Konecranes Plc (OTCPK:KNCRF) Q3 2023 Earnings Conference Call October 25, 2023 4:30 AM ET
Company Participants
Kiira Froberg – Head, Investor Relations
Anders Svensson – President and Chief Executive Officer
Teo Ottola – Chief Financial Officer
Conference Call Participants
Antti Kansanen – SEB
Panu Laitinmaki – Danske Bank
Tomi Railo – DNB
Tom Skogman – Carnegie
Johan Eliason – Kepler Cheuvreux
Kiira Froberg
Good morning, everyone and welcome to Konecranes’ Earnings Conference. My name is Kiira Froberg and I am the Head of Investor Relations at Konecranes. Here with me today, I have our President and CEO, Anders Svensson; and our CFO, Teo Ottola.
Before we start, the usual kind reminder, this presentation contains forward-looking statements. Next, Anders and Teo will walk you through our Q3 earnings. Anders will start by presenting the group results, after which Teo will focus on our business segments. The presentation is followed by Q&A, as always.
Please Anders, with that, the stage is yours.
Anders Svensson
Thank you, Kiira and a warm welcome also from my side to this webcast for the third quarter report of 2023 for Konecranes. We headlined the quarter as all-time high quarterly comparable EBITA margin. We had a strong performance in the third quarter. The demand environment remained good, despite the order decline. Orders declined 18.7% year-on-year in comparable currencies. Port Solutions were impacted by timing of larger projects, the mega-orders that we have discussed previously and also customer decision-making.
Orders grew within both Service and Industrial Equipment in our comparable currencies year-on-year and sales exceeded €1 billion and was plus 18.3% year-on-year in comparable currencies. Our delivery capability continued good as in the previous quarters. We had an all-time high comparable EBITA margin of 12.3% for the quarter. This was primarily driven by higher sales volumes, but also supported by pricing. And our profitability improved in all three segments. And we ended the quarter with a strong order book of almost €3.3 billion and that was up 12% versus the previous year.
Next, I will talk a little bit about the market environment and I will start with the Service and Industrial Equipment. Here we can see that the capacity utilization rate in the EU dropped both sequentially and year-on-year. While in the U.S., the capacity utilization rate for manufacturing was sequentially flat, while it dropped on a year-on-year comparison. If we look at the manufacturing PMIs, we can see that in Europe or in the EU zone, it remained on a weak level at 43.5, while both in the world and in the U.S., it improved quarter-on-quarter, but was still in contraction just below the 50 mark.
In the emerging economies, we saw that India was clearly strong in expansion above 50, while China was just above the 50 mark and Brazil was signaling still contraction just below the 50 mark. And here we also mention sometimes our TRUCONNECT connected equipment for the industrial equipment and hoists. And here we have a decline, similar levels as in the previous quarter of 5% to 10% versus the previous year.
Then next, we move into Port Solutions and here the key demand driver for our customers is the Container Throughput Index. And it was really strong for the quarter, and it ended at plus 1% year-on-year and also sequentially up. So that signals a strong development.
We move into our financials and I start with our group order intake. We ended the quarter at €853 million and that was then a decline of 18.7% year-on-year in comparable currencies. We saw an increase in all three segments in reported rates. If we do in comparable rates, we saw increase in Service and Industrial Equipment, while a decrease then in Port Solutions.
In the different geographies, we saw a decrease in all geographies, but APAC was the strongest geography, followed by Americas. When it comes to net sales, we ended the quarter at €1.05 million and it was up 18.3% in comparable currencies versus the previous year. And we saw an increase in all three segments and also an increase in all three regions, where America was the strongest, followed by APAC.
At the end of the quarter, our group order book was still very strong, almost €3.3 billion. It was an increase on a year-on-year basis of 12% in comparable currencies, but as you can see, sequentially, it was down versus the previous quarter. We saw an increase in Port Solutions year-on-year and a decrease in Service and Industrial Equipment. But if you look again in comparable currencies, we actually had an increase in all three segments.
Next we look at our group comparable EBITA margin, and first, we look at the EBITA and it was €123.2 million for the quarter and that was up almost 30% versus the previous year. So that gave us a nice margin expansion of 150 bps and we ended the quarter with a record-high 12.3% margin. And we saw an increase in all three segments and the increase was mainly attributable to higher sales volumes, but also to pricing. The gross margin stayed approximately unchanged versus the previous year, and for the group, we had a negative segment mix given the strength we saw in Port Solutions.
