Konecranes Plc

00:03 Good morning, everyone and welcome to Konecranes' Q1 Earnings Conference. My name is Kiira Froberg and I'm the Head of Investor Relations at Konecranes.

Here with me, I have our Interim CEO and CFO, Teo Ottola. Before we start, I would kindly note that this presentation contains forward-looking statements.

Next, Teo will present you our Q1 results. The presentation is followed by Q&A as always.

00:37 Teo, please, the stage is yours.

00:40 Thank you, Kiira. And let's go right into the Q1 ‘22 highlights.

So the first quarter was a mixed one. We had excellent orders, record high order intake.

Order intake was good actually across the business areas. At the same time, we had low sales volumes and declining profitability in a year-on-year comparison.

01:09 If we take a look at the profitability part first, adjusted EBITDA 6.6%, a decline from 8% last year. When we take a look at this from the Group number point of view, 6.6% comparison to 8%, actually the reason is primarily volume.

So I said already that we had low sales, then when you take into consideration the comparable currencies, because we had tailwind as a result of the currency exchanges now in the first quarter as well as the inflation impact from previous year to this year. So actually our production delivery or production volumes and deliveries were quite a lot lower than what they were a year ago.

At the same time, when we take a look at the profitability picture within different BAs, so the story is quite different depending on the BA. 02:05 We have a specific comment here on service, where actually the profitability improved in an year-on-year comparison, reaching 17.4%, which is an excellent result, particularly taking into consideration that we are in Q1.

Then when we take a look at the Port Solutions, so there actually the profitability declined, but that is primarily or actually completely explained by the volume, but then as a third one, when we take a look at the Industrial Equipment, so there, we had a decline in the profitability as well. And this one is then more explained by gross margin decline in a year-on-year comparison as a result of cost inflation.

So a little bit mixed bag from that point of view as well. We can come back to those comments when we take a look at the business areas.

02:57 Overall market situation, that continue to be good in the first quarter. It is clear that the war in Ukraine has increased volatility, has increased unpredictability, but despite that, our first quarter orders grew 32% in a year-on-year comparison with comparable currencies.

And actually the order intake was more than EUR1 billion in the first quarter. Also, short cycle product order intake referring to mostly components within Industrial Equipment and lift trucks with imports actually returned to growth path after a little bit slower fourth quarter.

03:45 Then about sales, sales actually decreased 6.7% with comparable currencies in an year-on-year comparison. Sales weakness or volume weakness was as a result of timing of customer deliveries, of course, driven by order book timing but also delivery delays, component shortages as we have been commenting, those continued during the first quarter and also other supply chain constraints.

And we can take a look at those as well in more detail when we take a look at the business areas. 04:20 As a result of the very good order intake and somewhat sluggish sales, our order book obviously grew and reached the level of nearly EUR2.5 billion at the end of March.

We have updated our Q2 demand outlook. We have reiterated the 2022 guidance, so no change to the financial guidance.

You remember that we actually rescheduled or decided to reschedule Annual General Meeting as a result of the merger being canceled in late March, and now we have a new date for the Annual General Meeting that is in the mid-June and we also have a dividend proposal from the Board to the AGM. The proposal is EUR1.25 per share.

05:15 We are also doing organizational changes. So we are taking Service and Industrial Equipment business areas under one leadership starting June 1, 2022.

Fabio Fiorino, the current leader of our service business area will be the leader for both of these business areas from June 1 onwards. This is now as a result of the assessment that we actually already started -- already in October of last year.

The idea of the assessment was to figure out that whether a closer collaboration between these two business areas would bring benefits from the customer point of view or from the internal efficiency point of view. 06:01 And now as we have been doing this evaluation, we can now conclude that we believe that there will be benefits actually both from the customer intimacy point of view, giving growth opportunities in the future.

And then also from the internal efficiency point of view, for example, business model simplification type of things. And now we are going to progress with those ones and we start by bringing these two business areas under one leadership.

06:32 We will be talking more about the operating model going forward. And actually we do not intend to combine reporting, so that we will actually -- that we would be having only one industrial business area, we will actually continue to have three business areas reported externally, even though we are bringing now these business areas closer to each other.

07:00 Then a couple of words on the war in Ukraine and its impact. As a company, we condemned Russia's aggression towards Ukraine, we condemn the war.

We are upset by the war. We are deeply concerned for our Ukrainian employees and their families.

