Cargotec Corp

OMXH:CGCBV

Earnings Call Transcript 2021-Q4

[Aki Vesikallio, IR Director]

[Audio Gap]‘21 results call. My name is Aki Vesikallio. I'm from Cargotec's Investor Relations. Today's results will be presented by our CEO, Mika Vehvilainen; and our CFO, Mikko Puolakka. This call is about to discuss Cargotec's results and please pay attention to the disclaimer in the presentation as we will be making forward-looking statements.With that, over to you, Mika.

[Mika Vehvilainen, CEO & President]

Thank you, Aki. Good afternoon from my behalf as well and thank you for joining the Cargotec Q4 and 2021 results. A couple of highlights first from the year. It was another exciting year for Cargotec really characterized by strong demand in all of our main market segments, delivering strong record orders and a very strong order backlog. It was also a record year for our services business that developed very well. However, the results were affected really by 2 factors. First of all, the supply chain difficulties and related logistic issues reduced our revenue potential during the Q4 by approximately EUR 80 million, having about EUR 24 million impact on our revenues. Furthermore, we had an offshore related one-off project sort of a write-off in MacGregor that had a resulting impact of approximately EUR 27 million. And those 2 factors negatively impacted our Q4 profitability.Also after the Kalmar Q4 announcements related to the electric portfolio, I'm very happy and proud for the fact that Cargotec can now offer an electric product in all of our product categories across the whole company. In today's presentation, I will cover some of the 2021 highlights, discuss the market environment that we see in front of us, take up some of the group level development. And then our CFO, Mikko Puolakka, will cover the business areas and the financial results as well as the outlook for 2022. As I said, strong demand actually really across all of our business segments delivering a very strong order intake -- a record order intake and record order backlog for us. Orders increased by actually 42% and it was obviously a clear improvement in all of our main product and business areas. Sales, however, increased only by 2 percentage points and that was really caused by 2 different factors.Revenues declined both in MacGregor as well as in Kalmar project and automation business and this was due to the fact that 2020 order intake in those businesses was clearly lower and that of course with the long cycle nature of the businesses resulted to a lower revenue in 2021 as expected. In Kalmar mobile equipment and Hiab, the revenue increased, but the increase was limited by the supply chain bottlenecks that actually intensified towards the second half of the year. The comparable operating profit improved. We declined about EUR 6 million in Kalmar. Without the Navis impact, the Kalmar profitability would have been roughly at the same level as in 2020. Hiab was able to leverage the good market environment and the sales increase drove a EUR 37 million improvement in the profitability. MacGregor actually made good progress pretty much almost in all of its product areas and despite the lower revenues in 2021, improved its profitability in the merchant business as well as in services.However, unfortunately in one of the business lines in offshore segment, the offshore wind related programs, new project implementation with new technology resulted in the implementation challenges and EUR 27 million write-off in project profitability. We see this as a onetime charge against the difficult technical issues we have had in that project. If I look at overall the picture, then our equipment utilization and market activity within our customers continued at the high level during the Q4. We saw clear improvement in equipment activity further sequentially from Q3 to Q4 and also on year-on-year basis both in Hiab as well as in Kalmar mobile equipment space. Overall, the market environment continues to be strong. The container traffic grew by roughly 7% from '20 to '21 and is expected to grow somewhat over 5% also from '21 to '22 really by the strong global trading and sort of merchant activity as well.Also in construction, which is one of the main drivers for Hiab, we saw again sort of increasing activity for example in building permits in U.S. towards the end of the year and also the European construction activity is at the high level. The growth is really limited primarily by the material availability and the workforce limitations at the moment. Also in shipping, '21 was a very encouraging year where we saw the ship contracting going up significantly. We saw some softness towards right at the end of the year and early this year. But this is, to our opinion, really sort of caused by the fact that the shipyard capacity starts to be full. Newbuild prices have gone up quite significantly. We still see the sort of long-term prospects for the shipbuilding to continue at a strong level moving into the '22. As said, record high orders especially driven by the strong activity in Kalmar mobile equipment as well as in Hiab and a very strong order intake growth and record orders in those businesses.This obviously resulted to a record high order book as well. So we go into the '22 with an extremely favorable order backlog. Obviously within the order backlog, we also have started to see sort of the pricing increases that we actually implemented multiple times during the '21 to start to have a more positive impact on the margin when we move throughout '22. The sales were growing more modestly and, as I already said, really caused primarily by the expected decline in MacGregor and Kalmar project businesses because of the low order intake in '22 then affecting the revenues in '21 and with the strong market demand in Hiab and Kalmar mobile equipment, the limiting factor really was the supply chain and logistic issues in there that limited the growth in that one. The impact was very strong. During the Q4, we estimate that the impact for the revenue was roughly EUR 80 million negative on that one.Very satisfied with our performance in the services business. Another record year for that one, 7% growth in revenues and roughly 18% growth in orders in services and really growing in all of our business segments. MacGregor sales revenue was somewhat lower and this was really primarily driven by the very high activity in the shipping. There obviously with the sort of very positive and profitable sort of environment for the ship owners, owners are reluctant to put the ships up for maintenance and servicing work with the highly favorable market conditions at the moment. But considering that the COVID restrictions, they're still somewhat limiting the service activities, a very good performance from all of our services businesses.We are also very satisfied with the work we are doing with our strategy implementation. Aim to be the global leader in sustainable cargo flow with key targets around sustainability impact we can have in our own operations, but especially to our customer operations and then the profitable growth. Good examples on concrete actions we were able to deliver during 2021 and during the Q4 in our strategy implementation. In Hiab we are continuing to grow both organically and inorganically and acquired Galfab, one of the leaders in the demountable market space in U.S.A. And we see good opportunities in Hiab to continue both organic growth as well multiple opportunities to also grow inorganically looking at the adjacent businesses and local champion type of companies such as Galfab.Also very proud about the fact that we have now launched the full electric portfolio and in Cargotec, all of our product categories are now available also as an electric solutions. And we expect a lot of sort of demand going into electric portfolio moving forward also throughout 2022. We also keep on investing in addition to electric to our robotics and automation solutions. One example of that one was the Cargotec investment and Kalmar investment in Coast Autonomous Inc., a start-up company that is helping us to sort of develop further our robotic and autonomous operations into our mobile equipment space. And again very satisfied with our performance in services with the strong growth in the business segments.And with that one, I'd like to hand over to Mikko Puolakka, who will cover the business areas.

