Cargotec Corp

OMXH:CGCBV

Earnings Call Transcript 2022-Q4

[Aki Vesikallio, executive]

Welcome to Cargotec's 2022 Results Call. My name is Aki Vesikallio, I'm from Cargotec's IR. Today's results will be presented by our CEO, Mika Vehvilainen, and our CFO Mikko Puolakka. After the presentation there will be a Q&A session. Please pay attention to the disclaimer in the presentation as we will be making forward-looking statements.

2022 was a record year for Kalmar and Hiab. Driven by the strong performance of these 2 business areas, we reached all-time high orders, sales and comparable operating profit. Our service and eco portfolio sales also reached new records. The year was shadowed by MacGregor's results, and rationalization of its portfolio had significant negative impact on our operating profit.

With that over to you, Mika.

[Mika Vehviläinen, executive]

Thank you, Aki, and good morning from my behalf as well and thank you for joining the Cargotec Q4 2022 webcast.

2022 was an excellent year for our core businesses, Kalmar and Hiab. Together they generated EUR 3.4 billion in sales which is actually more than the whole Cargotec in 2021, and EUR 388 million of comparable operating profit. The comparable operating margin for the year '22 was 11.3% and we are well on the way towards our 12% target for 2025.

Driven by the core business performance we were also first time in Cargotec's history breaking EUR 300 million comparable operating profit and also made a step change in our comparable operating margin as visible from the slide here.

We were able to leverage our strong order book going into this year and we -- and of course, we had in the beginning of the '22, and the demand remained strong throughout the year. And actually our orders grew by 10%, giving us a very strong starting point for '23 with the 24% higher order book than we had at the beginning of the '22.

Our sales grew by 23%, especially good to see the good performance in services growing and our services revenue kept on growing well. In the CMD in November, we also first time revealed the profitability of our core businesses services which is very close to the 20%.

I am especially delighted about the very strong growth in our eco portfolio. Our eco portfolio sales grew by 54%, driven by Kalmar and Hiab. This comes from the solutions that enable our customers to lower their emissions. Also sales of Kalmar's fully electric and hybrid solutions grew by over 50% from year '21.

So we saw huge step change in comparable operating profit and comparable operating margin, but it could have been a better year without the negative results coming from MacGregor. As you know, the conclusion of the strategic evaluation, the Board decided in November that MacGregor will not be part of the Cargotec's portfolio going forward.

The active sales process has not started yet due to the uncertainty of the financial market and the early phases of MacGregor's profitability turnaround, especially into our offshore division.

Now if we would exclude the offshore wind segment, which is an attractive and hugely growing business opportunity, but requires investments and development of our pioneering technologies, MacGregor comparable operating profit would have been approximately 3% and 5% without offshore division overall. This is despite the very low sales volumes in -- still in '22.

Now we are taking all the measures necessary to execute the MacGregor exit. During the Q4, we made a thorough assessment of MacGregor's portfolio and the projects and this resulted in one-off costs and write-offs for Q4. Mikko will tell you more in detail about the impact of the MacGregor evaluation.

As part of the review, we are planning to rationalize the offshore portfolio and there are more planning regarding significant cost reductions in offshore business as well as the MacGregor overheads.

As a result of these measures, MacGregor will be in significantly better shape for the year '23, and we are already today guiding that MacGregor's comparable operating profit will be positive for year 2023.

Now looking at the market activity, we saw the high level of activity with a lot of our equipment actually working very close to the capacity continuing, and obviously, also the sequential seasonal impact with the very high equipment activity in the logistics industries, with the exception of the China were clearly the COVID restriction still had an impact during the Q4.

Overall, the market picture, I guess, has turned slightly positive in the last month or so. Overall, when we look at the growth at the moment, there are still significant economic uncertainties, of course, in the market as such.

When you look at the container traffic, actually based on the latest estimates the container traffic actually declined slightly during the '22, but is now expected to grow again with a slight growth in -- during the '23.

Construction activity has declined, but is still historically at the very high level. And it's good to remind ourselves that construction is only 1 segment of the many in Hiab, and also, for example, renovation activity is a very important driver for the Hiab's construction segment activities overall.

