Konecranes Plc

Hello, everyone, and welcome to Konecranes Q3 Earnings Conference. My name is Kiira Froberg, and I'm the Head of Investor Relations at Konecranes.

Here with me I have today our usual people our CEO, Anders Svensson; and CFO, Teo Ottola, of course. Before we go into more details, just a kind reminder that the presentation includes forward-looking statements.

And the agenda is as usual. First, Anders will talk you through the group results after which they will focus more on the business segment day.

But I guess now -- we have the Q&A of course too. And I guess now, Andes, it's your turn to take over.

Please go ahead.

Thank you, Kiira and a warm welcome from my side as well to this webcast for the third quarter results. The headline of the quarter is continued strong performance and our demand environment held up really well in the third quarter.

The orders were up 12.5% year-on-year in comparable currencies and sales was strong in the execution and we delivered almost €1.1 billion and that was up 6.8% in comparable currencies versus the previous year. That gave us an all-time high margin for the third quarter with an EBIT of 13.4% -- EBITDA of 13.4%.

The year-on-year profitability improvement was driven by pricing versus inflation by higher volumes and strong strategy execution. Profitability improved in all of our segments and we had an excellent cash flow at €187 million for the quarter.

Looking at our market environment and I'll start with our industrial segments and the operating environment was challenged by as you can see the macro indicators both when it comes to manufacturing capacity utilization, but also manufacturing PMIs. They were really challenged in Europe, U.S., and also in China.

But despite that we managed to hold up a strong order intake for the quarter. Moving then into our Port Solutions and here we follow the container throughput index, which has remained strong at up 8% on a year-on-year comparison.

And we can also see that in our order or sales funnel in the port side, it becomes very strong. Moving then into the group order intake.

And we delivered €956 million order intake for the quarter and that is up 12.5% versus the previous year in comparable currencies. And the increase was driven by Service and Port Solutions, while we saw a decrease within Industrial Equipment and that was then driven by the process crane lower order intake, while standard cranes and components were above the previous year.

We saw an increase in EMEA and a decrease in Americas and APAC. In net sales, as I said, strong sales execution.

We delivered €1.070 billion and that was an increase of 6.8% versus the previous year in comparable currencies. And here we saw an increase in all our segments and also in all our geographies.

The stronger sales execution gave us an order book or a book-to-bill in the quarter below 1. And the order book was at the end of the quarter €2.850 billion roughly and that is then 12% down versus the previous year in comparable currencies.

If we then move into our profitability. And we saw here a sequential decline in profitability just like we discussed in the quarterly webcast after the second earnings report.

But still we delivered a strong performance €143 million and that equivalent then to 13.4%. And as I mentioned, it's an all-time high for any third quarter.

We had an increase in all of the segments. And the increase was mainly then driven by price versus inflation, increased volume, and a strong strategy execution.

Also the gross margin improved on a year-on-year comparison. If we then look at our progress towards Konecranes' financial target that we communicated in the Capital Markets Day of 2023.

So we can see that given the strong performance in both the first and second and now third quarter of this year, we can see a first group and service and industrial equipment are performing within the target profitability range. And we can also see that Port Solutions are getting closer to the target range as well at 8.8 rolling 12 months.

If we then instead look at this a bit year-to-date performance. So year-to-date we start with the volume then for the group.

We're up 7.4% in comparable currencies. And that's clearly faster than the estimated nominal world GDP development for 2024, which I think is around the 4.5%.

So good performance in sales. If we look at the profitability then for group year-to-date it's 13.0%.

Moving into service. And here we have a growth of 7% also here clearly faster than the defined market.

And then the profitability is 21.2% year-to-date. Industrial Equipment where we targeted to focus on profitability and not focusing on growth.

Here we have a 2% growth year-on-year year-to-date. And if we look at the profitability then it's 8.8% year-to-date.

In Port Solutions very strong sales execution a growth year-to-date of 13% versus the previous year. And here if we look at the profitability, we can see that ports is actually at 9.2% year-to-date.

So also here then ports would be within the target profitability range. We go then to our demand outlook.

So we start with the industrial customer segments. And here we say that our demand environment within Industrial Customer segment has remained good and continues on a healthy level.

