, and they vary a bit by business.

We expect our strongest growth in the year coming from our Service business. We expect our Industrial Equipment business to be - remain on similar levels.

And we expect a slight decline in our Ports business. As you know, we have the longest time between receiving an order and making the delivery in our Ports business on equipment there.

It's Sebastian here from Commerzbank. The first one is also around Port Solutions.

And here on the pricing and mix, Teo, you gave us a bit of color around the expected mix effect for the year '21. The question that I would have is simply if you look at the mix and the backlog compared to what you have recently taken in, in terms of new orders, how would that compare?

And with that, I'm asking the question on the price quality and the general competitive pressure as you see it right now. The second question is on industrial equipment.

And here, on the process cranes business, you repeatedly said that you want to turn the business into a sustainable profit related to it. Can you walk us through the earlier mentioned buckets, i.e., execution, the cost base, the procurement?

And also then remind us of the status quo around the impact from the modular process cranes that you had introduced earlier.

Well, that's a whole business review in one question, Sebastian. But let me confirm.

Our Ports commercial team has done a very good job on commercial conditions and has not sacrificed any pricing in taking in these exciting new orders and shan't on a go-forward basis. I expect as well that the - Teo will talk you through the mix on the Ports story, I think that's an important element of it.

On the Industrial Equipment side, there's been very good progress in very many elements of Industrial Equipment. Matter of fact, that 5.8% result in the fourth quarter is the highest since we - since the acquisition in 2017 of MHPS.

So the components business is doing well. The CTO, the - and the process crane business is doing well and demonstrated very significant progress, once again, between the third quarter and the fourth quarter.

The cost management is working. The lean activities are working well.

The procurement activities are making a contribution. And our process crane business was profitable in the fourth quarter, and we're very excited about that.

Maybe regarding the - still the new product platform in the process crane business. So that is still in the early phases when it comes to the deliveries, particularly for the reason that in process crane business, the delay from starting the sales process to receiving an order is relatively long, and then obviously, from order to delivery.

So there is a delay as well. So that the volumes are not significant in any way, as of now.

So that what - we are not really seeing the impact of that one in the process crane profitability, for example in the fourth quarter of 2020. When it comes to the first question regarding the product mix in the Port Solutions.

So I think that if I interpreted the question correct, so it was more like what was the quality of the order intake in the fourth quarter as well, and I guess Rob covered that one well. And the mix impact that we were referring, so that one is obviously taking into consideration the order intake that we have received by the end of 2020.

And there, overall, the mix impact between '21 and 2020 is not significant within the Port Solutions.

This is Antti from Danske Bank. I have only one question.

If you could just tell how you think around Ports and Industrial business, if I compare that to Ports, really quick to recover because of underlying improvement in container throughput. We also see good indicators for the Industrial business, but we've seen a recovery in Konecranes.

Why is that? And how would you think about this discrepancy going forward?

So Antti, the market climate is looking good for both of those industries, as we described with those external statistics. I'd also point out, we've talked several times in the past about internal metrics we have as well.

The digital telemetry capability that we've got gave us very good insights managing through the pandemic and has given us some very good insights on a go-forward basis as well. In addition to the external metrics, demonstrating an increasingly positive climate, not yet on 2019 levels, but demonstrating a positive trend in the business environment, our internal telemetry shows that in the first - in each of the first weeks of this year, higher activity both in Industrial Equipment as well as the Port Solutions equipment versus those same weeks last year.

And I would point out to you that last year first quarter was the last quarter of last year that was not impacted by COVID. And the first quarter of this year clearly still is.

So we think this is, as well, an important indicator of expectations for good performance this year.

So if I would ask you to make an estimate for order intake for Industrial Equipment, I know you don't probably want to say that. But if you would, would you say that you would expect orders to improve this year?

I'm going to let Teo answer some of that. I'd like to unpack a little bit more prior, but talking about - we talk about order intake, we'd also talk about the fact that our component order intake and our mobile equipment order intake is in and out during the year.

And both of those are on a good way - on a good trend coming from last year into this year and are on a good start for this year. And those in and out sales will play an important role in our overall sales this year as well.

Do you want to talk a little bit more to that, Teo?

Maybe a little bit regarding the sales funnel or the order funnels, Antti asked what kind of differences there would be between the different businesses. And I guess that regarding the Industrial Equipment area, we can also dare say that the sales funnels actually have become better now during the fourth quarter in comparison to the third quarter.

And the question actually is in Industrial Equipment area, the same as it basically is in the Port Solutions area is that - and it is that how quickly will the customers make the decisions in these current still uncertain times. So it's good to have a sales funnel, of course, what we need is the execution of the orders from the customers.

