Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Financial Statements 2013 conference. At this time, all participants are in listen only mode. There will be a presentation followed by question and answer session. Ladies and gentlemen, I must advise that this conference is being recorded today on Tuesday, the 4th of February, 2014. I would now like to hand the conference over to speaker today, Paula Liimatta. Please go ahead.
Good morning, everyone, and welcome to Cargotec's January, December 2013 conference call. My name is Paula Liimatta, and I'm Head of Investor Relations. Today, we have a live audience here in Helsinki, as well as people on the phone lines. We will start with a presentation by our President and CEO, Mika Vehviläinen, and CFO, Eeva Sipilä. After that, we will begin a Q&A session. Mika, please.
Thank you, Paula. Good morning from my behalf as well. Thank you for joining our 2013 annual results today. Let me start by sort of giving some of the highlights of the quarter four specifically. I'm very delighted about the strong order intake we enjoyed throughout the Q4, up 35% year-on-year. Also what was very delightful that we saw the strong order growth actually in all three business areas, obviously led by very strong market demand in MacGregor. The sales were only slightly up. This was primarily caused by the 8% decline in MacGregor. As you can see from the sales development in MacGregor as well as the order intake in MacGregor, we had a fairly dramatic bottoming out of the shipping, especially the merchant shipping sector in 2013.
Where the actually delivery tonnages went down by 24%, but the order intake, or contracting went up by 265% in terms of deadweight tonnages. Quite a sort of turnaround year for the whole merchant marine shipping in still cycle bottoming out in terms of deliveries. That was, of course, very visible in MacGregor revenue, a strong contracting update that was very visible in the MacGregor order intake numbers as well. Operating profit, of course, was not from our point of view at the level we'd like to see that going forward, fairly stable year-on-year. However, it included quite a number of different one-off type of items in, especially in Hiab as well as in MacGregor.
I think Eeva is going to go to those ones a little bit more in detail when he goes through the different business areas and the Q4 numbers. As such, I'm not too concerned about the OP level as such. As I said, I see strong improvement and trend in underlying businesses in there. The cash flows was also a very satisfactory indeed, and the lot of the business area improvement, especially in the Hiab side as well as in Kalmar was done to reach EUR 134 million cash flow during the Q4.
This was very much in a focus area for us for the second half of the year, and I'm very delighted for the fact that that actually delivered for us and obviously helped in terms of sort of financing the acquisitions of Hatlapa and then closing of the Aker Solutions' mooring and loading systems in January 2014. The dividend and the EPS was down. This was primarily driven by obviously the EBIT level as such. That was not at the level that we would like to see that going forward. Second is by the large number of different restructuring charges that we also saw. Again, Eeva is going to go to those ones a little bit more in detail.
The, obviously, the acquisition and the closing of the Aker Mooring and Loading Systems was a very important milestone for us in building the growth strategy for MacGregor. Especially, it's a sort of platform, a stepping stone for us in the offshore business as there where the demand outlook actually at the moment, especially for the deep sea and undersea production, continues to be very strong. If I then look at the key numbers a little bit, maybe a few things I'd like to highlight again. One thing that may be causing a bit of a confusion here is that whilst the order intake increased by as much as 35%, the actual order book went down. Two main reasons into that one.
One, of course, is that in MacGregor, we are still evaluating the existing order backlog and have done some cleaning in there to adjust for the sort of market environment and our own, our views of the customer situation there as well. The other important thing is that in MacGregor in Kalmar in 2013, we delivered quite a large number of projects, about EUR 200 million as such, and they obviously took down the order book as well. The order intake in Q4 in Kalmar again was very strong, and I'm happy for the fact that the order intake mix as such was more in the traditional Kalmar business, which generally means a better margin profile for us, as well for the fact that the cycle times for the traditional business are shorter.
We expect that to impact our revenue at a faster pace than the larger project order intake would be doing. As I said, the operating profit was a disappointment. The development in Kalmar as such was satisfactory, but the Hiab results, especially in Q4, was hit by quite a number of different one-off type of items. One could call sort of cleanup items in terms of obsolescence, bad debt provisions, and others all together at the tune of roughly EUR 4 million in there. Also in the MacGregor, obviously, the results were hit by the cycle and lower revenue as well as number of acquisition-related costs there as well. Very satisfied with the cash flow here at EUR 134.4 million.