Regarding the vessel contracting, the vessel contracting declined, but is still at a considerably higher level and is expected to be at a considerable higher level than it has been in the previous years prior to '21 and this bodes well for the MacGregor future development.

Our orders received increased again across all the businesses, and especially delighted to see the very good order intake close to EUR 1 billion in MacGregor that will set up us in a very good position for the year '23-'24 for MacGregor. The strong order book, as I said, 24% up actually a year, and overall we have seen a very good market and solid market activity continuing also into this year.

Revenue developed well. We are still struggling with the supply chain activities and component shortages and especially Hiab also impacted by the shortages of the truck deliveries. However, our teams and operations have worked very hard to enable higher revenue on that one and that, of course, then been driving the sales revenue growth, especially in Hiab and Kalmar.

Our core businesses actually reached the revenue of over EUR 1 billion during the Q4 and the operating margin in the core businesses was 11.9% during the Q4.

The services performance continued in an excellent way and we saw another solid growth and a nice growth actually across all the 3 different businesses in the services.

In connection with our Capital Markets Day and the refocused strategy, we described our strategy going forward. It's really is driving our growth coming from the sustainability solutions, solving our customer's emission and sustainability issues. There are 4 core elements on that strategy, driving fast innovation, delivering new solutions, helping our customers to solve the sustainability challenges and driving innovation faster than any of our competitors can.

Secondly, we are driving for the increased recurring revenues, a good evidence of -- of course, that one is the great services growth we are seeing. But also further recurring revenues in terms of new solution, combining equipment, services and digitalization.

In addition to the excellent organic growth, we plan to also grow more inorganically. We have had a limited number of acquisitions, one again during Q4 in Hiab, but we plan to accelerate this pace going forward. And latest, we aim to be the highest standard in ESG in our industries.

Evidence of the good progress we are making in our strategy execution is in terms of the innovation. We are now moving in our terminal tractor also beyond the electrification and our technological operation together with Toyota to develop a hydrogen-based terminal tractor solutions for the markets.

Secondly, a great growth in our recurring revenues and services. An example of that one was a 5-year agreement with the Swedish steel mill manufacturing there. The value of the contract was about EUR 25 million over the 5 years. It's also an evidence of when we are moving our Kalmar focus more towards the -- out of the large ports in the terminals and logistics and industries, how the service opportunities on those segments are significantly better than they are in the very heavy port segments as such.

Again, Hiab concluded 1 acquisition during the Q4, Olsbergs. This is actually also a technology initiative from our -- Olsbergs is a market leader and technology leader in high-performance valves and control systems. And this will be one of the core competitive advantage for Hiab and the Hiab wants to own that technology going forward.

Part of the great initiatives and the work we are doing in ESG, Cargotec is also able to close a financing of about EUR 330 million linked in the revolving credit facilities in the sustainability sort of sector.

And a reminder of our targets -- financial targets that we have set for ourselves in connection of the November Capital Market Day, we are well underway in here. Our eco portfolio grew more than 50% during the '22. Our emission intensity reduced during the '22 regarding the emission and reductions. However, due to the high sales of also traditional equipment, this is a target we need to keep a close eye on.

Obviously, we grew very fast, thanks to the excellent performance both in Hiab and Kalmar and our comparable operating target in our core businesses during the Q4 was already actually 11.9%.

With that one I'd like to hand over to our CFO, Mikko Puolakka. Mik?

[Mikko Puolakka, executive]

Thank you, Mika, and good morning also from my side. As usual, let's start with Kalmar where the solid customer activity continued in quarter 4 across all Kalmar divisions.

Now with EUR 1.4 billion order book we have excellent start for year 2023, EUR 100 million higher than what we had when going into 2022.

Despite continuing component shortages, Kalmar had a high deliveries during the last quarter. Having said this, it's good to recognize that we have still, for example, several hundreds -- couple of hundreds of terminal tractors waiting at our factory yard for missing components. So still quite a lot struggling with the component shortages.

