Konecranes Plc

Good morning, everyone, and welcome to Konecranes Q3 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, Rob Smith; and our CFO, Teo Ottola. Before we start, I would kindly ask you to pay attention to our disclaimer.

This conference is to discuss Konecranes Q3 results. The securities laws in the United States and in other jurisdictions restrict us from disclosing or discussing the contemplated merger with Cargotec.

For information regarding the merger, you can visit the website, www.sustainablematerialflow.com. Until the completion of the merger, the two companies will operate as separate and independent companies.

As for our agenda today, Rob will start by reviewing our group level performance after which Teo will guide you through the businesses in more detail. The presentation is followed by a Q&A as always.

With that, Rob, the stage is yours.

Thank you very much, Kiira. Welcome, and good morning, and welcome to our Q3 2020 results webcast.

Today, Konecranes reported record high profitability in a challenging market environment, thanks to excellent employee commitment, strong teamwork and high performance. I'd like to give special thanks and recognition to our customers as well as our employees through the excellent dedication and commitment enabling safe and on time deliveries, equipment installations and on-site service work.

This was extremely well done. Real-time demand supply balancing using our digital telemetry systems, cost-flexing measures and permanent cost reductions all continued in the third quarter and powered our Q3 adjusted EBITA margin to 10.4%.

This is a record level. It's important to note also that our Q3 earnings were boosted by the successful progress we have made on our strategic initiatives.

Service revenue and profitability growth, industrial equipment profitability improvement, project management, lean operations and procurement excellence as well as business process efficiency improvements. We shall continue this high-performance and strategic focus, and we expect these will continue to deliver results in the further quarters.

While we foresee further market volatility coming from COVID-19, our excellent Q2 and Q3 performance as well as the traction from our strategic initiatives, gives us confidence in the capability to overcome future challenges. Each of our businesses increased their adjusted EBITA sequentially from the second quarter.

Service achieved a record-breaking 18.7% profitability and the Industrial Equipment profitability at 5% was the second best in the last 19 quarters. As I say, these improvements were delivered by performance focus as well as the strategic initiatives.

The second quarter was a quarter we discussed where the market volatility was quite significant. And although things in the third quarter picked up a bit, it became very clear very early on that COVID is far from over and this market uncertainty continued.

During the third quarter, market -- macroeconomic indicators in global demand has not yet -- the macroeconomic indicators have improved, but the global demand levels are not back to where they were prior to the beginning of COVID-19. Group order intake in our business is a bit late cycle.

Our group order intake declined 19% on comparable FX and was down in each of our business areas. Versus last year, our sales were down by 7%.

Versus the second quarter, our sales increased sequentially at 11% on comparable currencies. Today, we reiterated our full year guidance, we updated our demand outlook and we gave some further color to the Q4 expectations for sales and profitability.

I talk you through, please, in the next slide, the key figures from our third quarter. Orders received at €565 million were 19% down on comparable currencies.

The order book better than €1.7 billion was about €180 million down versus this time last year at €1.9-some billion. The sales at €768 million, were 6.6% down versus last year.

Our adjusted EBITA, our adjusted EBITA percentages, our operating profit, the operating profit percentage and the earnings per share were all substantially better than this time last year. Our free cash flow at €81 million was about the same, and our net debt at the end of the third quarter was sequentially down slightly from the second quarter.

Moving to the market environment for our Service and Industrial Equipment. Both the capacity utilization metrics as well as the manufacturing PMI metrics, in the EU, as well as the United -- as well as in the Americas have improved during the third quarter.

And in the BRIC countries, the PMI is quite strong in China. The manufacturing PMI posted growth.

It's also stronger in India and in Brazil. Russia is the only is the only market in the BRIC countries that ended in contraction.

I think an important part of today's discussion will be in the Port Solutions market environment, and the statistic here that we use is the global container throughput index. This tracks container movements -- this tracks actual container movements on a global basis.

And earlier this year, this was down very substantially. This has improved during the third quarter.

And at the end of August at 116, it's about the same level where it was in August of last year and very close to the all-time high container throughput index of 117. Having said that, the recovery is the strongest in China so far, and the rest of the world is catching up.

So the demand outlook that we've updated now is that the COVID still remains a significant volatility factor. In Europe and North America, the demand environment with the industrial customer segments has started showing some signs of improvement, but is still below last year's 2019 levels.

And in China, the demand conditions have improved from earlier this year. The rest of Asia Pacific is still weak and catching up.

And the global container throughput has started to recover. Many of our port operators, though, are still hesitant in their decision-making or delayed that decision making.

We think this is a temporary phenomenon, and we have -- the long-term prospects related to container handling remain good overall. So the financial guidance that we reiterated, we brought this out in conjunction with our second quarter results is that for the full year this year, we expect our 2020 sales to decrease versus 2019.

