Good morning, ladies and gentlemen, welcome to this news conference. This has been exciting morning for us. Of course, we first published our full year 2017 financial statements release. In addition to that, we have signed an agreement to buy the major businesses from Norwegian TTS Group. In this news conference, we will of course first go through the group development, and our CEO, Mika Vehviläinen will take care of that. Our CFO, Mikko Puolakka, will go through the business area development, financials, dividend and outlook. After that, Mika will continue with this acquisition.
Thank you, Hanna-Maria. Good morning from my behalf as well. Thank you for joining for Cargotec 2017 review. First of all, 2017 was a fairly good year for Cargotec. We made progress in many areas, although we didn't meet quite all the expectations we had set for ourselves in 2017. From the operating profit point of view, this was a record year for Cargotec. Best operating profit on a quarter and best operating profit in a year on Cargotec's history. I'm especially pleased with the progress we have been able to make with Hiab, with the strong growth continuing and further progress also in the operating profit. Kalmar's sales and orders declined in 2017 and in Q4. This was primarily caused by the decline in larger project orders and revenues.
However, I'm pleased with the fact that we've been still able to further improve the operating profit in Kalmar as well. I'm also very satisfied with the fact that we can see the continuing recovery, especially in the merchant side in MacGregor, with the further order increases in second half of the year. Also very happy that the M&A pipeline that we have talked about, for example, in connection with our Capital Markets Day, is now starting to deliver, and we have a number of attractive acquisitions that we have announced during 2017, and especially the TTS announcement from this morning. I will come back to those ones in a moment as well. Let's start with the market environment. In the container and port business, the market environment is quite interesting.
Actually, the macro picture is one of the best we have seen for multiple years. The container traffic grew at a very strong rate at 6% during 2017. We overall see the container traffic and the world trade recovery to be in a good shape. However, this has not clearly led to a number of orders, we might have expected in this area. Overall, if I look at the situation, I sort of have to sort of look at the expectations we had at the end of 2016 and early part of 2017, where we have seen a strong interest in automation and larger investments by the customers. The reality of the matter is that the automation itself is actually making progress at the moment.
We actually signed two automation deals in Q4 2017. We have signed an additional deal in the first part of this year already. Customers are clearly still interested in automation. They are sort of progressing with that plan. It's happening more in a phased approach than we expected still about 12 months ago. I'm satisfied for the fact that we are opening customers, we are getting important references and important breakthroughs in automation technology. The value of those deals has clearly been lower than we expected. I would say that the three automation deals we are talking about have been on both sides of EUR 10 million or so.
There are still opportunities for individual larger deals, but they are fewer clearly than we expected while ago, and we clearly see a more phased sort of brownfield type of development happening in automation and port investments. However, the demand in the equipment side is still continuing strong. On Hiab side, the construction industry activity development remains strong in Europe, and we see the U.S. demand remaining at a strong level. In the marine side, in MacGregor, we clearly see a slow recovery happening, especially in the merchant side. In 2016, 579 ships or merchant ships were ordered. Last year, 883 merchant ships were ordered. Clarkson estimates that more than, slightly more than 1,000 merchant ships will be ordered in 2018.
The offshore side, clearly with the recovery of oil price, is showing more interest at the moment, it clearly has not turned into the orders for us at the moment. We expect that recovery still to be remaining slow in the coming years. Overall, fairly good progress, especially in Hiab. If you look at year-on-year, good progress overall in Hiab. On Q4, orders increased only slightly. However, we had a EUR 120 million large order in Hiab in Q4 last year. Looking at the sort of individual streams, very good progress overall in Hiab as well. The year-on-year recovery continued strongly in MacGregor, especially driven by the merchant side.
In Kalmar side, we grew orders somewhat sequentially, but we were still down year-on-year. This is really primarily driven by the drop in larger project orders. If I look at the order book, we clearly have declined from the previous year. One needs to be, however, careful of drawing too many conclusions on the impact of this one into the revenue. The mix of the order book has clearly changed towards shorter cycle business, i.e. equipment business, where we expect to recognize the revenues much faster.