And we have seen that throughout 2023 and also the first three quarters now of 2024 that despite the weakening macro indicators we are managing to deliver a strong order intake. And we believe that the situation as it is will continue within the Industrial segments.

I mentioned last time that interest rates are impacting customers' decision-making process especially here on the process cranes, which is then delaying orders. We don't see any cancellations in the order book and we have an influx of new cases into the order book -- order funnel as well but it's delaying the decision making.

We don't see that effect when it comes to standard cranes and components. If we move then into our Port Customer segment.

Here we say that global container throughput continues on a high level and long-term prospects related to Global Container handling remains good overall. And we have seen here that our order pipeline is strong both when it comes to cyclic products the activity but the funnel is strong when it comes to projects of all different sizes.

But as you know and as we have discussed many times this is a lumpy business. It's a project business.

So we get the order intake when customer has matured the project into a decision-making time and that's when we can get the order intake if we are the provider. So that will continue to be fluctuating also going forward.

That's the nature of a project business. We still believe that Q3 of last year was the trough when it comes to order intake regarding ports and this quarter actually was the strongest order intake in the last five quarters with imports.

And if we look at our funnel. Here we have interesting discussions on several projects also going forward.

But you never know in what month or even quarter these projects will then materialize into decision-making stage where we can get the order intake. But the funnel looks strong as said.

I then move into the financial guidance for the rest of the year or for the full year. Net sales is expected to increase in 2024 compared to 2023 and the comparable EBITDA margin is expected to improve in 2024 compared to 2023.

And as a summary, we had then a quarter with a very healthy order intake, strong sales execution that enabled us to deliver an all-time high profit margin for a third quarter. And complemented with that was the free cash flow that was on an excellent level.

And we of course aim going forward also to continue our journey on improving our profitability and keeping our streak of now seven quarters in a row with year-on-year EBITDA margin improvement. So with that, I will welcome our CFO, Teo Ottola to go more into the segment financial details.

So, please Teo.

Thank you, Anders. And actually before going more into the segment level data, so we could take a look at the comparable EBITA bridge on a quarterly basis so Q3 2024 versus Q3 2023.

And when we take a look at the EBITA between those two quarters, so we actually made €20 million more EBITA now in the third quarter of 2024 than one year ago. If we unpack this one a little bit.

So, first we can comment that the pricing impact in a year-on-year comparison was roughly 5%. Now as Anders mentioned, our sales grew a little bit less than 7% with comparable currencies.

So this does give us an underlying volume improvement, but the volume improvement is quite modest somewhat a little bit less than 2%. This 2% underlying volume improvement, of course, gives us an operating leverage -- positive operating leverage into the result, but not as much as for example in the second quarter.

We did not have a meaningful mix impact in the quarter. But we did, of course, have efficiency improvements as a result of for example the optimization program as was already mentioned.

But when we combine all of this and take a look at the profitability improvement of €20 million, so a vast majority of this one comes from the net of inflation pricing. So the price increases of 5% have been more than the corresponding inflation when we take the weighted inflation between material as well as labor..

Fixed costs are increasing in a year-on-year comparison broadly in line with what we had for example in the second quarter as well. Overall, there was nothing very specific or extraordinary in a way in the third quarter of 2024 in comparison to the situation a year ago, and then if we take a look at the segments and start with Service as usual.

So, service order intake €372 million. That is an increase of 4.5% with comparable currencies year-on-year.

We actually had an increase in field service and parts and we had an increase in all of the regions. We have a small decline sequentially, but as we already commented regarding the Q2 earlier so that was actually a very good quarter also from the volume point of view when it comes to the service business.

Our agreement base actually continued to grow more or less in line with the order intake growth our agreement base grew 4.7% year-on-year with comparable currencies. Then when we take a look at sales €392 million that is 7.2% year-on-year improvement with comparable currencies and also their increase in all regions as well as then both in field service as well as parts.

Order book came down a little bit by some 7% to €444 million. Then if we take a look at the EA.

Good performance continues. The €85 million, or 21.6%, there's a 0.7 percentage point improvement in a year-on-year comparison, which comes from higher volumes as well as from pricing and gross margin naturally improved as well.

