Good morning, everybody, and welcome to this news conference regarding Cargotec's Financial Statements Review 2016. My name is Hanna-Maria Heikkinen, and I'm in charge of investor relations. Year 2016 was a good year for Cargotec. Our operating profit, excluding restructuring costs, continued to increase and actually reached the highest level during Cargotec's history. Also, our cash flow was strong. Today, our CEO, Mika Vehviläinen, will first go through the Group- level development, then our CFO, Mikko Puolakka, will continue with the business areas and financials, and then Mika will finalize with the strategy and outlook. Mika, please, it's time to start.
Thank you, Hanna-Maria. Thank you for joining this Q4 conference call and meeting here in Helsinki as well. As Hanna-Maria has said, the year 2016 was good or at least satisfactory for us in Cargotec. We are pleased that the continued improvement in operating profit, if you look at the development from the 2013 until today, especially taking into account that the sort of the most profitable part of the business in the past years, MacGregor, is clearly suffering from a very strong down cycle in the shipping area. I'm also pleased that the fact that we've been able to drive the operating profit up into the new record in 2016, whilst we at the same time have strongly invested into our business.
As an example, our R&D investments have gone up by 43% from 2013 to 2016. Even though this is our highest operating profit, by no means this is an indication that we'll be yet satisfied with the level of the operating profit. We clearly see improvement areas and improvement opportunities in all three businesses to drive that development further. Obviously, I'm pleased with the fact that in Q4 also, the sales and profitability increased both in Kalmar and Hiab, but clearly the very difficult market situation is affecting MacGregor. The services is clearly the single biggest opportunity in next few years in Cargotec in terms of both revenue as well as profitability. The services sales in Q4 were 25% of our revenues.
I'm quite satisfied with our services sales development in Hiab, and we also started to see the program delivering effects with the 6% increase in Kalmar services during the Q-Q4. Very pleased with our cash flow generation, totally for EUR 373 million. I think it's an indication of the good underlying performance as well as our capability to take further net working capital out from our operations. Last year, the market environment varied quite a bit from business area to another. Overall, the container traffic growth continued, but at a very moderate level. However, the drivers we see for the investments are still there. It's good to know that less than half of the new giant container ships has been delivered yet, and there are a lot more to come in next two years.
This will drive further capacity requirements in container yards, about 30% capacity requirement per yard. Furthermore, the change in traffic patterns are also driving the investment requirements. We see increasing interest into automation projects, and we expect the further projects to be delivered and acquired during 2017. Obviously, with the strong consolidation in shipping market and probably also consolidation to be happening in the terminal market, this has somewhat slowed down the decision making in the ports. The construction activity has continued to be in a strong level in the U.S. We expect that market to continue at a strong level also in 2017.
Also we have clearly seen an improvement happening in Europe towards the end of the year, and that was also very visible in our Q4 numbers. The marine cargo industry or the shipping industry, shipbuilding industry, is still in a very difficult cycle situation. The end market in terms of the oil price as well as the freight rates showed some improvement towards the end of 2016, but we are still at the relatively low levels, and we don't expect that market to turn around very quickly. In terms of orders received, I'm very pleased with the order increase we saw both in Kalmar and Hiab at 13% and 11% in Q4 compared to last year. Obviously the difficult market situation was very visible in the MacGregor market development.
When you look at the order backlog, it's good to note that this is the 14% decline is very much a question of mix. The longest order backlog or the longest delivery times are obviously MacGregor, where we have seen a strong decline, whereas in Kalmar and especially Hiab, the book-to-delivery times are considerably shorter. That drives the sort of the order backlog profile. Kalmar's order backlog is actually slightly up year-over-year and Hiab is slightly down year-over-year. Overall, we still see a good healthy order backlog in both of those businesses going into 2017. Also pleased especially with the Hiab profit development. We had some certain special cost items that Mikko will cover during the Q4 in Hiab that affected somewhat the operating profit margin.
