Konecranes Plc

Good morning, 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 I have our President and CEO, Rob Smith; and our CFO, Teo Ottola. Before we start, I would kindly like to remind you on our practice.

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

In case you would like to find information on the merger, please visit website at www.sustainablematerialflow.com. Until the completion of the merger, both companies will operate fully separate and independently.

As for our today’s agenda, Rob will start by reviewing our group level performance, after which Teo will continue with a more detailed walkthrough on our 3 businesses. The presentation is followed by Q&A, as always.

Please, Rob, the stage is yours.

Thank you, Kiira. Ladies and gentlemen, good morning, and welcome to our third quarter earnings conference.

Today, Konecranes announced impressively resilient third quarter results. We reported an adjusted EBITA margin of 10%, our second-highest third quarter profitability ever, and our Service business delivered a new all-time third quarter profitability record.

This is an excellent achievement given the challenging third quarter backdrop of component availability, customer delays and supply chain constraints, as well as the disruptions that the COVID is still causing in many countries. In the third quarter, overall market sentiment continued to be good and similar to that of previous quarter, although COVID market-related volatility is still not over.

Year-on-year, the third quarter order intake grew 25% in comparable currencies. Our third quarter sales grew EUR 6 million year-on-year.

Component availability, customer delay and other supply chain constraints continue to impact our sales in the third quarter, with a quarterly impact of approximately EUR 60 million less sales in the quarter. Our order book set a new all-time record for the second quarter in a row and finished at about EUR 2 billion.

We’ve updated our demand outlook for the fourth quarter, and we reiterate our full year guidance for 2021. With our record high order book and the strong commitment and performance across the company, I’m confident in our plans to deliver the sales and the adjusted EBITA margin growth that we expect for the full year 2021.

We do expect the component availability issues and other supply chain constraints to continue in the fourth quarter as well as in 2022. Our announced merger with Cargotec is progressing well.

Merger control filings and integration planning teams are making good headway. The dialogue and cooperation with all the relevant competition authorities continues to be good, and we’re confident the merger will be completed successfully by the end of the first half of next year.

Until the merger closing conditions are met and the deal is completed, both companies continue to operate fully independently and separately. Moving now to group key figures.

Free cash flow for the third quarter was EUR 39 million versus EUR 81 million in the third quarter last year. This is mainly due to changes in net working capital, as was the case in the first half.

Net debt at the end of Q3 was approximately EUR 593 million versus EUR 743 million in the third quarter last year, also mainly due to the strong operating cash flow and working capital development in the fourth quarter of 2020. And sequentially, our net debt reduced by EUR 30 million -- EUR 32 million from the second quarter of 2021.

Moving to the market environment for our Service and Industrial Equipment businesses. In the eurozone, the manufacturing PMI continued strongly in the expansion zone, although it was impacted by supply-side constraints.

The manufacturing capacity utilization rate climbed further during the third quarter. And in the U.S., the manufacturing PMI continued to show an substantial improvement despite material and labor shortages in the market.

The U.S. manufacturing capacity utilization rate ended the third quarter at similar levels as the second quarter.

And in the BRIC countries, China’s manufacturing PMI stabilized at 50 in September. Brazil and India ended the third quarter and the expansion zone above 50, and Russia is, for the fourth month in a row, below 50.

In the Port Solutions’ market environment, global container throughput started 2021 at a high level and rose to a new record by the end of August. In fact, at the end of August, it was about 10% higher than it was in the previous year.

Today, we updated our demand outlook for the fourth quarter to reflect the current market sentiment. The worldwide demand picture remains subject to volatility from the COVID pandemic.

In Europe and North America, the demand environment within the industrial customer segments has reached pre-COVID-19 levels and continues to be stable. In Asia Pacific, the demand environment remains below COVID-19 levels outside of China.

And in the Ports business, the global container throughput continues to be at a record high, and the long-term prospects related to the global container handling remain very good. We reiterate our full year guidance for 2021 today.

We expect our net sales to increase in the full year 2021 compared to 2020 and our full year adjusted EBITA margins to improve from 2020. This is despite the supply chain challenges that have impacted us since the beginning of this year.

Order intake increased 25% in comparable currencies to EUR 714 million, an increase in all 3 regions and in all 3 businesses. Once again, we saw a good order intake in our short-cycle products.

Sales increased EUR 6 million from last year’s level in comparable currencies and was EUR 774 million in the third quarter. The sales development was mainly due to component availability issues, customer delays and other supply chain constraints.

These impacted our third quarter sales by EUR 60 million less sales in the quarter. And year-to-date, it’s important to note that on a comparable currency basis, we are ahead of last year’s current -- ahead of last year’s sales.