In a sequential comparison, we have a small decline in comparison to the second quarter. The main reason being that also the second quarter was good from the volume point of view.

It was also very good from the execution point of view and just was a very good quarter from the Service business point of view. So nothing more extraordinary in that small decline either.

Then if we go into the industrial equipment, and again, start with the orders €289 million. Actually when we take a look at it from the external orders point of view and comparable currencies, we have a decline of 2.7%.

Here, we -- of the business units, we had increase in standard cranes as well as components but we did have a decrease in process cranes. And as Anders already mentioned, there has been slowness in the decision-making within that subcategory of products that has continued now also during the third quarter.

Again, if we take a look at the sequential comparison within the Industrial Equipment, so actually component orders were more or less on the same level as they were in the second quarter. Standard crane orders came down a little bit from the second quarter.

Sales €317 million, 6.1%. Again, external sales with comparable currencies improvement there.

Increase in standard cranes and process cranes but a decrease in components in a year-on-year comparison. Order book down here as well by about 11% to approximately €870 million.

And then EBITA, a very good result, €31 million or 9.8%, more than 3-percentage point improvement year-on-year, of course, driven again by volume growth pricing also the optimization program that has been mentioned. This is also a very good result in a sequential comparison, because as you may remember we had some one-time gains in the second quarter that did not now repeat themselves in the third quarter and yet we have the margin on the same level as we had in the previous quarter.

So then moving on to the Port Solutions order intake €334 million. That is as much as 43% higher than what we had in the previous year Q3.

We had actually good order intake in mobile harbor cranes, straddle carriers, AGVs as well as port service. And actually the order intake now includes one bigger deal, particularly in AGVs.

And bigger deal meaning we have been using, let's say, definition that more than €80 million. So that is now included into the order intake numbers in the third quarter.

Then when we take a look at the sales number, so €401 million that is 6.6% higher than what we had a year ago. Also here, order book down by 16% to approximately €1.5 billion.

And then finally, EBITA, good result here as well €39 million, this is a margin of 9.6% and an improvement of more than 1 percentage point in a year-on-year comparison. Here the improvement primarily comes from pricing and gross margin increased in Port Solutions as well.

Then a couple of comments on the balance sheet and cash flow. Net working capital about €400 million at the end of the third quarter.

So it's 9.6% of rolling 12-month sales. So there's a decline in a sequential comparison from the second quarter.

It primarily comes from inventories, which is good obviously. And then this is also visible in our free cash flow.

So we had an extremely good free cash flow as Anders already mentioned, of course driven by the good result but also then by the release in the net working capital. And our cash conversion on a year-to-date basis is again close to 100% where it has then typically also been.

And then as a final slide regarding the presentation gearing and return on capital employed. So of course, the good cash flow is visible on this slide as well.

Our net debt is now €267 million. That is a clearing as low as 15.4%.

And then our overall capital employed has continued to be quite high. We also have a lot of cash at hand.

But still the return on capital employed is improving, or let's say, flat to improving in comparison to the previous quarter, and we are reaching 20.4%. And this one basically concludes the presentation.

And before we go into the Q&A, so Kiira probably, has a small announcement to do.

Thank you, Teo. Yes, I will take the opportunity here to do some marketing.

So we are excited to announce that we are planning to host our next Capital Markets Day in London on May 20, next year, to discuss our future ambitions as well as then what's next for Konecranes. So please save the date in your calendars.

And we also have an investor and analyst newsletter that you can subscribe from our investor website, so then you get to hear the news about for example, site visits and other events in advance. So please go and subscribe it from there.

But now I think it's time for the Q&A, which I believe that, the analysts are at least eagerly waiting. And as a reminder, you can also send us questions through the chat function.

Thank you. So operator, let's please open the line for the questions.

Hi. Good morning.

Thanks for taking our questions. I have two questions if possible.

The first one is whether can you give us a little bit more color? Like obviously price, was very -- price raw mat was very strong components still this quarter, especially on the equipment divisions.

As we move forward are you continuing to increase prices at the moment? What are the raw material trends?