Kalmar had a healthy operating profit margin improving during the Q4. Obviously, we are managing to keep the MacGregor head above the water with the break-even results also in Q4 despite the strong decline in revenues and orders. Excuse me. One strong contributor for the improving operating profit is obviously continuously improving gross profit. This is driven by our investments into R&D with the new, more competitive and more cost-effective products, as well as the better, higher quality project management in our deliveries as well. The services, as I already said, is clearly one of the strong, and I would say the number one priority for us going into 2017. This clearly seem opportunities to drive both the revenue as well as the profitability on that one.
From MacGregor's point of view, the difficult end market has contributed to the services decline also in 2016, with customers saving in maintenance, cannibalizing existing fleet in terms of spare parts, et cetera. I'm pleased with the performance and growth we saw in services in Hiab, where the new programs are already biting in, and also pleased at the fact that the new programs and changes we did in the structure in Kalmar started to deliver results in Kalmar services also during the Q4. With that one, I'll hand over to Mikko, who will cover shortly the business areas.
Thank you, Mika. Good morning also from my side. If we start with Kalmar. In Kalmar, we had a strong quarter. Orders were EUR 440 million, that is 11% year-on-year growth. Profitability improved, operating profit excluding restructuring charges, were EUR 41.5 million. That is a 16% improvement year-on-year. Orders in Kalmar improved in EMEA. We saw nice orders in automation and project, as well as in services and software business. Order book was more or less on last year's level, service sales increased 6% in quarter four. Profitability has improved in Kalmar, both in automation and projects, in services and software. Here you can see also the Kalmar sales mix 2016.
70% of sales came from equipment and service business, 20% from automation and projects, and 10% from software. In Hiab, also strong order quarter for quarter four, 282 million EUR. That's 13% year-on-year growth. Also, profitability improved, was 32.9 million EUR for quarter four. That is a 7% improvement, and the operating profit margin improved by 1 percent unit. We had a good order intake in Hiab, especially in EMEA and in APAC, and this was very much driven by the significant number of new product launches in 2016. Total 54 new products introduced. Our sales grew in loader cranes and demountables.
As Mika mentioned in the profitability side, we had roughly EUR 4 million additional costs, which impacted the operating profit margin roughly by 1.5 percent units. Here you can see also Hiab's sales structure. Out of 2016 sales, roughly 80% came from commercial customers, 10% from large customers, and 10% from military customers. Going to MacGregor, where the market situation was very difficult. This is clearly visible also in the orders. EUR 100 million orders in quarter four, that is 44% decline. The orders decreased basically in all regions and in all divisions. We had good sales in RoRo business. Other divisions' sales declined.
However, we were able to maintain the operating profit positive throughout the whole year, even though in quarter four it was only EUR 0.5 million. Looking MacGregor's sales structure, roughly 1/3 is coming from merchant shipping and then or 75% from merchant shipping and then 25% from offshore business. We have in 2016, we had several cost savings programs undergoing, we have listed here the main impacts from those. In MacGregor's area, we expect EUR 25 million cost savings in 2017 from the 2016 cost savings programs. In INTERSCHALT, 2017 cost reductions would be roughly EUR 2 million.
We continue with Kalmar's production transfer from Sweden to Poland, to our Stargard factory. That is expected to deliver EUR 13 million cost reductions as of 2018. We continue also with several product redesign and project management development initiatives. Of course, we continue also with digitalization, automation development and the leadership development in 2017, as we have done in 2016. We will also investigate various possibilities to increase our operational efficiency in other areas as a part of normal business improvements. Looking overall financials, our full year orders were EUR 3.3 billion. That is a 7% decrease, and there basically the biggest reduction is coming from MacGregor. Sales were EUR 3.5 billion, that is -6% year-on-year.
Kalmar and Hiab were increasing, MacGregor decreased. Operating profit excluding restructuring costs, EUR 250.2 million, that is an 8.4% improvement. Also the operating profit margin improved from 6.2% to 7.1%. Earnings per share, EUR 1.95 million, the decrease from last year is mainly driven by the quite significant restructuring costs, EUR 52.5 million, which we incurred in 2016. Like Mika indicated, we had a very strong cash flow in quarter four and for the full year, EUR 373 million, as you can see, EUR 152 million for quarter four. Our balance sheet continued strengthening.