And on a reported currency basis, we’re on par with last year’s sales. Our rolling 12-month sales by business area and region remained consistent with previous quarters of 2021.

Each of our businesses does about 1/3 of overall sales, and there are no major changes to the regional shares. Our order book set a new record and was nearly EUR 2 billion by the end of September due to our strong order intake during the year and due to the sales delays.

From the third quarter last year, the order book is up 13% in comparable currencies. And year-on-year, it’s increased in all 3 of our business areas.

Group adjusted EBITA was EUR 77 million in the third quarter versus EUR 80 million last year. We reached an adjusted EBITA margin of 10% versus the 10.4% in last year’s record high third quarter.

This was mainly due to temporary factors that had approximately a EUR 10 million positive impact on our personnel expenses in the third quarter of 2020 and obviously did not repeat this year. Before I hand over to Teo, the fourth quarter will be my last quarter as President and CEO of Konecranes.

I’m fully committed to Konecranes continuing its exciting track record of outstanding performance for our customers, for our employees, for our investors and our shareholders. When I joined, I said Konecranes was a great company with exceptional qualities, an impressive heritage and talented people, and I stand behind these words.

I’m very proud of all the progress and the achievements that Konecranes has made and will continue to make, and our company has a bright and promising future. Together with Cargotec, Konecranes will create a global leader in sustainable material flow.

Teo, let me hand it to you, please.

Thank you. Thank you, Rob.

And let’s move on to the business areas and start with Service, as usual. So when we take a look at the Service business, order intake in the third quarter was EUR 258 million.

That is approximately 17% up with comparable currencies in a year-on-year comparison. Both field service orders as well as part orders increased, and we had order intake improvement in all of the regions: Americas, EMEA and APAC.

Then when we take a look at the situation sequentially, so the order intake is almost exactly on the same level as it was in the second quarter of ‘21. From the business units within service point of view, parts did a little bit better than field service.

The difference was not big in any way. And then when we take a look at the regions, so actually, we had increase in order intake in the Americas, whereas we had a decrease in EMEA in a sequential comparison.

We have been discussing during the previous quarters Q1 and Q2 about somewhat slower recovery in the Americas from the COVID period, and then we have been talking about the catch-up between Americas and EMEA. And now in the third quarter, it seems that the Americas from the order intake point of view has caught up with the so-called normal course of business.

Then when we take a look at the agreement base, agreement base was EUR 287 million. That is about 1.5% higher than a year ago with comparable currencies.

And here also, sequentially, in a sequential comparison after a little bit slower Q2 of ‘21, we had sequential growth now in the third quarter in the agreement base as well. And actually also quite a big part of that growth also came from the Americas, again, underlying the, let’s say, recovery in the Americas business from the service point of view.

Then when we move into the sales and order book slide. So sales was actually EUR 296 million.

That is actually slightly lower than a year ago with comparable currencies. We had an increase in part sales, but field service sales decreased.

We had sales increase in the Americas. But again, we had a decrease in EMEA and APAC.

Then when we take a look at the same situation sequentially, again, in comparison to the second quarter, we actually have the same explanations as in a year-on-year comparison. So sales increased in the Americas, but decreased in EMEA and APAC.

And now the, let’s say, decline in the sales with comparable currencies. So this is as a result of the topics that Rob already mentioned.

So regarding Service, we have been having component shortages. There have been some, let’s say, access challenges, access to the customer side as a result of the pandemic still, for example, in Asia Pacific.

And then in certain countries, we are also lacking personnel. So we are lacking service technicians.

So all of these explanations are to explain a little bit, let’s say, lower sales than what we would have liked to have. Then when we take a look at the order book, EUR 293 million, that is an increase of 25% in a year-on-year comparison, of course, partially as a result of the wrong reasons so that we have not been able to deliver everything that we would have wanted.

Service profitability actually continues to be good, excellent, EUR 56 million, 18.9% of sales. This is better than the year ago both in euros as well as in margin.

The increase is due to the productivity improvement. And it is also as a result of the positive sales mix as a result of the spare parts business having been doing pretty well.

And as a result of both of these productivity and mix, so our gross margin improved on a year-on-year basis. Then jumping into the Industrial Equipment and Industrial Equipment order intake, EUR 290 million, that is 28% higher than a year ago.

Again, external orders with comparable currencies, slightly more than 30%, 32% higher than a year ago. In a year-on-year comparison, we had growth in all major business units, so in standard cranes, process cranes and components.

