I mean, good strengths at the moment. The service and software sales is now 33% of our revenue, obviously, partly driven by the fact that the equipment and deliveries were not as good as we were expecting. We still see good development in services overall with the orders growing by 6%. Sorry about that one. The market environment, First of all, if I start with the sort of the port and container terminal, it's an interesting situation. Whilst we actually see customers delaying decisions, especially in the larger projects, the actual macro picture remains very positive. The growth in container traffic is actually at a good level, and we have seen the different analysts and bodies actually up, increasing up their estimates in terms of the traffic overall.
We still see actually a positive development in terms of our pipeline at the moment. The numbers are growing, partly of course driven by the fact that we don't see decisions happening, but at the same time, we don't see any cancellation of these projects either. In our sort of smaller equipment side, we still see good development there. We see growth in orders as well as the revenues in that area. Very much so this is an issue at the moment of the more bigger investment decisions being pushed continuously back. In construction output and in higher environment, the situation remains positive. First of all, we saw very strong growth in Europe, and the market remains really strong there, nearly 40% growth in orders there.
The only sort of soft spot we actually have seen developing in Europe at the moment is around the U.K. demand, I guess partly driven by the concerns around the Brexit situation as well. U.S. market remains strong as well. I know that some people maybe are concerned about housing starts development in September as well. It's good to point out that actually the exceptional weather situation in the southern states. So if you actually exclude the states that they are affected by the different hurricanes, the U.S. housing starts, they're still at a good level also in during September. Even though we don't necessarily see a further strong growth in U.S., we see the market situation still to remain, remaining strong in there as well.
In marine situation, we clearly see sort of the situation, especially merchant side stabilizing. We are expecting growth, although we expect that growth to remain at a fairly low level in the coming quarters as well. Clearly, it sort of looks like the bottom has been bypassed, and we are heading towards increasing order and revenue intake in there. In offshore, the situation still remains quite difficult. As I already said, I'm very pleased in terms of the development in MacGregor in terms of the order intake, good growth in there. Growth also first time for quite a while in year-on-year development and also very good growth in Hiab, especially driven by the strong demand in Europe.
In Kalmar, the sort of mobile equipment, smaller equipment demand was remained at a strong level. As I said, larger project decisions have been pushed back, and that's very much visible in our order intake. The order book has come down, as you can see from the slide. At the same time, the composition of that has changed, so one needs to be a little bit cautious of drawing conclusions in terms of the revenue development from that one. The MacGregor share of the order book has obviously declined with the lower orders, and at the same time, the sort of longer lead time project orders have declined in Kalmar.
The current order book is actually more on a short cycle side. Thus it's not necessarily reflective of the revenue development in the coming quarters. It's also good to note that in Kalmar, despite the decline in order intake, actually our order book is pretty much at the same level as it was one year ago. Operating profit really was driven by the fact that we did not reach the revenue targets we have set for ourselves in Q3. Our gross margin development continued favorably, when we missed on the top line, that was clearly then visible in terms of our bottom line and there.
Well, I'm relatively pleased with the sort of proportional profitability, but obviously, in terms of the absolute profitability, the miss on the top line was reflected there as well. As I said, the gross margin development continued favorably, driven by our R&D boots and of course, increasing proportion as software and services in our business as well. Software and services now are about 33% of the revenues, especially pleased with the development in Kalmar, where the services grew 8% year-on-year and order intake overall in services, developed favorably by 6 percentage points. The software sales declined in Q3.
It's good to point out that this is still mostly a business driven by somewhat lumpy license revenues, whereas we had a good sort of license revenue in Q2, we were missing some larger licensing deals in Q3. More relevant number I think in the software sales to look at is of course the year to date growth, which is still at the 14%, we still view the development in software revenues very positively in the coming quarters as well. With that one, I'd like to hand over to our CFO, Mikko Puolakka, who will cover the business areas. Thank you.
Thank you, Mika. Let's start with Kalmar. In Kalmar, our service orders and sales growth was actually excellent. Otherwise, the quarter was disappointing compared to our expectations. Service orders grew in Kalmar double digit. Mobile equipment orders developed also well, especially in Americas region. However, the automation project orders continue to be on low level as customers are postponing their decisions. Also, the software orders declined somewhat, but this is I would say this is more due to the nature of the software license business. As Mika mentioned also earlier, Kalmar's order book is pretty much on last year's level. Services grew in Kalmar by 8%, there very good development especially in the spare parts business. Kalmar overall sales were down by 14%.
Some of the revenues from the project deliveries will be recognized in Q4. This is the nature of the project business. In addition, as Mika mentioned, we have had some bottlenecks in our mobile equipment supply chain, delaying some of our deliveries to Q4. Operating profit for Q3 was EUR 30.9 million. That was 15% down from last year's level. As mentioned by Mika, this is coming from the lower sales in Q3, especially in the project business. Moving to Hiab, where we had again a solid quarter. Orders grew by 18%. There was growth in all business lines, very good demand.