And we expect our full year adjusted EBITA margin to decrease versus 2019 as well. The color we're providing for the fourth quarter on sales and profitability is as follows: as was the case in the third quarter, which was successfully -- which was sequentially up from the second quarter in sales, we expect our fourth quarter sales to grow vis-à-vis the third quarter.

And we expect the adjusted EBITA margin of 10.4% to be sustained or improve during the first -- during the fourth quarter versus the third quarter. The group order intake and the group order book and sales is the following: the €565 million intake is down in Service, about 15%, Industrial Equipment, about 20% and down and Port Solutions, about 35%.

And that needs to be seen in conjunction with the order book that we'll be talking about in the next page. The sales at €768 million as you see, were slightly down in Service and in Industrial Equipment and further down in the Port Solutions business.

That €768 million of sales is split about 30% in our Port Solutions business, 34% in Industrial Equipment and a very solid 36% of our overall sales are in the Service business. On a regional basis, with 52% of our sales in EMEA, 33% in the Americas, in 16% in APAC, these are rolling 12 quarter or 12 -- these are rolling 12-month figures.

And you're seeing now, over time, the addition of our sales in Southeast Asia from our MHE acquisition. Let's talk about the group order book.

We finished September with €1,743 million -- €1.7 billion of order book. This is about €180 million off of the €1.9 billion that we had in the third quarter of last year.

It's substantially the same order book levels in our Industrial Equipment and our Services business year-on-year. And this €180 million is very clearly associated with our ports business.

Our ports business has a substantial amount of its business. About 3/4 of its business is associated with large automation and projects.

And it's exactly these kind of businesses that tends to hundred of million in terms of large significant orders where the customer decision-making has delayed. It's important to understand that the underlying order or the underlying container throughput, as we saw before, has picked up over the course of this year and is close to last year's levels and close to that all-time high we discussed, whereby it's strongest in China right now and catching up in other parts of the world.

This actual activity, this actual container throughput is a very important factor in our customers' decision-making as well as the realization that COVID is not just a temporary phenomenon, but will be one for a period of time. And during this period of time, as all times, our customers need to have very good productivity and very good competitiveness.

And so the delays that we're seeing, we should see very clearly, we had multiple projects in our pipeline, and several of those projects are clearly delayed. The decision-making points are delayed, and those easily make up the €180 million that we're talking about.

We expect the factors that I just discussed to bring our customer decision-making to a final decision point in the next several quarters, and would expect that these decisions are coming in the first half of next year. Our adjusted EBITA of 10.4% in the third quarter was up 180 basis points versus Q3 of last year and was up 220 basis points versus the second quarter this year.

In addition, our gross margin increased slightly on a year-on-year basis. Before I hand to Teo, I'd like to have some -- a bit of discussion on the strategy.

Over the second half of last year and the several quarters this year, we've done a lot of work on our strategy and made very good progress fine-tuning it. Konecranes made the decision to extend our focus beyond the lifting and getting into the broader material flow.

We also identified multiple strategic initiatives to strengthen our core competencies. The service revenue -- and I'll go through them one at a time here.

Our service revenue and profitability growth. Over the last several years, our Service business has been very successful growing its profitability.

And over the past 2, Service has grown quite a bit on the top line as well. I think very substantially is the underlying agreement base that we report in our Service business.

That agreement base is a good indication of market share, and we've grown that substantially in the first quarter versus last year, the second quarter versus last year and we did that again this year. And that's a very good leading indicator.

Customers that are making decisions to come to Konecranes during difficult times, they're staying with Konecranes afterwards. And it's a very strong leading indicator of revenues and a very good share -- a good indicator of market share.

So this focus on top and bottom line in Service is well underway, and we intend to continue to reinforce that. Life cycle services is at the core of our business, and our services team has done a wonderful job putting in place a digital platform, a world-class digital platform that enables our customers' operators, it enables our own technicians, it enables our customers as fleet owners through myKONECRANES to have visibility of all of their assets and to keep those highly productive and very good uptime.

Our second strategic initiative of the Industrial Equipment profitability improvement. This has been a very important focus.

The Industrial Equipment profitability of 5% in the third quarter was the second best in the last 19 and the substantial uplift from the first and the second quarters this year. It's on a very good trajectory.

We've talked about the turnaround of our process crane business. That's on a very good way.

And those combined have made a very good -- demonstrated improvement in the Industrial Equipment business during the course of this year. The project management focus, a professional project management, Konecranes has about €1 billion of business and projects, about €800 million of which is imports, about €200 million of which is in industrial equipment.

And the professionalization and standardization of world-class project management is a very important initiative. You saw excellent execution in the third quarter, and that's on a good way.