Our net debt decreased from EUR 622 million to EUR 503 million at the end of last year. That improved our gearing significantly. Gearing was 36% versus last year's 46.4%. We have a very diversified loan portfolio having different instruments, bonds, bank loans, and other loans. Undrawn facility is EUR 300 million. The maturity profile is very balanced. In 2017, we have EUR 129 million of loans maturing. Looking the long-term profitability trends, operating profit margin continued to improve, 7.11%, excluding restructuring charges. Return on Capital Employed was 8.8%, and that has been very much impacted by the restructuring charges.
Excluding the restructuring costs, the operating profit would have been, sorry, the Return on Capital Employed would have been 11.2%. Also there, an improvement trend. Dividend, our board of directors proposes to the annual general meeting EUR 0.95 per B-share dividend. That would be 19% increase versus 2015 dividend, and represents 49% dividend payout ratio. I would hand over back to Mika.
Thank you, Mikko. A quick look back at the strategy implementation in 2016. I'm satisfied in terms of the progress we made in our key must-win battle areas: digitalization, services, and leadership. In digitalization last year, we launched our own IoT cloud analytical platform and had a number of new services introduced on top of the cloud platform analytical capabilities. We actually have number of new digital services coming on stream during 2017 as well. We made very good progress in the connectivity of the equipment, where the cost points of the connectivity are coming down, and we expect actually that number of connected equipment to multiply during 2017 as well.
The acquisition of INTERSCHALT added to our services, but especially our software capabilities and gave us a very strong position in ship's own computing and software capabilities. XVELA, which is one of the largest investments we have in the software space, was in pilot phase with the most of the large shipping lines and ports during 2016, and we aim to commercialize that product during 2017. Services was a little bit mixed bag with the very difficult market conditions in MacGregor. I'm quite pleased with the progress we made in Hiab. As I said, already said, the Q4 also showed good indications in terms of our ability to start to grow services in Kalmar as well.
Personally, and part of our top management spent quite a lot of time into leadership development during 2016, and we have engaged and spent quite a lot of time working with our top 200 and 250 top leaders on that one, and we expect to expand that program to a next 800 during 2017. The key focus really in 2017 is still drive further the services growth in all three business areas. We see a number of interesting automation opportunities in Kalmar. We will keenly looking at that one. Overall, the automation pipeline looks very strong. The question is only when do we actually reach right decision-making in those projects. We also will grow further.
We are very pleased with the revenue development in software services, and we expect to sort of introduce further services and drive further software revenue also during 2017, as well as start to conclude the transformation of the production from Sweden into Poland in mobile equipment. Hiab, again, services growth as well as then the driving revenues, not only from the good demand we see in existing markets, but further expand our position in developing markets where the penetration rates of the equipment are still low, as well as we clearly see still further operational efficiency opportunities in Hiab. Overall, we still see opportunities to drive the Hiab's margin further up from the current good performance already. In MacGregor, obviously, service is an opportunity, and that probably would be the first indication of the market starting to come back.
Obviously, still very much focused on the operational efficiency in there. The market continues to be weak at the time being. We will have to see when we actually start to see the comeback on that area. We saw some uptick on the ship orders during January. The numbers are still overall very low. At the same time, we will continue to invest in certain key areas in MacGregor, such as the digitalization, with the aim to come out of this cycle stronger than we are going into the cycle. In terms of guidance, we expect our operating profit to improve in 2017 compared to the 2015 operational profit of EUR 250 million. With that one, I'd like to thank you for your attention.
Thank you, Mika. We will continue with the questions, and we will start with the questions from here, Ruoholahti. Are there any questions to Mika or Mikko? If not, we will continue with the international questions.