Next, we look into how we progress towards our Konecranes financial targets that we communicated during the Capital Markets Day earlier this year. For the group, we have a target of 12% to 15% comparable EBITA margin and with our strong 12.3% in the third quarter, we edged closer, so now on the rolling 12-month basis, we are at 11.3% for the group. In Service, we saw that for the first time on the rolling 12-month basis, we are within our EBITA range of 20% to 24% with our 20.1%. It doesn’t mean that we are stable within this range yet, but it’s nice to see the development from the Service team.
In Industrial Equipment, we also had a strong quarter at 7.1%, and that made us move closer to our EBITA corridor also here of 8% to 10%, with a 6.3% on the rolling 12 basis. In Port Solutions, also here we had a strong third quarter at 8.3%, edged us closer also here to our range of 9% to 11%, and we are now on the rolling 12-month basis at 7.1%.
We move into the demand outlook, and within our industrial customer segments, we say the same, and it’s applicable for all the regions, that our demand environment within industrial customer segments has remained good and continues on a healthy level, despite the weakened global macro indicators and some signs of weakening within all three regions. And here, we refer to mainly customer decision-making process and the timing of that.
Our sales funnel within the industrial segment remains very strong. It’s both in terms of number of cases, in terms of value of the whole sales funnel, but also a strong influx of new cases into the funnel. Within Port customers, we say that global container throughput continues on a high level, and the long-term prospect related to global container handling remains good overall. And if we look at our sales funnel here, it’s still very strong, both in short cyclic products, in port cranes, and in projects of all sizes.
So to give maybe some more flavor or color to this, we have seen that in Q3, we think we had the trough in terms of order intake. We already previously announced that we don’t see any of the mega-projects to be closed within the third quarter. And the sort of medium-end projects with, let’s say, €20 million to €60 million size level, those can close either earlier than we expect or on time when we expect it, or later than we expect it. We had some projects closing early, so we got that order intake already in the second quarter. And now for Q4, that can also, of course, happen again, but we repeat that we believe that Q3 was the trough in terms of ports order intake.
Then I move to our financial guidance for the full year of 2023. We expect net sales to increase in the full year of 2023 compared to 2022, and the comparable EBITA margin is also expected to improve in the full year of 2023 from 2022. And our focus going forward remains on delivering on our sales execution, but also to be aware of our cost levels and really manage our cost going forward so that we can ensure that we continue to deliver on our financial targets.
And with that, I will ask our CFO, Teo Ottola, to come up and talk more about our financial numbers. Go ahead, Teo.
Teo Ottola
Thank you, Anders. And before actually going into the financial numbers for the business segments, so let’s take a brief look at the group comparable EBITA bridge. The Q-on-Q, let’s say, Q3 ‘23 to Q3 ‘22, a big profit improvement was €28 million in comparable EBITA. In the big picture, the improvement comes from an improvement in the underlying volume as well as net of inflation pricing impact.
And then when we take a look at this picture also, so we can know that the fixed costs are actually, or they continue actually to grow only moderately in a year-on-year comparison, which means that not really much more than the inflation, which basically means that the operating leverage from the volume improvement comes pretty nicely into our profitability.
Actually, if you take a look at this bridge and compare it to the bridge that we had one quarter ago, so Q2 versus Q2, so it looks very similar. So from that point of view on a group level, we are very much, I mean, the year-on-year improvement in Q3 resembles very much that of Q2. There are differences, of course, as well. This time the EBITA improvement is €28 million. One quarter ago, it was €37 million.
And maybe another point that is worth mentioning here is that when in Q2, the, let’s say, profit improvement was more or less equally coming from price increases and volume. So this time we are more getting it from the volume point of view. And this is logical because if you think about last year, so Q2 had still issues with pricing. Q3 last year already was better from that point of view. And as a result of that, it is balancing also from the bridge point of view. The pricing impact now Q3 in a year-on-year comparison on a group level numbers is somewhere between 7% and 8% when it was 8% to 9% one quarter ago.
And then we can move into the segments and start with service as usual, service order intake €360 million. That is actually a small decline in reported currencies and actually, a small increase in comparable currencies, like Anders already mentioned. We had a decrease in field service and parts orders in both of those. We had a decrease in the Americas and APAC of the regions, however, an increase in EMEA. These numbers are now with reported currency. So if we take a look at comparable currencies, also Americas actually had in a year-on-year improvement.