Thanks to Kalmar's prudent commercial actions and higher volumes, Kalmar has been able to protect the sales margins and increased profitability in quarter 4.

The full year comparable operating profit for Kalmar was EUR 190 million. This is up by 58% or EUR 70 million higher than 2021. The heavy cranes, which we are currently exiting at the moment made EUR 20 million loss in 2022.

And for this business we have still roughly a EUR 50 million order book of which most of that will be delivered during 2023. And we expect that we still have some single digit million euros of negative impact in Kalmar's result in 2023.

The new Kalmar, excluding heavy cranes, did 12.5% comparable operating profit in quarter 4 and 11.3% for the full year. So this is a clear step change from the past years, and showing that Kalmar is heading towards the right direction after refocusing its business from projects and mega terminals towards the equipment and services for smaller terminals.

In Hiab's case, the overall demand, roughly EUR 400 million orders was on a good level in quarter 4 and the full year orders in Hiab were up by 5%. Also in Hiab, we had a very solid start -- we will have a very solid start for 2023, EUR 200 million higher order book compared to what we had when we started the year 2022.

In Hiab, like also in Kalmar, we have still exceptionally high or long lead times. Hiab's order book covers currently 3/4 of sales and this is a reflection of component shortages as well as the availability -- low availability of new trucks. And this is not expected to significantly improve in 2023.

Despite the supply chain bottlenecks, Hiab was able to increase volumes to a new record quarterly level. High volumes were the main driver for quarter 4 profitability improvement. And in Hiab's case, the full year comparable operating profit was EUR 224 million, EUR 58 million better than '21.

MacGregor had a paradoxal quarter. Very strong order intake in merchant as well as in services. Those 2 divisions, merchant and services represented almost 90% of MacGregor's full year order intake. Positive in the order intake is that these orders are coming to the businesses which have been already profitable in 2022.

These quarter 4 orders originate actually from the very strong vessel contracting back in 2021, driven very much by the carrier vessels. All in all MacGregor, full year orders grew by 50% to almost EUR 1 billion. And this is, of course, a good start also for MacGregor for 2023.

On the other hand, MacGregor profitability was very disappointing. Merchant and service divisions delivered positive result in quarter 4 and also for the full year. The weak performance in MacGregor comes solely from the offshore wind business.

MacGregor's quarter 4 comparable operating profit includes EUR 24 million costs related to offshore wind new technologies. These are costs for additional engineering work and also potential project risks. So kind of forward-looking risks we have taken into account in the quarter 4 bookings.

Like Mika said, we have also initiated further restructuring measures in MacGregor to make the result more robust in 2023. And let me describe those actions a bit more in detail.

The MacGregor merchant and service divisions delivered solid performance and clearly comparable -- positive comparable operating profit last year despite low sales. And here we will focus on delivering those orders what we have been winning during 2022 and the sales are expected to improve both for merchants and services.

In offshore we downsized the organization and also rationalized our product portfolio. We shall exit certain businesses like fishery and research and certain mooring -- MacGregor mooring solutions. These restructuring actions will deliver on an annual basis roughly EUR 19 million, cost savings of which EUR 14 million will be visible already in 2023.

For these actions we booked the project costs, like discussed earlier, to cover the project risks for projects containing new technologies. And also due to exiting the certain businesses like the fishery and research, we wrote off EUR 25 million of intangible assets and then did a EUR 63 million goodwill impairment during quarter 4. These are naturally noncash items in our cash flow outlook.

Looking at a couple of highlights from last year. We start the year 2023 with a record high order book, almost EUR 700 million higher order book compared to a year ago. In line with our strategy, eco portfolio sales grew 53%, much faster than the sales for the traditional products. And the majority of our eco portfolio sales are related to our core businesses, Kalmar and Hiab.

Despite the disappointing result of MacGregor, Kalmar and Hiab delivered a strong year, taking the total Cargotec comparable operating profit 40% -- 43% higher. Core businesses, Kalmar and Hiab, delivered 11.3% comparable operating profit for the full year and almost 12% for quarter 4. And this is in line with our ambition to take these businesses first to the 12% level and then to 15% by 2030.

