Konecranes Plc

Good morning, everyone, and welcome to Konecranes' Earnings Conference. My name is Kiira Froberg, and I'm the Head of Investor Relations at Konecranes.

Here with me today, I have our President and CEO, Anders Svensson; and our CFO, Teo Ottola. We have renewed our presentation a bit.

In case, you have not noticed, Konecranes launched its new brand identity for a couple of weeks ago. Our new brand promise is Konecranes Moves What Matters.

And the earnings presentation reflects the new brand visual look. Before we start the actual presentation, I would kindly remind that the presentation contains forward-looking statements.

The agenda is the usual one. Anders will start by walking through the group level results, after which Teo will focus on the business segments.

And after the presentations, we will have a Q&A as usual. Please, Anders, I think it's time for you to start.

Thank you, Kiira, and a warm welcome also from my side to this webcast. Before we dive into the quarter 4 numbers, I want to talk a little bit about 2023 as a full year.

So, 2023 was a fantastic year for Konecranes. We closed the year with an order intake that was flat versus 2022, and 2022 was an all-time high record.

We also delivered in 2023, an all-time high sales and an all-time high comparable EBITA margin. The cash flow was strong, and the order book is set up for a good 2024.

Into the quarter 4 then. So the demand environment remained good in general.

Orders were minus 2% year-on-year in comparable currencies versus the previous year. Sales exceeded €1.1 billion, and that was up 16% year-on-year in comparable currencies.

Comparable EBITA improved slightly year-on-year to 11.7%. The improvement was driven by higher sales volumes and pricing.

Comparable EBITA improved in Port Solutions and in Industrial Equipment. Cash flow continued strong at €167 million for the quarter.

The 2023 dividend proposal from the Board is €1.35 per share. We have also updated our demand outlook and the financial guidance for 2024.

So the macro environment first. And we start with the Service and Industrial Equipment.

So the macro indicators were challenging also in the fourth quarter, just as it has been throughout 2023. But the underlying demand with our customers remains still high within the Industrial segment.

Moving into the market environment for Port Solutions. And here, we follow mainly the global container throughput index.

And as we can see, it remained on a high level, even up on the previous year. So it's a high underlying good demand still with our Port Solutions customers.

I'll then move into group order intake. And it was €926 million for the quarter.

And that was in reported rates, 3.6% down on the previous year. We saw a decrease in Port Solutions, approximately flat in Industrial Equipment and a good increase in Service.

Geographical-wise, we saw a decrease in EMEA, and an increase in Americas and in APAC. Our net sales for the quarter was €1,149 million, and that was up 12.5% year-on-year in reported currencies.

Here we saw an increase in Service and in Port Solutions and a decrease in Industrial Equipment. Geographical-wise, America was really strong throughout the quarter, but we also saw an increase in APAC and a decrease in EMEA Looking at our group order book.

So, we had a negative book-to-bill in the fourth quarter, but still we closed the year with an order book of €3,041 million, and that's up 6% in comparable currencies versus the previous year. We saw an increase here in Industrial Equipment and in Port Solutions, and a small decrease in Service.

And what's good to note is also that we have approximately €100 million more in our order book to be delivered in 2024 than we had going into 2023. We look at the group comparable EBITA, and it was €134 million for the quarter.

That corresponds to a margin of 11.7%, and that was up 10 bps versus the previous year. The comparable EBITA margin increase in Industrial Equipment and Port Solutions, while we saw a decrease within service.

Comparable EBITA increased mainly attributable to higher sales volumes, but also due to pricing. If you look at the mix, we had a negative mix in all 3 segments and also a negative mix on the group level.

Gross margin stayed approximately unchanged. If we evaluate our progress towards Konecranes' financial targets during the year, we had a really strong 2023 moving towards our targets.

Starting with the profitability target for the group, we were up 190 bps versus the previous year and ended the year at 11.4%. If we look at Service, we were up 130 bps versus the previous year, so also strong performance in Service.

Industrial Equipment had an excellent performance. Here, we increased 380 bps versus the previous year.

We also had a strong performance within ports who increased 120 bps versus the previous year. So it's good to see that everyone is tracking towards the profitability range.

And we have a strategy that we are now executing on to ensure that we continue to track towards our range. If we then talk about the other financial target, which was sales growth.

