Cavotec SA

STO:CCC

Earnings Call Transcript

[Operator]

Welcome to Cavotec Q1 Report 2023. [Operator Instructions]

Now I will hand the conference over to CEO, David Pagels. Please go ahead.

[David Pagels, executive]

Good morning, everyone, and welcome to this webcast. My name is David Pagels, and I'm the CEO of Cavotec. With me, I have our CFO, Glenn Withers, and also Joakim Wahlquist who, as was announced March 8, has been appointed as Chief Financial Officer of the Cavotec Group effective 1st of May. Joakim joined us already in March 8 and as the CFO designate and will replace Glenn Withers.

However, today, Glenn and I will present Cavotec's Q1 report, but also Joakim will be available for questions after the presentations. You are then most welcome to ask questions by clicking on the link at the bottom of your screen over the phone as instructed before, and we will see all the questions on our screen.

We will, today, first present the financial and operational highlights of the quarter and thereafter give you a financial update followed by a summary of the quarter and way forward and to finish off with a Q&A.

In the first quarter, we reported revenues of EUR 39.5 million, up 44% compared to the last year. And the order backlog grew slightly in the quarter to around EUR 150 million, up 20% compared to last year. Although we started to generate a positive EBIT of EUR 0.3 million on the increased volume, there is still much to do. We will go more into detail later on in the presentation.

Operating cash flow was negative but -- that during the period, but that Glenn will come to later on. In February, we carried out a direct rights issue, raising proceeds of approximately SEK 165 million, which was approved by -- at an extraordinary general meeting in March. This will increase our financial flexibility to support execution on our strong order backlog and strengthen our financial position.

Having said that, cost consciousness is and will be an important part of our journey to increase our profitability. However, in order to become more profitable, we need to grow. It is encouraging that for the past 2 quarters, we have proven our ability to deliver on our order book, while at the same time, continuing to sign new orders at a good pace.

Although we started to generate a positive EBIT of EUR 0.3 million on the increased volume, there is still much to do. We saw losses in the second half of 2022 coming from lower margins and higher fixed costs. We are working with full focus to drive more profitability out of our order book. Step by step, we will see the benefit of changes that we have already made in the past few months, but it takes time to become evident in our profitability for several reasons.

First, in our Ports & Maritime division, we took orders some time ago that we did not foresee the supply -- but we did not foresee at the time the supply chain disruptions and extraordinary inflation environment that we had during 2022. It will take some time for this to impact -- this impact being unwind due to the long delivery schedules with several orders for show power connected to new ship builds.

However, the long scale represents an opportunity to find ways to offset the higher cost than planned in these orders with optimization of the projects, and we are actively working on this. Secondly, last year, like most companies, we had to increase our list prices to counter the impact of higher costs. Similar to what I said before, it will take some time to see the effect of that. With this in mind, we will see a steady improvement in the profitability during the coming year.

Ports & Maritime, order backlog increased slightly compared to the previous quarter to EUR 120 million, 23% up compared to the same period previous year. The increase was mainly driven by a strong order intake for Shore Power and motorized cable real orders predominantly in Asia. Revenue almost doubled to EUR 123.5 million mainly explained by a strong increase in revenues for Shore Power, motorized cable reels, MoorMaster products in the Nordics, China and Southeast Asia.

Industry. Industry's order backlog decreased slightly compared to the previous quarter to SEK 29.3 million, but was up 8% compared to last year. Regarding the decrease in this quarter, I do not see this at all as a trend as a main contribution -- because the main contribution was really that we had high order intake during December last year followed by a little bit of a slower start in the first quarter. Revenue, however, increased 5.5% to EUR 15.9 million compared to the same period of last year.

With that said, I will now hand over to Glenn to go a little bit more into the financials in details.

[Glenn Withers, executive]

Thank you, David, and good morning, everybody. First, I'd just like to start with a short explanation about the financials as presented in the Q1 report. As this is the first report for the year, after the divestment of the Airports business last year for those of you that have followed us in the past.