A clear disappointment was our net result which was burdened by the weak MacGregor performance and then one-off costs related to reshaping the business portfolio. In all-in-all the one-off costs were EUR 210 million. It's good to note also that less than half of this is actually cash effective.

Our cash flow improved in the second half of 2022, driven by higher profitability as well as reduction in inventories, especially during quarter 4. Our total 2022 cash flow was EUR 231 million, this is EUR 62 million better than a year ago.

We have a very strong balance sheet. Gearing continued to improve, driven by higher profitability and cash flow and also our net debt to EBITDA is now 1.2x, which we consider to be a good level.

We do not have any major debt repayments coming up. Approximately some EUR 50 million interest-bearing loans are maturing in '23. So also from that point of view, a good liquidity situation. Our loan portfolio is also very well hedged against rising interest rates. About 60% of our loan portfolio is fixed interest rate.

When going to the dividend proposal, we are proposing to the -- our Board of Directors is proposing to the Annual General Meeting a dividend of EUR 1.35 for each of B shares. This is in line with our dividend policy of 30% to 50% payout ratio. When we eliminate the one-off costs from our '22 results, our EPS would be EUR 3.37. And against that number, the dividend payout would be 40%. Dividend would be payable on 4th of April, 2022 -- '23.

Then our guidance for 2023. As mentioned earlier, we have a record high order book of EUR 3.5 billion and this gives a good basis for this year in all our 3 business areas. We have also initiated additional actions in MacGregor to make the offshore business more robust.

Based on this, we estimate the core businesses, meaning Kalmar and Hiab, to improve comparable operating profit from EUR 384 million in 2022.

Furthermore, we estimate MacGregor's 2023 comparable operating profit to be positive. MacGregor's sales is also expected to increase, driven by the strong order intake in 2022.

Please note that we changed also our comparable operating profit definition for 2023. We include the PPA amortization in comparable operating profit like we had it in 2022 -- 2020 before the intended merger with Konecranes. The impact of PPA was EUR 4 million in core businesses last year and approximately EUR 12 million in MacGregor.

And we will publish our restated 2022 figures, meaning this PPA change before our quarter 1 '23 results. So then I hand it over back to Aki.

[Aki Vesikallio, executive]

Thank you Mikko and thank you Mika for the presentation. So with that we are ready for the Q&A, Operator.

[Operator]

[Operator Instructions]. The next question comes from Massimiliano Severi from Credit Suisse.

[Massimiliano Severi, analyst]

A couple of questions for me. The first one would be clearly on MacGregor, and we have talked before about the offshore project and the restructuring costs that was related to restructuring costs of last year to be delivered in late 2022, early 2023.

I was wondering, do you have an updated schedule for the commissioning of this offshore project on which that there have been quite a lot of cost overruns.

[Mikko Puolakka, executive]

Thank you, Massimiliano for the question. The largest offshore projects which we are currently delivering, they are, I would say, 90% ready from the kind of construction point of view. And the installation for that project will happen during this year and the sea trials will take place in the beginning of 2024.

[Massimiliano Severi, analyst]

And my second question would be maybe on the sales growth. And I was wondering if you can help us understand in Hiab and Kalmar more or less. What is price versus volume in terms of sales growth? And how much is left in terms of higher prices in the order book versus what we are seeing now in the top line?

[Mika Vehviläinen, executive]

Good question, and not that simple. So I'm oversimplifying maybe on my own answer. But, overall, when I look at the price levels that the customers were able to buy new equipment that the Q4 '22, they were roughly 20% higher than they were at the beginning of the '21.

Now obviously, with the long lead-times the price realization comes in slower than one would expect. So I would see a rough number perhaps for the sales growth coming from the pricing would be around 10% for the '22. And it's good to note that a significant part of the equipment that was ordered at the 20% price increase is to be delivered actually only during the '23.

[Massimiliano Severi, analyst]

Very clear. And just related to that a quick follow-up. Do you expect to be able to pass on even higher prices in 2023? Have you gone ahead with your usual price increases at the beginning of the year or you expect to keep prices stable or maybe decreasing them on new orders?