[Mikko Puolakka, Executive VP & CFO]

Thank you, Mika, and good afternoon, ladies and gentlemen, also from my side. Let's start first with Kalmar business area where we had strong orders, strong market demand continued and we had also very good performance in service delivery during quarter 4. When we look at the orders, the large crane replacement market continued to be active, also in mobile equipment as well as in services. However, the kind of large automation activity has remained fairly low during 2021 and we got only one automation order during the year earlier in '21. Now when we look our order book at EUR 1.3 billion, we start the year with a sizable order book. It's good to remember, however, that delivery times are longer than usual. In Kalmar mobile equipment for example, we have approximately 12 months delivery times at the moment. Our sales were EUR 430 million. This was up by 5%. We were able to grow the sales despite component shortages in the mobile equipment.Service sales were up by 7% year-on-year. The large crane sales declined due to the low order intake back in 2020. We had approximately EUR 30 million mobile equipment deliveries postponed from quarter 4 to 2022 due to missing components. Kalmar profitability improved by 19% even when we did not have any more in quarter 4 the Navis results part of the Kalmar business area. Growth in profitability is coming from higher sales as well as good large cranes project execution. Navis impacted -- or the divestment of Navis had roughly EUR 7 million profit impact in quarter 4. So in quarter 4 '20 Navis contributed roughly EUR 7 million to our profitability. And as previously mentioned, EUR 30 million delays in our deliveries had approximately EUR 9 million impact on Kalmar profitability. So with those EUR 30 million, we could have made approximately EUR 9 million more operating profit.Then looking Hiab. In Hiab, we had a mixed quarter. The customer activity continued at a good level. Orders were EUR 384 million. Like in Kalmar's case, also in Hiab the year starts with extraordinary high order book. And in Hiab's case, we are talking even up to 9 months delivery times at the moment due to the component shortages. In Hiab we had a good growth in sales, sales were up by 15%. However, I would say that the quarter 4 '20 sales were still to certain extent impacted by the low order intake from early part of 2020. So perhaps the comparison point is also not entirely kind of apples-to-apples. In Hiab we had a very good performance in services, in spare parts, in installations as well as in maintenance. In Hiab's case, we had approximately EUR 50 million deliveries postponed from quarter 4 to 2022 and this is very much coming from also missing components as well as availability of truck chassis.Hiab's full year profit was EUR 166 million or 13.3%, a very nice 29% improvement year-on-year. However, the quarter 4 profit declined slightly and one of the reasons for this is the EUR 50 million delays in deliveries that caused lower productivity and the EUR 50 million delays had approximately EUR 15 million impact on operating profit. In Hiab's case, we have also added certain costs in selected areas to support the growth in services, mergers and acquisitions as well as in our assembly operations. Then in MacGregor, I would say that otherwise good development, but we had significant cost overruns in the offshore wind product line. The order intake growth in MacGregor was very much driven by the merchant and service divisions. Order book has continued also to improve. Roughly 75% of our MacGregor order book is merchant related and 25% offshore. Sales declined by 16%. This was more or less expected due to the low order intake back in year 2020. Service sales were up by 15%.MacGregor's quarter 4 profitability was disappointing. The key drivers described earlier by Mika is the EUR 27 million cost overruns in our offshore winter projects. This is first of its kind