We also had increase in all the regions, so Americas, EMEA and APAC. And sequentially, when we, again, compare to the second quarter, we have a decline.

We actually have a decline in all of those business units. So order intake declined in standard cranes, process cranes and components from the second quarter, even though one has to say -- one can say that the components order intake continues to be very good, even if it was sequentially down a little bit.

So it was practically on the same level as the second quarter number was. Then on the sales side, EUR 268 million.

This is a slight decrease in a year-on-year comparison, both actually with reported and comparable currencies when taking a look at the external sales. Sales decrease was also due to the challenges in component availability, but also customer delays.

So customers are also experiencing component delays or material shortages of their own. And as a result of that, there are also customer delays.

Sales decreased in standard cranes and process cranes, but increased in the components business. And of the regions, we have decreased in Americas and APAC, but an increase in EMEA.

Then when we take a look at the Industrial Equipment adjusted EBITA. So it was EUR 11.7 million, 4.4%.

This is actually lower than a year ago, both in euros as well as in percentage, not much. But to some extent, the decrease was mostly attributable to the temporary cost savings -- temporary personnel cost savings that we had in the comparison period.

So the third quarter of last year was a COVID period. We had short workweek.

We had government subsidies, which did not repeat themselves this year. And as a result of that, we have higher personnel cost -- fixed personnel costs now than a year ago.

However, the good news is that the gross margin continued to improve on a year-on-year basis, of course, driven by productivity and by improved mix. So the sales in the components having been higher than a year ago helps the mix from the margin point of view.

The order book is good, EUR 747 million, again, like in Service, partially for the wrong reasons. On the comparable currency basis, the order book increased 9.9% in a year-on-year comparison.

Port Solutions and Port Solutions’ order intake, first, EUR 210 million, up 28% year-on-year. Orders received increased in the Americas, EMEA and APAC when we take a look at it from the business units point of view, within the port business.

So in a year-on-year comparison, particularly lift trucks as well as port service did well. Then when we take a look at the sequential situation, so we have a decline.

And now that the deal funnel -- sales funnel for ports business continues to be good, the short, mid- and long-term prospects for the business continue to be good. So the somewhat lower order intake than in the previous quarters is mostly as a result of timing.

So this quarter just didn’t have major big deals decided by the customers. Then when we take a look at the sales, EUR 255 million.

That is an increase of 1.5%. However, now unlike in the previous quarter, so now we have experienced component shortages also in the ports business.

This has been mostly in the lift truck area, and that has now impacted negatively the delivery capability in the ports business as well. So about EUR 20 million of that EUR 60 million that Rob mentioned as an overall impact is attributable to the ports business.

The adjusted EBITA and margin. EBITA, EUR 16 million; margin, 6.3%.

The decrease in the margin is mostly due to the same topic as in the Industrial Equipment, so temporary personnel cost savings in the comparison period. And similarly to the Industrial Equipment, so also here gross margin improved on a year-on-year basis.

So it’s mostly as a result of the temporary cost savings in the comparison period. And then when we go into the order book, so there was an increase of 13.4% to EUR 957 million.

And then finally, before going into the Q&A, a couple of comments on the cash flow and the balance sheet. Here, we can see the net working capital and free cash flow charts.

Net working capital, EUR 403 million. That is 12.7% of rolling 12-month sales.

Net working capital has been increasing in sequential comparison from the beginning of the year. This is natural as a result of the, let’s say, volume changes, but also as a result of the component shortages that are then, of course, in a way, adding the value of our work in progress and inventories in general.

So the trend is in the wrong direction, but that is maybe not a surprise, and we are still well below our midterm target -- on the right side of our midterm target of being below 15% of rolling 12-month sales. Then when we take a look at the free cash flow, EUR 39 million like Rob explained, of course, lower than the year ago as a result of the net working capital.

But when we take a look at the cumulative free cash flow, so that still continues to be on an excellent level. Gearing and return on capital employed.

Gearing declined slightly. It has been, of course, relatively stable now, but it declined slightly.

And the net debt is somewhat below EUR 600 million at the end of September. Adjusted return on capital employed has been trending upwards and our capital employed is slightly lower now than what it was at the end of the second quarter.

And with these comments, it is time for the Q&A.

Thank you, Teo. Before we go into the Q&A, just a kind reminder -- so due to the securities laws in the United States and some other jurisdictions, we won’t be taking any merger-related questions this time either.

Let’s now open the line for questions. Operator, please go ahead.

[Technical Difficulty]

I’m sorry. We can’t hear you.

Can you please repeat?

[Technical Difficulty]

This is better. Please try again.

Can you hear now?

Yes, go ahead.

