Cavotec SA

STO:CCC

Earnings Call Transcript

[Operator]

Hello, and welcome to the Cavotec Q1 Report 2018. Today, I am pleased to present CEO, Mikael Norin; and CFO, Kristiina Leppänen. [Operator Instructions] Speakers, please begin your meeting.

[Mikael Norin, Group Chief Executive Officer]

Thank you. Good afternoon, everyone, and welcome to this audiocast. My name is Mikael Norin, and I'm the CEO of Cavotec. With me today, I have our CFO, Kristiina Leppänen, and we will be presenting our 2018 Q1 report today.I'm going to start by commenting on the development of our transformation and, on an overall level, on the financial results. Kristiina will thereafter go through our performance in more detail, and I will conclude by summarizing.In 2018, we will continue to focus on the transformation of Cavotec, where we seek to build on our strengths and address our weaknesses in order to return to a solid growth trajectory. As most of you know, we launched a companywide transformation plan that we called A New Day during the last quarter of 2017, and we have so far completed 1/4 of the 50 transformation projects in that plan.As we focus on the transformation, it is encouraging to see that we also maintain a strong position in the market, and I believe our Q1 result is evidence of that. In the first quarter, we saw the order intake increase almost 10% year-on-year and order book grew over 18% compared to the end of the fourth quarter 2017.We now have an order book worth just over EUR 100 million after 2 previous soft quarters. And it's great to see the interest in our technologies and that our customer relationships are solid.The EUR 8 million order for the modernization of the Bahrain International Airport is a continuation of a close relationship with that customer. We helped the airport to deliver top-class service to their customers by offering unique turnkey solutions to enhance passenger comfort.At Cavotec, we say that we connect the future. It's difficult to find a better example of that than the EUR 9 million order for automated mooring of electric ferries that we have recently received. It is a breakthrough not only because it is serving e-vessels, a growing market, but also because it is for a wider customer segment than what we have seen in the past for MoorMaster. It is also important because we will be handling the complete servicing of the units over time.Speaking of customer segments. We have, as part of our transformation plan, during the quarter finalized a very thorough assessment of our markets. We now have a comprehensive understanding of market sizes and future potential by core offering, and by customer segments and by geographies. Our assessment shows that the opportunities are there. We talked about this in the Investor Information Meeting a couple of weeks ago. And for those of you who were not able to join us then, please check out the complete presentation which is available online.We have embarked on the next step in that work, which is to build very granular plans for how to go after the potential we see, market by market and customer by customer.We have also strengthened our executive team during the beginning of the year with some very senior individuals. We have recruited a new Chief Human Resources Officer, a President of our new Cavotec Services division, a Chief Operations Officer and a VP for Project and Program Management, all people with extensive experience from the highest level of global blue-chip companies. And I think that we have been able to attract this level of talent is, in my mind, another sign of the potential that people who look closely at this group see.These recruitments are key to leveraging on the opportunities we have, but we do also need other tools to make Cavotec, with offices in more than 30 countries around the world, to operate as one company with a clear direction. One of our key transformation goals for the first year was therefore to establish a One Cavotec culture, a clear identity, something that's been lacking in the past. We've taken decisive steps in that direction, and we are seeing the early signs of the type of performance that comes out of everyone working strongly together.And with that, let me hand over to Kristiina.

[Kristiina Leppänen]

Thank you, Mikael. The order intake during the first quarter increased, as Mikael mentioned, 9.6% compared to the same period in 2017 to EUR 67.9 million.Revenues for the group as a whole during the first quarter were flat compared to the first quarter 2017, amounting to EUR 52.7 million.Ports & Maritime saw increased market activities in the quarter, as the order intake increased 49% compared to the same period in 2017. This is the result a number of large orders which were booked during the quarter, including the new MoorMaster order in Norway Mikael mentioned.Revenues in Ports & Maritime did, however, decrease 25% to EUR 16.3 million compared to the same period last year when some major Ports & Maritime projects were close to completion phase. In Airports & Industry, we saw a positive development with regards to the order intake. It increased 80% compared to Q4 2017, driven by a strong demand in European and Asian markets.Revenues for Airport & Industry increased 16% to EUR 36.4 million. Airports contributed with revenues from large orders in EMEA and Asia Pacific as well as solid day-to-day business. Industry showed good performance, with underground mining being the strongest market.EBIT came in at EUR 2.2 million, corresponding to a margin of 4.2%. The decrease versus last year is due to different product mix, as this quarter's revenue showed an increased contribution from day-to-day business, while in the first quarter of 2017, revenues were mainly driven by large projects with good margins.It is encouraging that our cash flow was strong as an outcome of our continued actions to improve working capital management. The operating cash flow amounted to EUR 4.9 million compared to a negative EUR 0.2 million in the same period of 2017.We are, at the same time, continuing to invest in our operations. Investing activities included CapEx of EUR 6.4 million, with maturity related to a new production facility in Italy, which will be inaugurated later this month.With that, I would like to hand over to you again, Mikael.