The main thing to know for the Q1 report is that we are now reporting in the 2 segments, which David has already discussed in his summary, meaning Ports & Maritime and Industry. So I'd just like to point out that, that is the first time you see that in our quarterly reporting. And finally, on that topic, you'll also see in the comparative numbers as presented in the Q1 report also that the Airports division is showing in those comparatives as a discontinued business unit. You won't see that at all in the current year numbers, though.

Okay. But then moving to the content on the slide and just starting with order backlog. You can see that it's remaining steady, meaning that we have been reporting extra growth, especially in Q4 and in Q1 compared to the prior year, but keeping steady the order backlog in the reporting. Ports & Maritime, as David said before, is slightly up, about 3% compared to the previous quarter. And also to -- just to emphasize that it's really been driven by a strong order intake on the shore power side and also for cable reel orders, especially in Asia.

We've also just developing on that short power market. We've seen a lot of on-ship shore power solutions, which come from both new builds and increasingly existing container vessels where retrofits are done. Industry's order backlog was a little bit down compared to the previous quarter, but up compared to the comparative period to the prior year. And we're not concerned about that decrease in the current quarter, mainly because we saw some pre-buy effect, as David said, from -- especially from our larger OEMs towards the end of the fourth quarter last year.

And we did implement price increases effective 1 January in the business, and there may have been some pre-buy ahead of that. The low in orders was especially evident in January and stronger -- more strong towards the end of the quarter. And that effect has been a common effect in this business in the 4 or 5 years that I've been the Group CFO.

Then just turning to revenue. We've continued to demonstrate, again, emphasizing what David said, our ability to deliver on the stronger order book. Meaning that, that conversion, especially in the first quarter of this year has developed in a good way. And may be boosted a bit by the fact that last year, especially Q1 and Q2 were affected by the closure of our Shanghai operations for a few weeks, common to a lot of businesses that were operating in China last year.

That's 1 of the reasons why we're reporting that Ports & Maritime increased or basically nearly doubled to that EUR 24 million compared to the same period last year. And that's evident in the blue box. We've also seen a continuing high level of activity from customers across Europe, looking to prepare their ports in advance of basically legislation that requires changes to the way the vessels are connecting when they're in ports. There's increasing number of port authorities, terminal operators and shipping lines across the world that we see investing in shore power to increase the sustainability even if it wasn't without -- with that regulatory pressure that also requires them to do so with some pretty fast time lines coming or looming now for that -- for those regulations.

In the Industry, the revenue was up almost 6%. But we saw that timing of larger OEM customers affecting the revenue inside the quarter, and I expect that to pick up in the quarter ahead.

Then if I turn to profitability, I think it's evident in this chart without focusing on the words that -- this is the first quarter since '21 that we've been able to show at least a breakeven or just slightly above breakeven profit here, which is pleasing compared to the history of the last few quarters, which were mainly impacted by the closure of Shanghai in the first part of last year and then the impact of extra costs and inflation coming through the back end of the year. So it's pleasing that we've been able to -- with a pretty strong cost control and management to turn it into a profit now.

On the other hand, we did continue to use cash from an operating perspective. A good deal of that cash usage is due to the growth but it's more than we would like it to be. And the inventory levels continue to be up at the end of Q1, about EUR 1.4 million compared to the end of last year.

Our receivables did come down. We had a very, very strong revenue in Q4 last year, especially in December, meaning that the cash from that invoicing really came into Q1. So that's why you see the receivables in our contract assets have decreased about EUR 4 million during the quarter, but that's been offset on the other side by a reduction in our payables and contract liabilities for customer contracts of about EUR 6 million.

Cash from financing activities during the quarter was EUR 10 million positive, and that's predominantly due to the equity increase that David discussed earlier, but -- and then partially offset that equity increase, bringing in about EUR 15 million or close to it, but was partly offset by the repayment of our revolving credit facility. So we paid down some -- temporarily paid down some debt with that -- with those funds. And then during the quarter, we paid our normal lease payments which has resulted in that net movement of EUR 10 million.