Thank you. If you would like to ask a question, please press star one on your telephone. Once again, please press star one on your telephone to ask a question. Our first question comes from the line of Manu Rimpelä. Your line is open. Please go ahead.
Good morning. It's Manu Rimpelä here. Can you hear me?
Yes, we can, Manu.
Okay. My first question would be on MacGregor. Could you please comment on how do you see the order intake and the kind of potential need to do more cost cutting in 2017 that if you just look at the Q4 order intakes, it was running at EUR 100 million roughly compared to sales level of still close to EUR 200 million. How do you see sales converging towards the order intake, and what potential measures do you think that you would have to do if the kind of current run rate of orders still last for a couple of quarters?
We expect as, I think, we indicated in the past already that we expect the revenue still to decline further in 2017 from 2016. The cost measures we have taken during 2016 are adequate in our view to just sort of to be able to be profitable with the current run rate we are seeing. Right now we have no further plans, but obviously we will remain alert on the situation and follow that up. Order intake is, I would say somewhat difficult to forecast. If you look at overall the sort of the market expectations, as I said, the end markets in terms of the freight rates, et cetera, has shown some strengthening towards the end second half of 2016.
If you look at the analyst estimates or forecast, one expect the ship orders to start to pick up during 2017. How much of that will actually start to then convert into our equipment orders in 2017 remains still to be seen. I don't think this market is going to recover fast, but at the same time, I would say that we start to sort of reach the bottom in terms of the orders in. I don't really expect sort of significant further decline there either.
Okay, thank you. The next question just under here. Could you just specify what these EUR 4 million of extra costs were? Also the same question for the other corporate costs line that was also clearly higher than previously. If you could just give us an indication of what is the kind of run rate for the full year 2017, and what was the higher cost in the Q4?
I leave the difficult questions to Mikko.
Thank you, Mika. If we start with Hiab. Yes, we mentioned that we incurred in quarter four 1.5% units impact. That's roughly EUR 4 million in Hiab's profits. These are related to no individual large item related to, for example, cleaning of all premises, warranty-related costs, and some obsolescence costs. No single item making the whole EUR 4 million consisting of various smaller items. What comes to the corporate costs? Those were roughly EUR 7 million higher than in the previous year's quarter four. As we wrote also in the interim of full year financial statements, this increase is mainly related to the digitalization and leadership development.
These are the key fundamental strategic actions what we are doing. Partially this cost in quarter four is also related to the timing of the costs. Our quarter three costs were relatively low on the corporate level, and if we look quarter three and quarter four in total, the average is approximately EUR 10 million, which would make roughly this around EUR 40 million. I would say that the 2016 cost level would be roughly a good proxy for 2017.
Okay. Just to follow up on here. You don't see any more of these type of extra warranty or cleaning costs related or did you do some sort of specific measures at the end of the year in order to kind of ensure that all the facilities are up to date, or why did you, just trying to understand that will this happen again in 2017?
No, I would say that these are more kind of, as additional costs should not be repeating every quarter.
Okay. Thank you.
Our next question from the line of Philip Saliba. Your line is open. Please go ahead.
Yeah. Hello. Thank you for taking my question. Then, in terms of Hiab's regional end markets, could you provide, let's say, a picture of the mix in terms of the US market and the India market? I mean, we've seen results yesterday from the competitor also showing a similar decline in the growth rate compared to the previous quarters. Do you see a general, let's say, slowing construction market, or was 2016 exceptionally strong, or the first half of 2016 exceptionally strong, and we should now see some slowing and then potentially a pickup if, let's say, the infrastructure spending was to increase in the US? That is the first question.
When I look at the end markets, obviously Europe has been a good news and almost, I would say, a positive surprise for us. We actually look at the demand now moving into Europe, the construction activity and overall industrial and kind of logistics activity looks to be strong moving into 2017. We are still optimistic about the U.S. market as well. We actually had a sort of pre-sales event, annual pre-sales event last week in U.S. for our logistic equipment terminal tractors, especially. They actually had a new record in terms of demand. The previous record was 2014 in terms of the sort of pre-orders for the 2000... Or for the year, we broke the record in 2007.