So on the remaining EUR 20 million -- the remaining EUR 40 million in supply chain challenges, how would [indiscernible] industrial service and industrial equipment?

So the EUR 60 million for the quarter is approximately EUR 20 million, EUR 20 million, EUR 20 million for all 3 of the business units. Teo talked about the EUR 20 million in the Port Solution, but there were also EUR 20 million of sales that were not able to be processed in the third quarter for our Service business as well as for our Industrial Equipment business.

So EUR 60 million in total and a little over EUR 100 million, EUR 100-plus million on a cumulative basis so far this year.

And on the profit margin in the industrial service versus [indiscernible] markets, obviously, has helped in [indiscernible] mix now compared to have normalized [Technical Difficulty].

I think our best understanding was you’re asking about the mix in Service vis-à-vis on a normal glide path basis. As Teo explained, they were heavier parts this quarter sales and a little less field service sales this quarter based on access issues in some parts of the world and some technician shortages that we’re catching up in other parts of the world.

So actually, the -- when we have been talking about the mix now during the pandemic, so the mix has maybe moved or did actually in the beginning of the pandemic moved a little bit to the unfavorable part, so that the share of material was less than what it usually has been. Now we have come back to a more normalized situation, maybe even slightly to be on the better side than what normally we would be having.

But the differences definitely are not big. So that this cannot actually be described as an extraordinary product mix one way or the other.

And also, when we take a look at the, let’s say, modernizations, that typically can create a difference from the margin structure point of view. So also, they actually continue to be on a relatively stable level now in a sequential or year-on-year comparison and are somewhat lower than what they would historically been.

It doesn’t necessarily impact the margin from the mix point of view that much, but it’s usually a good thing to comment that where the modernization business as an overall level is.

It’s Max Yates from Credit Suisse. Just my first question would be on the pipeline of orders in Port Solutions.

And obviously, we saw sequentially a step down. I just wanted to understand, when you look out into next year and you look at kind of what the customer conversations you’re having, do you expect -- or is it fair to assume another year of improvement in order intake?

Or are we seeing the effects now of perhaps some prebuying in the first half that is now starting to normalize and we should sort of try and reflect this in our forecast. So, if you could talk a little bit about the conversations and the pipeline going into Q4 and next year, that would be helpful.

How about we talked about the Q4 pipeline. We’ve not yet talked about next year, and we shall be talking about next year in February for next year.

What I would say is these are long-term pipelines. And we have a very robust, a very healthy pipeline in the Port Solutions business.

It’s got good orders and different sizes in it, and we’re progressing those, and we expect those to come good over time. Some of those will clearly be in the fourth quarter and some of those you can clearly expect in periods beyond that.

But the lumpiness in the third quarter and the -- we didn’t make any major deal announcements in the third quarter. We got quite a few regular midsize and good orders in that third quarter.

And there’s a good pipeline on a go-forward basis. Anything else you’d say, Teo?

I don’t know maybe if one can talk about prebuying, but it is most likely true that during the fourth quarter of last year and maybe in the beginning of this year, there were certain deals that were pending during the pandemic time. And then when the situation started to be better from the disease point of view, some of the customers came to the decision-making table very quickly.

And as a result of that, the Q4, Q1, we’re on a good high level because deals had been pending and then they were decided. Now we have in the time -- from the timing point of view, this kind of, let’s say, normal, slower period in the third quarter so that some of the deals or, let’s say, any of the big deals have not come to the decision phase during the third quarter.

When we take a look at those, let’s say, more like flow business type of order intakes like lift trucks. So that continued to do from the order intake point of view pretty well in the third quarter.

The level was maybe somewhat below Q2, but in line with the overall H1 order intake level. And port service also continued to be doing well.

So, the sequential decline is mostly as a result of the so-called port cranes, which is consisting of, for example, RTGs or straddle carriers that are typically a little bit bigger deals and where the decision-making times and cycles are difficult to forecast. But the pipeline continues to be good, as Rob said.

So we are of the opinion that this is more like a timing issue than anything else.

Great. And just my second question was just on your production footprint in Port Solutions.

And what I wanted to understand was a little bit about your major facilities and particularly in the reach stackers and straddle carriers. So maybe if you could just give us kind of an overview of how effectively your production is set up.

And when you look at your facilities, are most of them shared facilities with all -- with sort of all different product types that go through them, or are they largely kind of when we look at the individual product categories, do you have individual facilities for each of these? Just to understand that a bit better would be helpful.

So let’s do that together. The straddle carriers are primarily built in a facility, a purpose facility in Germany.

