KION GROUP AG
Q4 2020 Earnings Call Transcript

Published: 2 Mar 2021

Operator:

Ladies and gentlemen, thank you for standing by. I'm Sugi, your Chorus Call operator. Welcome and thank you for joining KION's Group Full Year 2020 Update Call. Today's presenters will be Gordon Riske, CEO of KION Group; and Anke Groth, CFO of KION Group. I would now like to turn the conference over to Mr. Gordon Riske, CEO of KION Group. Please go ahead, sir.
Gordon Riske:

Yes. Welcome to our update call for the full year 2020. As a basis for this call, we'd like to use our full year 2020 presentation. It's available on kiongroup.com under Investor Relations in the Publications section. We'll presenting four parts during today's call, and then we'll open up the discussion for your questions. I will begin with our financial key figures for the first full year 2020. And we will then show you selected strategic highlights from last year.
Anke Groth:

Yes, thank you very much, Gordon. And also welcome from my side. Turning to page 11, you will see the key financials for the segment industrial trucks and services for Q4 and the full year 2020. Let me start with Q4, which was marked by an improvement in business activity. Our order intakes fell to EUR 1.7 billion in Q4, a decline of minus 3% driven by our new business. At the end of December, the order book for the ITS segment stood at EUR 1.4 billion, up by 8% versus September, and down minus 1.8% versus year end 2019. Revenue fell by minus 7% to EUR 1.6 billion in Q4 and was mainly impacted by our new business, which declined by minus 12.9% in the past quarter. Our service business was able to show a more resilient development with only a small decline of 0.7% due to a slightly lower level of our aftermarket business, as well as our short-term rental business. Looking at the performance, we generated an adjusted EBIT of EUR 100 million in Q4, significantly down versus prior year, resulting in an adjusted EBIT margin of 6.3%. Let me highlight the most important aspects driving the development of our adjusted EBIT margin. Again, we had lower volumes and consequently the lower fixed costs coverage, which was almost offset by our cost saving measures of approximately EUR 19 million. Approximately one third of the EBIT margin drop is due to a more competitive ITS market and additionally a negative shift in the mix geographically as well as product wise, i.e. stronger growth in warehouse than in counterbalance, and stronger growth in Asia. The remaining portion is attributable to the swing off and one-offs that turned negative this year, including write-offs on inventories receivables and intangible assets largely caused by the ongoing COVID-19 pandemic. What does this mean for the full year 2020? The order intake in ITS compared to EUR 5.8 billion down by minus 8.8% year-over-year, revenue fell by minus 11.1% to EUR 5.7 billion. And in the full year, our adjusted EBIT dropped to EUR 305 million, mainly triggered by the aforementioned negative impacts, such as lower volumes, mix effects and the competitive market. But even in a crisis here like 2020, we kept our strong commitment to R&D and other strategic projects that affected our adjusted EBIT by around EUR 44 million. And we also achieved significant cost savings with our crisis measures supporting our adjusted EBIT by more than EUR 110 million last year.
Gordon Riske:

Very good. Let me know present you with the outlook for the full year, which you will also find in our annual report 2020. I'm on page 21. So for the market environment, in our view, the global material handling market should see strong growth in 2021. Its economic conditions improve as we expect. This is being driven by the increasing market momentum of Supply Chain Solutions market and the further gradual recovery of the global market for industrial trucks. Overall, the global material handling market is expected to grow at a higher rate than global GDP. KION is expecting a gradual market recovery for new business with industrial trucks in 2021, with a percentage rise in unit sales that is in the mid single digit range and above the medium term growth trend of around 4%. This rise is expected to be driven primarily by the recovery of the EMEA region, which was heavily affected by the pandemic in 2020. And by sustained growth in China, however, the latter is likely to be significantly lower than the exceptionally strong growth we have seen in 2020. The market for Supply Chain Solutions is likely to continue expanding in 2021, particularly as a result of the sustained uptrend in ecommerce, which was further reinforced by the changes in consumer buying behavior during the pandemic. The trend for micro fulfillment warehouses is also expected to continue. From a technology perspective, automation and robotics solutions will remain the main drivers in the mid, medium term double digit market growth is expected. For the KION Group, you can see the detailed ranges on the slide in the fiscal year 2021. The KION Group plans to fully participate in the market recovery and has laid the foundations for this in 2020 both in terms of technology and production, as well as in terms of financing. The global market for industrial trucks, the KION Group is aiming to outperform market growth thanks to high proportion of revenue that it generates in markets that are likely to bounce back strongly. The KION Group portfolio in the market for warehouse automation and Supply Chain Solutions covers all of the main growth drivers in 2021. We expect therefore, that the revenue will increase at a rate above the expected medium term growth rate for the global market, in part due to the strong order book at the start of the year. The order intake for the KION Group is expected to be between EUR 9.7 billion and EUR 10.4 billion euro. Target figure for consolidated revenue is in the range of EUR 9.15 billion to EUR 9.75 billion. The target range for adjusted EBIT is EUR 720 million to EUR 800 million. Free cash flow including the effects of the capacity and structural program started in 2020 is expected to be in the range between EUR 450 million and EUR 550 million and the target figure for ROCE is in the range of 8.2% to 9.2%. Overall, we anticipate that we will return to growth this year but expect that our adjusted EBIT and thus our profitability will remain below the pre crisis 2019 level. This is mainly due to the anticipated rise in commodity prices, and the continuation of extensive expenditure aimed at strengthening future growth. However, there should be a sharp improvement compared with the 2020 level, which was adversely affected by the pandemic. So, looking on to page 22, you see our financial calendar. The next event is the publication of our Q1 2021 results on April 28, 2021, followed by the publication of our 2020 Sustainability Report on April 30. Our General Meeting will take place on May 11, 2021, and will be held virtually until then we look forward to meet with you at conferences and roadshows, hopefully some non virtual, and with this, we'd like to close the formal part of this update call and hand over back to the operator so that we can take your questions.
Operator:

The first question is from the line of from Deutsche Bank.
UnidentifiedAnalyst:

Hi, good afternoon and thank you. So my first question is just to understand a bit more just to get a color on the margin growth because I see obviously you've got growing up from using the midpoints of your guidance for 2021. You've got sort of headwinds coming through from rising raw materials prices and potentially FX. And also, I think you suggested one of the other sorts of squeezes on margin was competition, which I guess would still also be coming through. Obviously, that's offset by a volume effect. So I just wanted to understand a bit more how sort of the transition from 6.6% to an 8% kind of mid margin that I get to on the guidance.
AnkeGroth:

Yes, hi. This is Anke. I'd be surprised on the volume and therefore a scale effect.
UnidentifiedAnalyst:

Okay. All right. And so my second question I am -- I just wanted to understand in terms of the competition that you're seeing that's coming through from China, is it sort of a purely a price driven competition or is there more to it than that?
GordonRiske:

Very much price competition and with the low price and especially for entry level pricing, also new markets. Years ago, there were hand pallets without electrical motors, they were purely manual. Now it's with electrical motors. So these very simple low cost units are also introducing new markets.
Operator:

The next question is from the line of Sven Weier from UBS.
SvenWeier:

Yes, good afternoon, Anke. Good afternoon, Gordon. The first one is on warehouse automation. So as we've all seen, you now have 32% order growth last year. And I guess after such a strong year, we wouldn't have been surprised if at least the low end of your guidance would be looking for a breather, but it doesn't so you expect even 4% growth at the low end 15 at the high end. So maybe you could give us some color what's driving the strength here, is it new clients, is it existing clients who continue to spend and also related to that, in your prospectors and for the capital increase. You basically increase your revenue growth expectations for the business right? When I read this correctly, pre COVID, you saw more than 10% of revenue CAGR. Now, you basically said in the prospectus, it's going to exceed that. So would obviously be also curious to see where do you see it now actually? Thank you. That's the first one.
GordonRiske:

Yes. Good. I mean, growth is happening in all markets, we have seen, as you said, significant growth over 32%. But as the project business can vary between years. And over the past a couple of years, we've seen a CAGR more like, if take full 2019 and do it between 17% and 23%. But I think the big thing is the pandemic has shown our customers need very reliable solutions, people that can actually install these things, no matter what happens. And so we have seen an uptick in larger systems with existing customers. But I think some innovative things, be it micro fulfillment, or the MCAP automated automation for grocery business, we've really come a long way cold storage. So we have also increased the breadth of our customer offering in the last couple of years. And I think the third thing is really, to bring the profitable growth behind that. We've done a heck of a job to improve our project execution part of the business significantly.
SvenWeier:

And related to that goal, and I mean, project execution, you seem to have really had a good project execution in Q4 with contribution margins of over 20% in SCS, if we look at the 2021 guidance, you look for like more like 13% contribution margin in the business. I mean is that because you assume somewhat less seamless project execution or why are you more cautious on the contribution margin there?
GordonRiske:

Well, we also have lots of new customers coming up, I mean, our order book is full. So it's comfortable to meet the targets in 2021. The win and do is a smaller part, as it normally is. But fourth quarter was, let's say exceptionally profitable. And since the new business is growing so significantly could be that we have a little less service as a proportion in the year 2021.
SvenWeier:

And the final one is then maybe question for Anke regarding the leverage, right? I mean, you've shown how you now stand at 1.8x on your key criteria there. And I've remember from the past, that's around 2x is your comfort level. But if I now take the free cash flow guidance for 2021 plus the increase in earnings that you foresee the leverage is clearly going into the direction of 1x, and maybe somewhat above that, but let's say much better than your comfort level and how do you look at that? I mean, if the situation now the economically stabilizes further, that is no new headwind there. I mean, do you see also an option for returning cash again back to shareholders? Or how do you think about that leverage?
AnkeGroth:

Hi, we adjusted capital increase in order to be financially stronger, and have a sound and solid balance sheet and we also said there are a lot of opportunities out there in the market. Our market is highly attractive with very good growth rates, and we definitely want to participate in that. And therefore, I would say I still feel comfortable. But when we have a capital market day and we intend and plan one this year, then we will also talk about the financing strategy more in detail.
Operator:

The next question is from the line of George Featherstone from Bank of America.
GeorgeFeatherstone:

Hi, good afternoon, and thanks for taking my questions. And my first will be it'd be good if you could give us a little bit more color on the key moving pieces behind the relative underperformance of ITS versus the wider industrial truck market. And why perhaps you're not enjoying as much leverage to recovery. So also in doing so can you outline your expectations by vertical and product mix for 2021 on things?
GordonRiske:

I'm not sure if you're referring to market share or earnings somehow they do fit together, but I think clearly in our statements in the year 2020 the pandemic hits our traditional industry where we sell counterbalanced trucks more significantly than in the warehouse segments where perhaps some of our competitors and Chinese entry level in warehouse was a strong factor. So the product structure that we have IC trucks and warehouse trucks were quite a bit more balanced. And many of our competitors are mainly focused on warehouse trucks. And the verticals that we serve were hit harder. And so I do expect as the recovery comes at we will see a quicker return to selling of more high volume or high value based counterbalance trucks. So I do expect to see a recovery there. And that will also, of course, help us in the recovery of earnings. But having said that the volume and so forth we do expect the year 2021 to be slightly below for ITS than the year-- record year 2019.
GeorgeFeatherstone:

Okay, thanks for that, and on SCS, could you give us some color on the further investment requirements that you need to make to capitalize on demand in SCS? And also, if possible, could you give us an indication of the software growth that DAI had the last year?
GordonRiske:

Let me start with the last question and look at the CapEx numbers in total. The last question the growth, I mean, in fact, let me explain it this way. We don't break out the software but without those software packages, and features that we can offer, we would not be able to deliver the large systems I'm talking EUR 40 million and above, to our key customers. Another way to look at it, I would say almost half of our R&D spend at SCS is today in software, I think that gives us perhaps a good sense of the direction that we're going that our markets are going and where we have to focus our activities on to be competitive in this market software really does make the difference.
AnkeGroth:

And I think you asked for capacity and capacity enlargements, we have built , how we call it. So production facility for the Dematic and at our -- site for capacity enlargement. That was very low single million, single digit million investments. We also have extended warehouse capacities in Dallas. But these are all really very small investments in order to be able to fulfill the requirements of the order intake. And we don't expect much more investments for capacity expansion.
Operator:

The next question is from the line of Sebastian Growe from Commerzbank.
SebastianGrowe:

Yes. Good afternoon. Thanks for taking my questions. Hi, Anke. Hi, Gordon. First one is around ITS. And thanks for providing the details around the gross profit margin and OpEx quotas for the two segments. Thing for SCS really, the numbers speak for themselves. But for the dynamics at ITS, if one looks at the 300 basis points decline in gross margin year-on-year, it strikes me that in quarter four you took a material hits where the gross margin was down 400 basis points. You mentioned the mix issues. But I think you also touched on inventory write-down. Can you just give us a better sense really what is sort of non repeat in nature in the quarter four when it comes to the gross margin, particularly at ITS. And if I may then switch gears to the top line growth outlook for ITS, the 4% to 9%. Can you also give us a sense, what it does imply in terms of growth for the service part within ITS. And lastly, and going back to the gross profit margin. Your detailed numbers suggest you had a close to 29% gross margin in 2019, and the record year. So if you're really going towards full scale in Poland, China of new products represents the much greater share of the overall product mix. Would it be attainable? The 29% in the medium term again, or what's your thinking around this question is clearly how much of really a structural change to gross margin this sort of new competitive landscape might have created and what you .
GordonRiske:

Let me work it backwards from three to one or do you want to start with the first. Okay, let me start with a gross margin and effects pull in China mix. I think that's kind of behind the question do you have lower costs products and more competition? Can you still make money? If I understood it correctly, it definitely I mean, China, as you may know, is one of our most profitable markets that we have, and the value segment that we're entering into with the correct product costs and Poland factory gives us that, Jinan gives us that the new value platform technologically gives us a very, very strong cost position for the product itself. But customers especially in EMEA always look towards a full fledged service and support organization. I think that combination for us will allow us to get back to the margins that we anticipate. Also the structural program that we announced, that means also structural programs. So savings, especially at ITS, you saw the new organization that we highlighted on the first page, and that we have them taken all of the forklift brands under a common leadership which also will provide, I do believe two things, one is better market coverage. And number two some added synergies, which we haven't had before, and all those things we will be able to support our margin development. The middle question our growth this year and service. Will it keep up? We do expect as I said to the other question, as we see automotive, metals and things you can see by the increase in steel price, you can see by the development of energy costs that the economy is coming back. And this type of robust upturn in the economy does drive counterbalance trucks. And so I do expect that the new truck business again will grow a bit more rapidly. The service, we're already at about 50%, 49% of revenues are after the sell of the truck. Part of that revenue is of course, the rental business short term rental as the pandemic kind of comes down and hopefully the vaccinations and so forth to take hold, hospitalization rates go down. I'm sure the events and other things will open up in the second half of the year. You saw the USA even said some predictions after the passage of the $1.9 trillion rescue package, they could have quarterly growth rates of 7%. So we are rather optimistic about the second half of the year, the possibilities there. And so I do expect the new truck business to grow again in the second half of the year. And if we keep our services at around where they are, then we will keep up with the margin increases as we do expect for this New Year 2021. First question?
AnkeGroth:

Okay, I try to figure out what are the outstanding parts of the question there was and if not, please interrupt me and then we start with that new. So you're asked for which parts of the effects on our margin won't happen again, I think in the next year, if I do understand it right. First of all, let me spend a couple of words on the one off I mentioned, which had a large effect in Q4 and especially in Q4, but also an effect on the full year basis. So, we are in a COVID-19 environment and we have provisioned more conservatively at the end of the year, due to the circumstances and the environment around. So we had write-off on inventories, receivables and intangible assets. I would call all of this COVID-19 induced. So I would not expect that to happen again in this year once the situation has improved. So this one-off I don't expect to see in the year 2021. So the fixed cost coverage will revert with the volumes coming back as Gordon has described it. The mix will revert as we will see more counterbalance trucks that was also described by Gordon and on the other side we have a significant amount of crisis measures of cost savings in place. For this year, more than EUR 110 million we have achieved. And you have seen the chart on the structural program. We have agreed on this work. So that will take a while until we reach that same level. So that is somewhere negative side for next year. But all other points I mentioned are on the positive side for the margin development.
SebastianGrowe:

Okay, that sounds good. Just two quick, very quick follow ups. The first one is on the comment you made on service, you said service days, were this sort of good for the outlook 2021 if I got that right. Does is really mean remaining at the level of fiscal 20 overall, or the level of quarter four. And the other question for you Anke, I think on a press call, you said that December was actually up year-on-year in 2020 over 2019. I think for January figures also suggest very strong growth, volume wise, clearly in China because of COVID recovery. But also in Europe, I think more than 20% up so I'm just struggling to really square that up with the volume output that you provide. Is it all conservativeness or anything else we should better be aware?
AnkeGroth:

We are just in the year 2021. And we have seen the January data. So we all hope that this very positive development continues. But it's still very, very early days. With respect to the service I would translate that was Gordon has described into the -- we would expect to return to more normal growth rates like we have seen in the past, which was more low to mid single digit in the service business. I think we have displayed a chart in our quarterly presentations, where you'll see the growth rate of the service business and I would expect us to return to those normal levels.
Operator:

The next question is from the line of Akash Gupta with JP Morgan.
AkashGupta:

Good afternoon, Gordon and Anke. And thanks for your time. My first question is on raw material headwind and also if you can club if FX has been together with it. So I think in the year 2016 and 2017, you had EUR 25 million of raw material headwind, when steel price increases was, I would say, less severe than what we have right now. And the question I have is that what sort of incremental headwind that you have baked in for of these raw material and FX headwinds, which basically impacting your margins in 2020. And let's say is down the line when volumes recover, if you can improve the pricing, then what kind of margin uplift we can get in let's say, FY2022. That's question number one.
AnkeGroth:

So coming to the raw material headwinds, yes, you're right. 2016, 2017 I think we also spoke about it 2018 when I joined the company of raw material cost headwinds. This year, we think it's the situation is worse than what you have mentioned. And we have taken a low to mid double digits effect into consideration for the time being. So that is what we see today. But of course, it depends on the further development, especially of steel, and scrap and so on.
AkashGupta:

Can you give us a number in terms of like whether it's low double digit or mid double digit that you have already baked in 2021 guidance as a headwind from raw material inflation?
AnkeGroth:

Akash, I would prefer to stay to what I outlined.
AkashGupta:

Yes, no worries. And then my second question is on ITS new equipment business. Can you give us the share of direct sales versus financing for the year 2020? I think it was 51% of total volumes in 2019. But I haven't seen the figure for 2020.
GordonRiske:

We have to look that up. I don't know if we have it right off the top of our head but --
AkashGupta:

Okay, and then my final quick one are on these semiconductor shortages. So I mean we have seen from automotive industry players that there is component shortage from semiconductors side which is impacting production. Is there something that have also impact on your inter production?
GordonRiske:

Yes, we do see electronic components and so forth shortages, we are doing everything we can to mitigate those things. But it is a general topic; anything that has any kind of controlling in it with electronics is in short supply right now. The effect, we can't disclose it at this point, because it's a little bit all in flow at the moment. But the number that Anke gave the mid to double digit material issue is where we have a right now in terms of our baked in to the guidance.
AnkeGroth:

Akash we are not 100% sure we really have understood your question. Could you repeat, please?
AkashGupta:

You mean on direct sales versus financing? I mean, I my question was that like in 2020, 2019, you disclose that 51% of new volumes in ITS was came from direct sales, while the rest was financing volumes where you had financing both in house financing as well as third party financing. And I was just asking how the number -- of that number has moved in new forklift sales for the year 2020.
AnkeGroth:

Okay. Sorry for that it took us a while. So it's somehow stable. It's slightly below 50%. But it's somehow the leading portion of our -- of the shelf, the leading business in the new business is somehow similar to last year.
Operator:

The next question is from the line of Martin Wilkie, Citi.
MartinWilkie:

Thank you and good afternoon, Martin from Citi. So the first question is on your midterm targets you previously aimed for a midterm staging post for 2027 by getting to EUR 10 billion in revenue and attain to a margin by 2022. So in the presentation today, it says that those targets are still under review. But I think most people would have thought you just defer them, to just understand, is there still a possibility you could hit those targets? Or is it more that the processor review, which clearly will get an update on the capital markets, is still ongoing. And that's the reason that they're still under review. Thank you.
AnkeGroth:

Yes, Martin, it's still under review is the right expression. We wanted -- we are thinking about coming up with the midterm target, either in the Q1 presentation, but it depends a little bit on how stable the situation then is with respect to COVID-19 and the markets, or as an alternative when we have the capital markets day. But the target is under revision. And we have taken the midterm guidance from the table so to speak, when we were hit by COVID-19, back in March. And this year is clearly a setback. So we will come up with our thinking around that and our analysis, either in Q1 or at the capital market day.
MartinWilkie:

Okay, thank you. And then the second question, just come back to cash flow, which was brought up earlier. And knowing in hindsight, given the results for 2020 and the strong guidance you've given for 2021. It doesn't look like the capital raise might not have been needed. And I obviously I listened to your answer earlier. But given where we are, I mean, is it really an indication that you're planning to do acquisitions? Is that way we should read it? Or is it more than that? It was just a buffer that was required, given the uncertainty at the time. So I think there's still some confusion as to why you need to raise quite so much money and back in Q4. Thanks.
AnkeGroth:

No, we've I think we described it very well during our roadshows. It was for strengthening our balance sheet. We now have an equity ratio of roughly 30%, which is significantly up. We have reduced our debt burden in this COVID-19 situation in order to be able to participate in the strong growth that we see in the markets and the order to take part in an opportunity which might arrive and we always made the point it's not a liquidity issue. It's not a cash flow issue. That is what we constantly have towards the capital market.
MartinWilkie:

And in terms of those opportunities, are the sorts of the equivalent size of what you do with DAI, is that sort of stuff that's in mind or just how we should think about what your use of M&A thinking is. Thanks.
GordonRiske:

Well, on any acquisition, there's always two at least availability. So anything that can help us technologically move forward and software and sensors and automation is certainly at the top of the list or any region where we don't have enough bases to expand our business is the other part of it. So regions and technology and just to underline what Anke said, looking back now, I'm even more convinced that was absolutely the right thing to do because we not only had a very good reception, we also got lucky in the market condition. So sometimes luck is when preparedness meets opportunity. So I'm very happy that we did it, and it was a good thing to do.
Operator:

Next question is from the line of from Goldman Sachs.
UnidentifiedAnalyst:

Hi. Thanks for taking my question. I just have three. The first one is on Supply Chain Solutions. And cost base is obviously fantastic to see that you're hiring quite a lot of additional employees into that business, especially in this year. But if we think out to about, I don't know, three, maybe four years down the line and the supply chain solution then markets may not be as strong as they are now for various reasons, it could be never a kind of downside, or it could be interest rate rising or any scenario. How do you think about the flexibility of that cost base? Could there be a potential in the future of having some cost absorption issues?
GordonRiske:

No, that it's been a very big focus. Some of you that have been following us a little longer know the term lumpiness and if you have big systems, it certainly can be a quarter where you're missing a few. And so if I look at the almost 4,000, some people that we added to the payrolls last year, at SCS, less than half of those are actually full time employees. The other half is contracted workers, that we have special agreements with people that do installations on site engineering and so forth. So that part of it, we've tried to be extremely flexible to be able to maneuver and times when it does go down. And the other part of is we have taken our engineering forces in two directions, one, we have used a much bigger part of our engineering done in terms of simulation, and electronically, so we're able to fully simulate, and configure systems with our own software that we've developed. And the other thing is our best cost country approach. We have built up engineering centers in Lithuania, in Egypt, in India, because one of the objectives was always to try to maintain an hourly rate over years, that is at least constant, perhaps even as a general tendency to go down. So I think your question, thank you for the question. That's been a very, very heavy focus of the team to make sure that our variable cost does stay variable and that we can adjust based on the business.
AnkeGroth:

And maybe one point to add on to your explanations, in the project business, we also have long duration of projects, that of course, gives us also some flexibility to react in case of a downturn from that additional point.
UnidentifiedAnalyst:

Okay, that's clear. Thanks very much. And then still sticking to the supply chain solutions, you obviously had a strong quarter in terms of margins in 4Q. How much and in seasonally, like historically, it always ties up 4Q can be weak in terms of margins because of this is not times when some of your customers want to be a building new warehouses. How much of this quarter do you think is due to the fact that we've obviously had a big shift online consumption and there must be some players out there which are rushing to get their online capacity up and therefore overpaying or like paying a little bit extra benefits in your fourth quarter. Do you think that's been a factor?
GordonRiske:

Let me say this, we have, there is a big demand out there. And we have a certain capacity to address that demand. I think we have learned some lessons on how to control the nonconformance costs on the one hand, but we've also in the selection of which projects we actually do, we have become a bit more selective, then in the past, and I think that helps make sure that the margins continue to stay stable and even increase a bit.
AnkeGroth:

But I would like to add here, so the revenues, the billing are based on the percentage of completion method, which was based on the costs of the projects and how much progress we are doing. So it has nothing to do that customers would be willing to pay an extra margin in December or November to get it done. So I would say that was not a point, which has an impact on the margin you have seen.
UnidentifiedAnalyst:

Okay. Thanks. And then to non industrial trucks, you mentioned how, obviously, you have very strong growth in China, joint venture side, it probably surprised most people how strong it's been. But you have mentioned how in 2021, you're not expecting a repeat of that level of growth. Are you -- do you have any concerns, though, that by the time that your new production facilities in China and your expansion project is fully up and running, and I think the timetable for that to be completed is 2025, that the Chinese market won't be growing as much as it is now. Just given how strong it's been?
GordonRiske:

Well, we have globally; the Chinese market in terms of volume in 2020 was around 40% of the global volume. And so the idea that it would go down at 20%, I think is quite remote. So it will always be a very important part of our strategy and of the forklift business. Second thing is that the market shares that we currently have are less than 10%. But we have with the factory, a great sales and service team and support of anchor shareholder there's a lot more in it. So we're not concerned that the market at least for our products, and the electrical part of it will cave in at some point, the factory goes online in 2022. So now 2025, 2022 first products come rolling out of that factory. And another thing to always consider is just as we have certain factories in Eastern Europe or US or wherever that delivered to other places, we will use this base, because that is our let's say our global competence center for value trucks, we will use this base also to export to other regions, including Europe to address this market. So there's a lot of good factors in there that give us confidence that this investment has a great payback.
Operator:

The next question is from the line of Philippe Lorrain from Berenberg.
PhilippeLorrain:

Yes, good afternoon. Philippe Lorrain from Berenberg here. A couple of questions for us perhaps on the topic of the robots. If I recall that you said earlier this year that in December, you increase your lease prices by about 1.8 to 2 percentage points. So perhaps you could confirm that that was correct. And that is partly addressing the increase in steel prices that we had seen towards the end of last year.
AnkeGroth:

First of all, it's 1.5% to 2% is the range in which we increase our prices. And yes, I can confirm that we did it. But it's somehow actually our yearly normal price increase, which is not tied to the raw material price increase. We have seen in December, but especially also in January.
PhilippeLorrain:

Okay, understood. Do you think that the fact that longer term there's going to be a much, much higher share of electric trucks actually might make your profit much less dependent on what's happening on the robot side, especially steel, just because they are less, let's say kind of counterweights made of steel that are used by the trucks but perhaps the trucks use more batteries in terms of counterweights.
GordonRiske:

Yes, but to carry two and a half tonnes, you still need a good counterweight so that won't affect it so much. Steel prices are a factor for us as lots of steel. Some big construction companies tried to use cement, but that doesn't -- the truck gets too big. So know that will be still being a factor.
PhilippeLorrain:

Okay, I understand. And then the other question I had was more on your corporate services and consolidation line. I have the impression that both me and the consensus well has little bit on estimated all negative, that part of group EBIT is going to be in 2021. So perhaps you could explain us why this was like so positive actually also positive or not that negative actually in 2020? And what are the drivers behind that, to kind of understand better how these finally going to develop through our annual P&L?
AnkeGroth:

If we look at this here, Philippe, the positive development is primarily driven by our crisis measures which we have put in place. So cost saving bonus reductions and so on and the positive EBIT contribution from our internal service companies. For next year, I would say the corporate costs are more on a similar level as in 2019, plus some additional costs for what we would call strategic projects. And that's somehow cause the swing.
PhilippeLorrain:

Okay, but these costs that are going to come on top perhaps like for the strategic projects, are they like more of a temporary nature, i.e. you want certain measures have stopped bearing fruits, these costs on disappearing or they are actually structurally in the P&L.
AnkeGroth:

Now, they're structurally, we have shifted some strategic projects into the central services and they will stay there.
Operator:

The next question is from the line of Glynne from Stifel.
UnidentifiedAnalyst:

Yes, thank you very much for taking my question. Actually, I have two of them. Gordon, you gave the guidance for the global industrial truck market was around mid single digit figures for 2021? Can you give us a ballpark figure for European estimates that went into that guidance?
GordonRiske:

No, we don't really specify; what I did say is we do expect Europe to come back. But that's the overall global market. And China will come down a little bit versus 2020. No, but that's the overall global situation.
UnidentifiedAnalyst:

You gave us a little bit of color on the drivers behind the relative underperformance of KION in 2020 in the European market. This by verticals, you also mentioned the rental fleet and your dealership exposure. When you look at the first eight weeks of 2021, can you lift the curtain a little bit of what you're seeing on these within your portfolio? How are they doing into the New Year?
GordonRiske:

Yes, it still is a new year, as Anke said in trading I think I mentioned in the presentation; Q4 was a record for us. And that momentum is unbroken. Let me put it that way.
UnidentifiedAnalyst:

And on the ROCE suite and your dealer in the first eight weeks has been a step change that could be meaningful year-over-year.
GordonRiske:

No, I'm just saying it was a very solid momentum in the fourth quarter that has pushed its way into 2021. So the market is robust at the moment. And we hope it keeps up this way and people don't start shutting borders to countries and that kind of stuff in the next weeks.
Operator:

The next question is from the line of Peter
UnidentifiedAnalyst:

Yes, hello, Anke and Gordon. You have order backlog in supply chain solution of more than EUR 3 billion. So, considering the strong increase in material costs to what extent are you hedged in purchasing components and materials or to what extent you have the opportunity to pass on this higher cost to your customers.
AnkeGroth:

Yes, we are not hedged and we think exactly in SCS, it's potentially easier to pass increased costs on if you are having a new project in front of you and for the already order intake, it depends on the closest you have with the customer. And for new orders, of course, it also depends a little bit on the competition, but everybody is facing the same increase of raw material prices.
UnidentifiedAnalyst:

Okay, but for the existing projects, which have long throughput times partially ranging into 2022, there might be some risk of cost overruns.
AnkeGroth:

Yes, that might be also on not only on the ITS side, but also SCS facing headwinds with respect to raw material cost increases.
UnidentifiedAnalyst:

Okay, so to what extent you have included in your guidance for 2021 in the margin guidance, which is considerably up, the strong increase in material costs.
AnkeGroth:

It's nearly the same amount as on the ITS side, I would say potentially slightly lower.
UnidentifiedAnalyst:

Then a housekeeping question regarding PPA was EUR 91 million in 2020. What is outlook for 2021? Is it going down and to what extent?
AnkeGroth:

It's going down, I think, to roughly EUR 80 million - EUR 81 million and then it will also stay on that level. We have no further questions. I hand back to Mr. Gordon Riske for closing remarks. Please go ahead.
Gordon Riske:

Yes, thank you all for participating in our update call here for the full year 2020. And all the questions and we look forward again to speaking with you at roadshows or wherever we can. And then the upcoming Q1 2021 results in April.
Operator:

Ladies and gentlemen, the conference is now concluded. And you may disconnect your telephone. Thank you for joining. And have a pleasant day. Goodbye.

KION GROUP AG Q4 2020 Earnings Call Transcript

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KION GROUP AG
Q4 2020 Earnings Call Transcript