Especially strong growth, 37% we had in EMEA, very much supported by the solid construction activity. Sales and profitability were on last year's level in Hiab. We could have actually reached a bit higher sales in Q3, but as Mika also mentioned, we had similar kind of supply chain bottlenecks in Hiab as we have had in Kalmar. Looking the lead times in the supply chain, we have been seeing in the past roughly 7 weeks lead times. Now we are talking about 17 weeks. These have been causing the delays, and we have been already taking actions in the earlier part of the year to overcome these delays. Moving to MacGregor, where the orders continue to grow the Q3 now in the row.
Q3 orders were up by 12%, especially the cargo handling orders were on a good level in the last quarter. Sales were very low in Q3, both in merchant and offshore business, and this is again, coming from the timing of the project delivery. We expect that to improve also in Q4. Service sales were -10% year-on-year. Actually, this decline is mostly coming from the offshore business, while the merchant service is more stable. Profitability stayed in absolute terms, more or less on last year's level, EUR 2.2 million for this quarter.
This is more or less thanks to the good progress in the cost savings program, as well as the growing share of the service business. Moving to our cost efficiency programs, which are actually moving in some parts even better, moving forward better than what we have anticipated. Firstly, in the EUR 50 million overall company-wide cost savings program, we have achieved so far EUR 3 million savings from the indirect procurement activities. We have also recently announced that we are outsourcing part of our IT activities as of 1st of November this year. MacGregor has achieved so far EUR 20 million cost savings from the EUR 25 million program. By the end of the year, we are targeting to get EUR 25 million cost savings.
In Kalmar, the product transfer from Sweden to Poland is progressing. Light and medium forklift trucks have been already moved, and the heavy trucks will be now moved by the end of this year. By the end of the year, more or less the whole Swedish production has been moved to Poland. Let's have a look at some of our key figures. Total orders grew by 2%. This is more or less thanks to Hiab and MacGregor. Our operating profit, excluding restructuring costs, was EUR 57.4 million, and the restructuring charges were approximately EUR 5 million for Q3. This EUR 5 million includes restructuring costs from the MacGregor program as well as from this EUR 50 million company-wide restructuring program.
EPS was EUR 0.51 more or less on last year's level. We have been able to offset the part of the kind of lower operating profit with the lower interest costs, thanks to debt refinancing, what we did earlier this year. Cash flow was our bright spot in Q3. EUR 88 million cash flow made during the quarter. This is coming especially from the reduction in the net working capital. We have been able to collect very nicely receivables. Then also we got some advance payments, especially in MacGregor business. Our financing position is solid, strong. Cash was EUR 233 million at the end of September. On top of that, we have EUR 300 million completely unutilized revolving credit facility.
Plus we have a significant commercial paper program also not in use at the moment or not utilized at the moment. Gearing is below our target. In September, it was 37.6%, and the average interest rate has been going down due to the debt portfolio refinancing, what we did earlier this year. Looking the long-term trends, our operating profit and Return on Capital Employed are developing to the right direction. Our target here is to reach 10% operating profit and 15% Return on Capital Employed in the next three to five years. Looking the outlook, we reiterate our 2017 outlook. Our operating profit is expected to grow from last year's EUR 250.2 million. With those words, I would then hand over back to Annamaria.
Thank you, Mikko. Thank you, Mika. We will continue with the questions. We will start with the potential questions from Ruoholahti.
Hi, it's Erkki from Inderes. A few questions mostly regarding Kalmar. First, about the equipment business there. Was there growth in orders or sales? How about your market share on the equipment side?
On the equipment side, when we talk about mobile equipment, the sort of lighter side of that one, we had a growth both in terms of orders as well as the revenues in Q3 as well. That business is doing pretty well.
You're inclined that your market share was stable, or was it even up?
It's hard to say. This is another industry that is looking. I think overall the demand at the moment, I think we were pretty stable. We have a clearly a leading position in this equipment class at the moment, and that remained as well.
Could you provide us with a ballpark figure? How large are the equipment sales on the total?
We have said in the past as well that if you look at the equipment side, it's about pure equipment is in the ballpark of EUR 600 million on the annual basis.
Okay. Thank you. About project side, can port operators postpone the decisions infinitely? You previously said that you expect the market to start to take off in Q4 at the earliest or early 2018. Are you still of the same opinion?
It's an interesting situation because from the macro picture, this is one of the most positive macro pictures I have seen during the four years. At the same time, we also have seen a particularly difficult order environment in terms of the large orders. The drivers are still very much in there. In terms of the larger ship sizes, we have seen further very large ship orders as well coming through. Those larger ships will drive the demand for peak capacity. There are questions around the terminal or port capacity, but one needs to remember that investment decisions have to be done on the peak capacity requirements. The peak capacity requirements are clearly going up. The automation needs and the benefits that the automation are offering are still very much there.
