Konecranes Abp

OMXH:KCR

Earnings Call Transcript 2023-Q1

[Kiira Froberg, VP of IR]

Good morning, and welcome to Konecranes' Q1 Earnings Conference. My name is Kiira Froberg, and I'm 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, I would kindly note, that our presentation contains forward-looking statements. Next, Anders and Teo will walk you through our Q1 results. Anders will start by presenting the group results, after which Teo will walk you through with our business segments. The presentation is followed by Q&A as usual.

Anders, the stage is yours.

[Anders Svensson, President and CEO]

Thank you, Kiira. And a warm welcome from my side as well to this first quarter results review and webcast for Konecranes' in 2023.

The first quarter in this year was a fantastic quarter with a strong result in all business segments. We had a record breaking Q1 in every part of the result. So order intake was nearly €1.3 billion at and that is an all-time high for Konecranes' in any quarter as an order intake. The demand environment remained good, despite weaken macro indicators.

Our orders increased in all three business segments. And also in all three regions. The sales grew 33% on a year-on-year basis, incomparable FX. And our delivery capabilities continued to improve during the year, even though we delivered a shorter invoicing in the first quarter than we did in the fourth quarter in the previous year. But that's not connected to our capability to deliver. It's more connected to timing.

And we have an excellent achievement, I must say in all areas, despite our supply chain still being fragile, especially when it comes to products that contains integrated circuits.

The strong order intake leads to positive book-to-bill. And at the end of the quarter, our order book was €3,281 million. And that's also record high order book for Konecranes'. And this resulted in a record high quarter one comparable EBITDA margin at 10.6%. This was mainly driven by higher volumes, but also positive price impact compared to the previous year.

We also held a tight cost control during the quarter, and the profitability improvement what was across all the free business segments. And as a summary, I'm very happy with the start of the year 2023.

Now moving into the market environment and I'll start with a service and industrial equipment. If we look at the manufacturing capacity utilization in the EU, we can see that it declined both sequentially, but also year-on-year with 1.5 percentage points. If we look at the manufacturing capacity utilization in the U.S., we can see that sequentially it was actually up versus the end of last year, but year-on-year, we were down 1.7 percentage points. If we then move into the manufacturing PMIs and I start with the global one, it was down or in contraction for the seventh consecutive months and it ended the quarter at 49.6.

If we look at the same manufacturing PMI in the euro zone, it ended the quarter at 47.3 in March, and that was the lowest month in the last four months. So moving in the wrong direction. If we instead look at the U.S., it ended the quarter at 49.2. And that was actually up versus February. So good fraction upwards there in the U.S.

If we look at emerging markets, we can see that India was clearly an expansion, clearly above 50, while China was flat at 50. And Brazil, remained below the 50 points. So signalling contraction. Also, when we talk about these KPIs and indicators, I normally mentioned, our utilization rate of connected sold equipment. And the last quarter I talked about that, we saw a decline in utilization of the connected equipment. That turned about half of midway in the first quarter, turned upwards again the utilization. And that has continued then in April to improve.

Now moving to the demand environment for Port Solutions. And the key indicator we follow here is container throughput index. And we can see that we started the year historically strong level. But year-on-year, we were minus 2%, at the end of February versus the previous year. But if you look at the long term trend, still very strong level for Port Solutions market.

Now move into a group order intake and net sales and I start with our order intake, which ended at €1,290 million. And as I mentioned, that's an all-time high for any quarter for the Konecranes' group. And we were up 17% year-on-year in comparable currencies.

We saw an increase in all three business segments where industrial equipment was the strongest followed by Port Solutions, and then service. We also saw an increase in all three markets, where we had APAC having the strongest growth followed by EMEA and Americas on a tight second place.

If we then move into the net sales, so we had the strongest net sales for a first quarter, that for Konecranes' ever. It was up 33% and ended at €899 million. Also here we saw an increase in all three segments, where Ports had the strongest increase but also the weakest comparable from the previous year, followed by industrial equipment, and then service in a strong third position with 16% growth year-on-year in comparable currencies. Also here we saw an increase in all the regions and the strongest increase was in EMEA followed by APAC and then Americas.