There's a lot of potential in our operations and realizing that potential and driving productivity throughout our operations and supply chain through a very strong focus on lean operations and also excess capacity reduction is an important driver in our profitability. Same with the procurement excellence.

Konecranes is focused on the full €1.9 billion spend that we have in direct and indirect materials and the procurement excellent work -- excellence work also demonstrated very good results in the third quarter. And finally, our lean focus and our productivity focus is not only on the shop floor.

It encompasses all of our business operations. And so we have an important business process, efficiency improvement, strategic milestone as well.

So I come back and confirm that our strategic initiatives very strongly underperform our -- underpin our strategic initiatives, very strongly underpin our strategy. And the strategy work and the decision to go beyond lifting was a very important element, too.

So I'm happy to confirm that the historic merger we announced with Cargotec on the 1st of October is well aligned with the Konecranes strategy and well aligned with our growth ambitions. Teo, may I ask you to take us through the business results.

Thank you, Rob. And let's start with the Service business as we usually have done.

So here we have the Service order intake and the agreement base value. So Service orders in the third quarter were €219 million, that is 15% lower than a year ago.

We had a currency headwind. So with comparable currencies, the decline was about 11%.

This is a clear decline in a year-on-year comparison. However, when we take a look at the situation sequentially, we can see that the third quarter orders were actually higher than the order intake in the second quarter.

So then if we go back to the year-on-year comparison for a while, so we can note that the order intake decreased in the Americas and EMEA, but it increased in APAC. That was because of the MHE acquisition that we made in the beginning of 2020.

And actually, organically, the order intake, so excluding MHE with comparable currencies, was down about 16% for the whole Service operation. Of the regions in a year-on-year comparison, the Americas order intake actually declined more than the EMEA order intake.

And of course, Americas and EMEA are the big regions from the Service business point of view. Then when we take a look at the other important topic here, which is the agreement base.

So agreement base value grew, reaching €279 million at the end of the third quarter. So there is a comparable currency basis growth of 11% in the agreement base.

The organic growth with comparable currencies when we exclude the MHE acquisition, was around 6% in the agreement base. And actually, the agreement base continued to grow also on a sequential basis, not much, but there was growth anyways also during the third quarter, again, signaling the very strong business model that we have within the Service business.

Then when we take a look at the sales and order book. So Service sales, €295 million.

This is a decline of 6% in a year-on-year comparison, again, with comparable currencies, minus 2%. The currency headwind visible here as well.

And organically, excluding the MHE acquisition, about 8%. In a year-on-year comparison, both field service and parts sales decreased.

And when we take a look at it from the regional perspective, so there was a decline in the Americas and EMEA, but an increase in APAC, again, as a result of the MHE acquisition. Then the order book in the Service business, €230 million.

Again, a decline of 6% with reported currencies. With comparable currencies, there was not much of a difference at all.

And then, of course, on an organic base, excluding the MHE acquisition, there again was a decline of 15% in the order book. And then when we move into the profitability.

So the adjusted EBITA, an excellent result in the Service business. Adjusted EBITA in euros, €55 million, 18.7% margin.

This is 2.5 percentage point improvement on profitability despite lower sales than a year ago. So improvement both in euros and percentage.

An excellent, excellent achievement. The reasons for the improvement are, for example, the cost adjustments that we have done, so both temporary and permanent, but also the productivity gains that we have been able to achieve in the Service business.

For example, with the help of the system templates, with the help of the digital features, both supporting our own operations as well as being beneficial for the customers. So all in all, a good achievement.

And also the gross margin continued to improve on a year-on-year basis in the Service business. Then moving on to the Industrial Equipment and the Industrial Equipment order intake, €227 million, that is minus 20% year-on-year with reported currencies.

And again, in the Industrial Equipment in particular, so if we want to take a look at the overall demand situation, so maybe the external orders with comparable currencies are a better indicator of the demand environment, and that declined 12% in a year-on-year comparison. And again, excluding MHE-Demag acquisition, about 20% with comparable currencies.

And here, when we take a look at the sequential situation, we can see that the order intake declined actually sequentially a little bit. Again, when we take a look at the situation with external orders and comparable currencies, actually the level between Q2 and Q3 is very, very much on the same level.

And then when going back to the year-on-year comparison, again, so the order intake actually decreased in standard cranes, it decreased in process cranes and components. So basically, in all of the major business units within Industrial Equipment.

And then regionally, there was a decline in Americas and EMEA, but an increase in Asia Pacific as a result of the MHE acquisition. And then, again, sequentially, taking a look at it from the business units point of view, so maybe broadly, one can say so that both standard cranes and components were quite a lot on the same level in Q3 as they were in Q2, whereas then the process crane order intake declined a little bit from the second quarter to the third quarter.