So, we communicated that we will grow faster than the market. And in 2023, we had a reported growth of plus 18% versus the previous year and 21% in comparable currencies.

That is clearly above the market growth. And we have the same trend in all the 3 segments.

So, that's really good to see. Our updated demand outlook is then within the industrial customer segments.

We say for all 3 regions that our demand environment within industrial customer segments has remained good and continues on a healthy level. The funnel remains good and healthy, both in number of cases, but also in value of the total funnel.

The uncertainty has not disappeared completely, of course, in the market, but we see it as a little bit more stable and perhaps even a bit more positive than we did 1 quarter ago. Within our port customers, we say that the global container throughput continues on a high level and long-term prospects related to global container handling remains good overall.

Also here, the sales funnel is strong. It continues to contain short-cycle products, but also projects of all different sizes.

It is important that when we talk about ports to remember that this business is fluctuating by nature. It's very difficult to sort of estimate when we will get order intake from customers.

In Q4, for example, last year, we got some early order intake, which made the numbers for ports order intake good in Q4 as well. Updated financial guidance then for 2024.

Net sales is expected to remain approximately on the same level, or to increase in 2024 compared to 2023. Our comparable EBITA margin is expected to remain approximately on the same level, or to improve in 2024 compared to 2023.

And overall, we have a positive outlook on 2024. We see that the demand remains on a good and healthy level in all our segments.

We have a strong order book to convert into sales during 2024, and we have a good cash position. And with that, I leave over to our CFO, Teo Ottola, to dive more into the financial details.

So please, Teo, go ahead.

Thank you, Anders. And actually, before going into the segment level data, so let's take a brief look at the comparable EBITA bridge Q4 '23 versus the situation a year ago.

Now that we take a look at this EBITA bridge, so structurally, it again looks quite a bit like the bridge in Q2 and Q3, but there are also a couple of differences. Of course, one of the differences is that the year-on-year improvement in EBITA, which is €16 million is now less than what it was in the second quarter or third quarter.

There are basically 2 reasons. In the big picture, there are 2 reasons behind this one.

The first one is that if you take a look at the 2 first parts of the bridge, so this volume, price mix and variable costs. So the positive net of those is now less than what it was, for example in Q2 or Q3.

The decline in the positive net does not actually come from the underlying volume improvement. That's more or less on the same level as it was in the second quarter or third quarter.

It more comes from the pricing impact. So the net of inflation pricing impact, a positive one, is now less than what it has been in the previous quarters during '23.

This is obviously quite natural because we were able to correct the pricing already towards the end of '22, and then the positive delta towards end of '23 in an year-on-year comparison, obviously, is a smaller number. The other reason is then the fixed costs.

And the fixed costs delta in a year-on-year comparison is now higher than what it has been earlier during '23. And there is a pretty natural reason for that one as well.

So as you may remember, so during the first 3 quarters of '23, we did not really increase fixed costs much more than inflation. And now that our underlying volume improvement has been quite high, 10% or more, so obviously, having this kind of, let's say, non-increase on a long-term basis is quite difficult.

So, there is nothing extraordinary in this one, but it is, of course, impacting the operating leverage for our fourth quarter numbers in a year-on-year comparison. Maybe worth noting a third point on this one as well, which is the gross number regarding volume, pricing and mix and particularly pricing.

This is now lower, this total number than what it has been in the previous quarters. The pricing impact overall is now less than what it has been in the previous quarters.

Now, we are estimating that the prices in the P&L have been about 5% higher than a year ago, whereas the pricing impact in the previous quarters has been higher. In some quarters, maybe even clearly higher.

Then we can move into the segment level data. And let's start with Service as usual.

So the Service order intake, a good number of €378 million. This is a 5% increase year-on-year.

Actually, with comparable currencies as high as 8.5%, currencies were against us in the fourth quarter. When we take a look at the regions, we actually had growth in all regions.

We also had an increase both in field service and parts. Agreement base was €318 million, and that is an increase of a little bit more than 5% year-on-year with comparable currencies.

Sales of €403 million is an excellent level for Service. It is as high as 11% growth with comparable currencies.

We had increase in Americas and EMEA of the regions, a slight decline in APAC. And then when we take a look at the different types of businesses within Service, so field service and parts, we had an increase in both, but so that the relative share of field service grew more than parts, which obviously then created a small negative product mix impact for the Service business.