We have more than 400 employees in Ukraine, and the well-being of -- their well-being and the well-being of their family members continues to be our number one priority. 07:36 When we then take a look at the business impact, so our crane and component factory in Zaporizhzhia in Ukraine actually stopped production very soon, or actually immediately when the war started.

We have redirected the work from that factory to other Konecranes sites and now in connection to the Q1 report, we have actually impaired all of the assets in Ukraine, the 10 fixed assets, inventories and receivables actually to zero value and this is now the solution that we have done in midst of the uncertainty that we have within Ukraine. 08:24 When we take a look at the business impact regarding Russian business, so we have already quite some time ago very soon after the war started made a decision that we do not take any new orders, any new business in or from Russia.

We also now in connection to the first quarter report we have written off almost EUR80 million of orders and in relation to these orders, we have then also reversed more than EUR32 million POC sales or percentage of completion sales that have been booked before the year 2022. This due to the reason that the projects in question have been discontinued.

Both of these topics impairing assets in Ukraine, as well as the sales reversals, obviously, caused costs and these are EUR47 million. Now in the first quarter and all of that has now been booked into the adjustments in our report.

So having reversed sales and booking the corresponding result impact to the adjustment obviously, technically, improves the adjusted EBITDA margin a little bit in Q1. 09:54 Key figures, we actually discussed most of these already, order intake, sales, adjusted EBITDA, also the adjustments that actually then impact our operating profit.

Maybe a comment on net debt EUR545 million, which is pretty much in line with the situation at the end of the year ‘21, as well as in line with the first quarter ‘21. 10:23 Market environment, actually the PMIs continue to suggest growth in EU, USA, Brazil and India as well.

China being maybe a little bit of an exception as a result of the COVID restrictions there. But otherwise, even though the growth is may be slowing down, but we are still on the growth territory.

When we take a look at the utilization rates, EU quite stable, in the USA, the utilization rates have continued to improve and we are actually on the level or even slightly above the recent peaks of 2018 from the utilization rate point of view within the US. 11:12 When we then take a look at the market environment for Port Solutions, container throughput index continues to be on a high level.

It has been fluctuating a little bit during the year 2021. The fluctuation has continued now in the beginning of 2022, but in historical perspective, this continues to be on a high level.

Of course, the COVID restrictions for example in China, may have its impact on these ones later on as well. 11:43 Our take from these ones to the demand outlook is here.

It is true that the pandemic is still continuing. At the same time, the war in Ukraine is increasing concerns regarding inflation, as well as material availability.

However, when we take a look at our demand picture in -- regarding industrial customers and Europe and North America, we actually see that the demand is on a healthy level. In Asia Pacific, the demand environment remains below Europe and North America, of course, partially being impacted by the COVID restrictions, for example, in China.

Global container throughput continues high and long-term prospects remain good overall regarding the Port Solutions business. 12:35 Financial guidance.

We haven't really changed this. Net sales expected to increase in full year ‘22 in comparison to ‘21.

Adjusted EBITA margin expected to improve from ‘21 as well. Then maybe a couple of words on these ones or maybe just to take a look at the overall group level numbers.

I guess the big picture is visible here. The order intake was very good, more than EUR1 billion, 32% growth, whereas then the sales were on a low level.

Even if you were to add back the sales reversals, we would be roughly on par with Q1 2021 number. However, we have tailwind from the currencies, as discussed.

And then, of course, the inflation impact is inflating actually the sales in Q1 ‘22. So the overall volume actually is lower than what it was one year ago.

13:37 The pie-chart hasn't really changed much. The relative share of service was now bigger in Q1, so there is maybe a little bit change from that point of view, but from the regional point of view, very little movement in a rolling 12-month basis graph.

And if there is no movement in the pie-chart, so there definitely is movement in the order book slide. So this one as a result of the good order intake and sluggish sales as discussed, shows a very high number of EUR2.485 billion.

14:15 And then still on a Group level, the adjusted EBITA in euro was EUR44 million lower than a year ago by EUR12 million and also the margin is 6.6% versus 8% a year ago. As already discussed, there is a volume impact.

And then regarding Industrial Equipment, in particular, there is also a cost inflation impact. 14:41 When we take a look at the gross margin.

So this slide is saying that it improved, and that is true. It improved in a year-on-year comparison.

But if we exclude again or if we add back the reverse sales in a way into the numbers, so gross margin was actually flat in comparison to the situation one year ago, which also in a way underlines the impact of the volume in the overall profitability picture. 15:13 Then, let's move into the business areas and as usual start with service order intake and agreement base value.