technology where we have needed to do more extensive design for the project. Also the manufacturing of components is more expensive. Good to remember that in quarter 4 as well as on full year level, the merchant and service divisions have improved profitability in MacGregor. And the TTS integration is progressing according to the plans. We have made approximately EUR 30 million savings in 2021. Then few words about our key figures. We start the year with EUR 2.8 billion order book, roughly EUR 1 billion higher than a year ago. Good to remember, like said also earlier, the delivery times are substantially longer than in a normal supply chain situation.Comparable operating profit was EUR 232 million. And below that, we had EUR 124 million positive items affecting comparability. Here the largest positive item was the Navis divestment EUR 230 million sales gain and then we had merger related costs EUR 50 million as a negative item. The other restructuring costs have declined from 2020. Earnings per share were EUR 3.82 and if we eliminate positive items affecting comparability, EPS would have been EUR 2.37. Our ROCE is now 14.5% and Navis had a big contribution to this improvement. Looking to cash flow. Quarter 4 and full year 2021 cash flow was weaker than in previous year. The key driver here is the inventory increase and this inventory increase comes from missing components. We have more semi-finished goods currently in our stocks. Our inventories have grown 36% while sales grew only 2%.Despite the lower cash flow, our balance sheet has continued strengthening during 2021. Our gearing was 27% and excluding the IFRS 16 lease liabilities, it was 16%. We have also prepaid a EUR 150 million bond, which would have matured in quarter 1 this year, but we prepaid that in December 2021 and basically now we do not have any major debt maturities coming until mid-2023 so in the next 18 months. So we are in a very good position to support both organic and inorganic growth from our balance sheet point of view. Our Board is proposing a dividend of EUR 1.08 for each B share. This is the same as in 2020. This dividend payment amounts approximately to EUR 70 million and this is in line with the combination agreement between Cargotec and Konecranes signed back in 2020. This EUR 1.08 for each B share is approximately 28% dividend payout ratio.Excluding the one-off items, it would be 46%. Our dividend policy is to pay 30% to 50% payout ratio and the dividend payment would be made on March 28, 2022. And then the guidance for this year. As discussed already earlier, we start the year with a high order book. However, the operating environment is still volatile. The COVID restrictions impact us and may impact us and our suppliers and also the component availability is going to be a constraint throughout the year 2022. Based on these assumptions, we estimate that the 2022 comparable operating profit improves from 2021 and thus is higher than EUR 232 million.And with those words, I would then hand over back to Aki.

[Aki Vesikallio, IR Director]

Thank you, Mikko. Good presentation. So let's invite Mika Vehvilainen back to the screen and well, he's here so we are ready for the questions.

[Operator]

[Operator Instructions] The first question we've received is from Magnus Kruber, UBS.

[Magnus Kruber, Associate Director and Research Analyst]

Magnus with UBS. A couple of questions from me. And obviously I want to start with the EUR 27 million overrun that you discussed. And is this project completed? I mean what's the nature of the project and is there any risk we could see more costs coming from this?

[Mikko Puolakka, Executive VP & CFO]

Thanks for the good question. The project is still ongoing. We have assessed the project at the end of the year, made the provisions based on the best understanding, based on the current engineering estimates, based on the current manufacturing estimates. We expect to deliver the project during this year.