The really strong record breaking order intake gave us a positive book-to-bill and at the end of the quarter our order book had grown to €3,281 million and that's then 33% up year-on-year in comparable currencies. The increase was seen in all three segments, with ports having the strongest increase at 49% followed by service at 17% and industrial equipment at 15%. Also mentioned in sequentially from end of year last year, we had a growth of the order book of €380 million.

I now move into our profitability and our comparable EBITDA, which ended up €95 million. And that was an increase from the previous year of €44 million an increase of 116%. So very strong delivery on comparable EBITDA which gave us a margin of 10.6%, and that was than 400 bps up versus the 6.6% that we had for Q1 in the previous year. The comparable EBITDA increase was across all the three segments, but we had by far the strongest improvement in industrial equipment side where we had an improvement month year-on-year of 900 bps.

The comparable EBITDA increase was mainly attributable to higher sales volumes, and also to pricing and good cost control. In here, maybe we should remember that at the start of the last year in the first quarter, we had a fairly weak sales which made the sales volume go up 223% -- €223 million. And if you then think that pricing is roughly 10%, around €90 million, there is an underlying volume increase of about €130 million between years.

We can also remember that in the beginning of 2022, we had issues to compensate inflation with pricing since we were late on our price increases in the second half of 2021. So that's good to carry with us here when we see the good improvements. Also mentioning here that the gross margin improved slightly on a year-on-year basis for the group.

I now moving to the second quarter demand outlook. And the worldwide demand picture remains subject to volatility and uncertainty. So I'll start with the industrial customer segments, we say that our demand environment within industrial customer segment has remained good and continues on a healthy level. Despite the weakened global macro indicators, and some signs of weakening in the three regions.

In EMEA we have seen the macro indicators weakening for the last sort of six to nine months. And when we talk about some signs of weakening in all three regions, what I mean here is that we see longer decision taking -- longer decision times with our customers. And I don't mean that our sales funnel is getting smaller in terms of number of cases or in terms of value. It's purely related to decision making time with customers.

So when imports customers, we say that global container throughputs continuous high and long term prospects related to global container handling remains good overall. Then moving to the financial guidance for the full year 2023. And here we haven't changed this. So net sales is expected to increase in full year 2023 compared to 2022. Comparable EBITDA margin is also expected to improve in full year 2023, from 2022.

And overall, I'm very pleased with our first quarter performance from all the business segments. And I think it reflects well our capabilities as a company and an organization and puts us in a good position to deliver on our full year targets for both sales growth and profitability expansion.

And with that, I think it's time for our CFO, Teo Ottola to dive deeper in the financials and in the segment view.

[Teo Ottola, CFO]

Thank you. Thank you, Anders. Good morning on my behalf, as well. Like Anders mentioned segments in more detail. But before that, let's take a look at the comparable EBITA Bridge. This is a little bit continuation to what Andres already talked about EBITA change. We actually showed this slide already recording the fourth quarter, now it looks a lot better, because the year on year, comparable EBITA change is actually more than €50 million.

And when we take a look at the ingredients of the change, so the positive contribution comes from the combination of volume pricing and mix, which you can see in the slide. The biggest one -- the biggest contributor there is pricing. Like Andres already mentioned, our customer prices are maybe 10% or slightly more than 10% higher than what they were a year ago.

However, this one is also contemplated by the operating leverage impact. So now we have a very good underlying sales increase in comparison to the previous year. And unlike in '22, when we all the time basically had a situation that every quarter our underlying volumes were below the previous year. Now our underlying volume is clearly above the previous year. And this gives us across margin improvement, which we are actually showing in this volume pricing and mix bucket as well.

The third element which is mix was actually slightly negative as a result of growth segment mix, but to a much lesser extent than the other two positive contributors. When we then take a look at the variable costs, so this is essentially the inflation impact from direct materials and direct labor. And then when you take a look at the balance of those two, so it's highly positive, unlike during the fourth quarter when these were more like in balance with each other.