EBITA and EBITA margins, so EBITA €82 million, margin 20.2%. This is higher than a year ago in euros, but a slight decline in the margin.

And the margin decline in a year-on-year comparison is due to 2 things; temporarily lower productivity and then already mentioned negative sales mix when it comes to spare parts and field service. The temporarily lower productivity is primarily as a result of slightly higher labor cost.

So, when you take a look at the Service sales of 11% growth, so we had very high sales. It was pretty much in field service.

The growth was a lot in field service. We have been lacking service technicians already to begin with.

Towards the end of the year, we have a lot of holidays and also, we have some sick leaves during the fourth quarter. And as a result of that, then the labor cost was somewhat higher than a year ago in relative terms, for example, as a result of overtime pay.

Both of these -- both the labor cost increase as well as then the product mix we consider being temporary. So, there are no structural changes that would be impacting us on a long-term perspective.

Industrial Equipment, order intake €304 million, that is an increase of 2% year-on-year. However, if we take a look at external orders, which is maybe telling more about the demand in the marketplace, the growth is 4%.

Again, by regions, we had an increase in Americas and APAC in a year-on-year comparison, a decrease in EMEA. And then when we take a look at the business units, so we actually had growth in all of the major business units, so standard cranes, process cranes and components.

Then if we take a look at the order intake by business units sequentially, so worth noting that the process cranes declined a little bit in sequential comparison, but both components and standard cranes were more or less on the same level as they were in the third quarter. Sales, €370 million.

That is a slight decrease actually in a year-on-year comparison with comparable currencies. Of the regions, we had growth in the Americas, but the decrease in EMEA and APAC.

Of the business units, standard cranes deliveries or sales grew, whereas then we had a decrease in process cranes and components. Order book, €892 million, or roughly 4% higher than a year ago.

Then if we take a look at the EBITA and comparable EBITA and EBITA margin, so the EBITA, €24 million; margin, 6.5%. There is an increase both in euros as well as in percentage in a year-on-year comparison.

Of course, the increase doesn't come from the volume this time because the volume was lower. The increase is primarily due to the pricing impact, as well as then the optimization program that we have been having within the industrial businesses, and that is benefiting primarily Industrial Equipment.

And of course, as a result of these 2 things, gross margin also increased as a result of the pricing and optimization program as well. Then Port Solutions.

Port Solutions order intake, €304 million. That is a decrease of roughly 16% in comparable currencies year-on-year against tough comparables.

Obviously, we had, of the regions, a decrease in EMEA, but increase in the Americas and APAC. Regarding the business units within Port Solutions, we had good orders in mobile harbor cranes, RTGs and RMGs within the fourth quarter.

So then if we take a look at the sequential comparison a little bit and maybe review also the sort of early cyclical business unit lift trucks. So lift trucks was down in a year-on-year comparison.

But if we take a look at it sequentially from the order intake point of view, so it was stable. Sales were on a very, very good level, €445 million.

That is a growth of as much as 38.5% in an year-on-year comparison. We had very good deliveries in lift trucks.

We had very good deliveries in RTGs and overall, a very successful delivery quarter. Order book still, regardless of the -- or despite the high sales, €1.7 billion and more than 6% higher in a year-on-year comparison.

Then taking a look at the comparable EBITA, €36 million or 8% margin. This obviously came primarily -- as a result of the improvement came primarily as a result of the volume being higher.

Here, we had a gross margin decrease unlike in the Industrial Equipment business. And I think it's fair to say that when we take a look at the project execution, so it was probably not as clean as we would have had in Q4 '22 or Q3 '23.

So, that has impacted a little bit into the operating leverage. Also, in one of our factories as a result of, for example, a low-ish order intake in Q3, we had a little bit lower capacity utilization that we would have wanted to have.

Nothing major in either of those topics, but worth mentioning that it impacts, of course, the operating leverage in the quarter. Before going into the Q&A, still, as usual, a couple of comments on the balance sheet or cash flow and the balance sheet.

Net working capital has been trending very nicely, €354 million, 8.9% of rolling 12-month sales. This is clearly on the better side of our target setting.

Of course, the basic reason behind the lower net working capital throughout the year is the improved delivery capability. So, we have been getting rid of the late backlog.

And of course, it has helped our inventory situation and inventory receivables balance as well. Well, now in the fourth quarter, inventories decreased.