[Mika Vehviläinen, executive]

We still see the inflationary pressures actually coming through in the component. Well, we know that some of the raw material and steel qualities are actually having lower prices for '23 than they had in '22. But overall, I would say that the inflationary pressure is still in the product cost coming from the component pricing as well and then, of course, from the labor inflation and energy. Although, the energy is not directly a big item for us, but for some of our suppliers it is.

So, overall, I think there is still pressure for pricing increases there. Having said that, one, it's very clear that in our last pricing increase in October there was probably more pushback on the pricing that we have seen in the past. But we are still planning or already have partly started to execute into pricing increases now in the beginning of this year.

[Operator]

The next question comes from Antti Kansanen from SEB.

[Antti Kansanen, analyst]

It's Antti from SEB. Maybe a follow-up on the previous question and looking at the guidance for the core divisions on earnings growth. So could you maybe talk a little bit how do you see kind of that split into delivery volume growth, pricing growth and perhaps kind of a margin expansion that you have in the backlog? So what's really driving earnings growth on Kalmar and Hiab in '23?

[Mika Vehviläinen, executive]

The primary driver would be the increased deliveries and revenue growth coming, of course, partly for the built-in pricing increase is in the back log. I would not bet at this stage -- we are not counting on the potential margin expansion on that one.

I mean, it's still very hard to predict on the component and product cost pricing, even though we've seen some pricing relief in some of the steel qualities, as I said, at this stage. The pricing pressures and inflationary pressures clearly continued throughout the whole second half and Q4 as well. So I would -- we are not making any assumptions yet on capability actually for margin expansion at this stage.

[Antti Kansanen, analyst]

And then maybe if we think about kind of the order growth on Q4 on those divisions, obviously kind of the volumes are down as you have made price increases. And just thinking, you have your workload covered for the first 3 quarters, but how -- should we be concerned about, kind of, if the volumes continued its trend down that at end of this year there will be kind of a negative impact on your fixed cost absorption or kind of overheads on the factory floor and so forth.

So how would you kind of assess what type of demand decrease can you handle and maintain kind of a strong earnings in the back half of this year?

[Mika Vehviläinen, executive]

Well, maybe I start with one cost item that actually has been sort of hitting us actually throughout the whole year and that's the indirect cost. Because of the large supply chain challenges at the moment, our production is not sort of running very smoothly at the moment and we are forced to take almost sort of ready equipment out of the line, waiting outside for additional -- lacking components, bringing them back online again, et cetera.

So actually if we assume that the market starts to sort of slow down slightly and supply situation starts to stabilize, there are real opportunities to actually take out some of the cost that is coming from the sort of very unbalanced situation at the moment. So that will certainly help us.

But overall, I would say that the -- what we see from our equipment activity, what we see our pipelines, we do not see necessarily indications on any slowdown on the market. However, it's also clear that today's situation is not healthy. The fact that customers are forced to place orders sort of 12 months ahead is not a situation, I think, that can sort of stay there.

It's very clear that if you look at the truck deliveries and Hiab deliveries, typically before the COVID and supply chain constraints, we were talking about 2 to 3 months delivery note. At some stage we need to be able to stabilize the situation that we get back to that kind of more reasonable and healthy lead-times and same is true for the Kalmar equipment.

So I do expect at some stage that the book-to-bill would need to be negative for that situation to start to stabilize as well. But we see no signs of any particular weakening in the market at this stage. That…

[Antti Kansanen, analyst]

All right. And then…

[Mikko Puolakka, executive]

Yes, I would add there that, like we discussed in the Capital Markets Day, we have done also a lot of activities in order to improve our resilience and agility what it comes to the cost base as well. So from that point of view we are also well equipped in this kind of environment.

[Antti Kansanen, analyst]

Okay. And then maybe a bit on MacGregor in a sense, but how should we kind of -- is the guidance of positive earnings very back-end loaded in the sense that the savings will most likely kick in late in the year. Could you talk about little how you expect to convert container backlog into revenues through the year, kind of H1 versus H2, how the dynamics will work?