Order intake was good, EUR283 million that is 6.9% increase with comparable currencies. Now the tailwind with the currencies has been quite good, so therefore it's best to take a look at the comparable currency numbers.

Orders increased, both in field service as well as parts and order intake increased in the Americas and EMEA, but decreased in APAC. And again, we come back to the China situation regarding the Asia Pacific order intake.

15:57 In a sequential comparison, it is maybe a good idea to -- good to remember that the fourth quarter of 2021 includes a very big nuclear modernization deal and therefore the sequential decline is as a result of that one. Excluding that one, we would be having sequential growth in order intake as well.

Agreement base value more than EUR300 million, growth of 2.6% in a year-on-year comparison with comparable currencies and also sequential growth by a little bit less than 2%. 16:37 Sales and order book slide here, sales EUR301 million.

This is a growth of 4.5% with comparable currencies. We had sales increase in all of the regions, Americas, EMEA and APAC and also field service and part sales, both increased in a year-on-year comparison.

The service order book has continued to grow. So we have a similar story here as we have on a Group level as well.

As a whole, the order intake was good, whereas we were lacking a little bit in sales and as a result of that the order book increase continues. Of course, the order book increase from Q3 to Q4 was mainly because of that modernization deal.

But now, of course, in the first quarter, we did not have similar one-time impacts. 17:30 Adjusted EBITA, a very good number, EUR52.4 million, 17.4% improvement, both in euros as well as in margin.

This is, of course, as a result of the sales growth, but also successful cost management and actually the continuous improvement that we have been able to continue within the Service business. Gross margin approximately on the same level as a year ago.

18:01 Industrial Equipment, and if we go there into the order intake and sales, very good order intake, EUR364 million, that is a growth of 32% roughly with comparable currencies. Order intake actually increased in basically all of the business units, standard cranes, process cranes, components.

It also increased in all geographical regions Americas, EMEA and APAC and also sequentially, we had growth in basically all of the business units. We had one little bit bigger or a big process crane order within the first quarter.

Component order intake was actually very good within the first quarter, even though it was a little bit on the lower side during the fourth quarter. Actually it was on a historical perspective on a good level there as well, but in comparison to the previous quarters or Q1, Q4 was lower.

Then, when we take a look at the sales, so sales EUR243 million. There was actually a decrease when you take a look at the external sales with comparable currencies.

However, if you add back the sales reversal so then we would have been having growth in comparable currencies in a year-on-year comparison. 19:37 Sales increased in Americas, but decreased in EMEA and APAC, even though, of course, now the Russia is impacting the EMEA number.

Then the adjusted EBITDA, that was a negative number, minus EUR5.2 million or minus 2.1%. As discussed this is maybe more as a result of cost inflation than delayed sales, even though delayed sales plays a role here as well, but also the fact that gross margin decreased on a year-on-year basis, means that we have been having a little bit pricing challenge passing cost inflation to the customers.

20:22 We know where the challenge is. It is mostly in the component pricing.

We intend to fix it. We have started fixing it already.

We have increased prices already in March. We will be making a relatively big price increase in the beginning of June to be able to catch up and to have it on a good level once again.

20:48 Now that we are increasing prices regarding the order intake going forward, so obviously, it will then take, say, one quarter, two quarters before we will be able to see the full impact on the gross margin, again, regarding, for example, the component business. 21:09 Industrial Equipment order book, that looks good as well.

So EUR855 million, 24% increase in comparable currencies in a year-on-year comparison. Port Solutions and Port Solutions order intake and sales, excellent order intake, EUR427 million, that is an increase of 55% in a year-on-year comparison.

We already yesterday actually informed about a big deal in the USA. That is, of course -- that is included in the order intake.

So it is of course helping the order intake. At the same time, one can say that the order intake has been good across the business units within the ports business.

22:01 Basically, all of the business units have been improving their order intake in an year-on-year comparison, not all product categories, but within all of the -- but all the business units as a whole. So port cranes, of course, where the yesterday announced deal belongs to Mobile Harbor cranes, lift trucks and as well as port service have been doing well from the order intake point of view, and also lift trucks being the short cycle product has been doing pretty well or actually very well in sequential comparison as well.

22:37 Sales on the other hand is low, EUR176 million. And here, even if you add back the cancelled sales, which were about EUR20 million regarding the Port Solutions.