And then the accounts receivable did not increase in the same manner. So the fourth quarter was also good from that point of view.

Of course, it reflects to the free cash flow, which is on the right-hand side. Free cash flow was even better in the fourth quarter than what it has been during Q1, Q2 and Q3.

A very good achievement in that respect, of course, driven by the profitability, but also the net working capital development. And this then, obviously, leads to the net debt and gearing situation here.

So, we have net debt at the -- the amount is €366 million. The gearing is 23% on a very nice level.

Then when we take a look at the return on capital employed on the right-hand side, so it is 17.7% at the end of the year, the '23. Of course, stabilizing a little bit, we still have a very high balance sheet total.

But of course, the net working capital development is clearly a very positive thing from our balance sheet management point of view. And I think that this is then the time to move into the Q&A.

Thank you, Teo. Thank you, Anders, as well.

So let's start the Q&A. And I think that we could first take some questions from the line, please.

So let's open the line, please.

Hope you can hear me. I have 2 questions.

One, just following up on the pricing commentary. You've mentioned sort of the moderation towards the 5% in Q4.

Can you give us sort of a view on sort of how you think about 2024, given, I guess, to reflect the inflation in general across the board coming down? Can we still have positive pricing in '24?

And the second one, just regarding, I guess, in your outlook statement, you've changed it to flat or up, but it sounds like maybe a bit more of a transition or a lower growth year, perhaps. I don't know if I'm reading too much.

But do you have when you look at other opportunities for growth in organic or opportunities for portfolio pruning? Can you tell us how you're thinking about the portfolio more on a medium term on those basis?

Do you want to start with the pricing?

I can definitely start with the pricing comment. And of course, you are right.

So the inflation is on a lower level. And in some of our raw materials, even the costs are, of course, on a lower level than what they were, for example, a year ago.

The basic line that we like to follow continues to be the same. So, we definitely are of the opinion that we can move cost inflation into the customer prices or within all of the business segments.

So, that is definitely something that we intend to do. We are intending to increase prices already now during the spring time.

The price increases, obviously, in percentages will not be as high as at the time of the cost inflation being on a very high level, but there will be price increases also this year. And then when we take a look at those big pieces of equipment that are containing a lot of steel and steel can probably be the item where the overall inflation has maybe even turned the other way around, so that we are on a lower level from the cost point of view.

So, we do not really currently see a situation that, I mean, the end customer prices would be lower than what they were, for example, 1 year ago. So the lead times are relatively long.

The labor costs have continued to increase, and they will most likely increase this year as well in comparison to the previous year, so that the overall inflation will be there even though it is much more moderated, particularly in heavier equipment where the steel content is higher. But the basic idea is that we will be increasing prices in line with inflation, sometimes maybe even a little bit more.

But extra benefit from the net of inflation pricing will not be as high as it was in '23.

If I comment then on the guidance, so we are guiding net sales to remain approximately on the same level or to increase in 2024 versus 2023. And what we mean with that is that, in 2023, we had a really large increase in net sales, 18% in reported currencies and 21% in comparable currencies.

And what we mean with flat to increasing is then that it will not be on the same level, but we are still tracking according to our plan to continue to grow the company going forward. And the same comment is then valid on the comparable EBITA margin.

So, we had 190 bps increase over 2022. And when we guide like this, we mean that we are targeting an increase in the year, but it's not going to be of the same magnitude as we had in 2023 versus 2022.

I don't know if I understood your question correct. But...

Yes. I was more wondering if you could comment in inorganic opportunities, portfolio pruning, other things that could complement, take the point exactly as you say on sort of the tough comparables, anything else that we can look that you're looking at potentially?

As a company, we're always looking at pruning opportunities, we had in last year's industrial products, which we divested. But we have nothing big that we are working on now in terms of divestitures.

And in terms of M&A, as we have said previously, we have again reactivated ourselves in M&A, where we primarily look at bolt-on acquisitions where we can sort of grow our geographical coverage or expand our product offering. And that comment still remains.

From the line, please?

Yes. Couple of questions from me.

Also, I'll start with the backlog and a question regarding ports. I assume that the €100 million delta for next year's deliveries is largely coming from ports.

So, could you talk a little bit about that backlog, its mix and let's say, project execution risks as you kind of flagged that it has not perhaps been optimal in the past couple of quarters? I assume that there's a bit more kind of a heavy equipment and bigger projects there as the lift truck demand has slowed somewhat.