Great achievement for us and the direction I hopefully that we will be able to continue throughout the 2014. The debt level increased by roughly EUR 100 million. This was obviously primarily driven by the acquisition of Hatlapa that we paid out in during 2013. The closing of the Aker again took place in 2014 and will be impacting our cash situation for this year. Again, earnings per share on the annual quarterly level slightly down, primarily driven by the different restructuring measures and things we hit there in the Q4. With that one, I'd like to hand over to Eeva, who will cover the performance development and business areas a bit more in detail.
Thank you, Mika, and good morning everyone on my behalf as well. Looking at the quarterly comparison on the performance, so clearly fourth quarter, very strong order intake and also good quarter execution-wise. I think this applies to pretty much all of the businesses. Profitability, the three quarters after a very disappointing first quarter, we managed to keep above of the 4% EBIT margin level, but obviously not on a satisfactory level. As Mika was pointing out, specifically in the fourth quarter, we have a few things to clarify that hopefully will help you understand the underlying performance better. Without going into the MacGregor numbers, so EUR 361 million order intake in the quarter, that contains two big orders, roughly EUR 100 million altogether.
Even excluding those, actually EUR 260 million on run rate is a very strong level. You clearly see during the 2013 order intake picture that it is still a very volatile and bumpy road especially in the merchant ship market. I think it's good to bear in mind that it's, you know, that you need to stomach still a bit some volatility, I think, before we're over and done with the sort of shipping market or on a sort of safer track. Good, very good strong start for the 2014. Offshore market remained active throughout the year.
There, of course, also the order, orders are lumpy by nature, are relatively big in size, but more and more steady progress in the overall activity. In the fourth quarter numbers, we have EUR 80 million in sales from Hatlapa, the impact, and otherwise a roughly sort of stable rate of deliveries actually throughout the year in all the quarters. Profitability 6.6% margin is obviously not the level we are used to with MacGregor. You need to bear in mind that that includes EUR 4.5 million of acquisition related costs. It's mainly Hatlapa, but some also preparation work for the sort of deal closed just a few days ago.
Excluding the impact of them, the underlying margin would have been around 9%, obviously a much, much healthier level. In addition, Hatlapa, the first contribution was -EUR 2.3 million. Again, excluding that, the underlying MacGregor is more on the levels that we're all used to seeing. Hatlapa businesses, as we've described earlier, is obviously in a phase that very much reflects the market situation, low deliveries and picking up from the downturn. We expect to see some better volumes and with that, improve profitability. Obviously the synergy work has now started. That will hopefully turn the picture in that business around.
Going into Kalmar, here we actually have the a very nice blue graph on the margin improvement. Even on the order intake, really this is without big projects, so it's a very healthy level for the underlying business. As Mika was pointing out from a mix point of view, this is obviously an order book that contributes much more to sort of the profitability going into 2040. A good start for the year. Very strong sales deliveries. Very good execution and helped also quite a bit on the cash flow. We're very pleased to see that.
The margin was 5.5%. That includes still unfortunately, additional EUR 10 million project losses and cost provisions made in. We were not yet able to turn the trend in that from the previous quarters. The full year total, EUR 34 million, is obviously a very heavy burden on the Kalmar profitability. Going ahead, the only good news is that we only have EUR 60 million worth of sales for these big projects left in the order book. Again, we start to sort of turn the corner in those contracts. Looking at Hiab, I think considering the sort of uncertainty in Europe, a very, actually very healthy order intake, quite a lot supported by the U.S.
We saw in a few European countries some buying, which you could label as part of the pre-buying for the Euro 6, but it was not certainly very significant. The big improvement really is still coming from the U.S. where the development is going in a positive direction. Strong sales also. Good execution from that point of view in the business. Margin unfortunately 1.7%. We didn't manage to keep up to the sort of second and third quarter levels. The good news is that we are progressing well with the route-to-market efficiency improvement work, both from the sort of the actions on that relate to personnel.
We had, actually a bigger share of restructuring costs in the fourth quarter than we originally assumed. Which means that we were able to conclude the negotiations in almost all of the countries, and that of course, is good news. Builds a better base for going into 2014. However, fortunately related to that, tighter management of the route-to-market, we also realized that we have a need to write down working capital items, inventories, accounts receivable type of items in quite a few countries and they then contributed to about EUR 4 million costs. This EUR 4 million obviously is not part of the restructuring costs, it's part of the normal operations.