Or will this you expect this impact to save through 2025? That was the second question after.

Yes. If I start, I think the -- our main ambition with pricing is of course to compensate for inflation levels.

And -- but we don't adjust our prices continuously throughout the year unless we have to. So we saw a somewhat raw material benefit in the second and the third quarter, especially I would say within maybe ports and the industrial equipment side.

But we believe that, we are in a price leading position within our industries and we will continue to compensate inflation with praising also going forward.

Okay. Thank you.

And then the second question more just trying to understand a little bit on service what you are seeing at the moment. Can you talk a little bit through like the utilization of your installed base across the regions?

Sort of what indications is that telling you at the moment? Thank you.

Thanks. So what we can see is we have a true connect where we have connected equipment around the world, which we measure utilization.

And here we can see the trends that are also visible in the macro indicators. So within the industrial side we can see that, we have less moves with the same equipment versus what we had in the previous year.

And within ports, we can see that it's actually more moves just like the increased container throughput index has indicated. So I believe that, that is quite similar trends to what we see.

But despite that, we have managed then to keep up our service order intake and sales in a good way just like we announced to keep up with the standard equipment sales, or standard crane sales, and also the components. So it's difficult to know any market data of course.

But to me that indicates that we are taking market share in those areas.

Got it. Thank you.

Thank you.

Hi, guys. It's Antti from SEB.

A couple of questions from me. First is on the port side.

And I wanted to maybe better understand the revenue outlook going into 2025 in a sense that your book-to-bill has been below one now this year and the backlog is a little it's down year-over-year. But could you maybe talk about what you expect for deliveries let's say next 12 months the composition and length of the backlog.

And also, maybe, it would help to have some visibility on the size of the let's say more short cyclical business like lift trucks and so on.

Yeah. So if we start with the order book for -- to be delivered in 2025.

We don't reveal that more than once a year and that's after the Q4 report. Then we go through how much we have for each year going forward.

But if we look at what has happened we are as we can see €400 million roughly below one year ago at the same point in time in the order book. What I shifted is primarily I would say the longer projects.

But when you get large orders within the Port Solutions, they are rarely to be delivered within the next 12 months or so. So they are normally with a longer delivery time.

So I would say we haven't maybe built as much on the longer perspective, while it might not have as a big impact as you maybe would assume for the next year. But then it's also of course, what kind of mix do we have?

We have some products which are maybe performing better than previously. And there we need to increase capacity.

And there can be other product lines that are doing worse than the previous year. And there we might need to reduce our production capacity.

But I would say that's business as usual in a company like ours. Then the second part of that was regarding lift trucks.

So lift trucks is a bit on the softer level, if you compare it to where it was at its height. But if you look at it on a year-on-year comparison, order intake in this quarter was similar to the previous year.

And also sequentially, it was similar to the order intake versus the second quarter.

Do you feel that on the lift truck business it's pretty much in line with the underlying demand? Or is there still some type of a distributor or inventory reductions being done?

There is inventory reductions continuing to be done at our distributors. And when you have short lead times et cetera, then distributors are less prone to invest in floor plans for example.

So there is an effect here and that's sort of the bulwark effect you get both going up and going down with that type of the go-to-market model, of course. I would say the issue is not at all like it was previously.

So I would say it's more in balance now, than it used to be and we can also see that since we are now flat year-on-year and flat sequentially also in lift trucks.

All right. And then the second topic was on capital allocation.

And I mean the balance sheet is very strong right now. I'm not going to ask you about any extra dividends or such.

But maybe on the M&A front, could you remind us what are you doing in a sense? What type of organization do you have?

What's your process on scoping targets? And where do you kind of see the most attractive opportunities whether it's kind of expanding offering or geographies?

Or what's the logic?

Yeah. So we have of course an M&A strategy which is that we expand our presence where we already are.

It could be sort of bolt-on service acquisitions both within industrial and with imports and I think we have seen that in both those areas. And then it could be geographical expansions to cover white spots et cetera.

And we could also then expand our product offering, which means going into sort of neighboring product offerings, which are sold at the same customers et cetera to sort of diversify our offering a bit. And we are working with in all of those avenues and we have a funnel which we started with.