We did finish the balance -- finished the quarter, sorry, with a fairly high cash balance of around EUR 16 million. I don't expect to have that sort of high cash balance at the end of Q2. And then to summarize, an update on a couple of other topics. David already covered in the beginning of his presentation that we carried out a directed issue and in February issued 12.5 -- 12.4 million shares with a subscription price set in the book building process of EUR 13.25 per share and that resulted in EUR 165 million approximately in cash proceeds, which came into the business. And that came in at the end of the quarter.

The subscription price that I mentioned before of EUR 13.25 was determined through an accelerated book-building procedure and that was conducted by SEB here in Sweden. There was also -- I think worth mentioning that, that equity raise shows that we do have good support from our owners and -- it was an important raise in order to support our ability to deliver on the strong order book that I talked about before, but also to continue to grow revenues.

During the quarter, we also reported and it's not new in this report, it was also in our Q4 report, but we did amend the terms of our credit facility agreement, and improve the conditions for the remainder of the term of the facility, which goes or runs until June 2025.

And then just to finish off from my side here, as David also mentioned in his opening remarks, it is -- this is my last presentation for Cavotec here for the quarterly reporting process. I've decided to leave Cavotec for family reasons, and I do want to emphasize that it was a difficult decision for me to make. But I have to say Joakim sitting next to me here, and we've been working together now for a -- for the last couple of months. And I've never myself experienced a handover done this way. But we have -- I'm very confident now that we've been working together side by side together with David and the rest of the team that I'm leaving the business in very, very good and capable hands, and it does make the task of leaving that a little bit easier for me.

Joakim will take over the pen from me on the 1st of May. And Joakim, I wish you all the best with taking over the role on that date. And with that, I'd like to hand back to you, David.

[David Pagels, executive]

Thank you, Glenn. So in summary, we saw a strong revenue growth and demand for Cavotec Solutions also in the first quarter, but a weak profitability, not what we would have liked to see. It is, however, very satisfying to see that we are making progress towards turning Cavotec into a profitable as well as a growing company. I will continue to spend most of my time meeting customers and colleagues around the world. And everywhere I see a strong demand for our products. I was in Asia, Singapore and China last couple of weeks, and I see a strong interest in our products and also a very good cooperation and relationship to our customers and also our end users.

We are confident about our future. We are in the right place to leverage all the technological shift to a sustainable electrical solutions. And I'm convinced that we that can get the right -- get the company back on the right track again and generate stable growing profitability.

So with that said, that concludes our presentation, and then we'll have some -- open up for questions.

[Operator]

[Operator Instructions] The next question comes from Karl Bokvist from ABG Sundal Collier.

[Karl Bokvist, analyst]

Thank you, and good day to you both or to you all, I should say. My first 1 is just on -- you mentioned continued good demand here, but did you notice anything materially changing towards the end of the quarter, I believe you said something about March was stronger than January in seasonality terms, but if there was anything else to highlight in terms of demand?

[Glenn Withers, executive]

Yes. I think overall, yes, I mentioned in my summary that the end of the quarter was stronger than the beginning of the quarter, but that -- that's very common and nothing to do at all. I think any kind of market trend. It's just a strong order book development towards the end of the quarter, followed by low in January New Year hangover or whatever. And then as we come out, February gets better and March gets better again. It also happens -- it happens the order book. It happens with our revenue as well, exactly the same way. So that's the first answer to the question just timing, inside the quarter, but normal timing and no trend to see from that.

But overall, the purchase signals continue to be strong on our flow business meaning that we're seeing steady-ish level of flow business going on. And then as you know, Karl, the overall order book for the quarter any individual quarter depends on any larger sort of like Ports & Maritime style projects such as a MoorMaster sale. And that can affect 1 quarter looking good or not good because of the size of those deals, as you've experienced before.