Agreement base €321 million. That is an increase of 6% year-on-year with comparable currencies. Sales €369 million, a very good achievement from the delivery point of view, 11.5% higher than a year ago in comparable currencies, a very good increase there. We had an increase in field service and parts. We had an increase in basically all of the regions.
Order book continues to be on a good level. It’s slightly below last year’s level, but still when we take a look at the Service business in general. So for Service business, this order book of more than €470 million is a very high level.
Comparable EBITA, excellent achievement there 20.9%, 1.3 percentage point improvement year-on-year. In Service, the improvement comes from higher sales volumes. So the underlying volume is better as a result of the higher sales. And also, from pricing to some extent, gross margin increased in a year-on-year comparison.
Then moving on to Industrial Equipment. Order intake was €325 million, like in Service. So it’s a small decline in reported currencies, small increase in comparable currencies. And when we take a look at the external orders in comparable currencies, those were up 3.7%. We had increase in components in a year-on-year comparison. That is also standard cranes. We were approximately flat in process cranes. And of the regions, increase in the Americas whereas a decrease in EMEA and APAC. When we take a look at the sequential comparison by business units, so we were down both in components as well as in standard cranes, slightly up in process cranes.
Sales, €324 million, that also as in Service, so also good delivery capability here as well, 8.6% increase in comparable currencies, increase in standard cranes and components, but lower sales in process cranes than a year ago. This improves our mix from the margin point of view. Of the regions, increase in EMEA; decrease in the Americas as well as in APAC.
Comparable EBITA, a very nice improvement. We reached 7.1% in the quarter. It’s an improvement of more than 3 percentage points in a year-on-year comparison. This one actually comes quite a bit from pricing. So there’s a volume increase, but that’s primarily as a result of the pricing as well as positive sales mix, like already mentioned, because of the structure of the business this time. And then also the optimization program that we have been having within the industrial businesses is yielding results. And as a result of that, cost control has been very good when we take a look at the year-on-year comparison for Industrial Equipment. And unsurprisingly, of course, gross margin increased in a year-on-year comparison as well.
Then Port Solutions, order intake, €232 million, like already discussed earlier in the call, 49% decrease actually in comparison to the previous year’s numbers. Of the regions, we had decrease in the Americas and EMEA. We had an increase in Asia-Pacific. If we take a look at the business units within Port Solutions, so it’s very, let’s say, almost all of the business units had a decline in a year-on-year comparison. When we take a look at the sequential comparison, also there, quite many were flat to down in a sequential comparison. Lift trucks were actually up in a sequential comparison of the business units if we take a look at it from that point of view.
Then sales, €375 million, an excellent level. So really good deliveries, more than 40% higher than a year ago in comparable currencies. And also, this was in a way widespread across the business units, so we had improvement in sales basically across all of the business units that we have. Order book, €1.8 billion still up clearly in comparison to the situation a year ago. Then comparable EBITA, 8.3%, that’s an improvement of 0.6 percentage points in a year-on-year comparison. This was due to sales increase, so underlying volume increase. Our gross margin actually decreased in Port Solutions. Mix was clearly weaker now than what it was 1 year ago. Also, the third quarter of last year was actually good from the performance point of view and the gross margin point of view. So from that point of view, regarding gross margin, tough comparables, but of course, the volume compensated for that and the EBITA margin is up.
Then before going into the Q&A, a couple of comments on networking capital and balance sheet. Our networking capital actually continues to trend in the right direction, both in absolute euros as well as in relation to rolling 12-month sales. We are at 10.6% of rolling 12-month sales. It’s well in-line with our target of being below 12%.
Inventories continue to be on a high level. However, advanced payments have more than compensated or nicely compensated for that. And as a result of that, we are trending in the right direction. This is then obviously visible in the free cash flow as well. That has been quite stable actually across the, or let’s say during the past quarters, we have been generating €100 million, slightly more even free cash flow per quarter. And that was the case also for the third quarter. Of course, profitability improvement is a key factor there, but also supported by the networking capital release that we are seeing from the slide.
And then all of that is obviously visible in the gearing as well as in net debt. Our gearing at 34%, a good level for us. Net debt has been trending down. We are at €518 million at the end of the third quarter. And then finally, before going into the Q&A, return on capital employed. Capital employed actually has been over the past year or so relatively stable. The return on capital employed improvement primarily comes from an improved profitability. So improved EBITA margin.