I think it was 1100 companies and we have a prioritized funnel which we work with and keep track of continuously. And of course, some of those move forward and some of those don't move forward.

But our ambition is to continue with the bolt-on acquisitions. And then if we find the right for diversifying acquisition, we will also continue to pursue that, if we can be successful within that.

So I think we are working quite systematically. Of course, with M&A it's very difficult because you can't speak about it until it happens, right?

So we can only talk about the direction of why it's what we are doing as a company.

Yeah. But I mean this has been a bit of a mixed year in a sense that perhaps some of the targets haven't done as well as you.

So do you kind of feel that it's getting more opportunistic when maybe all of the targets are not performing as well as you in terms of valuations and so forth. So how has that been this year?

Yeah. It's -- I mean it increases the ability for us to acquire worst-performing companies at maybe even lower multiples than it would have been otherwise.

So it's of course, an opportunity for us, especially when it comes to bolt-on acquisitions. If you're doing diversitification investments or acquisitions, then you're talking about different measures to think about and how we can leverage that in our existing structures et cetera.

All right. Fair enough.

That’s all for me. Thank you.

Thanks, Antti.

Thank you. Let’s take the next question please.

Hi. Thank you.

I have a few questions. Firstly, going back to the pricing topic.

So you said that in sales, the impact was 5% but how much if you think about the new orders, how much is pricing higher than it used to be?

Short answer is at a similar level, or slightly lower maybe.

So you are taking new orders at lower price than a year ago?

No, no not lower price a year ago, but maybe the gap is not 5% on everything that comes in because it needs to be matching with raw material prices of course and labor inflation. So we're not taking in orders at lower prices than we did a year ago or than we did last quarter.

Maybe a little bit to fill in for that one. So if you take a look at it from the segment level point of view.

So we have still been also in the P&L, we have still been in the situation that basically in all of the segments the prices are now on a higher level than what they were one year ago. And as Anders was mentioning, I guess we are increasing prices still.

So I mean, of course, then you will need to exclude those kind of cases where you have a project where you have a lot of steel content. So of course that is reflected in the price.

But when you take a look at more like standard and let's say lease price products. What we have now seen however in the -- particularly in the industrial equipment area is that the raw material cost from the material point of view has started to go down.

And this is a part of the thing that Anders was also mentioning, which is visible to some extent in the good profitability of the industrial equipment in the third quarter as it also was a little bit also in the second quarter.

To be clear, we are not taking orders being dilutive from where we are. We are rather taking orders being accretive from where we are but the gap is narrower, right?

Okay. That's clear.

Then secondly on the margin drivers. So it seems clear that pricing was a big driver, but you also did strategy execution, which I kind of understand is leading to all the efficiency improvements in the industrial side.

So do you have a number for what was like other drivers than pricing in Q3? And how much do you still have left from all the actions that you are taking to do?

Yeah. So we in Q3 -- after Q3 2022, we talked about the optimization program that we launched and that's within the industrial side, Industrial Equipment and also service side to some extent.

The main benefits are within the industrial equipment side. And here we said by the end of 2025, we will have €40 million to €50 million EBITDA improvement in a running 12 months perspective.

And we said that that would come with a onetime cost of €40 million to €50 million as well. And here we had in the first year 2022 we had €1.5 million roughly positive effect.

In 2023 that figure was €11 million and we are now forecasting for this year another €11 million. And consider this is now the industrial equipment side.

So this is not the full package. There are also a couple of millions within Industrial Service.

But this is just the optimization program. Then we have a lot of other strategic initiatives that we are implementing, which are not included in this initiative.

For example, everything we do with imports when it comes to project management excellence, when it comes to quality, when it comes to lead times efficiency, logistics, et cetera. So there are lots of other initiatives.

And that's important maybe to mention, it's not only this program that we are doing.

And if the question was that in the third quarter, did we particularly receive a lot of benefit as a result of the optimization program in the industrial equipment in comparison to the other quarter. So that is not actually the case.

So the third quarter benefit from that in a year-on-year manner was probably a little bit less than what the average would be for 2024. So that was not a bigger explaining factor than in any other quarter let's put it this way.