The proportion of Hiab and the proportion of the Kalmar mobile equipment has increased in the order backlog and the proportion of MacGregor projects, as well as the Kalmar larger projects where the revenue recognition takes time, over longer time has declined and hence one needs to be careful of drawing too many conclusions of this revenue or order book decline in our revenues for 2018 as well. As said, very satisfied with the progress we made in operating profit, record high year, record high quarter for us, and obviously especially pleased with the progress in Hiab. Also, pleased with the progress in Kalmar in terms of still improving operating and profit despite the decline in revenues.
If you consider MacGregor performance overall in 2017, where we lost nearly EUR 200 million of top line revenue in a year, I'm very satisfied for the work we've been able to do in MacGregor in protecting the profitability almost at the same level as year before. The biggest driver for the improving operating profit is still very much with the gross margin development, while we still continue investments in digitalization, software, and our other business platform investments that are keeping our fixed costs relatively high. You can see a clear improvement again from 2016- 2017.
I would say every single project and product line is certainly still improving the gross margins, but also the jump from 2016- 2017 is partly explained by improving mix, higher proportion of software and services, but also in equipment side, the more favorable mix is also contributing to the progress we are making in the gross margin development. In services and software, we are making good progress in both areas. Although the headline numbers in services don't look that attractive, I'm still relatively satisfied with the progress we have made in there. Although the Kalmar growth in services showed to be only 2%, if I exclude the project related crane upgrade services, which declined quite strongly in 2017, the core services, i.e.
the maintenance, spare parts, and other related services in Kalmar grew actually more than 5% from 2016- 2017. Hiab recovered from some of the operational issues we had earlier in this year. The growth in services in Q4 was around 6% and overall annual growth was at 4%. This was still done against the declining installed base. We, as we have said in connection of Capital Market Days, we expect Hiab installed base actually start to grow towards the end of 2018 due to a stronger sales performance in the last few years. MacGregor overall services declined.
Again, if you look at under the hood, the actual merchant-related services grew already at 7% from 2016- 2017, but we still experienced strong decline, especially project-related services in the offshore side. Software sales grew 7% from 2016- 2017. The growth rate was not quite as strong as we had seen in the previous years. This was caused partly by the lack of, or decline in the automation software sales and partly also the impact of U.S. dollar as most of our software sales are actually recognized in U.S. dollars. However, I would have to say that in the software side, strategically, we made great progress in 2017.
XVELA, the digital platform for the container industry, was able to secure five new customers out of the top 20 carriers or shipping lines in the world during 2017. We are very pleased with the progress and the prospects we have ahead of us of deploying XVELA as a true digital platform for the container industry. Overall, the proportion of services and software grew from 29%- 31% on our way towards the 40% target we have set for ourselves. In M&A, number of exciting attractive deals were done during 2017. Rapp Marine, which is expanding MacGregor presence in the sort of adjacent areas around fishery and research vessels was actually closed this Monday.
It will give us an additional revenues of roughly EUR 40 million and about 30% of the revenues are in services. Argos is one of the leading loader crane manufacturers in Brazil and that deal was done by Hiab during 2017. We're actually looking at prospects in Brazil and the recovery of Brazilian market quite favorably moving into 2018. In the services side, Kalmar concluded a deal with Inver Port Services, which is a service operation in Australia, where we already today have a strong operation and installed base, also including multiple automation projects with additional revenue of about EUR 5 million there.
Obviously, on top of this one, we have today announced a deal to acquire TTS Marine Operations, and we will cover that in a separate presentation at the end of the, or after Mikko has covered the financials more in detail. That's the short sort of summary of the 2017. I'd like to hand over to our CFO, Mikko Puolakka, to go through the numbers a bit more in detail. Thank you.
Thank you, Mika. Also good morning from my side. Let's start with Kalmar, where the quarter four operating profit in absolute terms was actually the business area's best-ever quarter. The highest profitable quarter. Orders declined in Kalmar in all regions, and pretty much like Mika said, in the automation and large project orders. Like Mika indicated, we got in quarter four two automation orders, and now in January, another third one. There are deals available just coming in smaller sizes. Looking the sales for quarter four, the supply situation stabilized. Actually the quarter four deliveries went very much according to our own expectations. Quarter four operating profit improved nicely, up by 7%, very much driven by the mobile equipment and Bromma improved profitability.
As a note, when you look, Kalmar's total sales, 75% of Kalmar's business is coming actually from that kind of businesses which are already having, as of today, more than 10% operating profit. Moving to Hiab, where we had actually a record quarter and also a record year. Very good quarter in all indicators. The supply chain topics, issues have been stabilized. They are not off the table, but we have been able to deliver also in Hiab according to our expectations. The lead times are fairly long at the moment, due to the supply chain issues, roughly 15-17 weeks at the certain product groups.