Industrial Equipment sales, €270 million. There's a decline of 4% and again, external sales with comparable currencies.

So there was not much of a change at all, even though, of course, organically, again, excluding the MHE acquisition, there was a decline of 8.8% in the external sales. Sales decreased in standard cranes and components, but they actually increased in process cranes, and this then means that actually the product mix from the margin point of view was a little bit weaker in the third quarter now than it was a year ago.

And then when we move into the profitability and adjusted EBITA. So €13.4 million, 5% margin, actually a good improvement both in euros as well as margin in the Industrial Equipment.

And again, here also, the increase in the margin was primarily due to the permanent and temporary cost flexing activities that we have done as a result of the lower demand as well as the progress on the strategic initiatives, both the ones that Rob just mentioned, but also the ones that we have been doing the decisions for already earlier in 2019. For example, the productivity improvements in France and Germany that we have been discussing over the quarters.

Product mix was weaker, like mentioned, but still gross margin stayed approximately flat year-on-year basis, which is again an indication of the efficiency improvements that we have been able to get in the business. Then when we take a look at the order book, so there is actually an increase in the order book in a year-on-year comparison.

This is still due to the MHE acquisition. And if we exclude that one, so there is a decline of 15% or, say, a €100 million or so in the order book on an organic basis.

Then Port Solutions as the last of the business area. So the order intake, again, for Ports business, €163 million.

So this is a decrease of 34% year-on-year. And there is a slight decrease also on a sequential basis.

Maybe when taking a look at this picture, one can try to remember that the quarters, Q4 '18, Q1 '19, maybe even Q2 '19 as well were excellent from the order intake point of view. So -- and that has been higher than normal level in the order intake.

And the, of course, €1 billion business in a way requires €250 million orders on a quarterly basis. So just to give -- just to get this picture a little bit into the perspective.

When we take a look at the order intake business units-wise within the Ports business. So in a year-on-year comparison, one can say so that the mobile harbor cranes, again, did pretty well Port service.

Again did pretty well in the order intake. Whereas then, exactly like Rob mentioned a moment ago, bigger projects and automation projects, including RTG deals, where, to a large extent, missing, and that meant than that the order intake decline in percentages is as high as it is.

In a sequential comparison. So in comparison to the second quarter, so the order intake declined, like mentioned.

However, there, the -- also the airport service actually did pretty well. And also actually lift trucks had an increasing -- increase in order intake from the second quarter to the third quarter.

And typically, lift trucks have been the business area within the Port that has been, say, more precyclical than the other business units within the Ports business. So that is maybe a cautiously positive signal in this order intake picture as well.

Then when we take a look at the sales. So sales, €250 million.

There is a decline in that one as well, 18% in comparison to the previous year. And then obviously, the MHE acquisition did not have any impact on the Port Solutions business.

So these are in a way, organic numbers, then at the same time. Then when we take a look at the Port Solutions adjusted EBITA, so that was €17.8 million and the adjusted EBITA margin 7.1%.

Unlike in Service and Industrial Equipment, so we did not have an improvement in euros or in margin in the Ports business in comparison to the previous year, even though in comparison -- sequentially, we had an improvement, but not in comparison to the previous year. And the main reason for that one is the sales decline.

So the volume is so much lower that we have not been able to compensate that with cost savings. And when you add on top of that, the product mix actually was weaker because of the order book structure.

So we have a decline in profitability in comparison to the previous year. However, gross margin increased on a year-on-year basis, which is taking into consideration that we had a weaker mix is a good achievement.

And then when we take a look at the order book in Port Solutions. So here, we can see what the difference is, 16.7% in comparison to the previous year.

And in euros, you can see the difference there as well in comparison to the previous year. Then finally, before we go into the Q&A.

So a couple of comments on the cash flow and balance sheet. We have typically started with the net working capital situation.

It is on this slide. Net working capital landed at €425 million.

So there is a decline sequentially from the second quarter. The decline is primarily as a result of lower inventories and also lower POC receivables.

And the level, 13.4% of rolling 12-month sales is pretty much the level where we have been in previous quarters as well. The free cash flow continued to be quite good or actually very good in the third quarter, €80 million or so, of course, supported partially by the release from the net working capital, as discussed a moment ago.

And then when we take a look at the gearing and net debt, so actually, net debt, like Rob mentioned, declined a little bit from the end of the second quarter. The gearing percentage did not move much.

Our equity decreased a little also in comparison to the second quarter because we distributed the second tranche of the dividend payment during the third quarter, impacting, of course, our equity level. And then finally, before Q&A, a short comment on the capital employed and return on capital employed, and the return landed on an adjusted basis at 10.8% at the end of the third quarter.