So we are still in a number that is below EUR200 million and we are, say, EUR40 million or so behind the previous year's numbers as a result of the, let's say, customer delivery timings as a result of the transportation challenges. Some of those have been there and also as a result of component shortages.

So we have been seeing some component shortages also regarding the project deliveries. So previously we have been talking about lift trucks, but now we have seen some regarding project deliveries as well and all of this is meaning that the sales, volume is on a quite low level.

23:32 Then, when we take a look at the profitability, adjusted EBITDA EUR5.2 million, margin 2.9%. This one also says here the slide that the decrease is mainly attributable to lower sales.

That is true. We also need to remember that the comparison period included a provision release of EUR5 million.

Gross margin improved on a year-on-year basis, but again, if we make it like-for-like add back the canceled sales or reverse sales and take this EUR5 million provision reversal into consideration, gross margin in an year-on-year comparison actually is quite close to what it was in the first quarter of 2021. 24:18 And the order book actually follows the same pattern as the other BAs as well, excellent order intake, lower sales and as a result of that, quite a jump in the order book value.

Of course, order book value has been impacted by currency changes as well, particularly regarding Service and Industrial Equipment for ports. Typically, the currency impact is lower.

24:48 And then, still before we go into the Q&A, a couple of comments on the cash flow and balance sheet. Net working capital and free cash flow is the slide with which where we have typically started, no major change in net working capital neither from the, let's say, rotation point of view, nor from the total euros point of view, we are at 13.4% of rolling 12 month sales, which is in a way in line with where it should be.

Of course, our inventories, particularly our working progress is on a very high level as a result of the, let's say, delivery challenges that we have been talking about during this call as well. But all in all, net working capital has remained roughly unchanged.

Cash flow or free cash flow, of course, is very low as a result of the profitability not being where we would like it to be regarding Q1. 25:51 And then as a final slide before going into the Q&A, gearing and return on capital employed.

Gearing, no major change there either. So we are around 40% net debt, as already mentioned earlier EUR545 million and then the return on capital employed has been quite stable over the past five quarters that we have in the pitch.

26:18 Now, I think that it would be a good time to move into the Q&A.

26:26 Thank you, Teo. We have received some questions through the chat function and we will soon also open the line for questions.

Before that, I think we could take a couple of questions from the chat. So, regarding the canceled Russian sales, we have a couple on -- a couple of questions on whether they can be redirected or used -- utilized elsewhere.

26:50 Okay. Yes.

This – Yeah, probably, meaning the equipment that is behind.

26:55 Yes.

26:56 Yes. Exactly.

26:57 For Ports and Industrial Equipment.

26:58 Exactly. And now this approach that we have taken -- it's actually a good question.

The approach that we have taken here is that, the sales have been canceled as a result of the project being discontinued. And the idea in that kind of a cancellation is that, we will keep the equipment and the money would flow its own way.

This approach assumes that there would be zero value for those equipment, that may not be the case in reality and if we redirect and sell low somewhere else, we will then obviously book the -- in a way result or revenue from that against the adjustment that we have now done. The sales value would again be reported in sales, but the profitability impact would be visible in the adjustment.

So it would be a reversal of the adjustment in a way.

27:57 Yeah. Good.

I think we could now open the line for questions, and we will take some questions from the chat function later. So, please, operator, you can now open the line.

28:37 Hi. Thank you for taking my questions.

I wanted to ask regarding the yesterday's Georgia Ports Authority order, is that something that you see as a signal of reinvestment in ports or is it just a one-off? And my second question is regarding the pricing contribution this quarter, how do you look at it and going forward in the second half of this year, also how do you look at it?

Thank you.

29:03 Okay. I'm not sure if I got the second question.

We can maybe --

29:07 I have it in the chat as well. Yes.

No problem.

29:09 Good, good. We can maybe take that soon.

29:13 Yeah.

29:12 And regarding the first question, if I understand correct. So the question is that, how do we see the GPA big order in terms of overall trading trends within the Ports business.

We have been already earlier saying that our sales funnel, includes a little bit bigger deals, this one being one of those. This is not a little bit bigger deal.

This is a big deal for us, also in historical perspective and these kind of big mega deals, so they are of course part of the business, but they are typically ones that have been prepared for quite some time and they -- every now and then we have those in the funnel and we every now and then also receive those orders. 30:00 So it -- based on one deal, we cannot really conclude much on the overall trends.

However, what we would like to say is that, the ports business on a mid and long-term basis has good prospects. The container traffic has continued to increase globally.