We have seen, as I said, our sort of pipeline in terms of the sort of prospects is increasing continuously. Part of the increase, of course, comes from the fact that the decisions we are expecting are postponed further, but we see new prospects coming into the pipeline all the time as well. I think this is a bit more or less still a timing question.
Okay. Thank you.
Thank you. We will continue with the international questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Please signal by pressing star one on your telephone. We'll take our first question today from Antti Kettune from Danske Bank. Please go ahead.
Yes. Hi. I would also like to ask about Kalmar. Basically three questions. Why do you think the pipeline continues to improve? Secondly, why, despite this, are ports not making a decision? Thirdly, why is Konecranes closing deals? These are the questions, please.
Thank you, Antti. The pipeline is growing, for the reasons we already discussed. The peak capacity requirements, because of the ship sizes are increasing, is driving requirements for the investments
The need for automation to drive the efficiency is very clearly there. Obviously we see also underlying stronger growth in the traffic. All the reasons why the pipeline is growing and why the ports needs to invest are still very much in there. The reason why they have not made the decisions is still primarily around the uncertainty around the impact of alliances as we see the very strong consolidation happening in the shipping lines. It takes quite a while, very clearly, to sort of get clarity in terms of the how the traffic will be distributed between the different ports. Regarding the automation, I think the people sort of decision cycles understanding and relying on technology and going through the different requirements to reach the decision are delaying those decisions.
I can't obviously specifically comment on the Konecranes. My understanding is that they both actually are seeing pretty favorable de-development in their equipment side. That was also confirmed in our own numbers. They obviously are in some of the categories that we are not, such as mobile harbor cranes and STSs. Understanding from their release, those are doing pretty well. If I overall look at the port demand situation, the benefit we obviously have is that we have a very global reach and more than any other supplier. Secondly, we also obviously are also operating in so-called horizontal layers, where we actually are also supplying equipment and software for the third parties, by Bromma and Navis. We have pretty good visibility. We clearly actually have seen a slowdown.
I look at the ship-to-shore crane statistics that are also available from the Port Equipment Manufacturers Association, my understanding was that the ordering intake in the heavy crane side was down about 30% at the moment in market. The market has slowed down in terms of the larger investments decisions.
Right. Do you think the automation offering is stable enough? I mean, could it be that there is some technical reason clients don't want to go into automation despite the benefits on paper, so to say?
I think we are start to be past of the technical decisions. We have such a number of ports now operating and operating at a pretty good level. Obviously, the technology is still maturing and will be bypassing eventually the kind of the manual port performance. At this stage, when I look at the current ports in operating, I would say that the performance is already at the level that it will give significant financial benefits for the customers. Obviously, it's a very large decision. It's a very heavy decision for us.
Very clearly the tendency right now what we see is that more and more the some of the customers are contemplating so-called brownfield investments that will actually then sort of automate the ports more gradually over a certain amount of time. Then also, obviously, we have now also launched during the Q3 an independent automation software, so-called Kalmar Key, that is able to actually then start to automate existing installed base in the ports as well. Whilst we still see opportunities in some of the larger single orders, I think the tendency tends to be towards more sort of gradual automation of the ports at the moment.
Yeah. Okay. Thank you.
Thank you.
Thank you. I'll now go to our next question from Leo Carrington from Credit Suisse. Please go ahead.
Good morning. My question's around the supply chain issues. I'm wondering if you're able to quantify the value of sales that couldn't be delivered for both Hiab and Kalmar. Do you think this supply chain issue had a negative impact on customer ordering dynamics? Do you expect to see any order cancellations from customers as a result, or do you expect a catch-up effect? Thank you.
Thank you. First of all, I guess overall, when you look at the demand, at least I've seen, for example, Volvo numbers in terms of the huge increases in terms of the construction equipment demand, as well as the trucks. We deal very much with the same supplier base in terms of engines, hydraulics, some of the electronics. Very clearly, the supply chain is struggling to meet this demand. Obviously, I guess we as a business are partly at fault because obviously the strong demand is exceeding our expectations from the sort of late last year when these demand plans were put into place. In terms of the impact, I would say that it's a fairly significant, it's in some tens of millions of EUR in terms of the slipping.
Mikko in his presentation already mentioned that we actually, during the Q3 last year, we were able to get our lead times in Hiab to a sort of 5 to 7 weeks range. We are now looking at the sort of 15 to 17 week range. We have not lost orders as a result of that one. I think the overall the business is sort of suffering from the longer lead times there.
Obviously, that's something we need to watch out. One needs to remember that these equipment orders tend to be quite specific for specific demand, and it's hard to sort of replace them by another option in there. We have not seen any impact on that, on cancellation, et cetera. We have worked very hard on that one. We have put specific task forces in place and we expect to start the recovery of that one happening during the Q4.