Now the difference is clearly positive and it comes from the leverage so higher sales volumes underlying bringing additional gross margin and then also the pricing impact, like Andres mentioned Q1 '22, we were a little bit behind the curve, when it comes to pricing now we have compensated for that. And the pricing impact is visible in this one as well.

Another way you're taking a look at the operating leverage is obviously through fixed costs, which we have there next, this €14 million year-on-year increase is more than half of that is inflation. So actually, the underlying fixed cost increases very minor. And this then means on other hand, that the gross margin increase as a result of the underlying volume improvement comes more or less directly into the profitability. And that's why it explains a big part of the comparable EBITA improvement of more than €50 million year-on-year.

Then, if we then move into the segments, services here first, as usual, maybe at this point of time good to remind that we have changed the order intake definition so that agreement based sales are now visible also in the order intake. So this basically makes sales and orders particularly for service more comparable to each other on a quarterly basis. The historical numbers have been restated, so quarters are comparable with each other as well.

The order intake for service was €379 million that is an 8% year-on-year improvement in comparable currencies. When we take a look at the improvement year-on-year and actually Q-on-Q, so it quite evenly comes from all the regions maybe APAC change in percentage wise is the highest, but otherwise quite equally across the region's.

Agreement base number reached €311 million that is 4.2% improvement year-on-year in comparable currencies. And still regarding the order intake, so it's taking a look at it. Like regionally so asset basically good development in all of them, all of the regions. Net sales €354 million. That is a 16% improvement year-on-year, we had sales growth in both field service and pots. There was no significant price -- product mix change one way or the other. We also had increase in all of the regions Americas, EMEA and APAC.

Our delivery capability improved, which 16% improvement is an indication of however order intake was very good as well. And as a result of that the audible continued to grow and reached €461 million at the end of Q1. Comparable EBITA €66 million, 18.7% a very good level. The comparable EBITA increase mainly comes from the sales growth, which is driven by pricing and underlying volume and improvement, even though the gross margin also increased slightly in on year-on-year comparison.

Then when moving into the industrial equipment, very good order intake €465 million here, the external orders on comparable currencies are about 24% higher than a year ago. When we take a look at the year-on-year improvement basically all of the major business unit standard cranes components, order intake increased maybe modestly in standard cranes than in the others and then also sequentially in comparison to the fourth quarter order intake increased in all of those business units.

And particularly components order intake during the first quarter of '23 was very strong. Orders increased in Americas and EMEA whereas they declined in APAC, in on year-on-year comparison. Sales were €331 million, that is as much as 37% higher than a year ago taking a look at the external sales with comparable currencies, which is from the profitability point of view, the most relevant one, we had increase in all of the all of the business units once again as well as in in all of the regions

Order book kept going upwards as a result of a very good order intake, even if sales improvement was also very good at this 37%. Then when we take a look at the comparable EBITA, so that reached €23 million or 6.8%, an extremely good improvement year-on-year, which is explained at least by at least three different factors. One of them is of course the sales leverage, as already discussed, and 37% improvement in sales creates a lot of additional gross margin.

The other one is pricing like discussed in Q1 '22 as well as in Q2 '22 we’re still suffering from being late in some of the price increases now this has been corrected it's visible in the profitability. And the third topic is the industrial optimization program that we have been having ongoing and it is actually building positive results already now, during the first quarter of '23. And of course consequently gross margin increased.

Then when we take a look at the Port Solutions, an extremely high order intake €513 million, 20% improvement year-on-year. Q1 '22 was also an excellent order intake quarter and as we can see from this picture, so we now have had six quarters in a row where order intake has been on an excellent level.

Order intake improved year-on-year across the regions also across most of the business units within Port Solutions. If we take a look at the short cycle products, lease trucks order intake was more or less on the same level as a year ago, port service order index continued to improve in a year-on-year comparison.