Overall, talking to our distributors and others, I was there personally last week, I think people are pretty confident about the US demand, into 2017 as well.
In terms of Kalmar, do you sort of see, and let's say, I mean, the wording has been similar in the last quarter, so it's always, well, it's a slow decision-making process, but, and now moving towards the alliances emerging and also taking up services in April, the alliance or Ocean Alliance, do you think that it's sort of a trigger point that could lead then to more confidence on the port side?
It's a good question. Overall, if you look at the Kalmar demand, it's good to point out what Mikko showed in his sort of slide, and I'm taking it up, if you can follow that one. About 8, 70% of the Kalmar equipment is sort of mobile equipment and related services. We have seen a steady demand on that one. We actually look at the pipeline, and we have very good visibility today with the system and process implementations we have done through the sales force. We see a strong demand to continue on that one, pretty much in all markets actually at the moment. That's a sort of steady. A lot of that is recurring replacement business as well.
The one that then moves the needle more and is more unpredictable is that 20% around the projects and our automation. We landed one relatively large automation project in Q4. We haven't been able to announce that yet due to the customer disclosure issues as well. There are a number of projects in pipeline. Again, the question of them is the timing of those, how they land during the 2017 as well. That's where the sort of the bumpiness in the order intake will be more visible.
Mm-hmm.
The software has continued to increase, and that's more recurring, steady revenue as well.
In terms of the guidance, do you plan to publish also top-line guidance during the course of the first half of the year, or what?
Sorry, Terry, we're breaking up a little bit. Can you repeat that?
Yeah. I think the question was about the retail guidance.
Do you plan to provide the sales guidance?
No, no, we are not planning to. I mean, obviously, as we have said, we have indicated that we expect the MacGregor revenues to decline in 2017, 2016. We see the end market actually be quite positive for both Kalmar and Hiab. How that combination then goes, we haven't given any specific guidance on that one.
Okay. Okay. Just to be clear again, I mean, you said you did the leadership program with 250 leaders, correct me if I'm wrong, in 2017, you'd expect it to extend it to much larger figure of 700-800. These costs of extra costs of EUR 7 million-EUR 8 million that we've seen relating to digitalization and leadership, we should assume such a level also in 2017 or?
Overall, if I look at our investments that we have done in the digitalizations, as different systems to improve the transparency and steering of that one will continue. Overall, as Mikko was already indicating, the 2017 corporate costs should be roughly at the same level as they were in 2016 combined. We did have, as we saw, the variation Q on Q, but on an annual level and the total 2016 is a good proxy for 2017 costs.
Looking in terms of R&D, what is the plan there, also what would be the split in 17? Would it be a rough, roughly similar split, so, a strong gearing towards Kalmar or?
The single biggest R&D input is our, around our, software typically is more R&D in intensity. We have a number of product areas in there. We keep on investing into R&D across the board. We have seen the benefits of that one, but I would say so that a strong growth that you have seen in the past year is going to sort of taper down a little bit. We still expect R&D costs moving up from 2016 to 2017, but at the lower rate that it has been in the past years.
Okay. Thank you very much.
Thank you.
We will now move to our next question from the line of Johan Eliason. Your line is open. Please go ahead.
Yeah. Hi, that was Johan Eliason. Just a question on Kalmar and the service development. You said that the service development, which was a disappointment in the third quarter, looks to have improved in the fourth quarter. Could you say anything what you are seeing there? I understand you keep a tight focus on this one going forward. Any key numbers for us to look at?
Yeah. Absolutely. We had a number of, I think, internal issues, especially around the structure reporting lines and focus on that one. We took the corrective measures during the Q3. We set up specific program. We changed some of the reporting lines. There were some personal changes there as well, and we clearly started to see the program structure and the focus on that one biting in on the Q4, where we saw the 6% increase in service revenues. We will sort of be on top of this one moving into 2017 as well.