And we have our -- you’re talking about reach stackers and mobile equipment. 2 facilities, 1 in Sweden and 1 in China, also basically purpose-built for our mobile equipment.

Yes. And mobile harbor crane facility is in Germany as well.

And then when you take a look at the more like shared facilities, so then the Hyvinkää facility in Finland is a facility that actually does hoisting trolleys for both Industrial Equipment as well as for Port Solutions. So this is maybe the best example of a shared facility between the 2 BAs.

And then, of course, we augment the rest of our Service or our Port Solutions business manufacturing with manufacturing partners in different regions and different locations.

Sure. And maybe if I could just ask one very final quick one.

So obviously, your sales guidance implies quite a bit stronger Q4 than what we’ve seen in Q3 in terms of revenues. I just wanted to understand, I mean, have you assumed that there is an ongoing impact from supply chain issues going into Q4 and maybe revenues slipping within that guidance?

And is it just largely sort of seasonality that drives that improvement? And when we look at obviously kind of October numbers, which I assume you have some view on, is that sort of consistent with the ramp-up that you’re expecting in Q4 as per the guidance?

So the data shows back in previous years, you see the seasonality in the quarters. And the fourth quarter is historically consistently very strong.

This quarter, we expect the fourth quarter to also be consistently very strong. We also explained -- I mentioned a couple of times, the supply chain constraints, these material availabilities, the disruptions that we’re describing, we expect to continue into the fourth quarter.

As a matter of fact, we expect them to continue in 2022. And we expect to continue to overcome these in order to deliver our sales, as I described.

We’re caught up on a year-to-date basis on reported currencies. We’re slightly ahead on comparable currencies.

And our team is doing a remarkable job of overcoming these supply chain challenges in real time, and we expect to continue to do so.

It’s Aurelio from Morgan Stanley. The first one is around the process cranes business.

And I think you’ve mentioned that order intake has been okay, although sequentially somewhat weaker. So I would be curious to know if, a, the business was profitable in the third quarter; and, b, what are you seeing in terms of pricing and momentum in the market?

Well, that’s a favorite topic. The process cranes business continues to make very good progress.

Teo will confirm the profitability for you. It’s on a good way.

We made a fourth quarter profit last year. We expect to make a second half profit this year.

We expect that it continues on a very profitable way next year. The improvements are consistent.

The improvements are sustainable, and that’s on a good way. The amount of orders specifically in the process crane business being a bit lower than in Q2 is not a significant -- it’s not a trend change.

It just happens to be that way. Also process cranes, a little bit like the big port orders, are a bit lumpy.

And so that turnaround is on a very good way, and we expect that it continues.

Maybe instead of commenting the quarterly profitability numbers for the process cranes for any other specific BU [ph] either, one can maybe say that the comment that we have given before regarding the process crane business being profitable in the black numbers next year. So that comment is still valid.

When we take a look at the order intake, particularly in the third quarter, so it exactly like we discussed. So the order intake sequentially is down in the process crane business.

However, the third quarter order intake by no means is weak or poor. So it is actually on a decent level.

It just happened to be so that the second quarter order intake was particularly good when it comes to the process crane order intake.

You’ll recall that we have picked up a very significant order with the U.S. Navy, and that had a big impact in the second quarter.

Yes. That’s very helpful.

And one last question from my side. I think you’ve been kind of on a flattish level for services order intake for -- well basically for 2021.

When would you expect this business to return to growth because we’re seeing capacity utilization kind of tick up in Europe and it’s more or less stable in the U.S. as you described.

But what do we need to see for that business to actually start growing sequentially again?

Do you want to touch on that one, Teo, and I’ll color the comment.

Sorry, was your question regarding the whole of industrial equipment or a part of it in particular?

It was a service pickup. When do we expect service pickup?

Service pickup. Yes.

So the -- let’s say, so that the overall order intake, obviously now has been recovering from the COVID levels. And the overall market is -- the market demand is on, let’s say, on the pre-COVID level or better than that when we take a look at the EMEA and Americas.

However, in the Asia Pacific, except for China, we are still on a lower level. So one of the key things, obviously, is to have the sort of overall demand level, including Asia, to be back on the so-called normal level or pre-COVID level.

That should definitely help when it comes to the order intake for service as well. The other thing then is that getting rid of the, let’s say, component shortages, labor shortages, not only for us but particularly for our customers and the businesses in general, would definitely help in building the confidence and having more, let’s say, activities that will be done.

The basic rule that the Service business order intake as well as sales is heavily linked into the utilization rate of our customers. So that hasn’t vanished anywhere.

So the primary demand driver, which would be driving our order intake and sales as well, is the overall utilization rate for our customers.