Okay, thank you. That's across both Hiab and Kalmar?
That's correct, yes.
I have a second question actually, if I may, this time on Kalmar. Looking at the software business performance in the quarter, am I right assuming that the lower than anticipated sales and ordering is mostly from Navis? Is there any effect of the move from the revenue model from license fees to Software as a Service? If you've got any more color on the commercialization of XVELA, that would be, that would be great.
First of all, yes, you're absolutely right in assuming that the big part of the software revenues are in Navis side. Obviously, with the delay in automation decision, we have seen less automation software revenues. In terms of the revenue, Navis model is still to a very, very large extent, license-based revenue and hence when the license deals are sort of a little bit lumpy, we saw the impact of that one where we actually went down in Q3, also versus the Q2 where we had a large licensing agreement. Overall, we still see a good demand and good growth happening in Navis. The year-to-date number is about 14% growth, and we expect that sort of that kind of growth continuing in the coming years.
We do not yet see a strong sort of impact or any impact in practice in terms of the change in the license model. We offer now the Navis terminal operating system or the port ERP also as a cloud service. We still have to remember that we still have some existing customers who have not even migrated to the N4, which is the current license model. There are some still further software installations. This development will happen in the installed place very slowly and very gradually. I don't see that impacting us considering that we have quite a number of new software products that we plan to introduce and are partly introducing already. I'm not expecting that to sort of move the needle even in the coming quarters or years that much.
In terms of XVELA, I'm actually very pleased with the progress. We have secured our first commercial deals on that one, and we expect sort of the further implementation of that one still within this year. That looks to be progressing pretty well at the moment.
Great. Thank you.
Thank you.
Thank you. We have a question now from Magnus Kruber from UBS. Please go ahead.
Good morning, Mika, Mikko, Hanna. Magnus with UBS. Thanks for taking my questions. I have a couple. I'll take them one at a time. What about pricing on new equipment given the extended delivery time? Is it still stable or have you been able to charge a bit more?
Thank you, Magnus. Good question. I mean, we certainly are looking at the pricing for two reasons. One obviously is the overall demand in market. Second one, of course, is to partly compensate for the currency changes there as well. In the markets where the primarily U.S. and U.K., where we are suffering from the currency impacts, we are also obviously looking at partly compensating that 1 through the pricing changes.
Okay. Got it. Nothing in particular because of the tight market situation so far?
Nothing, nothing in particular.
Okay. Can you say something about the sales growth of the products outside of the low decrease in the U.S.? Any color on that would be useful. You mentioned that you expect a stable demand, but how does it split down?
I think if I look at the U.S. overall, on Q3 and demand, it's been pretty stable, I think across the different product lines. I see Mikko checking the numbers next to me here. The market clearly sort of is stabilizing at the moment. Obviously, there is a little bit open question of the short and long medium-term impact of this catastrophe of the 2 hurricanes and then the also the fires in California, where that might sort of have slowed down things. I mean, those, recovering from those issues of course requires further infrastructure and building activities as well. It could actually turn into an opportunity in the coming quarters as well.
Got it. Following up on the prior questions, just to be clear on this, EUR tens of millions that you saw in delays this year, will they come through in Q4 or will you see continued issues when you see another couple of EUR 10 million pushed into Q1?
Well, first of all, obviously, one thing is that we have, all the stuff we were supposed to deliver in Q3 will go out now in Q4. We also see then obviously, we are gradually improving this. There is no silver bullet on that one. We work very hard with our suppliers and with our own supply chain issues there. We see gradual improvement happening also in Q4. We don't anticipate a similar sort of, size of the issues in during the Q4.
Got it. Switching to MacGregor, how does the margins on the new orders compare to the margins you currently have in the backlog?
The backlog is pretty much at the same level it has been in the past as well, also looking by product line. Whilst obviously the difficult market situation has sort of caused pricing pressures as there are fewer deals available, we have quite successfully worked through our project execution model and designed the cost initiatives in MacGregor that have been able to compensate for that price pressure.
Got it. Got it. Also finally, on the European market on truck side, when it comes to replacement demand of construction trucks, where do you see we are in the cycle there?
Well, if I just look at the demand, the demand outlook at the same, I think we are sort of at the early stages of the overall construction cycle. Generally the benefit of the construction cycle tends to be that once they start, they tend to be quite long. I mean, we are now what, third year or fourth year of construction cycle, positive construction cycle in U.S., and we don't see a slowdown on that one at the moment. Obviously, if people point out on September, as I said, that was really an exceptional case caused by some of the states' housing starts due to the hurricane situation.
Got it. Thank you very much.
Thank you.
Thank you. Manu Rimpelä from Nordea has our next question today.