Are there any specific reasons to expect this growth to accelerate in 2017 or is 6% growth a bit of a catch-up?
I, this is not going to move fast. I mean, the biggest single opportunity I think we still have is around the spare parts and spare parts capture rate. Due to some of the ineffectiveness of operations in the past, we of course have taught our customers over many years to go and find the solutions for their services also from other sources. You have to win them back, you know, customer by customer. The measures we have taken in terms of the logistics arrangements, the pricing developments, sort of moving more sales people into the field, et cetera, are having impact. That will happen, you know, as I said, customer by customer, this is not going to turn around very quickly.
I think 6% is pretty good achievement already in terms of the sort of year-on-year achievement there. This is a program that will have a lot of attention. You should expect fairly steady improving progress in there.
Yeah. Good. This move to Poland out of Småland, how is that developing? According to expectations, we will see the improvements in the second half of this year, or any changes there?
I think the most of the improvements are becoming visible only on 2018. As Mikko already indicated, the EUR 30 million improvement in 2018 is exactly related to that move. It looks like that the final production transfer would move into the Q1 of 2018. Overall, it's been more painful program than we maybe expected. The labor situation in Sweden, especially Småland, has been quite good. We lost people more faster than we expected, and that affected some of our delivery capabilities in 2016, and that was somewhat visible in the Kalmar numbers there as well. This year we are still working through that one and the full benefit is only visible in 2018 numbers.
Okay. On this automation pipeline, is this sort of mainly software or do you also see that you can sell some of your equipment now from the new Chinese plant?
It's both. Obviously we are the clear market leader when it comes to the automation software, the so-called Terminal Operating Systems or the ERPs, which is supplied by Navis. That's effectively delivered to everybody who is sort of putting in a commercial automation software in place and applies to also equipment from our competitors. The actual automation deals are always a combination of automation software and related equipment. The interfaces between the equipment and different kind of cranes and shuttles and the terminal automation systems are not open. It's a package of software services and equipment that you will be selling.
Now on pricing on these big cranes, are you seeing that you're cost competitive with the new setup in China?
Absolutely. We have seen when we look at the things like the RTGs, the rubber tyred gantries that've been now in China for a while, our costs have come significantly down. Our competitiveness is clearly improved, also our quality and delivery accuracy has improved. We are very satisfied with that setup. We announced that the second half of last year that we are moving the remaining heavy cranes, primarily the automated stacking cranes, into the same setup. It's not only a production, but we're also moving the engineering and product management capabilities into the joint venture. We have a different mindset and focus on the cost competitiveness and quality there, we are very satisfied with the development we have seen there.
Okay. Thank you.
Thank you.
We will now move to our next question from the line of Tomi Riionheimo. Your line is open. Please go ahead.
Thank you. Can you hear me?
Yes, we can Tom.
Okay. Yeah, some of my questions have been answered already, just can you indicate the size of Kalmar order, automation order, I understand you booked for the fourth quarter. I mean, the orders were strong. I was going to ask that if there was any large, that was my sort of feeling that there was at least one good size order.
There was one good size order. It wasn't a huge order. The value was about EUR 35 million. Overall, the business did quite strongly.
Okay. Then just generally on the sort of pricing environment and the, and the quite the general topic recently on the raw material prices, how are you seeing that and tackling the increases in the cost side?
Yeah. The steel, of course, is a big component and not such an issue so much in many cases the steel prices are managed and pushed through by the shipyards as well. It's an issue in Kalmar and Hiab as well. We have been, I think, quite successful of with the further investments in R&D as well to drive the design, the cost measures, and then look at the sort of the weight, steel consumption of the products and other issues. We still see improving cost points on our products despite the some of the raw materials going up.
At the same time, I think our pricing discipline and price sort of power has been pretty good in the market space, and that's of course visible in our expanding margins during 2016 as well.
Okay. Thank you.
Thank you.
We will now move to our next question from the line of Antti Suttelin. Your line is open. Please go ahead.