Furthermore, maybe just to correct your assertion. We talk about the service agreement base, and the service agreement base grew year-on-year and it grew sequentially in the third quarter.

And so we do have a good service growth in the service agreement base, and that’s the engine that brings on the follow-on sales as we have people on site making service calls and identifying further sales on-site. So that underlying motor is going in the right direction year-on-year and also sequentially.

This is Tomi from DNB. Coming back to the guidance on the fourth quarter sales, you are expecting growth there.

Can you comment a little bit divisionally, where is this coming from and maybe the sort of mechanics that you have now had an impact of EUR 60 million in the third quarter, EUR 100 million for the 9 months. Are you expecting all of that or some of that to be delivered in the fourth quarter?

And are you expecting more than EUR 60 million of new delays in the fourth quarter? So, maybe just some clarity for the fourth quarter sales.

Yes, maybe without actually giving a business area split for the fourth quarter, in particular, but maybe good that you pointed it out because, of course, we have been discussing the full year sales numbers for the different BAs in comparison to the situation in 2020. And there, we have been commenting that the Service sales would be growing in an year-on-year comparison.

That comment is still true. We have also been saying that the Industrial Equipment would be quite flattish in comparison to 2020.

So there is now a clear risk that Industrial Equipment sales will be actually below 2020 as a result of the component shortages. And then we have been somewhat more pessimistic on the Port Solutions sales previously.

We have been saying that it will be declining in comparison to 2020. But now the deliveries during ‘21 have actually been going pretty well.

And we can -- and then our ports team has done great work there. And now the conclusion is more like that the Port Solutions sales is maybe on par or maybe slightly below the previous year level.

But there, we are now more positive than what we used to be earlier. Whereas in the Industrial Equipment, we are maybe a little bit more cautious as a result of the component shortages.

We are not expecting the situation from the component shortages point of view to deteriorate further significantly during the fourth quarter, even though, of course, we are not expecting the problems to fade away either. So it is like Rob said, so that the situation will continue to be very tight towards the end of the year.

It will continue into 2022. And now there are clearly more tightness in a way inside regarding particularly the integrated circuits for ‘22.

So that it is -- there are clearly risks that situation could even get worse in ‘22 if our mitigation activities that we are actively doing do not bear fruit. But when we take a look at the -- by the end of the year, so we are not actually seeing a major deterioration.

We have the order book there, I guess you are coming from that one, and that is the correct assumption. We have the order book.

And the question is more clearly on the ability to deliver, particularly as a result of the or in -- amidst the different component tightness.

Okay. And then if I could ask just in the Port Solutions, we don’t talk about it often, but how do you see the services within Port Solutions developing?

Services within Port Solutions has actually now during the second and third quarter being developing very favorably. So I think that regarding last year’s Q4 and maybe even this year’s Q1, we commented that the volumes from the order intake point of view are not -- have not been particularly good.

But now when we take a look at Q2 and Q3, so we are in a good situation in a year-on-year comparison and actually also in sequential comparisons. So Q2 was good and Q3 was good there as well.

So from the order intake point of view, in a way, lift trucks and Port Solutions -- port service continue to be the bright spots. The ports -- that is visible in the port service sales as well.

So it’s not only order intake, but also the deliveries within the port service. So that has been now during, let’s say, the couple of previous quarters doing pretty well.

It’s Erkki from Inderes. Could you please comment on the component and the semi-fabricated stock pricing in Q3 vis-à-vis Q3 last year?

And also going forward and in addition to that, what are your possibilities to pass on the cost increase in the short term?

So several elements to that answer, and Teo will help me, too. But in general, you’re right.

There is pressure in the market. There is inflation in the market.

Sometimes because of the semi-fabrication that you’re describing or the fact that the circuits are built into assemblies that we’re buying, there’s a bit of -- there’s a time delay in some cases on the material cost increases. But the trend is there and the inflation that you’re describing is real.

As I’ve talked about in the past, we work to mitigate this in 2 different ways. Our supply chain team, purchasing team, the procurement team is working on the overall material spend where there’s some inflation.

There’s also productivity gains that we’re working to use to offset that inflation. And the team has been quite successful throughout the course of this year.

It is getting tougher. We also have a mechanism by which we pass pricing through to our customers.

We have that built right into our commercial processes in our different businesses. We have -- Teo can talk to you about some of the steel price pass-through clauses in our longer-term contracts, et cetera.

So we mitigate that on both ends, both working to offset in the procurement side and passing pricing through, and we are successful in doing so. Teo, do you want to make any further comments on that one?