[Mikael Norin, Group Chief Executive Officer]

Thank you, Kristiina. So our work to improve the internal structures of Cavotec will continue with full pace during this whole year. We are a leading engineering group within our field and in each of our markets. And I believe that the new organization structure, which became effective on the 1st of January, will increase the transparency of our operations and ensure accountability for the targets we have set.We are just about to finalize our reviews of the market strategies with the divisions and the supporting plans by the group functions. And I am encouraged by the growth opportunities that we have identified and the plans for how to go after those opportunities.As I said, the transformation continues during 2018, including developing detailed plans and decisions on capital and resource allocation as well as implementing operational processes and improvements.We expect that, by the end of the year, we would start to have operational data needed to have a clear view of our capability to deliver on our full potential.Considering our high pace of transformation, I'm actually pleased with the quarter, and especially that we have not lost focus on our markets and customers.Concluding our -- I would like to offer a word of humbleness. During a transformation of this magnitude, it is, in my experience from other turnarounds, not uncommon to see a certain 2 steps forward, 1 step back performance from one period to another. Having said this, I am at the same time very encouraged by the early signs of acceptance among our employees of the changes we are implementing. But remember, everyone, we are playing the long game here.With that, I would like to open up for questions.

[Operator]

[Operator Instructions] And the first question is from the line of Carl Ragnerstam from Remium Nordic.

[Carl Ragnerstam, Analyst]

It's Carl Ragnerstam from Remium. So I have a couple of questions. First of all, you mentioned that you have seen increased activities within container terminals. Would you say that it is too early to be optimistic for the full year development?

[Mikael Norin, Group Chief Executive Officer]

I think we have seen increased activity and increased interest in our technology across the board, Carl, and that's very encouraging. And -- but we continue to invest in the processes in terms of sales and assess where the market potential is.

[Carl Ragnerstam, Analyst]

Okay. And I have a couple more. As you already communicated, you won 2 significant orders for both segments. Can you give us some color of the service agreements for the 2 orders, i.e. have you implemented a new service approach in accordance with A New Day?

[Mikael Norin, Group Chief Executive Officer]

The work that we started with the service division is -- as you know, has just started. However, the people that we have recruited to lead that effort have been involved in especially the MoorMaster order in Norway to structure that service offering. So that is very positive for us. And we are continuing to develop how we're going to make sure that the aftermarket services are now a standard part of what we offer the market.

[Carl Ragnerstam, Analyst]

Okay. One last probably for you, Kristiina. The effective tax rate came in at 35%. Can you give us some guidance for the tax rate going forward and the estimated outcome of the tax optimization plan?

[Kristiina Leppänen]

Yes. As I presented during the Investor Information Day, this is, of course, one of the key transformation plans, meaning the global tax planning that I'm working with. However, regarding the -- I mean, the future guidance, we remain the same as with the other guidance that we are coming on next year, Q1 2019.

[Operator]

And next question is from the line of Erik Paulsson from Pareto Securities.

[Erik Paulsson, Analyst]

This is Erik at Pareto. I was thinking about the going rate now that you're having on the order intake. Because the one that we saw in this quarter, 7 -- sorry, EUR 67 million is, I believe, the highest one since at least 2014, probably even going back further than that. And I'm just curious how we should look upon the order intake, how you see it here going forward during 2018. I don't really maybe see that we're going to keep at this level, but is this a new sort of, say, shift that we're seeing in the company?

[Mikael Norin, Group Chief Executive Officer]

I think, well, first of all -- and thank you, Erik, for the praise of the report. I appreciate it. When it comes to our sales efforts, like the rest of the transformation plan, it's important for us to structure that from the bottom up, and that's what we're working on. We are investing in CRM systems. We are investing in the market assessment so that we can have a very targeted approach. And with the rest of the transformation, what we have said, Erik, is that by the end of the year, we're going to be able to have operational data. And then when we have operational data, we will also be able to do projection based on that. And operational data actually also includes results from the sales force. So too early to be able to make any predictions.

[Erik Paulsson, Analyst]

Okay. And if -- you mentioned in the ender 2 steps forward and maybe 1 step back, if we're to be a bit humble here during the year. Should we interpret that in the way that this quarter is very good, but don't expect it to be that good going forward?

[Mikael Norin, Group Chief Executive Officer]

I think the only way to interpret it, Erik, is exactly what I said. I have been involved, and I have led several transformations, several turnarounds. And in my experience, it is not unusual that you have a certain volatility from one period to another. And it may not be across the board, it may be within one KPI or another and so on, right? So remember, this is a transformation year for us. That is really the only interpretation and the only message that I'm sending.

[Erik Paulsson, Analyst]

Okay, great. And the final question is regarding semi fixed costs, et cetera, SG&A and so on. The level that we are on that at this moment has been quite fixed and it's, according to my estimates, the level that I have been expecting. And should we sort of expect this level also going forward? Or do you plan to sort of raise or lower those type of numbers?

[Mikael Norin, Group Chief Executive Officer]

I think it's no secret that we believe that the level is too high. However, that is something also that is baked into the transformation plan. And I think it's also important to remember that we're also making investments in capabilities. We're making investments in processes and so on. So too early to say when we will see the full effect of those efforts.

[Operator]

[Operator Instructions] And there are currently no further questions registered, so I'll hand the call back to the speakers. Please go ahead.

[Mikael Norin, Group Chief Executive Officer]

Okay. With that, thank you very much, for joining the call and for your attention. And that concludes this call, and we wish you all a good Friday and a great weekend. Thank you.

[Operator]

And this now concludes the conference call. Thank you all for attending. You may now disconnect your lines.