With these comments, I think that we are ready to move to the Q&A.
Kiira Froberg
Thank you, Teo, and thank you also Anders. So let’s start our traditional Q&A, and maybe we could start with some questions from the line, please.
Question-and-Answer Session
Operator
[Operator Instructions] The next question comes from Antti Kansanen from SEB. Please go ahead.
Antti Kansanen
Hi, guys. It’s Antti from SEB. Just two quick ones from me. First is on the Industrial Equipment optimization program. So could you please remind how much was kind of the earnings impact on the third quarter, and how much would we kind of expect on the following quarters, how much left on that one?
Teo Ottola
Yes, we have been – we have not given exact numbers on the optimization program. But we can conclude that now for the third quarter, the positive impact is some millions. So not a huge number yet, but some millions that are in a way helping there. And the idea, or let’s say what I already told is that the fixed costs and the overall cost management is on a good level. And it is supported by the optimization program that we are having. We are proceeding according to the plan. And we also have now items affecting comparability as a result of the let’s say agreement that we have made in Germany. So it’s visible in the P&L as well. We maintain our target of having the €40 million to €50 million benefits by 2025.
Antti Kansanen
Okay, that’s very clear. And then on the port side, just a couple of questions on the backlog and mix. And I mean, you mentioned that the mix hasn’t been favorable this year. So if you look at kind of the demand drivers right now and the mix that you have in the backlog, how would you expect that you kind of develop in the next 12 months?
Anders Svensson
Yes, so the key thing with the mix when it comes to ports is that we have a very strong backlog of equipment and projects. So that is growing faster than the service side, the port service side, which is the most profitable area. And hence the mix becomes negative. So we grow service at a very high rate also in Port Solutions, which is important to mention. But we don’t grow it at 41% year-on-year. So that’s the reason why the mix is not favorable. And then we expect also, as we have this strong backlog of equipment going forward, that the mix will remain less favorable versus the service sales. However, the mix and the profitability in the backlog is still strong. So we continue our journey towards our financial targets.
Teo Ottola
Maybe as an addition to that one, let’s say to complement what Anders said, I mean the mix impact that we are seeing in the third quarter, so it’s clearly more, in a way, depending on the order book that we have currently. So it has been easier for us to deliver short cycle products earlier, which is like port service, for example, which is of higher margin. And now the more steel content you have in the project, typically the longer is the delivery time. And now that we have been having, let’s say we have been delayed in some of the deliveries, we would have wanted to deliver earlier, now that we are catching up. So of course, these higher steel content projects come through and it has an impact in the mix. And then of course this will go in waves, so that depending on an economic cycle, so then the mix can be better or worse. When we take a look at it structurally, so we obviously do not see any reason why the mix would need to permanently be weaker than what it has been. Quite the contrary, actually, because on a long-term basis, we want to increase the share of port service of the total port business, so.
Anders Svensson
Absolutely.
Antti Kansanen
Is there any way to comment on kind of the length of the order book? What I’m trying to get is that, okay, it’s up 60% year-over-year, but is it of considerable longer length than a year ago? Because you have had a lot of these big project orders which typically last a bit longer.
Anders Svensson
Yes, so the order book is very different between different areas. If you look into the Industrial Equipment side and service, the order book is significantly shorter than in ports. So here you typically have service and spare parts within one quarter currently, probably a bit longer. You have modernizations in Service, which is then longer than one quarter. In Industrial Equipment, you have the components, which is within one quarter, could be a few weeks longer here as well currently. Then you have the standard cranes, which is basically within two quarters. And then you have the process cranes, which could be – which are longer than two quarters, but it could be quite long depending on how big the order is.
Then if you look into ports, you have service, which is within one quarter. You have lift trucks, which should be within one quarter, but is currently with an order book of 12 months or more. Then you can look into the different projects. And here’s where the majority of the backlog is, I would say. And those can have delivery times of 12, 24 or even 36 months. And that’s not so dependent on our own lead time. That’s more dependent on how ready the customer is with other parts of the larger projects. But here we have – we are taking orders in many areas here for 2025 currently.
Teo Ottola
But maybe again, as a summary – yes, sorry. But maybe as a summary one can maybe say that if we take a look at the length of the order book, so we were already – 1 year ago, we were selling with relatively long lead times. So from that point of view, there hasn’t necessarily been a massive change. I mean, this is more the balance between order intake and deliveries. And now that the deliveries are so much higher than they were 1 year ago, for example, 40% in ports, this is creating the impact on mix. So already 1 year ago, we were selling with relatively long lead times because of the, let’s say, component topics and others that we have been discussing.