Again, without them, the underlying profitability would have been on a better trend. I think the good news in Hiab is also the fact that we do see an improvement in the gross margin, which is obviously one of the key areas where a lot of our actions implemented during last year have worked to address. That we do expect that this, the improvement in profitability we have described earlier, is on track in that sense. Going into cash flow, after a lousy first half, we really had a good focus and good actions on this and obviously helped by strong execution on the sales.
Overall the full year is in that sense on a satisfactory level and obviously important considering the acquisition path. Sales and service relatively flat, unfortunately down in MacGregor, it is the market activity is better and higher than Kalmar and relatively speaking, they're going the right direction. Overall share, the share of service business in Cargotec is about 23% of sales. That is on the level we've seen it in the previous year, 2012 as well. There's big swings in the fourth quarter when it comes to reporting segment or geographical split.
Obviously MacGregor business and the shipping market being going down that has had an impact on the share of MacGregor and also Asia Pacific went down a bit during 2013. we see a bit of the pickup in U.S. also visible in these numbers. roughly the same as what you are used to seeing. finally on earnings per share dividends as Mika mentioned, EUR 0.89 pressed by the bigger than the bigger than the bigger restructuring items. At the same time, the tax rate, we actually ended up having the tax rate relatively stable on a 29%, and that obviously helped the EPS in total.
The board's proposal for dividend is for a 47% payout, EUR 0.42 per B share and 41%, EUR 0.41 per A share. That's hopefully a bit of that more insight into the numbers, and I hand back for to Mika on the issues going ahead.
Thank you, Eeva. Let me start with the guidance. First of all, it's very simple. We expect the sales or revenue to increase in 2014 compared to 2013. We expect the profitability also to improve over 2013 as well. Our guidance does not yet include the Aker Solutions and Mooring and Loading System business. We closed that business only last week. Obviously, we still not expected that very simple guidance that to have any impact for the guidance itself. We will most likely come back to the pardon, actual implications of the Aker acquisition as well as the Hatlapa and the combined synergies in the connection of the Q1 guidance later on, later on this year as well.
In terms of the actual then business area specific measures, I just want to reiterate what we have said in the past. Our program in terms of profitability improvement is on track at the moment. The improvements in Kalmar, obviously, they're already visible in terms of Q to Q improvement in their primarily coming from the savings that we have sort of closed down in terms of those efforts already in 2013. The changes in footprint have continued. More than half of our production is already in Poland. The improvements in design-to-cost, new product launches in better cross-margin of the different measures we are taking on the product side, such as the mobile equipment, are contributing already to the numbers.
What we have guided in terms of Kalmar is the EUR 20 million, roughly EUR 20 million improvement, EUR 40 million run rate improvement for 2014, and we are very confident being able to achieve that number. Obviously, that profit improvement does not take into account the change in product mix and the potential impact of the project. As Eeva was saying, we had a EUR 34 million hit on the projects last year, which of course, highly unsatisfactory. We are fairly confident that that number will be down, including the project cost overruns and potential penalties for late deliveries. Just from simple fact that all our order backlog or deliveries for this year is only resulting to roughly EUR 60 million of top line. In terms of the Hiab, numbers not yet visible in terms of that one.
As I said on the Q4 numbers, we had a number of items that they're more a one-off and related to the balance sheet improvements and cleanups in many of the markets and countries. A lot of the cost items, they're executed towards the year end, and they're visible in our restructuring items. The actual EBIT impact of those ones was not yet visible in 2013 numbers, but will be visible in 2014 numbers. Again, same guidance as in Kalmar, EUR 40 million run rate improvement in 2014. Roughly at the steady state progress would actually mean EUR 20 million EBIT improvement in 2014. Again, I'm very confident that with the program we have in place, we will be able to deliver those numbers in Hiab as well. MacGregor of course, a slightly different situation.
The order intake was very strong. Again, it's a long cycle business. As we have said in the connection of the Capital Markets Days, organically, we expect the business to grow somewhat in 2014, but with slightly lower margin, primarily coming from the product mix. Strong growth in offshore where we still today have somewhat lower margin profile than we have in merchant marine, primarily contributing on that one. We will, again, as I said, come back to the actual impact of the Hatlapa and Aker, Pusnes, Mooring and Loading Solution, integration and consolidation into numbers and potential synergy impacts in the connection of the Q1 results when we have had more time to work with the team in Norway in terms of looking at the plans and defining the synergy targets for them.