[Mika Vehviläinen, executive]

Yes, I would say that the services, first of all, the underlying performance is excellent and that will continue fairly steady throughout the year. We've been building up a significant backlog on the merchant side. I would expect that start to deliver already better results in the early part of the year. But again, probably a little bit more back loaded on that one.

After the measures we have now taken in the offshore segment and some of the overheads in MacGregor, overall I do expect actually that offshore should turn to the most healthy numbers fairly early, overall. So I do not -- sort of, I would expect that we will enter the year already at a pretty good situation, but I would still say that the results are probably more back-weighted in terms of that you should see a continuous improvement throughout the year.

[Antti Kansanen, analyst]

Okay. And then just a short specification on the EUR 14 million of annualized savings for '23. This is not a run rate number. This is kind of an actual year-to-year EBIT bridge improvement?

[Mikko Puolakka, executive]

Yes, correct. That EUR 14 million relates to costs this year versus costs last year. And the EUR 19 million, so means that additional EUR 5 million would come then in '24 still.

[Operator]

The next question comes from Panu Laitinmäki from Danske Bank.

[Panu Laitinmaki, analyst]

I had a couple of questions maybe on the same lines that were already asked. But just on MacGregor, you are guiding for positive EBIT and [indiscernible] was expecting for margin of 4.6% for this year. So I mean, it's a bit of a range if it's like 0 or is it almost 5%. So can you kind of give any indications what are your expectations? Do you think like MacGregor could go to 3%? What you commented was the underlying without these losses or any comments on what should we expect?

[Mika Vehviläinen, executive]

Well, I don't think we are -- going to give any particular number here, but it's obviously that the willingness to guide for positive results usually, we would take a certain safety or cautionary measures to make sure that we are able to deliver to that number.

[Panu Laitinmaki, analyst]

Okay. And then did I understand your previous comments kind of correctly that you would see breakeven already from the beginning of the year.

[Mika Vehviläinen, executive]

We'd like to be in the positive side as soon as possible. Let's see how that pans out. That really depends -- the biggest swinger in a way is the merchant ship equipment deliveries because of the strong backlog and that's the sort of -- how much of those deliveries we are able to get out on Q1 versus the rest of the year is still a question mark.

[Panu Laitinmaki, analyst]

Okay. And on demand, you already commented on that part, you said that you see no signs of any particular weakening in the market at this stage. Was this referring to Hiab or both Hiab and Kalmar?

[Mika Vehviläinen, executive]

Both Higher bank Kalmar at the moment. If you look at the sales pipe, you would say that the -- in volume terms actually, the -- especially in Hiab, actually the market is stabilizing already. So in volume terms the '22 in Hiab is actually, sort of even or slightly down from '21 numbers already. And the pricing is going to be a relevant factor moving into the '23. But we don't see a particular weakening in the demand. Underlying demand and activity both in Kalmar and Hiab, as well as the sales funnel we are seeing are looking very solid.

[Panu Laitinmaki, analyst]

Just a final one if I may. On the FX impact of U.S. dollar in Hiab, I think we have previously discussed that you should get some margin benefit going into '23. Do you still see this happening given what has changed -- what has happened in the FX rates?

[Mikko Puolakka, executive]

Yes, I would say that definitely in 2022 we did not get a significant tailwind. But in '23, now that we are able to deliver that kind of order book which has been hedged earlier in 2022, we expect that there should be some tailwind there. Of course, we cannot predict the FX rates any better than the others. But assuming the current environment, there could be a small tailwind.

[Operator]

The next question comes from Axel Ekros from Adrigo.

[Axel Ekros, analyst]

Axel here from Adrigo. I have 2 questions. The first one is, how do you think the spare part capture rate will change when you sell more electrical equipment in Hiab and Kalmar?

[Mika Vehviläinen, executive]

Yes. Obviously, less spares, but we expect that our kind of capture rates are significantly higher in there. The way we approach the technology sort of deployment in the electric vehicles is consisting with number of components that we are putting together and there are 2 factors.

First of all, in terms of the availability of those components compared to say, a diesel engine. If you use today a Cummins or Volvo diesel engine which, of course, has multiple different ways of sort of getting the spare parts, there will be more restrictive sort of supply of those ones.