Antti Kansanen
Yes, the question was specifically on the ports, just trying to get how much kind of revenue we will be booking from that order book in the, let’s say, next 12 months. Is it comparably different than what it was a year ago?
Teo Ottola
We have obviously now when we take a look at the ports order book and the delta, so it is primarily for next year. The difference, the delta is primarily for next year.
Antti Kansanen
And if I can squeeze in a third one on the industrial side, because if you look at kind of in this point of the cycle where the capacity utilization is quite low and PMIs are quite weak, it seems that your equipment business is behaving almost as stable as your service business. So do you have a sizably bigger service footprint in Europe and compared to what you have on the equipment side? Because it seems that the U.S. is strong on the equipment side. So relatively, do you have much more equipment sales in the States versus Europe?
Anders Svensson
We don’t go into any details about country-by-country, but we have been strongest in the Americas and a bit weaker in Europe in terms of equipment sales, where we have been stronger in the northern parts of Europe and in the southern parts of Europe, and weaker in the central parts of Europe, basically. But I wouldn’t say that’s the reason why it holds up so well. I think it’s because we are present with many customer verticals. So even if general manufacturing is not performing very strong, we have other areas like power, waste to energy, wind, metal, aerospace. So we have other industry verticals that help us carry through a bit of the downturn within general manufacturing.
Antti Kansanen
Okay, that’s all for me. Thank you.
Kiira Froberg
Next question, please.
Operator
The next question comes from Panu Laitinmaki from Danske Bank. Please go ahead.
Panu Laitinmaki
Thank you. I have a couple of questions. Firstly, on the new orders that you are taking in, how is the pricing developing? Do you see more price pressure than in the previous quarters?
Teo Ottola
The competition – if we take a look at the competitive environment in general, so we can maybe conclude so that the competition is getting maybe tougher from the pricing point of view. This does not necessarily, however, mean that everywhere in a similar way. I think that one example could be Asia-Pacific. China, for instance, where the let’s say competition is tougher than what it was some time ago. Maybe in some other locations as well. But from the big picture point of view, you cannot in a way draw parallels to every place in the world. We continue to be confident that we will be able to pass on any cost inflation into the customer prices like we have now been able to do when we take a look at it from the P&L point of view in, say, Q1, Q2 and Q3 this year. So we are not expecting our capability from that point of view to deteriorate.
Panu Laitinmaki
Okay, thank you. Then just a couple of questions on the Port Solutions. I mean, just on the related to the previous discussion, to understand what is the delivery capability or kind of what’s the annual run, sorry, quarterly run rate of revenues that you could deliver in this business. Just asking because you have an exceptionally high order book and it’s kind of difficult to know how much revenue can you deliver. So any color on this or any indication on the numbers?
Anders Svensson
I mean, our delivery capability depends on if we hire more people and go up in shifts, etcetera. And also, how our supply chains can adapt. But currently with the order book we have, our delivery capability has only sort of been sort of a challenge within our lift trucks business where we have too long lead times, what we think. Otherwise, we are delivering according to customer expectations, I would say. So that would be sort of a normalized capability that we are running at.
Teo Ottola
And now that you are asking about Port Solutions specifically, if I understand correct, so this, let’s say, normal capacity is extremely difficult to, in a way, determine. And the reason is what Anders just said, so that, I mean, the supply chain is something that is quite important there. I mean, the projects are of different sizes. They are being manufactured at different places. We do not have much of steel manufacturing capacity or steel building, steel construction capacity of our own.
So it’s basically done at the subcontractors. And then, of course, we cannot increase also the number of subcontractors or the capacity at subcontractors at any pace that we want. And that is then something that has also meant that the delivery times have become longer. So this kind of, let’s say, normalized delivery capability is very depending on the business unit. And we cannot, unfortunately, in a way, give a number that would be matching to our current capacity, particularly in ports. If your next question is on the other business segment, so we might not give that either. But I mean, particularly in ports, it is very difficult.
Anders Svensson
I think it’s important to mention that we are often not the limiting factor in terms of lead times and delivery capability in the larger projects that are customers. That’s more customer readiness at site, etcetera, which sets the timeline. So we get the order well in time before we need to deliver it.