The, let's say, port congestions that we have seen lately impacting the logistics chain, even though they are not always port equipment related, but sometimes they are. So it actually maybe gives an additional encouragement for our customers to consider additional CapEx.

So on mid and long-term basis we actually continue to see a lot of opportunity within the Port Solutions business. And also in a way the sales funnel that we have at this point of time continues to be good.

31:02 And the second question was, what is the pricing contribution this quarter? And how do you look at it in the second half of ‘22?

31:11 Yeah, when we take a look at the pricing within the industry -- within service, so as the margins have been improving so that is quite okay. We have been doing well there.

When we take a look at the Port Solutions, we have some categories there where we have a little bit challenge with the pricing. Overall, as we just discussed, the gross margin for the ports business has not really moved much.

So all in all, that area is roughly okay. 31:45 When we take a look at the Industrial Equipment, so there we haven't wanted to quantify the euros that we are having now in the first quarter, but we are saying that the gross margin for the whole Industrial Equipment is lower than what it was one year ago, and now that we are fixing it, we have increased prices and we will increase prices and the lead time from the price increase to it being visible, for example, in the component business is three, probably closer to six months in the current circumstances.

32:22 So what we will be probably seeing is a little bit lower gross margin in the second quarter in comparison to the situation a year ago. And then after that one, things will get better from the gross margin perspective.

Volume will, obviously, be crucial from the Industrial Equipment profitability point of view, so the higher output and the higher volume we will be able to get, the more profits we will be able to generate, because as we remember, industrial equipment is more maybe vertically integrated than the ports business for instance.

33:02 Second question from the line please.

33:15 Yes. Hi, it's Massimiliano from CS.

Thanks for taking my question. The first one would be on the guidance that you reiterated, and I was wondering what gives you the confidence on this improvement?

Is it more visibility on sales picking up in the next quarters, or is it more of the expectations of supply chains improving throughout the year?

33:37 Yes. And now that we take a look at the -- of course, the key driver is the sales volume, that is clear.

And now as we have been discussing, the first quarter from the sales point of view was low, which is also visible in the profitability. So first of all, these timings regarding customer deliveries, so we are expecting that situation to be a little bit more favorable going forward.

For example, regarding ports we had quite a lot of those topics now in the first quarter. So it will be supporting our sales volume there.

34:19 When we take a look at service, we have been having a little bit labor scarcity, that has partially been driven by, for example, COVID quarantines. So that both our people as well as our customers personnel have been quarantined due to COVID cases and this has then in a way limited the number of hours that we have been having available.

34:42 And then when we take a look at the component availability, which is probably at the end of the day, the most important topic of all of those. So we actually -- when we said -- when we discussed this earlier, we were saying that Q1 and maybe even Q2 will be difficult from that point of view.

Basically without the COVID restrictions that the China is now having, we would basically be saying that the second quarter availability would be better than what it was in the first quarter. 35:16 And now of course, the only big question mark or at least one of the big question marks is then that how the COVID restrictions in China will be impacting the availability of componentry going forward.

This would mainly be microchips, PCBs, maybe electrical components of all kinds. So this is, of course, a little bit unknown, but it is timing of deliveries, capacity when it comes to our own personnel, for example, and thirdly, the component availability situation going forward, where we are basing our guidance.

I don't know if you were referring particularly to the sales or sales and profits. But the profitability guidance would be then following quite a lot the volume picture.

36:10 So just to follow-up on this point, if I look at the margins year-on-year, would you expect an improvement already in Q2 or would it be mainly H2 loaded at this point in time?

36:24 We rather would not go into the margin deltas between different quarters. But what I can maybe -- what we already said and what I already said was that, regarding the Industrial Equipment business in particular and the cost inflation/pricing challenge that we have there.

So Q2 most likely will still be having within the component business lower gross margin than what we would have had at the, let's say, during the corresponding period a year ago. 36:54 We are not talking about big collapse in the gross margin, but the component business obviously is important from the profitability or is an important profitability driver for the whole Industrial Equipment business.

Maybe one more topic that I say it now here so that I don't forget and it's in relation to the Ukraine situation and this is also primarily impacting Industrial Equipment. And it is that, now that we have booked the financial losses as a result of the sales reversals in adjustments.

37:35 So are -- we have already had and we are going to have certain extra costs when it comes to redirecting the production to other sites within the Group. And this means that, now I'm talking about the Zaporizhzhia factory.