Thank you. Could I just go back to the low showing in the quarter, and if you could just walk it through by division? I mean, here you had the supply chain issues, and how much would you expect the impact to be on here from not being able to deliver equipment, and do you think that will be recovered in Q4?
The heat-up situation was a smaller part of that, some tens of millions EUR probably on that. It's always difficult to put an exact number on that one because if compared to what, would you have usually delivered? I would say that it's in the ballpark of probably 10 million EUR and the rest comes from Kalmar. The order intake is very strong in there at the moment, as we have seen. We are not going to get those lead times down from the 70 weeks to the 7 weeks very quickly.
Obviously also purely from kind of manufacturing capacity and days operational, less holidays, et cetera, all enable us to have higher delivery volumes in Q4. Overall, if you look at the Q3, always it's seasonally low for us, and this year it was an exceptionally low due to the circumstances we have described.
Can you for Kalmar comment the situation? I mean, how much do you have extra inventory, for instance, when that you were not able to ship the equipment?
It's in tens of millions of EUR at the moment that we are planning to mostly ship it during the Q4.
Okay. Then finally on MacGregor, the same question. I mean, I understand that some projects, timing of projects and deliveries didn't match. Should we see a big re-swing back in Q4 when you know that you're gonna deliver those projects and then maybe just push a bit for doing a bit of long quarter?
Yeah, we, when we look at the MacGregor, obviously, when the backlog has come down as much as it has, obviously, the timing of the delivery starts to be more of a timing of the projects. It's starting to be more of an issue as you have less projects to deal with, and that was very visible in the Q3. When I look at the rolling forecast ahead now for the, for the MacGregor, this is most likely the lowest quarter we see through this cycle in MacGregor now. It's in a way very logical as well because we reached the bottom of the order intake, sort of end of last year. Going towards the end of this year, we now have seen the bottom of the delivery cycle as well.
Now in Q4, we gradually start to recognize revenue from those orders now collected during the last three quarters.
Okay. The following question: Are you able to help us in terms of how much revenues do you expect to deliver from your backlog in Q4? I would imagine that you pretty well know already what the numbers are going to be.
Yeah. Well, I don't want to put a specific number on that, but obviously, we are still very, very sort of, have a strong belief in our guidance. One would expect that our delivery volumes will be enough to be able to sort of also improve our profitability during the Q4.
Okay. Moving on to profitability. I mean, in spite of the big decline in sales, the margin actually improved compared to the previous year. Can you just help us understand that, is it all entirely down to cost savings or, you know, what's the kind of driver?
I'm sorry, I'm not sure I've understood the question. Can you please repeat it? Sorry.
So-
Mm-hmm.
You managed to improve your margin compared to last year.
Yep.
It was up 10 basis points, I think.
Mm-hmm.
Which is still a pretty good, amazing thing to do given that your sales fell 14%. Was it just the cost savings that helped to contribute, or did we see, for instance, the decline in Kalmar was in the very low margin business and hence it didn't really impact the margin? Just if you can help us to understand better the dynamics...
Yeah, yeah.
how you were able to.
Okay, got it. Sorry. Thanks. Yeah. No, I mean, to be absolutely fair, of course, the mix helped in Q3 as well because we had a higher proportion of services there, for example. That certainly helped. When I look at the overall margin improvement, we're still working on our Design-to-Cost and new product rollouts that we are doing. However, against that one, you do have a headwind in terms of the raw material and component costs. The steel prices obviously have gone up, and the steel prices, of course, partly directly, but very much it's sort of due to our model, it coming through with the sort of pressures in component pricing.
In that sense, sort of the, we expect still that we do not see increases in our product cost, the Design-to-Cost and the other saving initiatives are working against the stronger headwind that we saw. We don't necessarily expect the same magnitude of margin saving right now in there. The mix certainly helped in the Q3 as well. Also Hiab share of the total business being higher in Q3 compared to last year's Q3.
Okay. Final question I'm gonna turn to you on the 2018. Given your backlog is down 5% at the end of Q3, any thoughts or do you want to comment in any way how do you see 2018 or it's still too early on that?
Don't want to go too much into particulars in 2018, it's good to remember that when you look at that backlog at the moment, the composition of the backlog is quite different. Obviously, the long cycle backlog is down because the MacGregor orders have been down, although they now clearly start to recover. Obviously, as we have not reached any larger port project orders for a while, the sort of also the Kalmar part of that one is more in the sort of short, medium-term deliveries. Even though the overall backlog is down, one shouldn't read that directly into the sort of consequences in terms of revenues.
Thank you. No further questions.
Thank you.
Thank you. We now have a question from Tom Skogman from Carnegie. Please go ahead.
Right. Thank you. I have three questions. First on the supply chain issue, I mean, it's easy to understand that you have challenges when you use the same suppliers as Volvo. When I look at the numbers they report, it looks like, you know, it will be even more difficult in Q4 and Q1. Then, of course, they will probably try to, you know, prioritize their key customers, large truck manufacturers and construction equipment manufacturers that have much larger volumes than you. Shouldn't we be worried that this issue is much worse next quarters than in this quarter?