And that is what went well now in the fourth quarter regarding Port Solutions. And that is what also happened in the Industrial Equipment when we take a look at the sequential improvement from Q3 to Q4, but obviously not to that magnitude as we have been seeing it in Port Solutions.

So the question is the customer's ability to make the decisions. So the funnels basically all there, but what is then the actual timing of executing the order intake.

It's Aurelio from Morgan Stanley. Just a couple of questions from my side.

First one would be on the Ports side. We've obviously seen a very good intake there and you mentioned that you had a couple of large orders.

But if you could flesh out what's been maybe mobile equipment doing through the quarter and maybe the trends in aftermarket growth there would be helpful. Because we have obviously seen container throughput closing the year very high, so just wondering if that's also kind of appearing in your mobile equipment numbers and aftermarket.

Okay. So if we take a look at the mobile equipment lift trucks, particularly in this case, what we have typically been referring to, so we can see a sequential improvement in order intake in the fourth quarter in comparison to the third quarter.

And actually, we had a sequential improvement already in the third quarter in comparison to the second quarter. So maybe unlike in the component business in Industrial Equipment, where the improvement happened in the fourth quarter, so that improvement in lift truck business started a little bit earlier.

But in a year-on-year comparison, we are still behind. So we have not reached the pre-COVID levels in any way, but the sequential improvement has been there.

And again, when we commented regarding January and component business, so regarding January and lift truck order intake, so that is also on a decent level in the month of January. And again, a word of warning, how easy it is to conclude based on 1 or 2 quarters or 1 or 2 months, but I mean this is what we are seeing as of now.

Right. The other question was regarding the service part or port service basically in - within the Port segment.

And they're actually in the port service order intake was in the fourth quarter, roughly on the same level in the third quarter. So there was not a significant change one way or the other.

Okay. Perfect.

And maybe my second question is on cash dynamics and cash performance into 2021. Obviously, we've seen that you've done a very good job in keeping your inventories under control, and you've done a very good job in cash collection through the year.

My question is, is that level of cash collection and receivables in your balance sheet sustainable? Is that permanent?

Or you expect to see some reversal of that through 2021 and also some inventory build as these sales increase?

We are expecting to see some reversal of that as the sales volumes increase. So like I said earlier, so this is in line with the business model, the net working capital management by definition should be at its best when the sales volumes are declining, if everything is going, so to say, normally, and then when the sales start to increase.

So we are most likely going to get some of the net working capital back, not meaning that we wouldn't do everything that we can to curb the increase. But it is kind of an in-built assumption in the business that some of that will be reversed.

It's Erkki from Inderes. Still talking about the COVID-linked savings and the discretionary spending, especially in marketing.

Could you provide us with any kind of ballpark figure of the delta we are going to see in 2021 versus 2020?

You should do it.

No, we would not - we cannot give a delta into that one. And obviously, even if we would like to know how much of the so-called discretionary spending will come back once traveling is back in the game and once things are more normal or in the new normal, whatever that might then be, so obviously, we will - we cannot know that fully in advance.

What we are doing, like I would assume most other companies as well, is that we are trying to figure out ways on how to make sure that the so-called discretionary spending stays on the current level and not go back to the old levels. And there are, of course, various things that one can do when it comes to the communication within the company, communication outside of the company, including the suppliers and customers, et cetera.

But probably some of that will be coming back. Maybe regarding the government incentives which is, in a way, a clear headwind that we can maybe say we have been receiving some €5 million or slightly more incentives through 2020, and that is probably a headwind because it is unlikely that those kind of incentives will be repeating themselves.

Erkki, I think it's a mix of cost management and innovation. And I'd point out to you that our teams have come up with very, very innovative ways of operating in this environment.

And I expect those innovations go forward and benefit us. As the environment improves, the innovations will still hold in terms of being able to different ways of selling, different ways of marketing, different commercial approaches, quite a few innovative ways of operating this environment are going to benefit the way we operate on a go-forward basis as well.

So overall, your SG&A in 2021, we are talking about a few percentage points max increase versus 2020 on a comparable basis. Does that sound good to you?

We do not directly want to comment that number. But obviously, you are doing your own models, but I mean, we are not commenting the number exactly.

I think the time is up now, unfortunately. So we cannot take any more questions.

I would like to thank everyone for the active participation as well as the good questions. And as a reminder, Konecranes will issue the Q1 interim report on April 28, 2021, obviously.

I wish you all a great day and weekend later this week. Thank you very much.