[Karl Bokvist, analyst]

Understood. And then now that you are converting a bit more from the backlog, considering also seasonality here, but you're starting the quarter now with roughly EUR 40 million in sales. How should we think about the ramp-up in deliveries for the rest of the year, perhaps mainly from Q2 and onwards. But I would imagine you have both seasonality and the backlog helping you grow sequentially at least.

[David Pagels, executive]

I think we're confident that the progress during the year, it will be increasing the sales as well as increasing order intake over the year -- over the quarters to come for the remaining part of the year. We see strong interest from our customers, a lot of activity on the tender side as well as we will see in our order book have planned for and also scheduled an increase in the revenue over the quarters to come.

So I'm confident there. I'm not worried really about the order intake even if exactly as Glenn said, it shifts a little bit from 1 month to another month. At the same time, the big orders come in, and sometimes it flips over from 1 quarter to another quarter. But in general, we don't see any kind of shrinking interest or shrinking horizon of our order intake and sales activities.

[Karl Bokvist, analyst]

Understood. And on the -- 1 part on the backlog and then a bit on the future here, but -- can you shed some more light on the timing of these, let's call them, low-margin projects when they are mainly to be delivered? Is it mainly during the first half of this year that we will see a clear negative impact? Or how long should we expect it? And the follow-up is also on kind of new orders, what measures have you taken to avoid this kind of price versus cost gap going forward?

[Glenn Withers, executive]

I'll take the first part of the question and then perhaps hand over to David on the second part of the question, what are we doing about it. But first in relation to the existing order book. As we've reported that there is -- we did get hit by having orders that were signed at 1 price, but then saw cost inflation and supply chain disruption, which boosted the cost compared to what we had planned, meaning that the margin impact in those orders is not as good as we would have liked or had planned at the start.

Your specific question was about the timing of the unwind of that. It actually thinking about those orders unwinds over almost a 2-year period. I don't mean to say that, that means that it would have a dampening effect on the margins overall in that 2-year period. But it ranges from coming in the next quarter, all the way to a couple of years from this quarter.

But the longer time frame also gives us a chance to optimize some of the costs in the way that we deliver those orders as well. So there's a way to mitigate that. But that's a specific answer to your timing question in relation to current orders. And then I'll just hand over to David to speak about how we're managing the order book and have been managing it since he joined and after that.

[David Pagels, executive]

Yes, I can explain a little bit what we're doing there and what we have done. And it's actually by the fact exactly spot on the day today, the same date that I was -- joined the company, 26th of April last year. And what we have done since is that we have tightened up or we have put more focus into the dealer views, what we're doing in order to gathering the myself and also my management team and also helping all the -- both divisions in order to increase and having better focus on the deals that we take.

So I'm confident that the order intake that we take now is at a better level than the order intake that -- that was done 1 year back. Having that said, of course, we also have much stronger focus now in -- on the cost side of the business. Of course, our internal cost, what can we do? What can we do in order to improve whatever we do today? We need to do it smarter, better and quicker and more cost efficient tomorrow.

But on top of that, also extra focus on sourcing activities, sourcing hasn't been -- it's definitely narrow where we can improve and where we need to be better. And we already started up sourcing activities so that we have dual sourcing and also sourcing for -- from best country sourcing activities. So that is also something which we have started up. And I'm confident that we'll see the effect in the profitability in the orders that we have in hand, but also in the orders that we're going to take going forward.

[Karl Bokvist, analyst]

Understood. And then I have 2 more questions. And the first 1 is on segment profitability based on the numbers you report at least, it looks like Ports & Maritime is turning things around, is now reporting a profit on an EBITDA level, whereas Industry seems to have gone down from a very high double-digit margin to more like high single-digit margin. So if possible, if you could just explain a bit of dynamics here behind the 2 divisions?

[Glenn Withers, executive]

Yes. If I take that question, Karl. First, talking about Ports & Maritime, it is pleasing to see that development in the profitability. Definitely, from Page 6 of our report, the segmental analysis, you can see that we are now above the sort of the breakeven line, and that's developing well.