I think you covered it very well. I guess that the underlying key item is that have we been able to pass on the cost inflation into the customer prices / mitigate them with other means, and that has been the case.

So we have been able to do that. And for example, in the third quarter now, we have not had a major negative net of inflation pricing impact one way or the other, so when you compare it, for example, to the previous quarter or even year-on-year.

When we take a look at the order book that we have today at hand, so we are relatively confident that the situation is the same within the order book so that we are relatively well covered from the pricing point of view when it comes to the inflation that basically is taking place all over the world at the moment.

Everybody else is asking multiple questions. We have another one.

Go ahead.

I would like to ask 3 questions. First one -- and it’s Daniela Costa from Goldman Sachs, by the way.

The first one is regarding like the sequential slowdown in the industrial equipment orders. And just to clarify some of your earlier comments.

So would you say that’s all entirely due to supply chain shortages and -- or it’s impacted by underlying demand decelerating. That’s my first question.

Second question is following up on sort of the medium-term trends in ports. I think we’ve seen from the original Biden plan over the summer.

It was talking about EUR 17 billion of port CapEx upgrades. How do you see -- like how meaningful would that be for your ports business in terms of if you could quantify the type of extra growth that you would expect from that medium term.

And normally, these things, how long does it take from the discussion to actually starting to see real orders? And the third one, and I don’t know if you can answer, but just curious on what was the cause for the delay in terms of the Phase 2 decision of the European Commission, which was meant to be in late November and now seems to be in mid-January.

What was the reason for the delay?

Well, we ask for multiple questions. we got them.

Why don’t you start, Teo, and I’ll pick up some that you don’t catch.

Okay. So I will start with the industrial equipment question and if I understood correct.

So it was actually on the order intake of the industrial equipment and the, let’s say, sequential decline in the order intake. And it was actually in, basically, all of the business units, so standard cranes, process cranes and components, the sequential decline.

In process cranes, it was mostly because of the second quarter having been very good due to the U.S. Navy order that Rob also already mentioned, and the process crane orders were pretty good in the third quarter.

So nothing -- not a negative thing at all from that point of view. The component order intake, which was down sequentially as well was only very little down.

So the overall component order intake level continues to be very good. In a historical perspective, it continues to be very good.

So there is demand in the marketplace. The standard crane order intake was down sequentially as well.

But also there, the level continues to be good. And our sales funnel actually is very good.

There is maybe a little bit, let’s say, discussions with the customers on the timing of the decision-making. These are small projects.

They are not major projects, but projects anyway. And there are maybe certain concerns with the customers about, let’s say, the inflation, the transportation costs, their own time schedules, et cetera, which may, let’s say, slow down the decision-making within standard crane business.

But the overall demand level seems to be pretty okay. I do not think that there is a direct link between the component shortages, customer -- at least with the component shortages and order intake because now we have been having issues in delivering some of the goods that we would have wanted to deliver as a result of component shortages.

But as a result of that, I do not think that we would have lost deals -- new deals or we would have lost market share or that it would have significantly impacted customers’ willingness to place new orders. So this Q2, Q3 variation is more, in a way -- it’s a comparison topic in a way, like the primary example being the process cranes.

So maybe I pick up on a couple, too. You asked about the medium-term trends in the Port Solutions business, and you talked about the increase in CapEx mentioned by President Biden very recently.

EUR 17 billion is certainly a substantial CapEx investment in the ports infrastructure. Those kind of decisions take quite a bit of time.

We’ve discussed 3, 5 and even 10-year investment plans in our -- with our different port customers. So I expect those plans that we have in place with our customers continue.

And I expect in a more medium and longer term that the increases that were discussed in the business press will be entering into the pipeline. But I don’t see those changing the long-term investment plans that our customers already have in place in the next couple of quarters.

I think it will take a little longer than that for those longer-term investment and increased investment plans to materialize in the -- in orders confirmed. I would expect they would get into the pipeline a little earlier than that.

Then you asked about the timing in the European Commission. As I described, we’re collaborating and having very good dialogue with all the competition authorities.

That continues on a very good way with all of them, including the European Commission. Our overall expectations of a successful closure of the merger and starting in the new company by the end of next -- end of the first half of next year remain on track, and there aren’t any particular implications to be drawn based on the timing decision or the timing that you’re describing.

We’re on a good way on the merger and in the discussions with all the competition authorities.

I’m Magnus from UBS. Hope my line is okay now.

I want to follow on the discussion on cost inflation, but switching to wage cost instead. And you say you have lack of service technicians.

So how do you see the cost inflation on the wage side currently and what do you see for next year?