So, a couple of words from that, please?

Do you want to take that?

Okay. Yes.

So, I think you are right regarding the comment that the delta in the order book on a group level is primarily parts. It is primarily '24, if we take a look at it that way.

And the mix is definitely more towards heavier end than for example, 1 year ago or even more so, if you compare to a so-called normal order book. So we are, in a way, very well sold from the heavier projects point of view when we take a look at our capacity going forward.

And then we have a couple of business units there, where we have a need to get new orders to be able to fill the factories and get the wheels rolling in a way. From the pricing perspective, we feel that the order book as such is in good shape.

So it's not weaker than what it was a year ago. It's probably slightly better from the order book margin point of view.

Execution risks, obviously, are always there, but we are doing a lot of activities to improve on that front as well. And we feel that we have actually good actions ongoing, and the execution will be in good order in '24.

But if we think about kind of margin improvement prospects in '24, is it reasonable to assume that mix in ports is probably -- or the mix is the biggest headwind in ports compared to other divisions year-over-year basis?

Mix is going to be a headwind for next year. But actually, if we take a look at the order book now, so it's not a significant headwind.

Of course, then it depends a lot on how order intake will be developing because, of course, in the lighter end of the product offering, the order book obviously is shorter like, for example, port services. But if we take a look at it just from the overall, let's say, in comparison to the previous year, so the mix is negative, but not hugely.

Okay. And the second question was on the margin guidance.

I mean, the guidance is very similar for sales and margin improvement. So, I guess volume is the big driver going into this year.

But could you talk a little bit about kind of your self-help actions and the long-term margin targets? What do you kind of either numerically or conceptually expect to achieve during '24?

Is it more industrial? Is it more ports?

What type of actions should we kind of think into the profit improvement and costs?

If I start and you fill in. We are targeting margin improvements in all the areas.

So, we have our strategies that we execute on in each and every segment. So starting with Service, here it's about being closer to customers, being easy to do business with, growing the business, being more productive, less downtime, less rescheduling, et cetera.

So it's about being more efficient. Then moving into Industrial Equipment, here, we have our optimization program.

And as we communicated, it yielded about €11 million EBITA improvement for 2023. And we see that it will be similar level for 2024.

There are also other initiatives, of course, within Industrial Equipment, which is not a part of this optimization program such as standardization, new products to market, which are more cost efficient, et cetera. So, there's lots of initiatives.

And within ports, it's about focusing on growing port service, which is a large area for us going forward in terms of growth. It's also focusing on the products in the regions, which has the right profitability margin.

So, that's a summary.

Yes. Sorry, there is not actually that much to add on that one.

I think that was the summary. But maybe in a way, if we take a look at it from the Service point of view and when Anders talked about productivity, so I guess that for Service productivity and volume improvement would be basically the drivers for margin improvement.

So volume, of course, from the Service point of view, plays a role because of the operating leverage, whereas Industrial Equipment, as we have all along been talking about is much more self-help. The €11 million and probably a gain of something in a similar magnitude this year will be helping Industrial Equipment profitability.

And that's not in a way directly volume-dependent. Even though, of course, volume plays a role there as well, but the optimization program as such is not volume dependent.

Okay. Great.

And last one from me is something that I didn't fully understand when you mentioned kind of the shortage of, or availability of technicians and that's impacting negatively on Services. Why is that temporary?

I mean, if field services continue to grow, why wouldn't that be a further issue in '24?

The reason that it is temporary is that now in the fourth quarter, we had a very, let's say, we had a lot of orders to fulfill. So, we had a lot of deliveries, as you can also see from the increase in the sales number.

And then when this kind of, let's say, burst takes place towards the end of the year where you have a lot of holidays and then at the same time, you end up in a situation that there are maybe more than average sick leaves. So, then we have had a need to have a lot of overtime done.

And this, of course, increases the unit cost for labor. The reason why it is temporary is that over time, we can, of course, balance it better and we can match it better.

And, of course, also the demand from the delivery point of view, Service delivery point of view is highest in the fourth quarter. So the situation from that point of view is more normalized than towards the beginning of this year.

Yes. And maybe if I should add just one thing.