Panu Laitinmaki
Just to clarify, like the comment on the previous questions that the order book is primarily for next year. I mean, how should we read that?
Teo Ottola
Order book delta is primarily for next year. So if we compare the order book now and the order book that we had, say, a year ago, so, I mean, the difference is primarily for next year.
Anders Svensson
So we basically only communicate once per year how our order book looks in terms of delivery per year the coming years. So and we do that I mean, together with the annual report.
Panu Laitinmaki
Yes. Final question for me on ports. So you indicated Q3 was the trough for orders in 2023. But is this more like a Q4 guidance or do you see that it’s like a trough overall if you think about next 12 months and your sales funnel and expectations?
Anders Svensson
No, I’m more talking longer than just a quarter. I’m talking a longer outlook. So we have those mega projects and a lot of projects in the sales funnel for ports. It’s equally strong what it has been previously, basically, but we see those projects are going to signing somewhere in 2024. So not in 2023. So it’s more a long-term projection. Yes.
Panu Laitinmaki
Sure. Thank you. That’s all for me.
Anders Svensson
Thank you.
Kiira Froberg
Thank you. The next question, please.
Operator
The next question comes from Tomi Railo from DNB. Please go ahead.
Tomi Railo
Hi, Anders, Teo. It’s Tomi from DNB. Also, a question on the Ports’ third quarter orders, just asking if you were surprised on the level of the orders at about €230 million and if you could describe a little bit how the months developed? Was there no pickup in September as you maybe had assumed or how have you – and then maybe a follow-up that how have you seen October starting since you commented that the third quarter was a drop? Thanks.
Anders Svensson
Thanks. No, I wouldn’t say we were surprised. We got an early order intake in the second quarter of some things we were expecting to get in the third quarter. So, that was of course, we were aware of those. Then you always get these sort of let’s say €20 million to €60 million orders that can come early or that can come late or on time what we would expect it to come. So, in general, we were not surprised. Maybe we had a little bit more hitting the posts out than hitting the posts in for the third quarter. But it was nothing that came as a big surprise for us. It was actually quite close to the forecast that ports had given themselves.
Tomi Railo
Alright. Thanks.
Anders Svensson
Thanks.
Kiira Froberg
Next question, please.
Operator
The next question comes from Tom Skogman from Carnegie. Please go ahead.
Tom Skogman
Yes. Good morning. So, I wish you could provide some insight into the order outlook by different industrial segments. What are strong end markets and where do you see weakness at the moment?
Anders Svensson
So, we see strength in the market in the third quarter, for example, in, like Teo mentioned, year-on-year in components and in standard cranes. We have seen a strong development also in process cranes in the previous quarter. So, generally, we see that the whole market here is quite strong. And Teo talked about the different regions already in his presentation. So, America has held up very strong. I mentioned also that the northern parts of Europe and the southern parts of Europe has been performing better and we expect maybe that to continue. Then the central parts of Europe, and like Teo mentioned, there is more price competition probably in the APAC side than we have seen previously, while a bit less so in the Eurozone and in the America.
Teo Ottola
And if you mean by customer segments, so maybe we can talk a little bit about that. So, power has continued to be quite strong. If we take a look at, let’s say metals, that has actually been quite okay as well. If we take a look at the areas where things have not really been moving in the right direction, so it’s maybe raw material related, like mining type of things that we have seen, maybe some softness in general manufacturing as well, and then maybe pulp and paper. So, maybe not so surprising in a way, segments from that point of view. But no significant movement, for example, in general manufacturing, which is of course by far the most important for us, particularly from the component business within Industrial Equipment point of view.
Tom Skogman
Do you see any concrete signals from, or orders from the U.S. IRA program or near-shoring activities?
Anders Svensson
It’s always difficult to answer that question what would have come anyhow, and – but of course, if you look first at near-shoring, any sort of change of supply channels is an advantage for us, because you never bring a crane with you when you build a new factory somewhere else. The same goes then for the port side, because then you have new routes that ports need to either be built or expand current capacity. So, all of those kind of changes in the supply chains across the world is working in our favor. So, I would say the underlying sort of long-term demand drivers are very positive for us. Then in terms of U.S. alone, I wouldn’t say that we are the first that would notice that, but I am sure there will be some positive contribution from that side as well. But to define the level would be very difficult.
Teo Ottola
And the Americas, Northern America in particular has been strong. I mean if we take a look at the market area, so clearly you can see that there is activity there. How much is then related to which factor, it’s a relevant question, very difficult to pinpoint the different factors in monetary terms.