First of all, that one, no, I'm not that worried. Obviously, as I said, the recovery is not happening overnight on that one. We've been working on this issue really almost at the early part of this year onwards. I think we are sort of feel that we have the situation now contained, and we need to start to work to decrease that lead time. It's not going to happen as such. I'm not particularly worried about the Q4 because we don't that situation deteriorating any further. Obviously the deliveries we were expecting to be done in Q3, we will now do in Q4.
Okay. Then on the balance sheet and acquisition power, you said at the capital market day that you're very interested in doing further acquisitions. Now you have a net debt to EBITDA of two times. You're in your Gearing target range or actually have a strong balance sheet from a Gearing perspective, but net debt to EBITDA is still 2.0 times. I mean, would you be in this stage of the cycle, would you be, you know, happy to take it up even three times if you find appropriate target?
Well, as we said in the capital market day as well, we have quite a clearly very much more active pipeline in terms of M&A at the moment. The thinking is not so much driven by the gearing at this stage. It's more a question of being able to conclude deals that make business sense for us. If we find deals that would be, you know, making sense for us, we are obviously willing to sort of sacrifice in short-term, medium-term the gearing targets there as well. This is a long-term target and depending on the cases and how the deal flow will go, we might be overall below that one. Yeah. Our target is to grow the EBIT and through that also the EBITDA on a continuous basis.
That should support also the acquisition capabilities going forward. This was from the EBIT point of view, not the perfect quarter and of course, is visible on the net debt to EBITDA ratio. Looking long-term, we see that it should improve.
is kind of three times the maximum level you can go to, or how do you think about it?
There we have not stated any specific range, but of course, that's one kind of indicator for us. As Mika said, the gearing is the kind of what we have been using externally as a target. Temporarily, we can go beyond the 50%. We have to remember that we plan to do also acquisitions, which are contributing to the 10% EBIT target in the long term. Those should be generating EBITDA also going forward.
Right. management typically say that don't analyze the business, you know, on a quarterly basis. Now I'll take a really long-term, you know, view. Kalmar had sales in 2006 of EUR 1.2 billion and now will be kind of around EUR 1.8 billion. The margin is actually a bit down compared to 2006. Hiab, however, you know, have, you know, 20% larger sales this year than 2006, while Kalmar is up 30%, but their EBIT margin is up to about 14% compared to 9%. What is really the, you know, the big difference? Kalmar used to even have a better margin than Hiab had, and now it's really the, you know, the opposite.
I mean, I look at the competitive field, you should have a massive advantage when it comes to manufacturing footprint in Kalmar to your competitors. What is kind of explaining this kind of long-term trend that the Kalmar profitability is simply not taking off in the same way as Hiab is?
Very good point. There is a very simple explanation for that one. That's the investments we have done compared to 2006 in terms of the automation and software. If you actually look like for like, would take 2006 and 2017 numbers for Kalmar and 2006, this was primarily a mobile equipment business. We have clearly seen margin improvement in Kalmar mobile equipment. If you look at the Kalmar mobile equipment, the equipment about EUR 600 million plus the services, it's about actually same size as a Hiab, and the margin of that business is actually pretty close to Hiab. It's a clear double-digit operating margin business for us.
The difference why the overall Kalmar margin has not happened is that, is the investments we are doing into the software development in and building up that business as well as in the automation. Both of these are actually very close to a break-even businesses at the moment, and they are the ones that dilute the margin. I think I'm pretty pleased overall what we have been able to do to actually improve the Kalmar business. We are using part of those improvement profitability in the investments in the areas we believe that are ensuring our long-term growth and profitability improvement in those businesses.
Okay. Thank you.
Thank you. We have a question now from Tommi Riihimäki from SEB. Please go ahead.
Hello. Tommi Riihimäki, SEB. Can you give any indication on the sort of numeric, impact, cost impact, from the supply chain issues and lost sort of or missed revenues in the Q3?
Yeah. The cost impact is not really... I mean, we put more people into this one and more efforts into that one, but it's nowhere near as significant as obviously the missed revenues are. I would put that probably in the sort of, I don't know, EUR 1 million-2 million at max. I mean, it's just people thrown into the issue really.
Is there any sort of additional efforts, coming through in the, in the Q4?
No, I think we have spent in terms of the amount of effort it's been on this thing has been on now for really sort of, I would say, Q2 onwards, where we have seen the issues coming through. We do see those efforts start to pay back for us during the Q4. I don't expect any further investments needed to be done in there.
Then on MacGregor, there was actually growth in the order intake. My memory is correct, there was one bigger order included in the Q3 number. Is this sort of the market or your business activity level, and what do you see into the Q4, and what generally do you start to see in the marine market, especially for the important bulk segment for you?