And now I think that we have the time to move into the Q&A session, and I welcome Rob back here.

Thank you, Teo and Rob. A kind reminder before we go into the Q&A and open the lines.

Due to the securities loss in the U.S. and in other jurisdictions, we won't be taking any merger-related questions.

For merger-related information, please visit www.sustainablematerialflow.com. Let's now open the line for questions.

Operator, please go ahead. Thank you.

Magnus here from UBS. First, congratulations to a very strong margin performance in the quarter, very impressive print.

I think you have previously been unwilling to comment on the impact you have seen from temporary cost adjustments, of course. But with a record high margin in the quarter, I mean, investors would really need to understand what's within your margins to be able to better assess how sustainable the current margin performance is.

So my first question is, how much support did you get from temporary cost actions in the third quarter?

Why don't Teo and I address that together. As I just got finished saying it in my part.

It's an important understanding that in the fourth quarter, we expect sequentially higher sales and the record high EBITA margin, we expect to either sustain or improve in the fourth quarter. That's been delivered through a combination of temporary as well as permanent cost measures.

And the traction coming from our strategic initiatives as well as very, very strong performance from our team all around the world and very good teamwork with our customers.

Maybe I can continue a little bit on that one on the question and now when we take a look at the P&L structure of the third quarter and compare that to the third quarter of the previous year. So we have actually a similar kind of topic as we had also in the second quarter.

So what we have been doing is that we have been able to adjust almost all of the cost lines at least in line with the volume decline. So if we take a look at the direct labor or indirect labor.

So those activities have been reduced in line with the volume. And then when we take a look at these kind of discretionary spending topics, traveling being part of that, so there we actually have been reducing less -- more our cost base than what the volume decline has been.

And this has then supported the margin improvement. And on top of that, what we have also been able to do now, which is very visible in the third quarter already is that some of these strategic initiatives, for example, procurement have started to bring results.

And actually, the inflation rate that we can see -- the net inflation that we can see in our cost structure when it comes to the procured items, so that is actually very modest. So we have been able to benefit from that one as well in the third quarter.

And now then back to your actually original question, so that there are both temporary and permanent measures in the result included. And there definitely is an element of cost avoidance.

And again, this traveling is a very good example of that. The business travel is very limited at this point of time.

When things normalize, so part of that will be coming back. We don't exactly know how big a part and how soon, but part of that will be coming back.

So not all of the cost savings that we have been able to do can be guaranteed to stay there. But obviously, we will do our utmost to be able to streamline the cost structure of the company going forward as well.

Furthermore, I think it's important to understand that the new normal is going to be a different normal than the old normal. And as we adjust and continue to adjust our activity levels with the demand levels, we'll keep that in a very strong focus.

In addition, we expect our strategic initiatives over time to get even more traction than they delivered already in the second and the third quarter. So there'll be an important focus on margin as well as top line on a go-forward basis.

Got it. And then secondly, on your industrial businesses.

Could you help us a little bit with comments on how the demand progressed through the quarter? And what your organic exit rate growth was in September?

And potentially, if you could favor us with some comments on October, that will be very useful.

Do you want to talk to the specific rates here, Teo?

We can maybe open a little bit on how the order intake as a whole behaved during the third quarter. And maybe one can say so that without going into the details and without giving any organic growth percentages on a monthly basis or per BA.

So the month of August was a low-ish order intake month. So if we take a look at the -- and compare that to the month of July and September so there was a clearly lower level there.

Particularly this was visible in Europe. And this, of course, may be partially explained by the holiday season, which is maybe more visible in the European context and, for example, in the Americas.

But maybe we do not want to go into more details as to what have been the sort of linearities between the different quarters there -- months, but the month of August was on the low side in comparison to the other two months.

I think maybe some important color on order intake in our Industrial Equipment business is to pick up a little bit on our process crane business. You'll recall, very clearly, the focus was the turnaround of the profitability of our process crane business.

An important part of that was renegotiating and working very hard on the existing order book. We actually did turn back some orders in the existing order book, and we've improved the profitability in the existing order book as well as put in place a threshold of profitability that needs to be exceeded prior to bringing new projects into the order base.

And excitingly, our customers are confirming the value they see in our offerings and the very important process crane business and are rewarding that with continued orders at the higher-margin threshold. And so we're picking up new orders in process cranes at that new threshold.

That's Artem from Credit Suisse. My first question is around services.

Can you maybe also talk a little bit about how demand trends progress throughout the quarter? And also, how much of the weakness which you've seen in the order intake is related to you not being able to get access to customer sites because of COVID?

And how much is more of an underlying market weakness?

I think it's a good question. And I think that the straight answer on the amount of delta is primarily very much associated with access.