So we were originally planning to manufacture there. We cannot do it there now, we will be doing it elsewhere.

We will be delivering that to the customer, but it will be costing a little bit more. And I would say that maybe in Q1 numbers within Industrial Equipment we have maybe EUR1 million of this kind of extra cost.

We will probably be seeing a similar amount per quarter going forward as well throughout 2022 as a result of the need to redirect production to other places. 38:21 This is not an adjustment as the project will be delivered, but it will be costing us a little bit more than what we have originally calculated, and of course, than what we had last year, because last year we were producing from Ukraine in a normal way.

38:41 Thank you. Very comprehensive answer.

And my second question would be again on Port Solution sales and the visibility that you have into Q2. So should we expect the sales to go up even if components availability remains at current level due to the phasings of the of the project?

And would it be -- should we expect it to be up year-on-year in Q2?

39:09 I would rather not now go into the year-on-year comparison. But taking into consideration the challenges within certain deliveries now in Q1, so in comparison to Q1 the sales are expected to grow, because now the Q1 was on a low level.

We do have component shortages in that area. We have had them also before, maybe we had a little bit more now, but we do not expect that the problem would materialize in a very big manner during the second quarter.

39:49 Thank you.

39:49 I know you have some Port Solutions sales, the pricing should go up in Q2 as a function of the price increases that you put in 2021, am I right?

40:02 Regarding Port Solutions and of course also Industrial Equipment, so the steel cost that has been going up, so that has been passed on into the customer prices and it will basically in a way inflate the volume numbers as we go and that will be then visible in the numbers as well. What kind of an impact does that then have to our adjusted EBITA margin is then, of course, depend -- more depending on how we have been managing the margin that we have within the deal sales margin or contribution margin, whatever one wants to call it.

40:45 Thank you, Massimiliano. We have also some questions online so.

I will now take one from there. So it's regarding the Fabio's nomination as the new head of the both business areas.

Can you confirm decision to operate, is this an Industrial Equipment under the same leadership and closer to each other is not at all related to inventory challenges observed in Q1 for Industrial Equipment division? Separately, under previous CEO, Industrial Equipment profitability was one of key attention points and improvement was observed, especially for some more complex Industrial Equipment projects, have some of these old issues come back?

So there were two questions.

41:30 Yeah. And regarding the changes within, or let's say, the organizational changes and the change within the leadership bringing those two business areas under one leadership.

So like I said, this evaluation or assessment has been going on since October of last year. Q1 performance does not have anything to do with the end result in a way so that, this is done because we see that by bringing those business areas closer together we can actually serve our customers better.

We can strategically figure out our offering to those customers in a more efficient, comprehensive way and we also have a need to simplify our operating model and business model within the Industrial businesses, and now that we are bringing those closer to each other, we will be able to better do that rather than in a situation that we would be having then separately. So this is in a way the background for bringing those closer together and how we intend to do that in practice is then something that we will be discussing a little bit later on.

But, of course, decisions will need to be taken before June 1, because that is the due date for the management change. I already forgot the second question.

43:07 The second question was about strategic initiatives that we have had in place in Industrial Equipment? And whether those issues that we had previously, I guess, related to, especially process crane projects.

So, have they kind of come back?

43:21 Yeah. And the strategic initiatives that we have been having, so they continue to be valid and we are actually working on all of them, including industrial equipment profitability.

Process cranes topic was a particular topic within that one. Now that we take a look at the gross margin challenge that we have, so it is not actually primarily coming from process cranes.

I need to say that the process cranes gross margins are also lower than what they were a year ago, but that's mostly because of volume, not because of pricing. 44:01And it is true that we will be having -- we will need to manage very carefully the so-called open steel risk, for instance, between the offer and procurement of the steel plates or coils or prefabricated goods, whatever we do, within the process crane business.

But so far we have been able to do that pretty well. So we are not giving up on the Industrial Equipment profitability improvement plan and process crane business will continue to be part of that.

44:41 Now, this question actually comes at a good time because the Ukrainian Zaporizhzhia situation that I just mentioned, so these additional costs as a result of redirecting products to be manufactured in other sites, so that actually mostly is process crane business. So this additional cost burden, let's say, EUR4 million, EUR5 million on an annual basis, so will mostly be impacting process cranes and hence the idea of having black figures regarding port cranes, sorry, process cranes for this year is, let's say, EUR4 million to EUR5 million more difficult to achieve now than what we thought before the war.