The Industry business on the other hand is -- did experience some cost impacts in the second half of last year, which meant that their margins overall were less than we would like. And in part, probably the price increases that we did last year and the price list management came perhaps to a bit slower than we could have done and maybe we didn't do enough -- fast enough. But by the time we get to the start of this year, I think that's stabilized, and meaning that we should start to see that improvement comes through the invoicing that we do in the revenue.

And as David mentioned a couple of times in his opening presentation, because of the time lag between adjusting prices and the price list customers ordering against that price list us making and delivering that, it takes a little time for that catch-up that we did to be evident in the results. But slightly but surely that should become evident over the next 2 or 3 quarters.

[Karl Bokvist, analyst]

Understood. My final 1 is just on -- if you could just please clarify some remarks you made, Glenn, on working capital development throughout the year, if possible.

[Glenn Withers, executive]

Yes. Well, first, David mentioned that when you asked about the sort of the prospects for the next quarters on the top line, there is a continued buildup in inventory, as I mentioned in my comments, about EUR 1.4 million during the quarter and that inventory build up, I see as a natural consequence of preparing for delivery in our order book and the timing of that. There's a couple of fairly large deliveries that took place either towards the end of the first quarter or taking place during the second quarter that were contributors to that contract assets and liabilities movement.

First, receivables came down because of the high billing activity coming out of December last year, but we also had quite high billing in March of the first quarter, in line with -- exactly in line with what I said before, a standard development for us inside Q1, which should be collected in Q2. But on the other hand, we see additional volumes in Q2, and therefore, I would expect still to see cash usage in Q2 actually because of that, and then more stabilizing into the second half where -- in other words, that hopefully, the main impact of the growth that we've seen coming especially from Q4 last year into Q1 and then into Q2, stabilized a little bit. And I would expect to see an improved cash flow on a quarterly basis. I'm not making an annual comment there coming in the second half.

[Karl Bokvist, analyst]

Understood. That's all for me.

[Operator]

There are no more questions from the telco at this time. So I hand the conference back to the speakers for written questions or closing comments.

[David Pagels, executive]

I think what we should do. We have received a couple of questions.

[Glenn Withers, executive]

Sorry, we have 1 more question. I'll let Johan through.

[Operator]

The next question comes from [ Johan Olof ] from JPC.

[Unknown Analyst]

Thank you very much for the presentation. And I think the clarity and breakdown between Ports & Maritime industry is a very good development in your reporting. Just a very quick question in terms of your projections on the leverage ratio in terms of the balance sheet going forward? Have you set any objective in that regard?

[Glenn Withers, executive]

We haven't set -- first good morning, Johan and a short answer to your question, yes, I think I mentioned it before, I think as a team, we've been working really well together and generally, things are going pretty well. The -- and I'll let David elaborate on that, maybe a bit more after I finish the answer to the question.

Leverage ratio -- there's no specific target that we're announcing on that other than to, of course, ensure that we are fully compliant with the leverage ratio. There will be a -- we do expect a reduction from where we are. We reached a peak before the equity raise. The equity raise obviously helped us from an overall ratio point of view, but really the main issue ratio has been a lack of profit, which is evident in last year's results.

And it's pleasing to get to a pretty decent positive EBITDA in Q1. And I think that development over time will mean that the sort of LTM calculation in the last 12 months will steadily improve. So I would expect -- expect you to see -- and see a good development in that regard coming from higher profitability compared to last year.

[Operator]

There are no more questions from the telco at this time. So I hand the conference back to the speakers for written questions or closing comments.

[David Pagels, executive]

Okay. So we have a couple of questions from -- on -- which I submitted here on -- in text sent to us during the call. First of all, from [ Colin ] there, can you elaborate the legislation around ship shore power, which markets have forcing legislation and when do we expect this to be seen that in an increase in demand in the market. Take that part of the question further first [ per ].

And we see legislations first on extra where actually the ships have to be onshore power. If they don't -- if they are not, then all of a sudden, they need to be pay high penalties on an hourly basis if they are not able to. We already have that in place on the West Coast of U.S., not a big surprise. We see it also coming on the -- as a trend on the East Coast. We are just delivering -- we are just processing our deliveries to Port of Miami for that exact reason.