The underlying growth in the order -- in the agreement base and services is a very, very good example demonstration of the growth of that business. And up 11%, like Teo described, or 6% as well on a -- without the MHE-Demag, is a very significant uplift.

It demonstrates customers' confidence in the Service business, and it demonstrates the robustness of our Service model. Our perception is others are struggling.

And as we're picking up that strong order base agreement, that's a demonstration of a very strong market share focus. And it shows customers are confident going with the leader in the market during difficult times, and those decisions in difficult times will remain, and we'll have that business on a go-forward basis, too.

So that order input on -- or the agreement base, and Service is a very good example of that business, the health of that business and the health of that business model was strengthened of the Service platform.

Maybe on the order intake within the Service business and within the quarter, so one can maybe say that now that sequentially, our order intake increased from the second quarter. So there was actually an improvement in all of the regions in the service order intake sequentially.

The improvement was, in percentages, good in the Americas. Then again, one has to remember that the Americas was hit harder than EMEA in the beginning of the crisis.

And like I said earlier, so in a year-on-year comparison, still the Americas has suffered more than EMEA, but the recovery rate from the second quarter to the third quarter was better in the Americas than in the other regions due to the low level where we were in the second quarter. And it's all from the order intake point of view.

So not in a way, including the agreement-based impact, which is obviously very strong in the Americas, and that is more stable business than the order-based business in a way, in the Service business in general.

Just to confirm on this, is it fair to say that September, October, the strongest months of the quarter, September the strongest month of the quarter?

Well, we do not really -- we would not like to go into the details when it comes to the strongest months within the quarter. But what was said earlier was that the August because of the -- most likely because of the holiday season was a little bit on the weak side.

Okay. And my second question is around the Ports business.

Could you maybe talk a little bit about when you expect the weakness in orders become visible in sales? And maybe also give some color on the mix of your order book in Ports and what the input will be?

As I described, the composition of our Ports business has a portion of mobile equipment, our lift trucks, our reach stackers. That's about 25% of our business.

And on a quarter-on-quarter basis, that has picked up between the second quarter and the third quarter. As Teo described, that's often seen as a leading indicator in previous times, and we think it's a leading indicator this time as well.

The underlying activity in the Ports business is very good on a worldwide basis. The 116 is almost at record levels.

It's primarily stronger in Asia at the moment. It's catching up worldwide.

Our customers' decision-making on these tens to hundreds of millions on an individual project, the large project, the automation projects, the large projects in our yard crane business, the straddle carriers, the yard cranes, the automatic stackers, those decisions are delayed. Those have been postponed during the initial part of COVID here this year.

The expectation that those pick back up and the customers come back to decision-making mode is one that we have over the next several quarters. And we'd expect those would come during the first half of next year.

And then maybe on the timing of the order book, we can note that regarding the Ports business, in particular, so the order book decline that we have visible here now, it is mostly beyond this year. So that -- as it typically is that the Ports business we have sold the last quarter deliveries already some time ago.

And the order book is good for this year. One has to say, of course, that there are uncertainties when it comes to the delivery of the order book because if there are restrictions or it is difficult to get to the sites to do the required activities physically.

So that obviously will potentially have an impact on the deliveries. But the order book from the timing point of view for the fourth quarter is there.

And the question is then more for next year and beyond.

This is Antti from Danske Bank. I'm not going to ask anything about the merger, but I'm just going to ask whether you think you need the merger?

And if you think you need the merger, is it because the Chinese competition is pushing you so hard on the port side? Or why is it that we need the merger?

Antti, as we discussed, we won't be taking any merger-related question. Please, next question.

Sebastian here from Commerzbank. It's two areas of question.

The first one is on Industrial Equipment. And I would be interested in the question how the process crane business has performed in the quarter?

I think, Rob, you mentioned that you obviously are making good progress in scrutinizing the order backlog. Where are you standing, conceptually standing in terms of turning this business around?

And when talking about the turnaround, is this already profitable? Or how should we think about the process crane business at this juncture?

And how long will it take to really shine then and show the measures undertaken? And the second question is around pricing overall and really your current observations across the segments, especially for the Service business.

Would it be fair to assume that the gross margin improvement that you've been talking about is mainly a mix function? Are you more digital content?

And how should we think about that going forward? And then for the Port Solutions, Rob, you said in your introduction remarks that you are working on getting your customers to make the decisions in the first half of 2020, is it also kind of incentivized buyback pricing?

Or what is really -- is this just unlocking what has been a massive period now of postponements and then delays?

Sure. Well, I'd be happy to touch -- to address each of those.

Our Ports -- our process crane business in Industrial Equipment is making very, very good progress. And on a year-on-year basis, each month, actually, and quarter-on-quarter, you see a substantial improvement in that business.