45:26 Thank you. Let's now take our next question from the line please.

45:38 Hi, Teo, Kiira, Magnus from UBS. A couple of questions from me.

Thanks a lot for the good explanation around the margin guidance. First, I want to pursue a bit more questions around the pricing on industrial crane side.

I think you commented pricing so that we would reach year-over-year breakeven or flat gross margins year-over-year into Q3, was that right? But at the same time you also suggested you will hike more in end of the June with the expectation of having that filter through maybe I guess late this year or into next year.

So could you talk a little bit more about that?

46:12 We actually have been, when we take a look at this component pricing in particular. So we have increased prices in the beginning of March and we will make a big price increases now in the beginning of June.

And of course, now in this respect, you cannot actually in a way separate what would be compensating past, then what would be compensating cost increases going forward. We have evaluated the situation.

We are of the opinion that the increases that we are going to do there now so they will be good for the market situation where we are at the moment taking into consideration the inflation and of course the demand situation on the other hand. 46:52 And now only the caveat, of course, in this one is that the impact will be coming to the P&L, let's say, three to six months after the fact that we have made those changes.

So the price increase is done in March will be visible in the autumn. The price increases that -- early autumn.

The price increase is done in June. So they will be impacting towards the end of the year in Q4.

47:25 The -- let's say, being on par with the gross margins of previous year, so like I said, Q2 we will most likely in components be below, Q3 is then a bit depending on the price increases, but also depending on what kind of volume we will be able to push out from the machinery during the third quarter, because that has a gross margin impact as well due to the factory resources being above the gross margin in this calculation.

47:57 Perfect. Thanks a lot.

That's very clear. And then related to the sales delays, could you explain a little bit on how big sales delays were per business area and what impact it had on EBITDA?

I think you gave a good breakdown of that in Q4. So any color on that would be helpful.

48:14 Sorry, could you repeat that one. I'm not sure that I follow the logic.

48:19 Yeah, absolutely. You commented about sales delays in the quarter across business areas.

Could you help us quantify what that was per business area and the corresponding impact on EBITDA, because you gave a very good breakdown on that in Q4.

48:36 Yeah. Maybe we can -- we can maybe in a way comment this at least on a group level to give you an idea.

The so-called late backlog increase in the first quarter in comparison to the end of the year was maybe something between EUR30 million and EUR35 million. In reality, it may be a little bit more, because, of course, what we are doing is that, we are all the time in a way rescheduling the delivery times towards our customers.

So this equation worked well in -- when the component shortages started. It doesn't necessarily work quite as well at this point of time.

This one is maybe quite equally split between the BAs. What would you say?

I think that there is no major difference between the BAs in terms of numbers, so EUR10 million plus for each and every BA. 49:33 On top of that, we have then had, let's say, delivery concerns issues that are not directly backlog related and these are then maybe more within the ports business.

So we have had cases where we would be ready with the delivery. But we haven't had shipping capacity for example.

So there is not a ship available as a result of which the revenue recognition doesn't happen. This is maybe another, let's say, EUR10 million, EUR25 million on top of the component shortages, maybe EUR15 million to EUR25 million on top of the component shortage, mostly, of course, in ports business.

50:14 Perfect. Thank you so much.

I guess, my final one if I can squeeze in. Could you split down how the order cancellation and sales reversal split between the business areas as well that would be helpful.

50:24 Yes. So it is so that of the orders roughly EUR60 million is ports, roughly EUR 20 million is industrial equipment.

And of the sales, EUR13 million, maybe slightly more is industrial equipment, what does it mean, 19 is --

50:44 The numbers are actually available in the report. In the chapter about the impacts of the war in Ukraine.

So we are breaking down the sales and EBIT impact by business areas and we also have the current order book in Russia.

51:00 Yeah. You are right.

51:01 Yes.

51:02 I think that the sales impact for Ports is around EUR19 million. But yeah, the exact numbers can be found in the report.

51:10 Perfect. Thank you sir for that.

I'll refer to the reports. Thank you so much.

51:15 The next question please.

51:25 Yes. Hi, It's Tomi from DNB.

Can you hear me? Can you hear me?

51:32 Yes, we can.

51:33 Yes, we can hear you.

51:34 Okay. Yes.

Coming back to the pricing element, sorry, you mentioned in the very beginning that the volumes were down, adjusted for the currency and sales reversals, maybe flattish. Is it fair to assume that the pricing perhaps -- price increases have been at the level of 5% or am I totally wrong?