I'd like to conclude the presentation by what we already shared with you in the connection of the Capital Markets Day. Obviously, the short-term plans now in terms of the profit and margin improvements 2014 are in place. In the longer term, I see excellent opportunities for Cargotec to drive the shareholders' value. We have identified five main key areas, so-called must-win battles, where we see biggest opportunities for us to rapidly increase the shareholder value. One, obviously, is turning to Hiab's current business performance into more of the market sort of and peer-related performance. Again, a lot of measures and the program is tracking there quite well at the moment. I'm quite confident about the Hiab's capabilities to turn a corner in there.
Second one has been about building the growth platform for MacGregor, not only in merchant marine, but increasingly also in offshore side. Obviously, we have now closed both of the acquisitions. 2014, we are very focused on integration, delivering the synergy benefits, and building for the growth that we already have seen visible in our order intake towards the Q4 2013 as well. Kalmar's competitiveness and profitability in mobile equipment, that's the largest single business segment or division we have within the Kalmar. Good progress already in 2013. Many measures taking place there to ensure our competitiveness in there. Again, confident about seeing the numbers also delivering in 2014, and already tracking quite well throughout 2013. The service business, I see a lot of opportunities for us, especially in Kalmar as well as in MacGregor side of that one.
I would say that here we are not yet showing the improvement in there. I would say that the service business both have inherent good opportunities in there, but realizing those ones is still work in progress. In terms of the automation, we, as we have said in the past, we see generally very strong growth rates and a need for automation across the different ports. We want to build on the strong market position that Kalmar today is by further investing into this one and ensuring our market position. Last but not least, I would say that the team that needs to deliver these results starts to be in place. We are very close of finalizing the last sort of nominations in terms of the new President for Hiab.
One more nomination, I'm also very delighted that the board has approved a new incentive program that incentivize and retains then the key executives in the coming years to sort of deliver the profit improvements that we are aiming for. With that one, I'd like to conclude my presentation, and I guess I hand over to Q&A and Paula.
Thank you, Mika and Eeva. Ladies and gentlemen, we are now ready for your questions. We start with the questions here from the live audience, then move on with the questions from conference call participants. Here in Helsinki, please wait for a microphone and state your name and company to benefit the conference call listeners.
Hello, Elina Ryöty from Evli Bank. About MacGregor, can you say how much you expect to see acquisition-related amortizations weighing down the result this year? Eeva, why don't you take it?
For Hatlapa, the purchase price related amortizations are roughly EUR 4 million.
Euros on an annual level. That's of course the first part of that was included already in that EUR 2.3 mentioned, of course, for the two months. For Aker Solutions' part, we don't yet have the final numbers. We start now the work after closing the deal, so we'll revert to that.
Related to that, do you expect to see further acquisition related costs in 2014 of a kind of one-off nature?
We will see some costs in the first quarter now related to the closing of the Aker Solutions. Maybe a bit less than now in the fourth quarter, but roughly on that. Then after that it's business as normal. No one-off type of cost after that.
One more question. On Hiab and the cleaning down there now, the one-off items, do you foresee costs like that this year as well?
I still expect to see some restructuring costs. We still have a number of decisions that we need to make in the near future in terms of the ensuring the cost competitiveness and profitability are here, then those are likely to result into the further restructuring charges throughout 2014.
restructuring and not, the kind of write-down.
Primarily the restructuring. I think we have done quite a lot of work in the sales companies looking through the balance sheets, looking at the receivables. Obviously, every business will have of them, but I would not those to be so significant this year as they were last year.
Thank you. Maybe one more thing. In MacGregor sales now in the fourth quarter, how much of that sales is offshore?
It is, now I will need to check the exact number, but between 20% and 25%. yeah, and that, applies without the Hatlapa and shouldn't change much, yeah. That's roughly the share. In the offshore business, we've had very good order intake, but the lead times on the deliveries are long, so the impact on the sales comes slower. We will see the share of offshore increasing then in 2014. In 2013, not yet a big change to sort of slight growth from the previous, sort of below 20% now to above.
Thank you.
Okay. Jan Kaijala on the Nordea Markets. On this guidance you gave for MacGregor, early December, declining margin and saying that ship industry recovery will start to really benefit you from 2015, did you already know about this order development at that point when you gave that assessment, or has it been better since then, or would you still say the same?