[Magnus Kruber, Associate Director and Research Analyst]

What type of engineering work is it or type of product?

[Mikko Puolakka, Executive VP & CFO]

This is related to -- like mentioned, this is related to offshore winter and these cost overruns are related to engineering work and also to certain extent also the component manufacturing.

[Magnus Kruber, Associate Director and Research Analyst]

Okay. So some kind of wind installation vessel. Is that...

[Mikko Puolakka, Executive VP & CFO]

Yes, it's a solution which is supporting the windmill installation.

[Magnus Kruber, Associate Director and Research Analyst]

Got it. And then if we could talk a little bit about net price impact going into '22. I guess as you commented through the presentation, you see pricing filtering through the backlog as we speak. So how do you see the balance between cost inflation across the varying types as well as your pricing? Do you see any sort of air pocket opening up in the first half of '22 with respect to the relative impact of pricing and cost?

[Mikko Puolakka, Executive VP & CFO]

In general, the pricing environment has been quite challenging this year. In that sense, that we have been increasing the prices by double digit for example in Kalmar mobile equipment and in Hiab. And of course we continue to monitor also the component price as well as the labor inflation development during this year. And if needed, then we would implement further price increases. When it comes to project related pricing, there we typically price based on the current raw material costs and then reflect that cost level also to our customer contracts.

[Mika Vehvilainen, CEO & President]

Yes. Maybe if I add on that one. If you look at -- we did about varies slightly from product area to another, but multiple pricing increases starting from very early on in 2021 and last major price increases roughly by summer '21. And altogether, as Mikko was saying, double-digit pricing increases. So obviously when you look at the lead times at the moment, you would estimate roughly sort of 9 up to 12 months lead time from those product increases. So effectively what we will be delivering in the first half of this year is primarily products that are still ordered on the first half of last year and the price impact should be coming fully through on the second half of this year then. Obviously in same way, some of our component deliveries and component prices has been also increasing gradually. So overall, I think those 2 are expected to match each other fairly well during the first half. And then depending a little bit on the price development in the component area on the second half, let's see if we can create some pocket there or not.

[Magnus Kruber, Associate Director and Research Analyst]

Okay. So no obvious mismatch between the timing of the price increases hitting the P&L and the cost then in the first half as you see it now?

[Mika Vehvilainen, CEO & President]

No. Thankfully obviously also the price increases coming from our suppliers are happening gradually obviously with a little caveat of course that in some cases, you are forced to go to the spot market where your price increases for particular components could be considerably higher. And the other thing that is obviously eating slightly into the margin is the transportation costs that are up obviously considerably again. It's not a huge impact, but it has some impact as well.

[Mikko Puolakka, Executive VP & CFO]

And on top of that, of course certain lower productivity in cases where we are missing some components and cannot finish the product. So some unoptimal production flows and those are of course then kind of staying in our books, those costs.

[Magnus Kruber, Associate Director and Research Analyst]

Got it. Absolutely. Just one final question also. You still have a sustained solid momentum in Kalmar mobile equipment. Any chance you could help us quantify the mix impact that we potentially could see into '22 on the back of that?

[Mika Vehvilainen, CEO & President]

In terms of the electric portfolio, now that we are sort of -- we can offer fully and start to take orders for all the equipment, maybe as an example give you the area where we have had a product available for longest time, which is the sort of heavy forklift trucks in Kalmar mobile equipment. Roughly about 1/3 of those equipment is now in electric format. We expect sort of similar development start to happen in also on other products. There clearly is a sort of market demand coming from the regulatory pressures, customers' own sustainability strategies and effectively sort of the electric format starts to be better and better business case for our customers as well.

[Magnus Kruber, Associate Director and Research Analyst]

And when it comes to sort of profitability mix into '22 in Kalmar, how do you think it could be impacted by the solid momentum in mobile equipment?

[Mika Vehvilainen, CEO & President]

I think overall first of all, quite a large deal of the revenue is already in the backlog If you look at it. And in some cases, we can still take orders to be delivered within this year. But most of the -- I think the orders coming now in Q1 onwards are started to be '23 orders. So a lot of the back -- the pricing is in the backlog at the moment and then as I said, I think right now, it looks like that there is a sort of -- that some of the component pricing increases could be easing off when we move to the second half at this stage.