Sales €273 million that is even a higher improvement than in industrial equipment, 57% actually in comparable currencies. A couple of things to remember like Andres also said comparable are easier in this one. We did cancelled some of the Russia related POC sales in Q1 '22, which mostly is imports. So Q1 '22 is artificially a little bit lower than what it otherwise would be.

And then the order book timing or delivery timing in Q1 '22 was not in our favour. But given both of these, so it's still a fabulous achievement, that the sales improvement is 67%. Order book obviously has continued to grow here as well as the difference between order intake and sales is very big and an order book is more than €1.8 billion.

When we take a look at the comparable EBITA margin, so it is €80 million or 6.5%. This improvement year-on-year basically comes from the volume so it is operating leverage, gross margin was approximately flat in on year-on-year comparison.

Then, a couple of comments on the cash flow as well as the balance sheet starting with the net working capital. We have actually changed the definition for the net working capital as well, so that it better matches the cash flow statement definition of net working capital. So we have excluded tax related topics as well as other financial assets and liabilities which derivatives related topics.

The pattern of the picture is exactly the same as it was also before but these changes mean that the networking capital number has come down by almost €100 million, which in relation to rolling 12-months sales means something between 2.5 to 3 percentage points. So, this is maybe good to take into consideration when checking the old presentations. These numbers obviously had been restated. So these quarters are comparable with each other.

Networking capital declined or decreased a little bit from the end of '22, which is good. Inventories actually continued to go up, but our advance payments were in a good level increased and as a result of that the overall net working capital is decreasing. This one is by the way adjusted for the dividend payment as well as the acquisition advanced payment that we had at the end of Q1. So, Q1 is comparable to Q4 from that point of view.

Free cash flow was good in the first quarter €160 million. This of course comes partially from the net working capital factor, but primarily the driver is the good profitability in the first quarter.

And then finally gearing and return on capital employed. Net debt €586 million gearing 42% these numbers obviously before the dividend cash outflow and then capital employed which has been quite stable is now taking a good step upwards 16.1. As a result, of course capital employed but primarily this one as well, the very good improvement year-on-year on the profitability.

And with these comments, we are ready for the Q&A.

[Kiira Froberg, VP of IR]

Thank you, Teo. Thank you, Anders. So, we are ready to take the questions, you can either send them to us through the chat function or then call by telephone. So let's please take the first question from the line.

[Operator]

[Operator Instructions] The next question comes from caller from Goldman Sachs. Please go ahead.

[Daniela Costa, Goldman Sachs]

Hi, good morning. It's Daniela Costa here from Goldman. I have two questions, if possible. Some clarifications to things you've said before. But, can you talk about through when you talk about like in your near term outlook a healthy level. How should we you interpreted these, obviously you had an exceptionally strong 1Q with some really large projects, sort of when you say a healthy level, you're thinking about sort of like more underlying demand? Or is this the new healthy level means sort of continuation of very strong, large orders, as we've seen recently?

And then my second question, I think you've alluded in the presentation €130 million underlying improvement, when you were talking about the margins year-on-year, I couldn't quite understand is that was referring to the quarter only or more than a rolling figure. But can you talk through like these unprecedented high 1Q margins that you have now, to help us break it down? What was the pricing? What are some of the savings coming in through what is just more pure volume? So that we think about how to build margins from here? Yes, that would be my two questions. Thank you so much.

[Anders Svensson, President and CEO]

Thanks, Daniela, should I start Teo, and then you can compliment. So when it comes to the near term outlook, I mean, we give a more of an industry demand prognosis, more than we give any sort of order intake guidance. So what we can say is that in the first quarter, we had quite strong short term orders, like the lift trucks, the components, et cetera. And those were driven by different things. In industrial equipment, for example, we had pricing increase in February. So we got some order intake before that price increase, which drove sort of the short term, short cyclic order intake there.