It wasn't a surprise for us. Probably a little bit better than we expected, but no major surprises there. We saw that the Q3 was actually a little bit further down more than we expected. As I think Mikael Mäkinen already explained in the Capital Markets Day, it's going to be lumpy with the slightly the order behavior changing for larger systems as well. You're expecting to have larger orders at more intervals, and that's going to impact on Q on Q impacts. That doesn't change the guidance or our expectations. As Eeva Sipilä was saying, the primary reason why we are guiding the margin somewhat down for 2014 is that the mix is going to be weighted more heavily towards the offshore on 2014.
Today still our offshore margins are not quite as good as they have been in the merchant side.
Okay. You said that there were 200 million orders in MacGregor in the last quarter. Were they both published or had they been both published those orders in advance?
Yes, altogether or about EUR 100 million worth. Yes, there was, both of them were published. One we received in October and the other one was, it was actually the first one, EUR 37 million was published I think just a day before our third quarter report.
In total you said it was EUR 100 million, or?
Yeah, EUR 100 million total. The two big projects in the fourth quarter. It's EUR 37 and then a sort of EUR 50 million-EUR 60 million worth of other order to United Arab Shipping Company, which was I think somewhere in November when it was announced.
Okay.
Even sort of excluding those two, the EUR 361 million order intake obviously required the base business to be good as well.
The same story pretty much for Kalmar then. You also mentioned that there was no real big orders in the fourth quarter. The biggest ones would have been in only in tens, couple tens.
I think we announced one automation deal to Port of Oslo and a few ones, but they were clearly smaller in size, consisting of some RTGs rather than a big project. This was more normal business in that sense.
Just one more. I mean, I might have missed it a little bit. On MacGregor, you said you did some cleaning up with the order book. Maybe it was mentioned somewhere, but how big was that and?
We haven't given the specific size on that one. It's fairly, I would say business as usual for us probably and, I would say exceptionally large this year. Driven partly this coming from customers, so some orders are just canceled. Partly we sometimes take the view that our sort of confidence in terms of that order ever materializing is getting so low that we take it out of the order book. When you always look at the order intake and order book in MacGregor year by year, you can never match them because there is always some cleanup going on with the existing order book. I would say that this year was exceptionally sort of high cleanup that we did in there for many reasons.
Okay. Thank you.
From Pohjola Bank. You had a very strong cash flow in fourth quarter. Could you discuss a little bit about the actions you have taken, or is it just normal because of the deliveries? What do you expect for the coming quarters in cash flow?
We actually decided in the summertime that we are not satisfied with our cash flow. We set a specific focus area on that one in terms of management reviews. The top management was incentivized by the cash flow also. We have put a sort of share-based short-term incentive in place for the cash flow. I think it really came through the increased management focus. A lot of good detail work in there. In Hiab it was primarily driven by reduction in net working capital in different parts of the operation and making sure that we did collect our receivables. In Kalmar also, some net working capital, but a lot of sort of making sure that we actually delivered, get the acceptances from the different projects and got the payments from the customers.
I think a lot of the practices we put in place in 2013 will also bear fruit in 2014.
Okay. About the MacGregor's order book, it's now EUR 980 million. How much of that do you expect to deliver this year? How much is for 2015, roughly?
The majority is obviously for 2014 deliveries, but we haven't given an exact number. Of course, that order book now is history. Today, as we should already talk about the order book, including Aker Solutions' Mooring and Loading Systems. As said, we'll revert to the sort of MacGregor guidance. As Mika was pointing out earlier, we do expect organic MacGregor to grow in 2014 in sales.
That's right. I think looking at the 2014, 2013 revenue number and giving a slight increase in 2014 gives you a good picture on that one. One question that hasn't come up but might be in your mind is that how much of that order book now into Q4 was actually coming from Hatlapa, but that number was roughly EUR 24 million, so it wasn't impacting this significantly.
Okay. Then the final question about the price competition. How have you seen the price competition develop during the last, let's say, last quarters, is there more intense, or how would you describe the situation?
Let me start with then Hiab. Actually one of the profit improvement plans we have actually is to drive some of our pricing higher in, and we already started measures. We are looking at our pricing across the different markets and trying to instill a better pricing discipline. We actually see opportunities to actually price better and increase our gross margins also that way in Hiab at the moment. Some of different, both in terms of spare parts pricing as well as to some of the new product introductions, we actually see opportunities to drive our pricing and margin in Hiab. In MacGregor, I would say that the pricing competition of course, throughout the downturn has been more difficult as people are fighting for less business.