[Operator]

Your next question is from Aurelio Calderon, Morgan Stanley.

[Aurelio Calderon Tejedor, Research Associate]

I've got 3, I'll begin with them. The first one is around the EUR 80 million that you mentioned that you've missed this quarter due to supply chain issues. I guess my question is more around why the impact was so great in Hiab margins and when you look at Kalmar, which also lost like EUR 30 million, the impact seems quite low in [indiscernible]. So if I can start with that one, please.

[Mika Vehvilainen, CEO & President]

Maybe I'll start and Mikko can fill in. In Kalmar the miss was larger in Q3, but actually what happened is some of the Q3 miss was actually delivered in Q4. Then there was sort of some buildup of inventory from Q2 to -- from Q3 that we were able to deliver in Q4 that then sort of lowered somewhat the gap in Kalmar. That's probably the #1 explanation on that one. And as such, the supply chain issues I think have been prevalent in Kalmar actually through the whole year because lot of the products are fairly similar to the truck industry and hence the component shortages have been well known there. I think the Hiab situation actually, as you can see from the numbers "it sort of deteriorated slightly" towards the end of the year, some of the hydraulic components, but also a number of different sort of negative surprises there in terms of deliveries. Also I think the Omicron started to have certain impact in there even though from kind of the health impact point of view, the Omicron looks like to be a lighter variant, it still causes sick leaves and absences and that's impacting some of our own operations, but also of course in our supplier operations. And the other thing that is slowing down somewhat then Hiab deliveries is the fact that, as Mikko mentioned already, the customers are not getting the truck chassis. So they are effectively not necessarily in a hurry to receive our equipment either.

[Aurelio Calderon Tejedor, Research Associate]

My second question is around kind of the potential that you have to catch up next year because obviously you've mentioned that you have a very solid order book going into 2022, but you've also been flagging that the order book is maybe longer times than it used to be. So what is sensible to assume in terms of order book conversion and i.e. is the life that used to be 6 months now 9 months and the life that used to be 12 months now 18 months or how should we think about backlog conversion?

[Mika Vehvilainen, CEO & President]

I mean if you look at, as Mikko was saying, that if you would use maybe an average about 9 months right now for Hiab and we used to be considerably at shorter cycles at some stage as low as 3 months at this stage. Actually, as such, it's not as large concern as much because right now the bottleneck actually is within the truck deliveries as well and as long as we can match that one, we are kind of okay. But we hopefully start to catch up on that one. But I would say that when you look at the Hiab sort of backlog and Kalmar mobile equipment backlog, you would expect majority of those ones to be delivered within this year. A very large majority of that one.

[Aurelio Calderon Tejedor, Research Associate]

Okay. And maybe if I can also touch on again on Magnus' question around the EUR 27 million one-off. I guess in my mind, I guess my math is correct that business is around EUR 100 million -- kind of the offshore business within MacGregor. What is the confidence that we are not going to see more of this one-offs in other projects and what is going to be a growth area for you like offshore wind vessels?

[Mika Vehvilainen, CEO & President]

This particular project was a very high-value project, but also for us sort of breakthrough technology first of its kind implementation related into sort of mission critical construction vessel where we deployed offshore wind turbines as such. And we have now gone through that project in a very large detail and done the -- renewed the project estimates and that of course resulted in the EUR 27 million offset. But it is a new technology and the project is not yet finished so -- but this is our best estimate based on the information we have.

[Operator]

The next question is from Antti Kansanen, SEB.

[Antti Kansanen, Analyst]

It's Antti from SEB. Coming back to the MacGregor project still, is there other similar technology projects in the backlog currently? And then if we look at the impact for MacGregor in '22, what's kind of the sales magnitude? I would assume that that will be now delivered with a basically 0 gross margin and should dilute earnings in MacGregor in '22. Could you comment on those ones?

[Mika Vehvilainen, CEO & President]

First of all, it's a POC project with large deal of the cost. I don't think it would have a significant impact. It will be sort of in low tens of millions in that sense at the most. And we do see of course that with the current order intake starting to happen, we start to see the order intake as well the revenue ramp up. The good news of course in MacGregor is that merchant side profitability developed very favorably over the last year despite the fact that actually the revenue still declined in MacGregor. So it's in a very good place for the sort of take up, the demand coming from the very hot shipbuilding market during the 2021 as well. And also outside this wind area, we see also increasing activity levels in terms of, I would say, the regular offshore oil and gas projects with the sort of high oil and gas prices right now driving the demand in there as well.