Maybe a little bit smaller one as a result of the different kind of timings. But the bottom line is like Anders said this €11 million we still believe that we will be able to see for the full '24.

Okay. Thank you.

Then, thirdly to the demand discussion. So you talked about kind of challenging environment and we can see the PMIs and everything, but you still say that you are able to get good orders.

So, why do you think this is the case? You indicated that maybe taking some market share, but like what's overall the driver?

Which are the segments that are like supporting good order for you in this environment? And why do you think this is so good for you?

Yes, that is an excellent question. I think, there are a lot of initiatives that we have taken to improve our competitiveness, improve our lead times to customers et cetera.

And that of course becomes more attractive to customers. So, that is sort of the -- taking some market share.

I think there are other demand drivers that works in our favor. It's digitalization automation.

We are the leaders within this field, I would say both within the industrial side and within the ports side. Other things that might work in our favor to some extent is reshoring.

When you move a factory, you are not bringing old claims with you. So you are investing then in new facilities and new cranes and you're also then creating a demand of port equipment from within new shipping lanes, so that's sort of above GDP growth.

So I think there are quite a lot of these underlying demand drivers that work in our favor. Plus, we can also see that one market that has remained very strong and that's the North American market where we have a relatively high market share.

So that is of course also something that has benefited us to some extent.

Okay. Thank you.

Let's now take the next question please.

Thank you. A couple of questions.

Firstly on the work impact. So you mentioned and we can obviously see the numbers that there was a bit of a release there in the third quarter driven by inventory which obviously is good.

How do you think about that going into the fourth quarter? Should we assume some further relief there and also looking into '25?

What are your thoughts around that?

We have typically not given this kind of a quarterly forecast for the net working capital, because it is just of course a measurement of one balance sheet day in this case at the end of the year. What we can of course note is that currently with this 9.6% of rolling 12-month sales, we are nicely within the target territory of ours, which is to be able to be below 12% of rolling, 12-month sales.

And of course, we want to continuously improve the situation and the terms of the net working capital. But I think that this being below 12% on a let's say over-the-cycle basis is -- continues to be a good target for us.

So we are aiming at being below that. And of course, the lower we can be on a continuous basis, the better it is.

This time, I think that you are right, but in your comment this was not primarily driven by advanced payments as it usually is so that the big shifts come from advanced payments. In this case, it was more from the inventories which is actually even better.

Right. Okay.

No that makes sense. And then a question on still coming back to the earlier question about the lift trucks.

Just wondering, if you could give a bit more color of what you see there maybe comment how big of a share of your totality that is roughly speaking. Are the trucks moving at the distributors currently?

Where are the distributor inventories now compared to normal labels and when can we assume that to normalize? Any additional color there would be appreciated.

What we can say is that, the business is back to normalized lead times, which is then roughly one quarter. Maybe we have two quarters still on some of our products.

So our own operations have normalized. We can also see then that our distributors' inventories are going down and we are not going into where those are and how much those are, but it's going down to a much more normalized level.

But also given the weakening macro indicators and also shorter and quicker lead times and even some products are stock items nowadays, which they weren't 18 months ago. So then ordering for floor plans, distributors try to hold back on, because they don't need to.

They can get equipment quicker. So I would say, it's much more normalized in the whole chain now than it was.

That doesn't mean that we believe that we will have a large upswing in the next couple of months or next couple of months and quarters maybe. But we believe that it has definitely stabilized.

And we also think that that is shown in our year-on-year and sequential order intake figures. So we are quite confident with that.

And then regarding the size of the business, we are not going out with the size of the different business units.

Okay. No, that's fair.

And then a final one. I think you mentioned that, there was a big order booked in the Port Solutions order intake in the quarter.

If you just could repeat that what it was what the size was? I kind of missed that.

And also as a follow-up to that question. I think we have previously said that you do see better activity in the pipeline for these bigger projects.

Do you see opportunities to book some more of this into Q4 as well? Or how does the back or the pipeline look like?

Yes. So if we start with the order, it was an order for automated guided vehicles.

And this is one of our automated products then with imports, which we target to increase the share of. So very positive.