That's been very visible in the merchant side and obviously partly explains the profitability together with the volumes. In offshore, I think the market generally is not that price sensitive, but again, even there the competition is pretty tough. No major changes, I would say, in Q4 in there. In Kalmar business, again, no significant changes in the pricing environment in Q4.
Thank you.
If there are no further questions in Helsinki, we can move on to the questions from conference call participants. Operator, please.
Thank you. Your first question comes from Juergen Siebrecht from HSBC. Please ask your question.
Good morning. Yeah, my first question is here on the order intake in MacGregor in Q4. Could you split up here the order intake in merchant and offshore? How has merchant developed like for like, so excluding the Hatlapa, quarter-on-quarter? That would be the first question. As a second question, reading newspapers over recent weeks, I saw that some major oil companies plan to cut back CapEx. Is that something that worries you in terms of offshore? Yeah. What is your assessment on that? Lastly, could you again update here on growth and profitability that you expect here for your acquisitions, the two Pusnes and Hatlapa in 2014? Thank you.
Let me start with the offshore while Eeva is preparing to answer the mixed question in there. It's true that the in overall in offshore market there are some signs of sort of softening. Maybe too early to call, but actually you need to look underlying because there are different markets in there. What's important from our point of view is that the undersea production development, both E&P development actually continues and expected to continue very strongly. I think the growth forecast I saw for that specific segment of the market was 36% for 2014. This is obviously the area that requires mostly the lifting capabilities.
For the deep sea production, that is also expected to continue strong, continue strong, and there the mooring capabilities are very important, and that connects well to the Aker Solutions, and mooring solutions acquisition. Yeah, in the big, big, big picture, there might be potential concerns, you look at the specific areas that are important for us in the offshore production and we see that demand to continue very, very strongly. Eeva, would you like to take then the mix?
Yeah. From the mix point of view, when we think of, when we think of the order book, as we said, a quarter of the order book is offshore. If you look at fourth quarter orders specifically, it was slight, just a few percentage point less. It happened so that one of the big orders which we received was offshore, but the even bigger one was merchant. That kind of explains the few percentage point, but there's no sort of big change in the offshore element as such in the fourth quarter.
Merchant underlying, quarter-on-quarter, has it improved or is it stable?
Well, both improved quarter-over-quarter because third quarter was a very low.
Yeah.
It was less than half order intake in third quarter if you compare to that. But I think it's more relevant maybe to look at the full year, because of the volatility in the quarterly order intake.
Yeah.
that you get the right view. These orders can land in one quarter or another.
Mm.
If you look at over the year, the, actually very strong growth, especially in the percentage terms in offshore, but also the, in absolute terms, actually, the merchant marine still drove higher than that. That hopefully gives you some idea.
Mm-hmm. On the acquisitions outlook?
On the acquisitions, again, for the minute comes to the Aker Solutions mooring and loading solutions, we are not ready to give guidance at this stage. We are just looking under the hood at the moment as we speak. We will come back to that one in connection with the Q1. Anything you'd like to say about Hatlapa, Eeva, at this stage?
Well, I think what we said on Hatlapa, EUR 18 million sales impact for the two months, and EUR 24 million in order intake. It's a very similar story to the rest of the MacGregor growth-wise. As I was saying, we do expect growth as the market activity has picked up and what we see visible in the order intake this year. That's what we can say today.
Thank you.
The next question comes from Tom Skogman from Handelsbanken. Please ask your question.
Yes. Good morning. This is Tom Skogman from Handelsbanken. Given the currency turmoil in emerging markets, I wonder how big part of Kalmar's 2013 orders came from emerging markets.
The role of the emerging markets is, our exposure to the emerging market is somewhat limited. If you look at the sales by the geographic region in there, we obviously, Kalmar business is very much dominated by the European business. Obviously, that includes in our geographic split, Africa as well. Africa proportion is quite, I would say almost insignificant of that one. The Americas business is very strongly North American-focused. There is a very small part of that one into South America at the moment. In APAC, it's more evenly split, but the role of the APAC is about 20% of our revenues, if I remember correctly, for Kalmar. Overall.