Orders were very strong, 9% growth in EMEA and especially in the loader cranes, the demand has been very good. Sales were also up by 9%. As mentioned, we were meeting our own expectations what comes to the deliveries after the challenges in quarter three deliveries. Services grew by 6%. As Mika indicated, not only in spare parts, but also in service contracts. In quarter four, we did in Hiab almost EUR 40 million operating profit, a remarkable 21% improvement. Very much thanks to higher sales and a favorable mix.
On a full year basis, Hiab made EUR 157 million operating profit, which is the highest in Hiab's history, and that represents 12% year-on-year growth. Moving to MacGregor, where the orders continued to grow. We got a large oil gas distribution deal in Bangladesh in quarter four. However, sales continued still to decline, very much driven by the past low orders. The new orders are going to generate additional revenues later 2018, early 2019. Service sales declined in MacGregor, and this came actually solely from the offshore services. The merchant shipping services grew by 7% year-on-year on full year basis.
Quarter four, profitability improved in MacGregor, and this is very much coming from the mix, i.e. higher service share, and the significant cost savings, reductions what we have been doing in the past couple of years. Like Mika said, EUR 200 million less sales in 2017 compared to 2016. Despite that, we have been able to more or less maintain the profitability in MacGregor. The previously announced cost savings programs are proceeding according to the plans. We made approximately EUR 10 million savings in the corporate-wide EUR 50 million program, mainly in the indirect procurement area. From that program, we expect this year approximately EUR 30 million restructuring costs for 2018.
MacGregor restructuring programs have been completed, basically the savings should be fully visible now in 2018. Also in Kalmar, we have completed the production transfer from Sweden to Poland. All Kalmar forklift trucks are now delivered from 1st of January onwards from Poland. Looking our key figures, orders totaled EUR 3.19 billion in 2017, -3%. Sales declined by 7%, and were EUR 3.28 billion, very much driven by the decline in MacGregor sales. Our operating profit was EUR 263.2 million, and the earnings per share were EUR 2.11 per share. As you have seen our dividend proposal, we are proposing to distribute 50% of that EPS as dividend.
Our cash flow was EUR 253 million for the full year of 2017, very much impacted by two reasons. To increase the net working capital, especially in Kalmar and Hiab, due to the earlier part of 2017, net supply chain issues, and then lack of large project orders in Kalmar and the related low advance payments. Our balance sheet is very strong. We had at the end of the year, more than EUR 300 million of cash. Our gearing declined to 33%. Balance sheet is very much supporting the strategic initiatives like the M&A activity, as you could see also this morning. We are not having any major debt repayments also in 2018, so from that point of view, a very solid position.
Looking the Return on Capital Employed, we improved ROCE to 9.8%. On the long term, our target is to reach the 15% Return on Capital Employed. The main driver for the Return on Capital Employed improvement in 2017 is coming from the improved operating profit. The dividend proposal by our board of directors to AGM is EUR 1.05 per share, per B share. The proposal is that the dividend is paid in two branches, one in March and the other one in September 2018. This EUR 1.05 represents a 50% dividend payout ratio, and it's 11% improvement from 2017. The 2018 outlook.
Based on the current market situation, we expect that the operating profit, excluding restructuring charges, is to improve from 2017. As a side note here, we are applying also the IFRS 15 principles from first of January 2018 onwards. We don't expect any material impacts from the restatements for the 2017 results from the IFRS 15. We are going to publish the restated numbers by the end of March 2018. With those words, I would hand over back to Mika concerning our latest news in M&A.
Thank you, Mikko. A few words about acquisition that we announced this morning regarding MacGregor buying the marine and offshore businesses from TTS Group. The strategic rationale for acquisition is really threefold. First of all, it will give us industrial synergies. Secondly, it will give a stronger foothold and strategic position for MacGregor in China. Thirdly, it is very complementary and synergy effecting in terms of the services with the strong installed base by both companies. If I look at the synergies, we estimate at this stage, the synergies to be in the ballpark of EUR 30 million-35 million on annual basis. TTS has two strategic joint ventures with the two largest shipbuilding groups in China, CSSC and CSIC.