And secondly, then again, in terms of installation and service, actually the high-voltage electric equipment requires specific certification as well. So for the services capture rate as well, we expect that we will be at considerably higher level than we have been in the traditional equipment. And we expect that to offset the sort of the actual spare part demand by vehicle.

The other thing, of course, is good to put this -- despite the very strong growth we are seeing in there, we have a huge installed base of tens of thousands of equipment. And before that transferring to the electric equipment will take. That one should expect about a 10-year sort of lead-time before it will be significantly visible in the spare part demand.

[Axel Ekros, analyst]

The second one is, do you see risk of order cancellation in Hiab, or especially Hiab and when you have such a large order book?

[Mika Vehviläinen, executive]

We see no signs of that one. First of all, of course, because of the inflationary equipment people like to hold on to the orders, because they know that if they come back to market and reorder, you have to do it at a higher rate.

Hiab, overall, is in a very particular situation because the primary driver for Hiab deliveries and lead-times is actually not the Hiab's own manufacturing, it's truck lead-times. And '22 was a very tough year for the truck deliveries and that has sort of built up the lead-times in Hiab as well.

And for Hiab to be able to sort of claw back some of the lead times, et cetera, that requires that the truck manufacturing situation improves.

[Operator]

The next question comes from Tomi Railo from DNB.

[Tomi Railo, analyst]

This is Tomi from DNB. A question on Hiab. So the orders are down 2%, probably volume terms closer to 10%. Can you just a little bit talk about the regional or geographical performance? Where did you see most of the weakness and maybe also from the end market point of view, construction, logistics, recycling, military, these types of things.

[Mika Vehviläinen, executive]

Start maybe with military, we see a lot of activity coming up there. It's not yet particularly visible in our numbers. As you know the military procurement and sort of the cycle times are relatively long. But in terms of the actual activity and upcoming procurement, we see a very significant sort of opportunities coming through from the military side of that one.

And I think with -- overall, the military revenue for the '22 was only about EUR 100 million as such. But I think there is significant upsides on that one going forward. But again, the cycle times are quite long.

In terms of the other specific segments, we haven't seen a particular softening on any of the segments. And of course, sometimes slightly difficult to also directly read on those ones, because the truck might be deployed in multiple segments.

Overall, the U.S. activity has remained at a good level at the moment and we see from key accounts and others, the demand continuing. The weakest spot maybe we saw in the European market was the France during the '22 and I can't exactly sort of explain that at this stage. Then again a lot of the other middle European countries continued at a good level.

[Operator]

The next question comes from Tomas Skogman from Carnegie.

[Tomas Skogman, analyst]

And I have 2 questions. First of all, I wonder about the risk level in the Kalmar heavy cranes order book. And secondly, I wonder whether you have some kind of discussions regarding the divestment of MacGregor at the moment or is everything kind of postponed 1 year, as you highlight that the margin kind of improvement will come in the second half of '23 in MacGregor?

[Mika Vehviläinen, executive]

Maybe you take the first one.

[Mikko Puolakka, executive]

Yes. On Kalmar heavy cranes actually deliveries last year, Kalmar heavy cranes margin has remained very stable, actually improved in 2022 compared to 2021. I said earlier that Kalmar heavy cranes made roughly EUR 20 million losses. And this loss is more or less on the 2021 level due to the fact that the delivery volumes have been fairly small.

But overall, the project execution has progressed well. And as you saw, we have booked in quarter 2 and quarter 3 roughly EUR 35 million of exit -- Kalmar heavy cranes exit-related project risk reservations for the event that there would be some hiccups in the projects. But so far it has been progressing well.

[Mika Vehviläinen, executive]

And in terms of the question on MacGregor, there are no active discussions going on at the moment and we actually have not initiated the process as such. 2 things really we'd like to see happening. The first one is the capital market and the financing situation to ease off. Effectively, kind of to put it straightforward, we'd like to see that the private equity has a better access for capital and can be part of the equation in terms of starting the process.