Tom Skogman
Are D&I cranes already now sold only through distributors? And has that had any impact on market share?
Anders Svensson
No, it’s a process that we change not over one day. We take different regions and change into being an indirect go-to-market model for us. So, currently it’s a mix between different regions on how we go to market with Demag. But we are quickly moving towards making it an indirect brand across the globe. And we see here, of course, already now that we have an increase in crane sales for the Konecranes brand and a big increase in components for the Demag brand.
Tom Skogman
Okay. And then finally, Anders, you said at the Capital Markets Day that you would like to achieve some kind of cultural change at Konecranes. And now you have been there for 1 year. So, could you open up where you have come, and what you have identified and what you would like to change still?
Anders Svensson
Yes, of course. Thanks. That’s a good question. I think we have launched our purpose and our strategic enablers as we did in the Capital Markets Day. And just now, recently, we followed up with launching our new company values, which is sort of more driving towards how we act and behave. And here we have putting customers first, doing the right thing, driving for better and winning together. So, it’s about achieving those kind of competitive mindset in the organization. And I think we are clearly taking the right steps. I can feel it in the organization. I also get actually feedback from the organization that even from Australia, that we feel that the organization is changing, there is more power, there is more competitive mindset in the organization. And I also think that our result shows that with a very strong sales execution and an all-time high quarterly EBITA margin.
Tom Skogman
Okay. Thank you.
Kiira Froberg
Thank you. Maybe now a couple of questions from the chat. So, the first one would be on share buybacks or potential share buybacks. Given your very strong free cash flow and limited CapEx, would it make sense to embark on a share buyback program that would be very earning enhancing and raise the share rating?
Teo Ottola
Okay, so we – yes, it is of course a valid question. We have not really been doing share buybacks for quite some time. So, it’s clearly more than – it’s probably more than 10 years now since the previous ones have been. It is in our toolbox from the point of view that we have an authorization from the AGM to do share buybacks. We have not been doing that in practice. The primary means to distribute profits to the shareholders from our company point of view has been dividends. And that has, in our opinion, served also the owners pretty well. Now, of course when times develop and the company develops, obviously we are not saying that absolutely we would not do it or absolutely we would do it. But it’s in a way linked to the time where we are. And if we see need to develop the capital structure of the company with the share buyback, so we do not have any categoric sort of view that we shouldn’t do it or that we should do it. So, it’s something that we will be discussing within the company and of course, with the Board of Directors, in particular, going forward and then decide accordingly.
Kiira Froberg
Then we would have another question on China. China is an important market for Konecranes from a production point of view. How are you de-risking the current geopolitical tension and weak economic sentiment there?
Anders Svensson
Yes. Correct, China is an important supply market for us and also a production market for us. And we are, since I think 2 years back, looking into alternatives because it’s not only China, but the situation in the last 2 years has proven that you shouldn’t be dependent on any market or any country by itself. So, we are ensuring that we have alternatives throughout our supply chains and also, our manufacturing footprint going forward. So, we take initiatives to ensure that we are not dependent on China or any other country for that sake.
Kiira Froberg
Good. Then we still have time to take a couple of more questions from the line, if there are any, please.
Operator
[Operator Instructions] There are no more questions at this time, so I hand the conference back to the speakers for any closing comments. The next question comes from Johan Eliason from Kepler Cheuvreux. Please go ahead.
Johan Eliason
So, hello, can you hear me?
Kiira Froberg
Yes, we can hear you well.
Johan Eliason
Yes. Sorry. I was a bit surprised. I think you said the quarter was over. Obviously, I still have a chance here to a question, that’s good.
Kiira Froberg
But of course.
Johan Eliason
I was just wondering a little bit. Now obviously, we are very close to these new margin targets you have achieved in this quarter. But what are the main building blocks, because it’s obviously margin guidance that should stand over the cycle as well. What are the main building blocks that you still need to improve going forward to make sure that this is becoming a reality? I mean we have heard about the savings in the Industrial Equipment, for example, which is probably part of it. But could you just repeat a little bit from the presentations at the CMD, what is going to take you to sustainable sort of 12% to 15% margin going forward? Thank you.