On top of that, we also see the same kind of trend blowing also in Asia or in China, that there will be a push for legislation. They're not really in place. And also we believe it's going to come also in -- will come, for sure, also in Europe. However, it's not only the legislation but per se, it's also -- should we say it's also a trend that despite legislations and requirements from governments, there is a trend that ports want to be seen as more greener or through the shipping lines want to be seen as more greener. They want to turn off the diesel engines and the diesel generated power when they are in the ports.

So in order to be able to really push for the individual sustainability again is, of course. So registration is coming. At the same time, it's also coming a trend where the legislation per se is driving a behavior, which is also really in good favor for our progress. So I don't know exactly when those are going to happen. European Union, it takes some time before decisions are implemented. But we're definitely clear that it will come. And already now, we see local ports in Europe going ahead of the legislation anyway because they want to drive this labor.

And in many cases, the ports, especially on the cruising fares, et cetera, they are quite central in the cities and therefore, they really for -- it's also driven by the cities really putting pressure on the ports to implement them shore power solutions.

The second part of your question there, [ Per ] was then what do we see on the megawatt charging systems and what do we have there?

We have already inform you that we are delivering on a big mining company in Australia. We have shipped the equipment down there. I was in Australia 4 weeks ago myself to meet with the customer as well as also then seeing our goods delivery there. And more or less, as we speak in this quarter, it will be shipped from where we have it stored today and being installed and commissioned into the mining site.

And it's the first prototype of this megawatt charging solutions with an automatic should say, robot arm who actually sticks in the MCS connector into the mining truck. And they are a little bit of pioneers in this. At the same time, it's a huge interest from the whole -- all the entire mining industry as well as, of course, the companies manufacturing the mining trucks, et cetera.

So we are installing it, and we are commissioning it right now. At the same time, we're also now having discussions with that same customer for the next step and how we will proceed there in order to -- because they have a very, very strong, again, therefore, driving towards sustainable solutions and all the vehicles will be electrified, and they are really in the forefront versus the other mining companies. And I'm really excited that we are the 1 that they have decided to make this first prototype test installation with and we are now working on what to continue after that.

Then we have another question here regarding -- can you disclose owners of the subscribed in the direct issue? what we did there is that we -- since we did an accelerated book building, we decided to set the price of the chairs slightly above the market price in order to avoid that people feel that they had no chance to participate. That was agreed together with SEB and the adviser there as well as weather.

And then we have -- we reached out, you could say, more or less that we reached out to the -- to the top 5, 6 biggest customers, [indiscernible] a majority shareholder, they took their portion. But also then I'm really pleased to also say that Tom Enterprise with the company of Thomas McCook, also increases ownership in the company. So we took a bigger part of that as well, which we're really glad to see that we have trust from owners of the offers in the past and also believe in the future, so that's where we are. But part of that, it's more or less 5, 6, 7 biggest owners were the 1 who increased their share or took their share, the portion.

Next, there is a question as well. Let me just call scroll here a little bit. And then -- there is a question there regarding the difference between customers and Ports & Maritime division as well as customers for Industry division when it came to the rate of adoption to electrical solutions. I must say, of course, the shipping industry by nature, and we've discussed this before, everyone needs to follow the sustainable agenda. Everyone is driving towards that focus.

But of course, for shipping lines, there are easier things to adapt to such as shore power, than actually the real propulsion of the vessels that is not so easy to solve. In that case, they're working on solutions there, but it will take a longer time. But since they have to do as much as they can, where they can, then the shore power solutions is the quickest and easiest way to do it and also the most obvious 1 to take. So therefore, we see strong demand in that -- in the Ports & Maritime side.

Also, we see strong demand in the Ports & Maritime side for our MoorMaster solutions where we actually have our automated mooring solutions in order to speed up the mooring, speeding up of the mooring is, of course, to increase productivity, sure. But it's also on ferry lines, et cetera, used in order to grow actually run the ships at a slower speed between 1 port or the other, where we talk about passenger ferries, et cetera.