And secondly, of course, we would like to be -- show that there is a clear track record of MacGregor and measures that we are now taking to deliver the profitability during this year.

[Tomas Skogman, analyst]

So does that mean that we should not expect the divestment this year, it's rather like in 2024 to be fair then, not to have wrong expectations.

[Mika Vehviläinen, executive]

I think it's good not to have the expectations that anything happens at least in early part of the year. I think we probably want to create a track record and sort of monitor the financial market. So unless there are any surprises, I would not expect that process to be sort of initiated until towards the early -- towards the end of this year.

[Operator]

The next question comes from Antti Kansanen from SEB.

[Antti Kansanen, analyst]

Two follow-ups. First to Mikko, and perhaps you already mentioned this earlier. But regarding cash flow into '23 and especially working capital, while you have been kind of tying up money for 2 years, what should we expect from that in '23?

[Mikko Puolakka, executive]

Yes, we have guided -- first of all, we have guided improving results in the core businesses as well as in MacGregor. So the expectation is that the EBITDA should contribute positively to this year's cash flow.

Secondly, like you said also, we have been tying up, basically, now during years quite significant amounts in our net working capital, especially in inventories. Our inventory days have been roughly 130 during 2022. And this is highly dependent actually on the supply chain development.

Should the supply chain get a bit more normal, for example, from truck availability point of view, for example, in the second half of next -- this year, then we could also start to release some cash from the net working capital. So highly dependent on the supply chain development, still the net working capital.

[Antti Kansanen, analyst]

Okay. And then the second was a follow-up on the MacGregor divestment question from Tom. And you've been talking about kind of the external conditions and the MSA market, and private equity not being as active. But to be fair, how much do you think it's due to the fact that MacGregor is not profitable.

I mean, if you would be making, let's say, 3% to 5% EBIT margin today or late last year, would that situation be notably different? I mean, is it just more about turning it around and waiting for external issues to improve?

[Mika Vehviläinen, executive]

I think it's really both and it's not either or, because the combination really, especially at the moment is tricky. So you have lower performing business and higher sort of risk attached to the financing at the moment. If the business would be higher performing, probably the financing would be not such an issue. And then again, if the financing would be easier, maybe the performance wouldn't be such an issue.

So it's really the combination of those 2 at the moment that it's making it difficult. And our view is that in order to try to maximize the value, we'd like to see both of those develop into the favorable direction.

[Antti Kansanen, analyst]

But in a sense you're kind of doing the dirty work now with the restructuring and the write-offs and things like that, that should kind of improve the situation, right, maybe even to divest.

[Mika Vehviläinen, executive]

Yes. Absolutely, I mean, we are taking very harsh measures at the moment. And, of course, unfortunately, was very visible in the Q4 result as well. But those measures will now be starting to deliver a very clear financial impact on the MacGregor already during the '23.

[Operator]

The next question comes from Massimiliano Severi from Credit Suisse.

[Massimiliano Severi, analyst]

Quick follow-up for me. You mentioned that the projects in Kalmar heavy cranes, the execution is going well. Do you expect even where you are now to maybe be able to release some provisions during 2023, or is it very much in line with what you expected when you took the provisions in the first place?

[Mikko Puolakka, executive]

At the moment I would say that it's too early to say. Like I said we have roughly EUR 50 million order book, EUR 47 million to be exact and most of that will be delivered by the end of this year. So towards the end of the year we should have then better visibility about the final project execution. And then, of course, we can review also the remaining provisions what have been made for this exit.

[Mika Vehviläinen, executive]

Yes. Overall, I mean, what we did in Q4, that was then, of course, visible was there, that we went very thoroughly through the whole kind of existing project portfolio. And as a result of that one, we sort of took a further sort of reserves and cost increases on some of those projects to be able to make sure that we are conservative enough in terms of sort of the expectation for ongoing project implementation.

[Mikko Puolakka, executive]

In MacGregor.

[Mika Vehviläinen, executive]

MacGregor, yes.

[Operator]

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

[Aki Vesikallio, executive]

Thank you for the great questions and for the great answers. So our first quarter results in 2023 will be released on 27th of April. See you then.