We also had some changes in our offering. So we will face out some legacy products. We also had some orders on those. So that drove sort of an uptick in industrial equipment. When we talk about weakening macroeconomic indicators. So that has been going on for the last six to nine months, we have seen sort of both the manufacturing capacity index going down, we have also seen the PMIs has been below 50. Now for the seventh consecutive month on the global PMI.

So those are the kind of indicators that normally filters through the order intake over time. We haven't seen that yet. So but that's why we mentioned this as the potential weaknesses or signals weakening markets overall. There we have also seen the longer decision making time, which is also an indicator, and that's normally something that happens in a higher capital cost climate as we're having now with interest rates, et cetera.

So that's what we're saying where otherwise, we're saying we are forecasting that we the market outlook is similar as it was in the first quarter.

Then if I go into what I said, regarding the, the €223 million uptick in comparable sales, then we have mentioned that about 10% is related to pricing increases, so on our €899 million, that would then be around €90 million give or take. And that will give an underlying volume increase of roughly €130 million. So that's what I meant when and on that volume, you get a good leverage on gross margin, especially as we managed to keep our fixed cost fairly constant in the quarter.

[Daniela Costa, Goldman Sachs]

Sorry, just on that, because I guess I was wondering on the EBIT, if you could give sort of how much was on the pricing because you also have cost inflation on the other side. So can you bridge from sales to EBIT margin maybe?

[Anders Svensson, President and CEO]

Our main target with price increases is then to compensate for inflation. We were not successful of doing that in the first half of the last year, during the second half of last year, we started catching up. And now you can say we are compensating fully for inflation with price increases. It's not the same in all areas, some areas like Ethiopia might be a little bit behind some others might be a little bit in front, but we are overall compensating inflation with pricing.

[Teo Ottola, CFO]

Maybe another way of taking a look at the same topic is that, if we think it from the pricing point of view, so that now this in a way year-on-year comparison, of course, what is relevant is that in Q1 '22, we were way behind the curve. So, we had been laid with certain price increases and therefore, we were suffering a little bit of from the net of inflation pricing challenge in a way in Q1 '22.

Now, like Anders said, we have been correcting that during '22 and already in Q4, but particularly in Q1. The situation has become more normal. And as a result of that pricing is obviously a positive delta particularly in the industrial equipment business. Even though we by and large would be saying that we have been compensating inflation with pricing, but in Q1 comparison, there is a positive delta as a result of that one.

And maybe then another way of taking a look at the margin development and if you try to figure out that what is the impact of leverage and what is the impact of the other topic. So, so if you compare our Q1 now to the numbers that we had Q3 last year, so they are actually not so far from each other. So if you take a look at the sales, and then you take a look at the EBITA and EBITDA margin, so, they are fairly close to each other.

So from that point of view, one can also conclude something and of course, it is clear that the operating leverage in a year-on-year comparison is a big indicator. Q1 and Q2 last year were weakish from the deliveries point of view because of the component challenges because of our own issues. Now, we have been able to in a way fix many of those topics and the delivery volumes are better, like we can see.

[Daniela Costa, Goldman Sachs]

Understand, thank you very much.

[Operator]

The next question comes from Panu Laitinmaki from Danske Bank, please go ahead.

[Panu Laitinmaki, Danske Bank]

Yes, thank you. I just wanted to ask about the fixed cost development after q1. So, how do you see this developing any guidance on what is like the labor cost inflation headwind for this year? And how does it kind of timing wise impact you?

[Anders Svensson, President and CEO]

When we take a look at the cost inflation or labor cost or salary costing in particular, so we can now see for Q1 that the cost inflation is somewhat higher than what it has been previously. So in a way it is accelerating like we have been commenting. We are now maybe somewhere 5.5% in a year-on-year comparison, previously we have been at 5% or slightly below. The expectation is that the -- let's say cost, inflation may still accelerate slightly, not necessarily significantly.

But of course, then at some point of time, we are already in on year-on-year comparison of course having comparables that are in a way very different from the inflation point of view, but at least Q1 has seen a slight acceleration there. Like we have been commenting this is of course, something that the idea is that we will be moving into to customer prices. And I guess that from the fixed cost, overall customer point of view the idea is that we will take good care of the fixed costs going forward. Going forward, as well I think that would be fair to say.