I think this is -- primarily, we are talking about North America here, where we have had the biggest problem in recruiting the amount of service technicians we were looking for. And then combining that with a high percentage of sick leaves and throwing in Thanksgiving and Christmas, to be able to deliver what we -- and to serve our customers, we had to then book over time and overtime bonuses and those kind of payments.

Thank you. Then let's take next question from the line, please.

Start with a question on the Service business. So it sounds like you're planning for higher volumes there.

I'm just wondering in terms of on the cost side of things and I'm thinking about labor costs, which will increase and have an impact here on the margins, would you say that you are already well covered in terms of prices on that side? Or do you still need to increase your prices to be able to cover for the inflation in the Service business?

So, we will have our annual increases in Service, just like we do every year to compensate increased salaries, et cetera, with pricing. But like Teo said previously, there will not be such a positive gap that we maybe had when we were catching up from when we were behind in increasing prices in 2021.

So the gap will be smaller than it's been previously. And then when we grow Service, we only need to add basically service technicians because the whole infrastructure, we can just apply on existing -- their existing infrastructure, we can apply on the additional business, which then only needs service technicians in the execution phase, so not in the back line for planning that is already built up and automated to a large extent.

So, that's why growth comes with a good leverage in Service.

Okay. Well, that's clear.

Then could you talk a bit about the demand environment for the equipment business across both industrials and ports? Which segments and regions do you see strength?

Where do you see weakness? How is the competition behaving and so on?

Yes. Should we start in maybe Industrial Equipment.

So Industrial Equipment, we have seen strength, very strong market has been North America and the Americas. We have also seen positive actually in APAC, while EMEA has been a little bit on the weaker side.

And when it comes to Asia Pacific, we have seen, in general, a good growth with our sort of primary customers, which are Tier 1 customers and western companies in that region. And we are not going maybe as quick as the local market because we are not in the mid-market in low segments.

We are only in the top tier segments basically. We see that the demand has remained really strong through the year.

We had an external order intake increase of some 8% on the equipment side, I think, right? We also saw a good increase in Service.

If you go into ports, the underlying business is very much dependent on how the container throughput indexes, et cetera, which is sort of the lift trucks, the Service and all of these kind of things. Then you have the sort of additional project business, which comes more in lumpiness.

But since there is a high container throughput still in the business, and it's even growing towards the previous year, so we foresee that our customers will have a good demand also going into 2024. Then as I said, to estimate where those larger projects will then convert into order intake for us is very difficult because it's up to customer decision-making process, et cetera.

So it can come either earlier or later. Teo, you want to add something?

I could maybe add on the geographical split that Anders talked about a little bit already and EMEA, which has been a little bit on the weaker side. Maybe a couple of comments on that.

We have every now and then commented that by subregions. So the Nordic -- northern part of Europe has been quite strong actually in relative terms.

Maybe there is a little bit stabilization there, including U.K., which has also actually been surprisingly maybe quite good for us. Then the central part of Europe has been a question mark, particularly because of Germany.

So, there have been some positive signs from the demand there. Middle East is doing very well, actually, from the demand point of view.

And if you take a look at Southern Europe, so that there are countries that are doing well and there are countries that are not doing that well. The overall point, I guess, still is that Americas is a little bit on the better side than the European demand, which is very visible in the utilization rate graphs as well.

Then if we revisit the segments a little bit from the industrial point of view. So it's maybe fair to say that the power generation continues to be a segment that is doing well.

Metals production is a segment that is doing well. Maybe transportation, at least to some extent.

Aviation has been doing well. And then I guess that there are a lot of those who are more or less on a stable level.

And of course, also the most important segment from our point of view, general manufacturing, which is the other category, has been quite stable now during the fourth quarter, both in a Q-on-Q and year-on-year comparison.

Okay. That's clear.

And just kind of a follow-up on this topic. So it seems as if you have won multiple large orders, both within the Service segment as well as Industrial Equipment in Q4.

So, would you say that Q4 was exceptionally strong for these segments? Or is this just business as usual?

So, we did not have any specifically large orders. We have sometimes in history talked about mega orders in ports, for example.

We didn't have any orders of over €50 million in the order intake in ports. So, that is clearly business as usual.

And there were no sort of particular mega orders or really large orders also in industrial side. So, this is more business as usual.

We were maybe a bit more active in posting corporate press releases on the industrial side orders. So, I think that would be a fair comment here, but nothing unusual in the orders themselves.

Then the next question from the line, please.