51:56 If you take a look at the so-called inflation impact or pricing impact Q1 versus Q1, so I would say that, depending a little bit on the product category, we may have been somewhere between 5% and 10%. So the average is, there may be 7% to 8% if you take a look at the inflation impact in a way in sales prices Q1 versus Q1.

52:25 Okay, good. Thank you.

And second question, also put it frankly, do you think that you can return to sales growth already in the second quarter?

52:38 Yeah. And now we would not like to start making comparisons in a year-on-year comparison quarter to another one.

What we have is our sales guidance for the full year, where we are saying that we will be having higher sales this year than last year. But breaking it down to the quarters, we would rather not do.

53:05 Okay. Thank you.

53:07 Thank you. We could now then take again one question from the chat.

So what are your plans for refinancing the EUR250 million bond maturing in June?

53:21 Yes, we actually have plans to refinance and, let's say, I don't know if there are any major secrets there, but the discussions are ongoing and maybe we do not go into the details here how we will be doing that. But the idea is that, that we will be, let's say, drawing additional funding not, for example, use revolving credit facility for that perspective.

But now that things are still in a way being discussed so maybe we do not go more into details regarding this one.

53:58 Yeah. Thank you.

Let's now take the next question from the line please.

54:11 Yeah. Hi Teo.

Just a question on the components pricing side. I mean, one would assume that it's a bit more dynamic than the other businesses in the industrial equipment.

So kind of what has caused the fact that you are lagging a bit behind? Is it that the inflation is picking up?

Is it more about customers not accepting the price increases? And then perhaps separately, now you are then, again, hiking prices going into Q2 and Q3.

Do you think this drives demand in Q1? I mean customers pre-buying ahead of these price hikes?

Thanks.

54:43 Yes. I do not think that the price hikes as such would have driven demand particularly in Q1.

The price increase that we did in the beginning of March did not have a major impact into the monthly division of order intake. It did some and it usually does some, but it was not extraordinarily big.

We have now just announced the price increase for the beginning of June. And like I said, that is quite a bit larger than the ones that we have been doing before.

So it remains to be seen that if the behavior is different there. It will probably -- that will, of course, be within the second quarter, because it is in the beginning of June.

55:36 Regarding the other question that, how the logic works. So in this case and when we take a look at the component or hoists or kit package that we have regarding the hoists, so part of the material is in a way inventory material, which we are processing in our own facilities.

Part of that is purchased goods and the purchased goods are something that come into the kind of the production directly. And I guess that more it is in that one that the inflation in that area has been quicker and stronger than what we have been able to estimate earlier and that's why there is a gap from the timing perspective.

And that is the gap that we now intend to close with the price increases that we are doing.

56:32 Okay, thanks. And the second one is, again, on the EBITDA margin guidance.

And we've been talking about the volume growth and the gross margin side. But is there any -- or what kind of pressure to increase cost kind of below gross profit?

I mean, going back to '21, was there still an abnormally low operating cost because of COVID or something like this?

56:55 Yeah. That is a good question, of course, and I didn't actually mention it.

We of course -- like we already earlier discussed so that there is a risk that some of the costs will increase in addition to, let's say, normal salary inflation that we would be having and we would be going back to, let's say, closer to the levels that we had pre-pandemic. And I think that this kind of risk still obviously exists.

We are managing this to the best of our understanding. And when we take a look at the Q1 cost base and compare that to the Q1 of ’20.

So the margin challenge is -- the EBITDA margin challenge is not there. So the fixed cost overall has been very well under control.

Actually across the BAs and regarding service there was even a specific comment on that, but also otherwise this has not been a major issue at least as of now.

58:01All right. Thanks so much.

58:03 Thank you. I still think we have time for one more question from the line please.

58:27 Yes, still coming into the order in Industrial Equipment. You mentioned one large process crane order.

Any comment on the magnitude?

58:37 Did we actually talk about the magnitude?

58:40 Well, I think it's available actually publicly somewhere. So it's one of the US Navy orders quite similar to the couple of ones that we have received in previous years.

I think perhaps that answers your question, Tomi.

58:58 Thank you.

59:01Thanks. Hey, Now, time is running out, so it's time to conclude our Q1 conference.

Thank you everyone for the good questions and active participation. As a reminder, we will issue our half-year financial report on July 27, next summer or this summer.

Have a great day, everyone. Thank you.

59:26 Thank you.

Bye.