Hello. This is Antti Suttelin. A big picture question on containers. We've now seen two years of really low container growth. What is your expectation for the future? That's my first question in terms of global throughput growth.
It's hard to see any drivers at this stage that would actually drive the container growth up significantly from the current levels. I think the many different things are contributing for the fact that we've seen a slowdown on the growth, and we still expect the growth in the coming years. That's primarily driven. I think the biggest mega trend there is going to be the sort of the more wealthier middle income population, primarily in Asia. There is about 2.5 billion people who are expected to come on stream that then will be able to afford sort of goods and services on the middle class side. Most of those will be coming from Asia.
If you look at already today, the container flows, et cetera, the intra-Asian traffic is by far the largest, traffic group of that one. That's the one that is probably going to grow furthest. I don't expect to see a sort of any significant growth, if growth at all in the sort of Asia-Europe, Asia-US necessarily in the coming years.
Right. How should we think? How should this impact Kalmar then? Does it mean that the project side of the business continues to be sluggish while the equipment side, mobile equipment side is likely to be software project will increase? Is that the way to think about this?
It's a good point because it's good to remember that the mobile equipment end market is not usually in the large ports. I mean, they use some of the equipment, but fairly large slice of that one is actually in the industrial usage, and then it's smaller in, in sort of inland ports, river ports, terminals. One big development I think now see actually emerging more and more is this kind of intermodal terminals.
There are a couple of interesting projects going on where people are actually moving the many of the port operations significantly into inland city projects, where people actually are looking at opportunities, where they actually just effectively unload the ships very efficiently and put everything in the railways and ship the containers 30-40 kilometers inland and do most of the sorting in there. Obviously you have a different trade union, so your labor costs are considerably lower. Your land costs are considerably lower. Then you can also combine different other logistics operations, the sorting, et cetera, in that one. There is a number of these projects that we actually see in the different continents happening. That's an interesting development to follow up overall.
Again, I coming back to the fact that despite the actual container growth expectation to be quite modest, the drivers really are today is the larger ships again. Less than half of those are delivered. They will drive the curse of obviously the logistic industries that you have to invest into the peak capacity and not on the average capacity. The peak capacities are going to go up in most of the ports because also the cascading of the ship size. With the cost pressures and I think the pricing pressures that the consolidating shipping side is going to put for the ports together with other drivers such as the aging work population, sustainable requirement, et cetera.
All of this will be driving more and more interest into automation and some of the latest automation projects, for example, the one in VICTL in Australia, we were able to put the sort of one Terminal Operating System concept which had our Navis Terminal Operating System, our automation software and equipment. We actually put into the commercial or pre-commercial production in six months compared to some of the automation projects that has taken several years. I think from technology point of view also we see clearer improvements in the performance and maturity of the technology. I'm quite confident on the capabilities to actually see more and more automation projects coming in the coming years.
All right. That's, that's clear. Thanks a lot. Bye.
Thank you.
We will now move to our next question from the line of Emi Österlund. Your line is open. Please go ahead.
Hi, good morning. This is Emi Österlund. I have 2 questions. First of all, I wanted to know if you have any sort of guidance for restructuring costs in 2017, 'cause obviously they were pretty high in 2016. Secondly, I would like to ask, I mean, in MacGregor, if you see any improvement in terms of services, because, I mean, obviously in the equipment side, it's not looking too well. You have been talking a little bit about maybe maintenance services picking up. Have you seen anything of that? Thanks.
Thank you for the question. In restructuring cost, at the, I think the overall size of the cost was sort of, fairly well known. The difficulty we had in terms of guidance was to actually understand how that will land between the Q4 and Q1. As it then happened in terms of the different decisions and closure of the agreements, most of that landed actually in Q4 and hence the fairly high amount. The other side of the coin is that means that about only EUR 5 million of the so far announced restructuring measures, the related costs will land into 2017. Obviously, as Mikko was indicating-
Mm.