With the sort of protective movement going on in shipbuilding at the moment, that will give us clearly a stronger position moving forward in China. In terms of the services, the installed base of TTS is estimated to be roughly 9,000 vessels. With the combined with MacGregor, that will give us an estimated installed base of 25,000-30,000 ships that enables, of course, that to drive even more effective services operations for the combined entities. TTS as a setup is actually fairly similar to MacGregor. Both companies have a very little of manufacturing and are primarily on engineering and project management operations. TTS employs today roughly 930 people. The product portfolio is very complementary to the MacGregor.
TTS is stronger in the heavy crane side, they also offer a number of crane products in the merchant side and offshore side that MacGregor is not having today. In terms of financial summary, please note that these are numbers for the first three quarters of 2017. TTS is announcing their Q4, if I remember correctly, at the 14th of February. By that time, we obviously have a better view than on the annual level of that one. Also another footnote here to note is that today, TTS is fully consolidating both joint ventures or the three joint ventures they have with the two partners in China.
We would have to deem ourselves after the closing of the deal, whether we still want to further consolidate those numbers or whether we do just economic value, that obviously doesn't change the deal and deal valuation or the business case for the deal as such. We will have to come back to that one later on. Transaction highlights, this is an asset deal. Effectively, TTS ASA will remain. As such, the headquarter operations will remain with the seller, as well as then the TTS Syncrolift AS, which is a shipyard operations, all related marine assets, all the equipment, deck equipment going to the merchant side and offshore assets are part of the deal. The total consolidated purchase price is debt-free and paid in cash is EUR 87 million.
We will obviously finance this from our available cash and required for financing as such. More than two-thirds of the TTS shareholders have already committed to support the deal. This will require an extraordinary annual general meeting from TTS, but as it is an asset deal and not straightforward share acquisition, two-thirds majority will be adequate for the approval in the annual general meeting. The deal is expected to close in Q3, of course, depending on the competitive authority and other regulatory approvals. I think we are ready for questions and answers.
That's great. Thank you, Mika. Thank you, Mikko. If Mikko, you could also come here. We will start with the questions from Ruoholahti. Are there any questions from Ruoholahti? If not, we will continue with the international questions.
Thank you. If you would like to signal for a question, you may do so by pressing star one on your telephone keypad. Please ensure the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find your question has already been answered, you may remove yourself from the queue by pressing star two. Once again, that's star one to ask a question. We'll take an opening question from Leo Carrington of Credit Suisse. Please go ahead.
Good morning. Thank you. I've got a couple of questions on Hiab. On the strategy, how much growth do you think is left in mature markets, and how long before you anticipate emerging markets taking greater share of your orders? On a related note, how's the new product pipeline shaping up for Hiab? According to my notes, you launched 45 in 2015, 54 new products in 2016. How is this kind of momentum into 2018? Thank you.
Thank you, Lee. I think still for the next few years, the majority of the revenue and orders will be coming from the developed markets, primarily from the U.S. and European markets. As you saw the note on the Brazilian market, even though the Argos is one of the market leaders, the revenue was only around EUR 6 million on that one. We do expect the Brazilian market to start to recover. We are looking at the different ways to also expand our position in other developing markets. That will be driven by the changes in the markets and the penetration going up. However, I would think that move is gradual, and I would be expecting that visible impact coming only in the next few years.
The U.S. market has remained still at the, at the strong level also in 2017. For example, the truck registration expectations for 2018 are still quite strong. We saw very strong development that we expect to continue also in the, in the 2018, especially in the European market. Regarding the product, areas, we will certainly slow down the number of product introductions. We have now renewed very large part of our portfolio, and obviously there is a sort of time limits how often you want to actually renew your products.
It's very clear, especially Loader cranes, where we have done a number of new product launches that has continued to result in a very strong order intake in our Loader crane business that has then actually caused us some supply chain related issues in the Poland. We are now recovering and stabilizing the situation there. The Q4 order intake in Loader cranes was again a very strong one.
Thank you.
Thank you.
We will take our next question from Manu Rimpelä of Nordea. Please go ahead, your line is open.
Good morning. My first question would be on this acquisition that you're announcing. Could you just help us understand better the synergy, the number that you are giving, EUR 30 million-EUR 35 million, as that sounds fairly high in comparison to the potentially EUR 200 million of annual sales of the business you have. Just kind of walk through what kind of overlap do you have in manufacturing plants and what kind of details or calculation do you have behind that number?