Anders, Teo and Kiira, it's Erkki from Inderes. About the optimization program, €11 million year-over-year, Do you expect also in '24?

How will it be divided between Service and industrials? And how big one-off costs do you still expect from this program in '24?

That number, similar number for '24 as we had in '23. So, this is basically for Industrial Equipment.

We had benefits in '23 regarding Service to a smaller extent than in Industrial Equipment. But they are, by nature, more dynamic.

So it is, for example, including pricing mechanisms. So it's a little bit, let's say, difficult to calculate out that how much is as a result of the optimization and how much is something else.

So that's why we are giving the number only from Industrial Equipment. The benefit from the optimization for Service will be less this year than what it was in '23.

And also in '23, it was less than for Industrial Equipment. We have booked restructuring costs in relation to the program in the amount of roughly €30 million, maybe a little bit below.

And it's €30 million to €40 million that we have given as a range, and we are basically sticking to that range.

Okay. Very good.

And then, secondly, what's your salary inflation expectations for '24?

Yes, it's somewhat less than we had in 2023. So, we had roughly 5% in '23.

So, we're expecting 4% or so.

4% to 5%. Yes.

Okay. And finally, what were the big non-interest rate related items in your net financials in Q4?

In Q4, we had a positive FX net. And this FX net now is -- that is the part that is a little bit difficult to forecast because it is the non-hedge accounting hedging.

So, we are hedging commercial flows that we are not booking in hedge accounting. And hence, we will need to leave it there in the financial items.

The thing that makes this analyzing a little bit easier is that when you take a look at the full-year financials, so the FX net was very small number on a full-year basis as it was also in '22. So, basically, you can compare the financial items of '23 to '22 without major comparability issues from the foreign exchange point of view.

Okay. And in Q4, the positive FX was how much?

It was several millions. So, our....

Thank you. Let's then take the next question, please.

Anders and Kiira, it's Tomi from DNB. I'm also wondering about the guidance for sales flat to slightly increasing.

Thank you for the comments, summary on this. And I understand the €100 million higher backlog.

I'm just wondering about the Service. Actually, the backlog was slightly down.

So if you can still give a little bit of a ranking, where do you see the biggest growth and the margin expansion potential by divisions this year?

So basically, we don't give guidance on segment level. So, our guidance is given on a group level.

But as I talked a bit previously about, we have sort of plans in all of our segments to continue the growth. And the lower order book in Service was actually very little lower than the previous year.

And we have previously had an issue a little bit to be able to service our customers in the way we would like to. We had a lot of order intake coming at the same time.

And Teo touched a bit on Service levels and productivity also in Q4. We want to keep our lead time short when it comes to Service.

So, that shouldn't impact anything in terms of growth when it comes to Service going into 2024. The guidance, maybe we can say that for Port Solutions, it's a similar guidance as for the group.

So it's flat to increasing in sales. So, we shouldn't expect the same sort of increase that we saw at all in 2023, when it comes to the 2024 versus '23 then in terms of sales growth.

So, still we guide for flat to increasing also then in ports. In Industrial Equipment, we expect to continue the growth as well in the year.

But as we communicated also in the Capital Markets Day, the key for us in Industrial Equipment is to first fix the business before we grow it. So it's more about profitability.

Hence, more focus on optimization program that Teo covered previously, to ensure that we have the right profitability in that business before we grow it.

Okay. And second question is just maybe on the overall demand and the order outlook.

How has the year started? And maybe if I can believe that is it fair to assume fairly stable demand levels for the first quarter compared to fourth quarter?

As was pointed out, there was no major orders in the fourth quarter. But then again, first quarter last year included at least a couple of more sizable orders, but maybe just for the first quarter as such.

Yes. So we -- it's -- we don't guide on quarter order intake, et cetera.

But the first quarter hasn't started in a way that make us question the guidance that we have given, if we say it like that. And then there are tough comparables in ports in the first quarter, definitely.

And as I mentioned previously, ports is a fluctuating business by nature. So, we will have ups and downs in order intake in ports, but the underlying business is important and that remains very strong.

And you can also see that from the container throughput index that the underlying business, there is a strong demand in our ports customers business. That's probably what we can comment.

Thank you. Then next question, please, from the line.

Yes. I have a couple of questions.