It's not just the renegotiations. It's also a very substantial impact on the execution of the projects in the process crane business.

It's the activity we've done to work on the cost base in the process crane business and the material initiative, the material procurement initiative is also helping that process crane business. So that's actually on a very good way, and we're very excited about that.

There's a lot of energy in the entire Industrial Equipment business based on, indeed, the very good progress going on in process crane turnaround. The pricing you talked about, the -- that's an important element as well.

We usually adjust with inflation over time. And the differences you're seeing as a front end margin is that it has some function of pricing in it.

It also has a lot of function in terms of the productivity improvements that we've been driving all across the business. In terms of Port Solutions and the decision-making, it's not a price discussion.

That's a discussion of the underlying demand and the underlying activity in the ports on a worldwide basis. And with the activity level picking up with the realization that COVID is not just a 2020 phenomenon but is going to be with us for a longer period of time, our Ports customers have a real need to continue their productivity drives and the competitiveness of their own ports drives.

And those are decisions that they take on very large port projects. And 3/4 of our business is this kind of automation and large project business.

And as we talked about, there are multiple projects we have in the pipeline. Several of those are overdue in terms of decision-making, and we expect that the underlying decision-making with our customers and the underlying market conditions will bring them to the decision-making point in the next several quarters.

Okay. That is helpful.

And if I may follow-up just very quickly, really on Industrial Equipment with process cranes. So with all the measures that you've undertaken, strategic initiatives, the pricing, the cost focus, et cetera, et cetera, by what margin roughly do you think you can close the gap to what you would, and understand that crane, at least more back figures would be much appreciated.

And then the second one around Port Solutions and your comments on the cost base. We're seeing quite a significant step-up in restructuring costs in the quarter.

Would you think that now sort of with those measures undertaken, the business is rightsized provided that we are seeing, indeed this activity-related pickup in orders then for the year '21? Or is there anything more that we should have on mind as the spill over eventually going into the fourth quarter?

I'm going to ask Teo to help me address this. But you saw that the restructuring costs this year were lower than they were this time last year.

You saw that it also included the productivity measures we've taken in France on the MLM site, affecting our Ports business. So we made some decisions, and we keep these -- we keep a continued focus on our cost base and make sure that it's in line with the activity levels and our productivity drive.

So we'll continue to do that. Teo, would you like to talk to a couple of other elements of that?

If we start with the process crane question and the relative profitabilities within the Industrial Equipment. So we are actually not willing to give a specific target or guideline on what the profitability should be for process crane business within Industrial Equipment.

What we can say, though, and what we have been saying all along is that we have three different businesses in the Industrial Equipment. One of them is the component business, other one is standard crane business and the third one is the process crane business.

And the profitability from the margin point of view is highest in the components, followed by standard cranes and then process cranes. By definition because this is more linked to the steel content of each and every of those products categories, but what the exact percentages should be, so that we are, unfortunately, not willing to willing to discuss.

Then when it comes to the Port business, I think that your question was about, let's say, cost flexibility within the Port business, given the order book situation. So there, it is like Rob said, so what we have already been doing is that we have actually from the lift truck business, for example, already in 2017, we discontinued 1 factory.

Now we are discontinuing production in another lift truck factory. So we are doing these kinds of activities.

At the same time, we have, of course, built flexibility within the manufacturing facilities of our Ports business. And then also, one has to remember that even though the order intake and the order book is down in the Ports business, so there are various product categories within the Ports business as well.

And if we take a look at the mobile harbor crane business, for example. So that order intake actually has been quite okay.

And the order book is on, to say the least, on a decent level in comparison to what it was. So the situations are maybe a little bit different also within the Ports business.

And the business model that we have in the Ports business is very much relying as a whole on outsourcing, which then obviously creates an in-built flexibility at least in comparison to having a more vertically-integrated supply network.

It's Aurelio from Morgan Stanley. I had a couple of questions, please.

The first one would be around -- I think, Rob, you mentioned already that you've seen, let's say, repricing of some of the process cranes projects and we haven't really seen an impact in your order intake. I wonder if you can flex out little bit, just looking at your order intake in Industrial Equipment.

How much of the decline you think is just driven by industrial production and the fact that you usually lag by, let's say, one quarter? And how much of that is just you not going after projects that are not profitable?

Well, let's unpack that a little bit together, Teo. The process crane business, I think, is an important discussion.

It's not just the work we did on the existing order base. It's the threshold we put in place for new quarter -- new orders coming in.

And yes, it's a correct understanding that we're getting new orders and got new orders coming in at these higher thresholds. Over the course of this year -- Teo can talk about the timing that, that was developing, but we've given back about €9 million of projects that were in the existing order base, not reaching our profitability levels where we weren't able to get to an agreement on a renegotiated price.