[Antti Kansanen, Analyst]

If we look at your backlog or even your sales kind of pipeline, is there now similar type of activity that you kind of need to revisit the price level, the margin assumptions that you are entering in those projects? Are there any broader implications of this one going forward?

[Mika Vehvilainen, CEO & President]

This particular project that we took the large hit is one of the kind, it's the first of its kind. We do not have any similar projects at the backlog. We still expect that market to be actually attractive for us, but obviously we need to take the lessons learned on that one. Thankfully, that's the only of its kind that is in our backlog at this stage.

[Antti Kansanen, Analyst]

Okay. And then the second question is on Hiab and I want to clarify something that you said. The lead time is currently around 9 months so I would assume that kind of the current backlog should be delivered in Q1 to Q3. But then you also mentioned that the price increases will kind of hit the P&L not until the second half. So am I interpreting right that perhaps the first half, 2/3 of the backlog is coming at a perhaps lower price level and maybe slightly lower margins and we will kind of need to wait until the second half to see Hiab kind of getting back to those mid-teen margins that we've seen historically?

[Mika Vehvilainen, CEO & President]

Yes. I think the first half and I think what you most likely will see this year is probably a fairly larger than normal deviation between the first and second half and the first half is really impacted by 2 factors and this is true both for Kalmar mobile equipment as well as Hiab. One is exactly as you prescribed that some of the delivery still especially in the Q1 will be actually at the sort of lower side of the price range coming primarily from orders on Q1, Q2 last year. The other issue is that I don't think that the supply chain issues are magically going to disappear over the new year. And with Omicron still be very present in the market as well and within the supply chain as well, I do think that the supply chain situation is going to continue to be the bottleneck at least for the first half of the year.

[Antti Kansanen, Analyst]

And I guess on MacGregor, it's also kind of the orders that you have taken will gradually start to provide revenues and profits. So it's a quite back-end loaded year for all 3 divisions. Am I assuming right?

[Mika Vehvilainen, CEO & President]

I think that's our assumption as well.

[Operator]

Our next question is from Johan Eliason, Kepler Cheuvreux.

[Johan Eliason, Analyst]

Johan here. I come back to the MacGregor project mix, we've discussed it in and out obviously remembering that [indiscernible] there were a lot of project overruns in those days and you promised that project structures and similar should be straightened out so we shouldn't see this again and EUR 7 million is still a pretty big number. Have they forgotten it or what's really going wrong in this case? You mentioned new technologies, but I guess there will always be new technologies coming. Should we sort of expect that these things can happen again going forward?

[Mika Vehvilainen, CEO & President]

Yes. I guess there's always the first time. We haven't had anything on this magnitude in MacGregor in the past. We did have a number of issues especially in my earlier years in Kalmar. I'm actually quite satisfied on the progress we have done in project management side in Kalmar and as Mikko was discussing, the Kalmar automation and project business actually had a nice profit improvement actually from '20 to '21 and the project sort of cost estimates were in a pretty good shape throughout the whole year. This is clearly a risk when you venture into the new technologies and obviously sort of, how would I say, education fee you ended up paying on this one where the complexity of the project was underestimated by the organization. We need to take the lessons learned on that one and improve from here on.

[Johan Eliason, Analyst]

Is it in any way sort of related to the TTS acquisition with the different project background or is it the old traditional MacGregor business?

[Mika Vehvilainen, CEO & President]

I wouldn't make a difference anymore between the kind of TTS and MacGregor. The units are nowadays pretty well mixed up and reorganized. So it's really sort of the combination of capabilities from both companies that is participating in this project.

[Johan Eliason, Analyst]

Okay. Then on MacGregor, obviously we see also all the big container ship orders some time ago. Would you say that you have now seen most of it in the order intake in MacGregor or should we expect more to come in 2022?

[Mika Vehvilainen, CEO & President]

No, I don't think we have seen most of that today. I mean again it's good to remember it takes about 6 to 12 months from the ship order to MacGregor order. And actually one indicator you can always little bit look into is that the way that when ship is ordered, the shipyard actually places the orders for different main components of the ship in the different time and usually what happens is that one of the first part that is ordered is actually engines. So if you look at the ship engines and you probably can look at the Wartsila for example on that one. That probably gives you an indication and they tend to be sort of 3 to 6 months usually ahead of us. And deck equipment and loading solutions tend to be the last part of the ship that is ordered. So we tend to be at the tail end of that order intake coming from the particular ship.