[Panu Laitinmaki, Danske Bank]

Okay, thanks. Then secondly, just on the order intake, which was pretty good. I mean, can you kind of try to quantify or describe how much was like exceptionally large orders and how much was something else. Just to get an idea, like, how much was there anything exceptional that you just happen to have in Q1?

[Anders Svensson, President and CEO]

Yes, we can comment on maybe two things that were quite exceptional. In industrial equipment, we had a large jib crane order for U.S. Navy and that was valued at around €45 million which also a very positive contributor to the order intake in industrial equipment. And also at the end of the quarter, we had a large order intake from Port of Savannah with 55 hybrid rubber-tired gantry cranes, and that was valued around €150 million. So those two were sort of what you could say more exceptional, bulky orders that we got in the first quarter.

[Panu Laitinmaki, Danske Bank]

Okay, thank you. Maybe a follow up. Like, well do you see in the pipeline? Do you see a lot of very large ones? And then the timing is an issue or is it, like, can you describe what do you have there?

[Anders Svensson, President and CEO]

Yes, so in the sales funnel, we see it being constant in both, or to some extent, sometimes growing sometimes going down a bit, but over time, being quite constantly in both number of sales cases we have in there. And also the total value of the portfolio. And it's a good mix between large orders large potential orders and more repeat orders of more normal size. And we don't see that changing of course, with imports, you don't know like this order we got now, you don't know we get the whole order will it be given the next quarter or will it be divided in several orders over time. So it's very difficult to look forward from that perspective.

[Panu Laitinmaki, Danske Bank]

Okay, thank you.

[Operator]

The next question comes from Antti Kansanen from SEB. Please go ahead.

[Antti Kansanen, SEB]

Hi, it's Antti from SEB. Thanks for taking my questions, a couple of ones on mainly industrial equipment. If we look at the margin level right now, how would you describe, should we be a bit cautious on the development going forward? What I'm trying to get is that are you now achieving let's say exceptionally high earnings leverage on deliveries as you're kind of perhaps shedding some of the old backlog that has been sitting on your factory for some time? And should we be a bit concerned that the gross margin development will ease of going into back half of this year and go into '24, not taking into account anything what happens with volumes?

[Anders Svensson, President and CEO]

There's no -- there are no positive sort of one offs like the ones you're mentioning. That would stick out significantly in contributing. I would say the main contributors here is that we have a volume leverage on our fixed costs, and hence getting good pull through from gross margin, not increasing our fixed cost that much.

And then it's like Teo mentioned its the price compensation versus inflation that we were lacking, sort of last year. And on top of that, we have some really good initiatives with optimization program within industrial equipment and service as they're starting to contribute. And we said, we upgraded that to it will contribute with €40 to €50 million, positive EBITA from 2025 and onwards, and some of that is already now filtering through. We had some good contribution made a couple of millions already in the first quarter here.

But still, there's room for improvement in industrial equipment, our engineer to order products with long lead times are still not contributing positively. They're still in the reds. So there's lots of initiatives ongoing within industrial equipment to enable a further growth. But you shouldn't expect 900 bps going forward towards the previous year.

[Teo Ottola, CFO]

Okay, that's very clear. That's one and like Andres said there definitely is improvement potential going forward as well. But if you take a look at these different segments, in particular now regarding the Q1, so maybe -- and there is of course, we have a, let's say, a typical seasonality pattern within all of those businesses, so maybe I'm not saying that one should be concerned, but maybe one can be a little bit let's say at least consider that maybe regarding the industrial equipment now that the Q1 was very good as a result of shedding some of the delayed backlog or I say delivering it, so maybe the let's say seasonality pattern is not quite as strong as it normally would be in the industrial equipment business in particular.

Not different not necessarily saying that the concern would be in gross margins but just because the volume improvement in IE has been so good in Q1.