So it's not only about moving quicker. It's also moving slower in that case in order to be able to then reduce emissions and of course, fuel consumptions. So Ports & Maritime, I see strong future demand due to legislation due to other reasons as well, I just mentioned. But addition to that, while I see a similar strong growth on the industrial side, where the mining industry is really determined that something needs to be done, mining industry in terms of mining trucks, but also mining industry in terms of electrifying the mining vehicles, such as underground mining equipment as well, but also big reclaimers and stackers, et cetera, that they have on open minds which we also then they want to move away from any shape a form of diesel propulsion and instead using electrifications there.

And so -- it's not easy to say, but I see a really strong demand on both product divisions for those equipment and for the electrification agenda. And then also, we have -- so I don't really see -- I must say, I'm not sure if I'm going to see if 1 of the other division is going to outperform each other is strong demand on both, and we are gearing up our possibility to execute orders on both divisions.

At the same time, we don't have dedicated factories for 1 of the other divisions. We have more or less mixed production in our sites and that we're going to continue to developing further.

Then I had another question here from Keller independent, but they should have for the industrial demand, if that was a decline during -- beginning of the -- in this Q1. I don't see it as a trend. I see it more as we -- okay, also keep this in mind, we increased the prices a little bit versus some of the customers towards the June Q4. Some of our customers were a little bit clever and placed a little bit more orders than they actually needed initially in order to be able to gain the lower prices. That's the way it works. So that we had a little bit of a boost in -- at the end of the Q4, we set a little bit of a weaker in Q1.

However, we have -- as I mentioned, we have a strong order intake focus on the flow business, which is in the normal repetitive business. On top of that, we also have such as this mining industry, I just talk about in Australia. We have also then increasing very interesting product business, which is then more customized solutions for different applications. So I'm not worried about the trend in the order intake or in the pipeline that we have ahead of us in that case.

[Glenn Withers, executive]

And then I think just continuing on from the -- with Keller's questions here. There's a question there about our EBITDA margin and free cash flow performance for going ahead here.

Starting with the margin, the EBITDA and developing from what David just said about the industry business as a specific example. We do expect to see improving margins going forward, but it takes time from those actions about managing price, managing costs to come through in the numbers and the margin. But what I would expect is a steady improvement in margins rather than some fast hard increase in margins. So steadily quarterly development of that is what we're expecting at the moment based on that sort of lag and actions resulting in changes in profitability because of the timing of invoicing, timing deliveries.

And then that also then, of course, then given EBITDA as proxy for cash, it just takes a bit of time for that. Underlying cash -- profitability to come through in the cash flow as well, which is then combined with the growth that we've been having in revenue from that higher order book.

So the guidance I gave to an earlier question I think Karl had was that we still expect to see a usage of cash in operations in the second quarter before maybe a bit more stable cash flow performance in the second half. But that -- even that comment about stable in the second half really depends on any changes in the order book that affect delivery this year and preparing for those, which could also mean more growth or -- and if that came then obviously maybe some more operating cash usage. That's my guidance at the moment.

[David Pagels, executive]

Okay. So I don't see us having any other questions on the screen here. But I must say. So thank you very much for your attention and listening and also interesting questions. At the same time, I think I hope I can share with you and that we have a really interesting future ahead of us. We are in the sweet spot in terms of elective patient trends and supported again, that's for different sustainability directions happening in the world. And in that case, I'm really looking forward to continue the journey with Cavotec and driving the company to future success.

Any comments, Glenn. That's it.

[Glenn Withers, executive]

No, other than I'm sure you're looking forward to the next quarter with Joakim by your side.

[David Pagels, executive]

Yes, it's going to be there, but I'm sure you're going to dial in as well to listen to see because I know you have very loyal and very attached to the company. So thank you very much for your attention, and [indiscernible]

[Operator]

This concludes today's call. Have a nice Thursday.