[Johan Eliason, Analyst]

Yes. Unfortunately for Wartsila, they don't sell engines to the big container ships anymore but can look elsewhere. Then on Hiab, I think we have been on this subject already. But listening to your competitors profit warning there, they certainly seem to sort of allude to that earnings for their business at least in 2022 should be sort of flat over 2021 basically implying that the first half will be down a lot and then they will regain it in the second half. Is that -- I mean you talked about probably more H2 tilted margin or profit level in Hiab as well. But are you rather talking about flat earnings year-over-year? Do you think that's sort of a realistic scenario or is Hiab also part of your overall guidance for earnings to grow in 2022?

[Mika Vehvilainen, CEO & President]

The guidance we have given is that we would expect as a group to sort of improve from 2021, but I probably would go as far as to say that I would expect actually that the improvement comes across all of the 3 businesses at the same time as well. It's good to remember that when you look at Hiab, we have invested I think quite successfully on the pricing management there for last sort of 18, 24 months and Hiab was fairly aggressive and forefront of the pricing increases. So number of pricing increases. Typical normal price increase in January EUR 10 billion, another round in sort of March time frame and by summertime, our prices were double-digit up from the sort of early part of the year. And I don't think that our competitors have necessarily followed us. So some of -- there is I think a catch-up to be done with some of them in terms of the pricing.

[Mikko Puolakka, Executive VP & CFO]

And if we look at the Hiab's full year results, EUR 166 million profit, 13.3% operating profit margin. So good development there.

[Johan Eliason, Analyst]

Now one of the issues profit warning from your competitors sort of included was that they blame these delays on deliveries leaving them unmatched between the price and the cost inflation seemingly indicating that the hedging has run out when they finally deliver those projects. That is not an issue for you?

[Mika Vehvilainen, CEO & President]

Mikko, maybe you can say a few words about the currency impact on Hiab.

[Mikko Puolakka, Executive VP & CFO]

Yes. I mean in Hiab's case, we are of course fully hedging the net cash flows and actually we have not seen a major negative currency impact there. We saw something, a smaller low single-digit impact in quarter 4. But on the full year level, I would say that in our case at least, the currency impact was rather minimal in Hiab.

[Johan Eliason, Analyst]

Yes. I don't think they were referring to the currency hedging. It was little more on the steel prices and that sort of thing that their contracts had sort of run out and they eventually sort of manufactured and delivered it.

[Mika Vehvilainen, CEO & President]

Okay. I get that one. I mean obviously same for us as well. We are not immune for the increasing cost. And also in our case of course, the old contracts were running out and the new contracts in many cases are at the higher prices. But at the same time, we've been also very diligent and fairly upfront with our own pricing developments. And overall, we have increased our prices. By sort of mid-'21, our prices were up by double-digit percentages in Hiab. So that certainly helps us to sort of take that hit coming from the increase in component and material costs as well.

[Operator]

The next question is from Erkki Vesola, Inderes.

[Erkki Vesola, Analyst]

Three questions, but regarding Kalmar. Is it price increases you have recently made, they will gradually have an impact from the second half of '22 onward? And do you expect this to fully neutralize the margin impact by component pricing increases as we reach the end of the year? I mean is it a kind of rolling impact and a year from now we should be back to normal margin levels at Kalmar or am I missing something?

[Mika Vehvilainen, CEO & President]

No, I don't think you're missing something. The exact timing of course depends on our capability to deliver and again there are a number of uncertainties still in our delivery capability within this year. And especially I think the early part of the year is still going to be quite a challenging environment if you look at what's happening in supply chains and also with the Omicron sort of beating down the sort of sick leaves and others in our own operations and our supply chain as well. So -- but I think I would say that certainly when you go to the sort of start of the '23, those variants have been matched on that one. How that pacing goes through this year has a certain level of uncertainties. I think Hiab is proportionally somewhat in better proportion in terms of sort of the pace of the pricing increases and also with somewhat shorter delivery times compared to Kalmar mobile equipment where the delivery times are getting close to 12 months in average.