We ended up in the number in two ways. Obviously, we have done some of our own desktop analysis, understanding the operations, but as it is a competitive situation, we then have used an external third party as a sort of clean team to actually assess and verify that number. They have also confirmed and landed at pretty much in the same number. We have a fairly high level of confidence in terms of being able to reach that one. That really comes from the overlapping operations. If you look at the financial, sorry, the geographic setup of TTS, they operate very often in the same locations as we do.
In the services side, we have two clearly overlapping organizations that we are able to drive synergies and enhance our sales and services portfolio. That's very important part of that one. I would say it's overlapping operations in certain areas, overlapping locations, then a strong overlap in services organizations that are the main drivers for that.
Okay. Thank you.
maybe.
And then, uh-
Manu, one point in that one, obviously it sounds relatively high compared to revenues. One needs to recognize again that both MacGregor and TTS have had considerably higher revenue numbers in the past year. You are now looking at the revenues probably at the bottom or towards the bottom of the market as well. That's why the comparison looks maybe somewhat odd as well.
Okay. Can you then comment on your sales outlook or lack of a comment on the sales guidance for this year? Why are you not providing that? How should we think about the backlog being down, I think it was something like 13% on a year-on-year basis, and how is that split between 2018 and beyond 2018?
We didn't give a sales guidance for 2017 either. I think the operating profit is obviously the one we are after. It's also, frankly speaking, somewhat difficult to forecast the sales. It depends obviously on the market demand in Hiab, but in the mobile equipment, where the cycles are relatively short, three to six months, so we don't have a full year visibility on that one. Also in MacGregor and Kalmar, in the project businesses, obviously cycles are longer, but with the BOC recognition and having an uncertainty where, when and where those leads will land, we just don't have clear enough visibility to be able to give a sort of guidance on the revenue at this stage.
Can you just walk us through the key kind of moving parts on the operating profit front, then, if you have a risk for declining sales in 2018? What levers do you have to improve the EBIT?
I think the key elements are first of all, you have seen the continuous improvement in our gross margins. That's done on the product level, product line level and project level. Those efforts are continuing. We have clearly enhanced and accelerated our R&D in the years, and that's delivering more cost effective, better products. With the sort of current demand environment, we can have a more pricing discipline that will also help. So we expect still expanding margins there. We expect a better business with the further growth in software and services to help on that one. In addition to that one, Mikko walked through the different cost saving initiatives that are delivering a more effective or efficient operations in 2018 as well. It's a combination of those factors.
Okay. Then a final question. Can you just comment on the M&A pipeline and how do you think about the balance sheet? I mean, you've obviously done several smaller mid-sized acquisitions in the past year. Where kind of do you see that? How much are you willing to gear up the balance sheet if you start getting more opportunities in this market?
The balance sheet of course, is in a very strong position. Our gearing was at 33%.
33.
33%. We have quite a lot of headroom at the moment. We have in the past also gone over the gearing if the business cases are there available. I would say the short to medium term, we are not really driven that much by the gearing. It's a more long-term target. If there are attractive enough cases available, we would obviously go after them, even with the sort of exceeding the gearing limit if that's necessary. However, a lot of the targets we actually see visible at the moment would be size-wise such that that would probably still fit within the current headroom we have available.
Thinking the headroom, the 50% gearing, long-term target, that would mean roughly EUR 300 million additional debt, before we would be reaching that level, so.
Okay, thank you. No further questions.
We will take our next question from Johan Eliason of Kepler. Please go ahead.
Yeah, hello, and congratulations to what looks like a good deal on TTS. Paying less than 3x your expected cost synergies, sounds quite attractive. If you look at the backlog profile of TTS versus MacGregor, is it roughly the same or is it very short, or can you give any sort of indication on how to expect the revenues in TTS to pan out? Thank you.
If I look at the revenues in TTS, they have actually remained, they have declined similar to the MacGregor, of course, due to the market environment, both in merchant as well, very much in the offshore as well. They've been able to retain or, let's say their decline in revenues in the past two years in merchant side has been somewhat slower than MacGregor. That's primarily due to their stronger market position in China. They are recognized due to the joint ventures as a Chinese equipment and system providers. That has helped them in the current scrap and build policy. That has been one of the drivers for us for the acquisition as well, is to enhance MacGregor relative position in the Chinese market.