There are still programs and projects that we are looking into sort of driving further operational efficiencies in there, and they might then result into the further restructuring costs in 2017. What we see now in terms of the so far announced restructuring measures, only EUR 5 million of that one will land anymore into the 2017. In terms of the MacGregor services, that's an excellent question. I think it's a little bit too early to tell, quite frankly. Obviously, when the shipping cycle starts to turn, and there are early indications that's very meek at the moment, the services is expected to be pre-cycle because effectively you first start to sort of put your existing fleet more into the shape as well.
With the cannibalization that has happened there, et cetera, there's quite a bit of services work to be done. I would say that I can't call that out yet. We'll have to see how that sort of develops throughout the first half of this year.
Okay. Thank you very much.
Thank you.
We will now move to our next question from the line of Antti Rintakoski. Your line is open. Please go ahead.
Just a quick follow-up. Could you elaborate or talk a bit more about the potential for cost savings you see on the kind of corporate level that you clearly state in the one of the slides, the ongoing measures. Is there anything on the corporate level that could bring something on top of what you've mentioned there?
We have invested, I think, more than EUR 100 million into the systems and tools now in the last 4 years, to improve the capability to sort of deliver the financial services, HR services and other related services. I think we have not been capturing the efficiency through that one. That's something that I think Mikko was indicating that we will be looking at 2017, but it's a little bit early yet to sort of look into that one. We are starting some internal clarification around that one, and we will come back to that one, sort of probably during the first half of this year.
Thank you.
We will now move to our next question from the line of Tom Hartman. Your line is open. Please go ahead.
Thank you. It's Tom Hartman from Kearney here. I have two questions. First of all, on working capital. You have had a quite strong net working capital reduction both in 2016 and 2015, and it continuing in 2017. I'll take my second question after.
If I look at the working capital, we still have about EUR 800 million working capital in our balance sheet. I think there are still further opportunities in that one. Generally, we aim, have aimed and are aiming to sort of have the cash conversion over one against our EBIT.
Right. About your guidance. If I just look through this a bit. If you take away MacGregor, and then we notice that in Kalmar and Hiab, the order book combined is pretty flat year-on-year, and you say that R&D costs will go up, and you have no significant cost cutting in Kalmar or Hiab, you know, helping this year. It's kind of hard to bet on that MacGregor would have better earnings in 2017 than in 2016. I have to ask, you know, where should this earnings improvement come from?
The earnings improvement will primarily come from Kalmar and Hiab. I mean, if I come back to what we said about the priorities in 2017, we still see operational efficiency opportunities. That's one of the primary objectives for Hiab. Even though we are very pleased with the performance improvement we have seen in the last couple of years, there are clearly areas still there. Primarily, I would say around kind of the back office efficiency and our delivery and supply chain efficiencies that we can do better. Obviously, with the strong introduction of new products, the margin improvements are coming through gradually. Some of the effect you will saw, but obviously that will force through. Also we have a very aggressive product introduction schedule for 2017 as well.
The gross margin or gross profit improvement that you have seen happening now in the past few years, we expect that to continue also from 16 to 17. That its own will drive profitability on there. The R&D investments are going to go up, but as I said, slower rate on that one, and those will be compensated by the other efficiency measures we are currently planning together with the combination of improving gross margins throughout the business as well.
What about Kalmar? Is it same there with a lot of new products and a better growth on it? Because it's hard to see an operating leverage when you have a flat order book.
As I said, mostly again, that comes down to the improving gross margins. We've seen expanding gross margin both in terms of project and implementation, as well as the sort of in the equipment side as well. Obviously the services will also contribute in terms of revenue and profitability. The better mix, primarily driven by services both in Kalmar and Hiab will also improve the profitability in 2017. I would say services growth, gross margin improvements in products and projects, and some operational efficiency items are the primary three contributors for improving margin.
Right. Thank you.
Thank you, Mika. Do we have any more questions?
It appears there are no further questions at this time. Thank you.
Okay. Thank you. It's time to thank Mika and Mikko, and thank you for the active participation and good questions. I'd like to remind you that the Q1 report will be published on April 26th. Looking forward to see you then. Thank you.