Like Teo said, we categorize large orders sort of SEK 70 million, SEK 80 million plus and this qualifies in that range. We can also then see that the other products in ports are doing quite well, as well.

We saw like Teo mentioned, year-on-year, mobile harbor cranes are up, straddle carriers are up, services are up. So other products are also doing well.

Lift trucks have been flat. So where we see that we had a little bit lower was on other projects with imports that materialized into order intake in the third quarter.

But as said, we have a very strong sales funnel with imports and several of those projects are under discussion. But as I mentioned, it's very difficult to forecast or estimate when those projects then materialize at the customers into the decision-making.

But the kind of situation in the sales funnel is strong, if you compare it to one-year ago for example. So the business is doing well and you can see that in the global container throughput index being up 8% year-on-year.

So it's a well-performing business segment.

No, that’s clear. Thank you very much.

Thank you.

Thank you, Mikael. Let's now take a couple of questions from the chat here in between.

So the first one is related to our financial guidance. In 2022, your guidance was that sales will stay the same or grow and the sales grew 5%.

So is the right interpretation that your sales will grow over 5% because you gave positive profit warning.

Good question. Teo?

No, we are not specifying the percentage as such. And of course, we have our internal guidelines on how we are doing this but we are not unfortunately specifying these externally.

So there is not a given in the individual percentage that I can give as a threshold for improvement or let's say flat to improve.

And then the next question would be related to the shift to shore crane production in the US. So could you update us on the progress of setting up STS production in the US?

Yes. So we have internally – in the recent history, manufactured large port cranes already in the US.

We haven't done ship to shore cranes now. And now, it was announced, I think it was in the third quarter, right, that we are setting up this network of partners to be able to build ship-to-shore cranes within the US.

So we are continuing on that. We haven't built any yet, and we haven't got any orders yet of this ABA qualified cranes, which would then be built in the US, because one should understand that even if we set this up, it's much more expensive to build a ship-to-shore crane in the US, than it is in other parts of the world, where labor and steel are much cheaper.

So, we don't have any orders, yet. There are projects where we discuss this with customers, but it has not come to any decision making when it comes to funding, et cetera, with ship-to-shore cranes.

But we are continuing to enable us to be able to qualify or that our customers qualify for BABAA funding as needed in the future. And it's our duty, I think to adapt to demands in different parts of the world, so that we can enable to do business with our customers there.

And we are continuing to progress on setting up that network.

Thank you. I think that we can now continue to take the questions from the line, please.

And as we start to run out of time bit by bit, so I kindly ask you to restrict your questions only to two, please. So, let's open the line again, please.

Hi. It's Tomi from DNB.

Back to the port order discussion, it's the third quarter included large let's say €80 million. It went actually not too far off from the trough third quarter, and also the first quarter 2024 order levels.

And you mentioned, that decision making is getting closer in the second quarter in connection to the second quarter numbers. Is it -- are you -- can you repeat the commentary that decision making is getting closer?

Or was this the only one that you had in mind?

So like I mentioned, I think a lot of our products actually had a positive order intake in the third quarter. We mentioned mobile harbor cranes, service, sell carriers, automated guided vehicles, even software had positive order intake year-on-year.

So where we were lacking order intake was on the larger project cranes or larger port cranes like RTGs, RMDs, ASCs, STS. So, those we didn't get any.

We had some projects, but not as many projects materialized in the third quarter, as we might would have hoped or planned. However, still the performance, the underlying performance of the more day-to-day business, the bread and butter business, is performing very well.

And then these projects, they materialize when they materialize with customers' processes. So it's very difficult to deem one quarter, when it comes to any port order intake.

And that's what we have said previously as well, because these funders impact so much, if they come or not. And then when we talk about the sales funnel.

Like I said, we have several projects that we are in close communication around, with customers. But when those will materialize to actual decision-making and then a potential order intake is very difficult to say.

So what we say now, is that we don't see any material difference in the demand within the next couple of months for us. So, that's what we say.

Maybe one comment here to add is that the ports business is, overall mainly project business. So even if we look at the Q3 last year, we book projects then to.

So they are of different sizes. But one can't really -- I mean it's the normal nature of the business that sometimes you have larger projects, sometimes you have always only small ones and a lot of them.