The recovery obviously is very much related to market recovery and we would expect that to be sort of similar in terms of profile.
Perhaps to add to that...
Very good.
also thinking the TTS.
The service, share in TTS is clearly lower than in MacGregor, so there are opportunities also to boost the service sales there.
Yeah. Good. Talking about these Chinese joint ventures, you obviously already have one with Rainbow Heavy. How will this pan out? Will you continue with Rainbow or will there be a problem there?
The Rainbow Heavy cooperation, Rainbow Heavy has been a sub-manufacturer for MacGregor, and that continues. We have a joint venture, RCI, that is actually primarily focused around the Kalmar cranes. We are manufacturing all the heavy cranes today in the joint venture in China, and that work obviously will continue. It will not have a direct impact into the Rainbow Heavy and all the joint venture we have in China.
Just on the deals with TTS, you say two-thirds of shareholders have sort of committed to this deal. Is that what is needed at the AGM, or do you need further shareholder acceptance as well?
No, that's because it's an asset deal. The two-thirds majority in the AGM is enough to secure the deal.
Okay. The only thing remaining is antitrust really.
Exactly.
Yeah. Just on Hiab here, you say you will slow down the product introductions. You have had a lot of good products introduced recently, et cetera. We know that the currency will take a heavy toll on them this year, assuming that the dollar is as weak as it is. Do you think Hiab can still improve the margin this year, or is just the EBIT growth that remains for Hiab for 2018?
I think we will see further good progress in Hiab in terms of the product margin development. We see a strong demand continuing in or developing further in Europe. We see still the U.S. market remaining strong, but it's very clear that the headwind in U.S. dollar is fairly strong for us today. We indicated in connection of the capital market that it will be in the range of $15 million-$20 million. Obviously since then, the U.S. dollar has further weakened. If you looked at all together, I think it would be optimistic to think that we would be further able to enhance Hiab's already excellent margins. I think, sort of aiming to remain at this year level would be a good achievement for us.
Yeah. Good. Then just on Kalmar and the lack of orders. I think Mikko has sort of earlier alluded to that, if you don't get the orders in the first half of 2018, you will take corrective actions to mitigate the effects on the EBIT line. What's your view right now? Are you preparing for this?
I'm actually pretty optimistic in terms of where we are at the moment. The I clearly sort of had to eat my words in terms of where, what we were expecting at the end of 2016 when we were looking at the automation large project pipeline. Many of those deals are actually realizing. Some of them have realized, but the volume of those initial deals was clearly lower than we expected still 12 months- 14 months ago. Customers have taken clearly a more conservative, a more careful approach. I'm still very pleased for the fact that the three automation deals that we have now secured in the last few months all have a significant pipeline and prospect possibilities to expand to very large deals.
The initial deal sizes have been clearly lower than we expected, sort of some of them being below, some of them slightly above EUR 10 million. They are not particularly visible in our sort of ordering intake at the moment. At the same time, the demand on the sort of lighter equipment side on that EUR 1.2 billion is remaining strong.
Okay. taking these smaller deals on automation, will we have to wait like the one year or two year or three year before you think that could turn bigger or what's the sort of trial period here for those?
It really varies from deal to deal. Some of them are more sort of, I would say people are trialing out the automation systems just on the one part of the port, and depending on their then findings, they will make further decisions. Some of them are more a question of phasing the project to multiple different phases where you would expect kind of steady flow of the deals happening forward. It's a mix of different things. There are still larger deals, but much fewer than we expected a while ago available that we will be aiming to gain this year.
If I understand you correctly, you are not for the time being at least, expecting to slow down the R&D and software investments in the Kalmar division?
No.
to preserve the EBIT this year.
I would say almost vice versa in a sense that the deal flow we are seeing now that we have already secured has a significant sort of technology commitments that we have in there.
Okay. Just one final question on MacGregor. You mentioned merchant services growing quite nicely and offshore being very weak. Is there any further downside risk to offshore-related services or are we basically almost at zero here?
Well, you know, you can only go to the zero, I guess. The numbers start to be very small. It's obviously partly coming from sort of basic maintenance work with so many dormant ships and platforms in offshore. The biggest decline came from a number of offshore-related services projects that were very, very few available in 2017. I would say that the further decline, if that happens, will not be that significant from the numbers point of view because we are so low now.