Australia is quite a small-
Australia has been quite lucky with the large project deliveries in, for example, Brisbane last year. It will obviously sort of create a uncertainty in the market and will impact our emerging market business potentially. The exposure for us in Kalmar is somewhat limited.
I guess it's the same for the other divisions. We shouldn't see any reason from weak emerging market currencies that shouldn't cause any order weakness for MacGregor as I can understand it. Do you share this view?
Exactly. I mean, MacGregor really you can't really even look at necessarily from geographical point of view because that's obviously driven by the global merchant marine. The ships don't have countries as such. They go where the global trade takes them. Then offshore, of course, is driven primarily by the E&P and sort of exploration and the required demand. In there, in Hiab's case, the product that we are doing is very much designed for developed markets. We see strong demand continuing in U.S., Europe, even though there are some discussions about the potential sort of pickup in there, we actually see the European situation fairly flat overall. The role of the developing countries in Hiab, again, is very limited.
Thank you.
Your next question comes from Christer Magnergård from DNB. Please ask your question.
Hi, good morning. A couple of questions. Firstly, on Hiab, you mentioned before that you have, significantly higher gross margins for Hiab. I just wonder how much higher gross margins you have for Hiab for the moment. Secondly, why SG&A costs are so high given that, the profitability still is lower in charge emerges as well?
The G&A cost, first of all, we should have tackled those costs earlier in the year. We did a number of measures towards the end of the year that resulted in the restructuring charges taking place, as Eeva mentioned, roughly 250 people from our distribution and markets. The savings coming from that restructuring, they're not yet visible in our numbers. The second impact, issue is that some of these one-off type of cleanup items that we did actually impacted the G&A number as well. Some of them landed in there. Some of them landed in margin. The margin question in Hiab is somewhat complicated. There are some of these one-off type of elements that actually have take a hit on the margin.
Hiab, generally our business was somewhat impacted more by the currencies as well. Primarily the exposure for actually Australian dollar, Japanese yen, et cetera, who have been a fairly large market for us. That somewhat diluted the margins. The underlying sort of apples to apples margin development was actually going in the right direction already last year.
The gross margin, can you say anything about how much higher gross margins you have now?
Well, I would say that, it's a, sort of, a few percentage points gross margin, which is a fairly good achievement within this timeline.
Absolutely. Secondly, on MacGregor, if you just could remind me of the lag from contracting if you look at Clarksons contracting for merchant vessels, around lag it takes before you actually receive the order?
There's a pretty good material available that's on Capital Markets Day presentation, where Eric Nielsen also explained the dynamics of that one. If I try to simplify that one, I would say that from the ship order for that to be actually then ordered from us is generally a lag of six-12 months. From our order to actually our delivery, it's another six-12 months. From when you start to see actually ship contracting happening, it's sort of, I would say, somewhere between 18-24 months for that to be recognized in our revenue.
Given that, merchant contracting have accelerated throughout 2013 and was very strong in the second half of 2013, does that imply that we should see a rather stronger intake in 2014 for MacGregor?
Yes. We said we expect some of growth in 2014, but I would imagine actually a big part of that one will also land in 2015 as well. We have still delivered equipment and recognized revenues last year from some of the ship orders that were taken in 2008.
That's all right. I was more referring to order intakes. The order intakes have improved substantially.
well, certainly you could already see the impact of that one in Q4.
Just finally on the Kalmar division. You talked about the mix that is quite favorable in Q4. If you look at Q4 profitability and exclude all the project cost of it was roughly 7.6% for the Kalmar division. Is that the kind of profitability you have in the order book or is the target even better than that?
Well, as we guided, again, EUR 40 million run rate improvement, EUR 20 million improvement year-on-year on Kalmar. You can look at the sort of the numbers coming through that one. Then one can assume, I think, quite safely that the cost overruns and penalties in 2014 will be clearly lower than they were in 2013. I think that paints you the picture about the Kalmar's potential profitability for 2014.
Yeah. Thanks.
We have a further question from Tom Skogman. Please ask your question.
Hi again. I remember that Cargotec has commented that the MacGregor margin wouldn't go below 10%, and now we ended up at around 8% in 2013. Now you got it just to come down. I would be very happy to hear some kind of a floor under which the margin will not go even on a quarterly basis.