Initially, you said that you have seen that demand uncertainty has decreased a bit. And when I listen to you, it sounds like the delta is coming from Central Europe and Germany.

Is that a correct observation?

No, not really. We would say that the insecurity that we have previously talked about, we have seen it's improving and that's more valid for all the regions.

Then we have specific regions, which might have been a bit further down. Teo talked about Germany before in Central Europe.

There, we see maybe a little bit of a comeback. But it's not only a comment for EMEA.

Okay. And then the savings.

Can you quantify the SG&A savings? I mean, if you say €11 million of savings, that's both on the gross margin side and the SG&A cost.

But what are the SG&A savings in '24 from moving Demag to a brand sold by distributors?

We could, but unfortunately, we would not like to. So we are, in a way, restricting ourselves in commenting the total amount, including cost savings.

And then, of course, also, as we have been talking about this efficiency program also earlier and particularly when it comes to the Service, so that there are also productivity improvements that are not only, in a way, cost savings. But regarding Industrial Equipment, of course, this €11 million is a cost saving number.

But yes, it would be exciting information, but unfortunately, we do not split it between SG&A and gross margin -- above gross margin items.

Is there a tail of the savings into '25 as well, or are all savings visible by the end of '24?

No, there is a tale of savings into 2025 as well. So by the end of 2025, we will have the full benefit of the program.

So, there is a tail.

Okay. And then nuclear.

At the COP28, you saw that there are very big promises to build new nuclear reactors. I realize this takes time.

But could you give an update on your position in this competition and also the value and number of cranes going into a normal reactor? I mean, Pajakulma talked about this some 10 years ago, but the information starts to be so old, it would be good to get some kind of an update on it.

Yes. You're right.

Nuclear is not something that builds quickly, and it takes a long time to get approvals, et cetera. But our nuclear business is already quite strong because we have Service contracts on many of the different nuclear installations.

And it's an important business for us in the energy field, just like waste-to-energy and wind, et cetera. So, nuclear is an important area that we follow.

I wouldn't be certain to mention how many cranes we have in the different facilities. But it's an important business for us and we have a strong market position, both in Europe and in Americas.

But what is just like a rough figure of the value of cranes going into reactors? We totally misunderstand this opportunity.

Yes. These cranes, they come at a significant value if you compare to a normal crane.

So, I would say it's several times what you have a normal process crane being sold. So, they come at a high value.

We're not talking 100s, and we're not talking 50s of millions either, but it's a significant order intake when you get the nuclear orders.

Maybe this is something that we can come back to. So, we have a -- we usually publish a Q&A in the Investor Relations website on the IR block.

So, maybe we can try to touch upon this there then in writing.

Yes. And my final question would be on Service.

So, I assume now the Service sales mix change should be positive in '24 with more spare parts and less kind of modernization projects. But on the growth side, are you doing something in particular to attack the kind of old installed Demag base, which I guess you have still undersell inspections and that preventive model and perhaps sell more spare parts too still.

But what are we doing concretely to push growth there now?

There are lot of initiatives that we do to push growth in Service. And as you can see, I mean, we had an order intake in Q4 that was plus 9% in comparable currencies versus the previous year and good delivery as well, as Teo mentioned.

We will also -- to be able to grow spare parts, you need to grow field service because that's how you get the spare parts via the agreement base and then field service, and then you get the spare parts. That's how the whole business builds, right?

So it's not that we can grow only spare parts. So, we need to have service technicians to be out, meeting the customers, inspecting the cranes, doing all the different levels of service agreements, as we discussed previously, that we have now also Service agreements that are fit for smaller customers that maybe were not interested in the full service agreement that we can also offer, of course.

So it's about the offering. It's about getting out, meeting customers, about being easy to do business with for customers, and we do this in all regions.

We are not only focusing on one region or so. So, there's a global initiative that we push within Service.

Thank you. I think that it's time to conclude now today's conference.

We start to run out of time, unfortunately. We had some questions through the chat function, but most of them have been touched upon, either in the other questions or in the answers.

I thank you all for the active participation and following the conference. And just as a reminder, so we are already 1 month into Q&A -- into Q1, not Q&A.

And our Q1 results will be published on April 21. So talk to you -- 25th, not 21st, 25th.

I'm mixing with the numbers here. So, I'll talk to you then at the latest.

Thank you, everyone. Have a great day.

Thank you.

Thank you very much.

Bye-bye.