Okay. Thank you very much.
Thank you.
We will take our next question from Magnus Olsvik of UBS. Please go ahead.
Hi, Mika. Magnus here with UBS. Thanks for taking my questions. First on higher growth rates. Could you give us some flavor on how the like for like growth developed across the different regions in Q4 compared to Q3, please?
If I now remember off the top of my head, the European orders increased by nine points. We had a 6% decline in U.S. However, this EUR 20 million large deal we had in Q4 last year was a U.S. order, that explains the decline in that sense. We saw still, outside that large deal, a steady demand continuing in U.S. and further strong growth in Europe. In terms of the product-specific growth, clearly the strongest growth at the moment is in the Loader crane segment.
Okay, got it. Could you give us an idea of what those growth rates were in Q3?
In Q4, we haven't given a product line specific, they were double-digit numbers on that one. In U.S., we also saw grow, sort of, slowdown of the truck-mounted forklift type of products, where a lot of the sort of, renewal projects were coming to an end. We saw strong growth continuing the loader crane segment in U.S. as well. Double-digit growth across the board.
Okay. Got it. Was there a comment on Q3 or growth?
Q4.
by region?
Quarter four.
Quarter four.
Quarter four.
Q4. Okay. How was, like, on Q3? What was the regional growth rate in Q3?
I, Hanna-Mari can check that, but, we had a growth in Q3 in Europe, definitely. I think you.
I think it was 37% in orders-
Yeah.
in May, in Q3.
A 37% orders in Q3. Yeah.
Excellent. Also, did you see any costs associated with the supply chain issues in here when the quarter was?
Yeah. I mean, obviously we had to take extraordinary measures in both Hiab and Kalmar to recover from situation. There were some costs associated those one, but I would say that they were not significant. Probably EUR 1 million here, EUR 1 million there. Yes.
Got it. Thank you. Finally, I know you commented a little bit on the FX impact. Could you favor us with a guess of what that impact might stand at now?
I mean, as I said, based on, based on the Capital Markets Day situation, it was between EUR 15 million-EUR 20 million. Based on the further declining of the U.S. dollar, one can add some EUR 5 million to that. Of course, we try to do all countermeasures as well as much as possible. Some EUR 25 million at the moment, compared to EUR 15 million-EUR 20 million when we were in Capital Markets Day in London last autumn.
Okay. Got it. Thank you so much.
Thank you.
We will take our next question from Erkki Vesola of Inderes. Please go ahead.
Hi. Hi, guys. A couple of question regarding Kalmar sales. It seems that the equipment sales did not grow in Q4 either or less than 2%. Do you actually see the bottom now you're facing in Kalmar sales? Is there any particular reason behind this why the sales didn't grow, equipment sales didn't grow faster?
Obviously part of that one is dollar-related. The equipment sales in the U.S. are also a significant part of the revenue, especially in products like terminal tractor on that one. I wouldn't say that there were anything specific. We had a pretty strong Q4 in 2016 in the equipment sales as well. Overall, I mean, that part of the market is primarily driven by replacement market anyway. We are not expecting a large sort of variations in the or the significant growth in that sale happening either. The demand in the port side in that equipment is remaining steady. It's really driven, as I said, by replacement market. The industrial sector actually looks quite strong as well.
Okay, thanks. Then about TTS. Could you tell us how big TTS exposure to offshore is? I mean, if offshore does not take off in a quite a while, as you indicated.
I can't remember the specific number on top of my head, but they have seen a very strong decline in their offshore business as well. Hanna-Mari might have the actual number.
My understanding is that the share of offshore in net sales is between 10%-20%. Quite small offshore business.
I know. Yes, obviously it's crashing the bottom as we speak.
Okay, that was all from me. Thank you.
Thank you.
As a reminder, it's star one to signal for an audio question. Our next question comes from Antti Suttelin at Danske Bank. Please go ahead.
Hello, this is me. Antti, I would just like to ask the building blocks of your improving EBIT for 2018. Can you first of all, tell me if are you including TTS in your guidance or not?
We are not included TTS, but we do not expect TTS to have a significant impact into the guidance either.
Okay. Then I would like to ask about the building blocks. I know that you have restructuring programs ongoing. I think you have four programs ongoing. My question is how much would you expect these four programs to give savings 2018 versus 2017? How much these programs generate 2018 versus 2016, 2017?