Well, Thomas, I tried to indicate, obviously, if we look at the fourth quarter's 6.6% margin, included EUR 4.5 million M&A related costs, which I would be brave enough to categorize as one-off. You land in roughly 9% margin. The Hatlapa impact, negative EUR 2.3 million. Without them, we would be actually in the sort of earlier indicated range. We are taking clear actions to grow our business, and it comes with some short-term impact on the profitability, which we have tried to sort of be quite clear about. That's what we're working on.
Can the margin go below, let's say, 7% next year when you have rising amortizations? If you look on the EBIT margin level, is that still possible or how low can it go? You have a long order book, so you know quite well what you're delivering, and I guess you know your fixed cost there.
Yeah. I think we our guidance gives you our thinking on our profitability development rather than sort of trying to sort of play with how low things can go or how high can they go. You have our guidance which talks about improving profitability in Cargotec.
Okay. Thank you.
Again, just a reminder that we are in a better position to give you probably bit better guidance of the sort of new MacGregor, if I use that word, in terms of then including the impact both of the Hatlapa and the Aker Pusnes impact in the correction of Q1.
The next question comes from Juergen Siebrecht. Please ask your question.
Sorry to come back on MacGregor. You have guided in the past for an average order intake potential, yeah, in the current stage of the marine cycle. If I remember right, it was EUR 180 million. You now said, yeah, we saw growth in Q4 already from an improved environment. Would you dare to give here a new and updated guidance? I mean, excluding of course then the acquisitions or would you still stick with that? If I'm right, EUR 180 million or something for the time being. Thank you.
Well, it is very... That number we obviously gave last year when we had the visibility on the 2013 development and tried to sort of also give you an idea that it will be lumpy. But on average, then certainly fourth quarter was better than we expected, and then we're happy about that. Going ahead, I think the challenge in the shipping, what we also do point out in the report is that we still do expect it to be a bumpy road. It is actually difficult. I'm sure there is an average, but the quarterly variations in our view, can continue to be quite substantial.
I mean, you still have a business where there is overcapacity and financing is not exactly easy to achieve. I think there's some sort of those type of external impactors that can impact more than what we know. That's. Yeah. I would sort of not want to give a sort of a more exact number at this point.
Okay. Thanks.
Overall, maybe if you look at the kind of trend, especially let's talk about merchant marine for a while. Some of the underlying indicators of course are turning positive. We have seen improvement in the charter rates throughout the 2014, 2013, sorry, 2013. We have seen improvement in contracting prices, so the shipyards are able to get higher prices from the new ship building at the moment. Having said that one, there is quite a lot of speculative buying as a part of the 2013, very strong growth in the merchant marine side. Hence, I think there are concerns or sort of an unsecurity about the 2014 development in terms of the contracting for the merchant marine.
Offshore, as I said, is a different story. There we actually see the underlying development continue very strongly, especially when it comes to undersea production and the deepwater production.
Thank you.
Your next question comes from Tomi Rimala from SEB. Please ask your question.
Hello, it's Tomi from SEB. A couple of questions if you could help a little bit. Guiding the financial costs for 2014 and given the acquisitions and then perhaps also the tax rate given the lower Finnish tax rate. Perhaps quite nice price in the group costs. If you can sort of guide the further level for that in 2014. Thanks.
Well, on the financial cost, you can expect the cost to be somewhat up. We have EUR 100 million more debt on the balance sheet at the beginning of the year. Now obviously we'll also have closed the Aker Solutions' mooring and loading systems unit acquisition. The debt level as of today is even a bit higher. One element to bear in mind that part of the Hatlapa price was paid in a form of a capital loan, which carries a clearly higher interest rate than our average debt. That impact also is some millions of EUR on an annual level.
Then on the tax rate, our business volumes in Finland are very small. Even if the tax rate here is going down, I don't expect a big impact. Our business, I would say that the sort of level achieved in 2013 is a good level, and I would be maybe a bit more cautious just looking at the mix where U.S., for instance, is a strong market and the tax rate is clearly higher there. I think that has more impact on our tax rate than Finland, just looking at the volumes where we are.
Uh, and then group costs, uh, uh, yeah, I think we, we managed to get a clear reduction there as, as indicated some, uh, year and a half ago. Uh, I don't expect big changes to the level, but, uh, let's say, uh, below thirty million to give you a, give you a number on, on that row.
Good. Thank you.
There are no further questions at this time. Please continue.
Thank you. Do we have any more questions from the live audience in Helsinki? If not, I would like to thank everyone and wish you a good day. Thank you.
Thank you.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.