So, that's the nature and dynamics of the business

Service annual agreement base 4.7% growth in comparable currency basis. Can you talk about was that mainly driven by price?

Was actually the actual pace growing as well?

No, that's also a volume growth in that. So, the service agreement within the industrial side had both a price growth and volume growth.

Of course we see it. Thank you.

Okay. So, let's now then take next question from the line please.

Yes. Hi, Anders, Teo, and Kiira.

When you had the Capital Markets Day, you said that you don't believe it will be sustainable to have a margin above 15%. But Anders you were pretty young to Konecranes then and performance has been impressive.

So, I'm not trying to ask for new financial targets, but just a general kind of considerations I mean both kind of markets are attainable in these different businesses we operate?

I hope you have now saved the date for the London Capital Markets Day. I think we will take this discussion there then, but maybe if the gentleman wants to give a quick comment.

Yes, I think the -- we said in the CMD that our first target is to achieve this latest in 2027 with the ambition to do it much quicker than so. And hopefully we are on a good path to be able to complete that.

And then, of course, we would then evaluate and see if we should come back with updated targets and one of those occasions would, of course, be in the CMD next year to discuss that further.

You said that we don't believe it will be sustainable to have higher margins. What was the reason for that comment there?

No, I said like this, I said if we are above the target, it will probably not be sustainable over the cycle. And if we are below 12%, we need to take measures to make sure that we are within the range again.

So, it was a comment that's sustainable over the cycle.

Okay. Thank you.

And then can you help us to understand the situation with the unions in the U.S. when it comes to port automation and potential impact on your orders given that you have postponed some discussions with unions, the [indiscernible] et cetera and has that already impacted your orders?

Customers are not allowed to automate like they hoped to.

Yes. So, first, I think the strike of three days have a very limited effect on our business.

But of course the -- many of our port customers in the U.S. of course waiting for this agreement to be finalized.

And I think it stand for the 15th of January right? So, after that, they would more know what -- how the future will look within the next couple of years.

But of course the trend going forward will be to continue to automate. The only question is in what areas is the union holding specifically to the mobile transportation or is it also in the larger port cranes et cetera?

So, I think those discussions are being hopefully then cleared out before the 15th of January between the unions and the employers. And -- but going towards digitization and automation over time it's a given that will happen everywhere basically.

We postponed orders for you that this was not decided these trucks?

I don't think it postpones orders in any significant matter. There might be delays of then would it be one quarter for decision-making until everything is cleared.

But in general that is not a big impact of postponements I wouldn't say that.

Thank you, Tom.

Okay. Thank you.

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

Hi. Erkki from Inderes here.

Talking about the salaries, where do you stand in terms of salary negotiations in the most important regions? I mean what should we be modeling in as wage inflation in 2025?

It looks to have been close to 7% in the last 12 months if my calculations are in the ballpark. And added to that the sales per person versus cost per person delta going forward?

When we take a look at the current situation and take let's say year-to-date 2024 for example. So in the wage and salary inflation we are somewhere around 5%.

And this level is not materially different than what it was a year ago. So actually the wage and salary inflation has continued on this say 4% to 5% level.

And now we are probably closer to 5% on a global level. The inflation rates are going down.

So -- and the negotiations are starting or ongoing. And as you probably know there are all kinds of different sort of approaches in different countries regarding this one.

But I guess that it would be fair to assume that when we take a look at next year as a whole we would be maybe a little bit on the lower level as a result of the lower inflation. But that is of course something that time will show then over time.

And if the next question is now that which percentage are we using in our annual plan for next year so that much in details we would not necessarily want to do.

But if you say a little bit lower so something between 3% or 4% for 2025 would be kind of.

Let's say sort of it is maybe wiser to wait until we know the end result of the negotiations. In many countries of course these are happening towards the very end of the year or then early next year.

Okay. Thank you so much.

Thank you. I think that we start to now run out of time.

So let's conclude our Q3 earnings conference. I thank you all for the active participation and wish you of course a nice Friday and a great weekend.

Thank you.

Thank you.

Thank you.

Bye-bye.