Firstly, if we think this corporate-wide program, we expect some EUR 10 million further savings from that program versus the 2017 EUR 10 million. Kind of additional EUR 10 million on top of 2017 there. In Kalmar. Kalmar, as I mentioned, we have completed the production transfer from Sweden to Poland. That's expected to yield EUR 13 million for Kalmar. All MacGregor cost savings programs have been completed. That is basically on annual basis, EUR 25 million, which very much is used to kind of offset the sales decline, or the still low sales. Those are basically the main restructuring programs, what we have.
Of course, if we see areas to improve in the cost side, of course, we take very prudent look on those also in 2018. As said already,
You.
Go ahead, Antti.
Yeah, just is this EUR 25 million, is this incremental 2018 versus 2017? Or was this visible already in 2017?
Some of these MacGregor programs actually were completed by the end of last year. They will be also reducing 2018 numbers. It's not fully impacting 2018, but a big portion of that is coming to MacGregor's cost reduction still in 2018. As I said, these are also offsetting the low sales still as the new orders are not yet generating significant improvement on the sales side.
Okay. You have these restructuring savings, on the positive side, you have weaker U.S. dollar, you have falling sales because the order book is so low. You think that the conclusion of these three factors will be improvement in EBIT?
Absolutely. Again, as I said in the, yeah, the order book doesn't look pretty in that sense because we are missing the larger project orders and the MacGregor orders still declined, although we have started to now see the recovery on that one. Again, because the mix of the order book is very different, it's the shorter cycle and also higher profitability order book than we had in the compared to 2016. One can't draw a direct conclusion between the order book and revenues as such. Obviously very much depends on the shorter cycle business, how the orders pan out then at the sort of, during the year. We expect the mix to be more favorable. We have seen a good growth rate in Kalmar core services. We expect that growth to continue.
We saw 6% growth in Hiab services in Q4. We expect those services to continue to increase. Also I think we already started to see a recovery on the merchant services in MacGregor. The services and the improving mix will be a big contributor for the EBIT improvement in 2018 as well.
Yeah. All right. That's all. Thank you.
Thank you. Thank you.
We have a follow-on question from Manu Rimpelä from Nordea. Please go ahead.
Thank you. Follow-up would be actually a follow-up on Antti's question. Can you specify the P&L impact of this cost savings program in your 2018 P&L?
From the corporate-wide, EUR 10 million, from Kalmar, savings program EUR 13 million because it was completed at the end of December 2017. From this, MacGregor EUR 25 million program, I would say roughly half would be visible in 2018.
Okay. Then a similar question for the acquisition of TTS. Did you comment about the potential cost that you're expecting here related to these achieving the synergies?
We haven't commented on that one. We will clarify further the synergies as well as the potential restructuring cost once the sort of required authorities and closer to the closing of the deal.
When do you expect this to close?
Of course, it depends on the authorities and their timeline, but we have initially estimated that to be in Q3.
The potential integration of the assets could still happen at the, during Q3 18 or Q4 18?
Yeah. If the closing would happen in Q3, it would be certainly that some of the restructuring costs would already land on the 2018 for sure. Yeah.
Okay, thank you.
As a final reminder, yeah, star one to signal for an audio question. We will take our next question from Johan Eliason at Kepler. Please go ahead.
Yeah, just out of curiosity, Palfinger walked away from the TTS deal and now you are doing it. Are you less risk-averse?
I think the business is, and I can't comment on Palfinger's behalf, but we see a great economic value in this deal. Businesses are highly complementary. There are real, I think, opportunities in all three areas in terms of the industrial synergies, in terms of the services where we are serving with the complementary and overlapping services portfolio, much bigger installed base. Thirdly, the sort of a stronger presence, strategic presence in China. We are sort of very excited about the opportunities of this deal.
You're not seeing any major issues, or is there a specific reason why you're not taking on the shipyard operations?
We are not serving shipyards overall. First of all, the seller was interested in remaining in that business, and secondly, that would have been outside the current scope of our offering anyway. We acquired the businesses that are serving the merchant and offshore marine markets.
Okay, thank you very much.
Thank you.
We have no further questions in the queue.
Thank you for the active participation in this conference call. Our Q1 result will be published on April 24th, looking forward to see you then. Thank you.
Thank you.