Well, clearly, yes, we are rehiring service technicians and our recruiting pipeline is open and the engine is running. That’s not unique to Konecranes.

That’s endemic in the entire market in the Americas right now. So we’re catching up on that and building back our service force.

Yes, there is cost inflation on the wage side. That’s a fact that companies are dealing with all over the world as well.

And as I talked about on the material side, we work on offsetting inflation with productivity in the -- on the material side of things. We worked very hard on offsetting wage increases with productivity on the labor side.

And yes, we will be paying higher wages in 2022 than we pay in ‘21, and ‘21 is higher than ‘20, and we are able to compensate these things to a good extent with the productivity in all of our different operations, our factories, our functional operations as well.

Okay. Got it.

So -- but you don’t have a number for as if it’s a mid-single digit or 2 or 3 or...?

Well, I would think that Teo probably wouldn’t want to tell you any explicit numbers, but you can -- there are inflation projections in the market, and we understand those and I think you do, too. And as I say, we work to offset -- we have productivity in all elements of our business, material side as well as labor side.

Yes. And we are -- sorry, we are preparing for a slightly higher wage and salary inflation than what we have been having now for this year if we take a look at the expectations for next year.

So we are preparing for a higher inflation there. And of course, it depends a lot on a country and region.

So different areas can be quite different depending on the economies and their structure and this kind of typical sort of mining question so that if there is -- if there’s a market where the mining is a very big thing and then there is a boom, so obviously there is a salary and wage inflation as a result of that. Traditionally, particularly in the Service business, we have been able to, let’s say, mitigate wage inflation by our own productivity activities and then with the customer pricing as well.

And usually, if there have been issues, so they have more been on the equipment side when it comes to, let’s say, pushing the inflation into the customer prices.

Got it. And then just one final one.

I think you talked about the EUR 100 million cumulative impact from the supply chain delivery issues. Is that to be read that as we have sort of an overhang in the back of EUR 100 million, that it would otherwise have been delivered?

Is that how we should see it?

Yes, that’s the correct understanding.

It’s Antti from SEB. First of all, on the cost inflation and kind of a component availability theme.

How do you feel about the rise of the energy costs? And I’m looking at your supply chain in Central Europe and in Asia, and there have been some kind of stoppages in the process industries.

Is this impacting you in any way? And are you concerned about cost inflation impacts for ‘22 as kind of the higher energy cost is rolled into the -- your suppliers’ cost base?

Would you like to talk to energy, Teo?

Energy, or I’d say, increasing energy prices is definitely one ingredient in the whole inflation discussion. And it has, depending a little bit on the component and service we are buying, a more direct or more indirect impact to our purchase prices.

And now when we take a look at the energy and those kind of things, so for example, transportation is, of course, something that we’ll be feeling in those kind of things immediately. And as we have been discussing in these calls earlier, so we have seen an increase in the transportation cost that is with us already now, for example, in the third quarter.

And energy is an important topic from that point of view. It will be impacting almost everybody in one way or the other.

But then again, it is only one part of the equation, which is then leading to the overall inflation that we will then need to manage and mitigate.

All right. And then secondly, on the labor side.

I mean, obviously, we talked about wage inflation, but how’s the availability of the skill technicians going forward? I mean, you’re driving growth on the services side that will require more personnel.

Or is this more of a cost issue regarding labor, or is it predominantly a difficulty getting new people, skilled technicians in your service workforce?

Well, we’re working through that. We did have personnel reductions in the company during the downturn, and we’re adding back personnel appropriately at the right pace on -- these things are picking up.

Our recruiting engine is back on, and we’re bringing in talented service personnel. The overall tightness, especially in the U.S.

market, is something that everyone is experiencing, and it’s a competitive market. And we have a really good offering in terms of being an attractive company to work for.

So we are doing our recruiting, and we’ll be bringing the technicians back in -- or continue to be bringing the technicians back in, in the weeks and months to come.

And we are obviously also training our technicians ourselves. So in case -- so as long as there is availability for people that have a good basic education and training, so we can, of course, then train them to be service, let’s say, crane maintenance technicians.

Obviously, it is faster for us to have somebody who has already done that work, but we can actually also train people ourselves and we need to do it. So it is a skill topic from that point of view that we do not get, in a way, readily available crane maintenance technicians right away in some of the markets.

Thank you. I think we are running out of time.

So unfortunately, we need to conclude today’s conference. Thank you for the active participation and questions.

And as a reminder, Konecranes will issue 2021 financial statement release on February 3, next year. Have a great day, everyone.

Thank you.

Thanks for being with us.

Thank you.