Anders Svensson
Thank you. Yes, if you look at the service business first, so service is a very volume-dependent business. When we get volume, we can then be much more productive with our service technicians. We have also had a challenge historically in the last 2 years or so to recruit service technicians. There has been a lack of service technicians. I am happy to report that for the third quarter, we actually increased service technicians in the service segment by a net of plus 50 or so. So, we are moving in the right direction here. We are getting more service technicians onboard to ensure that we can make the growth. And the growth then will give us a really strong operating leverage, because we are not adding more sort of overheads. We have the tools and the systems to support our service technicians to perform to serve our customers. So, that’s the service side. In the Industrial Equipment side, we have a lot of initiatives. The optimization program whether it’s go-to-market models, it’s reducing the number of product platforms, it’s making it efficient and streamlined, so a lot of internal initiatives to make us more efficient. And those we have talked about, and Teo talked a bit about, that by 2025, we will have an EBITA improvement of €40 million to €50 million. And it will come with one-off cost of sort of €30 million to €40 million. And here we had €17.5 million in the current quarter. Of course, that was not cash flow out, but we booked that as we agreed with the unions in Germany to downsize with 60 to 70 people in our Wetter facility. So, there is a lot of internal efficiency gains to be had within Industrial Equipment. And then you have the process cranes side within that. And that’s where we have made red numbers for quite some time. And here we have a lot of initiatives to sort of make this into more Lego parts, so less sort of special solutions and more standardization. So, if we are 20% standardization in that area today, we want to be sort of 40%, 60% standardization in that area when we are done. And that will make us much more efficient on how we – both how we sell, but also how we de-risk projects and how we can deliver the best solutions to our customers. Then for the ports, there is a lot of focus on growing our service side imports, like Teo mentioned. Long-term, we don’t see that the mix should be negative with in ports, it should rather be the opposite. We are growing very quickly, but in the last year, we have had a very strong order intake on the equipment side in ports, which in the short-term, in the next sort of 12 months or so, we will make the – the mix be negative within the Port segment. And it’s also then of course to leverage the volume growth that we have now. Ports is a good business. A lot is outsourced, as Teo mentioned. So, we don’t need to build a lot of internal capacity or supporting structures with SG&A structures, etcetera, to support the growth that we are having within ports. So, those are maybe the key things.
Teo Ottola
Maybe to add on those ones, I mean Anders talked about the growth for service productivity on efficiency improvement for IE and then automation and service for ports. Maybe one thing that we also, is worth mentioning, we want to, of course, also in a way improve our accessibility in a way, and our resilience towards cycles. And this is of course done with the help of service. Service, by definition, is resilient to downturn because of the demand factors. But also when it comes to the equipment businesses and the optimization topics that we have, for example, for industrial business, are also aiming at making us more, let’s say, resilient in basically any sort of economic cycle. Not that we would be able to eliminate the fluctuation, but to make the company as flexible as possible to respond to changes.
Anders Svensson
Yes. We need to be more agile to respond to sort of loading of factories, etcetera. So, talking less about under-absorption when things happen and more about what actions we have taken to counter it.
Johan Eliason
Excellent review. And coming back to the port solution and service business, this is a topic we have been hearing for the past 10 years, 15 years and it’s always been very difficult to get the service business going in the port side because of unionization and historically good profitability of port operators, etcetera. Are there any sort of structural changes here on how the customer side thinks about services that would allow you to grow that share or are you building a much denser network, or what’s sort of the driving forces behind that part of the story?
Anders Svensson
I would say there are quite a lot of underlying demand drivers that work in our favor. Customers have an aging workforce in service to a large extent and it’s difficult to renew that. You also have the more complex automation solutions, digital solutions that the products contain. The more difficult it is to have an in-house service force and that works for both industry equipment in the ports side to take care of the service because you need to be more and more of an expert going forward. And then we also see tendencies in ports customers to outsource more service and that’s also in countries where traditionally unions have been extremely strong within this area. We also see tendencies here to increased outsourcing of service. And then you have the whole inland terminal, which is also a big business, actually, where you don’t at all have that sort of stronghold from sort of the union side as you do on the ports side. There is a lot of underlying strong demand drivers supporting the service within port solutions. And we actually have a very strong development as well in service growth in that area.
Johan Eliason
Okay. Excellent. Those were all my questions.
Anders Svensson
Thank you.
Kiira Froberg
Thank you. So, I think with that, it’s time to conclude our today’s conference. I want to thank all the participants for the questions. And as a reminder, this year’s financial statement release will go out on February 2nd next year. Time flies. Have a great day everyone. Thank you.
Anders Svensson
Thank you.
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