Yeah. We saw actually very strong growth in terms of percentages in Q3 in the merchant marine bulk and especially bulk and general cargo ship order intake. That started from the very low level. Obviously, Q3 was helped by one large ro-ro order as well. As we said, we expect that we have now gone past the sort of the bottom of the cycle in orders. This is the third consecutive quarter that we see order intake going up. We also see first time now actually year-on-year growth in orders. Having said that one, this is still a lumpy business. The recovery will be slow. And there could still be surprises. I would say the overall trend clearly now in the orders is to up. It's not going to sort of explode very time quickly.
Everybody expects the recovery to be somewhat slowed. Also our expectation at the moment is that we have now bypassed the revenue, sort of bottom as well during the Q3. When I look at our rolling forecasts moving forward, we expect the revenue start to recover slowly. However, I do not expect that the MacGregor revenue next year is going to sort of be higher than it has been this year as well. We still saw declining revenue going into the sort of from the early parts of last year towards the end of this year. Then we start now the trend reversing, but gradually.
As mentioned earlier, we had a good quarter in the cargo handling orders. For a while, quite several quarters, it has been quite stable, and now in Q3 it improved very nicely.
In terms of pipeline and the sort of quoting project activity, do you see that there are other that sort of projects available?
Yeah. We see actually a fairly good pipeline at the moment, including Q4 as well.
Perhaps, if you could shed a little bit light on the outlook on the services for different businesses.
Certainly. If I start with the MacGregor, Mikko was already saying that in his speech, we actually have seen the merchant marine services market to stabilize now. And I think that's a sign of the market sort of bottoming out as well. However, the decline in services in MacGregor came solely now from the further decline in offshore services demand. That was actually quite drastically down still in terms of percentages, and the whole decline effectively in the MacGregor services came from there. That obviously still expects or waits for the offshore situation to recover. I'm more optimistic about the merchant marine services now with the market situation starting to recover. Kalmar, very pleased with the progress we are making there at the moment.
The 8% increase in services coming from spare parts, maintenance businesses, and our core services. The negative impact we saw on the project-type services in the previous quarters was not visible in the Q3, you could start to see the core services impact coming through. In Hiab, we are actually out of the top 15 countries, we grew services in 12 of them, but we had some setbacks in a limited number of countries where we need to do some operational changes to recover that one. I'm satisfied for the fact that the Hiab services are growing. One needs to remember that we are still growing against the decreasing installed base as we are suffering from the previous revenue declines coming from the sort of financial crisis on that one.
I think as Roland said, if I remember correctly in the capital market day that we see actually that installed base bottoming out on Q3, 2018. After that one we obviously will help have a further help from the increasing installed base as well.
Thank you very much.
Thank you.
Thank you. We have a follow-up question now from Antti Kettunen from Danske Bank.
Yes. still on the supply chain issues. Just so that I understand the scope and impact. If I look into what people expected in terms of sales for Kalmar and Hiab, i.e., the units which were affected, and comparing this with the actual outcome, the difference is EUR 70 million. EUR 70 million less sales than what people expected. How much of this do you think was due to supply issue, issues?
Yeah, the majority of that one was supply chain issues.
The rest?
The rest was just I guess, the timing of the deliveries.
Yeah.
As I said, I think the in terms of mobile equipment and Hiab, clearly the shortfall of what we sort of predicted was all due to the supply chain issues. Perhaps the other thing that was sort of the remaining part of that EUR 70 million was actually just the timing of the deliveries in the projects that Kalmar has to. We have quite a strong backlog of still of the RTGs and the shuttles which are part of the APD division. The timing of those deliveries was actually fairly low in the Q3. We expect that to recover in the Q4 and the early quarters of next year as well. That was not unexpected.
We knew all along that we will have lower revenues in those businesses.
Okay. Got it. Thank you.
Thank you.
Thank you. We now have a question from Magnus Kruber from UBS. Pardon me, that's a question from Johan Eliason from Kepler Cheuvreux.
Yeah. Hello. Just a short question around Kalmar and then the outlook for major orders there. I think you have alluded to that you have an active pipeline. Do you still think you will be able to sign? Is there any probability you will be signing any bigger order there before year-end, or is this now 2018 and forward? Thank you.
Well, Johan, let me put it that way, that there is some probability, but the odds are not in our favor. I wouldn't bet necessarily money on the Q4 orders. I'll be positively surprised if we land them, but it isn't, well, it's, there is some probability, but I wouldn't put rate it very high.
I would say that it's not, at least dependent on us.
Yeah.
I think we are not there the bottleneck, so it's customers decision-making.
Good. On these, Chinese port automations that we saw this summer one starting, and I think there was one new order as well. Are you seeing any progression on those players involved in those outside of China for port automation?