[Antti Kansanen, SEB]

Okay, and then if you look at kind of your workload situation and lead times for standard cranes and components, I mean, how long are you kind of covered regarding manufacturing? And where are your lead times currently standing at roughly?

[Anders Svensson, President and CEO]

Yes, so if we start with lead time, then in the industrial equipment, so we have on, on components we normally have, within one quarter, I would say that's probably more two quarters now, given the high order demand. If you look at CTOs that normally within two quarters, I think we can do that. And then ETOs is longer than two quarters generally.

And if you look at our on time delivery, we had difficulties with supply chains, both internal and external, during the large parts of the last year, COVID, related, war related et cetera. But we are now seeing nothing improving. And from October basically, last year, we started to see on time delivery, precision increasing, so that's positive. And at the same time from basically beginning of this year, we have also seen lead time starting to reduce, and that's because we have been able to improve our supply chains, ramp up our internal capacity as well as our external capacity.

[Antti Kansanen, SEB]

All right, and then the very last question for me, still on the industrial demand and okay, if we exclude the one large jib crane order and perhaps a little bit about the pre buying that you mentioned earlier, seems that you're still up year over year perhaps even excluding pricing. So, I mean, this is for me at least a bit surprising given kind of the macro indicators. So, any further color on why is the demand staying so resilient? What are your clients actually doing what is kind of strong for you guys any explanation on that one would be appreciated?

[Anders Svensson, President and CEO]

Well, I think we have a strong offering that we are renewing as well, we are changing some of the go-to market channels et cetera enabling us to be more focused on our customers and we have a high focus on really serving our customers and being customer centric rather than maybe more of what we have been in history more product centric. So, there is a lot of focus in the organization to really pull through and serve our customers and having the best products to do so that normally rewards you over time

[Teo Ottola, CFO]

The demand has been very resilient. So, that is true. And I guess that we can say that we have we have been positively surprised by the let's say demand and over order intake in general, including industrial equipment in this quarter as well. So, customers continue to prepare for new projects, they are believing in their own future they are let's say pushing for orders. And it seems to be happening quite widely.

These concerns that the overall economy has like higher interest rates, et cetera. So, it is in the discussions to some extent that it may be one of the reasons why decision making times have been getting longer, but like we commented regarding the fourth quarter as well. So it still seems to be so it also the within the sales pipeline that the cases actually continue to move on, which then means that the decisions are then done at the end of the day anyways, and this is also like we have been discussing.

So it is very true regarding the short cycle products as well. In longer lead time products, it's maybe logical because you have started the preparation early on but customers do have the belief in the future, even in the current situation.

[Anders Svensson, President and CEO]

Short term plan it was up both sequentially year-on-year. I think that shows pretty…

[Antti Kansanen, SEB]

That it seems to be that you're taking a bit of market share as well. Would you agree on that?

[Anders Svensson, President and CEO]

I mean, it's difficult to say when you are in it so we normally measure market share in hindsight. So, but it feels like we're not losing market share at least.

[Antti Kansanen, SEB]

All right. Thanks.

[Kiira Froberg, VP of IR]

Next question please.

[Operator]

The next question comes from Erkki Vesola from Inderes. Please go ahead.

[Erkki Vesola, Inderes]

Hi Andres, Teo, Kiira, Erkki from Inderes. Still on the industrial equipment EBITA margin. I mean, you just talking about the importance of own price increases versus raw material and component price decline when they talked about their Q1 profitability rise, did you see any of that price declines in IE your own sourcing? I mean, were you really in a sweet spot in terms of on prices versus material prices? That's the first one.

[Anders Svensson, President and CEO]

What has been delivered now, we bought quite a long time ago. So even though raw material prices both in terms of steel and copper are down year-on-year, we didn't buy this material at this point in time, of course. So that's difficult to draw that parallel now. Should it remain like this over time that will of course be a positive contributor? What I would say is what we are sort of benefiting from to some extent, is probably the lower logistics costs that we are seeing currently.