[Operator]

The next question is from Massimiliano Severi, Credit Suisse.

[Massimiliano Severi, Research Analyst]

I have just 2. So the first one would be on the mix within Kalmar. I appreciate the comments on the eco-fleet. But as we go into 2022, how should I think about the split between mobile equipment and the project businesses? Should I expect similar to 2021 or some change between the 2?

[Mikko Puolakka, Executive VP & CFO]

Yes. If I comment this so if we look to order intake in Kalmar this year and the order book composition, so it's definitely I would say more weighted towards the mobile equipment. So quite high share of the mobile equipment business in the total Kalmar order book. As the Kalmar automation and project orders have been -- yes, those have been growing, but the growth rate has been much lower than in the mobile equipment.

[Massimiliano Severi, Research Analyst]

So Mikko, if I'm not wrong also in 2021, sales were towards mobile equipment more than usual. So for 2022, it's even more than 2021.

[Mikko Puolakka, Executive VP & CFO]

Yes.

[Massimiliano Severi, Research Analyst]

Okay. And my second question would be on the price increases that you did before the summer where you got to double digits. First question would be in January and March, did you do low single-digit increases or were they higher than this?

[Mika Vehvilainen, CEO & President]

In the early part of last year, we did low single digit. It was more our typical sort of pricing increasing policies set right. Those decisions, they're of course done end of sort of '20 already and in '21 we did what we would call normal pricing increases round. It became obvious for us very clearly fairly early already on that year that that's not going to be enough. We did another round roughly in March time frame and then clearly seeing the inflation sort of still coming strongly, a sort of third pricing round roughly in sort of June, July time frame. This time considerably higher hikes almost across all the product portfolio.

[Massimiliano Severi, Research Analyst]

Okay. So the first price increase, you are already seeing the benefits in Q4 I guess -- in Q4 sales?

[Mika Vehvilainen, CEO & President]

Some of that one was visible towards the end of Q4, but it would be visible in the Q1. But then again, our cost situation is different than it was in Q1 previous year as well. Clearly that component prices are also going up.

[Operator]

The next question is from Magnus Kruber, UBS.

[Magnus Kruber, Associate Director and Research Analyst]

I just wanted to ask you if you could quantify large total that was a year-to-date accumulated overhang from undelivered orders in Hiab and Kalmar at the moment. Is it fair to say it's the same as we saw accumulating in the fourth quarter like SEK 30 million, kind of around [ SEK 50 million ]? Is that sort of what remains to be delivered shall we say?

[Mikko Puolakka, Executive VP & CFO]

Yes, that's correct. So basically those delays that we reported in quarter 2 and quarter 3, those we have been able to deliver during 2021. And basically this EUR 80 million, EUR 54 million Hiab and EUR 30 million for Kalmar, those were the kind of overhangs or deliveries which will flow from quarter 4 to first half of 2022.

[Magnus Kruber, Associate Director and Research Analyst]

And then maybe just a final one on Hiab. I mean you had a very solid order growth here in 2021 obviously for various reasons. But how do you see the outlook for demand into this year given the sort of the end market remains healthy, but dynamics are a bit different in '21 obviously, not a normal year?

[Mika Vehvilainen, CEO & President]

Yes. It hasn't been a normal year for a while and who knows what '22 will bring with it as well. The early part of the year has been continuing in the same strong pace so we see the demand so far continue at the same pace. Obviously there are a number of uncertainties regarding '22 so it's really difficult to estimate where we'll end up. But looking at the customer activity, looking at the key indicators, construction activity, e-commerce, sort of general material deliveries, the underlying market environment remains strong.

[Magnus Kruber, Associate Director and Research Analyst]

Got it. And just maybe one final one. What do you expect in terms of labor inflation for this year? What do you have in -- what have you budgeted for?

[Mika Vehvilainen, CEO & President]

I think it varies considerably from market to market and from the position to position. We have seen fairly strong labor inflation especially in blue collar type of manufacturing and services technicians and, I would say, sort of plus/minus 5% really depending on the market. Some markets clearly above 5% as well.

[Operator]

There are no further questions at this time. I hand back to you, speakers.

[Aki Vesikallio, IR Director]

Okay. Thank you for the great questions and for the great answers, Mikko and Mika. So with that, we can conclude the call. Cargotec's Q1 results will be published on April 27. Stay tuned.