The ZPMC obviously is involved. We obviously are having a good visibility on those port automation project as they are leveraging our technology as well. The Navis is involved in all of those projects. They really are a combination of several technologies suppliers actually in there. They are quite specific integration cases and not being provided by a single technology provider. As such, we have not seen activities outside China today, but I would still say that it's we should expect that we in the future, we would have three sort of system-level competitors in the, in the port automation, which would be ourselves, Konecranes, and ZPMC in the future as well. Although I have not seen that activity yet.
Looking at those specific cases in China, we know the projects and technologies provided yet, and as I said, they really are a combination of many different technology providers.
Yeah. Just a final, maybe you don't have a good answer to this, obviously we knew that the Mobile Harbor business seems to be doing well at your competitor, and that's a product you don't have. How come this product type is doing well right now? Are they exposed to other different segments that might be moving faster than sort of the overall container ports? Could you share any light on this?
I don't really have a good insight on that one, so I think you need to call our neighbors on that one.
Okay, I will do that. Thank you very much.
Thanks, Johan.
Thank you. This time, we'll take a question from Magnus Kruber from UBS.
Hi, Magnus again. Do you have a number how large the U.S. market is for truck-mountable forklifts?
No, I don't.
The market size? Okay. There's ballpark, no-nothing you can share or any sources I can find it?
No, I think the problem is this is we struggle with the same thing a little bit that the, I guess, the segments we operate in, especially in here, are quite small. It's very difficult to get market numbers, and it's very difficult to find the indicators that would help us as well. We looked at, as you know, a number of different things, and the best correlation we still find overall is in the construction industry activity that correlates even better than the truck registrations.
Even that is not particularly good because obviously there are a number of different applications that are used. Especially the truck mounted forklift is a good example because only part of that one will be used in the construction activity. It's fairly heavy on the retail applications, agriculture, et cetera, as well. But there are not really... I haven't found a source of good information on that one.
Okay. Is there any way you can split sort of what your sales is between the different segments?
No, I wouldn't go into that. I would give you the total number, actually.
Okay, okay. Would you say that you have the installed base is large enough to cope with the current construction demand or do you see continued growth?
We still see the construction demand actually to remain at the high level in the U.S. In terms of this specific product, the truck mounted forklift, as I said, that's not really driven as much by the construction demand as loader cranes, for example. In loader cranes, the correlation is stronger.
Okay. Got it. Also, you just mentioned on another question, you expect the installed base of the truck cranes in Europe to bottom in Q3 2018. Could you just walk me through how you got to that quarter? That's very useful.
Well, first of all, it's not Europe, it's a global, a global number.
Uh-
It's just coming from the projected sales we have at the moment. You know, our revenues in Hiab declined for a number of years, from 2009 to. I guess we really bottomed out in sort of 2014, if I remember correctly. We started to increase from 2015 onwards. That's when the life cycle of these products is somewhere in the nine to 10 years ballpark. That math shows you that they kind of. If you look at now the increase we are seeing the revenues, we expect to have that turning point roughly in the Q3 2018.
Okay. Got it. Would the life cycle of those cranes be corresponding to the crane lifetime and then the truck is scrapped or?
Exactly. I mean, generally you don't take an old crane and put it in the new truck or vice versa. The life cycle of the cranes is pretty much equivalent to the truck life cycle.
Excellent. Perfect. Thank you so much.
Thank you.
Thank you. We will now take a final question from Manu Rimpelä from Nordea.
Thank you. Just one follow-up. Can you comment about the backlog you have in Kalmar for this automation and projects? Because I guess that that's the only part which is actually declining in sales if you exclude these Q3 supply chain issues. Where do you see that backlog going? I mean, if we have no bigger automation orders in the next, say further 12-18 months, so could you actually see that that sales goes... I think it was something like more than EUR 300 million in 2016. How low can that go?
We have a, I would say, the backlog in that business is around EUR 300 million at the moment. We are pretty well secured now on the sort of Q4 and the first half of 2018. It's obviously also clear that during the by summer 2018, we do need further orders. Those we expect also to get.
How does the cost absorption in that business work? We know from what you've been saying is that the margins are quite low. From that point of view, the impact on profitability from lower sales should not necessarily be a big issue. Is there a big fixed cost base in that or is that shared with the other businesses completely?
There is some with fixed cost base, but if I look at the current backlog, it's a pretty good healthy backlog for us. I don't expect that to give us profitability issues now on the sort of next couple of quarters. We do need then further top line revenue from new orders, sort of by summer 2018. Otherwise we would need to kind of review the situation.
Okay. Thank you.
Thank you.
Thank you for a very active Q&A session. I'd like to remind you about our upcoming IR events. We will host the Hiab Investor Day here in Helsinki on the first of December. Our financial statements bulletin will be published on February 8, we will also host a site visit to Poland, our facilities there on March 28. Thank you very much, everybody.
Thank you.