[Erkki Vesola, Inderes]

Yes, okay. Thank you. My second question was just being about the IE margin sustainability on what you know about your own pricing, material pricing dynamics, Teo already told something, but could you repeat?

[Teo Ottola, CFO]

We are quite comfortable with the order book pricing, in on year-on-year comparison, in particular, because still, let's say one year ago, we had in the order book deals that what we so called old prices and now the order book is from our point of view healthier from that point of view, maybe not a significant difference to let's say Q4 -- end of Q4 but in on year-on-year comparison, the order book margins are in a better shape.

[Erkki Vesola, Inderes]

So I mean this 6% to 7% EBITA is not an anomaly, but it's something that we could look forward to as well?

[Anders Svensson, President and CEO]

There is nothing that indicating that this should be a one off.

[Erkki Vesola, Inderes]

Okay, thanks so much.

[Kiira Froberg, VP of IR]

Next question please.

[Operator]

The next question comes from Tomi Railo from DNB, please go ahead.

[Tomi Railo, DNB]

Hello, this is Tomi from DNB. Couple of follow ups. Is it possible to try to quantify the pre buying activity you mentioned? Is it couple of 10s of millions? Or is it just the millions?

[Teo Ottola, CFO]

No we would maybe rather not start to let's say quantifying that, of course we can we can let's say conclude deduct things from our own frontline but these are not scientifically accurate numbers. The topics that Andres was talking about the let's say platform changes and these kinds of things. So they may cause pre buying and I think it's good to recognize that it can be there but the Euro number we will be uncomfortable in disclosing.

[Tomi Railo, DNB]

And any comment on the price increase level you did in February?

[Teo Ottola, CFO]

We have been increasing prices, price increases have been lower than what they were a year ago, but still in a way increases that can be called price increases let's put it so that's something else than nominal.

[Tomi Railo, DNB]

Right. And then Teo you mentioned that the components were really strong in the first quarter was that something particular big impacting that and how has it started in April?

[Teo Ottola, CFO]

Regarding the components like in many cases, so these price increase cycles may be impacting this, it's maybe part of the pre buying in a way and we did have price increases in the first quarter. This may have been recurring, let's say some extra buying regarding the componentry as well as some of the let's say changes that we are doing in the product offering et cetera. Regarding the order intake beyond the end of the quarter. So we would rather not keep the volumes.

[Tomi Railo, DNB]

Okay. And then sorry, if I've missed this, but how much was the service agreement, reclassification impacting the service orders in the first quarter?

[Teo Ottola, CFO]

The overall end your volume is €300 million and now what it exactly was for the first quarter. So we would need to go and I would need to go back to do the release that we made, because there we have actually the quarterly changes. I do not recall the number by one 1 million or so. But it can be found there.

[Tomi Railo, DNB]

All right, okay. Thanks. And final question. One of your competitors announced a split of the company yesterday. Have you ever considered to split Port Solutions from the company?

[Anders Svensson, President and CEO]

I'm not sure we are the right ones to answer that. But that's not something that we are discussing now. And there are no such discussions what we are aware of, and we wish them luck.

[Tomi Railo, DNB]

Thank you.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers,

[Kiira Froberg, VP of IR]

Seasonality -- do we expect seasonality to be as strong in '23 as it has been in the past? And I think this probably now refers both to sales and profitability, seasonality?

[Anders Svensson, President and CEO]

We expect maybe the seasonality to be less transparent in this year than previously.

[Teo Ottola, CFO]

I think particularly in the industrial equipment, but probably also on a group level because of the very good sales deliveries in the first quarter.

[Kiira Froberg, VP of IR]

So those were all the questions for today. And just as a reminder, so we will host our Capital Markets Day on May 10, and the registration for the webcast is still open, so if you're interested, please go and register yourself for the event. And then our Q2 interim report will be issued on July 26. Thank you all for participating and have a great day. Thank you.

[Teo Ottola, CFO]

Thank you.

[Anders Svensson, President and CEO]

Thank you.