So we gave about €9 million of that business away. And furthermore, Teo will make a differentiation between orders that are coming from external and orders that are from our Port Solutions business primarily on Industrial Equipment that are internal orders.

And we'll make a comparison of where that external order base is. It's actually quite healthy.

And Teo will talk to that.

Actually, I have very little to add on what you already said. But maybe we can note that much that the €9 million that Rob mentioned, so that is the sort of the cancellations that we have initiated ourselves.

Not all of that is for the third quarter alone, so the third quarter number is somewhat smaller. And this obviously tells to you that, I mean, this has an impact on the order intake number as such, but it is not a decisive number in that sense.

Then, of course, the other part of the question that how much have the new thresholds that we have given to ourselves, how much have they impacted in the order entry that comes in. So this -- unfortunately, it is very, very difficult to sort of estimate that one.

The main thing is what Rob was saying is that actually the orders keep coming in so that we have done some good selections in this area.

I think it's an important understanding as to why. Our process crane business is a fundamental intrinsic part of the value creation for our customers in the large process industries, and we have outstanding reliability, we have very high quality and we have the ability to monitor and overwatch these cranes on a digital and telemetry on a constant time basis.

And so we're able to give our customers what they need. They need the uptime.

They need the reliability. They need the partnership with a long-term partner that gives us -- gives them the uptime and the productivity they're looking for.

That's a significant amount of value for our customers in the large process business. And that's what our process crane business delivers.

And that's a value-for-value exchange, recognizing the value that we give each other.

Okay. That's great.

And my last question is around the Ports business. I guess if you compare your order intake with Cargotec's order intake, you were a little bit on the lower side.

I just wanted to ask, one, if you think that's more just, let's say, timing? Or you've been in different projects?

Or even some difference in different types of equipment? And just a last one on Ports.

Do you think that automation is now going -- not in 2020, but in 2021, 2022 could pick up significantly driven by COVID? Or do you think that this is a, let's say, much longer trend that remains to be seen if it plays out or not?

No, I think the mix side was describing in our business is an important understanding of the dynamics in the order entry. With about 3/4 of our business being automation and very large projects being €10 million to €100-or-so million per decision, our big Ports customers have understandably been postponing their decisions as they were grappling with COVID.

You see that container throughput index coming back. You see the activity level coming back and the underlying CapEx and expansion and productivity plans that our customers have, they will reinstate.

We have not had any cancellations, and that's a very important element to the understanding. So there's not been a market share decline.

There's been a decision postponing by our customers. And we do expect that the underlying market and the drivers will bring our customers to the decision points in the next 3 quarters or so.

I talked about a smaller portion of our business in the mobile equipment, the forklifts, the reach stackers, the lift trucks. And that business has picked up on a sequential basis.

It's about 25. So it hasn't moved the overall needle for the overall Ports business, but it's a very important leading indicator.

And as that continues in the right direction and customers come back to the table, we expect that the overall order book for ports will come back in the next 3 quarters or so.

This Is Antti from SEB. The first one would be kind of on the cost side where you have flexed down on traveling and other -- that type of cost that historically has been associated of getting new business.

So can we actually see an increase in the order intake going into the kind of the demand recovery, if these costs don't come back? What I mean is that can you actually grow in the short cyclical lift truck component, standard crane business before -- without investing more into sales and seeing your customers and traveling to the sites and so forth?

That's a good question, Antti, and thanks for it. It tees up another exciting element of the way our business has been able to respond in this COVID situation.

Our teams have become very creative in how we continue very good sales work with our customers. So oftentimes, that includes as opposed to a larger team traveling to a customer location with 4 or 5 members to do that discussion, we'll have a local member of our team be on-site in the customer's premise, and we'll have the rest of our team being in a remote conference.

And what that allows us to do in many of these large port projects, there are quite a few special elements of it. And by having this kind of a sales approach, we're able to have the experts from all over our company that are able to talk to their element of expertise during the discussion with our customers.

These are very intense discussions in the context. They're very collaborative and very detailed, and being able to bring in that expertise from different parts of the organization to bear in that conversation on that customers -- with that customer in that time is actually turning into a very effective way of progressing these projects.

So you're right, the business travel is lower. I expect that the new normal is different than the old normal, what business travel -- in terms of business travel, and I -- and this creative approach that our sales teams are taking is very effective, and I expect it will continue to be effective.

Thank you. Unfortunately, we are running out of time today, and we need to conclude today's conference.

As a reminder, Konecranes will issue the financial statement review on February 4, 2021. I wish you all a great day and stay safe.

And thank you once again. Bye.

Thank you.

Thank you.

Bye, bye.